TASHKENT

The volume of non-performing loans (NPL) of individuals in Uzbekistan’s banking sector has grown fivefold, reaching 5.2 trillion Uzbek soums ($487 million), while the volume of NPLs of companies increased 2.6 times in January-September this year.

NPL in the banking system peaked in July this year and amounted to 6.2 percent, but the quality of banks’ loan portfolios had been gradually improving over the past three months, the central bank said in a report.

It said the main indicators of the banking system maintained positive growth rates, and the demand for loans in the economy was satisfied within the acceptable level of financial stability, the regulator added.

Lending to the economy by banks amounted to 119.5 trillion soums in the first nine months, 32.8 percent more than in the same period last year. Around 80 percent of the funds – 91 trillion soums – was received by corporate clients, 66 trillion soums were allocated for long-term investment projects, 25 trillion – to other economic projects.

In October, Fitch Ratings said that Uzbekistan’s banking sector had faced increasing asset-quality risks due to rapid lending growth, high balance-sheet dollarisation and an increased reliance on external funding.

It said that Uzbek banks have a significant proportion of unseasoned exposures as a result of lending growth as well as loan moratoriums granted in 2020 to alleviate pressure on borrowers caused by the pandemic.

“The sector’s longer-term performance will depend on asset-quality trends, operating environment stability and how successfully the state-owned banks targeted for privatisation can shift from directed lending to a more commercial focus,” the agency said in a report.

The sector’s asset-quality risks mainly stem from rapid loan growth at most state-owned banks in recent years and a high share of foreign-currency loans, particularly at larger banks. In addition, material amounts of loans are still being issued under government development programmes that require banks to target issuance volumes, in some cases resulting in relaxation of underwriting standards.

In the first eight months of this year, banks in Uzbekistan reported a net profit of 3.87 trillion soums in the first eight months of 2021, 12 percent up from the same period last year.

There are 31 banks in Uzbekistan, 13 of which are state-owned. There are two branches of foreign banks.

Six state-owned banks have been targeted for privatisation by the end of 2025. International financial institutions may initially acquire minority stakes in the banks while they undergo business transformations, after which the government expects to sell controlling stakes to strategic investors. All banks targeted for privatisation are shifting business models from directed lending to becoming more commercially based, with a focus on improving margins and profitability metrics.