THE BANKING SYSTEM OF THE REPUBLIC OF UZBEKISTAN: WHY INVESTING  IN DIGITAL TRANSFORMATION IS ESSENTIAL

Kamila Alimjanova

149

қарздорлигини

сезиларли даражада қисқартириш, уларнинг пул маблағларига бўлган

эҳтиёжини тўлароқ қондириш имконини беради.

Ушбу муаммоларнинг ҳал этилиши қишлоқ хўжалик маҳсулотларини етиштирувчи

барча тузилмаларни молиявий ахволини яхшиланишига, хар бир дехқон моддий

маифаатдорлигини таъминлаш оркали ишлаб чикариш самарадорлигини оширишга

хизмат килади.

ФОЙДАЛАНИЛГАН АДАБИЁТЛАР РЎЙХАТИ

1.

Ўзбекистон Республикаси Президентининг 2022 йил 28 январдаги “2022

-

2026 йилларга

мўлжалланган Янги Ўзбекистоннинг тараққиёт стратегияси тўғрисида”ги ПФ

-60-

сон Фармони.

2.

Ўзбекистон Республикаси Марказий банки йиллик ҳисоботи. 2021 йил.

3.

Ўзбекистон Республикаси Марказий банки статистик бюлетенлари. 2019

-

2021 йиллар.

4.

https://president.uz/uz/lists/view/4551

THE BANKING SYSTEM OF THE REPUBLIC OF UZBEKISTAN: WHY INVESTING

IN DIGITAL TRANSFORMATION IS ESSENTIAL

Alimjanova Kamila -

TSUE, Finance and financial technology,

Group MT-81, 3 rd year student

The world is rapidly moving towards digitization, and the banking sector is no exception.

Digital transformation is the integration of digital technology into all areas of a business, which

fundamentally changes the way it operates and delivers value to customers. The banking sector is
at the forefront of this transformation, as customers increasingly demand digital services that are

faster, more convenient, and accessible anywhere and anytime. This transformation has become

even more crucial with the COVID-19 pandemic, which has accelerated the shift towards
digitalization.

In Uzbekistan, the banking sector has seen steady growth over the past few years, with a

significant increase in assets, loans, and deposits. According to the Central Bank of the Republic
of Uzbekistan, the total assets of the banking sector reached 555.3 trillion Uzbekistan soums

($49.3 billion) in 2022, a 28,5% increase compared to the previous year. Loans and deposits also

increased by 19,1% and 51%, respectively. [1]

Despite this growth, the banking sector in Uzbekistan faces several challenges, including

low financial inclusion, inefficient processes, and a lack of digital infrastructure. The World Bank

estimates that only 44% of adults in Uzbekistan have a bank account, and only 42% have access
to digital financial services. [2] This highlights the need for investment in digital sphere in order

to improve financial inclusion and access to banking services.

One of the primary challenges is the lack of digital infrastructure, including internet

connectivity, which limits the reach of digital financial services, particularly in rural areas. To

address this challenge, the government has been investing in expanding the country's digital

infrastructure, including improving internet connectivity and mobile network coverage.

Another challenge is the low digital literacy rate among the population, which limits the

adoption of digital financial services. According to the United Nations Development Programme,
only 33% of Uzbekistan's adult population has basic digital skills. To address this challenge, the

government has been implementing various programs to promote digital literacy, including

training programs for teachers and students, as well as awareness campaigns targeting the
general public. [3]

150

The lack of sufficient cybersecurity measures is also a significant challenge facing the

banking sector. Cyber threats, including phishing attacks, malware, and ransomware attacks, are

on the rise globally, and Uzbekistan is not immune. To address this challenge, banks need to
implement robust cybersecurity measures, including firewalls, intrusion detection systems, and

encryption technologies. The government can also play a role in strengthening cybersecurity

measures by implementing cybersecurity regulations and guidelines.

