Concern at Falling Bank Assets in Uzbekistan

As the global financial crisis continues, bank assets in Uzbekistan are shrinking and the authorities’ capacity to bail them out appears limited.

In late May, the international rating agency Moody’s raised questions about the quality of deposits held in Ipoteka Bank and Alokabank as well as the central bank itself.

Experts at Moody’s fear the lack of money in circulation is slowing the growth of bank deposits, and doubt the government is going to be able to honour pledges to inject more money into the banking system.

In a response to the international crisis in late 2008, the government said it would buy shares in six commercial banks and channel subsidised loans to industry through them. (See Uzbeks Address Crisis By Buying Bank Assets, 22-Jan-09.)

However, by the spring, there was evidence that the banks were still in poor shape, as they limited the amount of cash people could withdraw. To ease the flow of money in a cash-poor situation, they paid salaries and benefits by electronic transfer and withheld a proportion of people’s wages to cover payments for utilities such as gas and electricity.

An observer in Uzbekistan says new restrictions on cash disbursements are being introduced on a monthly basis, with the National Bank of Uzbekistan setting a limit for each bank on a case-by-case basis.

Dilmurod Kholmatov, an economist in Tashkent, says the banking situation gives cause for alarm.

“Given the crisis conditions, falling export revenues, and reliance on world [commodity] prices, it is very unlikely the plan to support the financial sector will work,” said Kholmatov. “There might not be enough money.”

Commentators note that depositors have little confidence in the banks, despite tax exemptions introduced last year for banks which expand their assets and pay high interest on long-term deposits. (See Uzbek Authorities Try to Stem Capital Flight, 06-Nov-08.)

“People are not putting money in the bank,” said a commercial bank employee in Tashkent who asked not to be named.

(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 has resumed, covering Uzbekistan and Turkmenistan.)