BankBW

Reforms of the banking system in Uzbekistan

It is hard not to notice reforms that are currently being implemented in the banking and financial system, which include the introduction of modern market mechanisms, improving the culture of banking services, etc. The activities and efforts of the state, banks, and international financial institutions to privatize banks are particularly important today. In addition, it is worth noting the increasing role of IT technology and the introduction of new solutions for providing banking services. The head of state Sh. M. Mirziyoyev has repeatedly spoken and mentioned in his speeches about the need for reforms of Uzbek banking system. It is known that international financial institutions already work closely with local banks and advise on privatization issues.

On May 12, 2020, an important decree Of the President of the Republic of Uzbekistan On the strategy of reforming the banking system of the Republic of Uzbekistan for 2020-2025 was published, which defines the need to reform banks by improving the efficiency of the banking system and creating equal competitive conditions in the financial market, improving corporate governance and attracting managers with international practical experience, and most importantly, reducing the state’s share in banks through a comprehensive transformation of commercial banks with a state share.

Main goals:

  • sector restructuring — transformation and privatization of banks;
  • improving the legal framework, introduction of standards of the Basel Committee on banking supervision, international financial reporting standards and others;
  • expanding the range and improving the quality of services by improving customer focus, lending mechanisms and business process automation;
  • professional development of personnel.

The decree also approved the strategy for reforming the banking system of the Republic of Uzbekistan for 2020-2025, the “road map” for reforming the banking system of the Republic of Uzbekistan. Targets were set, such as:

  • increasing the share of banks ‘assets without the state’s share in the total assets of the banking system from the current 15 percent to 60 percent by 2025;
  • increasing the share of banks’ liabilities to the private sector in the total liabilities from the current 28 percent to 70 percent by the end of 2025.

It is planned to gradually privatize the state share in Ipoteka Bank, Uzpromstroybank, Asaka, Alokabank, Kishlok Kurilish Bank and Turonbank, but the state share in National Bank for foreign economic activity, Agrobank and Mikrokreditbank remain. Shares will be sold to strategic partners who have extensive experience and who can bring new solutions and positively effect on sector.

A project office is being created under the Ministry of Finance of the Republic of Uzbekistan, which will deal with the transformation and privatization of commercial banks with a state share, the involvement of international consultants, negotiations and agreements with international financial institutions.

The decree also prohibited heads of ministries, departments and local government bodies from interfering in the activities of banks, including managing business risks related to the formation of banks ‘ loan portfolios and assets, which sometimes occurred in practice. In accordance with the decree, the Prosecutor General’s office of the Republic of Uzbekistan was instructed to strengthen supervision over the implementation of legislation on banks and banking activities in order to prevent administrative interference in the activities of banks by state bodies.

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