How Companies in Eurasia Finance Trade/Investment Deals

 

UZBEKISTAN

(Update)

 

Date: October 2006

 

Author: Jahangir Kakharov, BISNIS Representative, Tashkent, Uzbekistan

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.

 

The completion of this report would not have been possible without the contribution of the following organizations and persons: Chief of Credit Division of Ipak Yuli Bank Umid A. Khakimov, Freelance Consultant Alfred Dostie, Bank Rating Agency “Akhbor Reyting”, the National Bank of Uzbekistan, Asaka Bank, ABN AMRO Bank, Uzbek-Turkish Bank, Uzbekleasing International, Baraka Universal Leasing Company, Ansher Capital. Reports of International Finance Corporation (IFC), World Bank, IMF, and EBRD were used as references.

 

World Bank Country Manager Martin Raiser argues that although the Uzbek banking sector has been gradually adapting to market conditions, it still faces significant challenges, some of which are common for many other transition economies, but some of which are also specific to the way of transition chosen by Uzbekistan.

 

The banking system in Uzbekistan is two-tiered, comprised of the Central Bank of Uzbekistan (CBU) and 28 commercial banks (4 state owned, 19 joint-stock banks, 5 banks with foreign participation). Most of the leading banks are fulfilling much the same role as during the Soviet time, namely as agents of the government in implementing its development strategy. The aim of the reforms is to achieve a reliable banking system, which can provide business enterprises and sectors of economy with sufficient financial sources.

 

Most International Financial Institutions are of the opinion that the banking sector needs to be restructured so that it becomes one of the key drivers of the economy. In order for this to happen, the banking sector of Uzbekistan needs to gain confidence and trust. This is exemplified by the fact that deposits to GDP ratio in Uzbekistan is about 8% - one of the lowest in NIS.  Although the majority of banks in Uzbekistan are paper joint stock banks, the state actually directly or indirectly owns or exercises significant control over many of them. Per World Bank estimates, state banks account for about 70% of banking assets.

 

The main strengths of the banking sector are the quality of its personnel, a move to international standards of risk management and accounting (following significant training), and reforms of the legal and supervisory frameworks for the sector. Specific weaknesses of the Uzbek banking system, according to Martin Raiser, are related to the dominance of state ownership in the sector, the continued use of banks as agents of the government for tax collection and financial reporting purposes, and – until recently – the practice of directed lending that has distorted credit allocation and placed a burden on banks balance sheets.

 

Uzbek commercial banking is dominated by the National Bank of Uzbekistan (NBU), which services almost 70% of Uzbekistan’s foreign trade operations.

 

 1. Is Business Financing Obtained Through Banks?

 

Yes. Commercial banks remain one of the important sources of financing for businesses. A significant share of the loan portfolio to state owned, industrial, and farmer enterprises is provided by commercial banks and most of that is provided by state-owned, or partially state-owned banks. Additionally, micro and small enterprise (MSE) and small and medium enterprise (SMEs) credit lines of international financial institutions, bilateral agencies, and donor organizations (ADB, EBRD, IFC, KfW, and others) are extended to local businesses via local commercial banks.

 

1.1. If yes, what are the 5 top banks in your country?

 

Following are top 5 banks by assets:

1.  NBU

2.  Asaka Bank

3.  Uzpromstroy Bank

4.  Ipoteka Bank

5.  Pakhta Bank

 

Following are top 5 banks by capital (net worth):

1.   NBU

2        Asaka Bank

3        Pakhta Bank

4        Ipoteka Bank

5        Uzpromstroy Bank

 

National Bank of Uzbekistan for Foreign Economic Activity (NBU)

101, Amir Temur Street,

Tashkent, 700084, Uzbekistan

Tel.: +998-71  134-47-71, 134-48-50, 134-41-52

Fax: +998-71  133-32-00

E-Mail: webmaster@central.nbu.com

Web-site: http://www.nbu.com 

Chairman of the board: Rakhimov Saidakhmat Borievich

 

Asaka Bank

67, Nukus street,

Tashkent, 700015, Uzbekistan

Tel.: +998-71  120-81-11

Fax: +998-71  120-81-17

E-Mail: contact@asakabank.com

Web-site: http://www.asakabank.com

Chairman of the board: Juraev Shokir Jumaevich

 

Pakhta Bank

43, Mukimi Street,

Tashkent, 700096, Uzbekistan

Tel.: +998-71  120-88-18, 173-25-06, 78-12-96,

Fax: +998-712  78-21-77

E-Mail: headoffic@pakhtabank.com

Chairman of the board: Baymuradov Abdurakhmat Juraevich

 

UzPromStroy Bank

3, Shakhrisabzskaya Street,

Tashkent, 700000, Uzbekistan

Tel.: +998-71  120-45-01

Fax: +998-71  120-45-02

E-mail: pred@uzpsb.com 

Chairman of the board: Rustamov Kiemitdin Kahharovich

 

 

Ipoteka Bank

17, Pushkin Street,

Tashkent, 700000, Uzbekistan

Tel.: +998-71 133-11-22, 133-29-57, 133-30-89

Fax: +998-71  133-82-72

E-mail: Uzujbzed@jline.ru

Chairman of the board: Shorahbarov Ravshan Kabulovich

 

 

1.1.1. Which banks have their financial statements audited per International Accounting Standards or International Financial Standards on Accounting and since what year?

