How Operating Environment Affects Bank Ratings in Uzbekistan

In June 2025, Fitch Ratings revised the outlook on the operating environment for Uzbek banks to positive from stable, while affirming it at ‘b’. Let’s examine in more detail the reasons behind this decision and its impact on ratings of individual banks in Uzbekistan.

What Do We Mean by Operating Environment?

Our assessment of the operating environment (OE) in countries where we provide bank rating coverage includes analysis of the overall business environment, including economic growth dynamics and prospects, the extent of government regulation of the economy and banking sector, as well as specific risks inherent to the relevant jurisdiction that may affect banks’ business operations and financial performance.

To determine the implied OE score, we use two key indicators: GDP per capita (in US Dollars in current prices) and the Operational Risk Index (ORI), calculated by Fitch Solutions’ BMI (owned by Fitch Group). These indicators were chosen for reason: in our view, they are most closely correlated with banks’ ability to generate business volumes with acceptable levels of risk in a given jurisdiction.

The final OE score may differ from the implied score in either direction. In such cases, we apply positive or negative adjustments most relevant to specific country conditions. Typically, adjustments are used if the implied score does not account for important OE features, such as the size and structure of the economy, degree of financial market development, or the country’s sovereign rating.

Fitch’s Assessment of Uzbekistan’s Operating Environment

We assess the OE for banks in the Republic of Uzbekistan at ‘b’, in line with the implied score. It is lower than in several other Central Asian and Caucasus countries. For example, Kazakhstan’s OE score is currently ‘bb+’, while Georgia, Armenia, and Azerbaijan have ‘bb-‘ scores. The only exception is Kyrgyzstan with a ‘b-‘ score.

Our assessment of Uzbekistan’s OE is based not only on the values of two key indicators, although they are relatively low: GDP per capita is estimated at about $3,500 in 2025 (though it has grown considerably in recent years), and the ORI score is in the 31st percentile (maximum value is 100).

We also consider some remaining structural weaknesses: high dollarization of the economy and banking sector, banks’ reliance on external funding (predominantly in foreign currency), still relatively low financial transparency and weak corporate governance. State dominance in the economy and banking system is also a negative factor for our assessment of Uzbekistan’s OE.

Positive Outlook

Despite the structural deficiencies above, we have revised the outlook on the OE score for Uzbek banks to positive. What has triggered this decision? In our view, the Republic of Uzbekistan has achieved significant progress in recent years in economic reform, including a large-scale banking reform.

The sale of the controlling stake in Ipoteka-Bank in 2023 was the first successful transaction under the state bank privatization program. Other banks targeted for privatization have made considerable efforts to improve management quality and corporate governance, enhance financial transparency, and shift to a commercially oriented business model.

Even though planned timelines for selling state-owned banks have recently been postponed again, we believe the Uzbek government remains committed to bank privatization and will continue work to successfully complete this process. In our opinion, the government’s priority now is preparing for the sale of Uzpromstroybank (SQB).

Additionally, we note substantial improvements in the quality of regulation and banking supervision by the Central Bank of Uzbekistan (CBU) since the banking reform began. Several measures have been adopted to strengthen the banking sector. They include higher minimum capital requirements for banks, tightened loan classification and provisioning requirements, as well as measures to more actively recognize legacy problem assets on banks’ balance sheets.

The CBU has become much more proactive in mitigating emerging risks, particularly in retail lending. Its policy resulted in cooling of the unsecured consumer and auto loan market in 2024-2025 after rapid growth in previous years.

Other positive trends in Uzbekistan’s banking sector include ongoing dedollarization of bank balance sheets (which we talked about earlier) and gradual phasing out of subsidized lending programs, which have proved high-risk for participating banks and led to accumulation of asset quality problems (which we also discussed earlier). We assess that the volume of government funds allocated for subsidized lending to businesses and households is gradually decreasing. Programs are becoming more targeted, and new subsidized loans are issued on terms more aligned with market terms.

In our baseline scenario, we expect these positive trends in the banking sector to continue in the medium term. If this forecast materializes, the OE score could be upgraded to the next level on our rating scale (‘b+’) within the next 1-2 years.

Impact on Bank Ratings

According to Fitch’s Bank Ratings Criteria, the OE score is a key consideration for our assessment of banks’ standalone creditworthiness and typically constrains the Viability Ratings (VRs) of most banks. Currently, only one rate Uzbek bank – National Bank of Uzbekistan – has a VR score (‘b+’) above the OE score. This reflects the bank’s dominant market positions (especially in the corporate segment), an extended record of stable asset quality and high capital ratios, as well as recent tangible improvements in profitability. Other banks have VRs at or below the OE score (‘b-‘ and ‘ccc+’).

Revising the outlook on the OE score to positive led to similar outlook changes for Long-Term (LT) Issuer Default Ratings (IDRs) of two private Uzbek banks rated by Fitch Ratings – Kapitalbank and Ipak Yuli. Both entities’ IDRs (‘B’) are based on standalone creditworthiness, as reflected by their VRs (‘b’), as we do not factor in shareholder support in the banks’ ratings.

Revision of the outlook on the LT IDRs of these two banks reflects our view that their VRs should be in line with the OE score, and therefore if the latter is upgraded to ‘b+’, they will most likely also be upgraded to ‘b+’, leading to the upgrade of the LT IDRs to ‘B+’. Other private banks’ VRs are less sensitive to changes in the OE score, as we believe a higher OE score will not necessarily lead to similar rating actions on the VRs.

As far as state-owned banks are concerned, their LT IDRs (‘BB’ and ‘BB-‘) are based on state support (Uzbekistan’s sovereign rating is ‘BB/Stable’). Therefore, changes in the OE score, which is significantly below our assessment of government support ratings, do not affect their ratings.