Tashkent, Uzbekistan (UzDaily.com) -- During the pandemic, commercial banks of the Republic of Uzbekistan faced great risks associated with restricting clients’ access to bank offices, increasing the insolvency of borrowers, reducing the quality of assets and income. As a countermeasure, banks are increasing investments in digital remote banking technologies, optimizing costs, and introducing modern risk management methods.

In order to compare the effectiveness of measures to improve banking and counter COVID-19 in the first half of the year, as well as during the pandemic, individual and final bank ratings were compiled based on indicators such as the availability of remote services, quality of management, quality of assets and ability to generate income. It should be noted that the sources of data for the rating are the financial statements of banks, as well as the statistical data of the Central Bank of the Republic of Uzbekistan that are in the public domain.

1. Availability of distance services

The indicator of the availability of remote banking services covers both individuals and legal entities that use the bank’s services online.

As of 1 July 2020, the total number of users of remote banking systems reached 11.7 million, of which 93.8% are individuals, and 6.2% are legal entities and individual entrepreneurs.

By the number of users of remote services by legal entities and individual entrepreneurs, Ipoteka Bank is the leader (108,500 users), and by individuals (1.74 million) and by the total number (1.78 million) users, Uzpromstroybank is in the lead.

The top 5 in terms of the total number of users also includes Khalq Bank (1.68 million), Agrobank (1.48 million), Ipoteka Bank (1.22 million) and the National Bank (1.14 million). Tenge Bank has the smallest number of users of remote services (756), followed by Saderat Bank (926), Uzagroexportbank (1,280), Madad Invest Bank (2,601) and Poytakht Bank (3,430).

Based on the above data, the ratio of the total number of remote clients to the number of bank branches was calculated, i.e. the number of remote clients per branch. According to this indicator, Uzpromstroybank is in the lead (39,619 clients per branch). The top five also include Ipoteka Bank (31 391), Asaka Bank (28 800), Orient Finance Bank (27 807) and Aloqabank (24 263). The smallest number of users of remote banking systems are in Tenge Bank (756), Saderat Bank (926), Uzagroexportbank (1,280), Madad Invest Bank (2,601) and Poytakht Bank (3,430).

2. Quality of management

The indicator of the quality of bank management, based on international experience, is determined by the level of operational efficiency or CIR (Cost to income ratio). This indicator reflects the efficiency of doing business and is calculated as the ratio of the bank’s operating expenses for the reporting period to operating income. So, for example, CIR of 50% means that the bank’s expenses for 1 soum of income amounted to 0.5 soums.

The CIR indicator for commercial banks of the Republic of Uzbekistan varies from 14.5% to 81.3%. The best CIR indicators for the country’s three largest state-owned banks are Asaka Bank (14.5%), Uzpromstroybank (15.8%) and the National Bank (17.5%). Also in the top five are Madad Invest Bank (20.6%) and Saderat Bank (23.3%).

The five Uzbek banks with the lowest operating efficiency include Hi-Tech Bank (81.3%), Ravnak Bank (75.9%), Savdogar Bank (74.1%), Kapital Bank (65.9%) and Asia Alliance Bank (61.5%).

3. Quality of bank assets

To determine the quality of assets of commercial banks in the Republic of Uzbekistan, consider the NPL (non performing loans) indicator. This indicator reflects the proportion of problem loans that have a risk of late payment or were not paid within 90 days.

According to the Central Bank of the Republic of Uzbekistan, as of 1 July 2020, the five banks with the lowest NPL indicator include Tenge Bank (0%), UzKDB Bank (0%), Saderat Bank (0.1%), Turkiston Bank (0,1%) and Universal Bank (0.1%). The highest indicators of problem loans were recorded by Uzagroexportbank (8.5%), Hamkorbank (4.8%), Uzpromstroybank (4.8%), Asaka Bank (4.6%) and Ipak Yuli Bank (4.1%).

In general, an increase in the share of problem loans was expected, given the quarantine measures taken and the benefits and deferrals provided by the government for the payment of loan debts, which was also mentioned in the speech of the President of the Republic of Uzbekistan on 6 July 2020. at a meeting on the implementation of the Banking System Reform Strategy for 2020-2025.

4. The ability of commercial banks to generate income

Evaluation of the bank’s performance as a commercial enterprise is based on the analysis of interest income and interest expense, since raising funds in deposits and lending at interest constitute a significant part of the daily banking operations.

Based on the above, the ratio of interest income to interest expense can serve as an indicator of the bank’s ability to generate income. The greater the bank’s ability to generate income for each sum of interest paid on deposits, the higher this indicator.

The top 5 banks in terms of the ratio of interest income to expenses included UzKDB Bank, Saderat Bank, Poytakht Bank, Madad Invest Bank and Tenge Bank. This can be explained by the fact that these banks have not yet established themselves in the deposit market and, accordingly, they have small obligations to pay interest on the funds raised. Accordingly, their total share in the total volume of term deposits in the sector is 0.16%.

In turn, the five banks with the lowest ratio of interest income to expenses are mainly banks with medium and large turnover, which need to attract a large volume of term deposits and other borrowed funds. These are Kapitalbank, Aloqabank, Asakabank, Qishloq Qurilish Bank and Turkiston Bank. Their total share in the total volume of term deposits in the sector is 24.97%.

Orient Finance Bank ranks first in all ratings, although it is not the leader in terms of the above indicators. In particular, the number of users of remote services per branch is 27,807 clients (4th place), and the operating efficiency indicator (CIR) was 34.8% (10th place). However, unlike other banks, Orient Finance Bank does not have a significant discrepancy between ratings in individual categories.

If we consider the top ten of the rating, then banks with the participation of the state share, such as Uzpromstroybank, Ipoteka Bank, National Bank and Asaka Bank, have high indicators in terms of the quality of management (CIR) and the number of users of remote services per branch. This is facilitated by the fact that these banks serve the basic sectors of the economy and large corporate clients. In this regard, they manage relatively large assets per employee, which gives them the opportunity to reduce operating costs, as well as invest in new banking technologies and software products.

Other commercial banks from this rating, such as Orient Finance Bank, UzKDB Bank, Davr Bank, Ipak Yuli, Trustbank and Saderat Bank, differ from banks with state participation in their high ability to generate income, which can be explained by the high margin of loans issued by these banks.