## 1uzbea2025003-print-pdf

## Source details

**Canonical URL:** [1uzbea2025003-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1uzbea2025003-print-pdf.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2025/english/1uzbea2025003-print-pdf.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2025/english/1uzbea2025003-print-pdf.pdf.json)

---

### EXECUTIVE SUMMARY — Context, performance, and structure
- Major reforms since 2017: exchange rate unification, price liberalization, privatizations, improved business environment, greater openness to trade and foreign investments; new laws on the Central Bank of Uzbekistan (LCBU) and banking adopted in 2019; government’s 2020–25 banking sector strategy to increase private banks’ role and reform SOCBs.
- Economic performance and outlook:
  - Annual average GDP growth was 5.7 percent during 2018–23.
  - Strong growth continued in 2024 driven by construction, industry, and services.
  - Inflationary pressures remain strong; nominal exchange rate has gradually depreciated.
  - Energy price reform in May 2024 contributed to inflation; the CBU raised the monetary policy rate in March 2025.
- Financial system structure and evolution:
  - Bank-centered system; total assets of financial institutions increased by around nine times in nominal terms since 2017.
  - Progress in reducing dollarization, but share remains relatively high.
  - NBFIs and capital markets remain underdeveloped.
  - State ownership: nine SOCBs hold a market share of 65 percent of banking system assets.
  - Three SOCBs privatized in 2023–24; four other banks in process of privatization; several expected to remain fully government-owned (“policy banks”).
  - Directed and preferential lending: 24 percent of total bank lending as of end-2024, down from 39 percent in 2020.
  - Annual recapitalization of SOCBs using public funds ranged between 0.4–2.0 percent of GDP during 2017–2023, cumulatively equivalent to US$5.8 billion (5 percent of annual GDP).

### MACROFINANCIAL DEVELOPMENTS AND BANKING SYSTEM — Features and performance
- Banking system features:
  - Bank assets are loan-dominated; deposits comprise only 40 percent of funding.
  - Lending is predominantly longer term; deposit maturities have lengthened.
  - Currency composition roughly even between local currency and FX (improved since 2017).
  - Share of lending to SOEs has come down, though SOEs still prominent.
- Bank performance indicators:
  - Reported bank capitalization, profitability, and liquidity are positive; reported NPL ratios are moderate.
  - CBU identified seven D-SIBs: National Bank of Uzbekistan, Agrobank, Uzpromstroybank, Xalq Bank, Asaka Bank (all SOCBs), Kapital Bank (domestic private), and Ipoteka Bank (foreign subsidiary, privatized in 2023).

### CREDIT DEVELOPMENTS AND HOUSEHOLD LENDING (2022–23 focus)
- Composition and drivers:
  - Corporate lending constitutes around two thirds of bank loans; household lending—especially consumer and car loans—expanded particularly rapidly during 2022–23.
  - Drivers: trade and financial liberalization; strong household income growth; preferential lending programs; forbearance and other COVID-19 supportive measures.
  - Mortgage lending growth (mostly on preferential terms) contributed to house price growth.
  - Credit growth moderated in 2024 following macroprudential policy action; household lending growth slowed except for microloans.
- FX lending and hedging:
  - Only NFCs allowed to borrow in FX; FX lending to households banned in 2019.
  - FX lending to NFCs attractive due to lower interest rates, but many FX borrowers lack natural hedges and FX hedging activity appears limited.
- Bank spreads, profitability, and rates:
  - Aggregate CAR has been above 17 percent since 2020, regulatory minimum CAR is 13 percent.
  - Bank profitability weakened in 2024 due to higher non-interest expenses; interest rate spreads broadly stable.
  - Spread fell to 4 percentage points in 2022-23; widened to 5 percent in the first nine months of 2024.
  - Uzbekistan’s interest rate spread in 2023: significantly higher than in Georgia, similar to most regional peers, and much lower than in Tajikistan and the Kyrgyz Republic.
  - Contributing factors to high spreads: high operating costs, credit and liquidity risks, limited competition, sizable preferential lending, underdeveloped capital markets and NBFIs, weaknesses in property and creditor rights, insolvency procedures, and limited credit information.
- Asset quality and distressed assets:
  - NPL ratios declined from the pandemic surge, partly reflecting strong credit growth and aggressive loan write-off requirements.
  - Distressed assets (including substandard loans) have been increasing in nominal terms and as a share of total assets.
  - Overstated asset quality concern: IFRS (IFRS Stage 3) NPL measures are about twice as high as regulatory NPL ratios.
  - Several regulatory gaps allow deferral of NPL recognition; many restructured loans remain classified as “standard”.

### CORPORATE SECTOR VULNERABILITIES
- Pockets of vulnerability:
  - Some enterprises report persistent losses; some companies have interest coverage ratios of less than 100 percent over prolonged periods.
  - NFCs with minority state ownership show better financial health than majority- or fully-owned SOEs.
  - Firms with persistent losses and elevated insolvency/illiquidity risks concentrated in agriculture and construction.

### SYSTEMIC RISK ASSESSMENT AND STRESS TESTS — Solvency and liquidity outcomes
- Scope and scenarios:
  - Stress tests covered all 36 banks; horizon: three years.
  - Baseline aligned with October 2024 World Economic Outlook.
  - Adverse scenario: deepening geoeconomic fragmentation and global downturn, decline in commodity prices, reduced FX inflows, depreciation of the som, increased inflation, sharp fall in GDP growth (by three standard deviations), and decline in property prices.
  - Currency-induced credit risk sensitivity: 30 percent depreciation scenario.
- Solvency stress test results:
  - Baseline: banking system remains adequately capitalized.
  - Adverse scenario:
    - Aggregate CAR would decline to 9.9 percent, corresponding to a shortfall of 48 trillion som (2.2 percent of GDP).
    - Five of the nine SOCBs would fall below minimum CAR, including two D-SIBs; only one SOCB would remain above minimum CAR.
    - Adjusting initial capital for under-reported NPLs and subtracting subordinated debt would lower system CAR to 7.7 percent, corresponding to a shortfall of 79 trillion som (3.6 percent of GDP).
    - Several SOCBs would be under-capitalized after a 30 percent depreciation.
- Liquidity stress test results:
  - LCR-style tests over one-year horizon (total, som, and FX) indicate no major system-wide vulnerabilities; system maintains positive cash flow gaps under baseline and adverse scenarios.
  - Several banks had small shortfalls under the adverse scenario; largest shortfall corresponds to 3.0 percent of assets.
  - Most banks would withstand a 30 percent depreciation.
  - High depositor concentration could create challenges for several banks.

### DATA, METHODOLOGY, AND RECOMMENDATIONS FOR STRESS TESTING
- Data and methodology notes:
  - CBU has developed a good framework but faces data gaps.
  - FSAP proposes augmenting solvency stress tests by adjusting data to address regulatory gaps and using IFRS 9 measures.
  - Recommendation: conduct stress tests for currency-induced credit risk for corporate lending.
  - Recommendation: complement liquidity stress tests with depositor concentration analysis.

### FINANCIAL SECTOR OVERSIGHT, MACROPRUDENTIAL FRAMEWORK, AND SUPERVISION
- Macroprudential governance:
  - Financial stability is a shared objective between the CBU and the government.
  - Planned establishment of a Financial Stability Board (FSB) should enhance inter-agency cooperation and contingency planning; recommend constituting the FSB with crisis prevention separated from crisis management.
  - Macroprudential toolkit enhancements recommended:
    - Adopt a counter-cyclical capital buffer with a positive-neutral setting during normal times.
    - Subject D-SIBs to capital surcharges commensurate to systemic importance.
    - Consider a systemic risk buffer for residual risks (e.g., currency-induced credit risk).
    - Strengthen and broaden borrower-based measures (BBMs) to all credit institutions and household credit.
    - Improve LCR and NSFR calculation methodology to better account for external or FX funding risks.
  - Recommendation: improve public communication (regular press conferences after Financial Stability Report; regular press releases after macroprudential decisions; expand published financial stability material).
- Banking regulation and supervision:
  - Progress: many regulations adopted; December 2023 Guidelines on Risk-Based Supervision (RBS) issued.
  - Remaining issues and recommendations:
    - Safeguard CBU’s operational independence (laws enabling external approval/registration delay cited).
    - Enhance evaluation of banks’ risk profiles and internal controls in off-site and on-site work; formalize CBU curators' roles.
    - Accelerate and implement consolidated supervision; expand prudential requirements and supervisory reporting to consolidated basis.
    - Ensure accurate asset classification and provisioning; prioritize gaps in classification of restructured loans (no viability assessment, no probation period, rescheduling under six months does not affect classification).
    - Address deviations from Basel framework in definition of capital and risk-weighted assets; adopt D-SIB surcharges; develop Pillar II methodology.
- Financial integrity (AML/CFT):
  - 2019 NRA identified primary ML risks: corruption and bribery, tax and customs offences, illicit drug trafficking, organized crime, and fraud; high TF risk.
  - 2022 EAG assessment: AML/CFT regime generally effective.
  - Recommendations:
    - Strengthen criminal justice to identify complex ML schemes.
    - Establish administrative liability for legal persons.
    - Enhance RBS in AML/CFT for NBFIs.
    - Ensure accurate beneficial ownership information collection.
    - Track and respond to virtual asset risks.

