ANALYSIS OF THE FINANCIAL STABILITY OF UZBEKISTAN COMMERCIAL BANKS

Vol.4 No.10 OCTOBER (2025) 431 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 ANALYSIS OF THE FINANCIAL STABILITY OF UZBEKISTAN COMMERCIAL BANKS Ulashbayev Shohruh Abdivakhobovich Independent researcher at Tashkent State University of Economics [email protected] https://orcid.org/0009-0002-6483-5261 Abstract. This article discusses the theoretical and methodological aspects of the formation of a compliance control system in commercial banks and its integral connection with the mechanism for ensuring financial security. The study analyzes the role of compliance control in ensuring compliance with legislation, internal policies and international standards in banking activities. Also, the functional areas of compliance in strengthening financial security in the banking system - risk management, prevention of corruption, control over problem loans and monitoring of suspicious transactions - are scientifically assessed. Keywords: financial crimes, money laundering, control, monitoring of suspicious transactions, bank, financial security of commercial banks, compliance. 1.Introduction Financial crimes and money laundering are also on the rise within the European Union. According to Eurojust, the number of international money laundering cases has doubled in the past six years, representing an annual increase of 2–5 percent of global GDP. Therefore, in international practice, the compliance and supervision system plays a central role in preventing financial fraud, corruption, and illegal transactions, as well as ensuring that banking activities comply with the law, ethical norms, and international standards. [1] The banking system of Uzbekistan is also gradually implementing the process of adapting to international financial standards. According to the Central Bank, at the beginning of 2023, the share of overdue and non-performing loans (NPL) in the loan portfolio of commercial banks amounted to 3.8 percent. Despite this relatively stable indicator, threats to financial security remain, including weak internal governance, conflicts of interest, and weak cybersecurity systems.[2] 2.Literature review Vol.4 No.10 OCTOBER (2025) 432 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 The directions of ensuring the financial security and stability of commercial banks have been widely studied in the scientific works of foreign authors. In particular, they are described in the works of foreign scientists S. Brew, P. Kachalov, R. Coase, K. McConnell, V. Nordhaus, S. Robbina, P. Samuelson, A. Strickland, V. Tambovsev, A. Thompson and other economists. Issues of ensuring financial security, threats to financial security and strategies for their prevention have been studied by S. Amadae [4], S. Akhmad, Amicelle A . [5], Amoore, L.A. [6] and other scientists. The scientific works of domestic economists - N. Jumayev [7], A. Burkhanov [8], Kh. Abulqosimov, I. Abdukarimov [9], D. Ortikova [10], D. Istamov, M. Mukhammedov, E. Khodjayev, A. Ishmuhammedov, D. Narzullayeva, A. Parmonov, A. Igamberdiev, G. Dadayev, M. Qodirov, D. Rustamov, B. Tursunov and others - have studied the theory of ensuring the financial security of commercial banks, in particular the problems of ensuring the financial security of economic entities. However, the issues of ensuring and assessing the financial security of commercial banks, improving financial intelligence activities, identifying and preventing financial risks have not been sufficiently studied. 3.Analysis and results The Decree of the President of the Republic of Uzbekistan No. PF-5992 “On the Strategy for Reforming the Banking System of the Republic of Uzbekistan for 2020-2025” dated May 12, 2020 was signed. This decree sharply criticized the current situation in the banking system. In particular, the current analysis of the banking sector in this decree indicates the existence of a number of systemic problems that hinder the development of the banking sector in line with economic renewal and the needs of society, such as high levels of state intervention in the banking sector, insufficient quality of management and risk management in banks with state participation, and a low level of financial intermediation in the economy. [3] Figure 1 shows the dynamics of the share of problem loans, current and operational liquidity ratios, and the share of loans and investments of the joint-stock commercial bank “Asia Alliance Bank” for the period 2020-2024. According to the graph, although the bank's liquidity indicators have been relatively stable over the years, the share of problem loans has shown fluctuations in some years. In particular, in 2022, the current liquidity ratio reached its highest level, which indicates that the bank's capacity to cover short-term liabilities has strengthened during this period. At the same time, a slight increase in the share of problem loans was observed in this year, which affected the decline in the quality of the loan portfolio as a financial risk factor. In 2023-2024, as a result of diversifying the bank's assets, reducing credit risks, and Vol.4 No.10 OCTOBER (2025) 433 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 strengthening compliance and control mechanisms, the share of problem loans decreased, and current and operational liquidity indicators remained within the regulatory limits. The ratio between the share of loans and investments reflects the balance of risk and profitability of the bank's activities: although loan operations are the main source of income, the presence of an investment portfolio is a factor in the rational use of resources and maintaining liquidity. In general, the results of the analysis show that Asia Alliance Bank has implemented targeted measures to ensure liquidity and keep the volume of problem loans under control, which has become important in improving the financial stability of the bank and the effectiveness of the compliance and control system. Figure 1. Share of problem loans and liquidity at Asia Alliance Bank In Asia Alliance Bank, the current liquidity ratio increased from 0.41 to 0.77 in 2020– 2022, improving the ability to cover short-term liabilities. The decrease to 0.47 in 2024 is due to a decrease in liquid assets or an increase in liabilities. The share of loans decreased from 61.5 percent in 2020 to 34.9 percent in 2022, and then stabilized around 45–50 percent. Problem loans decreased from 2.5 percent to 