Fitch Ratings: Uzbekistan’s Bank Privatization Backed by a More Targeted Program

Tashkent, Uzbekistan (UzDaily.com) — The revised bank privatization program in Uzbekistan demonstrates a more targeted approach by the authorities, who have made the Uzbek Industrial and Construction Bank (SQB, BB/Stable) their main priority, Fitch Ratings said in a recent report.

According to the agency, this process could serve as a model for the subsequent privatization of other state-owned banks.

“We do not expect large-scale bank privatizations in the near term due to the slow pace of changes in business models, the significant volume of legacy policy loans that weigh on performance, capital constraints that limit lending growth, and intense competition in the banking market,” Fitch noted.

The ongoing transformation of state-owned banks, focusing on expanding their commercial franchise instead of traditional policy-driven lending, is expected to improve profitability, corporate governance, risk management, and operational efficiency. These improvements could help attract foreign investors. The prospects for sales may also strengthen if international financial institutions (IFIs) take minority stakes, with investor appetite for emerging markets remaining a key success factor.

The National Investment Fund of Uzbekistan (UzNIF) plays a central role in the transformation of the Uzbek Industrial and Construction Bank (SQB, BB/Stable). The government has designated SQB as the main target for privatization. UzNIF is prioritizing and supporting the preparation for the sale, which should increase the likelihood of a successful transaction in the medium term.

A presidential decree issued in September 2025 instructed the Fund for Reconstruction and Development of Uzbekistan to transfer its 30% stake in SQB to the Ministry of Economy and Finance, which will subsequently pass it to UzNIF. This decision, along with amendments to previous legislation, removes the earlier goal of selling a controlling stake in SQB by the end of 2025. The government’s fiscal strategy, adopted in July 2025, foresees the privatization of SQB, Asakabank (BB/Stable), Aloqabank (BB/Stable), and Turonbank in 2026 or later.

These regulatory changes underscore a decisive strategic shift toward a more selective approach. The government is now focusing its resources and reform efforts on the privatization of SQB, Uzbekistan’s third-largest bank. Among the banks slated for privatization, SQB has advanced the most in transitioning to a commercially oriented business model, strengthening corporate governance and risk management systems. The participation of UzNIF, managed by Franklin Templeton, is expected to further accelerate the bank’s transformation and enhance its appeal to potential strategic investors.

A landmark AT1 issuance worth US$300 million in October 2025 — the first of its kind in Uzbekistan — strengthened SQB’s capital base. This has enabled the bank to significantly expand lending and improve profitability, particularly in the small and medium-sized enterprise (SME) and retail segments, which offer higher margins. The issuance is expected to boost regulatory capital ratios by about 300 basis points and support additional lending of US$2.1 billion in 2026–2027, providing an increase of around US$80 million in net interest income. This capital infusion underscores SQB’s commercial transformation and strengthens its position for privatization.

Under Fitch’s base-case scenario, the sale of a controlling stake in SQB is likely to take place after the anticipated UzNIF IPO in 2026, marking an important milestone in the bank’s privatization process. A successful sale could serve as a blueprint for other state-owned banks, such as Asakabank and Aloqabank, whose own privatization timelines are likely to extend through 2030.

The transformation of business models at these banks is ongoing. Asakabank retains a significant share of legacy, low-yield policy loans, while capital constraints continue to limit its shift toward higher-margin SME and retail lending. Aloqabank’s new policy role as a key lender for subsidized loans to young entrepreneurs also reduces the likelihood of its privatization in the near term.

The successful placement of SQB’s AT1 bond sets an important precedent for other state-owned banks earmarked for privatization, especially amid a gradual reduction in traditional government support for credit growth in recent years. Fitch’s Government Support Ratings of “bb” for SQB, Asakabank, and Aloqabank continue to reflect the likelihood of extraordinary state support as long as these banks remain under government ownership.