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Financial Stability Report for 2024 H1

Update date: 16 Oct 2024, 15:45
16 Oct 2024

The Financial Stability Report for 2024 H1 examines the financial conditions and vulnerabilities facing both the global and Uzbekistan’s economies, offering insights into asset market dynamics and the results of the banking system’s solvency and liquidity stress tests. It also addresses climate change-related risks, highlights recent developments in the Central Bank of Uzbekistan’s macroprudential policies, and analyzes potential internal and external risks to financial stability.

In 2024 H1, Uzbekistan’s banking system maintained financial stability. The capital adequacy ratio stood at 17.3 percent, and the Tier 1 ratio reached 14.2 percent, both of which exceeded the minimum regulatory requirements.

The easing of financial conditions in Uzbekistan can be attributed to the relatively low risk premium, which is consistent with historical trends, along with positive developments in the banking sector. Moreover, the financial stress index for the banking system has decreased.

The rise in high-quality liquid assets as a percentage of total assets for banks, alongside a decline in non-stable funding as part of total liabilities, indicates a diminishing concern over liquidity weaknesses within the banking sector.

Due to the tightening of macroprudential policy measures, the annual growth rate of car loans issued to individuals has experienced a deceleration.

The rising home prices since 2020, coupled with the evident supply-demand imbalance in the real estate sector, suggest an overvaluation of market prices relative to fundamental prices. Consequently, non-fundamental factors are inflating housing prices in the market.

There are ongoing concerns about individuals’ ability to meet their debt obligations. The survey conducted to assess the overall debt burden of the population revealed that, on average, respondents who had taken out a bank loan had a total debt burden, including non-bank debt obligations, of 73 percent.

The debt burden on individual mortgage loans has stayed stable, consistently between 40 and 45 percent.

Concerns around microdebt activity have emerged. Notably, there has been a marked increase in the proportion of microdebts within the overall credit portfolio of the banking system. Specifically, as of July 1, 2024, the volume of microdebts has escalated by 77 percent in comparison to the same period in 2023.

In the baseline scenario of the solvency macro stress test, the banking system exhibits no substantial concerns. However, the outcomes of the stress test under the severe scenario suggest that, in the medium term, certain banks may breach the minimum regulatory requirements.

In the baseline scenario of the liquidity macro stress test, banks appear to be free from short-term liquidity concerns. However, a severe scenario could lead to some banks experiencing negative net inflows.

The long-term high costs associated with external financing, the risk of secondary sanctions affecting participants in both the financial and non-financial sectors of Uzbekistan, and the risks related to climate change are identified as external risks that could significantly impact Uzbekistan’s financial system.

The persistent overvaluation of housing prices, the rapid expansion of microdebts, and the increasing cyber risks are viewed as internal risks.

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