Fitch Affirms Xalq Bank at BB With Positive Outlook

Tashkent, Uzbekistan (UzDaily.com) — The international rating agency Fitch Ratings affirmed the long-term foreign- and local-currency issuer default ratings of the joint-stock commercial bank Xalq Bank at BB with a positive outlook.

Concurrently, analysts upgraded the financial institution's viability rating from b- to b.

This decision follows a large-scale balance sheet cleanup of accumulated non-performing assets from previous years and stable, profitable operations by the bank over the past three years.

The final long-term issuer default ratings are fully aligned with the sovereign rating of the Republic of Uzbekistan. This reflects the expert opinion of a moderate probability of prompt state support, the rating of which is fixed at bb.

The high potential for state assistance is based on the exceptional strategic importance and unique social status of Xalq Bank. The financial institution acts as the sole authorized body in the country that manages the pension savings of citizens, distributes pensions and benefits, and allocates subsidized social loans.

The agency notes a significant improvement in the operating environment within the banking sector of Uzbekistan over the past five years and expects further progress in reducing structural risks, improving regulation, and strengthening corporate governance, which will continue to support the positive outlook for the industry. While Fitch notes privatization plans for the state sector, it does not expect the sale of this financial institution in the short term.

As of the end of the first quarter of 2026, Xalq Bank accumulated approximately 6% of all banking assets in Uzbekistan and possessed the largest branch infrastructure in the country.

The current strategy of the bank provides for a gradual shift in focus away from risky family entrepreneurship toward more profitable commercial lending with strict underwriting standards. The bank's portfolio is characterized by high diversification and a record low level of dollarization, with the share of foreign currency loans standing at only 14% compared to the market average of 40%.

At the end of 2025, the growth rate of the loan portfolio lagged behind the market at 9%. However, in 2026, Fitch forecasts an acceleration in dynamics to 20%.

A radical improvement in asset quality led to a decrease in the share of Stage 3 non-performing loans to 5.2% at the end of 2025, which is 16 percentage points lower than the figures from two years ago. This positive dynamic was achieved through large-scale write-offs and debt recovery in the corporate segment.

The safety cushion is assessed as exceptionally high, with formed reserves covering 136% of non-performing loans.

Against this background, the bank demonstrated a one-off spike in profitability. The ratio of operating profit to risk-weighted assets rose to 4.3% compared to 1.9% in 2024, and the net interest margin increased to 10%. The financial results were supported by the mass recovery of written-off loans, which temporarily reduced impairment expenses to negative values.

In 2026, the agency expects a normalization of profits against the background of a remaining high cost-to-income ratio of 70%.

The capitalization of the bank is maintained at a comfortable level due to regular support from the state and growth in retained earnings.

The Fitch core capital ratio at the end of 2025 was 17.9%. Regulatory Tier 1 capital adequacy ratios reached 20.7%, with a total capital adequacy ratio of 22.1%, which significantly exceeds the regulatory requirements of the central bank.

The funding base of the bank is stable, with state funds forming 42% of liabilities and non-state deposits forming another 41%, which predominantly consist of stable mandatory pension savings of the population.

Liquid assets of the bank form 22% of the total balance sheet, providing coverage for half of the non-state sources of liabilities, while the loan-to-deposit ratio is forecast at a high level of around 189%.

According to ESG criteria, the bank received a score of 4 due to heavy government involvement in management and a score of 3 for the implementation of poverty reduction programs.