“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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UZBEK AND GERMAN BANKS IN SECURITY MARKETS
Khusanboev Agzamjon G
‘offorjonovich,
Senior teacher of Banking Department, TSUE
E-mail:
Davlatov Elyor Bozorboy o
‘g‘li,
Assistant teacher of Banking Department, TSUE
E-mail:
Bekmurodova Gavhar Adkham qizi,
senior scientific researcher, TSUE
E-mail:
Abstract:
This article deal with special aspects of bank security markets in Uzbekistan and
Germany. Main types of security activities of Uzbek and German commercial banks are compared
and discussed. In addition to this, the paper shows the main trends of security activities of our
banks during the period 2015, 2016 and 2017. Last but not least, we showed some issues defined
by our analyses and gave some recommendations to improve further security activities of banks in
Uzbekistan.
Аннотация:
Ушбу мақолада Ўзбекистон ва Германия банклари қимматли қоғозлар
бозоридаги фаолиятининг асосий жиҳатлари ёритилган. Ўзбекистон ва Германия
банкларининг қимматли қоғозлар билан боғлиқ операцияларининг асосий турлари
таққосланган ва муҳокама қилинган. Шунингдек, мазкур мақолада 2015-2017 йиллардаги
махаллий банкларимизнинг қимматли қоғозлар билан операциялари ўзгариш динамикаси
таҳлил қилинган. Хулоса қисмида, Ўзбекистон банкларининг қимматли қоғозлар билан
боғлиқ операцияларидаги мавжуд муаммолар ўрганилган ва уларни бартараф этиш
бўйича илмий таклифлар ишлаб чиқилган.
Аннотация:
В этой статье рассматриваются основные аспекты рынка ценных
бумаг банков Узбекистана и Германии. Сделан сравнительный анализ и обсуждены
основные виды операций с ценными бумагами узбекских и немецких банков. В том числе, в
данной статье анализирована динамика роста операций банков на рынке ценных бумаг в
период 2015-2017 гг. В заключении изучены проблемы банков Узбекистана на рынке
ценных бумаг и разработаны научные предложения по устранению существующих
проблем.
Key words:
securities, commercial banks, assets, bank-based financial system, market-
based financial system
Introduction
After the collapse of the Covet Union, the modern banking system has been created
step by step in Uzbekistan. Like many transition economies, Uzbekistan started its banking
reforms with creating a two-tier system that included the central bank and commercial
banks. Central bank conducts monetary policy and regulates commercial banks.
Commercial banks in Uzbekistan are universal banks. To be more precise, they have
services for bank customers such as deposit, credit and transaction services. It is also
allowed by law to participate in financial markets, especially security markets without any
obstacles. Although commercial banks are main participants in Tashkent Stock Exchange
“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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Market, all commercial bank investments on this market make up only about 0.4% of
overall bank assets in 2017. This means that commercial bank security business has not
developed yet in Uzbekistan.
Furthermore, Central bank of Uzbekistan is unable to use Open Market operations
as an instrument to expand or contract the amount of money in the Baking system. One of
the main reasons is that government securities purchase was stopped on 1st of January in
2013. Here may appear question if the government does not emit securities, the Central
bank can use other instruments such as corporative bond, bank deposit certificates.
However, the open market operation is implemented with only government securities.
Government authorities show the government budget surplus as the main reason for not
allowing government security business. Another reason for under developing of this
market, there is little scientific research which is dedicated to the improvement of bank
security markets in Uzbekistan.
For the last two years, the government of Uzbekistan has made reforms on the
economy in order to accomplish tasks put forward by Strategy Action for the development
of Uzbekistan in 2017-2021. One priority direction of Strategy Action is liberalization of the
national economy. Development of short and long-term financial markets is one main sub-
section of the liberalization of the national economy [2].