### FINANCIAL SAFETY NETS, CRISIS MANAGEMENT, Recovery and Resolution
- Legal and institutional progress:
  - New BRLL approved by the Senate in April 2025 establishing resolution process including bail-in, transfer tools, bridge bank, and liquidation procedures for all banks.
  - Law “On Guarantees of Protection of Bank Deposits,” enacted in February 2025: removed blanket deposit guarantee; enhanced DGA mandate to “paybox plus”; extended protection to legal entities; mandated participation of all banks; shortened payout period.
- Recommendations and sequencing:
  - Establish FSB and prioritize contingency plans and memoranda of understanding.
  - Issue guidelines for recovery planning; establish supervisory framework for validation; extend perimeter beyond D-SIBs over time.
  - Strengthen resolution regime: enact BRLL (done), establish resolution function within CBU, phase in resolution planning and resolvability assessments.
  - Operationalize deposit insurance and ELA arrangements: develop collateral framework and clarify potential use of government guarantees.
  - Resolution function should be operationally independent within CBU, phased implementation with initial focus on D-SIBs.
  - Deposit insurance recommendations: align with IADI principles; remove Banking Association representatives from DGA board; operationalize DGA’s role to support resolution funding and backstop mechanisms; establish formal backstop funding mechanism among DGA, CBU, and MoEF.
  - ELA recommendations:
    - Extend ELA time limit from three to six months.
    - Set fixed interest rate at 2 percentage points above overnight repo facility rate.
    - Incorporate possibility of issuing government guarantees for ELA.
    - Develop an ELA collateral framework.
    - Amend LCBU to align ELA with international good practices.
    - Footnote guidance: ELA as last resort; provided only to solvent/viable banks; discretionary, fully collateralized, comply with defined parameters, subject to conditionality.

### DEVELOPMENTAL ISSUES — State role, nonbank sector, privatization
- Role of the state and SOCBs:
  - Further reduce state dominance and ensure remaining state-owned institutions and government programs are market-enabling.
  - Expedite privatization following international best practices; remaining SOCBs to complete corporate governance reforms, improve credit risk management, operate on level playing field, and focus on areas of additionality.
  - Gradually phase out directed and preferential lending; improve transparency; address systemic risks with stringent capital requirements.
  - Recommendations for privatizations:
    - Strengthen accuracy of asset quality reporting prior to privatization.
    - Adopt selectivity in pre-privatization institutional strengthening (corporate governance, credit risk management).
    - Identify suitable strategic investors with value-additional experience.
- NBFI and market development:
  - Strengthen NAPP’s capacity and enforcement in capital markets and insurance supervision.
  - Adopt insurance-specific regulations on corporate governance, internal controls, consumer protection, conduct of business, and risk-based capital and supervision.
  - Strengthen supervision of nonbank credit providers; ensure microfinance banks subject to adequate oversight.
  - Finalize payment systems oversight framework and expedite PFMI self-assessment of the most important systems.
- Access to finance for MSMEs:
  - MSMEs face very high lending rates; several government programs distort market dynamics.
  - Required actions: reduce credit risk; ensure full NBFI coverage of credit registry and bureaus; continue digitalization; extend CBU’s regulatory perimeter; strengthen financial literacy and consumer protection; strengthen asset classification.
  - Market-based instruments recommended: partial credit guarantees; credit lines allowing market pricing open to all eligible financial institutions.
- Capital market development:
  - Preconditions and constraints: declining fiscal deficit, moderate public debt, relatively high inflation; sovereign yield curve needs to become reliable; demand constrained by nascent institutional investor base and high deposit rates; supply constrained by state dominance and limited corporate issuance.
  - Recommendation: develop transparent and robust supply side of potential issuers (e.g., SOEs).

### MACROPRUDENTIAL MEASURES — Selected numerics and dates preserved exactly as in source
- Leverage ratio:
  - Minimum leverage ratio: 6% for banks and 3 percent for the Mortgage Refinancing Company.
  - Date last adjusted: May 2018 (for banks); February 2020 (for Mortgage Refinancing Company).
- Limit on distributions:
  - Central Bank approval required where dividend payments and rewards exceed 10 percent of the bank’s equity capital or if there is a loss in the current or previous quarter and/or for the financial year.
  - Date last adjusted: November 2019.
- Household sector capital requirements (effective from January 1, 2025):
  - Loans to individuals with DSTI ≤ 50% (excluding car loans, mortgage loans, and certain program loans): risk weight 100 percent.
  - Loans to individuals with DSTI above 50% or DSTI unknown: risk weight 150 percent.
  - Mortgage loans risk weights by LTV and DSTI:
    - DSTI ≤ 50% / LTV < 50%: 35%
    - DSTI ≤ 50% / 50% ≤ LTV <75%: 50%
    - DSTI ≤ 50% / 75% ≤ LTV <100%: 100%
    - DSTI ≤ 50% / 100% ≤ LTV: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / LTV < 50%: 50%
    - 50%< DSTI or if it is not possible to determine DSTI / 50% ≤ LTV <75%: 100%
    - 50%< DSTI or if it is not possible to determine DSTI / 75% ≤ LTV <100%: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / 100% ≤ LTV: 150%
  - Car loans risk weights (effective from January 1, 2025) by LTV and DSTI:
    - DSTI ≤ 50% / LTV ≤ 75%: 100%
    - DSTI ≤ 50% / 75% < LTV: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / LTV ≤ 75%: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / 75% < LTV: 200%
  - CBU sets risk weights for family business development and education program loans based on prevailing annual market interest rates:
    - For loans with an annual interest rate of 24 percent or below: risk weight 100 percent.
    - For loans with an annual interest rate between 24 percent and 28 percent: risk weight 150 percent.
    - For loans with an annual interest rate of 28 percent or above: risk weight 200 percent.
- Cap on DSTI ratio (starting January 1, 2025):
  - DSTI ratio applied to all types of household loans set at 50 percent.
  - Up to 15 percent of total loans can exceed this limit, but not exceed 100 percent.
- Cap on LTV ratios (starting July 1, 2024):
  - LTV should not exceed 75 percent for car loans and 80 percent for mortgage loans (excluding state program mortgages).
  - Up to 15 percent of total number of car loans and mortgage loans may exceed respective LTV limits.
- Restrictions on unsecured loans:
  - Maximum unsecured loans to a single borrower or group limited to 5 percent of the bank's Tier 1 capital. Date last adjusted: January 2021.
- FX loans to households:
  - FX loans to individuals are not allowed. Date last adjusted: July 2019.
- LCR and NSFR:
  - LCR should not be less than 100%; applied separately to local and foreign currency since September 2019.
  - Minimum NSFR 100 percent in each relevant currency. Date last adjusted: September 2019 (for banks); February 2020 (for Mortgage Refinancing Company).
- Liquid asset and instant liquidity ratios:
  - Minimum HQLA to total assets: 10 percent. Date last adjusted: June 2020.
  - Instant liquidity ratio (national currency) at least 25 percent. Date last adjusted: March 2020.
- Loan-to-Deposit (LTD) ratio:
  - LTD of 80 percent is a recommendation, not mandatory. Date last adjusted: November 2015.
- Reserve requirements (unremunerated) (Date last adjusted: April 2025):
  - Deposit obligations in national currency from individuals and legal entities: 4 percent.
  - Deposit obligations in foreign currency from individuals and legal entities: 10.5 percent. These reserves are held in local currency.
- Gross foreign exchange position limits:
  - Each type of foreign exchange: 10 percent.
  - Total open foreign exchange positions: 15 percent.
  - Total for all short foreign exchange positions: 15 percent.
  - Total for all long foreign exchange positions: 15 percent.
- Interbank exposures:
  - Large exposures in interbank operations should not exceed 25 percent of Tier 1 capital. Date last adjusted: January 2021.
- Car loans (additional measures, effective January 2025):
  - The share of car loans within the total loan portfolio should not exceed 25 percent.
- Microfinance and microcredit:
  - Microfinance services total must not exceed amount of microcredit granted; microloans must not exceed 25 percent of the loan portfolio. Date last adjusted: February 2024; April 2025 referenced for microfinance line.
  - Maximum micro-loan to an individual: 100 million som.
  - Maximum microcredit to entrepreneurs and self-employed individuals: 300 million som.
  - Date last adjusted: February 2024.

