The privatization of state-owned banks in Uzbekistan may be postponed to a later date, Pavel Kaptel, the Deputy Director of Fitch Ratings for Financial Institutions said at a conference in Tashkent in early March.

He spoke about the government's plans to reform the banking system. Among the goals is to selle a number of state-owned banks, which includes cooperation with leading international development institutions such as the European Bank for Reconstruction and Development, the International Finance Corporation and the Asian Development Bank.

These banks provide technical assistance, consultations and could become minority shareholders of privatized state banks for further sale to a strategic investor.

But reforming is not only about this. An important role is also played by a significant improvement in corporate governance procedures and risk management in banks, not only in those that are subject to sale, but also in those that remain in state ownership. Also, an important aspect of the reform is to improve regulation in the sector, in particular in terms of potential capital standards for banks, he added.

According to him, progress is noticeable in this area - in the first four years, the share of private banks has doubled compared to the end of 2019 and currently accounts for approximately a third of the sector’s assets. But this is still significantly lower than the target set by the government (the private sector share in the banking system should reach 60% by the end of 2025).

Meanwhile, of the three large banks, only Ipoteka Bank was sold. The sale of Uzpromstroybank (SQB) and Asakabank is still being delayed.

He explained that pre-sale preparation of the banks is still ongoing, since both banks have historically focused on lending to the corporate sector and state-owned companies and are now building a more diversified model (small and medium-sized businesses, retail), which will take time. The share of SMEs and retail is growing, but not so fast yet.

Fitch indicated that to increase sales prospects, banks must show greater profitability. This requires stronger lending growth, especially in the retail segment, but this requires capital.

“Therefore, the prospect of the EBRD, IFC and other organizations entering the bank’s capital as anchor investors is very important from the point of view of whether the banks will be sold on time or not. If this happens, it will give banks capital to grow lending, thereby improving profitability and increasing market shares,” said the deputy director of Fitch.