Uzbekistan Banking & Financial System (PDF)
The basic elements of a market-based financial sector are in place in Uzbekistan, but private sector intermediation has yet to assume an important role. Institutions owned directly or indirectly by government account for the majority of the financial system. Banks dominate, with those wholly or majority owned by the state comprising two-thirds of financial sector assets. Leasing and insurance, which are the only other sizable segments of the financial sector, are also dominated by state-owned companies. Other financial services providers remain small in both number and size. The Tashkent Republican Stock Exchange has six listed companies, although the shares of a larger number of companies, mostly privatized state-owned enterprises, trade on the exchange. Corporate debt is also traded, but the market remains small.
Why is the Uzbek banking system not growing and not providing more financial intermediation to foster faster private sector development? There are several factors that help to explain this phenomenon. These relate to the history of banking sector development in general, and in particular the non-bank functions that Uzbek banks perform. The evidence of the growing deposit base and increased intermediation by privately owned banks, although from a small base, provides insights into policy options that would increase overall banking sector intermediation and foster private sector development.

• The total loan portfolio of banks increased by 35.6% since early 2011 up to 15.65 trillion sums.
• The share of long-term loans in total loan portfolio for a period of more than three years hit over 75% in 2011.
• The amount of loans allocated by banks for investment purposes grew by 37% up to 4.4 trillion sums.
• Banks issued loans totalling 4.04 trillion sums and micro credits worth 752 billion sums to enterprises of small businesses and private entrepreneurship in 2011, which is 1.5 times more than in 2010.
• The aggregate bank capital increased by 30% in 2011 up to 5.334 trillion sums as of Jan. 1, 2011.
• The total amount of deposits attracted by banks amounted to 18.04 trillion sums increasing by 36.3%. Deposit of population increased by 38.8 percent up to 6.17 trillion sums.
• The Uzbek banking system is represented by 30 banks: 3 state owned, five with foreign capital, 12 joint stock and 10 private.
• Total assets of Uzbek banks increased by 32.1% and amounted to 20.739 trillion sums in 2010 compared to 2009, the total loan portfolio 35% up to 11.539 trillion sums, the aggregate bank capital by 36.2% up to 4.1 trillion sums.

Uzbek Banking System

The banking sector suffers from its weak role in Soviet times, when it was largely an adjunct of the 5-year plans, though many people had savings accounts in the Savings Bank. What personal savings people had were wiped out in 1991 due to hyperinflation. Continued inflation since then has resulted in a large transfer of wealth from creditors to debtors, further shaking confidence in the sector. The level of financial intermediation is thus very low and has fallen further since independence. All personal incomes and outlays are transacted in cash and very few individuals maintain savings accounts. The National Bank of Uzbekistan (NBU) tried unsuccessfully to introduce a VISA card in the local soum currency last year.

On the whole, the banking system is still marked by lack of openness, relatively high degrees of concentration, segmentation and cross-ownership, and substantial non-performing loans. The Economist places Uzbekistan with China at the bottom of its Emerging Market Access Index, a measure of market openness based on trade and investment barriers. On the other hand, there have been positive steps to reform the sector since independence: the legal foundation has largely been developed and banking supervision strengthened, an electronic payments system introduced and internationally-accepted accounting standards for banks adopted. Underway now are a WB-financed financial institution building project and plans to privatize the largest banks.

At present foreign banks can open offices only in the form of subsidiary banks or as JVs. Minimum capital requirements are $30m for the parent bank and $5m for the subsidiary bank. The only foreign bank with fully established operations here is ABN Amro, although the Turkish Ut Bank and the Korean Daewoo Bank operate, servicing primarily their own nationals involved in JVs and trade operations in Uzbekistan.