Financial services of business entities, their tasks and functions

Fig.2. Source of Financing by Sector (%)

SME finance is principally performed by two types of financial institutions being channeled through 28 commercial banks, including the specialized Mikrocreditbank and 37 microcredit organizations.

The banking sector’s limited capacity for financial intermediation remains a key barrier to the development of the private sector, and in particular to SMEs. Banking continues to be dominated by a handful of state-owned banks (86% of the assets), and lacks competition and transparency. Government-controlled banks still support the government’s economic priorities through subsidized loans offered to specific sectors and investment purposes. Total bank loans as the percentage of GDP increased from 26.4% in 2016 to 44.4% in 2017. Overall, more than 75% of total sector loans account to state-owned banks, focusing on state-owned large corporates and strategically important industries. These banks are controlled and regulated by the state, mainly through the Ministry of Finance, the Central Bank of Uzbekistan (CBU) and the Uzbekistan Fund for Reconstruction and Development (UFRD).

The penetration of banking services is gradually increasing due to the development of infrastructure, but a substantial part of the population is still not provided with basic banking products.

The low level of penetration of banking services in general hinders the development of the banking sector due to the lack of sources of cheap liabilities − the deposits of the population. Currently, only SUM0.55 of deposits of individuals fall on SUM1 of cash.14 Although there are 36 branch outlets per 100,000 adults, 15 that exceeds the Commonwealth of Independent States (CIS) countries; however, as a ratio to GDP, the level of deposits in Uzbekistan is half that of the Russian Federation or Georgia.

Figure 3 shows that Uzbekistan’s financial depth indicators have not improved in 2009−2019, and are very low compared to countries at similar levels of development. Credit to GDP ratio remained intact in 2009−2019. Deposits slowly increased over the same period, and accounted for 22.1% of GDP in 2019 compared to 10.4% in 2009. By comparison with other countries in the region, the level of deposit penetration in Uzbekistan is low.