Procedure for bank rehabilitation and liquidation officially established

The Central Bank of Uzbekistan has been designated as the authorized state body responsible for the rehabilitation and liquidation of banks. This is stipulated by the Law “On the Rehabilitation and Liquidation of Banks,” adopted on June 23.

The law applies to banks, banking groups, and holding companies that own controlling stakes in banks.

A set of specific conditions must be met to initiate the rehabilitation of a bank. These include:

• The bank is insolvent or faces a high probability of insolvency;
• Measures taken by the bank itself, along with supervisory actions by the Central Bank, have failed to eliminate insolvency or cannot realistically do so within six months;
• Rehabilitation is necessary because the bank is considered systemically important, or the objectives cannot be achieved through the compulsory liquidation of a non-systemically important bank.

The Central Bank is granted the authority to appoint a special manager to oversee a bank undergoing rehabilitation.

Rehabilitation measures may include:

• The transfer (sale) of assets and liabilities;
•  The establishment of an interim (bridge) bank;
• The write-off and/or conversion of obligations.

Under the new law, before deciding on rehabilitation, the Central Bank must conduct an assessment of the bank’s assets, liabilities, and off-balance sheet items.

The appointed assessor is required to submit a report to the Central Bank outlining:

•  The estimated losses that shareholders and creditors would incur if the bank were subject to compulsory liquidation on the date rehabilitation begins;
•  The actual losses incurred by shareholders and creditors of the rehabilitated bank;
• The difference between these two amounts.

Additionally, a rehabilitation fund will be created based on a joint decision by the Central Bank and the Deposit Guarantee Agency. The Central Bank is also authorized to temporarily suspend certain contractual obligations of the rehabilitated bank for a period not exceeding six weeks.

For reference, bank rehabilitation refers to the process by which the state or another entity provides financial assistance to a bank to enable it to repay debts and continue operations when it lacks sufficient funds.