Late banking transitions: Comparing Uzbekistan to earlier reformers

Davit Babasyan, Yunfan Gu and Martin Melecký

World Development Perspectives, 2023, vol. 30, issue C

Abstract: This paper compares the early experience of Uzbekistan with transitioning its banking system to market principles with the experience of former transition economies. To that effect, it uses novel data on Uzbekistan’s banking sector, data on former transition economies, and evidence from the literature. We find that the 2017 financial liberalization triggered a larger credit boom than former transition countries experienced. The Covid-19 pandemic helped tame the boom and secure a soft landing. Good capitalization of the largest state banks serves as a backstop against a systemic banking crisis. However, structural reform gaps need to be closed for financial deepening to continue sustainably. The state banks enjoy privileged access to longer-term financing, larger economies of scale, and bailout capital injections that inhibit banking competition. The human capital in banking appears lower than what the former transition countries started with and could deter FDI into banking. The small private sector, lacking commercialization, and slow privatization of state enterprises—as well as the state enterprise-state bank nexus—are other factors inhibiting fair banking competition. Financial sector institutions such as risk-based supervision, accounting and auditing, bank resolution, and deposit insurance still fall behind good international practices. The broader governance of state banks is one political economy factor hindering faster transformation of the banking sector in Uzbekistan.

Keywords: Banks; Transition to market economy; Uzbekistan; Former transition economies; Poland; Russia; Vietnam; Risks; Policy lessons (search for similar items in EconPapers)
JEL-codes: G21 G28 P21 P34 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Late Banking Transitions: Comparing Uzbekistan to Earlier Reformers (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:wodepe:v:30:y:2023:i:c:s2452292923000097

DOI: 10.1016/j.wdp.2023.100493

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