ENSURING THE FINANCIAL STABILITY AND COMPETITIVENESS OF COMMERCIAL BANKS IN THE CONTEXT OF BANKING SYSTEM TRANSFORMATION: EVIDENCE FROM UZBEKISTAN

Abstract

The banking system of Uzbekistan has been going through a deep transformation since 2020: state-owned banks are being privatised, foreign investors are entering the market, regulation is moving towards Basel III, and digital channels are changing the way banks compete. This article examines how these changes have affected the financial stability and competitiveness of commercial banks. Using aggregate data of the Central Bank of the Republic of Uzbekistan for 2019–2025, the study analyses capital adequacy, asset quality, liquidity and profitability indicators, decomposes return on equity with the DuPont model, estimates the Z-score of the banking system, and measures market concentration with the Herfindahl–Hirschman index (HHI) and the CR5 ratio. The results show that the sector has kept capital and liquidity buffers well above regulatory minimums, while profitability remains volatile and sensitive to credit risk, as the sharp fall in earnings in 2024 demonstrated. Concentration has declined steadily, and private banks now show higher returns and better asset quality than state-owned banks. The findings suggest that greater competition has not weakened stability so far. However, high loan-to-deposit ratios, foreign currency exposure and the gap in cost efficiency remain the main constraints. The article proposes a set of indicators and policy measures for balancing stability and competitiveness during the transformation period.