Cost, Risk and Value Creation in Uzbekistanʼs Reforming Banking System – A Three-Block Assessment of Commercial Bank Efficiency, 2020–2025

This paper assesses the efficiency of commercial banks in Uzbekistan over 2020–2025, the period covered by the national banking-sector reform strategy, using a three-block framework that combines accounting indicators with a DuPont decomposition, frontier efficiency estimated by data envelopment analysis, and risk-adjusted returns compared with the domestic cost of capital. The analysis uses Central Bank statistics for the system and uniform national-standard financial statements for six banks that held 33.0 per cent of system assets at the end of 2025: three banks with state participation, two private banks and Ipoteka-bank, sold to a strategic investor in 2023. Three results stand out. First, system-wide return on equity rose from 10.3 to 12.4 per cent, but the increase came from higher asset utilisation and leverage while the profit margin fell from 25.3 to 18.6 per cent; in every year the systemʼs return on equity stayed below the rate paid on corporate term deposits. Second, the gap between state and private banks is not an operating-cost gap: the state banks with the lowest cost-to-income ratios carry the highest cost of risk, whereas the private banks combine high operating costs with wide margins, low problem loans and returns 9.5–13.5 percentage points above the deposit benchmark. Third, mean technical efficiency across 36 bank-years is 0.892, scale efficiency is uniformly high and all six banks operated under decreasing returns to scale in 2025, so growth by itself is not a source of efficiency. The privatised bank shows the early-stage pattern of a balance-sheet clean-up rather than an efficiency gain. The findings point to funding structure, credit-risk management and asset utilisation, rather than branch and staff costs, as the margins on which efficiency in state-dominated banking systems can be raised.