IMPROVING AND DIVERSIFYING CREDIT PORTFOLIOS IN COMMERCIAL BANKS

This article examines how commercial banks can improve credit portfolio quality through diversification, stronger underwriting and continuous risk monitoring. The study uses a structured narrative review of international supervisory guidance and research, together with an explicitly hypothetical portfolio illustration. It addresses the question of how banks can reduce concentration without expanding into activities that exceed their expertise. The illustration compares two five-sector portfolios with identical total exposure. Reallocation lowers the Herfindahl–Hirschman Index from 0,300 to 0,225 and reduces losses under a specified single-sector stress from 9,00 to 5,40 exposure units. These are scenario calculations rather than observed bank outcomes. The analysis proposes a management framework combining borrower-group aggregation, sector and currency limits, forward-looking credit assessment, risk-adjusted pricing and escalation procedures. Diversification is most useful when it changes underlying economic exposures and is supported by reliable borrower information. For Uzbekistan, implementation should emphasize transparent asset classification, independent credit decisions and alignment between lending growth, capital capacity and risk management expertise.