 

Since 2001, the largest banks (National Bank of Uzbekistan, Asaka Bank, Pakhta Bank, Uzpromstroy Bank, Ipoteka Bank and some others) have their financial statements audited per International Accounting Standards (IAS). All the top banks have their financial statements audited by Ernst & Young, PWC, and Deloitte & Touche.

 

1.2.What are their major lines of lending (e.g. agribusiness; manufacturing equipment; else)?

 

With the exception NBU and ABN AMRO Bank, all of the above mentioned top banks have their own priority lines of lending. However, as it was noted above, NBU services about 70% of all foreign banking operations. Most banks are still strongly oriented to certain sectors. Some of the banks had serviced these sectors in the Soviet past. Asaka Bank is specialized in financing the automobile industry, Pakhta bank mainly finances agribusiness, UzPromStroy bank – industry, fuel-energy complex, mining-extractive, metallurgy and chemical industries, Ipoteka Bank - construction industry. All these banks finance SMEs and attract public sources.

 

 What type of experience do they have with Foreign Export Credit Agencies (ECA)?

 

NBU and Asaka Bank have extensive experience with a number of Foreign Export Agencies such as U.S. Exim Bank, COFACE, HERMES, SACE, EGAP, OeKB, CESCE, NCM, Turkish Exim Bank and many other ECAs.  As to other banks, some of them have certain experience as well but very limited. The leading Uzbek banks serve as a channel for on-lending the state-guaranteed foreign loans. These loans accounted for about 70% of the banking system loan portfolio, predominantly concentrated in NBU and to a lesser extent in some medium-sized state-owned banks.

 

1.4. If any, what type: short term? Medium term? Long term? All? What are the terms of lending agreement?

 

The maximum term of these credit lines ranges from 3.5 to 7 years. Mainly of these are medium term loans (3-5 years) and finance up to 85% of costs associated with imports of equipment and technology.

 

1.5. Have they been rated by (i) a foreign rating agency or (ii) a domestic agency?

 

None of the banks have been rated by a foreign rating agency yet. Domestic agency Akhbor Reyting assigns ratings to 29 local banks. In addition, Pakhta Bank received a Fitch support rating of ‘4T’ in 2002. Fitch's Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. This rating is not a debt rating but rather an assessment of any level of outside support that may, or may not, be available to it.  In addition, NBU is ranked 518th among top 1,000 world banks. The UK-based magazine “The Banker” publishes this annual ranking. Asaka Bank was also in the ranking two years ago but did not make in it in 2003.

 

1.5.1. If yes, by whom and what was the rating (and date of the rating)

 

The Domestic rating agency Akhbor has been rating local commercial banks for the last 7 years. The last rating was based on the analysis of the commercial banks’ financial statements for the first half of 2006.  For the purposes of the rating, Uzbek banks are divided into 3 groups: large, medium and small banks. Per this division, Akhbor Rating carries out comparative assessment both in absolute points and in groups.

 

Rating of commercial banks as of mid 2006

 

Ranking in group

 

Bank

 

 

Absolute rating as of mid 2006

 

Large Banks

 

1

Bank Credit-Standart

59.24

2

Uzpromstroybank

55.99

3

Pakhta Bank

52.23

4

Ipoteka Bank

46.75

5

ABN AMRO Bank

41.36

6

Bank Ipak Yuli

40.43

 

Medium-sized Banks

 

1

Alp Jamol Bank

48.19

2

Turon Bank

33.65

3

Parvina Bank

32.27

4

UzKDBank

32.23

5

U-T Bank

30.22

6

Trast Bank

30.17

7

Bank Savdogar

27.37

 

Small Banks

 

1

Davr Bank

59

2

Samarkand Bank

34.35

3

Uktam Bank

26.97

4

Bank Turkiston

12.83

5

Universalbank

11.05

 

NBU is not in the list of rated banks because the bank is so large and dominant in the Uzbek market that it is in the class of its own.

 

1.5.2. How does the above domestic rating translate into that of a western agency?

 

The above rating does not translate into that of a western agency. Akhbor worked out its own methodology to calculate the ratings.

 

1.6. Are there any foreign banks in your country/region?

 

At present there are 5 banks with foreign investment in Uzbekistan.

 

ABN AMRO Bank NB Uzbekistan A.O. (Joint Venture between ABN AMRO Bank, Netherlands, NBU, IFC and EBRD)

77, Nasirova Street,

Tashkent, 700084, Uzbekistan

Tel.: +998 71  120-87-65

Fax: +998 71  120-63-67

E-mail: tatyana.lee@uz.abnAMRO.com

Chairman of the Board: Igor Pakan

 

Uzbek-Turkish Bank (UT Bank)

15-A,B, Khalklar Dustligi Avenue,

Tashkent, 700043, Uzbekistan,

Tel.: +998 71  173-83-23, 173-83-24

Fax: +998 71  173-83-26

E-mail: utbank@main.utbk.com

 

UzKDBank (Uzbek-Korean Joint Venture bank)

1, Pushkin Street,

Tashkent,  700000, Uzbekistan

Tel.: +998 71  120-80-00

Fax: +998 71  132-08-00

E-mail: office@daewoobank.com

 

 

Subsidiary of Saderat Bank of Iran in Uzbekistan

Chekhov 10,

Tashkent,  Uzbekistan

Tel.: +998 71 140-16-50

Fax: +998 71 140-16-54

Email: bsiuzb@bcc.com.uz

 

Bank Uzbek-German joint stock commercial bank (R&D Express-Aussenhandels Gmbh of Germany acquired 40% ordinary shares of Savdogar Bank for US$2 million in 2006).