Another important decree of President Shavkat Mirziyoyev PD-5177 about “Priority
Measures for Liberalizing Foreign Exchange Policy” on 2
nd
September 2017. One of the
directions of this decree is dedicated for development of government security markets.
Importantly, President Republic of Uzbekistan Shavkat Mirziyoyev made a resolution on
13th September in 2017 about “Further development of the monetary policy of Central
bank of Uzbekistan”. One section is devoted to the development of the national financial
market, including the government security market in the medium and long-term prospect
so as to establish effective monetary policy.
Above-mentioned shortcomings and achieving strategic goals indicate the
importance of article’s topic and require new scientific investigation which is based on
foreign experience. The model of the financial system in Uzbekistan is close to German
financial system that’s why German banking system is chosen to compare security
activities of both countries.
Literature review
Commercial bank security markets are analyzed by many scientists and economists.
One of the professors who made a research Uzbek financial markets is Alexandr Akimov
and Brain Dollery. Akimov states that open market operations are a monetary instrument
widely used in developed economies to influence monetary aggregates. However, it had
not been effectively employed by the Central Bank of Uzbekistan. The CBU offered very
limited scope of securities (chiefly zero-coupon short-term Treasury Bills) to a small group
of financial institutions (almost exclusively banks). However, these securities had two
major problems. Firstly, they yielded negative interest rates in real terms up to 2003.
Secondly, they were often not re-paid in cash upon maturity. Instead, new issues were
used to replace old ones. At some stage, the situation worsened to the point that the CBU
forced some state-owned commercial banks to purchase Treasury Bills (Akimov 2001) [7].
Another well-known scientist who researched security operations of banks is L.
Butikov. As he mentioned that banks participate in three directions in security markets.
“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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The first direction is emission operations. Banks raise capital by emitting a variety of
securities such as stocks, bonds, derivatives. The second direction is investment activities.
He states that banks participate in security markets to get profit by selling different
securities of other financial institutions (Butikov 2003) [6].
German banking system is bank-based financial system which means banks have
dominant role to mobilize savings and allocating capital. On the other hand, financial
system of USA and England is market based which means financial markets plays an
important role to free capital from people to investors who are in need (Asli Demirguc-
Kunt and Ross Levine 1999) [8].
The first key distinction is the extent to which German banks have evolved beyond
the traditional primary bank function of providing commercial finance (short-term credits
for inventory and trade) and developed an extensive capacity to provide industrial finance,
that is, long-term capital for financing fixed assets (plant and equipment) (Sigurt Vitols
1998).
Banks play an important role in corporate governance of non-financial firms. In all
this respect, bank dominance is evident in Germany at least around the turn of century
(Schmidt and Tyrell 2015) [10].
Research Methodology
In the preparation of this article, we have studied the current theories, which are
proposed by foreign scientists and local scientist. Then, we analyzed factors that influence
security activities of banks in financial markets. In addition to this, we tried to answer how
to solve these negatively impacting factors to improve security operations of banks in
security markets. During preparation research, many different research methods are used
comparative assessment and scientific abstract methods. Data is collected from many
difference sources. We used annual reports of Central bank of Uzbekistan and commercial
banks. Furthermore, annual reports of “Axbor” rating agency are used for writing the
article.
Analysis аnd results
The role of banks in the securities market is different in many countries. There is no
obstacle for Uzbek commercial banks as a participant of Security Markets. Our banks can
be member of Tashkent stock exchange market with the general license which given for
activity of commercial banks. There is no need to get another license from Central bank.
According to the current legislation, commercial banks of Uzbekistan can carry out
the following operations in the securities market:
- emission operations;
- investment operations;
- investment institution operations.
“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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Figure 1. Issuing instruments of banks in Uzbekistan [6]
Emission operation of commercial banks of Uzbekistan. One of the main activities of
commercial banks of Uzbekistan in security markets is emission operations. Special feature
of commercial banks in security markets is that they may participate as an issue, investor
or underwriter bank in this market.
