Can you give us a brief historical background on the Banking Association?
You are probably aware that all the countries of the former Soviet Union are currently going through economic changes. In order to be sovereign and independent a country has to meet certain requirements, criteria and world standards. Generally speaking, this includes the territory, language, flag, army etc. Speaking about post Soviet Union countries or other developing countries they sooner or later have to go through 3 major stages of development: financial stability; liberalization; structural reformation of the economy.
Many countries have chosen the traditional way of development, where financial stability is to be achieved at the last stage. Actually they started with liberalization of their economies, which was critical for the specifics of these countries. In our case, we started liberalization of the economy after we had achieved financial stability and institutional reforms; today life of society in all aspects is going through liberalization.
By accepting "On Central Bank" and "On banks and banking activity" a two-level banking system was created, where functions of Central Bank were clearly separated from that of commercial banks. A system of new commercial and private banks is being established. These banks are servicing enterprises of all types of ownership; they render financial services to private sector enterprises emerging in fast pace. The Government of the Republic realized that liberalization of the economy is impossible without a strong and sound financial and banking systems working on the base of an effective legislative and regulatory framework.
If you glance at the history of establishing the Banking Association, you may find out a very interesting facet. Liberalization in banking system started with the establishment of the Uzbekistan Banking Association in 1995. This was a decision of a banker's crowd, this was an intention of the whole banking community of the country. When the National Program for Development of the Banking system of Uzbekistan was accepted in the first session of founders, and its realization was entrusted to the Association, this program was approved and supported by the Government. To realize this program a sound mechanism was created. The Government has made a decision to set all banks in Uzbekistan free of taxes for a two year period with the purpose of directing exempted funds to their own development, implementation of progressive banking technologies, automation and computerization, training of banking personnel, development of branch network. The Association is there to protect legal interests of the banks, to develop their infrastructure and to provide them with training to allow commercial banks to reach international standards and consequently to facilitate their integration process in the world business and banking community.
You may wonder why did the Government decide to grant benefits to the banks in this hard period of time? I must say that the Program covered major directions for developing and improving the banking system: improving the training system for banking specialists, developing the financial infrastructure, servicing the banking system, strengthening and developing the logistic base of commercial banks, computerizing and enhancing the legislative and regulatory framework were among the most significant measures to have been implemented.
I have to emphasize that it was the first time in the history of CIS countries that a government supported a non-governmental organization and its Program. The government showed its commitment to the development and liberalization of the financial sector.
All that allowed us to create the only Banking Finance Academy in Central Asia, five banking colleges and forty banking classes at the cost of our own funds. In the Republic, the first in Central Asia, an Interbank Center for Financial Services was created. This system allows us to implement interbank related projects aimed at introducing the best international practices into the banking system, and at providing first class services to the banks such as consulting, audit, and leasing for instance. Within this framework new financial instruments are being tested, normative and legislative acts are being updated particularly in the field of information technology.
Great attention is being paid to scientific provisions, where tendencies in development of the economy of Uzbekistan are analyzed, forecasts on the world markets are made, and any information linked with the economy is provided. In this respect we value scientists who solve those kinds of issues. Today, the Banking Association is establishing its own Scientific Research Center.
As for the legal base, our Association took part in the development of about ten drafts of law for consideration of the Parliament.
Any organization, entity, body has to be represented in the main legislative body, Parliament of the country. Being elected as a Member of Parliament in 1999, I was given the opportunity to represent the interests of the banking sector ) in Parliament.
Governors of the country are continuing to pay a lot of attention to the changes taking place in our banking and financial sector and they support the commercial banks. Decrees of the President of the Republic of Uzbekistan and Resolutions of the Cabinet Ministers, which are directed to improve activities of commercial banks from their roots, could be good illustration of it. The Government of the country has approved a reform developed in partnership with the Banking Association. Today the most important task of the Uzbekistan Banking Association is to consolidate the efforts of all commercial banks of the country in implementing this Banking System Reform Program and its liberalization.
| The implementation of this reform Program by and for the banking system of the Republic of Uzbekistan will create a conducive financial environment for the enterprises of the real sector, favor conditions for increased business activity of small, medium and private entrepreneurships, increase the competitiveness of the local companies, encourage savings and generally speaking strengthen our macroeconomic growth.
You mentioned the fact that you are very much self-sufficient. How do you actually generate funds?
When all the banks decided to establish the Banking Association, they also created a mechanism of financing e.g. a Centralized Fund of the banks. Quarterly the membership fee of the member banks to the Association is 1.5% from their net income. The Board of the Association, which gathers first level managers of all the banks, decides expenditures of the Centralized Fund. We discuss in the Board what has been done and what else should be done. Therefore, the banks themselves adopt the most important decisions on the interbank programs and projects. Then, they themselves control the step-by-step execution and fulfillment of those projects and adopted programs. The executive management of the Association provides the annual report to the member banks of the Association. This is a bright example of the liberalization.
How many member banks do you have in your association?
Most of the major banks of the country are members of the Association, which establishes the foundations of the Uzbekistan's banking system. Today the Association gathers 24 commercial banks of the country, which employs around 37 thousand people. Member banks of the Association have more then 800 branches and serve 95% of all banking clients of the country.
Considering the high level of specialization of the Uzbek banking system, what impact do you foresee would have the current liberalization process?
The establishment of specialized banks was the very first step of the banking sector reform. At the beginning of our independence, every sector had created its own bank ; today in the process of liberalization, these banks are less prepared to face competition. Therefore, they have to become "multiprofiled" banks, in other words, to become universal. The current reform program is the first step towards further restructuring and eventually privatization. You are probably aware that there are State owned banks in Uzbekistan- the National Bank for Foreign Economic Activity and People's Bank, as well as the specialized State commercial bank "Asaka". Today the privatization program on which we are currently working intends to decrease the State share at the charter funds of the banks to 50%, whereas 22% of Asaka shares and 40% of NBU shares will be sold to foreign investors. The negotiations regarding the level of participation of foreign equity are held with the European Bank for Reconstruction and Development, International Finance Corporation and other international financial institutions. I believe that the international press will help us out in attracting foreign investors by distributing the information on reforms that that are presently undertaken in the Banking system.
What makes Uzbekistan a unique destination as far as attracting foreign investment?
First of all I should say that the Government of Uzbekistan has created all conditions for reliable and favorable investment. There are conducting sets of measures to rebuild the economy, to provide constant growth, currency stability and to develop the internal money market. This is all done for the political and social stability, for the formation of a perfect and efficiently functioning "off-stock exchange" market, capable to satisfy demands of all entities, foreign investors as well as domestic industries. Any investor who works in Uzbekistan will not have to worry for the investment made in Uzbekistan.
We are getting prepared to sign the Article 8 of the agreement with the International Monetary Fund on implementing free currency conversion. When we say we are implementing a pragmatic course of reforms, we presume that this is an open market economy. Our government provides guaranteed political and social stability as well as financial stability of banks.
The convertibility of the national currency in our understanding means an open economy for the successful operations of foreign banks in our country and attraction of foreign capital to the economy. The experienced banks, having 200-300 years of history, will come to Uzbekistan and sooner or later the Uzbek banks would have to compete with them. National currency convertibility is reached at the certain stage of market relationships. Therefore, our government pays more attention to recovering of the economy by means of following realization of new approaches to the production, agriculture, formation of ownership class, development of small and medium entrepreneurs.
In the meantime, we try to prepare Uzbek commercial banks for such competition. That is to say directed utilization of currency resources to increase production and add value to technical equipment in order to increase export potential of the Republic. The aim is to create a competitive environment for domestic goods and services market.
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Banking Association