Tashkent, Uzbekistan (UzDaily.com) — Uzbekistan continues to reform its state-owned banks and enterprises, reducing government involvement in the economy and attracting private investment.

According to a Moody’s report, state-owned banks, which have historically dominated the country’s banking sector (as of late 2023, the nine largest state banks controlled 65.4% of assets and 69% of the loan portfolio), have been providing preferential loans to state-owned enterprises. However, the government is now aiming to minimize such financing, which will push major Uzbek enterprises to more actively access international capital markets through the issuance of Eurobonds.

Shift Towards the Private Sector: Rising Profits and Credit Risks

In August 2024, President of Uzbekistan Shavkat Mirziyoyev announced plans to cut lending to state-owned enterprises by 40% by 2026, redirecting 30 trillion soums (US$2.3 billion) to the private sector. In December, additional initiatives were announced to support small businesses, including an increase in sector lending to 120 trillion soums in 2025.

Moody’s estimates that the share of loans issued by state-owned banks to the public sector has decreased from 28% in 2021 to 23% in 2023, and this trend is expected to continue. In 2023, state banks extended 82 trillion soums in loans to state-owned enterprises (17% of the total loan portfolio), while loans to individuals grew from 16% in 2020 to 22% in 2023. According to the Central Bank of Uzbekistan, the total volume of loans issued reached 287 trillion soums in 2024, up from 127 trillion soums in 2020, with household lending accounting for 36% of the total.

Moody’s highlights that the reduction in preferential lending will improve state banks’ profit margins. However, the transition to market-based lending will introduce new risks, as private clients—particularly SMEs and retail borrowers—exhibit higher default rates, especially amid inflation and rising debt burdens.

Increasing Competition Among Private Banks

Banking sector reforms are intensifying pressure on private banks. Moody’s notes that state-owned banks may redirect over 30 trillion soums to the private sector by the end of 2026, equivalent to 18% of the private banking sector’s loan portfolio as of late 2024.

As competition intensifies, interest rates are expected to decline, potentially impacting private banks’ profitability.

Further competition comes from neobanks, which are rapidly expanding their presence. According to Moody’s estimates, in 2024, 10 small but fast-growing neobanks increased their loan and deposit portfolios by 90%, raising their share in the private banking sector’s total loan portfolio to 14% (from 9% in 2023) and their share of deposits to 14% (from 10% the previous year).

Growth in Eurobond Issuance Expected in 2025

Moody’s forecasts that Uzbek state-owned enterprises will become more active in international capital markets. Under the “Uzbekistan-2030” strategy, which aims to double the country’s GDP, substantial investments are needed in energy, transport, agriculture, infrastructure, and telecommunications.

The government expects state-owned enterprises to raise US$5.2 billion from international capital markets in 2025.

A key role will be played by Eurobond issuance: Uzbekneftegaz and Uzavtosanoat have already announced plans to issue bonds in 2025, while Navoi Mining and Metallurgical Combine (NMMC) placed its first US$1 billion issuance in October 2024 and plans to issue an additional US$500 million in 2025.

Risks and Prospects of Raising Funds Through Eurobonds

Moody’s emphasizes that accessing international capital markets will allow companies to finance large-scale projects without relying on state banks, diversify funding sources, and align with global corporate governance standards. However, this process requires significant investments in IT systems, financial transparency, and risk management.

In 2024, the government announced plans to prepare IPOs and SPOs for several major enterprises, including Navoi and Almalyk Mining and Metallurgical Complexes, Uzbektelecom, and Uzbekhydroenergo.

Moody’s believes that a successful Eurobond issuance ahead of IPOs will help these companies enhance their attractiveness to investors.

However, the agency also warns of potential risks: weak liquidity control, failure to meet stringent investor requirements, or insufficient transparency could undermine market confidence. Additionally, companies issuing Eurobonds become more vulnerable to global market volatility and currency fluctuations.

Thus, banking sector reforms and capital market development are creating new opportunities for Uzbek companies but also require substantial efforts to adapt to international standards and manage emerging financial risks.