### PAYMENTS SYSTEMS OVERSIGHT, MSMEs, AND CAPITAL MARKETS
- Payments system oversight:
  - 2019 Payment Systems Law empowered CBU to grant licenses and conduct oversight, but detailed oversight framework not yet enacted.
  - Recommendation: put in place risk-based oversight framework informed by PFMI; establish analogous framework for Central Securities Depository and central counterparty.
- Access to finance for MSMEs:
  - MSMEs face very high lending rates; government programs distort market dynamics.
  - Required actions: reduce credit risk; ensure full NBFI coverage of credit registry and bureaus; continue digitalization; extend CBU’s regulatory perimeter; strengthen financial literacy and consumer protection; ensure proper asset classification.
- Capital market development:
  - Constraints: need reliable sovereign yield curve; demand limited by nascent institutional investor base and high deposit rates; supply constrained by state dominance.
  - Recommendation: develop transparent supply side of potential issuers (e.g., SOEs).

### AUTHORITIES’ VIEWS AND PLANNED ACTIONS
- Authorities view financial sector development as essential for transition to a market-based economy and have been implementing reforms including the 2020–25 banking strategy.
- Planned institutional reforms: establishment of FSB and further privatizations.
- Authorities recognize remaining challenges in NPL transparency, SOCB recapitalizations, and regulatory capacity.
- CBU actions and views:
  - Stepped up supervision of asset quality and required banks with high NPLs to implement timebound reduction plans.
  - Plans to continue strengthening capital and liquidity requirements to align with Basel III.
  - Implementing macroprudential measures on household lending; considered introducing capital buffers.
  - Agreed that FSB functions should separate financial stability and crisis management.
  - Raised concern that strengthening BBMs could worsen financial inclusion.
- Crisis management and ELA:
  - Authorities largely agreed on operationalizing crisis management framework and ELA, noting implementation will take time.

### KEY FSAP RECOMMENDATIONS (selected)
- Systemic risk analysis and stress testing:
  - Augment solvency stress tests by adjusting data to address regulatory gaps (CBU; Priority: I; Timing: M).
  - Conduct stress tests for currency-induced credit risk for corporate lending (CBU; Priority: H; Timing: ST).
  - Complement liquidity stress tests with depositor concentration analysis (CBU; Priority: M; Timing: ST).
- Macroprudential framework:
  - Constitute Financial Stability Board with crisis prevention separated from crisis management (MoEF, CBU, NAPP, DGA; Priority: H; Timing: ST).
  - Introduce bank capital buffers, strengthen borrower-based measures, and improve liquidity requirements (CBU; Priority: M; Timing: MT).
  - Improve communication on systemic risk (CBU; Priority: H; Timing: ST).
- Banking regulation and supervision:
  - Safeguard CBU’s operational independence (CBU; Priority: H; Timing: I).
  - Enhance evaluation of banks’ risk profiles and internal controls; improve supervisory reporting (CBU; Priority: H; Timing: MT).
  - Accelerate implementation of consolidated supervision (CBU, NAPP; Priority: H; Timing: ST).
  - Ensure accurate asset classification (CBU; Priority: H; Timing: I).
- Bank resolution, crisis management, safety nets:
  - Adopt guidelines for recovery planning and establish supervisory framework for validation of recovery plans (CBU; Priority: H; Timing: MT).
  - Enact BRLL and operationalize resolution regime (CBU; Priority: H; Timing: ST, MT).
  - Operationalize deposit insurance framework (MoEF, CBU, DGA; Priority: M; Timing: MT).
  - Complete ELA arrangements including collateral framework and clarity on government guarantees (CBU; Priority: M; Timing: ST).
- Developmental:
  - Expedite privatization of SOCBs (MoEF; Priority: H; Timing: MT).
  - Gradually phase out directed and preferential lending, improve transparency, address systemic risks with stringent capital requirements (MoEF; Priority: H; Timing: MT).
  - Strengthen NAPP capacity and enforcement in capital markets and insurance supervision (Pres. Office, NAPP; Priority: H; Timing: ST).

### ANNEX I — Risk Assessment Matrix (selected global and domestic risks)
- Time horizon: next 1–3 years.
- Global conjunctural risks (Likelihood / Expected impact):
  - Intensification of Regional Conflicts: Likelihood: High. Potential disruptions to trade, remittances, FDI, payment systems, and spillovers to financial sector (liquidity risk, currency-induced credit risk).
  - Commodity price volatility: Likelihood: High. Uzbekistan sensitive to gold, copper, oil, natural gas—adverse movements could worsen trade balance, fiscal revenues, and raise credit risk.
  - Global growth surprises: Likelihood: Medium. Slowdown could trigger sudden stops in EMDEs, increasing credit risk.
  - Deepening geoeconomic fragmentation: Likelihood: High. Could cause trade and financial fragmentation, higher costs, and financial instability.
- Domestic/structural risk:
  - Weakening of bank balance sheets: Likelihood: Medium. Risks from directed/preferential lending, restructured loans, dollarization of corporate loans, and overstretched households could lead to recapitalization needs.

### ANNEX II — Stress Testing Approach (methodology highlights)
- Bank solvency stress test:
  - Institutional perimeter: All 36 banks.
  - Data: bank-by-bank supervisory data on a solo basis. Cut-off date: End-September 2024.
  - Methodology: P&L through credit, interest rate, and market risks; credit risk modeled with satellite models; interest rate risk linked to net interest margin; market risk from projected interest and exchange rates; historical estimates from quarterly data from 2011Q4.
  - Scenarios: baseline aligned with IMF October 2024 WEO; adverse includes global downturn, som depreciation, decline in commodity prices; horizon: 3 years.
  - Sensitivity analyses: adjusted reported data to IFRS 9 NPLs; 30 percent depreciation sensitivity.
  - Outputs: evolution of aggregate capital ratios; number/share of banks below hurdle rates; aggregate capital shortfall.
- Bank liquidity stress test:
  - Institutional perimeter: All banks.
  - Data: bank-by-bank regulatory and supervisory data on a solo basis. Cut-off date: End-September 2024.
  - Methodology: liquidity cash flow analysis aligned with LCR framework, separately for som and FX.
  - Scenarios: baseline based on LCR parameters/haircuts; adverse scenario with stressed parameters aligned to solvency adverse scenario; horizon: 1 year.
  - Sensitivity analyses: 30 percent domestic currency depreciation.
  - Hurdle rates: zero for cumulative net cash flow position up to one year.
  - Outputs: evolution of aggregate cumulated net cash flow positions; number/share of banks below hurdle rates.

*Source: IMF Financial Sector Assessment Program — Executive Summary (1uzbea2025003-print-pdf).*

### EXECUTIVE SUMMARY __________________________________________________________________________ 6

### EXECUTIVE SUMMARY

### CONTEXT
- Major reforms since 2017: exchange rate unification, price liberalization, privatizations, improved business environment, greater openness to trade and foreign investments; new laws on the Central Bank of Uzbekistan (LCBU) and banking adopted in 2019; government’s 2020–25 banking sector strategy to increase private banks’ role and reform SOCBs.
- Economic performance and outlook:
  - Annual average GDP growth was 5.7 percent during 2018–23.
  - Strong growth continued in 2024 driven by construction, industry, and services.
  - Inflationary pressures remain strong; nominal exchange rate has gradually depreciated.
  - Energy price reform in May 2024 contributed to inflation; the CBU raised the monetary policy rate in March 2025.
- Financial system structure and evolution:
  - Bank-centered system; total assets of financial institutions increased by around nine times in nominal terms since 2017.
  - Progress in reducing dollarization, but share remains relatively high.
  - NBFIs and capital markets remain underdeveloped.
  - State ownership remains significant: nine SOCBs hold a market share of 65 percent of banking system assets.
  - Three SOCBs privatized in 2023–24; four other banks in process of privatization; several expected to remain fully government-owned (“policy banks”).
  - Directed and preferential lending remains high: 24 percent of total bank lending as of end-2024, down from 39 percent in 2020.
  - Annual recapitalization of SOCBs using public funds ranged between 0.4–2.0 percent of GDP during 2017–2023, cumulatively equivalent to US$5.8 billion (5 percent of annual GDP).