78, Said Baraka Str.
Tel.: +998 712 54 19 91,

Fax: +998 712 54 24 03

 

1.6.1. Are they willing to lend money to domestic firms and under what terms?

 

None of the commercial banks with foreign investments discriminate against domestic firms and they are open to lend to acceptable domestic risks. One of the major problems is that the majority of private and foreign banks do not have enough resources, while state owned commercial banks tend to finance strategic, priority sectors and enterprises.

 

1.6.2. Are there any examples of deals they have helped financed in your country/region?

 

ABN AMRO Bank together with Hapoalim Bank (Israel) financed the construction of Shurtan Gas Compressor station in the amount of almost $200 million. This deal was secured by insurance coverage from U.S. Exim Bank and IFTRIC. The main contractor was Israeli Company Bateman. Dresser-Rand, the U.S.-based company, delivered modern machinery and equipment under the project. In 2003, ABN AMRO Bank and Almalyk Mining and Smelting Combine signed a three-year agreement on pre-export financing of copper for $35 million.

 

2. Is Financing Obtained Through Investment/Venture Capital Funds?

 

The Central Asia Small Enterprise Fund represents a partnership between the Small Enterprise Assistance Funds (SEAF), the Swiss Government’s State Secretariat for Economic Affairs (SECO), IFC and the U.S. Agency for International Development (USAID). These institutions have teamed up to invest in and provide grant funding for technical assistance to growth-oriented small enterprises that SEAF identifies in the region. The Fund generally looks for investment opportunities between a minimum of $150,000 and $800,000. The Fund invests in SMEs that:

 

For further information contact:

 

SEAF-SME Investment Management

Representative Office

27, Rakatbashi Street

Tashkent, 700031, Uzbekistan

Tel.: +998 – 71 139 16 20

Fax: +998 – 71 139 16 80

E-mail: seaf_uzb@mail.ru

 

 

3. Is Financing Obtained Through Other Public Funded Programs (like SME support institutions, cosponsored by local governments/associations)?

 

There are several mechanisms of financing SMEs. One significant source of financing is the SME Credit Line Programs of EBRD, IFC, ADB, HERMES, COFACE, EGAP, IFTRIC, SACE and many others. SME credit lines have been one of the few efficient sources of funding available to Uzbek SMEs, as local banks are otherwise unable to provide long-term finance. EBRD also has in place a Trade Facilitation Programme (TFP) to support exporters and importers through participating local banks.

 

IFC has focused its activities on developing SMEs and strengthening financial markets. Technical assistance for pre- and post-investment support is being provided to SMEs borrowers.

 

In addition, there are several concessionary mechanisms for external financing of SMEs, including bank lending financed by the Employment Fund, Business Fund and farm support fund, which are formed with contributions from businesses themselves, privatization proceeds and other funds. Secondly, there is lending through soft loan funds created by banks with the contribution of 25% of profits. Interest rates on loans extended from these funds cannot exceed half the Central Bank's refinancing rate (currently at 16% p.a.) on the day the loan is granted, and loans cannot exceed $10,000 for SMEs registered as legal entities; up to 50% of the loans can be provided in cash.

 

4. Is self-financing an important factor in business financing?

 

Yes, self-financing is important because the banking system is still weak and cannot fully satisfy the demand for credits. Besides, most of the banks require self-financing to mitigate moral hazard problems.

 

4.1 If yes, are there any trends regarding the industries and the types of firms that are able to self-finance?

 

According to the above-mentioned IFC survey of SMEs, the share of self-financing grows as the size of company increases. Survey indicates that 45% of microfirms, 56% of small enterprises and 80% of medium enterprises finance their investments from company funds.

   

5. Is Leasing Significant Vehicle for Business Finance?

 

According to the IFC Central Asia Leasing Development Project, there is, unfortunately, no definitive figure on the potential leasing market in Uzbekistan. But a rough estimate can be made for small and medium-sized business leasing, since most small and medium-sized businesses in Uzbekistan expand their business through the purchase of imported equipment.  In developed countries, the percentage of imported equipment purchased through leasing is 20–30% of the total amount of imported equipment, and in transitional economies, 5–15%.  The total amount of imported equipment in Uzbekistan was $310 million in 2001, of which only $2.61 million were imported through leasing.  If leasing were equally attractive to small business as bank loans this would imply that the small business leasing market in Uzbekistan should have been approximately $15.5 – $46 million.

 

Leasing first came to Uzbekistan in the form of aircraft leasing. In 1993, Uzbekistan Airlines modernized its fleet of airplanes by leasing planes from leading manufacturers. In six years, the airline leased three Airbus-310s, two British RJ-85s, and two Boeing 757s. These leases were financed by NBU with assistance from international export agencies and financial institutions.

 

Now leasing in Uzbekistan is developing as an alternative form of financing, supported by a strong legal framework and growing financial acumen in the field. Eleven commercial banks and six major leasing companies, which have financed over $580 million worth of leases, are currently operating in Uzbekistan.

