Econometric Analysis of Lending to Small Businesses in Commercial Banks

This study conducts an econometric analysis of the factors influencing the volume of loans allocated to small business entities by commercial banks, using Uzbekistan as a case study. The research is based on monthly time-series data covering the period from 2020 to 2024 and applies the autoregressive distributed lag (ARDL) modeling approach to examine both short-term and long-term relationships between variables. The volume of loans extended to small businesses is considered as the dependent variable, while key explanatory variables include inflation expectations of business entities, the central bank’s policy interest rate, deposit volumes, bank capital, non-performing loans, liquid assets, bank profits, and deposit interest rates. The choice of the ARDL model is justified by its ability to handle variables integrated of different orders and to simultaneously estimate long-run equilibrium relationships and short-run dynamics. Unit root tests confirm that the variables are stationary at either level or first difference, which satisfies the prerequisites for applying the ARDL bounds testing approach. The results of the bounds test indicate the existence of a long-term cointegration relationship between the loan volume and the selected explanatory variables. Empirical findings reveal that the deposit interest rate and non-performing loans play a significant role in determining the volume of loans provided to small business entities. In particular, an increase in deposit interest rates positively affects lending activity, reflecting the importance of deposit mobilization for expanding credit resources. At the same time, the growth of non-performing loans negatively influences lending volumes, indicating higher credit risk and tighter lending conditions. The short-run dynamics show that several macroeconomic and banking-sector variables have statistically significant effects, while their long-term impacts are relatively weaker. Overall, the study provides important insights for improving credit, deposit, and risk management policies in commercial banks. The results can be useful for policymakers and banking practitioners in developing effective strategies to enhance access to finance for small businesses and ensure sustainable growth of the banking sector.