Triangulating Bank Financial Stability in a Transition Economy: The Z-Score Versus a Camels-Based Composite Index for Uzbekistan's Banking System (2021–2024)

This study examines financial stability in Uzbekistan's banking sector by triangulating two complementary assessment methodologies: the accounting-based Z-Score and a composite CAMELS-inspired index constructed from capital adequacy, profitability, and cost-efficiency indicators. Using annual data for three structurally distinct institutions—Aloqabank, Asia Alliance Bank, and Mikrokreditbank—over 2021–2024, we compute bank-year Z-Scores following Boyd and Runkle (1993) alongside a newly constructed Composite Financial Strength Index (CFSI). The Spearman rank correlation between the two measures is moderate and statistically insignificant at conventional levels (ρ = 0.41, p = 0.185, n = 12), indicating substantial divergence in stability rankings. The Z-Score systematically overstates Mikrokreditbank's resilience during 2021–2023 owing to abnormally low earnings volatility characteristic of its government-directed lending mandate (the "low-sigma effect"), while understating Asia Alliance Bank's genuine strength in periods of moderate volatility. The CFSI more consistently reflects prudential fundamentals, including Aloqabank's 2022–2023 capital adequacy breaches. The findings suggest that singleindicator stability assessments can materially mislead supervisors in markets with heterogeneous bank ownership structures, and that composite, multi-dimensional frameworks better support prudential decision-making in transition economies such as Uzbekistan.