 

5.1 If yes, who are the key players in your country/region?

 

 Key players in the leasing market of Uzbekistan:

 

 

1. National Bank of Uzbekistan for Foreign Economic Activity (NBU)

101, Amir Temur Street,

Tashkent, 700084, Uzbekistan

Tel.: +998-71  134-47-71, 134-48-50, 134-41-52

Fax: +998-71  133-32-00

E-Mail: webmaster@central.nbu.com

Web-site: http://www.nbu.com 

 

2. Pakhta Bank,

43, Mukimi Street,

Tashkent, 700096, Uzbekistan

Tel.: +998-71  120-88-18, 173-25-06, 78-12-96, 78-21-77

E-Mail: headoffic@pakhtabank.com

Web-site: http://www.pakhtabank.com/

 

3. Ipoteka bank,

17, Pushkin Street,

Tashkent, 700000, Uzbekistan

Tel.: +998-71 133-11-22, 133-29-57, 133-30-89

Fax: +998-71  133-82-72

E-mail: Uzujbzed@jline.ru

 

4. Savdogarbank,

78, Sayyid Baraka St,

Tashkent 700060, Uzbekistan
Tel/Fax +998-712-54-19-91, 54-24-03,54-24-09, 54-24-16

 

5. Ipak Yuli Bank,

12 Farhadskaya St,

Tashkent 700135, Uzbekistan

Tel/Fax: +998-712-76-85-52, 76-82-29, 76-48-65, 76-86-33

 

6. Trastbank,

7 Navoi St, Tashkent 700038,

Tel/Fax: +998-712-41-23-43, 144 -76-22, 144-76-43

 

7. AloqaBank,

1 Tolstoy St,

Tashkent 700000, Uzbekistan

Tel/Fax: +998-71-133-62-54, 137-49-37, 144-69-09

 

Leasing companies:

 

1. UzbekLeasing International

6th Floor, 1 Turob Tula St,

Tashkent 700003, Uzbekistan

Tel: +998-71 139 16 54

Fax: 120 6729

Email: uzlease@sarkor.uz

 

2. Asian-European Trust Company

4 Per Musa Jalil,

Tashkent 700000, Uzbekistan

Tel: +998-712-67-74-39, 67-94-28

Fax: 67-46-72

Email: aetc@online.ru 

 

3. Baraka Universal Leasing Company

1A, A. Khodjaev St,

Tashkent 700027, Uzbekistan

Tel: +998-71-138-69-23, 138-69-33, 138-69-43

Fax: +998-71-138-69-13

Web site: www.barakaleasing.uz, www.barakalk.sk.uz

Email: barakalk@sarkor.uz

 

4. UzCASE Agroleasing

2 Shosse Ahangoranskaya,

Tashkent 700091, Uzbekistan

Tel: +998-71-1207002

Fax: +998-71-1207484

 

5. Uzselxozmash Leasing

4a Abay st,

Tashkent 700000, Uzbekistan

Tel: +998-71-1445475, 1446273

Fax: +998-71-1444989

 

6. UzAvia Lizing

1 Hasanova St,

Tashkent 700016, Uzbekistan

Tel: +998-712-922380 Fax: +998-71-1919506

Email: avializ@naytov.com

 

 

 5.1.1 What is their type of experience (type of industry and size of deals)?

 

The following data (from May 2002) is provided by the IFC Central Asia Leasing Development Project, Uzbekistan.  It reveals that most companies engaged in leasing operations are focused on certain areas of industry and production.

Name

Commencement of leasing operations

Actual leasing operations

Leased assets

Number of projects

Amount, thousands USD equivalent

National Bank of Uzbekistan

1996

4

378 568

aircraft

“Pakhtabank”

1998

60

 2 377

agricultural equipment,  autotransport

“Ipotekabank”

1998

14

929

autotransport, technological equipment

“Savdogarbank”

1999

1

329

agricultural equipment

“Ipak Yuli Bank”

2000

16

576

autotransport, computers

“Trastbank”

2000

2

138

 auto gas station

Subsidiary of Central Asian Bank for Cooperation and Development in Tashkent

2000

2

493

technological equipment

“Alokabank”

1998

5

160

printing equipment,

 photo laboratory

“HIF Bank”

2000

6

71

autotransport

 

 

Leasing companies:

1. Universal Leasing Company “Baraka”. Baraka was founded in September 1996 to provide leasing services to small and medium-sized businesses in Uzbekistan.  The company operates throughout the whole country.   Typical deal size is from $10,000 - $50,000.  Baraka Leasing was the first leasing company in Central Asia to join the European Federation of Leasing Company Associations "LEASEUROPE".

2. UzbekLeasing International AO. UzbekLeasing International leases equipment to small and medium-sized businesses throughout Uzbekistan.  The average deal size is $50,000 - $1,200,000, and the majority of businesses financed are oriented toward the export market.  IFC, the NBU, EBRD, and May Bank are Uzbek Leasing's founders and shareholders. 

3. Uzselhozmashleasing. Uzselkozmashleasing is Uzbekistan's largest leasing company.  It specializes in domestic agricultural equipment leasing and has a network of branches throughout Uzbekistan.

4. Asian-European trust company. Asian-European trust company is a completely foreign owned subsidiary of Raanani Holdings A.G., a Canadian company. The company leases production lines to Uzbek businesses in the following areas: agricultural products processing, packaging, production of building materials, natural food and medical products. It not only imports equipment, but also invests in the small and medium enterprises it finances. The company, however, has not financed a new operation in the last two years.

5. UzCaseAgroLeasing. Leasing company "UzCaseAgroLeasing" was founded in 1997 by “Case Credit Holdings Ltd” and the Association of Banks of Uzbekistan. The company leases agricultural equipment produced by "Case".

6. UzAviaLeasing. Established by the Chkalov Tashkent aviation manufacturing association (TAPOiCH), UzAviaLeasing specializes in export leasing of aircrafts produced by Chkalov.

