Assessing the Economic Factors Influencing State Share Reduction in Commercial Banks of Uzbekistan

State ownership of commercial banks carries a great deal of importance in respect of stability, efficiency, and whole performance of the financial sector. Against this background, since state ownership strongly characterizes the banking landscape of Uzbekistan, fears of inefficiency and low competitiveness have, therefore, risen. This paper investigates the main economic factors influencing the reduction of state shares in commercial banks of Uzbekistan. Using data from the Central Bank of Uzbekistan from January 2018 to October 2023, the current paper has applied an ARDL and SEM model for investigating the state ownership in commercial banks together with different economic factors-investments in digitalization, average weighted interest rate on loans, and short-term deposit interest rates. The resultant analysis reveals that when there is a 1% increase in investments to digitalization, it leads to a 0.27% decrease in the capital of commercial banks with high state ownership. In a similar way, a 1% increase in the average weighted interest rate on loans leads to a 3.10% decrease in the capital of those banks. While a 1% increase in the short-term deposit interest rate leads to a 2.63% surge in the capital of state-owned commercial banks. The implication follows that investments to digitalization positively affect state-owned commercial bank capital, but the higher loan interest rates reduce bank capital due to the increased borrowing cost. However, deposit rates exert a positive effect on bank capital because, through raising deposit rates, one attracts more deposits and improves liquidity. Major economic determinants for the capital of state-owned commercial banks of Uzbekistan are such factors as inflation, loan interest rates, and deposit interest rates. Policymakers need to consider these factors while building a strategy to decrease state shares in commercial banks and reach an optimal balance between stability and market efficiency.