### MACROFINANCIAL DEVELOPMENTS AND BANKING SYSTEM
- Banking system features:
  - Bank assets are loan-dominated; deposits comprise only 40 percent of funding.
  - Lending is predominantly longer term; deposit maturities have lengthened.
  - Currency composition roughly even between local currency and FX (improved since 2017).
  - Share of lending to SOEs has come down, though SOEs still prominent.
- Bank performance indicators:
  - Reported bank capitalization, profitability, and liquidity are positive; reported NPL ratios are moderate.
  - CBU identified seven D-SIBs: National Bank of Uzbekistan, Agrobank, Uzpromstroybank, Xalq Bank, Asaka Bank (all SOCBs), Kapital Bank (domestic private), and Ipoteka Bank (foreign subsidiary, privatized in 2023).

### SYSTEMIC RISK ASSESSMENT AND STRESS TESTS
- Solvency and credit risk:
  - FSAP stress tests indicate vulnerability to credit risk, amplified by under-reporting of NPLs.
  - Many banks, especially SOCBs, would see CAR drop significantly below required minimum under the adverse macroeconomic stress test scenario; resulting recapitalization needs may be substantial.
  - Capital shortfall under stress tests would be amplified after adjusting reported CAR for regulatory gaps, including NPL under-reporting.
  - Banks’ exposure to currency-induced credit risk appears significant, given high share of unhedged corporate lending; FSAP recommends conducting stress tests for currency-induced credit risk for corporate lending.
- Liquidity risk:
  - Vulnerability to liquidity shocks appears contained overall, though high depositor concentration may create challenges in several banks.
  - FSAP recommends complementing existing liquidity stress tests with depositor concentration analysis.
- Data and methodology notes:
  - The CBU has developed a good framework for analyzing systemic risk but faces some data gaps.
  - FSAP proposes augmenting solvency stress tests by adjusting data to address regulatory gaps.

### FINANCIAL SECTOR OVERSIGHT AND REGULATION
- Macroprudential framework:
  - Financial stability is a shared objective between the CBU and the government.
  - Planned establishment of a Financial Stability Board (FSB) should enhance inter-agency cooperation and contingency planning; FSAP recommends constituting the FSB with crisis prevention separated from crisis management.
  - Macroprudential toolkit could be bolstered by introducing bank capital buffers, strengthening and broadening borrower-based measures, and improving liquidity requirements to better account for existing risks.
  - CBU should improve public communication on systemic risk.
- Banking regulation and supervision:
  - Recent adoption of many banking regulations improved corporate governance and risk management; CBU adopted guidelines on risk-based supervision.
  - Further reforms needed: safeguard CBU’s operational independence; improve supervisory reporting; strengthen capital requirements; align asset classification with international standards; strengthen on-site inspections; accelerate and implement consolidated supervision; enhance cooperation between CBU and NAPP (regulator of NBFIs).
- Financial integrity:
  - AML/CFT regime assessed in 2022 by the Eurasian Group (EAG) as largely effective.
  - Further measures recommended: imposition of sanctions for legal persons, greater transparency of beneficial ownership, tracking and responding to emerging risks related to virtual assets.

### FINANCIAL SAFETY NETS AND CRISIS MANAGEMENT
- Recommendations to strengthen crisis management framework:
  - Establish FSB to enhance contingency planning.
  - CBU should issue guidelines for recovery planning and establish supervisory framework for validation of recovery plans; extend perimeter beyond D-SIBs in due course.
  - Strengthen resolution regime by enacting the Bank Resolution and Liquidation Law (BRLL), establishing a resolution function within the CBU, and phasing in resolution planning and resolvability assessment.
  - Operationalize the deposit insurance scheme and arrangements for emergency liquidity assistance (ELA) including developing collateral framework and clarifying potential use of government guarantees.

### DEVELOPMENTAL ISSUES
- Role of the state:
  - Further reduce state dominance and ensure remaining state-owned institutions and government programs are market-enabling.
  - Expedite privatization efforts following international best practices; remaining SOCBs to complete corporate governance reforms, improve credit risk management, operate on level playing field with private sector, and focus on areas where they can provide additionality.
  - Gradually phase out directed and preferential lending; improve transparency of such lending; address systemic risks through stringent capital requirements.
- NBFI and market development:
  - Strengthen NAPP’s capacity and enforcement powers in capital markets and insurance supervision.
  - Develop insurance-specific regulations on corporate governance, internal controls, consumer protection, conduct of business, and risk-based capital and supervision.
  - Strengthen and expand supervision to all nonbank credit providers and ensure microfinance banks are subject to adequate oversight.
  - Finalize and operationalize payment systems oversight framework and expedite PFMI self-assessment of the most important systems.

### AUTHORITIES’ VIEWS
- Authorities view financial sector development as essential for a successful transition to a market-based economy and have been implementing reforms including the 2020–25 banking strategy; they plan institutional reforms including the FSB and further privatizations, while recognizing remaining challenges in NPL transparency, SOCB recapitalizations, and regulatory capacity.

### KEY FSAP RECOMMENDATIONS (selected from Table 1)
- Systemic risk analysis and stress testing:
  - Augment solvency stress tests by adjusting data to address regulatory gaps (CBU; Priority: I; Timing: M).
  - Conduct stress tests for currency-induced credit risk for corporate lending (CBU; Priority: H; Timing: ST).
  - Complement liquidity stress tests with depositor concentration analysis (CBU; Priority: M; Timing: ST).
- Macroprudential framework:
  - Constitute Financial Stability Board with crisis prevention separated from crisis management (MoEF, CBU, NAPP, DGA; Priority: H; Timing: ST).
  - Introduce bank capital buffers, strengthen borrower-based measures, and improve liquidity requirements (CBU; Priority: M; Timing: MT).
  - Improve communication on systemic risk (CBU; Priority: H; Timing: ST).
- Banking regulation and supervision:
  - Safeguard CBU’s operational independence (CBU; Priority: H; Timing: I).
  - Enhance evaluation of banks’ risk profiles and internal controls during off-site and on-site supervision; improve supervisory reporting (CBU; Priority: H; Timing: MT).
  - Accelerate implementation of consolidated supervision (CBU, NAPP; Priority: H; Timing: ST).
  - Ensure accurate asset classification (CBU; Priority: H; Timing: I).
- Bank resolution, crisis management, safety nets:
  - Adopt guidelines for recovery planning and establish supervisory framework for validation of recovery plans (CBU; Priority: H; Timing: MT).
  - Enact BRLL and operationalize resolution regime (CBU; Priority: H; Timing: ST, MT).
  - Operationalize deposit insurance framework (MoEF, CBU, DGA; Priority: M; Timing: MT).
  - Complete ELA arrangements including collateral framework and clarity on government guarantees (CBU; Priority: M; Timing: ST).
- Developmental:
  - Expedite privatization of SOCBs (MoEF; Priority: H; Timing: MT).
  - Gradually phase out directed and preferential lending, improve transparency, address systemic risks with stringent capital requirements (MoEF; Priority: H; Timing: MT).
  - Strengthen NAPP capacity and enforcement in capital markets and insurance supervision (Pres. Office, NAPP; Priority: H; Timing: ST).

*Source: IMF Financial Sector Assessment Program — Executive Summary.*

### 6.      During 2022–23, the expansion of bank lending was directed toward households.

### 6.      During 2022–23, the expansion of bank lending was directed toward households.

### Credit developments and composition of lending
- Corporate lending constitutes around two thirds of bank loans, but lending to households—especially consumer and car loans—expanded particularly rapidly during 2022–23.
- Drivers of household credit growth:
  - Trade and financial liberalization.
  - Strong household income growth.
  - Preferential lending programs.
  - Forbearance and other supportive measures during the COVID-19 pandemic helped sustain credit growth.
- Mortgage lending growth (mostly on preferential terms) contributed to house price growth.
- Credit growth moderated in 2024 in response to macroprudential policy action; household lending growth subsequently slowed except for microloans.

### Foreign exchange (FX) lending and hedging
- Only nonfinancial corporations (NFCs) are allowed to borrow in foreign exchange (FX); FX lending to households was banned in 2019.
- FX lending to NFCs is attractive due to lower interest rates, but many FX borrowers do not have a natural hedge and FX hedging activity appears limited.

### Bank performance, profitability, and interest rate spreads
- Aggregate CAR has been above 17 percent since 2020, against the regulatory minimum of 13 percent.
- Bank profitability weakened in 2024 due to higher non-interest expenses, while interest rate spreads remained broadly stable.
- Lending and deposit rates do not appear to be responsive to monetary policy actions, though interest rate spreads have come down since 2019.
- Interest rate spread history and comparisons:
  - Spread fell to 4 percentage points in 2022-23.
  - Spread widened to 5 percent in the first nine months of 2024 due to declines in interest rates on legal entities’ deposits while lending rates changed by less.
  - Uzbekistan’s interest rate spread in 2023 was significantly higher than in Georgia, similar to most regional peers, and much lower than in Tajikistan and the Kyrgyz Republic.
- Contributing factors to high spreads include high operating costs, credit and liquidity risks, limited competition, sizable preferential lending, underdeveloped capital markets and NBFIs, weaknesses in property and creditor rights, insolvency procedures, and limited credit information.

