Uzbekistan’s banking industry is becoming more resilient, with the sector underpinned by ongoing structural reforms, stronger regulation and improving governance, according to Fitch Ratings.

In an update on progress, the rating agency said the country’s operating environment for banks had “strengthened significantly over the past two to three years”. It revised its outlook on the sector’s ‘b’ rating to positive from stable.

“We expect the government’s reform agenda to continue in the near term, with further regulatory enhancements and an ongoing clean-up of asset-quality risks,” Fitch noted, adding that “these measures, together with robust economic growth,” should support credit expansion, profitability and capital generation. 

Fitch projects real GDP growth of 6.3% in both 2025 and 2026 for Uzbekistan.

The banking upgrade prompted the rating firm to revise the outlooks on two privately owned mid-sized banks—Kapitalbank and Ipak Yuli—to positive, saying they stood to benefit the most from the improved operating conditions. 

A broader uplift to the operating environment score could also feed through to stronger assessments for other banks, though Fitch said upgrades to viability ratings, particularly for policy banks, would require “sustained financial profile improvements.”

The reforms, launched in 2020, are reshaping the sector. 

Following the 2023 sale of Ipoteka-Bank—one of the largest state-owned lenders—to Hungary’s OTP Group, the government intensified efforts to privatise other major players. 

While Fitch does not expect all planned privatisations to be completed by the end-2025 deadline, it said “the authorities’ commitment to reduce state presence in the banking sector remains strong.”

This is reflected in the recent transfer of large minority stakes in three state policy banks to the newly established National Investment Fund, which is to be managed by Franklin Templeton. 

Fitch expects this will improve governance and risk management at those institutions.

Supervisory improvements have also played a key role. The Central Bank of Uzbekistan has introduced stricter capital requirements and improved financial transparency and compelled banks to recognise and provision for problem loans. 

Measures to rein in retail lending, particularly in high-risk segments such as car loans, have helped cool rapid credit expansion.

Retail loan growth dropped to below 20% in 2024 and 1Q25, down sharply from an average of 46% in 2022–2023. 

Fitch said it expects this more moderate trend to continue into 2025 and 2026.

Dollarisation in the banking sector is also on the decline. 

The share of foreign-currency loans and deposits fell to record lows of 42% and 24%, respectively, by the end of 1Q25, down from 50% and 43% at the end of 2020. 

Subsidised lending now accounts for 23% of outstanding loans, compared to 28% in mid-2024.

The non-performing loan (NPL) ratio stood at a low 4% at the end of the first quarter, according to regulatory data. 

However, Fitch estimates that impaired loans under IFRS 9 were closer to 10% at the end of 2024. 

Overall sector profitability remains modest, with return on equity at 7% in 2024, while the capital adequacy ratio was reported at 18%.

The stronger outlook for banks comes amid an upgrade of Uzbekistan’s sovereign rating to ‘BB’/Stable in June, a move Fitch attributed to reform momentum and improved growth prospects. 

As a result, the Long-Term IDRs of eight state-owned banks were also raised to ‘BB’/Stable, reflecting what Fitch described as “the authorities’ improved ability to support these banks.”

The ratings agency concluded: “We may revise the [operating environment] score up if continued banking sector reforms and stable business conditions improve the resilience of banks’ business models and credit profiles.”