Uzbek banks face profit squeeze as credit risks surface

Uzbek banks could face weaker earnings and pressure on capital as tougher provisioning rules expose credit risks, Fitch and S&P executives told Kursiv Uzbekistan.

The warning contrasts with strong headline results. Banks earned 10.99 trillion soums in the first half of 2026, an increase of nearly 69% year on year. Yet the Central Bank’s figures show that non-performing loans stood at 22.94 trillion soums on 1 July, equivalent to 3.6% of total lending.

Fitch’s Pavel Kaptel said the planned transition to IFRS 9 in regulatory reporting could force some lenders, particularly state-owned banks, to increase provisions.

He warned that this «could lead to a substantial decline in profitability, possibly even losses, and pressure on capital,» he told Kursiv.

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Higher provisions could erode earnings

State-owned banks held 16.45 trillion soums in non-performing loans, accounting for almost 72% of the sector’s total. Their NPL ratio was 3.9%, against 2.9% at other lenders. The concentration makes the condition of state-bank balance sheets especially important for assessing sector-wide risk.

Earnings growth also outpaced growth in net interest income. The latter rose by about 12%, from 18.11 trillion to 20.28 trillion soums, while net non-interest income more than doubled. The figures suggest investors need to examine the sources and durability of profits alongside the headline increase.

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Currency exposure remains a vulnerability

Foreign-currency loans accounted for around 39% of lending. Kaptel highlighted limited hedging and smaller corporate borrowers with little or no export revenue as vulnerabilities if the soum weakens.

S&P’s Natalia Yalovskaya also identified risks from maturing retail portfolios, unsecured consumer lending and troubled corporate loans.

For prospective bank buyers, asset quality is also a concern for privatisation. In its 2026 assessment, the IMF called for accurate reporting of state banks’ assets, stronger governance and better risk management before sales.

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It welcomed plans to extend asset-quality reviews for all state-owned commercial banks, regardless of whether they were preparing for privatisation.