Uzbekistan: Bank’s Currency Ban Hints at Financial Sector Woes

Hot on the heels of a corruption scandal in Uzbekistan’s financial sector comes news that a commercial bank that has foreign shareholders has been barred from conducting hard currency operations.

The development is the latest sign of troubles hitting Uzbekistan’s banking industry, as Central Asia reels from an economic crisis that is slowing growth and pressuring currencies across the region.

Uzbekistan’s central bank has imposed a six-month ban on Hamkorbank conducting foreign currency operations with businesses on the grounds that it has been breaking currency laws, the Anhor.uz news website reports.

No further specifics were offered for the ban, which is unusual and will present a significant barrier to a bank with foreign capital conducting commercial operations.

The International Finance Corporation (a financing arm of the World Bank) and the Netherlands Development Finance Company (a development bank controlled by the Dutch government) between them own 30 percent of shares in Hamkorbank, according to documents filed with Uzbekistan’s stock exchange.

The bank does not list individual shareholders in the documents or on its website, but the IMC has previously identified Ikrom Ibragimov, its chairman, as the largest shareholder, controlling with other family members some 41 percent of shares. The bank’s own financial report published last year states only that Ibragimov controls “more than 20 percent.”

News of the ban on Hamkorbank’s foreign currency operations followed reports last week of the arrest of Asaka Bank chairman Kahramon Oripov, who is suspected of manipulating the disparity between the official exchange rate and the rate on the country’s thriving black market to cream off profits.

The black market keeps a vast pool of cash outside of the official financial sector, and the crackdown on banks’ currency operations may hint at liquidity problems in the sector (which officials insist is healthy) as demand for dollars soars in Uzbekistan, as elsewhere in the region, as faith in local currency falls.

Investors are generally leery of putting money into Uzbekistan, owing to its risky business climate and record of appropriating foreign assets without recompense.

Foreign involvement in Uzbekistan’s heavily regulated banking sector is rare, and problems at banks – particularly any with foreign capital – are likely to make investors even more reluctant to sink any capital in – just as Tashkent seeks to lure them with a major privatization drive.

Uzbekistan: Bank’s Currency Ban Hints at Financial Sector Woes

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