BAKU, Azerbaijan, August 4. Uzbekistan's banking sector is benefiting from stronger regulation and a gradual shift toward risk-based lending, although state influence remains a key constraint on further progress.
This was reflected in a new report by Moody's Ratings on banking systems in Central Asia and the Caucasus (CAC).
The report says banking regulators across the region are strengthening supervisory frameworks and prudential regulation in line with international standards, a trend that is reducing systemic risks by improving loan quality, increasing banks' loss-absorption capacity and strengthening liquidity management. While regulatory progress is evident across the CAC region, Moody's expects further tightening of prudential standards as governments continue prioritizing financial stability and transparency.
For Uzbekistan, Moody's highlighted a partial shift away from directed lending, which has contributed to gradual improvements in asset quality and more risk-based credit allocation. However, the agency noted that state influence in the banking system remains significant, limiting the pace of market-oriented reforms.
According to the report, Uzbekistan is in an intermediate stage of regulatory development, alongside Azerbaijan, while Kazakhstan, Georgia and Armenia have reached a more advanced level of supervisory maturity. Moody's assigns Uzbekistan an institutional strength assessment of b1, below Kazakhstan (ba2), Georgia (baa3) and Armenia (baa3), reflecting weaker institutional capacity despite ongoing reforms.
Moody's noted that Uzbekistan has accelerated banking reforms under its Financial Sector Assessment Program (FSAP) roadmap. Key measures include strengthening the institutional capacity of the Central Bank, implementing Basel III standards, expanding risk-based and consolidated supervision, reforming bank resolution and deposit insurance frameworks, introducing independent directors at banks, and adopting macroprudential measures such as debt-to-income limits, risk-weight adjustments and credit growth caps.
At the same time, the agency cautioned that directed lending and continued state ownership of major banks remain structural constraints, despite progress with privatization.
The report also found that banks in Uzbekistan have strengthened their ability to absorb potential losses compared with previous years. Moody's noted that asset quality and loss-absorption capacity deteriorated in 2021 but have improved steadily since then. The country's ratio of problem loans to tangible common equity and loan-loss reserves has declined since 2019, while the share of Stage 3 problem loans has remained broadly stable at around 6%, indicating gradual stabilization in banking-sector credit quality.
Liquidity conditions also remain supportive. According to Moody's estimates, Uzbek banks maintain core banking liquidity equivalent to roughly 12% of tangible banking assets, providing a buffer against funding shocks despite continued loan growth across the sector.
Trend's analysis shows that Uzbekistan's banking reforms are increasingly shifting the sector toward international supervisory standards rather than rapid deregulation. The introduction of Basel III requirements, enhanced risk-based supervision, independent directors and macroprudential lending limits indicates that regulators are focusing on strengthening financial resilience as credit growth remains robust. At the same time, Moody's assessment suggests that governance reforms have yet to fully offset the structural influence of the state, particularly through directed lending and government ownership of major financial institutions.
Trend's calculations show that Uzbekistan currently occupies a middle position among CAC banking systems. While the country has progressed beyond the early-stage regulatory frameworks of the Kyrgyz Republic and Tajikistan, it still trails Kazakhstan, Georgia and Armenia, whose supervisory systems Moody's considers more advanced and more consistently implemented. This suggests that Uzbekistan's future convergence with regional leaders will depend less on adopting new regulations and more on improving implementation, institutional independence and governance.
In Trend's assessment, Moody's findings reinforce the view that Uzbekistan's banking sector is entering a more mature phase of reform. Continued privatization of state-owned banks, stronger supervisory enforcement and further alignment with international standards could improve asset quality, reduce systemic risks and strengthen investor confidence. However, the report indicates that meaningful reductions in state involvement will remain critical if Uzbekistan is to close the regulatory gap with the region's most advanced banking systems.
