BACKGROUND

 

In September 2017, when the Central Bank unified the exchange rate and opened the som to free conversion, Uzbekistan's banking system was almost entirely state-owned. More than 80 percent of bank assets sat on government balance sheets. Directed lending shaped credit allocation. International rating agencies had little to assess.

 

Eight years later, 35 commercial banks hold $73.5 billion in total assets, a 20.2 percent increase in a single year. Three global rating agencies rate the sector as stable. The country is preparing its first international equity listing on the London Stock Exchange.

Ipoteka Bank was privatised, the first major state bank to change hands. Five more are scheduled by 2030. Minimum authorised capital for banks was raised to 500 billion soums from January 2025. Basel-standard prudential regulation now governs the system, with daily balance sheet monitoring and regular macro-stress testing. SQB issued the country's first Additional Tier 1 capital instrument in October 2025, a $300 million AT1 that strengthened regulatory ratios by approximately 300 basis points.

 

The Central Bank, under Chairman Timur Ishmetov since December 2024, holds the base rate at 14 percent, having brought inflation from 9.8 percent to 7.3 percent in twelve months while the som appreciated 6.9 percent against the dollar. The IMF's April 2026 mission assessed the results positively. Loans to individuals grew by 51 percent in 2025, reaching 157 trillion soums. Uzbeks purchased 270,000 apartments and one million cars in the same year, up from 210,000 and 600,000 five years earlier. Real household incomes rose by 9.2 percent. The mortgage system, backed by 23 trillion soums in allocations and 2.7 trillion in subsidies for 2026, converts bank liquidity into new housing and consumer demand.

 

The 2026 state budget, presented by Deputy Prime Minister Jamshid Kuchkarov to the Senate in December 2025, holds the consolidated deficit at 3 percent of GDP on revenues of $42.7 billion. Main tax rates remain unchanged: corporate income at 15 percent, personal income at 12 percent, VAT at 12 percent. The sovereign credit upgrade from BB- to BB reduces external borrowing costs by 1 to 1.5 percentage points, saving over $300 million per year, a figure Kuchkarov quantified for legislators.

 

On 27 March 2026, President Mirziyoyev signed the Islamic banking law, creating a legal framework for Sharia-compliant services effective from June 2026. A UNDP survey found that 68 percent of the population and 60 percent of businesses prefer services aligned with religious principles. The 2026-2030 FinTech Development Strategy launched a stablecoin regulatory sandbox from January 2026, combining retail stablecoins with a wholesale central bank digital currency in one of the first dual architectures anywhere. What follows traces this financial system across its principal dimensions: banking reform, monetary stability, credit expansion reshaping domestic demand, fiscal discipline, digital finance innovation and the new Islamic banking framework. Together, they describe a financial sector built to carry an economy targeting $240 billion by 2030.

 

BANKING SECTOR TRANSFORMATION

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Uzbekistan's updated 2030 Strategy sets a clear privatization calendar. From nine state-owned banks today they will be eight by 2026. Four by 2030, with at least one privatised each year. The state's share of total banking assets, at 64.5 percent as of December 2025, is targeted at 55 percent by the decade's end.

 

SQB is first in line. A 30 percent stake was transferred to UzNIF by presidential decree in September 2025, and the $300 million AT1 issuance in October strengthened capital by approximately 300 basis points. The bank expects to add roughly $2.1 billion in additional lending capacity during 2026-2027. Fitch expects the controlling stake sale to follow the UzNIF IPO. The EBRD plans to acquire a 15 percent stake in Asakabank in 2026 as part of pre-sale preparations. Aloqabank and Turonbank are scheduled for 2026-2027. State banks are building retail and SME portfolios as they move toward commercial franchises, improving profitability and governance. Credit investments account for 63.5 percent of total banking assets. The Legislative Chamber approved the Islamic banking bill in its second and final readings in late 2025.

 

MONETARY POLICY AND PRICE STABILITY

 

Inflation fell from 9.8 percent at end-2024 to 7.3 percent by December 2025, one of the sharpest declines in the Europe and Central Asia region. The 14 percent base rate, maintained since March 2025, anchored expectations while the som's 6.9 percent appreciation against the dollar reinforced price stability. Core inflation declined over the same period, reflecting firmer price-setting behaviour among retailers and manufacturers after three years of elevated readings.

 

The current account deficit narrowed to 3.9 percent of GDP, supported by stronger services exports and remittance inflows of approximately $14 billion. International reserves cover around 13 months of imports, well above the three-month adequacy threshold used by the IMF. The IMF's April 2026 Article IV mission projected 6.8 percent growth for 2026, with inflation expected to ease toward the Central Bank's 5 percent target by end-2027.

 

Both Fitch and S&P upgraded the sovereign from BB- to BB in 2025, citing disinflation, reserve accumulation and the credibility of the privatization programme. Moody's revised its outlook to positive. Gold and foreign exchange reserves exceed $60 billion, with gold accounting for roughly 80 percent of the total, a composition that has shielded the country from dollar volatility. The fiscal deficit narrowed to 2.1 percent of GDP in 2025, well below the 3 percent ceiling. Unemployment fell to 4.8 percent, its lowest reading since 2016.

