Uzbekistan Overhauls Banking Sector to Boost Competition and Stability
A Major Reform Initiative
Tashkent, Uzbekistan - The government of Uzbekistan has launched a comprehensive overhaul of its banking sector, aimed at increasing competition, improving governance, and enhancing stability. This significant reform initiative was announced in May 2020 and involves the privatization of state-owned banks, relaxation of foreign ownership rules, and strengthening of anti-money laundering regulations.
Key Reforms
- Privatization: Foreign investors will be allowed to own up to 5% of domestic banks, promoting competition and transparency.
- Central Bank Powers: The Central Bank of Uzbekistan (CBU) has been granted more powers to oversee the banking sector, focusing on price stability and oversight.
- State’s Role Reduction: The government aims to reduce its role in the banking sector and increase the share of private banks from 18% to 60% by 2025.
State-Owned Banks Reforms
Three state-owned banks - National Bank of Uzbekistan, Agrobank, and Microcreditbank - will remain under government control to meet the needs of the population in financial services. These banks will undergo significant reforms, including:
- Independent Supervisory Boards: Appointment of independent boards to ensure good governance.
- Stress Tests: Conducting stress tests with international audit companies’ involvement to assess bank resilience.
Privatization Process
The privatization process is already underway, with two small state-owned banks, Poytaxt Bank and UzAgroEksportBank, set to be sold off through open tenders. In February 2022, Sovkombank (Russia) acquired a 100% stake in UzAgroExportBank for $4 million.
International Support
International financial institutions are providing support and guidance for the privatization of six large state-owned banks. The sale of Ipoteka Bank to OTP Bank (Hungary) was announced in September 2021 but has been delayed due to the Russia-Ukraine conflict.
Banking Sector Performance
Despite challenges posed by the pandemic and ongoing conflicts, Uzbekistan’s banks have shown resilience, with only a slight increase in non-performing loans. However, the CBU must continue to closely monitor banks’ liquidity and capital positions, including through updated stress tests, and stand ready to provide liquidity support when needed.
Outlook
The reforms are expected to strengthen the banking sector’s competitiveness and profitability, although margins will eventually shrink. The outlook is positive, with the expanding size of the economy set to sustain higher levels of credit growth, while ongoing liberalizations and privatizations across different sectors will drive demand for loans and other financial services.
Quote
“The reforms are a crucial step towards creating a healthy and competitive banking system that can efficiently facilitate financial intermediation and finance growth. While the challenges of 2022 may slow down the privatization agenda, it is essential to continue efforts to improve corporate governance and cooperation with international financial institutions.” - Darya Miroshnikova, chief researcher at CERR