Academic journal article Journal of Commercial Banking and Finance

Restructuring Commercial Banks in the Republic of Uzbekistan

Academic journal article Journal of Commercial Banking and Finance

Restructuring Commercial Banks in the Republic of Uzbekistan

Article excerpt

ABSTRACT

For the last seven decades as a result of expanding the usage of financial instruments and globalization of world financial and banking systems, the world practice has faced new problems regarding appropriate commercial banks' regulation and their management. This also concerns the economy of Uzbekistan. Before acquiring Independence all bank institutions in Uzbekistan were the part of the banking system of the former USSR. All banks traditionally performed operations on a state budget. The main role of banks was the fulfillment of a social task, sometimes regardless of basic economic principles.

Construction of a new independent state in Uzbekistan began with realization of reforms concerning all fields of the economy including the banking system. At present commercial banks in Uzbekistan, as in many Commonwealth of Independent States (CIS) countries are in stage of reforming. One of the reform's directions is restructuring commercial banks both by forms of property and by their assets. The main object of this program carried out by the Central Bank of the Republic of Uzbekistan is to reorganize the active banks and to create different banking system which meets market requirements.

INTRODUCTION

Before acquiring Independence, bank institutions in Uzbekistan were members of the banking system of the former USSR. A distinguishing feature of the banking system under the centrally planned economy of the former Soviet Union, as well as in many post socialist countries, was that banks traditionally performed operations on a state budget. The main role of banks was the fulfillment of a social task, sometimes regardless of basic economic principles. In other words, the banking system provided state enterprises with loans, almost always on privileged terms without taking into account their profitability or economic efficiency. One of the main reasons for this situation was the absence of any real banking system. The banking system was simply a part of the Ministry of Finance. Financial resources constituted only a book-keeping unit. For example, savings banks provided banking operations for the population and only for some small enterprises. The rest of the banking system was connected with the state sector. Under these circumstances, the banking system played a secondary role and as a result it was underdeveloped. Another distinguishing feature of economic development in Uzbekistan was when the republic, unlike many European or Asian countries, went through the experiment called "jumping from feudalism to socialism omitting capitalism." Consequently, industrial capacities in the republic remained immature and inefficient.

Many changes have occurred since Uzbekistan acquired its independence eleven years ago. First of all the republic completely changed the basic principles of its development and began establishing its own model of economic development based on the following five principles:

The economy is considered to be separate from ideology.

The Government is the main instigator of all economic transformations.

The domination of law exists in all spheres of life.

Strong social policy exists for carrying out economic transformations.

A step-by-step approach to the market economy is used instead of
"shock therapy."

The realization of these market reform principles in Uzbekistan is characterized by the following stages:

The first stage includes the period from 1989 to 1991, when Uzbekistan was a member of the former Soviet Union and began implementing the self-financing approach for the manufacturing sector. By that time the Government had already realized the necessity to refuse the planning and administrative management system and to create equal economic relations with both Russia and other republics. That is why a disintegration of the USSR and reorientation of the economy to a free market economy did not have as much influence on Uzbekistan as it did for some other republics that left the Union. …

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