 

5.1.2. Which leasing companies are independent and which ones are captive to a particular bank/industrial group

 

Most of the leasing companies are captive to banks/organizations/founders that established them. Detailed information about founders is given in the answer to the previous question. In addition, there is little competition as each leasing company focuses on certain sectors.

 

5.2  What are the prerequisites to qualify for a leasing arrangement and what are the terms?

 

According to law, all the leasing operations should be done in national currency but some of the leasing companies were granted the privilege to operate in foreign currency as well. For instance, Uzbek Leasing International Company can structure leasing transactions both in US$ and Uzbek Sums.

 

Prerequisites to qualify for leasing arrangements differ from company to company. As an example, the requirements for Uzbek Leasing International for businesses in Uzbekistan are:

 

 

5.3  Has any legislation been adopted in your region/country regulation leasing activities, if yes, when? Is any related legislation pending?

 

Leasing developed significantly in 2002 due to support for the industry from the government. The first step in improving the climate for leasing was a Presidential Decree of August 28, 2002 to support the growth of leasing. This decree equated leasing and bank credit for tax purposes, thereby creating an equally attractive tax climate for leasing as for bank credit. This Decree has given commercial banks greater opportunities to increase their profitability through leasing and resulted in a number of commercial banks launching leasing for the first time.

 
The Decree was followed by 38 amendments to the Civil Code, Tax Code, Law on Leasing, and Law on Customs Tariffs enacted by the Uzbekistan Oliy Majlis (Parliament) on December 13, 2002. These amendments completely overhauled the leasing legislation in Uzbekistan.

 

The leasing market in Uzbekistan reacted positively and immediately to these amendments. The number of new leases from leasing companies grew by 48% in 2002, and commercial banks by 30%. Additionally, a few new banks launched leasing services for their clients and are already active in the market. IFC’s leasing project has been instrumental in facilitating these changes in the leasing sector. IFC launched a new project on leasing in three Central Asian countries: Kyrgyz Republic, Tajikistan and Uzbekistan. The Project started working in fall, 2001 with financial support from the Swiss Secretariat for Economic Affairs (SECO) and expanded with USAID into Kazakhstan in fall, 2003. Its main goal is to create a viable leasing industry for small and medium-sized businesses in Central Asia

According to the IFC report on Leasing in Uzbekistan, on February 6, 2003, the President of Uzbekistan signed legislative amendments to the Civil Code, Law on Leasing, Tax Code, and Law on Customs Tariffs, immediately removing all of the major barriers to leasing in Uzbekistan.  On August 30th, the Uzbek Parliament adopted amendments to the Code for Economic Litigation Procedures to simplify and strengthen repossession procedures for leased assets. This reform of the leasing framework in Uzbekistan provides the progressive foundation crucial for the development of leasing in Uzbekistan.

 

6.                     Is Financing Obtained Through Other Sources (savings, black market loans, offshore investment, barter, counter trade, etc.)

 

Yes. Many enterprises are established with personal savings of the founders as they find bank regulations too strict and unavailable. Most of the companies with foreign investors’ participation are using their foreign counterparts as an alternative source of financing.

 

Barter was widely used until a law was passed on restrictions for such transactions in 1996. Debt financing in foreign currency is not commercially viable due to high exchange rate risk exposure.

 

7.                  Could you make a rough estimate (in %) about which of the above mentioned finance options(question 1 to 6) are the most frequently used to finance the following:

 

 Micro-deals:    Banks/Microfinance Institutes/NGOs (like FINCA, Daulet, ACTED, Barakot and etc) – 20%, Self-financing – 45%, Black market – 35%

Small-deals:      Banks – 21%, Self-financing (personal savings and company funds– 77%, Black market – 20%

 Medium-deals: Banks – 60%, Self-financing – 80%, Black market – 10%

 Large-deals:    Banks – 70%, Self-financing – 25%, Other– 5%

 

8.                  What is the Standard Procedure to be Followed by a Company in Your Country/Region when applying for Financing? How Long Does it Take?

 

The procedure starts with selection of a bank or leasing company. As noted above, many banks and leasing companies focus on certain segments/sectors of the economy. Therefore, a borrower should consider carefully the financing institution. The company-applicant for financing then prepares an application package.  Each financial group or institution has its own application procedures, forms and criteria in making lending decisions. The list of documents varies depending on the type of entity that is requesting the loan (entrepreneurs, farmers, SME, big corporation and etc), project (sector in which the project operates, green-field, sponsors), the currency in which the loan is requested ($, local currency), the size of the loan and many other factors. Following is a sample list of documents usually requested by NBU.

 

·        Loan application;

·        Documents confirming company’s registration (company charter, articles of incorporation, business license (if applicable));

·        Business plan including cash flow analyses and/or Feasibility Study;

·        Passport (a photocopy will be kept in the credit file);

·        Documents on collateral;

·        Financial statements for the last three years audited by the Tax Inspection;

·        Contracts for delivery of equipment or turnkey contract;

·        All other contracts related to a project (agreement with building contractors, contracts with suppliers/buyers, permits for construction);

·        Statements on accounts with other banks, loans with other banks and their terms;

·        Information about foreign partners;

·        Marketing research

 

8.1 for a trade deal?

 

Usually it takes 1-4 weeks but it could take less or much longer depending on the size, complexity of the deal, and documentation required.

 

 8.2 for an investment deal?