### Bank soundness, asset quality, and distressed assets
- Overall bank soundness indicators in Uzbekistan have been improving but remain somewhat weaker than regional peers.
- Performance differs significantly across bank groups:
  - Domestic privately-owned and foreign-owned banks have been generally more profitable and liquid than state-owned commercial banks (SOCBs).
  - NPL ratio and substandard loan ratio are higher in SOCBs than in private banks.
  - SOCBs have particularly high loan-to-deposit ratios reflecting long-term external funding and contributing to dollarization.
- NPLs and distressed assets:
  - NPL ratios declined from the pandemic surge, partly reflecting strong credit growth and aggressive loan write-off requirements.
  - Distressed assets (including substandard loans) have been increasing in nominal terms and as a share of total assets.
  - Overstated asset quality is a significant concern: IFRS (IFRS Stage 3) NPL measures are about twice as high as regulatory NPL ratios.
  - Several gaps in the regulatory framework allow banks to defer NPL recognition and report loans as substandard; many restructured loans remain classified as “standard”.

### Corporate sector vulnerabilities
- Corporate indicators show pockets of vulnerability:
  - Some enterprises report persistent losses; some companies (small, medium, and large) have had interest coverage ratios of less than 100 percent over prolonged periods.
  - NFCs with minority state ownership demonstrate better financial health than majority- or fully-owned SOEs.
  - Firms with persistent losses and elevated insolvency/illiquidity risks are predominantly in agriculture and construction.

### Systemic risk assessment and stress tests
- Stress tests covered all 36 banks and focused on credit risk (including FX-induced credit risk) and liquidity risk.
- Methodology and adverse scenario assumptions:
  - Horizon: three years.
  - Baseline built on the assumptions of the October 2024 World Economic Outlook.
  - Adverse scenario assumed deepening geoeconomic fragmentation and a global downturn, triggering a decline in global commodity prices, reduced FX inflows, a depreciation of the Uzbek som, increased inflation, a sharp fall in GDP growth (by three standard deviations), and a decline in property prices.
  - A currency-induced credit risk sensitivity analysis included a 30 percent depreciation scenario.
- Solvency stress test results:
  - Under the baseline scenario, the banking system remains adequately capitalized.
  - Under the adverse scenario:
    - Aggregate CAR would decline to 9.9 percent, corresponding to a shortfall of 48 trillion som (2.2 percent of GDP).
    - Five of the nine SOCBs would fall below minimum CAR, including two D-SIBs; only one SOCB would remain above minimum CAR.
    - Adjusting initial capital for under-reported NPLs and subtracting subordinated debt (cannot be used for bail-in) would lower system CAR to 7.7 percent, corresponding to a shortfall of 79 trillion som (3.6 percent of GDP).
    - Several SOCBs would be under-capitalized in the wake of a 30 percent depreciation.
- Liquidity stress test results:
  - LCR-style tests over a one-year horizon for overall liquidity and separately for som and FX indicate no major system-wide vulnerabilities; the system would maintain positive cash flow gaps under both baseline and adverse scenarios.
  - Several banks had small shortfalls under the adverse scenario; the largest shortfall corresponds to 3.0 percent of assets.
  - Most banks would be able to withstand a 30 percent depreciation of the som.
  - High depositor concentration could create challenges for several banks (e.g., a few private domestic banks).

### Key quantitative figures and thresholds (as reported)
- Aggregate CAR: above 17 percent since 2020.
- Regulatory minimum CAR: 13 percent.
- Spread: fell to 4 percentage points in 2022-23; widened to 5 percent in the first nine months of 2024.
- Adverse scenario aggregate CAR: 9.9 percent.
- Adverse scenario shortfall: 48 trillion som (2.2 percent of GDP).
- Adjusted adverse scenario CAR: 7.7 percent.
- Adjusted adverse scenario shortfall: 79 trillion som (3.6 percent of GDP).
- Largest liquidity shortfall under adverse scenario: 3.0 percent of assets.
- Currency depreciation shock considered: 30 percent.
- Stress test horizon: three years.
- Adverse GDP shock: fall by three standard deviations.

### Policy measures, implications, and oversight
- The Central Bank of Uzbekistan (CBU) adopted a series of macroprudential measures aimed at containing risky lending practices in response to rising household indebtedness; these measures contributed to slowing household lending growth in 2024 (except microloans).
- Main supervisory and systemic implications:
  - Overstated asset quality and gaps in NPL recognition warrant strengthening regulatory and supervisory frameworks to ensure timely NPL recognition and accurate provisioning.
  - FX lending to unhedged borrowers and limited hedging markets increase currency-induced credit risk, calling for careful monitoring and possible limits or stronger borrower hedging requirements.
  - Capital adequacy vulnerabilities under adverse scenarios—especially among SOCBs and D-SIBs—suggest the need for contingency planning, capital buffers, and possible recapitalization measures.
  - Concentrated deposit bases and depositor concentration risks imply the need for depositor diversification and liquidity contingency plans at bank level.
  - Continued macroprudential oversight is important to contain household indebtedness and risky lending practices.

*Source: 1uzbea2025003-print-pdf - 6.      During 2022–23, the expansion of bank lending was directed toward households.*

### 18.      In recent years, the CBU has significantly strengthened its macroprudential policy

### 1uzbea2025003-print-pdf - 18.      In recent years, the CBU has significantly strengthened its macroprudential policy

### Macroprudential policy framework and mandate
- A Financial Stability Department was established in 2021, and the Macroprudential Policy Strategy, defining the goals, instruments, and decision-making process of macroprudential policies, was adopted in 2023.
- The CBU has displayed appropriate willingness and ability to act.
- Current mandate covers “stability of the banking sector,” while overall financial stability is a shared responsibility between the CBU and the government.
- Safeguarding banking stability amounted to safeguarding financial stability given the dominant role of banks.
- Recommendation: expand the CBU’s remit to financial stability and assign it as the macroprudential authority, to prepare for a more diverse financial landscape as the nonbank sector grows.

### Financial Stability Board (FSB) — coordination and mandates
- Planned establishment of a Financial Stability Board (FSB) should help coordination and cooperation in the pursuit of financial stability.
- The FSB will function as an inter-agency body with the CBU as its secretariat, tasked with facilitating cooperation on financial stability issues and dealing with possible financial crises.
- Recommendation: keep the FSB’s crisis prevention (macroprudential) and crisis management functions separate, with CBU assigned the leading role for macroprudential policy and a different composition in “normal times” versus “crisis times.”
- Recommendation: to foster engagement, provide all agencies participating in the FSB a financial stability objective.

### Macroprudential toolkit enhancements
- Recommendation: adopt a counter-cyclical capital buffer with a positive-neutral setting during normal times.
- Recommendation: subject D-SIBs to capital surcharges commensurate to each bank’s systemic importance.
- Consideration: a systemic risk buffer could be considered for residual systemic risks not covered elsewhere, for example currency-induced credit risk.
- Recommendation: strengthen and broaden borrower-based measures (BBMs) to all credit institutions and all types of household credit.
- Recommendation: continue improving the LCR and Net Stable Funding Ratio (NSFR) calculation methodology to better account for existing risks, including from external or FX funding.

### Data and analytics gaps
- Addressing data gaps is necessary to further strengthen systemic risk analysis.
- Needed enhancements: granularity and quality of data on corporate and household balance sheets, direct and preferential lending, asset classification and provisioning, and restructured loans.
- Recommendation: make reporting to the credit registry by providers of Buy Now Pay Later schemes compulsory.
- Recommendation: expand the number of monitored NFCs as feasible.

### CBU communication strategy
- Recommendation: organize regular press conferences after the publication of the Financial Stability Report.
- Recommendation: issue regular press releases after macroprudential policy decisions.
- Recommendation: expand the published financial stability material to raise awareness of financial stability issues.

### Banking regulation and supervision — progress and remaining independence issues
- Authorities have made significant progress in strengthening bank regulation and supervision, but the CBU’s operational independence needs to be safeguarded.
- The LCBU enhanced the CBU’s independence and set price and banking sector stability as its mandate.
- Operational independence is impinged by:
  - The Law on Normative Legal Act requiring the CBU to agree with the “Chamber of Commerce and Industry” regarding the content of its draft banking regulations.
  - The Law on Normative Legal Act enabling the Ministry of Justice to delay or refuse the registration of the CBU regulations.
  - Some official decrees tasking the CBU with responsibilities beyond its legal mandates (e.g., development objectives).