According to a study by Accenture, digital banks have 2.5 times higher return on equity

(ROE) than traditional banks. Additionally, digital transformation can reduce costs by up to 20%

and increase revenue by up to 10%. By investing in digital transformation, banks in Uzbekistan
can improve their profitability and competitiveness in the market. For example, the National

Bank of Uzbekistan (NBU) has implemented a digital platform IBank for processing payments

and has reported a 40% reduction in processing time and a 30% reduction in operational costs.
[4]

Digital transformation has also enhanced the customer experience by providing more

personalized and convenient services. Customers can now access banking services from
anywhere, at any time, using their mobile devices. Banks have also been using data analytics to

gain insights into customer behavior and preferences, enabling them to offer more tailored

services and products.

It is worth noting that the government of Uzbekistan also has been implementing various

initiatives to promote digitalization and financial inclusion in the banking sector. One of the

significant digital transformation initiatives implemented is the introduction of mobile banking
services. Several banks in Uzbekistan have launched mobile banking applications that enable

customers to access banking services from their mobile devices, including account balance

inquiries, fund transfers, bill payments, and loan applications. For example, Asaka Bank, one of
the largest banks in Uzbekistan, launched its mobile banking application, Asaka Mobile, in 2020.

As of 2022, the app has over 1 million downloads, and the bank reports that over 50% of its

customer transactions are now conducted through digital channels. [5]

To promote financial inclusion, the government has also launched the "Electronic Wallet"

program, which aims to provide financial services to the unbanked population using mobile

devices. The program enables users to deposit, withdraw, and transfer funds using their mobile
devices, without the need for a bank account. As of 2022, over 8,4 million electronic wallets have

been registered, according to the Central Bank of Uzbekistan. [6]

Uzbekistan's digital transformation efforts in the banking sector can be compared to other

countries' efforts to identify potential areas for improvement. According to the World Bank,

Uzbekistan ranks 124th out of 190 countries in the ease of doing business rankings, indicating

that there is room for improvement. However, the country has made significant progress in
recent years, with its ranking improving by 15 places between 2020 and 2022.

Uzbekistan's digital transformation in the banking sector is comparable to other developing

countries in the region. For example, in neighboring Kazakhstan, the government has launched
several initiatives to promote digital financial services, such as the creation of a digital

identification system and the development of a regulatory sandbox for fintech startups. As a
result, the volume of digital transactions in Kazakhstan increased by 2.4 times in 2020 compared

to 2019. [7]

Similarly, in Azerbaijan, the government has introduced several reforms to promote

financial inclusion and digitalization, such as the creation of a digital payment system and the

expansion of access to mobile banking services. As a result, the number of mobile banking users

151

in Azerbaijan increased by 53% in 2020 compared to the previous year. [8] In Kyrgyzstan and
Tajikistan, digital financial services are still in the early stages of development.

In comparison to developed countries, Uzbekistan still lags behind in terms of digitalization

in the banking sector. For example, in the United States, mobile banking penetration is over 80%,

while in Uzbekistan, it is still relatively low. However, Uzbekistan's digital transformation efforts

have been impressive, considering the country's limited resources and the challenges faced.

To ensure the sustained growth of the banking sector's digital transformation in

Uzbekistan, several recommendations can be made. Firstly, the government needs to continue

investing in the country's digital infrastructure to expand access to high-speed internet and
increase smartphone penetration.

Secondly, the government needs to work closely with the private sector to promote

innovation and investment in the fintech industry. This can be done by providing incentives for
fintech startups and facilitating partnerships between banks and fintech companies.

Thirdly, the government needs to create a legal and regulatory framework that supports the

development of digital financial services, including promoting competition, protecting consumer
rights, and ensuring data privacy and security.

Finally, the government needs to focus on promoting financial literacy and education to

ensure that the population can effectively use digital financial services and benefit from them.

In conclusion, digital transformation is essential for the banking sector in Uzbekistan to

improve financial inclusion, efficiency, and profitability. Although there are challenges such as

the lack of digital infrastructure and skills, investing in digital transformation can yield significant
benefits for banks and customers alike. With the right investments and solutions, Uzbekistan can

catch up with other countries in terms of digital banking adoption and provide its citizens with

reliable, convenient, and accessible banking services.

References:

1.

Central Bank of Uzbekistan. (December 20, 2022)

. 2022 Indicators of banking system. Retrieved

from

https://cer.uz/ru/news/news/cerr-has-updated-the-rating-of-the-most-active-banks-in-uzbekistan-

what-has-changed

2.

World

Bank.