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Continuing economic recovery and maintaining high state support will help the banking sector of Uzbekistan to overcome difficulties related to the accelerated devaluation of the national currency, says a report of the international rating agency Moody’s Investors Service.

The high level of domestic investment and public spending, as well as increased consumption thanks to the growth of salaries, pensions and remittances from abroad continue to favorably influence the position of Uzbek banks and to some extent compensate for the weakness of the national currency, says the report.

It was previously reported that the official exchange rate of the Uzbek soum decreased by 18 percent – to 3,231.48 soums per dollar in 2016, and by 23.2 percent – to 4,210.35 soums per dollar since early 2017 until September 1.

According to Moody’s, although the currency risk is one of the key problems of the banking sector, these risks are mainly concentrated in the National Bank for Foreign Economic Activity of Uzbekistan (National Bank for Foreign Economic Activity, В1/В2, “Stable”, b2), which accounts for a quarter of all assets of the country’s banking sector.

The agency’s experts believe that the quality of Uzbek banks’ loan portfolio will improve within the next 12-18 months, while the share of problem loans will gradually decrease from 2.7 percent (as of late 2016) to 2-2.5 percent of the total volume of issued loans.

Meanwhile, the aggregate loan portfolio of banks will grow by 40 percent in 2017-2018, mainly due to the revaluation of assets in foreign currency.

The accelerated devaluation of the Uzbek national currency increased the credit risks in foreign currency of borrowers that don’t have sources of foreign currency revenues. These are, as a rule, big state-owned enterprises, which, if necessary, can count on the support of the state.

According to the agency, the level of capital and income of Uzbek banks are sufficient to absorb credit losses.

The significant capital injections by the Ministry of Finance (about 500 billion soums) and the Fund for Reconstruction and Development ($500 million) carried out in 2017 will enable to somewhat offset the growth of risk-weighted assets, such as unsecured loans in 2017-2018.

Currently, 27 commercial banks operate in Uzbekistan, including three state-owned banks, five with the participation of foreign capital, seven private banks and 12 joint-stock banks.

In 2016, total assets of Uzbek banks increased by 23.3 percent – up to 80.4 trillion soums, the aggregate loan portfolio by 25.1 percent – up to 53.4 trillion soums, total bank capital rose by 20.5 percent – up to 9.4 trillion soums.

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