The transformation of the business models of Uzbekistan's banks will play a key role in the privatisation process for the lenders, according to Fitch Ratings.

Meanwhile, the sale of a controlling stake in Uzbekistan’s fifth-largest bank, Ipoteka Bank, to Hungary’s OTP Bank could reignite investor interest in the banking sector of Central Asia’s second largest economy, the ratings agency noted. The sale is recognised as the first major deal under Tashkent's medium-term banking sector reform aimed at privatising all state-owned banks without a policy role by end-2025. The reform aims to expand the proportion of banking sector assets at non-state banks to at least 60% from around 30% currently.

As things stand, the government aims to privatise two more banks, namely Asakabank and Uzbek Industrial and Construction Bank, by the end of this year.

However, Fitch noted: “We believe the sales could be delayed due to ongoing pre-sale business model transformations being carried out with the help of IFIs, most notably the International Finance Corporation and the European Bank for Reconstruction and Development.”

It added that the aim of the transformations was to shift the banks from directed corporate lending towards commercial business, particularly in the SME and retail segments. “Despite recent progress, state-owned banks still have a corporate focus with material exposure to the public sector, resulting in vulnerabilities to certain sectors and borrowers. Many of the outstanding loans are at below-market rates, which weighs on banks’ profitability,” the ratings agency added.

“Uzbekistan’s banking sector could be attractive to foreign investors due to considerable growth potential, especially in retail lending. However, structural weaknesses continue to weigh on the operating environment for Uzbek banks. These include a highly dollarised economy, weak financial transparency in the corporate sector, state dominance in key industries and limited deposit funding,” Fitch also said.

According to Fitch, potential investors were likely to want at least some of the weaknesses to be addressed before they enter the Uzbek banking market.