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CREDIT, MORTGAGES AND DOMESTIC DEMAND

 

Consumer lending grew by 51 percent in 2025, reaching 157 trillion soums, driven by rising household incomes and sustained demand for mortgages, car loans, microloans and other retail products. The pace of growth triggered a prudential response from the Central Bank, which lowered the debt-service-to-income ceiling from 60 to 50 percent in January 2025 to contain household leverage without choking access. For 2026, 140 trillion soums have been allocated for consumer loans, up from 104 trillion. Housing mortgages receive 23 trillion soums, with 2.7 trillion in subsidies for down payments and interest. Concessional mortgage credit per apartment rises by 15 percent, widening eligibility for young families and public-sector employees. The Central Bank expects consumer lending growth of around 30 percent in 2026, a calibrated deceleration that should keep non-performing loans within the current 4 percent range.

 

In 2025, the combined real estate and automobile market reached $20 billion. For 2026, 140,000 apartments in multi-storey buildings are planned, generating an estimated $5 billion in additional demand for building materials, home textiles, electrical goods, furniture and related services. That demand alone creates 300,000 jobs, with construction clusters in Tashkent, Samarkand and Andijan absorbing much of the new workforce. Rising household incomes lifted the services sector by almost 15 percent in 2025, reaching $82 billion. Retail turnover, tourism receipts and logistics activity all grew at double-digit rates.

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FISCAL DISCIPLINE AND THE 2026 BUDGET

 

The 2026 state budget holds consolidated revenues at $42.7 billion, expenditures at $47 billion, and the fiscal deficit at 3 percent of GDP. Main tax rates are unchanged: corporate income at 15 percent, personal income at 12 percent, social tax at 12 percent, VAT at 12 percent, turnover tax at 4 percent. A three-year rate freeze through 2028, announced alongside the budget, removes one of the more common sources of operating-plan revision for foreign investors.

 

Companies transitioning from turnover tax to VAT for the first time receive a one-year exemption from profit tax. Individual entrepreneurs with annual turnover under one billion soums pay a reduced 1 percent turnover tax, a threshold calibrated to bring microenterprises into formal reporting without eroding their margins.

 

Zero VAT applies to agricultural products sold by producers. Companies that build social infrastructure at their own expense and transfer it to utility organizations can deduct the costs from corporate income tax, a provision already drawing interest from textile and chemical investors in Ferghana and Bukhara. Healthcare receives 49 trillion soums, an increase of 5 trillion over 2025, directed toward regional hospital modernisation. Fifteen trillion soums go to housing improvement, including 12.3 trillion for mortgage lending. Six trillion fund the Initiative Budget programme, under which residents vote on neighborhood projects, a mechanism that has funded more than 40,000 schemes since 2022.

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DIGITAL FINANCE AND STABLECOIN

 

On 27 November 2025, President Mirziyoyev signed the decree establishing the 2026-2030 FinTech Development Strategy. From January 2026, a regulatory sandbox allows licensed institutions to develop stablecoins for payments, backed one-to-one by a wholesale central bank digital currency. Citizens use retail stablecoins; the banking system settles through the CBDC. The architecture preserves monetary sovereignty while opening a low-cost rail for e-commerce and cross-border remittances, two corridors where transaction costs have long been a brake on formalisation.

 

Tokenised shares and bonds can be issued by resident companies and traded on licensed exchanges, bringing the country into alignment with regimes already operational in Singapore and the UAE. Open banking, mandating secure data exchange between banks and fintech providers, takes effect by September 2026.

The Instant Payment System launched in February 2026, with a unified QR-code standard for cross-provider payments piloted the previous December. Processing volumes exceeded 40 million transactions in the first quarter. A $50 million venture fund supports fintech startups, with three rounds already closed in the payments, wealthtech and SME-credit segments. 

 

An Innovation Hub established with Singapore specialists offers residents reimbursement of 50 percent of training costs up to $20,000, a programme designed to accelerate the transfer of engineering talent from outsourced IT work into product development. IT services exports reached $1 billion for the first time in 2025, with a target of $5 billion by 2030. Licensed fintech firms number 103 today, with a target of 200 by 2030. Cashless payments are targeted at 75 percent of all trade and services transactions within the decade.

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ISLAMIC BANKING: A NEW CAPITAL CHANNEL

 

President Mirziyoyev signed the Islamic banking law on 27 March 2026, effective from 29 June. The legislation allows fully Sharia-compliant banks, Islamic windows within conventional lenders, and Islamic microfinance institutions. A Council for Islamic Finance under the Central Bank will enforce compliance, with an advisory board drawn from jurists and practitioners in the Gulf and Southeast Asia. Tax amendments exempt VAT on Sukuk and Islamic leasing; income from Sharia-compliant deposits is exempt from personal income tax. At least one Islamic window is expected by end-2026, with two independent Islamic banks targeted by 2030.

 

Nearly half of Uzbekistan's banks are already cooperating with the Islamic Corporation for the Development of the Private Sector to prepare the infrastructure, from core banking systems to staff certification. Officials estimate the framework could unlock up to $5 billion in annual financing potential once fully operational, with the first wave of demand from SMEs in agriculture, light manufacturing and construction materials. Gulf sovereign wealth funds and Malaysian institutional investors have signalled preliminary interest in anchor Sukuk issuances. The dedicated article elsewhere in this edition examines the legislation and its implications for international capital flows in full detail.