Monetary policy and bank performance in times of crisis: evidence from Uzbekistan during COVID-19 and the Russia–Ukraine war

This study investigates the relationship between monetary policy and bank performance in Uzbekistan during the COVID-19 pandemic and Russia–Ukraine war. Using system-GMM with monthly panel data from 32 banks (2020–2023), we evaluate three monetary policy indicators: the central bank policy rate, money market rate (MMR) and narrow money (M0) growth – capturing price-based signaling, funding costs and quantitative liquidity, respectively. Results show that higher policy rates are positively associated with bank profitability (return on assets ROA and return on equity ROE), while the MMR exhibits a negative relationship, suggesting the policy rate operates through signaling and macro-stabilization channels rather than funding cost dynamics. Supplementary NIM analysis confirms this interpretation: policy rates compress margins, indicating the positive profitability association reflects broader stabilization effects. M0 growth shows a weaker positive association, turning negative during sanctions for equity returns. Interaction analyses reveal the monetary policy–profitability relationship was two to three times stronger during the pandemic. Evidence on state ownership is mixed: state-owned banks show stronger associations with asset returns but not equity returns. These findings demonstrate the importance of distinguishing price-based from quantity-based policy instruments in emerging markets navigating compounded external shocks.