Uzbeks Address Crisis By Buying Bank Assets
Uzbeks Address Crisis By Buying Bank Assets
January saw the introduction of changes decreed by President Islam Karimov in order to “provide lending support and investment for the real economy”.
The decree followed up on the government’s Anti-Crisis Programme, adopted last November, which aims to mitigate the worst effects of global financial crisis and even provide a basis for sustainable growth. The plan envisages modernising and upgrading industrial plants, funding the work through loans of up to 500,000 US dollars at a preferential interest rate of 14 per cent a year, below the central bank’s benchmark rate.
Only commercial banks that have an element of state involvement will be eligible to handle the new loans. To achieve that, the government is expanding its presence by buying shares in the banks or acquiring a proportion of their basic capital assets.
In 2009, the government plans to invest over 400 million US dollars in Asakabank, Microcreditbank, Narodny Bank, Pakhtabank, Gallabank, and Uzpromstroybank. The funds will not actually be held in these banks, but in special accounts opened for them in the National Bank of Uzbekistan.
According to official statistics, as of last year Uzbekistan had some 30 commercial banks with 7,500 branches, holding total assets of 1.26 billion dollars at the end of September. Government funding means these assets will grow significantly this year.
According to Uzbekistan’s economics ministry, state investment will enable the commercial banks to offer more loans to various parts of the economy, including the private sector, thus stimulating growth.
NBCentral Asia observers are still sceptical about the plan’s chances of success. They warn that increasing the level of state intervention will inevitably lead to greater government control of the banking sector, thus stifling any chance of salvaging an economy that is already over-regulated.
For a start, loans will only be offered to companies and businesses that are endorsed by a government monitoring group and loan committee. In addition, the commercial banks will earn nothing from the loans, because the interest rate will be set artificially low.
Komron Aliev, an analyst in Tashkent, predicts that the result could be economic slowdown rather than grown. He said that on past experience, Uzbek government intervention in the banking sector did not work.
Uzbekistan underwent banking reforms in 2007, when the government ordered banks to seek more private deposits as a way of boosting their assets. The initiative proved less than effective as many people were reluctant to put their money in banks which they fundamentally mistrusted.
In February 2008, the banks were granted a tax exemption as long as they increased their assets and offered high returns of up to 20 per cent a year on long-term deposits. NBCentralAsia argued then that the measure was designed to counteract a possible outflow of deposits at a time of impending financial crisis. (See Uzbek Authorities Try to Stem Capital Flight, 06-Nov-08.)
As the government’s instrument of monetary policy, the National Bank of Uzbekistan makes a practice of directing the commercial banks through administrative instructions. Observers in the country say the commercial banks are now under unwritten orders to hold up wage payments at the end of each month, so as to build up their own funds.
“All banks have to follow the government’s instructions and they cannot do otherwise,” said Aliev.
At the same time, other experts interviewed by NBCentralAsia were more hopeful that the rigorous policies the Uzbeks are adopting would prove an effective way of managing the current crisis.
Kanat Berentayev, an economist from Kazakstan who watches the Uzbek banking sector closely, called for a longer-term view of the situation. The true test, he said, would only come when the banks start issuing loans and these translate into an economic upturn.
He said the Uzbeks’ plan to part-nationalise the commercial banks was not dissimilar to what is going on in Kazakstan, where the government also wants to buy some of the commercial banks’ assets and start offering cheap loans to major industries.
“This strategy is also popular in other countries,” added Berentayev. “Today, what’s most important is to overcome and recover from crisis”.
(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service is resuming, covering Uzbekistan and Turkmenistan.)