Banks of Uzbekistan also participate as an investor in security markets. The figure
below shows the types of instruments which Uzbek banks can invest.
Figure 2. Investment instruments of Uzbek commercial banks [6]
In our country, banks are not divided commercial banks and investment banks that’s
why all commercial banks can function of investment bank’s activities. Commercial banks
participate on security markets with general license, which is given by Central Bank of
Uzbekistan in order to deal with banking activities. Our banks are investment institutions
as well. They participate as a broker and dealer in security markets. Most of our banks
“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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payed more attention to this until 2000. At that time, only commercial banks are allowed
to be intermediary to trade government short-term bonds. Another important function
was registering transactions of participants. They send all the information to government
agencies such as Ministry of Finance and Central Bank of Uzbekistan. However, it has not
well-developed in our banks to be intermediary.
As we mentioned above, German banks are main part of financial system because
majority of funds are moved through banks. In order to compare Uzbek banks with
German banks in security markets, we first start by comparing banking systems of both
countries. We made a table which shows these differences.
Figure 3. Comparison of banking system of Uzbekistan and Germany
Source: The figure is made by author according to available literature.
It can be clearly seen from the figure above, banking system of Uzbekistan has two
tires. The first tire is the central bank of Uzbekistan and the second tire is credit institutions
such as commercial banks, microcredit institutions and others. Banking system of Germany
consists of private banking group, saving banking group and cooperative banking group.
Now we compare security operations of banks in Uzbekistan and Germany. We can
see from the table below the main characteristics of security activities in Uzbekistan and
Germany.
Table 1.
Security operations of Uzbek and German commercial banks
Security operations of Uzbek
commercial banks
Security operations of German
commercial banks
Issuance of security
Issuance of security
Investing to security
Investing to securities
Broker and dealer
Global custodians (safe keeping
securities)
Security lending
Brokers and dealers
Buy-side and sell-side
clearing and settlement
Security lending
Source: The figure is made by author according to available literature.
As you can see from the table above, Security operation of German banks are
broader in comparison with security operations of Uzbek commercial banks. Safe keeping
Banking system in
Uzbekistan
Banking system in
Germany
1.
Central bank of
Uzbekistan
2.
Credit institutions
1.
Private banking group
2.
Saving banking group
3.
Cooperative banking
group
“Иқтисодиёт ва инновацион технологиялар” илмий электрон журнали. № 6, ноябрь-декабрь, 2018 йил
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securities and clearing and settlement operations have not developed yet in practice of
commercial banks of Uzbekistan. In addition to this, security lending is the most popular
types of German bank’s operation.
In order to make our comparison clearer, we decided to analyze practical data of
security activities of Uzbek and German banks.
Figure 4. Commercial bank’s share in the structure of the Republican Stock Exchange
“Tashkent” in 2016 and 2017 [15].
A glance at the pie charts below reveal changes Uzbek commercial banks change in
the structure of the Republican Stock Exchange “Tashkent” in 2016 and 2017. As it can be
clearly seen from the charts provided, the share of commercial banks in the stock
exchange market had dramatic expansion in 2017.
The share of enterprises of the financial sector of the economy accounted for 87.8%
of the exchange turnover or 262.2 billion sums and banks - 86.3% of the exchange turnover
or 257.6 billion sums, insurance companies 1.5 billion sums (0.5%) and leasing companies -
3.1 billion sums (1.0%). In 2016, the share of the financial sector was 50.6% or 154.8 billion
sums, the share of the agro-industrial complex - 9.2% or 27.3 billion sums (in 2016 - 5.3%
or 14.9 billion sums); In addition to this, second place in term of percentage was share of
industry sector with 24.6% in 2016. This was equal 73.7 million sum. However, industry
sector made up only 0.3% of market structure and accounted for 0.9 million sums in 2017.