 

Again it depends on the complexity of the deal, amount requested, sponsors of the project, the financial institution, and documentation required. It could take from one week to one year.

 

8.3 How much time does it take to get a deal financed?

 

According to Ipak Yuli Bank, CBU regulations allow 25 days for consideration of creditworthiness. Usually, NBU processes an application in 1-3 weeks after receipt of all necessary documents. Many other commercial banks follow NBU’s pattern. Most of the leasing companies process an application in 1-month time. However, the structure and complexity of a transaction could lead to substantial delays.

 

According to Ipak Yuli Bank’s Credit Department, financing deals are divided into three groups:

 

1.      Micro-deals, financing projects worth up to $20,000. It usually takes 3-7 days to obtain this type of loan. 

2.      Medium deals (more than $20,000 up to $890,000) take about 10-15 days to process.

3.      Project Financing. Decision-making process on this type of loans usually takes much longer. It may take up to 9 months to get financing for this kind of projects.

 

9. What are the qualifying conditions on the checklist of finance providers when considering a business proposal (List by order of importance)

 

9.1 For a Domestic Lender.

 

Below are the criteria/conditions/considerations taken into account by Asaka Bank when considering business proposals:

 

  1. Business environment and infrastructure of a given region;
  2. Performance of an industry and companies in it;
  3. Problems related to taxation and accounting;
  4. Terms and conditions of a lending transaction;
  5. Projections of future cash flow generated from the project implementation using a computerized economic model;
  6. Sensitivity to changes in key micro- and macro parameters;
  7. Assessment of all potential risks specific to the project that may come up in various stages of its implementation and indicating the ways-out to minimize;
  8. Liquidity of assets (real estate and property, equipment and machinery, securities, guarantees etc.) that are pledged as collateral for the loan.

 

Ipak Yuli Bank requires the following:

 

1.      Potential clients should be operating in their respective sectors/fields for not less than 1-2 years;

2.      Projects for financing must be within specific sectors: engineering industry, light industry (textile), food industry, processing of agricultural products, chemical industry, oil & gas, production of construction materials, tourism/hotel industry, medicine and pharmaceutics and services.

3.      The main criteria in making credit decisions are financial strength of the firm (evidenced by existence of sufficient/valuable assets) and soundness of business idea.

4.       Security should be provided in the form of real estate or bank guarantee letter. The coverage must be 50-100% depending on the project risk.

 

According to NBU, to avoid credit non-payment risks, credit is given when the borrower presents credit provisions, satisfying the Bank's requirements, which can be made in the form of:

 

9.2 For a Foreign Lender.

 

The above-mentioned conditions are applicable to the majority of foreign lenders functioning in Uzbekistan as well. ABN AMRO Bank in Uzbekistan does not have pre-determined checklist of qualifying conditions. The bank reviews the risks present in the deal/transaction, analyzes mitigating factors, looks at the strength/weaknesses of the credit base and makes a decision. ABN AMRO Bank also needs to get approval of their parent in the Netherlands. If a company-applicant is a global client of the bank, the process of application could be much easier, as the number of alternative options to structure a transaction for such a client is greater.

 

10. What are the Key Obstacles for a Company to Get Trade Financing or Investment Financing and What are the Most Common Errors Committed Resulting in not Getting Any Financing?

 

Thirty three percent of SMEs that participated in the above-mentioned IFC survey needed external financing. However, only 25% of respondents in 2002 and 27% of respondents in 2001 applied for bank credits. This is an indication of the fact that despite the existence of bank loans and subsidized financial vehicles, the SME sector still has poor access to credit. The IFC Survey indicates that the main reasons for rejecting credit application were: insufficient collateral, poor business plans, and unwillingness to make unofficial payments. Moreover, 22% of SME account holders in Uzbekistan indicate a need for external financing yet do not even consider applying for bank credits because of real and/or perceived difficulties. Most of the SME entities give several reasons for not applying for bank credits but high interest rates (91% of cases) and high collateral requirements, together with bank bureaucracy, top the list of reasons. These reasons drive SME entities to use other sources of financing rather than legal ones.

 

11. What are the financing programs available in your country/region through?

 

 

11.1 Multilateral institutions (World Bank, EBRD, ADB, IDB, etc)

           

Multilateral institutions play significant role in developing private sectors and SME financing in Uzbekistan. Most of the institutions have credit lines available for Micro and Investment financing for SME through local commercial banks.

 

World Bank – World Bank’s Board of Executive Directors discussed an Interim Strategy Note (ISN) for Uzbekistan on July 27, 2006 and expressed broad support for the World Bank’s continued engagement in the country. The new strategy, which covers a 12 to 15 month period, combines technical assistance and analytical and advisory services with lending focused on global public goods and basic social services.

 

As a transitional assistance framework, the interim strategy reflects the need to strengthen the poverty orientation of public policy, deepen structural reforms, and ensure broader civil society participation. A review at the end of the ISN period will gauge progress made in these areas and provide the basis for a determination on the World Bank’s future assistance to Uzbekistan. 

 

This strategy seeks to engage the Uzbek authorities along two parallel tracks:

 

 

The lending envisaged during the ISN period will support global public goods, including an operation to fight avian influenza, as well as funding for a project to reform basic education.  In addition, the International Finance Corporation, the private sector affiliate of the World Bank Group, will support selected private sector investments.

