Uzbekistan’s Financial Sector Sees Major Overhaul with New Banking Law

Tashkent, Uzbekistan - In a significant milestone for Uzbekistan’s financial sector, the Senate has approved a package of financial laws, including a new banking law. This development marks the culmination of a year-long collaboration between the World Bank Group and the Central Bank of Uzbekistan (CBU) to reform the country’s banking regulation.

A New Approach to Banking Regulation

The approval of the new banking law represents a major shift in the way Uzbekistan approaches banking regulation and supervision. For years, the focus was on ensuring compliance with government-dictated policy priorities rather than preserving financial stability and protecting depositors.

However, following economic reforms launched in 2017, it became clear that the legal framework underpinning CBU’s oversight of the banking sector needed to be overhauled. The World Bank Group (WBG) was invited to review an initial draft, which identified several weaknesses. The WBG offered support in drafting a new law, and the project team worked closely with the CBU to develop a comprehensive framework for banking supervision.

Key Features of the New Law

The new law establishes a robust “gatekeeper function” designed to ensure that private investors entering the banking sector meet fit and proper standards, de facto ownership structures are well-understood and monitored continuously, and related party lending is contained. The law also provides the CBU with sufficient powers to exercise supervisory judgment in the face of dynamically evolving banking risks.

A New Paradigm for Uzbekistan’s Financial Sector

The passage of the new law marks a significant paradigm shift for Uzbekistan’s financial sector. It reflects a recognition that banks require special treatment due to their unique role in the economy and the potential impact on financial stability if they fail.

World Bank Group Support

The World Bank Group has played a key role in supporting Uzbekistan’s financial sector reforms, including the development of a banking sector reform strategy, a national financial inclusion strategy, and upgrading banking supervision. The organization is now poised to build on the momentum generated by the new banking law, with plans to continue providing support to policymakers as they work to transform the country’s financial sector.

Acknowledging Project Success

The success of the project was made possible through the hard work and dedication of the World Bank Group project team, including Davit Babasyan, Juan Ortiz, Matei Dohotaru, and Corina Turcan.