Commercial Banks' Privatization and Creation of Private Banks in Uzbekistan as the Necessary Factor to Restructure the Banking System

By Rakhimkhodjaeva, Nodira S.; Bexley, James B. | Journal of Commercial Banking and Finance, Annual 2004 | Go to article overview

Commercial Banks' Privatization and Creation of Private Banks in Uzbekistan as the Necessary Factor to Restructure the Banking System


Rakhimkhodjaeva, Nodira S., Bexley, James B., Journal of Commercial Banking and Finance


ABSTRACT

Privatization via attracting a foreign capital is determined as one of the main directions to restructure the banking system in Uzbekistan. The main objective of reorganization of the financial and banking sectors is to create a new class of owner. This new class should be represented by domestic and foreign shareholders in private and joint-stock banks.

Commercial banks' privatization does not constitute transformation of ownership forms or replacement of one shareholder to another. The final objective is to give banks more independence in their decision making, improve their financial indicators, raise new capital, increase competition among banks, and facilitate their integration into international financial markets in the future.

The Government of Uzbekistan is actively supporting this program because on the one hand it will reduce a state share in a banking sector and provide banks with more independence; on the other hand privatization of banks with participation of foreign capital will assist in development of the banking sector, attract more financial resources into the national economy, modernize the banking sector, which will result in strengthening the financial sector.

INTRODUCTION

After acquiring Independence almost all countries of the Former Soviet Union and other post socialistic countries began systematically carry out economic reforms, necessitated by a transition of these countries from a centrally planned economy to a market economy. In the world economic lexicology a new definition called "countries with transition economies" was created.

Problems, which these countries faced during their first years of Independence, were establishment of bases and mechanisms for a market economy functioning based on private property, competition and liberalization of prices for services and works provided. Their position was complicated by a fact that at that time there was not a substantial class of private owners in these countries. The majority of all operating merchandise enterprises were state-owned and belonged to the Governments (1). Under these circumstances, the beginning of the privatization process concerning all sectors of national economies including financial and banking sectors as well was interpreted by the developed economic societies as a natural and logical step toward a market economy. Among these reforms commercial banks privatization takes one of the most important directions, stimulating an acceleration of the economy's reorganization process.

The strategy of the privatization carrying out in CIS and other post socialistic countries differs from each other significantly. Under the privatization of banks in post socialistic countries the following methods are used:

The Voucher method (applied in Czech, Russia, Armenia, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania)

Privatization through non formal influence of bank's management. (mostly used in Russia)

The method of a primary opened distribution (widely applied in Hungary and Poland).

The method of strategic foreign investors' attraction. (successfully used in Hungary and Poland).

The voucher (mass) privatization refers to a distribution of vouchers by a government, which can be used to buy banks' shares. Under the voucher privatization, the vouchers are free of charge or have insignificant price. This method was not known widely before post socialistic countries began its active implementation. One of the advantaged of using the voucher privatization is that it solves the problem of deficiency of the local investment resources. It also provides equal opportunities for various strata of a society. In the beginning of reforms this method was especially popular in the post socialistic countries according to the two reasons: a) it restricted the expansion of a foreign capital into their economies; b) it helped to avoid complexities concerning banks' evaluation before their privatization.

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Commercial Banks' Privatization and Creation of Private Banks in Uzbekistan as the Necessary Factor to Restructure the Banking System
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