History of Banking System
Banks of Uzbekistan had to go a long evolutionary path of development, to overcome considerable difficulties in order to become today a powerful system that affects the national economy.
During recent years in the republic, as in the world banking practice in whole, international and domestic experts noted the existence of general tendency - deviation from specialization and intensification of banking activity universalism. It predetermines substance of banking operations and essence of credit relations.
The banks projected their work in that direction, on the basis of “gold” principle of the world experience: attractiveness of the service to population is proportional to the growth of accessibility to entrepreneurs’ credits. Realizing reforms livened up the banking activity in the direction of adopted before laws “About consumer credit” and “About mortgage”, which had important social significance and favoured to improve living standard of population of the country.
Responding to a challenge of new realities both in the republic and world banking community, the commercial banks of Uzbekistan expanded the set of offered services, performed new banking products in the market, and, in the same time, actively generated international standards of the activity of financial institutions.
Dispositions of the law of the Republic Uzbekistan “About consumer credit” targeted at consumer protection and efficiency widened the opportunity of population to improve their conditions of life that sufficiency increased the amount of consumer credit in banks.
In October, 2006, the law of the Republic Uzbekistan “About mortgage” entered into force. Its adoption marked the new stage in the development of banking consumer credit and defined legal mechanism to give credit to buy real property. The main goal of the documents was the regulation of relations arisen at use of collateral for real property. The appearance of new kind of the service in the consumer market, exactly mortgage, favoured to improve housing conditions of people. Within the range of acting decree of the President of Republic Uzbekistan from February 16, 2005, “About further development of housing construction and dwelling market”, a number of new mechanisms in system of granting of long-term mortgage for housing construction was introduced, it was established Joint-stock commercial mortgage bank “Mortgage bank” and Fund of maintenance of granting of mortgage. The strategy of the banks was directed to maintain monetary circulation, to form funds reserves in banking brunches, upgrade the effectiveness of the activity. The realization of arrangements of “Program on reform and development of banking sector for 2005-2007 y.y.” favoured further reform and liberalization of banking system, provided its steady growth and efficiency, increased the level of capitalization. There were priority directions to maintain the monetary circulation, to upgrade the national currency stability and its rate of exchange, stimulate the increasing of deposit accounts at the banks. Timely facility given by the government to commercial banks of the republic, permanent incentives of their endeavor to development predetermined the formation of banking-financial market, where the credit institutions became to work out and offer their new instruments.
In that period an emphasis made on realization of the concrete measures to maintain monetary circulation and upgrade the national currency stability, its rate of exchange. That efficiency livened up the population who began to open deposit accounts at the banks showing their confidence in them. The amount of deposit base of banks grew up. It was formed the market of banking service, banking products were replenished by new kinds of service, for an example, leasing.
The development of retail service furthered to form joint banks, attracting international banking and financial capital broadly. Banking market of the republic sufficiency was changed at the result of formation of banks with 100% of private capital. Private banks intensified competition in service market, what was one of the important stages of the development of home banking system. The government and CB stimulated their development in every possible way, maintaining by tax exemption and technical support in training of personnel. Currently the number of private banks increased almost half of the total number of the commercial banks of the republic.
Intensification of the private bank development in the republic furthered to raise competition, to improve the quality of the performed banking service, effective market distribution of financial resources. In its turn, that affected the process of private entrepreneurship development in the country.
The factors associated with liberalization of exchange market and arrangement of necessary conditions to provide convertibility of so’m on current international operations influenced directly in bank activity. In October, 2003, the Republic Uzbekistan assumed liability of Article 8 of Agreement of International Monetary Fund at the result of which the enterprises had got opportunity to convert on current operation. In that issue Uzbekistan reached the goal basing on own resource, not attracting external borrowing. Taken steps promoted to expanse home enterprise activity which had got access to convert national currency. The number of currency exchange offices grew up, procedure of foreign currency purchase was simplified. It was the stage of productive work. The policy of the CBRU was targeted at export incentive and effective use of currency resources, together with containing of inflation and averting of sharp fluctuation in exchange. Favorable price conjuncture of general export goods of Uzbekistan in world markets as well as conduction of export-oriented monetary policy furthered to increase the amount of export and growth of currency reserves.
