Credit Portfolio Quality, Risk Governance, and Financial Stability: Evidence from Uzbekistan's Commercial Banks

Background: Maintaining high credit portfolio quality is essential for ensuring banking sector resilience and macro-financial stability, particularly in emerging economies undergoing structural reforms. Uzbekistan’s banking sector has experienced rapid transformation since 2017, yet asset quality challenges persist. Purpose: This study investigates the impact of risk governance mechanisms on credit portfolio quality and examines how improvements in asset quality contribute to financial stability in Uzbekistan’s commercial banks.Methods: Using balanced panel data for 20 commercial banks over the period 2015–2023, the study applies fixed-effects panel regression models. Credit portfolio quality is proxied by the inverse non-performing loan (NPL) ratio, while risk governance is measured through a constructed Risk Governance Index (RGI). Financial stability is assessed using the Z-score indicator. Robust standard errors and Hausman specification tests ensure model validity.Results: Empirical findings indicate that risk governance significantly improves credit portfolio quality (β = 0.42, p < 0.01). A 1% increase in the Risk Governance Index reduces NPL ratios by approximately 0.38%. Furthermore, improved credit portfolio quality significantly enhances banking stability (α = 0.55, p < 0.01). The model explains 61% of within-bank variation (R² = 0.61).Implications: Strengthening governance frameworks and regulatory oversight can substantially enhance banking stability in transition economies. The findings provide policy-relevant insights for financial sector reform in Uzbekistan and comparable emerging markets.

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