Uzbekistan’s central bank has said that the high dollarisation of deposits, loans and liabilities in the banking system and the practice of concessional lending are hindering the effectiveness of its policy.

In a draft released on November 27 on "Main directions of monetary policy for 2024 and the period 2025-2026", the regulator noted that the effectiveness of its policy was limited by the low level of influence of money market interest rates on the formation of asset prices due to the insufficient development of financial intermediation.

It also recognised the high level of financial dollarisation in Uzbekistan, while noting a slight decline in recent years. If in 2018-2021 commercial banks actively attracted external financing at low global interest rates, then the high level of global inflation in the second half of 2022 limited their credit opportunities.

In particular, the dollarisation of loans decreased from 47.7% in December 2021 to 43.6% by September this year.

"At the same time, a further decrease in the dollarisation of loans is expected in the coming years due to the fact that the price of external financial resources remains high, and restrictions on open currency positions reduce the ability of banks to provide loans in foreign currency at an affordable price at the expense of internal resources," the central bank noted.

The level of dollarisation of deposits decreased from 38.9% at the end of 2021 to 30.4% as of October 1, 2023 — including deposits of the population at 22.3%.

The central bank also identified concessional lending as a factor limiting the effectiveness of its policy. Despite the declining share of concessional loans in the economy every year, it remained relatively high, it said.

The share of concessional loans granted decreased from 49.1% in 2018 to 17.5% by October 1, 2023.

The number of concessional loans in the total volume of credit balances has almost halved — from 55.8% in 2018 to 29.5% in January-September this year.