The proportion of commercial banks as investor made up 1.3% of total investors in
the Republican Stock Exchange “Tashkent” in 2016. However, this trend changed
negatively in the coming year, making up only 1% of investors. Here may appear questions,
proportion of Uzbek commercial banks in the Republican Stock Exchange “Tashkent” is
50% but they made up only 1% of investors. It shows that investment operations of Uzbek
commercial banks have not developed yet in security markets.
In order to compare with other participants, we decided to analyze other players
share as investors. As you can see from pies, the biggest proportion of investors in the
Republican Stock Exchange “Tashkent” in 2016 was foreign investors with 50.1%. This
trend has seen a sharp increase in the coming year, accounting for 63% of all investors or
127.6 billion sums. Similarly, share of individuals increased from 16.2% (48.6 billion sums)
to 32.2% (96.2 billion sums).
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Figure 5.
Structure of the Republican Stock Exchange “Tashkent” by investors in 2016 and
2017[15]
In order to analyze more, we look at accumulated balance sheet of Uzbek
commercial banks in three different years 2015, 2016 and 2017. Why do we need to look
at balance sheet? There are some indicators which are belonging to security operations of
commercial banks of Uzbekistan. Firstly, we are going to look at asset side of balance
sheet. We can get information about how much money are directed or invested to
securities of other financial institutions by commercial banks. It also shows the proportion
of invested money to total assets.
Table 2.
Asset structure of commercial banks of Uzbekistan in 2015 2016 and 2017[14]
01.01.2016
01.01.2017
01.01.2018
Change
in (%)
Amount in
billion
sums
Share
(%)
Amount in
billion
sums
Share
(%)
Amount in
billion
sums
Share
(%)
Assets
Cash and cash
equivalents
12.11
1.91%
1336
1.6%
4841
2.9%
162.4%
Money reserves in
Central bank
94286
14.8%
11958
14.2%
14909
8.9%
24.7%
Due from banks
73.18
11.5%
10869
12.9%
25060
15%
235.3%
Investments and
securities
4433
0,7%
2 621
3,1%
4 115
2,5%
57,0%
Loans
39067
61.64
%
52 045
61,9%
108 467
65,1%
108,4%
Equipment and
intangible assets
1645
4 %
1 794
2,1%
2 335
1,4%
30,1%
Interest earned on
assets
452
0.7%
593
0,7%
1 413
0,8%
138,3%
Other private property
764
0.1%
386
0,5%
298
0,2%
22,7%
Other assets
3770
2.6%
2 474
2,9%
5 193
3,1%
109,9%
Total assets
63383
100%
84 075
100 %
166 632
100 %
98,2%
Source: http://cbu.uz/uzc/statistics/bankstats/2018/01/100519/
The table above authentically deals with giving information about components
assets of commercial banks of Uzbekistan in 2015, 2016 and 2017. As it can be clearly seen
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from the table, big proportion of assets consisted of loans and money reserves and the
least proportion of assets are cash and other properties in both years.
Turning to the details, the largest amount of assets is loans, making up 61.9% in
both 2015 and 2016 increased to 65.1% in 2017. However, money reserves in Central bank
of Uzbekistan made up 11958 (14.2%) billion sums in 2016 before reaching to 14909 billion
of sums in 2017. As our aim is researching or discovering securities operations of
commercial banks, we tend to more focus on investments to securities. All investments of
commercial banks of Uzbekistan accounted for 2621 billion sums which is only 3.1% of
total assets in 2016. However, this trend had a slight fall on the coming next year. 2.5% of
all assets are directed to buy securities of other companies by commercial banks of
Uzbekistan in 2017.
Table 3.