### Risk-based supervision (RBS) transition
- The December 2023 Guidelines on Risk-Based Supervision sets out robust and forward-looking methodology to be applied to all banks.
- Effective RBS requires consistent sound judgment within and across supervisory teams, and due consideration of the quality of banks’ risk management and internal controls.
- Recommendations:
  - Enhance evaluation of banks’ risk profile and internal controls during off-site supervision and on-site inspections.
  - Formalize the role of the CBU curators for off-site supervision, clearly outlining their roles and responsibilities.
  - Systematically conduct an assessment of corporate governance.
  - Consider extending the time limit of on-site inspections beyond 30 days.

### Consolidated supervision and supervisory reporting
- Implementation of consolidated supervision should be accelerated.
  - The regulation to establish specifics regarding consolidated supervision and procedures for determining the perimeter and methods of consolidation is absent.
  - Prudential requirements and supervisory reporting should be expanded from an individual bank basis to a consolidated level.
- Supervisory reporting should be improved:
  - The CBU collects reports from banks on an individual basis rather than on a consolidated basis.
  - Additional ad hoc information is requested in an unstructured format.
  - Data validity checks and the safety of data transfers need improvement.
  - Supervisory reports from individual banks should be subject to proportionality, in line with the RBS principles.

### Capital framework and asset classification
- Although the CBU has advanced transition to Basel III, deviations from the Basel framework in the definition of capital should be addressed.
  - The 13 percent required CAR includes a capital conservation buffer of 3 percent.
  - The definition of capital is not fully aligned with the Basel framework (e.g., subordinated debts are not subject to the writing-off/conversion requirement).
  - There are deviations in the methodology for calculating risk-weighted assets.
  - There are no capital surcharges for D-SIBs.
  - Due to the lack of a Pillar II methodology, the capital requirements are not calibrated to banks’ risk profiles.
- Recommendation: prioritize accurate asset classification by banks.
  - A significant amount of problem assets is under-reported due to gaps in the regulation on asset quality and provisioning.
  - Main concerns relate to classification of restructured loans:
    - Loan rescheduling with a grace period below six months does not affect classification.
    - There is no viability assessment for restructured loans.
    - There is no probation period for upgrading a restructured loan from NPL status when the borrower resumes repayments.
  - Action needed to facilitate effective resolution of NPLs.

### Resolution of Nonperforming Loans (Box 2 summary)
- WB found existing legal framework does not foster effective NPL resolution.
- Banks mostly rely on collateral enforcement; out-of-court restructurings and NPL sales are not used.
- Corporate insolvency regime heavily weighted in favor of liquidation and is not an effective mechanism for NPL resolution.
- NPL sales are possible, but the market for distressed assets is underdeveloped partly due to uncertainties of the current transfer regime.
- Recommendations:
  - Improve regulation on asset quality and provisioning and scrutinize banks’ portfolios through on-site inspections and asset quality reviews.
  - Pay special attention to loan segments where under-reporting is intense, including preferential and directed lending.
  - Once true size of NPL stock is estimated, ensure banks have sufficient provisions and capital buffers to absorb new losses.
  - Choose resolution route based on volumes, types, and distribution of NPLs across banks:
    - If NPLs concentrated in a few banks, adopt bank-by-bank approach (workouts, collateral enforcement, write-offs).
    - If weak asset quality is systemic, consider a more centralized solution, including possible establishment of a centralized asset management company.

### Liquidity requirements
- Current provisions:
  - Minimum amount of liquid assets is set at 10 percent of total assets.
  - LCR and NSFR are both set at a minimum of 100 percent and must be fulfilled in local as well as FX.
  - Banks must report their liquidity positions daily.
- Recommendation: improve liquidity requirements by calibrating them to the banks’ risk profile and systemic importance.

### Financial integrity (AML/CFT)
- Uzbekistan’s AML/CFT regime is generally effective in mitigating identified risks.
  - 2019 National Risk Assessment (NRA) identified primary ML risks: corruption and bribery, tax and customs offences, illicit drug trafficking, organized crime, and fraud.
  - NRA also found a high risk of terrorism financing (TF).
  - 2022 assessment by the EAG concluded Uzbekistan’s AML/CFT regime was generally effective.
  - AML/CFT supervision of banks was well-established, although NBFI supervision could be improved in a few areas.
- Recommendations to continue efforts:
  - Strengthen criminal justice efforts to combat ML by identifying complex ML schemes.
  - Establish a system of administrative liability for legal persons to allow for imposition of sanctions on legal persons implicated in ML/TF schemes.
  - Continue to enhance RBS in AML/CFT, particularly for NBFIs (insurance, securities, and leasing sectors).
  - Take targeted supervisory measures to ensure financial institutions collect accurate and up-to-date beneficial ownership information.
  - Track and respond to risks related to virtual assets.

### Financial safety nets and crisis management
- Progress:
  - A new law “On bank resolution and liquidation” (BRLL) was approved by the Senate in April 2025, establishing resolution process including bail-in, transfer tools, bridge bank, and procedures for bank liquidation to apply to all banks.
  - Law “On Guarantees of Protection of Bank Deposits,” enacted in February 2025, removed the blanket deposit guarantee, enhanced the mandate of the Deposit Guarantee Agency (DGA) to a “paybox plus,” extended deposit protection to legal entities, mandated participation of all banks, and shortened the payout period.
- Recommendation: planned FSB should enhance contingency planning and crisis preparedness.
  - Prioritize contingency plans and memoranda of understanding in the first stage.
  - Introduce periodic crisis management tests in the medium term.
- Recovery planning:
  - Recommendation: align recovery planning framework with international standards and move away from current ad hoc basis.
  - Adopt dedicated guidelines on recovery planning and establish a supervisory framework for their assessment.
  - In the medium term, request recovery plans from a larger group of banks with appropriate proportionality.
  - Following enactment of the BRLL, recovery plans should facilitate transition from supervisory oversight to resolution.
- Early intervention and resolution modalities:
  - Recommendation: strengthen triggers for early intervention and refine modalities for placing a bank into resolution, including liquidation.
  - Supervisory and early intervention measures should occur before breach of any regulatory thresholds.
  - Recommendation: set up an early warning framework to detect bank stress and trigger timely supervisory intervention.
  - Recommendation: refine resolution triggers to focus on lack of viability and systemic importance at the point of failure.
  - Recommendation: develop escalation mechanism to inform transition of oversight from supervisory measures to early intervention and bank resolution and liquidation.
- Resolution function:
  - Recommendation: prioritize setting up the resolution function following enactment of the BRLL.
  - The resolution function should be an operationally independent unit within the CBU, supported by sufficient staffing and robust governance.
  - Phased approach to resolution planning:
    - Adopt regulations implementing the BRLL.
    - Plan requirements for D-SIBs.
    - Then for all banks (on a proportionate basis allowing for simplified plans for small institutions).
  - Long term (e.g., over five years): communicate Loss Absorption Capacity requirements once capital requirement in line with the Basel III framework has been adopted, and resolution plans and resolvability assessments communicated to banks.
  - Interim priority: operationalization of transfer tools and bridge bank.
- Deposit insurance:
  - Recommendation: fully align deposit insurance framework with International Association of Deposit Insurers principles.
  - Recommendation: remove Banking Association representatives in the DGA board to eliminate conflicts of interest.
  - Recommendation: operationalize new legal mandate of DGA to support resolution funding and backstop mechanism in form of a budget loan from the government.
  - Recommendation: establish a formal backstop funding mechanism between the DGA, CBU, and MoEF, with adequate contingency plans under the FSB umbrella.
  - The mechanism should provide for prompt allocation of resources to the DGA to support bank resolution and liquidation and to the ex-post Resolution Fund.
- Emergency Liquidity Assistance (ELA):
  - Ongoing work on setting up an effective ELA framework should continue.
  - Following adoption of the ELA regulation in December 2024, the CBU is developing internal procedures for ELA operationalization.
  - Remaining gaps to address:
    - Extend the ELA time limit from three to six months.
    - Set a fixed interest rate on ELA at 2 percentage points above the overnight repo facility rate to mitigate moral hazard.
    - Incorporate possibility of issuing government guarantees for ELA.
    - Develop a framework for ELA collateral.
  - Recommendation: amend the LCBU to align ELA provision with international good practices.
  - Footnote guidance on ELA use:
    - ELA should be used as a last resort and should: (i) be provided only to solvent and viable banks facing temporary liquidity needs; (ii) be granted at the discretion of the central bank; (iii) be fully collateralized; (iv) comply with clearly defined ELA parameters (including time limits, maturity, volume, and interest rate); and (v) be subject to appropriate conditionality.

