Page 12 - Uzbek Outlook 2024

5.2 Banks
Preparation for banking sector privatisation was an early focus in the government’s banking sector reform plans and while a lot of progress has been made, the actual privatisations of the sector had proceeded more slowly than hoped.
Dwarfed by the size of banks in many of its neighbours, especially Russia, the government has been cautious in selecting partners to sell banks to. The goal has been to find partners of appropriate size that will complement the existing sector rather than big banks that will quickly dominate it.
So far there have only been three significant foreign bank entries to the market: Bank of Georgia which has focused SME lending; TBC, also from Georgia, that is focusing on electronic banking; and a Turkish bank to facilitate trade.
Georgia has been an especially attractive partner as it has developed a sophisticated banking business – both Bank of Georgia and TBC are listed in London – but Uzbekistan’s population is several times larger than Georgia’s giving both banks a new large market to develop.
Banking has come on by leaps and bounds, but under Karimov, state-directed credits were the norm to support state-controlled key sectors and these systems still need to be unwound.
Despite tight monetary policy, credit growth remains high, particularly for car loans, microcredit and mortgages. The CBU has appropriately tightened loan-to-value ratios and introduced concentration limits for banks. Additional supervisory and macroprudential measures would help ensure banks assess the creditworthiness of borrowers and limit the risk of declining asset quality, the IMF says.
The authorities’ continued efforts are needed to bolster corporate governance and transparency of state banks and further reduce policy lending as the state-owned banks continue to dominate the sector.
Another issue is that bank credits remain dominated by dollar-loans. Uzbek banks are still predominantly funded by credits provided by long-term low interest Multilateral Development Banks in dollars so that dollar loan rates are low and long and in single digits. However, dollar loans expose borrowers to a considerable foreign exchange risk. Uzbekistan soum loans are funded by deposits but as those resources are raised from limited local deposits those loans are much more expensive with rates in the low 20%.
The impending sale of a controlling stake in Uzbekistan’s fifth-largest bank, Ipoteka Bank, to Hungary’s OTP Bank could reignite investor interest in the banking sector of Central Asia’s second largest economy, Fitch said in December 2023.
The sale is recognised as the first major deal under Tashkent's medium-term banking sector reform aimed at privatising all state-owned banks without a policy role by end-2025. The reform aims to expand the proportion of banking sector assets at non-state banks to at least 60% from around 30% currently.
As things stand, the government aims to privatise two more banks, namely Asakabank and Uzbek Industrial and Construction Bank, by the end of this year.
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