Institute for War and Peace Reporting | Giving Voice, Driving Change

Uzbek Bank Closure “Political”

Official claims that Business Bank was liquidated for violating laws are being challenged.
By IWPR Central Asia

The authorities’ recent decision to close Uzbekistan’s most successful private bank is being viewed with suspicion by financiers, diplomats and analysts, who believe that the move was politically motivated.

Business Bank, which was shut down on March 15 for alleged violations of the former Soviet republic’s laws, was on the verge of a groundbreaking investment deal with the European Bank of Reconstruction and Development, EBRD.

Askar Haidarov, press secretary of Uzbekistan’s central bank which issued the closure order, refused to comment on the nature of the violations or allegations that the move was politically motivated. But he confirmed that the decision was final and that the bank would be liquidated rather than sold to another institution.

A liquidation commission was immediately set up and is expected to complete procedures connected with the closure of the bank within eight weeks.

Locally-based western diplomats, European financiers and analysts, meanwhile, have voiced doubts over the government’s motives for closing Business Bank. The sources agreed to speak to IWPR on condition of anonymity.

One western diplomat close to Business Bank said, “I don’t understand the central bank’s decision, but it is not connected with any violations - the bank was closed for political reasons.”

He told IWPR that central bank representatives had inspected Business Bank on a weekly basis, and that the practises of the latter had been thoroughly checked by its numerous foreign partners.

“Several days before the Business Bank was closed, it was praised…at a meeting of the central bank,” he noted.

One prominent European banker who had had dealings with the institution agreed that the closure was politically motivated and questioned the authorities’ talk of violations.

“Closing down Business Bank, even if it was because of violations, could be compared with closing down Volkswagen because one of the directors broke the traffic rules,” he said.

He praised Business Bank for its independence in a country where so many supposedly private enterprises are in fact directly connected to the state.

“It was a small bank, but it was a good, dynamic one. They wanted to develop, expand and offer their clients a world class service,” the banker told IWPR.

Analysts note that Uzbekistan’s legislation is imperfect and, as such, everyone violates the laws to a greater or lesser extent. They say that individuals and companies the authorities approve of are rarely prosecuted, but the rules change if they fall out of favour.

The European banker told IWPR that this is what might have happened to Business Bank.

“Business Bank was small - its capital was not more than perhaps four million US dollars and had around 800 clients - but its work came into conflict with businesses linked to power structures, and it was providing dangerous competition,” said the source.

Business Bank was part of the successful Naitov Group, which started out in Uzbekistan as a telecommunications firm, specialising in internet services. Naitov Group later joined forces with the US firm Sky Tel to launch a cellular network offering far cheaper mobile phone calls than any other operator in the republic.

A source close to Sky Tel told IWPR that this brought the Naitov Group into conflict with Uzbekistan’s main mobile phone provider Uzdunrobita, of which President Islam Karimov’s elder daughter Gulnara Karimova owned a partial share until 2004.

Business Bank’s successful relationship with the EBRD may have been the final straw, say analysts. Following negotiations at the end of February, EBRD was expected to buy a substantial share of Business Bank, investing some two million US dollars.

Analysts believe that Tashkent was angered by this move, as the EBRD refused to work with state institutions and in 2004 cut off all its loans in protest at the lack of economic and political reforms being carried out in the republic.

Masaru Honma, the director of EBRD’s Central Asian department, told IWPR that Business Bank had established a good reputation and confirmed that EBRD had planned to purchase a 35 per cent a share of the bank.

Business Bank employees told IWPR that they and their clients were in “a state of shock” after the closure. All its funds were immediately frozen, leaving many local and international businesses unable to access their funds.

The authorities have, meanwhile, invited them to open accounts in state-run banks, with a promise that their money would be transferred there when the liquidation commission completes its work.

According to information from the central bank, first individual customers will be dealt with, then state enterprises, and only after that commercial firms.

Reflecting the problems now faced by many of the bank’s customers, a Turkish businessman said his textile company was now close to collapse, as he could not pay his suppliers.

“I have around 100,000 dollars in my Business Bank account and I cannot pay for [consignments of] thread. Why was the bank closed so unexpectedly, why couldn’t they warn the clients?” he asked.

He told IWPR that he had been enthusiastic about business opportunities in the former Soviet republic, and had wanted to involve some of his European associates in his venture.

“However, my German business partners were not in any hurry to invest here - and evidently they were right,” he said.

Galima Bukharbaeva is IWPR’s country director in Uzbekistan.