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CREDIT RISK MANAGEMENT AND PROFITABILITY IN
COMMERCIAL BANKS OF UZBEKISTAN
Kurbanov Hasan Sayfullayevich
Abstract:
Ensuring the liquidity and financial stability of banks directly depends
on the quality of the loan portfolio, since in the structure of the assets of commercial
banks of Uzbekistan loans occupy the highest balance. In turn, improving the quality
of the credit portfolio of banks creates the need to improve the practice of managing
credit risk. The article identified current problems associated with improving the
practice of managing credit risk in the activities of commercial banks and developed
scientific proposals aimed at solving them.
Key words:
loan, loan portfolio, commercial bank, Reserve, interest rate, credit
risk, basic rate, devaluation, interest income, inflation.
Аннотация:
Поскольку в структуре активов коммерческих банков
Узбекистана наибольший вес занимают кредиты, от качества кредитного
портфеля напрямую зависит обеспечение ликвидности и финансовой
устойчивости банков. В свою очередь, повышение качества кредитного
портфеля банков порождает необходимость совершенствования практики
управления кредитным риском. В статье выявлены актуальные проблемы,
связанные с совершенствованием практики управления кредитным риском в
деятельности коммерческих банков, разработаны научные предложения,
направленные на их решение.
Ключевые слова:
кредит, кредитный портфель, коммерческий банк,
резерв, процентная ставка, кредитный риск, основная ставка, девальвация,
процентный доход, инфляция.
Annotatsiya:
Banklarning likvidligi va moliyaviy barqarorligini ta'minlash
bevosita kredit portfelining sifatiga bog'liq, chunki O'zbekiston tijorat banklari
aktivlari tarkibida kreditlar eng yuqori balansni egallaydi. O'z navbatida, banklarning
kredit portfeli sifatini oshirish kredit risklarini boshqarish amaliyotini takomillashtirish
zaruratini tug'diradi. Maqolada tijorat banklari faoliyatida kredit risklarini boshqarish
amaliyotini takomillashtirish bilan bog'liq dolzarb muammolar aniqlandi va ularni hal
etishga qaratilgan ilmiy takliflar ishlab chiqildi.
Kalit so‘zlar:
kredit, kredit portfeli, tijorat banki, zaxira, foiz stavkasi, kredit
xavfi, asosiy stavka, devalvatsiya, foiz daromadi, inflyatsiya.
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INTRODUCTION
Approved by the decree of the president of the Republic of Uzbekistan dated May
12, 2020 No. PF-5992
In the decree”on the strategy for the reform of the banking system of the Republic
of Uzbekistan for 2020-2025", it is necessary to improve the quality of credit portfolio
and risk management, improve lending volumes
following moderate growth has been identified as priorities for reforming the
Republican Banking System [1].
This makes the issue of improving credit risk management practices relevant.
LITERATURE REVIEW
N. Sokolinskaya believes that careful monitoring of risks, the formation of a
volume of quality credit collection, having a good database for managing the lending
process are the main aspects of ensuring the quality content of the loan [2].
J. Sinkey concludes that the analysis of the cash flow of the receiving customer
plays an important role in assessing the level of credit risk in the activities of
commercial banks. His cash flow analysis asked the following topical questions
should allow you to find the answer:
● is the customer's Net Profit enough to pay off the current portion of his long-
term debts?
how much money does the company receive exactly?
● how does the company finance its operations?
● what behavior of the management or what external influences determine the
current state of the Company [3].
I. Yudina concluded that the profitability of the assets of commercial banks in
developing countries directly depends on the level of credit risk and received loans in
foreign currency as a result of depreciation of the national currency
the inability of customers to repay the loan leads to an increase in the level of
credit risk [4].
V. Usoskin believes that the bank's income from loans is directly related to risk
management depending on their loan portfolio to all the main types of risks: liquidity
risk, interest risk, credit risk [5].
A. Mian and A. Safi concludes that household opportunities to control their own
risks are significantly more limited than those of firms. This meant that loans to
households could be made at the right time increases the likelihood of Non-Return [6].
F. According to kholmamatov, commercial banks on loans to improve the quality
of the loan portfolio in order to improve the methodology of forming reserves to
compensate for possible losses the following criteria for real assessment of the quality
of loans and the organization of reserves for them were proposed: from 1 to 10 percent
on substandard loans; from 11 to 25 percent on unsatisfactory loans; from 26 to 50
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percent on dubious loans; from 100 percent on desperate loans [7].
Sh. Abdullayeva concluded that according to the results of the deversification of
the loan portfolio by sources of resources, it is necessary to take into account the high
level of centralized loans in the credit portfolio of some commercial banks, and to give
relief to banks on these loans, in some cases obtained from them it would be advisable
to take measures such as tax exemption of income [8].
ANALYSIS AND RESULTS
One of the important indicators that characterize the level of credit risk in the
activities of commercial banks is the share of problematic loans in the loan portfolio.
Figure 1: Figure 1: share of problematic loans in the total volume of loans of
commercial banks of the Republic of Uzbekistan, in percentage.
Figure 1 data shows that the share of problematic loans in the credit portfolio of
commercial banks of our republic was relatively high in 2019-2022. This figure was
particularly high in 2021.
It should be noted that in the volume of problematic loans of commercial banks
of the Republic, the problematic loans of state banks occupy a high salute. This is
explained by the fact that loans issued under state programs, but not returned, were not
returned to commercial banks.
As of January 1, 2022, the share of troubled loans in commercial banks of the
Republic of Uzbekistan in total loans amounted to 5.2 percent, while in the people's
bank this figure was 19.7 percent.