The process of the reform of banking system was gone on. Its main directions were: strengthening of the corporate management system by upgrading the role of shareholders in bank management; raise of financial stability of the banks owing to improvement of assets quality including currency; further banking development and expansion of banking service performance; raise the role of commercial banks in investment process and development of mechanism of access of entrepreneurial structures in all forms of ownership to credit resources including international financial institutions.
Collaboration of banking sphere with private sector showed itself more appreciable. The important factors favored that collaboration development were: gradual improvement of the quality of banking service performance, origination of competition in banking environment, tendency to support entrepreneurial sector of the country. That period marked the beginning of the balanced policy on bank crediting, searching of customer inquiry and quick reaction to the requirement of their business.
The strategic tasks were put at the banking system of Uzbekistan, which should determine the perspectives of the banking sector development. The first one was to support financial steadiness of the banks and enlarge the range of financial service in domestic market. The second one was activization of the banks of the republic in international exchange market.
In that period the President of the Republic Uzbekistan paid still more attention to the issues of the development of financial banking system of the country, its strengthening and qualitative improvement of the activity so that its stability should be able to withstand crisis. In connection with it the important decisions made to raise the level of capitalization of a number of leading banks (Uzindustrialconstructionbank, Asakabank). The decree of the President of Uzbekistan about increasing of statuary fund of “Microcreditbank” made a qualitative change of the activity of that bank that it became one of the main credit centers of financing of small-scale business and private enterprise.
Every year of that period became as a new stage of common progressive development of the banking financial system of the country.
Such mechanism proposes purchase of exchange by authorized banks from their clients on a contractual basis at free exchange rate on the basis of supply and demand in foreign exchange market.
On the basis of Basel recommendations on banking supervision and international practice it was worked out the package of the statutory acts regulating the activity of the commercial banks within the framework of international standards of financial statements. There it was used the principles of advance revelation of the issues on commercial bank balance and taking measures to stave off running out of capital as well as decrease of banking liquidity for the purpose to support financial steadiness of commercial banking organizations.
It was worked out the mechanism of calculation and introduced the modern system of inter-banking electronic payment. The banks were given the unique possibilities to fit out the departments by modern computer and telecommunication equipment. They were exempted from a number of taxes to direct exempted means to modernize equipment.
The qualitative new consumers of financial and economic information – home and foreign investors - appeared in the country.
At carrying out the basic laws “About the Central bank of the Republic Uzbekistan” and “About the banks and banking activity” it was taken into account the experience of the countries with the developed financial system. These laws as well as the law “About the stock companies and protection of the rights of the shareholders” created favorable legal conditions to form private and corporate commercial form of the non-state banks. At present time the following factors have special effect on the development of banking sphere: first, as a result of realized reforms in 1996, the CBRU became an authorized body of monetary regulation and banking supervision; secondly, the law of the Republic Uzbekistan “About the banks and banking activity” concretely defined the legal framework of the actions of the second level banking structure – commercial banks. It specified principles of formation of universal commercial banks on the base of diversification of banking assets and attraction of foreign capital.
Peculiarities of that period were the formation of credit and financial institutions served definite brunches of the economy. Such specialization was due to necessity to finance the definite brunches and sectors of the economy (automobile industry, aircraft building, agriculture and others). Further specialized banks widened the range of activity and their clients in accordance with the requirements of business circumstances and new level of the development of the economy of the Republic.
Process of establishment of the CBRU as a regulating and supervising body of the banking sector was gone on. Is was carried out qualitative renewal of the legislative base, clauses of which were adjusted in according with international banking practice.