### Developmental issues and nonbank sector regulation
- Bank privatizations:
  - Recommendation: renew bank privatizations drawing on lessons from completed privatizations and international experience.
  - Specific measures:
    - (i) strengthen accuracy of asset quality reporting prior to privatization;
    - (ii) adopt greater selectivity in undertaking pre-privatization institutional strengthening, focusing on corporate governance and credit risk management, including via increased transparency;
    - (iii) as (i) and (ii) take effect, enhance efforts to identify suitable strategic investors with value-additional banking experience.
- State support and directed/preferential lending:
  - Over time, state support for priority sectors and financial inclusion should be provided more transparently using market-aligned instruments rather than directed and preferential bank lending programs, which should be gradually phased out.
  - Current issues:
    - Exact extent of directed/preferential credit on banks’ balance sheets is not known given comingling with commercial credit.
    - No public record of performance of social programs involving directed and preferential credit.
  - Recommendations:
    - Consider establishing a transparent platform offering access to concessional credit for credit-worthy borrowers in priority sectors.
    - Clearly separate in SOCBs’ financial reports directed and preferential credit from that provided on commercial terms.
    - Provide government support more effectively and transparently through grants, guarantees, and subsidies as part of standard budget allocations.
    - Reconsider plans to keep systemic SOCBs as policy banks given financial risks and costs to the budget.
- NAPP and nonbank regulation:
  - NAPP is a relatively new regulator that would benefit from stronger oversight capacity and enforcement powers.
    - NAPP established as an independent agency, accountable to the President, and with a budget not sourced by the government.
    - Constraints: low staffing levels, limited sanctioning tools, and weak enforcement powers.
    - NAPP does not perform on-site supervision unless an issue is identified through off-site analysis.
  - Insurance regulation gaps:
    - In many cases, insurance-specific regulations do not exist and joint stock company regulations are used instead.
    - Recommendation: adopt insurance-specific regulations on corporate governance, consumer protection and conduct of business, and transition to a risk-based capital framework (with RBS).
  - Nonbank credit-providing institutions:
    - Gaps should be closed.
    - Concerns about credit risk management in microfinance institutions, which have been growing very rapidly.
    - Recommendation: strengthen on-site supervision of microfinance institutions and avoid opportunities for regulatory arbitrage.
    - Microfinance banks, a new category, require adequate CBU oversight to ensure:
      - (i) business models align with microfinance objectives;
      - (ii) adequate credit risk management capacity; and
      - (iii) they do not become a backdoor for weak commercial banks.

*Source: 1uzbea2025003-print-pdf - 18.      In recent years, the CBU has significantly strengthened its macroprudential policy*

### 44.      A formal oversight framework for the payments system remains under development.

### 44.      A formal oversight framework for the payments system remains under development.

### Payments system oversight
- The 2019 Payment Systems Law empowered the CBU to grant licenses and conduct oversight, but a detailed oversight framework has not yet been enacted.
- Recommendation:
  - The CBU should put in place a risk-based oversight framework for payment systems, informed by the Principles for Financial Market Infrastructures (PFMI).
  - Establish an analogous framework for other financial market infrastructures, such as the Central Securities Depository and the central counterparty.

### Access to finance for MSMEs
- Current situation:
  - MSMEs can obtain lending at very high interest rates.
  - Several government programs distort market dynamics through subsidies, interest rate caps, and prescriptive targets.
- Required actions to lower lending rates and scale access sustainably:
  - Reduce credit risk.
  - Ensure full NBFI coverage of credit registry and bureaus.
  - Continue with digitalization.
  - Extend the CBU’s regulatory perimeter.
  - Strengthen financial literacy and consumer protection.
  - Strengthen the regulatory framework, including ensuring proper asset classification.
- Market-based instruments recommended:
  - Partial credit guarantees.
  - Credit lines that allow lenders to set interest rates and are open to all eligible financial institutions.

### Capital market development
- Preconditions and constraints:
  - Macroeconomic conditions: fiscal deficit has been declining; public debt is moderate; inflation remains relatively high.
  - Legal and institutional environment is conducive.
  - Sovereign yield curve needs to become a reliable pricing reference.
  - Demand is severely constrained by the nascent institutional investor base and high deposit rates.
  - Supply is constrained by the dominant role of the state; corporate securities issuance is limited.
- Recommendation:
  - Develop a transparent and robust supply side of potential issuers (e.g., SOEs).

### Authorities’ views and planned actions
- Overall reaction:
  - Authorities welcomed the FSAP findings and broadly agreed with the recommendations.
  - Plan to integrate FSAP recommendations into their reform strategy and expressed interest in follow-up technical assistance.
- CBU-specific actions and views:
  - Stepped up supervision of asset quality and required banks with high NPLs to implement a timebound plan to reduce them.
  - Plans to continue strengthening capital and liquidity requirements to further align them with Basel III.
  - Implementing further macroprudential measures on lending to households.
  - Appreciated stress testing results presented for different banking categories, including D-SIBs, and welcomed suggestions to strengthen corporate sector monitoring and FX risk.
  - Agreed on the need to clarify the CBU’s financial stability mandate as the financial system grows.
  - Agreed that financial stability and crisis management functions of the FSB should be kept separate.
  - Considering introducing capital buffers.
  - Raised concern that strengthening BBMs could worsen financial inclusion.
- Crisis management and ELA:
  - Authorities largely agreed on recommendations to operationalize the crisis management framework and ELA.
  - Valued recommendations related to coordination and collaboration within the CBU and with other financial safety net participants.
  - Noted that implementation of the legal framework concerning deposit insurance and bank resolution will take time.

### Selected macroprudential and supervisory measures (key numerics and dates preserved exactly as in source)
- Leverage ratio:
  - The minimum leverage ratio is set at 6% for banks and 3 percent for the Mortgage Refinancing Company.
  - Date last adjusted: May 2018 (for banks); February 2020 (for Mortgage Refinancing Company).
- Limit on distributions:
  - Restrictions on profit distributions; Central Bank approval required where dividend payments and rewards exceed 10 percent of the bank’s equity capital or if there is a loss in the current or previous quarter and/or for the financial year.
  - Date last adjusted: November 2019.
- Household sector capital requirements (effective from January 1, 2025):
  - Loans to individuals with DSTI ≤ 50% (excluding car loans, mortgage loans, and certain program loans): risk weight 100 percent.
  - Loans to individuals with DSTI above 50% or DSTI unknown: risk weight 150 percent.
  - Mortgage loans risk weights by LTV and DSTI:
    - DSTI ≤ 50% / LTV < 50%: 35%
    - DSTI ≤ 50% / 50% ≤ LTV <75%: 50%
    - DSTI ≤ 50% / 75% ≤ LTV <100%: 100%
    - DSTI ≤ 50% / 100% ≤ LTV: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / LTV < 50%: 50%
    - 50%< DSTI or if it is not possible to determine DSTI / 50% ≤ LTV <75%: 100%
    - 50%< DSTI or if it is not possible to determine DSTI / 75% ≤ LTV <100%: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / 100% ≤ LTV: 150%
  - Car loans risk weights (effective from January 1, 2025) by LTV and DSTI:
    - DSTI ≤ 50% / LTV ≤ 75%: 100%
    - DSTI ≤ 50% / 75% < LTV: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / LTV ≤ 75%: 150%
    - 50%< DSTI or if it is not possible to determine DSTI / 75% < LTV: 200%
  - CBU sets risk weights for family business development and education program loans based on prevailing annual market interest rates:
    - For loans with an annual interest rate of 24 percent or below: risk weight 100 percent.
    - For loans with an annual interest rate between 24 percent and 28 percent: risk weight 150 percent.
    - For loans with an annual interest rate of 28 percent or above: risk weight 200 percent.
  - Objective: mitigate household debt burden increase, reduce credit risk, and enhance collateralization. Key calibration indicators: LTV distributions, changes in weighted average LTV, loan growth rate, debt service ratio, debt burden survey results.
- Cap on DSTI ratio (starting January 1, 2025):
  - DSTI ratio applied to all types of household loans set at 50 percent.
  - Up to 15 percent of total loans can exceed this limit, but not exceed 100 percent.
- Cap on LTV ratios (starting July 1, 2024):
  - LTV should not exceed 75 percent for car loans and 80 percent for mortgage loans (excluding state program mortgages).
  - Up to 15 percent of total number of car loans and mortgage loans may exceed respective LTV limits.
- Restrictions on unsecured loans:
  - Maximum unsecured loans to a single borrower or group limited to 5 percent of the bank's Tier 1 capital. Date last adjusted: January 2021.
- FX loans to households:
  - FX loans to individuals are not allowed. Date last adjusted: July 2019.
- Liquidity coverage ratio (LCR):
  - LCR should not be less than 100%.
  - Since September 2019, applied separately to local and foreign currency.
  - Minimum LCR for the Mortgage Refinancing Company from February 2020 is 100 percent.
  - Date last adjusted: September 2019 (for banks); February 2020 (for Mortgage Refinancing Company).
- Liquid asset ratio:
  - HQLA to total assets should be no less than 10 percent. Date last adjusted: June 2020.
- Instant liquidity ratio:
  - Based on national currency, should be at least 25 percent. Date last adjusted: March 2020.
- Net stable funding ratio (NSFR):
  - Minimum NSFR 100 percent in each relevant currency. Date last adjusted: September 2019 (for banks); February 2020 (for Mortgage Refinancing Company).
- Loan-to-Deposit (LTD) ratio:
  - LTD of 80 percent is a recommendation, not mandatory. Date last adjusted: November 2015.
- Reserve requirements (unremunerated) (Date last adjusted: April 2025):
  - Deposit obligations in national currency from individuals and legal entities: 4 percent.
  - Deposit obligations in foreign currency from individuals and legal entities: 10.5 percent. These reserves are held in local currency.
- Gross foreign exchange position limits:
  - Each type of foreign exchange: 10 percent.
  - Total open foreign exchange positions: 15 percent.
  - Total for all short foreign exchange positions: 15 percent.
  - Total for all long foreign exchange positions: 15 percent.
- Interbank exposures:
  - Large exposures in interbank operations should not exceed 25 percent of Tier 1 capital. Date last adjusted: January 2021.
- Car loans (additional measures, effective January 2025):
  - The share of car loans within the total loan portfolio should not exceed 25 percent.
  - Calibration indicators include LTV distribution, weighted average LTV changes, car loan growth rate, concentration levels, and debt service ratio for car loans.
- Microfinance and microcredit (dates and limits):
  - Microfinance services total must not exceed amount of microcredit granted; microloans must not exceed 25 percent of the loan portfolio. Date last adjusted: February 2024; April 2025 referenced for microfinance line.
  - Maximum micro-loan to an individual: 100 million som.
  - Maximum microcredit to entrepreneurs and self-employed individuals: 300 million som.
  - Date last adjusted: February 2024.

