New Deposit Protection Law: What It Means for Uzbek Depositors. Insights from AVO Bank
Uzbekistan’s implementation of a new law on deposit protection guarantees marks a significant step forward in enhancing the security of bank deposits.
The new law introduces a number of significant changes
The deposit guarantee system has been expanded to embrace various individuals and entities. Previously limited to individual account holders, it now also protects individual entrepreneurs and legal entities, which is a significant enhancement.
Sanjar Nosirov, Director of the Department for Regulation Methodology of Credit Institutions at the Central Bank, highlights that this development provides crucial financial security for small businesses. In times of financial challenges, banks face, this added layer of protection is vital. While the 200 mln soum guarantee might initially appear modest, it plays an important role for small businesses, ensuring they can effectively manage their daily operations, including covering utilities, paying salaries and handling other expenses, without disruption, even amidst temporary banking instability. Furthermore, the new law guarantees protection for the term deposits of legal entities and their current account balances, offering greater peace of mind.
Sanjar Nosirov emphasises that the 200 mln soum limit should be viewed as an opportunity rather than a restriction for depositors. The law ensures that banks are obligated to repay the full amount of deposits, providing a solid trust foundation. To enhance security, depositors can take proactive steps by diversifying their funds across several banks, such as allocating 150 to 170 mln soums in each. This approach not only helps safeguard assets but also reduces overall risk.
It’s encouraging to note that the guaranteed deposit amount will be reassessed at least once every three years, reflecting changes in inflation and economic conditions. Experts believe that the current limit protects 99.7% of all deposits within the banking system.
Compensation payout timeframes are being significantly reduced. In the past, the payout process could take as long as 83 days, which was understandably frustrating for many depositors. The new plan aims to streamline this process significantly, ensuring that compensation will be issued within seven business days. This improvement is a positive step forward, as it will help individuals regain access to their funds much faster, minimising any disruptions they may experience.
Changes to the funding system for the Deposit Guarantee Fund. The previous funding model relied solely on loans to address resource shortages. However, with the implementation of the new system, the fund not only continues to receive budget support but can now also access credit from the Central Bank. Experts believe this dual support structure will significantly enhance the fund’s resilience, allowing it to navigate financial challenges better. It alleviates pressure on the state budget, promoting more sustainable financial management.
International experience and IADI standards compliance
The new law aligns with international standards for deposit insurance, enhancing the system’s reliability. The International Association of Deposit Insurers (IADI) reports that, on average, deposit insurance systems worldwide cover approximately 92% of deposits. However, this coverage is significantly higher in Uzbekistan, reaching 99.7%.
For comparison:
- In Kazakhstan, the guaranteed deposit amount ranges from $9,700 to $38,600
- In Moldova — $10,700
- In Russia — $14,300
- In Turkey — $26,400
Uzbekistan’s guaranteed amount aligns with international standards, providing significant depositor protection.
Impact on the banking system
The adoption of the new law has a positive impact on the country’s banking system. Firstly, it boosts public trust in banks, as depositors can now feel more confident about the safety of their funds. This increased trust also helps to reduce the risk of mass withdrawals, which is especially important during potential financial crises.
Banks are now required to manage risks more responsibly. They can no longer depend on unconditional guarantees to cover all deposits, which forces them to make more cautious financial decisions. As a result, we can expect a decrease in high-risk deposit offers with inflated interest rates, contributing to the overall stability of the financial sector.
AVO Bank’s recommendations for depositors
«When making deposits, it’s essential to choose financially stable banks. You should be aware of your role in protecting your savings by keeping all documents organised and staying informed about relevant legislation,» says Anastasiya Kosheleva, Director of the Legal Support and Corporate Secretariat Department at AVO Bank.
Anastasiya Kosheleva emphasises key points to help depositors reduce risk and maximise guaranteed deposit compensation mechanisms.
1. Keep all documents. It is essential to retain all documents related to your deposit, whether you opened it at a bank or online. These documents help establish your right to compensation. For instance, a deposit agreement confirms that you made a deposit, while deposit receipts show the funds transfer. Account statements provide evidence of fund movement and interest accrual. The more documents you have, the easier to prove your deposit and receive compensation if necessary.
2. Use reliable sources to check information about the bank. If you’re considering depositing a large amount, monitoring the bank’s condition, particularly its financial indicators, is crucial. Rely on multiple sources to comprehensively assess the bank’s reliability. These sources include news articles, financial websites, official publications, bank stability ratings and customer reviews. One practical resource is openinfo.uz, where banks publish their financial reports. This user-friendly portal features charts that make assessing a bank’s financial stability easier.
3. Remember that the bank is required to return the full deposit amount. According to the law, depositing more than 20 mln soums will not result in the loss of the excess amount. The bank is required to return the full deposit. You will receive compensation from the fund for up to 200 mln soums, and any amount above that can be recovered through legal action.
4. Know which deposits are covered by the law.
The law does not apply to deposits made before it was enacted, but some exceptions exist. The new compensation procedure is relevant in cases where the deposit exceeds 200 mln soums and its term was extended after the law came into effect, or if the deposit can be withdrawn on demand.
What does this mean for depositors
The adoption of this new law marks a significant advancement for Uzbekistan’s financial system. It simplifies the compensation process and expands the list of depositors eligible for protection. For depositors, it is crucial to rely on the law and follow a few simple guidelines to safeguard their savings. This includes staying within the guaranteed limit at any single bank, paying attention to the bank’s financial health, and staying informed about legal updates. These measures help build confidence in uncertain situations,” Kosheleva concluded.