According to the methodology proposed by the experts of the International Bank
for reconstruction and development, if the share of problem loans in the loan portfolio
3,6
5,2
2,1
1,5
2023
2022
2021
2020
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does not exceed 3.0 percent, then the level of overdue debt on loans is moderate.
Because loans are high in the composition of commercial bank assets, a
deterioration in the quality of the loan portfolio creates a strong impact on their
liquidity and financial stability.
Another of the important indicators that characterize the level of credit risk in the
activities of commercial banks is the level of diversification of the loan portfolio.
Table 1.:
Network structure of the loan portfolio at Asakabank, at interest
Networks
2019
2020
2021
2022
2023
Industry
71,9
62,8
68,2
70,6
67,2
Agriculture
5.3
6.8
5.5
4.3
4.0
Transport and communication
0.6
1.2
1.9
1.8
1.8
Construction
7.1
1.2
1.2
1.3
1.0
Trade and catering
3.2
3.9
4.4
4.9
4.6
Material and technical support
0.5
0.0
0.0
0.0
0.0
Housing and communal services
0.3
0.5
0.4
0.4
0.3
Other industries and industries
(including individuals)
11.1
23.6
18.4
16.7
21.1
Total
100
100
100
100
100
Table 1 data shows that in 2018-2022, loans to industrial enterprises accounted
for the absolute bulk of loans issued by Asakabank (above 60 percent). This indicates
that the diversification criterion of the loan portfolio in Asakabank has not been met.
Another of the important indicators that characterize the level of credit risk in the
activities of commercial banks is the level of reserve allocation, which is intended to
compensate for losses from loans, relative to the bank's brutto assets.
The Central Bank of the Republic of Uzbekistan's directive “on the classification
of the quality of assets in commercial banks and the procedure for the formation and
use of reserves to compensate for possible losses in assets”(state registration with the
Ministry of Justice of the Republic of Uzbekistan No. 2696 on July 14, 2015) also
began to form reserve allocations according to five categories of:
● standard loans-1 %;
● substandard loans-10 %;
● unsatisfactory loans-25 %;
● suspicious loans-50 %;
● desperate loans – 100 %
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RECOMMENDATIONS AND CONCLUSION
We have formulated the following conclusions in the research process:
● the fact that the share of problematic loans in the credit portfolio of commercial
banks of the Republic was relatively high in 2019-2023, indicating that this indicator,
especially in 2021, was very high, did not improve the practice of managing credit risk;
● due to the fact that loans are high in the composition of the assets of commercial
banks, a deterioration in the quality of the loan portfolio will create a strong impact on
their liquidity and financial stability;
● The fact that in 2019-2023 the absolute bulk of loans issued by Asakabank were
made up of loans to industrial enterprises (above 60 percent) indicates that the
diversification criterion of the loan portfolio in Asakabank was not met;
● The amount of reserve deductions intended to cover losses from loans at
turonbank and the bank's level relative to brutto's assets with a trend of growth in 2017-
2021 is a negative situation in terms of the point of improvement of credit risk
management practices. In our opinion, the following measures should be carried out to
improve the practice of managing credit risk in the activities of commercial banks of
our republic:
1. It is necessary to develop an assessment methodology that allows a more
accurate assessment of the levels of impact of financial risks (risk of inflation, risk of
deflation, risk of devaluation), affecting the level of credit risk in the activities of
commercial banks. As we know, an increase in the level of inflation leads to an increase
in the interest rates of loans. This serves to increase the level of credit risk. The increase
in the rate of devaluation of the national currency makes it difficult for banks to repay
loans issued in foreign currencies on time and in full.
2. When assessing credit risk for international loans of commercial banks, the
standardized approach of the Basel Committee on credit risk assessment should be
used.
REFERENCES
1.
Decree of the president of the Republic of Uzbekistan dated May 12, 2020 PF-5992
“on the strategy for reforming the banking system of the Republic of Uzbekistan
for 2020-2025”//national database of information on legislation, 13.05.2020-y.,
06/20/5992/0581
2.
Соколинская Н. Э. Проблемы менеджмента кредитного портфеля в
современных условиях//Банковское дело. – Москва, 1999. - №9. – С. 18–19
3.
Синки Дж. Финансовый менеджмент в коммерческом банке и в индустрии
финансовых услуг. Пер. с англ. – М.:Альпина Паблишер, 2017. – С. 485 - 486.
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4.
Юдина И. Н. Банковская система в развивающихся экономиках: опыт
становления, развития и кризисов. Монография. – М.: ИНФРА-М, 2013. – С.
230–231.
5.
Усоскин В. М. Современный коммерческий банк: управление и операции. –
М.:ЛЕНАНД, 2019. – С. 218.
6.
Mian A., Rao K., Sufi A. Household Balance Sheets, Consumption, and the
Economic Slump//Quarterly Journal of Economics. – 2013. – 128(4). – pp. 1687 –
1726.
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Mukhammadjon Muzaffarov. Projects formed on the basis of public opinion and
financing them in Uzbekistan. World of Scientific news in Science Journal, 2023
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Maxmud o‘g‘li, Muzaffarov Muhammadjon, Ortiqov Ulug‘bek Akrombek o‘g, and
Mavlonov Doston Mavlon o‘g‘li. “Бюджет солиқ сиёсати орқали мамлакат
иқтисодиётини ривожлантиришнинг аҳамияти”. journal of innovations in
scientific and educational research." (2023): 1.
