IMPROVING THE MECHANISMS FOR REDUCING STATE OWNERSHIP AND PRIVATISING COMMERCIAL BANKS IN THE TRANSFORMATION OF UZBEKISTAN’S BANKING SYSTEM

Abstract

Reducing the role of the state in the banking sector is one of the central goals of Uzbekistan’s banking reform. The Strategy for Reforming the Banking System for 2020–2025 set the target of raising the share of private banks in total assets to 60 percent. This article evaluates how far this target has been achieved, why privatisation has moved more slowly than planned, and how the mechanisms of reducing state ownership can be improved. The study uses data of the Central Bank of the Republic of Uzbekistan for 2019–2025, a target achievement index, a comparison of state-owned and private banks, a scenario estimate of the efficiency gains from privatisation and an overview of international experience. The results show that the share of state-owned banks in assets fell from 85.0 to 62.4 percent, which corresponds to only about half of the planned shift. Only one large state bank was sold to a strategic investor during the strategy period. State-owned banks continue to lag behind private banks in profitability and asset quality, largely because of their dependence on government funding and directed lending. The article proposes a staged privatisation mechanism that combines balance sheet clean-up, the separation of policy lending, pre-privatisation equity participation of international financial institutions and the use of both strategic sales and public offerings.