Uzbekistan Diagnostic Assessing Progress and Challenges in

The full effect of the devaluation of the official exchange rate on the banking sector 
remains to be seen
. System NPLs, reported to be under 1 per cent, are likely understated due 
to misleading classification (for example, only the scheduled repayment portion is counted as 
overdue vs. the equivalent outstanding amount of the loan), in some cases special treatment 
of overdue repayments by SOEs under state guarantee, and transfer of problem loans to off-
balance sheet. The devaluation may place pressure on NPLs, especially in the largest state-
owned bank (70 per cent dollarized, unlike the remainder of the sector, where dollarization is 
around 20 per cent), unless some exposures benefit from state-supported restructurings. 
Capital support measures have been announced, with a focus on state-owned banks. The 
government injected US$ 500 million from the Fund for Reconstruction and Development 
and additional funds from Ministry of Finance into the banking system, primarily the state 
banks. Several private banks are in the process of strengthening capital. 
Measures are under way to improve operations in the banking system. 
A President’s 
decree issued in September 2017 outlines a range of reforms and initiatives to upgrade the 
banking system; beside capital and liquidity measures they address also areas such as risk 
management, bond issuance, IT systems and financial literacy. Banks will be freed from non-
banking responsibilities (monitoring company receivables, etc.) and protected from 
government interference in lending decisions. With support from IFIs, a number of 
improvements are underway to upgrade the institutional capacity of the banking system and 
the legislative framework.
 
The IMF will assist the CBU on stress testing and inflation 
targeting. The ADB and the IBRD are also providing assistance. The IFC helped to draft the 
law on credit bureau and assisted on strengthening the collateral registry system
and will be 
providing pre-privatisation support to one state-owned bank. Governance reform will be of 
crucial importance as the government has traditionally imposed non-core functions including 
tax withholding and financial oversight of firms on the banks, which negatively affected the 
confidence in the banking sector.

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OFFICIAL USE
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OFFICIAL USE