 

The Bank’s current portfolio in Uzbekistan includes six investment operations: two operations in the water sector (Rural Water Supply and Sanitation and Health approved in 1998; Bukhara-Samarkand Water Supply, approved in 2002), one operation in primary health care (Health II, approved in 2004), and three operations in the rural sector (Rural Enterprise Restructuring, approved in 2001; Drainage and Wetlands Improvement, approved in 2003, Tashkent Solid Waste, approved in 1999). Net commitments are US$275.1 million, with $37.4 million disbursed, $13.7 million cancelled, and $156.8 million outstanding.  In addition, the Bank manages a regional grant-funded HIV/AIDS project of $25 million for four countries including Uzbekistan; a Global Alliance for Improved Nutrition (GAIN) grant of US$2.8 million for flour fortification; as well as a small regional Global Environment Fund (GEF) grant for biodiversity.

 

IFC through its Central Asia Private Enterprise Partnership (PEP) program plans to help improve the policy framework for private sector investment and trade. IFC also plans to continue to target lending to SMEs and micro-enterprises through local banks, as well as possible direct lending to larger projects that may be viable under prevailing business conditions. Uzbekistan became a member of IFC in 1992. Since then IFC has been participating in several major projects in the country, including:

  1. Establishment of Joint Venture "Uzbekleasing" specialized in leasing operations. 
  2. Establishment of an Uzbek-Dutch Joint Commercial Bank "ABN AMRO Bank NB Uzbekistan AO" with the authorized capital $10 million.
  3. Establishment of pharmaceutical Joint Venture "Corfarmsanoat". The authorized capital is $5.5 million.
  4. Establishment of an Uzbek-American Joint Venture "UzCaseTractor". One of the participants in this Joint Venture is the U.S. based Case.
  5. Establishment of an Uzbek-Dutch Joint Venture "Elma Cheese", specialized in production of cheese with the authorized capital is $1.1 million.
  6. IFC opened credit lines for SME development to 2 biggest banks in Uzbekistan - NBU (loan amount $15 million) and Asaka Bank (loan amount $10 million). At present credit lines are being successfully utilized.

 

EBRD - Being one of the largest foreign investors in the country, the European Bank for Reconstruction and Development (EBRD) supports market reforms and the development of private sector SME activity in Uzbekistan. EBRD credit lines extended to NBU, Asaka Bank, UzPromstroyBank and Pakhta Bank have provided much needed medium term financing for lending to SMEs.

 

EBRD strategy for Uzbekistan adopted in summer of 2005 aims at continuing to support private sector investment and entrepreneurship provided that there is no direct or indirect link to the Government or Government officials. For the development of SMEs and micro-business, the Bank will channel its resources to the sector through its credit lines to local financial institutions. In addition, the Bank will continue operating its Trade Facilitation Programme. The programme will continue to be facilitated by the provision of a risk-sharing guarantee under the Central Asia Risk Sharing Special Fund (CARSSF). The Bank, with donor support, will complement its SME financing with TurnAround Management (TAM) and Business Advisory Services (BAS) programmes.

Recognizing that private banks will not be able to satisfy needs for microfinancing, the Bank will also investigate the possibility of establishing a microfinance bank, together with other IFIs. This is of particular significance in light of the recent closure of the country’s largest private bank. The Bank will also consider the possibility of expanding its leasing operation, as there is considerable demand for such financing.

The EBRD will further develop its use of facilities available under the ETC initiative, increasing direct exposure to SMEs in the private sector in close cooperation with donors. Both the Direct Lending Facility and the Direct Investment Facility will continue to be utilized during the strategy period.  In addition, extending the Co-financing Facility to selected Uzbek banks will enable the Bank to increase direct exposure to SMEs.

An important means for developing the private sector will be the promotion of foreign investment. The EBRD will remain ready to work with foreign investors for joint venture projects. However, the current investment climate is of limited interest to foreign investors and further improvement is necessary in order to attract foreign investment, as well as closer dialogue between the Government and the investor community, to accommodate private sector initiatives. Based on its experience so far, the EBRD will put more emphasis on the monitoring of the existing portfolio, both private and public sector projects, including integrity issues.

 

 

ADB – The Asian Development Bank (ADB) also has SME credit lines in place via local commercial banks. ADB strategy towards Uzbekistan adopted in 2006 states that the bank will help promote pro-poor growth by pursuing the following strategic priorities:

 

(i)                  Accelerate environmentally sustainable rural development by supporting (a) agricultural productivity and growth, specific market-oriented agricultural policies, improved land and water use management, and land administration reform; (b) private rural enterprises and rural finance; and (c) rural infrastructure and services.

(ii)                Enable private sector development (PSD) by (a) enhancing public sector capacity for pro-PSD reforms, by building an effective regulatory management system; (b) focusing on specific aspects of the business environment affecting competition, including redesigning the competition policy framework; (c) helping the authorities refine industrial policy so that it does not hinder competition or increase the regulatory burden; (d) helping the Government strengthen the institutional framework for privatization to make the process more transparent; and (e) catalyzing private domestic and foreign investment through ADB’s private sector operations.

(iii)               Promote regional cooperation by helping develop regional transport corridors and customs transit to reduce physical and economic distance to intra- and interregional markets.

(iv)              Build the human capital of the poor by improving access to early childhood development services and quality basic education.

 

ADB’s 2006–2008 Program envisages combined annual lending from the Asian

Development Fund (ADF) and Ordinary Capital Resources (OCR) of about $100 million, based on Uzbekistan’s debt repayment capacity, absorptive capacity, and portfolio performance. Depending on the Government’s success in achieving intermediate results agreed to herein as well as its portfolio performance, the lending envelope could be augmented with additional OCR resources. Overseas development assistance loan and grant cofinancing and opportunities for commercial cofinancing and guarantees will be sought for appropriate projects. The track record on reform suggests continued caution in providing policy-based lending. Nonlending assistance is expected to be about $2 million per year.

