The practice of soft lending is widespread in the Uzbek banking system, but the volume and share of soft loans is gradually declining, the Central Bank said in a report.
Soft loans include loans in UZS with an interest rate equal to or lower than the interest rate of the Central Bank, and loans provided under foreign credit lines guaranteed by the state.
In particular, the share of soft loans in total loans decreased from 60.5% in January 2019 to 18.2% in December 2021, which indicates an increase in the volume of loans issued on market principles, the report added.
The Central Bank, citing a number of foreign studies, noted the low macroeconomic efficiency of soft loans. The practice of soft lending is also a serious problem for an effective monetary policy.
The November 18, 2019 presidential decree provided for the allocation of all soft loans at an interest rate not lower than the base rate of the Central Bank from January 1, 2020, and on market conditions - from January 1, 2021.
However, in order to support the entrepreneurial activity for the public in the context of the coronavirus pandemic and the economic crisis caused by it, the practice of issuing loans under government family business programs at the interest rate of the Central Bank continued in 2021.
In addition, through the compensation mechanism, the practice of paying by the Entrepreneurship Support Fund a part of interest to promote the development of certain industries and borrowers starting entrepreneurship is being introduced.
Interest rates on soft loans are growing, and due to the above decisions and the mechanism, the mean interest rate on soft loans in national currency increased from 8.5% in January 2019 to 11.4% in December 2021, and the gap with the interest rate of the Central Bank continues narrow.
At the same time, after reducing the average rate on soft loans to 11.1% in January by March 2022, it rose again to 11.5%. However, the gap with the CB’s interest rate widened sharply after its increase to 17%.
At the beginning of the year, the governor of the Central Bank, Mamarizo Nurmuratov, said that from 2021 it was planned to cancel the soft lending policies in Uzbekistan, but due to the coronavirus pandemic, these plans had to be postponed. According to him, last year 24.6% of loans were issued on favorable terms, which is 2 times less than in 2018. At the same time, the share of problem loans in the structure of the soft loan portfolio remains high .