1 percent, demonstrating the effectiveness of risk management. The share of deposits increased from 81.7 percent to 89.1 percent, indicating increased customer confidence. This confirms the strong financial stability of the bank. Table 1 Financial indicators of the JSCB “Asia Alliance Bank” Deposit Ratio 0,81674 0,80498 0,89454 0,84634 0,89104 Vol.4 No.10 OCTOBER (2025) 434 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 Financial Leverage 8,69427 8,11708 10,69463 9,49820 6,46632 Deposit Ratio 0,46946 0,46531 0,66406 0,49787 0,59077 Capital Adequacy Ratio (CAR) 0,15359 0,15702 0,17032 0,16865 0,22620 Ownership Ratio 0,11501 0,12319 0,09350 0,10528 0,15464 Financial leverage at Asia Alliance Bank increased from 8.69 in 2020 to 10.69 in 2022, increasing risks, but improving asset utilization efficiency. Its decrease to 6.46 in 2024 indicates a strengthening of capital and a strengthened risk-limiting policy. The share of demand deposits increased from 46.9 percent to 66.4 percent and stabilized around 59 percent, which indicates the need for prudence in liquidity management. The capital adequacy ratio increased from 15.3 percent to 22.6 percent, exceeding Basel III requirements, confirming the bank's financial stability. The increase in the ownership ratio from 0.11 to 0.15 indicates an increase in the bank's financial independence. Figure 2. Stability Index of Asia Alliance Bank JSCB In 2020–2021, the Asia Alliance Bank stability index increased from 0.498 to 0.501, indicating a balanced financial policy. In 2022, the index decreased to 0.366, reflecting the impact of post-pandemic instability and credit risks. In 2023–2024, the index changed from 0,498 0,501 0,366 0,486 0,463 0,000 0,100 0,200 0,300 0,400 0,500 0,600 2020 2021 2022 2023 2024 Asia Alyans bank Vol.4 No.10 OCTOBER (2025) 435 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 0.486 to 0.463, indicating that the bank's stability was relatively restored, but the influence of external factors remained. During 2020–2024, the financial indicators of the Industrial and Construction Bank of Uzbekistan have shown steady growth, which indicates that the bank has achieved positive results in liquidity, loan portfolio quality and investment activities. The current liquidity ratio increased from 0.22 to 0.28, improving the ability to cover short-term liabilities. The quick liquidity ratio reached its highest level in 2021 at 0.79, but decreased to 0.45 in 2024, which is explained by the decrease in the share of liquid assets. The share of loans decreased from 0.78 to 0.73, increasing diversification, and the share of problem loans decreased from 0.0325 to 0.0272, which is the result of effective risk management. The volume of investments increased tenfold in 2020–2024, increasing the bank's focus on investment activities. In general, the Industrial and Construction Bank of Uzbekistan has pursued a conservative policy, achieving high results in reducing credit risks and strengthening financial stability. Compared with Asia Alliance Bank, this bank has a relatively high level of risk tolerance and financial security. Table 2 Financial indicators of JSCB “Industrial and Construction Bank of Uzbekistan” Deposit Ratio 0,27012 0,25829 0,26373 0,20937 0,26743 Financial Leverage 7,31535 7,33826 8,20935 8,55080 8,73747 Deposit Ratio 0,62931 0,49101 0,50687 0,42218 0,35846 Capital Adequacy Ratio (CAR) 0,16112 0,16559 0,14315 0,13432 0,12805 Ownership Ratio 0,13670 0,13627 0,12181 0,11695 0,11445 The dynamics of deposit, capital and leverage indicators of JSCB "Industrial and Construction Bank of Uzbekistan" during 2020–2024 demonstrated a consistent development trend in the bank's financial security and capital stability. Although the share of deposits remained at around 0.27, its decrease to 0.21 in 2023 indicates a temporary reduction in attracted funds, which is explained by changes in liquidity and interest rate policies in the postpandemic period. Financial leverage increased from 7.31 to 8.73, indicating an increase in the Vol.4 No.10 OCTOBER (2025) 436 INTERNATIONAL JOURNAL OF EUROPEAN RESEARCH OUTPUT ISSN: 2053-3578 I.F. 12.34 share of borrowed funds, but the capital adequacy ratio decreased from 0.16 to 0.13, but remained above Basel III standards (0.08). This confirms that the bank retains the ability to cover risks. Compared with Asia Alliance Bank, in recent years, return on assets (ROA) has increased from 1.01 percent to 3.59 percent, and return on equity (ROE) has increased from 8.82 percent to 23.25 percent, increasing the efficiency of the bank's operations and shareholder value. This growth indicates that financial management is focused on diversification, asset redeployment, and expanding the scope of services. 4.Conclusions Ensuring financial stability is one of the strategic priorities for commercial banks, which determines not only the strength of the banking system, but also the financial security of the national economy. Today, instability in the global financial market, volatility of interest rates and inflationary pressures require a more thorough risk management system from the banking sector. Therefore, assessing capital adequacy based on international standards and improving the internal stress test system are considered one of the main stability factors in banking activities. International experience shows that capital management in accordance with Basel III standards strengthens the bank's solvency and increases its resilience to potential financial shocks. Internal stress tests, in turn, allow for a rapid response to changes in the quality of bank assets, liquidity levels and credit risks. Also, improving asset efficiency is an important factor in expanding the profit base of banks and diversifying risks. High-yield, low-risk financial instruments – in particular, sovereign bonds, green (ESG) investments or financial instruments focused on sustainable development projects – serve to stabilize the profitability of an asset portfolio. This process is especially important from the point of view of supporting economic growth and integrating the principles of environmental and social responsibility into the financial system. References: 1. Eurojust Report on Money Laundering.https://www.eurojust.europa.eu/publication/eurojust-report-money-laundering. 2. https://cbu.uz/en/statistics/bankstats/907008. 3. https://lex.uz/en/docs/-4811025. 4. Amadae S. M. 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