Publication Details
Abstract
Banking sector is rather important in the financial stability and the economic development of Uzbekistan where commercial banks have more and more problems associated with risk management as well as financial performance. The increase in size of the banking operations as well as the aspect of financial intermediation in recent years has made the question of management of operations risk and its correlation to bank profitability to be of importance. Regardless of a lot of international researches on the banking risks and banking profitability, there is a paucity of empirical studies that analyze the relationship between the operational risk and the financial performance of banking systems in emerging banking system, more so in Uzbekistan. The research proposal is to evaluate the amount of operational risk in the commercial banks in Uzbekistan and examine the correlation between the important financial indicators and the profitability of the bank. The level of operational risk was determined using financial data of 35 commercial banks and applying the Basic Indicator Approach (BIA) as prescribed by Basel II, and the Ordinary Least Squares (OLS) regression model was utilized to determine the relationship between the operating expenses, non-performing loans (NPL) and capital adequacy ratio (CAR) and the return on assets (ROA). Empirical findings indicate that the percentage of non- performing loans exerts the most effective and significant negative impact on the profitability of banks and the effects of operating expenses and capital adequacy are statistically insignificant. The paper presents empirical data concerning the relationship between the operational risk indicators and bank profitability in the banking market of Uzbekistan based on the data related to national regulation. The results suggest that credit risk management and efficiency in operations should be reinforced to have sustainable financial performance in commercial banks.