*Source: IMF staff summary of the specified content unit.*

### Annex I. Uzbekistan: Risk Assessment Matrix

### Annex I. Uzbekistan: Risk Assessment Matrix

### Global conjunctural risks
- Time horizon: in next 1–3 years
- Intensification of Regional Conflicts
  - Likelihood: High
  - Expected Impact on Financial Stability if Threat is Realized:
    - Escalation or spread of the conflict in Gaza and Israel, Ukraine, and/or other regional conflicts or terrorism disrupt trade (e.g., energy, food, tourism, supply chains), remittances, FDI and financial flows, payment systems, and increase refugee flows.
    - "An intensification of the conflict in Ukraine could have a significant impact on trade, remittances, capital flows, migrant flows, and gold prices."
    - "The transmission channels may involve knock-on effects to the financial sector, including for example liquidity risk and currency induced credit risk."
- Commodity price volatility
  - Likelihood: High
  - Expected Impact on Financial Stability if Threat is Realized:
    - Supply and demand fluctuations (e.g., due to conflicts, export restrictions, OPEC+ decisions, and green transition) cause recurrent commodity price volatility, external and fiscal pressures and food insecurity in EMDEs, cross-border spillovers, and social and economic instability.
    - "Uzbekistan’s economy is sensitive to changes in the prices of gold (exports, FX reserves), copper (exports), oil (imports), and natural gas (imports). Adverse commodity price movements could worsen the trade balance, fiscal revenues, and contribute to uncertainty which would dampen investment and GDP growth, raising credit risk."
- Global growth surprises
  - Likelihood: Medium
  - Expected Impact on Financial Stability if Threat is Realized:
    - "Slowdown: Growth slowdown in major economies, including due to supply disruptions, tight monetary policy, rising corporate bankruptcies, or deeper than envisaged real estate sector contraction, with adverse spillovers through trade and financial channels, triggering sudden stops in EMDEs."
    - "Supply disruptions, rising corporate bankruptcies could bring down growth and increase credit risk."
- Deepening geoeconomic fragmentation
  - Likelihood: High
  - Expected Impact on Financial Stability if Threat is Realized:
    - "Broader conflicts, inward-oriented policies, and weakened international cooperation result in a less efficient configuration of trade and FDI, supply disruptions, protectionism, policy uncertainty, technological and payments systems fragmentation, rising shipping and input costs, financial instability, a fracturing of international monetary system, and lower growth."
    - "Similar to the impact described in the 'intensification of regional conflicts' block above."

### Domestic and structural risks
- Weakening of bank balance sheets
  - Likelihood: Medium
  - Expected Impact on Financial Stability if Threat is Realized:
    - "With still significant policy lending, returns on lending and bank profits decline while NPLs rise. Bank balance sheets weaken, credit availability diminishes and the cost of borrowing increases. Banks require recapitalization."
    - Observations and vulnerabilities:
      - "Credit growth has moderated, even as growth remains strong. Questions around asset quality remain, especially in SOCBs."
      - "Risks stem from directed/preferential lending, restructured loans, dollarization of corporate loans, and overstretched households."

*Source: Annex I. Table 1. Uzbekistan: Risk Assessment Matrix*

### Annex II. Uzbekistan: Stress Testing Approach

### Bank solvency stress test
- Institutional perimeter:
  - "All 36 banks in the country."
- Data and starting position:
  - "Bank-by-bank supervisory data on a solo basis."
  - Cut-off date: End-September 2024
- Methodology and risk factors:
  - Main objective: "estimate impact on regulatory capital through Profit & Loss (P&L) for individual banks under different scenarios."
  - P&L estimated through three main risks: credit, interest rate and market risks.
  - Credit risk: "new flow of nonperforming exposures and loss provisions was estimated using satellite models, linking macro financial variables with credit risk parameters."
  - Interest rate risk: "linked interest sensitive assets and liabilities to the net interest margin based on projections of lending and funding rates, estimated using satellite models."
  - Market risk: "projected interest rate was used to estimate security gains/losses in the trading and banking book separately, and projected exchange rates were used to estimate FX gains/losses in open positions."
  - Other income statement items projected using a simplified approach based on predicted growth in the balance sheet.
  - Historical estimates based on quarterly data from 2011Q4.
- Scenarios:
  - Baseline scenario: "aligned with IMF October 2024 World Economic Outlook forecasts for the region."
  - Adverse scenario: "One adverse scenario addressing the most relevant risks and vulnerabilities confronting the financial system, including a global economic downturn, triggering depreciation of the som and a decline in commodity prices such as gold, cotton, and copper."
  - Horizon: 3 years
- Sensitivity analyses:
  - "The reported data likely under-report the true quality of loan books, and the calculations were adjusted to use IFRS 9 NPLs instead of domestically reported NPLs, to estimate a more accurate baseline capitalization as a starting point in the stress tests."
  - "Sensitivity analysis on currency-induced credit risk was conducted assuming a 30 percent depreciation."
- Hurdle rates:
  - "National regulations on total regulatory capital, Tier 1 capital, and leverage ratios (differentiated between SOCB, foreign and private domestic banks, with a special attention to the D-SIBs)."
- Output presentation:
  - "Evolution of aggregate capital ratios, and key drivers."
  - "Number/share of banks below the hurdle rates."
  - "Aggregate capital shortfall."

### Bank liquidity stress test
- Institutional perimeter:
  - "All banks in the country."
- Data and starting position:
  - "Bank-by-bank regulatory and supervisory data on a solo basis."
  - Cut-off date: End-September 2024
- Methodology and risk factors:
  - "A liquidity cash flow analysis aligned with the LCR framework was performed, in total and separately for som and foreign currency respectively."
- Scenarios:
  - Baseline scenario: "based on parameters/haircuts from LCR."
  - Adverse scenario: "One country specific adverse scenario was executed with stressed parameters derived from a stress similar to the adverse scenario in the solvency stress test."
  - Horizon: 1 year
- Sensitivity analyses:
  - "Outcomes were recalculated assuming a 30 percent domestic currency depreciation."
- Hurdle rates:
  - "Zero for the cumulated net cash flow position for all time buckets up to one year."
- Output presentation:
  - "Evolution of aggregate cumulated net cash flow positions."
  - "Number/share of banks below the hurdle rates."

*Source: Annex II. Table 1. Uzbekistan: Stress Testing Approach*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1uzbea2025003-print-pdf.pdf_