Tashkent, Uzbekistan (UzDaily.com) — The outlook for Uzbekistan’s banking system remains stable, according to the latest analysis from Moody’s Ratings.

The agency notes that favorable operating conditions will support the solvency and liquidity of banks over the next 12-18 months.

The country’s economic growth, projected at 5.6% in 2024, is expected to remain around 5.7% in 2025-2026. This will contribute to borrower resilience and stabilize the quality of loan portfolios.

Moody’s estimates that the level of non-performing loans will stay within the range of 6-7% over the next 12-18 months, despite an increase to 7% in 2024 due to the recognition of inherited problematic assets by state banks.

High interest rates continue to support net interest margin (NIM) and bank profitability, but increasing competition for retail deposits is putting pressure on margins.

The stable outlook also reflects the relatively strong capital buffer in the sector.

However, Moody’s believes that the rapid growth in lending could put pressure on liquidity and capital adequacy, particularly due to the high dependence on market financing.

The country’s combined reserves, amounting to 37% of GDP, and the banking system’s total loans, equivalent to 37% of GDP, provide the government with significant opportunities to support the economy and the banking sector.

Uzbekistan’s economy demonstrates resilience, overcoming geopolitical risks associated with the Russia-Ukraine conflict. According to Moody’s, real GDP growth will remain at 5.7% in 2025-2026, which will positively impact borrower solvency.

However, the agency draws attention to the "maturing" of the retail lending portfolio after a period of rapid growth, which could create additional risks.

Capital adequacy in the banking system is expected to remain stable. The average tangible common equity (TCE) to risk-weighted assets (RWA) ratio is forecast to be in the range of 14-15%, assuming no additional state capital injections. By the end of 2023, this figure stood at 14.3%.

Bank profitability will remain at historically high levels, supported by strong interest margins.

The sector’s dependence on market financing remains high: the loan-to-deposit ratio is projected to reach 173% by the end of 2024, with 237% for state banks and 108% for private banks.

More than half of the market financing, according to Moody’s, consists of long-term liabilities, which reduces refinancing risks. However, the high proportion of foreign currency liabilities (48% by the end of 2024) and foreign currency deposits (25%) increases the sector’s exposure to exchange rate fluctuations.

Moody’s emphasizes that the likelihood of government support for major state-owned banks remains very high. Despite privatization plans, the government will retain control over key institutions, such as Agrobank (Ba3, stable) and Microcreditbank (Ba3, stable), which are critical to the implementation of economic policy. Since 2018, about US$1.8 billion in capital has been injected into state banks.

By the end of 2024, the assets of Uzbekistan’s banking sector are expected to reach US$59.5 billion (53% of GDP). The five largest banks control 54% of the market, and state-owned banks hold 65% of total assets. The individual creditworthiness ratings (BCA) of 13 commercial banks covering 62% of the sector’s assets range from b1 to caa1, with a weighted average rating of b2.

According to Moody’s, the stability of Uzbekistan’s banking system in the medium term will depend on the balance between economic growth, risk management, and the sector’s transformation towards market-based lending principles.