PROSPECTS FOR APPLYING THE Z-SCORE MODEL IN ASSESSING FINANCIAL STABILITY IN THE UZBEKISTAN BANKING SYSTEM
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https://doi.org/10.5281/zenodo.19695123##article.subject##:
Z-Score, financial stability, bank risk, return on assets (ROA), return on equity (ROE), capital adequacy ratio (CAR), cost-to-income ratio (CIR).##article.abstract##
This paper investigates the prospects for applying the Z-Score model to the assessment of financial stability
in the Uzbek banking sector. The study is based on monthly financial data spanning 2020 to 2024 for three institutions -
Aloqabank, Asia Alliance Bank, and Mikrokreditbank which represent distinct ownership models and strategic orientations
within the national banking system. The bank-adapted Z-Score formula, Z = (μROA + E/A) / σROA, is employed to
quantify each institution's distance from insolvency, where μROA denotes mean annual return on assets, E/A is the yearend
equity-to-assets ratio, and σROA captures the standard deviation of monthly ROA observations within each year.
The results demonstrate that Asia Alliance Bank posted a sustained upward trajectory in financial stability, with Z-Scores
rising from 20.93 in 2021 to 53.36 in 2024, driven by robust profitability gains (ROA increasing from 0.54% to 4.91%) and
steadily improving cost efficiency (CIR declining from 49.43% to 35.45%). Aloqabank exhibited moderate but variable
stability, peaking at 34.42 in 2021, declining to a trough of 14.82 in 2023 amid earnings volatility and a temporary breach
of the regulatory capital adequacy minimum, before partially recovering to 22.19 in 2024. Mikrokreditbank recorded
exceptionally high Z-Scores of 100.85, 133.83, and 351.63 in 2021–2023 respectively, reflecting an extremely low standard
deviation of ROA characteristic of government-directed specialized lending, but experienced a sharp deterioration to 7.86
in 2024 when the institution posted negative mean ROA of −0.57%. The findings contribute to the empirical literature on
banking stability in transition economies and yield actionable implications for bank supervisors and management teams
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