The role of banks in the regional economic development of Uzbekistan: lessons from the German experience

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Nodira Abdunazarova. The role of banks in the regional economic development of Uzbekistan: lessons from the German experience

Imprint

Introduction

1. Uzbekistan's economy and banking system

2. The German regionally-oriented three-pillar banking system

2.1. Local branches of big commercial banks (Großbanken)

2.2. Savings banks (Sparkassen)

2.3. Cooperative banks (Genossenschaftsbanken)

3. The German development banks (Förderbanken)

4. The German Guarantee Banks (Bürgschaftsbanken)

5. Policy recommendations for future reforms in Uzbekistan

References

Appendix

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The aim of this study is to investigate ways on strengthening the role of banks in Uzbekistan's regional economic development. The proposals have been based on the experience of Germany – a country whose financial system is commonly referred to as one of the most regionally oriented. However, a major problem with this kind of application is a gap between these countries' levels of financial development. Uzbekistan does not have such a long and successful tradition of a market based financial system as Germany has. Uzbek banks still need to develop credit technologies, improve corporate governance, as well as strengthen a reputation among their clients. In implementing these overall system reforms it is important to take into account the specifics of bank activities in local areas. So far, however, there has been little discussion about the regional aspects of Uzbek banking system. In this regard, the well-studied Germany's case reveals some important lessons and prerequisites for creating a framework that would support the locally-oriented banks in Uzbekistan.

The German decentralized and not purely laissez-faire banking system is a unique example how various public as well as private regional banks can successfully contribute to economic development of less developed regions and be strong competitors with large joint-stock banks. On the other side of the spectrum there is a country, namely Uzbekistan, with a dominance of state-owned bank branches outside the capital city. These branches often do not have enough information about borrowers in peripheral regions and tend to provide credit to safe customers with sufficient collateral. This leads to an increase of regional disparities in the levels of lending and financial service development. As a result, it may nullify policy efforts to encourage banks to become an important source of investment and hence, economic growth. Currently, Uzbekistan needs a roadmap to involve banks in the regional economic processes and to enhance performance of regional banks.

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Due to a lack of data, we cannot analyze the distribution of credit among the sectors from 2007 to 2013. However, the available data shows that in 2011 more than 40% of the total bank credit was concentrated in the industrial sector (Graph 1). Stimulation of this sector is one of the main priorities of the current economic policy. The Uzbek large banks finance the long-term strategic projects in such areas as chemical, electric power, and the automobile industry, among others.

Graph 1

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