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11 October 2019

Large-scale changes in the banking sector of Uzbekistan to be awaited

At the 23rd plenary meeting of the Senate of the Oliy Majlis (Parliament), the new edition of one of the fundamental acts in the banking sector, the Law on Banks and Banking Activities, was approved.

The list of financial operations conducted by banks is supplemented by new types of services, including trust management of property and assets, purchase and sale of refined precious metals, and operations with derivative financial instruments. Banks are entitled to outsource certain operations and services after obtaining permission from the Central Bank.

The law defines the minimum authorized capital of banks in the amount of 100 billion soums. According to the current version of the document, it shall be determined by the Central Bank.

There are also some types of bank activities restricted in order to strenghthen protection of creditors and depositors. For instance, banks are not entitled to directly engage in production, trade, insurance activities.

The document establishes specific requirements for members of Supervisory Board, executive bodies and key personnel of the bank – they must have an impeccable business reputation, possess the experience, knowledge and skills necessary to ensure effective management of bank risks, make relevant decisions within their powers. Candidates for management positions shall be agreed with the Central Bank before they take office.

The law defines additional requirements for foreign shareholders. There are no restrictions for the stability of high-quality investments, namely, the arrival in the country of not only financial resources, but also international experience and knowledge in the field of banking, for non-residents who are banks and financial organizations with an investment rating. For other non-residents, more stringent conditions are established in the form of minimum ratings of a non-resident and country he represents, as well as restrictions on their shares in Uzbek banks to 50%.

The law introduces the concept of banking groups as associations of financial institutions, in which the main bank directly or indirectly owns at least 25% of the shares of other banks, as well as more than 50% of the authorized capital of a financial institution. The concept of a systemically important bank is also introduced – a bank, which activity impacts the stability of the banking system.

The document also indicates prudential ratios, which include capital adequacy ratios, the maximum risk per one borrower or a group of related borrowers, the maximum size of large credit risks and investments, concentration ratios by sectors, liquidity ratios etc.

The document provides for a number of measures aimed at protecting the rights and interests of consumers, including the regulation of setting interest rates on loans, deposits and commissions, the basics of providing banking services, disclosing information, guaranteeing protection of deposits, considering complaints, and banks’ liability for violation of consumer rights and others.

 

Source: Gazeta.uz