Risk of a "credit pyramid" in Uzbekistan: Every second borrower has multiple loans

The Central Bank of Uzbekistan has published its financial stability review for the country. The regulator's report notes an alarming rise in debt levels among the population: over the past year, more than half of the citizens who took out loans have burdened themselves with two or more debt obligations. In industry terms, a trend of a peculiar "credit pyramid" (covering old debts with new loans or falling into chronic debt) is being observed in the country.

Zamin.uz has analyzed the facts behind the figures provided by the regulator.

Key trends: How are debtors distributed?

After studying the complex of obligations to local banks and microfinance organizations (MFOs), the Central Bank revealed the following figures:

• Share of those with multiple loans: Over the year, this indicator rose from 43 percent to 53 percent. This means that today, every second Uzbek who has taken out a loan is making payments to multiple sources simultaneously.

• Dual indebtedness: The group of people who have borrowed from both banks and microfinance organizations at the same time has grown sharply, reaching 18 percent (+10 percentage points over the year).

• Distribution by sectors: 62 percent of debtors have borrowed only from banks, while 20 percent have borrowed only from microfinance organizations.

Debt coverage: What portion of the working population has a loan?

Not only is the number of loans increasing in the country, but the total number of individuals taking out loans is also rising. The number of official borrowers in banks has increased by 11 percent in a year, reaching 5.2 million people.

If we calculate this against the number of the working-age population, the situation looks as follows:

Real proportion: Today in Uzbekistan, there are 244 debtors for every 1000 working-age citizens. This means that nearly one-quarter of the employed population is officially repaying a loan.

Financial burden has decreased slightly, but...

An interesting aspect is that despite the increase in the total number of debts held by the population, the average financial burden indicator (i.e., the ratio of loan payments to a citizen's total income) has decreased slightly — from 38 percent to 37 percent.

However, this situation is no reason for complacency. The necessity of managing and servicing multiple parallel debts simultaneously could lead to serious problems in the future.

The Central Bank warns: This system of chronic indebtedness and parallel loans will have a very negative impact on the real solvency of the population in the near future and could also pose a risk to the banking system itself.