Liability side of commercial banks of Uzbekistan in 2015 2016 and 2017[14]
01.01.2016
01.01.2017
01.01.2018
change
in (%)
Amount
in billion
sums
Share
(%)
Amount in
billion
sums
Share
(%)
Amount in
billion
sums
Share
(%)
Liabilities
Deposits
32287
50,94%
36 341
48%
58668
40,2%
61,4%
Amounts due to the
Central
bank
of
Uzbekistan
235
0,3%
263
0,4%
537
0,4%
103,9%
Due to other banks
2443
3.8%
3994
5%
5762
4%
738.1%
Borrowed loans and
lease operations
24574
32%
26 786
36%
72 819
50%
171,9%
Issued securities
987
0,7%
1 058
1%
1 100
0,8%
4,0%
Interest rates payable
257
0.4%
375
0,5%
1 049
0,7%
180,0%
Other liabilities
5607
7.2%
6 276
8%
6 019
4,1%
-4,1%
Total liabilities
68254
100%
75 094
100,0%
145 956
100,0% 94,4%
As you can see on the liability side, the percentage of issued share accounted for
only 1% of total liabilities or 1058 billion sums in 2016. In spite of the fact that commercial
banks are main players of Tashkent Stock Exchange, their operation in terms of amount is
very low. It can be seen this case in 2017 as well. Banks more prefer to accumulate funds
by attracting deposits that of issuing shares in securities markets. All attracted funds by
issuing stocks made up only 0.8% of all total liabilities or 1100 billion sums.
Сonclusion
To conclude, Uzbek commercial banks participate in security markets in three
directions such as emission operations, investment operations and investment institution
operations. German financial system is bank-based financial system means bank deposits
have important role to turn savings into investment.
By researching security activities of banks, we found some issues related to these
activities. These issues are as follows:
1.
Issues related to the enforcement of legal acts related to the activities of
commercial banks in the securities market;
2.
Low profitability of securities issued by commercial banks;
3.
There are not popular stocks issued on foreign currency in Uzbekistan;
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4.
Absence of the ability of our country to sell securities of commercial banks in
international markets;
The following measures are proposed to address the above-mentioned issues:
- strengthening the legal framework regulating the activities of commercial banks in
the securities market;
In doing so, it is primarily to enforce legislation protecting investors 'rights and to
establish institutions that protect investor’s rights.
- improvement of the dividend policy of commercial banks;
- revision and development of securities issued in foreign currencies;
- encouraging and improving the integration of the stock market in the international
financial markets.
Implementation of these measures will be a major support for the development of
commercial banks in the securities market.
References
1.
Law of the Republic of Uzbekistan "About joint-stock companies and protection
of shareholders' rights". May 5, 2014.
2.
Decree of the President of the Republic of Uzbekistan “Strategy Action for the
development of Uzbekistan in 2017-2021” PD-4947, February 7, 2017.
3.
Resolution of the President of the Republic of Uzbekistan “On additional
measures to increase the popularity of banking services” PR-3620 March 13, 2018.
4.
Resolution of the President of the Republic of Uzbekistan “Further development
of the monetary policy of Central bank of Uzbekistan” PR-3272 September 13, 2017.
5.
Resolution of the President of the Republic of Uzbekistan “Further development
of banking system of Uzbekistan” PR-3270 September 12, 2017.
6.
Butikov L.I, “Security markets”, Tashkent, 2003.
7.
Alexandr Akimov and Brain Dollery. The Uzbek approach to financial system
development: An analyses of achievements and failures. Discussion paper Finance, 2009.
8.
Asli Demirguc-Kunt and Ross Levine, Bank-based and market-based financial
systems: cross-country comparison, 1999.
9.
Are German banks different? Small Business Economics, 10(2): 79-91, 1998.
10.
Patrick Behr, and Reinhard H. Schmidt, The German banking system:
characteristics and challenges, White paper No32, 2015.
11.
Frederic Mishkin “The Economics of Money, Banking and Financial Markets
(Global edition 11th Edition)” Pearson, United Kingdom, 2015
12.
Annual report of Central bank of Uzbekistan in 2015, 2016 and 2017.
13.
Annual Reports of Republican Stock Exchange Market “Tashkent” in 2015, 2016
and 2017.