 

About 71% of lending (and 62% of the number of projects) will be for rural development, including support for the rural private sector, followed by human development and regional cooperation (13% each), and energy (3%). With regard to the advisory TA, about 40% of resources will be allocated to rural development, 33% to PSD, 18% to human development, and the balance to regional cooperation. Governance and institutional development are cross-cutting issues embedded in all ADB interventions.

 

 

IDB – Uzbekistan became a member of Islamic Development Bank (IDB) in September 2003. The bank will give special consideration to funding projects to develop transportation in the Central
Asian region in order to connect the Central Asian countries with world markets. The government of Uzbekistan is planning to attract credits of IDB worth a total of $456.5 million during 2004-2007, according to a list of projects approved by the Cabinet of Ministers and the IDB.

 

11.3 Country/federal/state/regional/local programs?

 

As noted above, Uzbekistan has several concessionary mechanisms for external financing of SMEs, including bank lending financed by the Employment Fund, Business Fund and farm support fund, which are formed with contributions from businesses themselves, privatization proceeds and other funds. Secondly, there is lending through soft loan funds created by banks with the contribution of 25% of profits. Interest rates on loans extended from these funds cannot exceed half the Central Bank's refinancing rate (currently at 20% p.a.) on the day the loan is granted, and loans cannot exceed $10,000 for SME registered as legal entities; up to 50% of the loans can be provided in cash.

 

12. If foreign companies are extending finance (credit), what are the common terms?

 

It is rare when a foreign company extends a loan or credit to a local company in Uzbekistan – perceived risks are too high. When such a credit is extended, most of the time these involve import consignment transactions with deferred payment and the size of these deals is usually small. Foreign companies lend to local companies only when there is a long term relationship in place and they know the local company quite well. In such cases, terms vary drastically.

 

13. What are the Most Common Instruments for import payment, e.g., confirmed LCs, Off Shore Accounts, etc. and What Terms Are applicable?

 

According to ABN AMRO Bank, Uzbekistan, two of the most common instruments for import payment are LCs and payment guarantees. Prepayment and deferred payment are also used but not widely. Most of the transactions for import payment are done by NBU, which has several correspondent banking relations with American, European and Asian Banks.


14. What positive changes can be expected in the future and what is being prepared at the public/private level to improve the situation for financing business development in your region/country?

 

According to Ansher Capital, private banks are growing rapidly by introducing new quality services and taking clients from state-owned banks. Private banks are expected to play more prominent role in the economy in coming years,(similar to Russia and Kazakhstan). There is excellent growth potential through progressive management, modern product offerings and services.

 

15. Are there any Publications and web sites in English and/or Russian that address Finance Issues?

 

There are several newspapers in Uzbekistan which address financial issues. The most well-known newspapers are:

·        Bankovskie Vedomosti (Bank News): a Russian language newspaper This newspaper addresses issues related to banks, banking sector and Central Bank legislation/regulations on banking system.

·        Bisnes Vestnik Vostoka (Business Weekly). The newspaper is published in Russian weekly and in English monthly. The newspaper has a website: www.uzreport.com

·        Nalogoviye I Tamojenniyi Vesti  (Tax and Customs News). This newspaper is published weekly in Uzbek and Russian. Electronic version can be requested by email: btltezkor@mail.ru

·        Delovoy partner Uzbekistana (Business Partner of Uzbekistan). Weekly newspaper of the Agency for Foreign Economic Relations’, addressing domestic and foreign economic issues. Published in Uzbek and Russian, with an enclosure in English. Web-site: http://hamkor.uzpak.uz

 

There are also several websites in English:

·        Uzreport information portal www.uzreport.com/eng

·        State Property Committee of Uzbekistan www.spc.gov.uz

·        Center for Economic Research: www.cer.uz

·        Uzbekistan Governments official portal: www.gov.uz

·        Official portal of the Agency for Foreign Economic Activities of Uzbekistan: www.mfer.uz

 

16. Is Consumer Credit Available In Your Country/Region?

 

Yes, consumer credit is available in Uzbekistan.

 

16.1 If Yes, for what purchases the credit is mostly used for?

 

Most of the consumer credits are used to purchase long-term products such as refrigerators, TV sets, furniture, car and apartments. Terms of credits may differ from case to case according to the purchases and value of product. Most of the time, consumers should pre-pay 50% of the value of goods to be purchased in order to qualify for credit from banks.

 

16.2 How do banks compile and evaluate credit history information?

 

There is no such system/organization which tracks credit history of population in Uzbekistan yet. Banks, before lending to consumers check the client thoroughly and decide at their own discretion. Most of the banks have files for their previous consumers credit allocated, which is an important source of information to evaluate credit history.

 

17. Are there other public or private resources available in your country/region that could provide assistance to potential investors and/or lenders?

 

Yes. The most prominent ones are the Chamber of Commodity Producers and Entrepreneurs of Uzbekistan, Association of Business Incubators and Technoparks of Uzbekistan, “Uzbekinvest” National Export-Import Insurance Company and Ansher Capital.

 

 

For more information on Uzbekistan, visit BISNIS online at

http://www.bisnis.doc.gov/bisnis/country/Uzbekistan.cfm

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).