Tashkent, Uzbekistan (UzDaily.com) -- The analysis of the banking sector of Uzbekistan conducted by CERR, according to the results of Q2, demonstrates an increase in the activity of the population in using banking services. The share of loans to individuals in the banks’ portfolio has increased moderately, and their deposits have increased markedly. This may be due to the improvement of the financial condition of citizens and the strengthening of confidence in the banking system.

The main purpose of this study is to monitor the dynamics of the share of the private sector in banking assets, as well as to assess the effectiveness of ongoing reforms and transformation processes in the banking sector. The Bank Activity Index serves as an important tool for analyzing the state and trends in the development of the country’s banking system.

The main indicators of banks’ activity. The presented data demonstrate a positive trend in the development of the banking sector. The total assets of the republic’s banks increased by 20% compared to the same period of the previous year.

As of 1 June 2024, the assets of the banking system of the republic amounted to 686.2 trillion soums, liabilities – 583.4 trillion soums. 67.3% of the assets of the banking system, 70.1% of the loan portfolio, as well as 50.6% of deposits are accounted for by 10 banks with state participation, and the remainder by 25 private banks.

Most of the assets, loans and deposits are concentrated in 10 state-owned banks. While 25 private banks own the remaining, less significant share.

In addition, the analysis revealed that the “deposits/loans” ratio remains noticeably lower for state-owned banks compared to private banks. This ratio has decreased from 49 soums to 38 soums of deposits per 100 soums of loans in state banks, while in private banks it is still relatively high - 87 soums (although lower than last year - 101 soums).

Such dynamics may indicate that state-owned banks are actively increasing lending at a lower level of attracting deposits, while private banks maintain a higher level of deposit base relative to the volume of loans issued. This may reflect differences in the strategies and business models of public and private banks.

In Q2, the growth rate of bank loans slowed down. In particular, if in the same period last year the loan portfolio increased by 22%, then in the reporting period this figure amounted to 17%.

In addition, the share of loans and deposits in foreign currency continued to gradually decrease. The share of foreign currency loans decreased from 46% to 44%, and deposits - from 33% to 29%, which may indicate a more cautious approach by banks to credit policy and currency risk management.

The increase in the share of loans and deposits of individuals in the banking system reflects the growing activity of the population in using banking services. The increase in the share of individuals in the loan portfolio from 28.6% to 32.4% indicates their more active borrowing in banks. A similar trend is observed in deposits, where the share of individuals increased from 33.5% to 36.3%. This may be due to an improvement in the financial situation of the population and an increase in confidence in the banking system. In general, these changes reflect the diversification of the banks’ customer base and the expansion of the coverage of individuals with banking services.

There is a noticeable decrease in profitability and profitability indicators in the banking system, while the liquidity situation has not changed much. The analysis indicates the measures taken to maintain the stability of the banking system.

The profitability of banks decreased sharply compared to the previous period. In particular, interest-free income decreased by 24.1%.

Net profit decreased by 13.3%, and last year the growth was 40.5%. The main indicators of the banking system decreased, including ROA from 2.6% to 2%, ROE from 14.1% to 10.1%.

The highly liquid assets of the banking system amounted to almost 101 trillion. At the same time, their share in total assets has practically not changed compared to the same period last year. Nevertheless, banks maintain a high level of liquidity, which allows them to maintain stability in a difficult operating environment.

The analysis showed an increase in the share of problem loans in the banking system. An increase in the average share of NPL from 3.5% to 4.3% indicates a deterioration in the quality of banks’ loan portfolios, and may affect their financial stability. At the same time, special attention should be paid to state-owned banks, where the share of NPL is on average higher and amounts to 4.8%, whereas in the private sector 3.1%.

Among state-owned banks, the highest level of NPL is observed in BDB - 13.5%, Mikrokredit Bank - 6.7% and Xalq Bank - 6.1%. Of the private banks, a high level of NPL was noted in Madadinvest Bank - 24% and Garant Bank - 15.1%.

The capital adequacy ratios of banks have not changed and are still more than 1.3 times higher than the minimum requirements. For example, the regulatory capital adequacy ratio was 17.1%, and the capital adequacy ratio of the first level was 14.3%.

The high level of capitalization of the banking system is a positive factor. Banks have sufficient capital reserves to withstand possible losses and maintain financial stability, which is especially important against the background of an increasing share of problem loans.

The updated rating of the largest banks in Uzbekistan for the second quarter of 2024 shows the heterogeneous dynamics of the players’ positions. Five of the 17 leading credit institutions failed to retain their positions, while three banks improved their performance. At the same time, 9 market participants retained their positions unchanged, which indicates increased competition in the sector. If earlier banks demonstrated a more active movement in the rating, now there is a stabilization of the balance of power, reflecting the increasing stability of the largest players.

The top 5 largest banks retained their positions in the ranking. Kapitalbank retained its positions, followed by Trast Bank, Asia Alliance Bank, Hamkor Bank and Ipak Yuli Bank closes the top five.

Orient Finance Bank and Ipoteka Bank rose to the 1st position and took 6th and 9th place, respectively.

The positive dynamics of the rating of the "BDB" bank against the background of other state-owned banks looks quite impressive. The Business Development Bank improved its position by 4 points at once, taking the 11th place in the rating, which was the best result among 17 large banks. This bank has moved up 3 positions in terms of financial intermediation and accessibility, as well as 1 position in terms of asset quality, management efficiency and profitability. At the same time, it lost 1 position in terms of capital adequacy and liquidity.

At the same time, Investfinance Bank, Aloqa Bank, Agrobank and Uzsanoatqurilish Bank each lost 1 position.

At the same time, Mikrokredit Bank demonstrated the greatest negative dynamics, falling by 2 points down. This bank is experiencing significant difficulties in key areas of activity, experiencing difficulties with asset quality, profitability and liquidity. A high level of problem loans was noted, which amounted to 6.7% — this is the second highest indicator among large state-owned banks after BDB. Also, the low proportion of highly liquid assets jeopardizes the bank’s ability to meet its obligations on time.

Another alarming fact is that the liquidity coverage ratio of Mikrokredit Bank is only 83%, while the regulatory requirement of the Basel Committee is at least 100%. This makes Mikrokreditbank the only bank in such a situation.

Aloqa Bank dropped one line in the overall ranking of the largest banks in Uzbekistan, taking 10th place. The deterioration of three key indicators at once - capital adequacy, management efficiency and liquidity - creates risks for the timely fulfillment of the bank’s obligations. Capital adequacy decreased by 2 points, management efficiency deteriorated by 1 point, and liquidity fell by 3 positions.

Agrobank also noted a decrease in financial intermediation and liquidity by 2 and 5 points, respectively.

These state-owned banks demonstrate a deterioration in key financial indicators, which creates reasonable risks for their financial stability.

The top 5 of the rating of small banks is located as follows: Universal Bank and Davr Bank are again in the lead, Anor Bank entered the top three among small banks from the fourth place. Okto Bank plus two positions and, accordingly, the fourth line of the rating. And TBC Bank closes the Top 5, which lost two positions in the second quarter.

Among 14 small banks, 6 banks improved their rating. The most noticeable growth was shown by AVO Bank - plus three points. Another 6 banks worsened their results.