Tashkent, Uzbekistan (UzDaily.com) - The report of the international rating agency Moody’s, published on 8 April 2020, states that the forecast of the banking system of the Republic of Uzbekistan remains “stable”. As the main factor, the country’s banking system is highly resistant to the consequences of the Coronavirus pandemic compared to other CIS countries.

According to experts of the agency, the country has a reserve of material resources, given that a significant part of the economy and banks belongs to the state, therefore, the coronavirus crisis will not have a strong impact on the quality of banking assets. However, growth in loans from state-owned banks will put pressure on the liquidity reserve.

According to Moody’s analysts, the following factors should have a positive impact on the stability of the banking system of Uzbekistan:

- The predominance of loans to state enterprises in the loan portfolio of the banking system and the fact that these borrowers, if necessary, can count on state support. This increases the reliability of loans and reduces the risk of deterioration in the quality of bank assets;

- Despite a significant drop in national currencies of the main trading partners of the republic - the Russian Federation, Kazakhstan and Turkey, the Uzbek soum remained relatively stable against the US dollar. This, in turn, limits the risk of asset inflation in foreign currency and ensures the stability of capitalization;

“With reserves of 52 percent of GDP, the government of Uzbekistan has great potential to support the country’s economy and the banking system.”

However, the agency lists the following negative factors:

- The unprecedented measures introduced by the government to combat the spread of coronavirus will have a negative impact on economic activity. Small and medium-sized businesses, non-food retail and transport companies, the tourism business and other entities in the service sector will suffer the most;

- Net interest margins will decrease as financing costs increase, associated with the efforts of banks to prevent the outflow of funds as a result of transfers of deposits from national currency to foreign currency. This, along with high reserve contributions, leads to a decrease in profitability;

- The average liquidity ratio as of March 1, 2020 amounted to about 16% of total assets. Liquidity reserves will come under pressure due to increased lending to state-owned banks.