Except for two problem banks, the financial sector continued its path to recovery in the first half of 2019 says a report released by the World Bank on November 29.
Tajikistan: Economic Update – Fall 2019 – Heightening Fiscal Risks in Tajikistan, in particular, notes that measures introduced by the National Bank of Tajikistan (NBT)—including the periodic monitoring of loan recovery plan progress and recently-introduced preventive measures—facilitated an improvement in asset quality and rising banking sector profitability.
The report says lending to the private sector rose marginally (1.3 percent year on year), but the ratio of nonperforming loans (NPLs) fell to 31.1 percent at end-2018 (from 36.5 percent a year earlier) and declined further to 25.5 percent by mid-2019. The measures with the most significant impact on the NPL ratio were limitations on issuing foreign currency loans to unhedged borrowers, legal empowerment of the regulator to access and verify information on financial and nonfinancial borrowers, and the upward revision of the risk weighting for foreign currency-denominated loans (from 100 to 150 percent).
Bank earnings reportedly improved markedly, nearly returning to pre-crisis levels. Return on assets rose from 1.9 percent in 2018 to 2.5 percent in the first half of 2019 (compared to 2.2 percent in 2013) and return on equity increased from 7 percent in 2018 to 9.2 percent in the first half of 2019, according to the report.
Banking system deposits declined by 7.3 percent in local-currency terms in August 2019 compared to the end of 2018, reflecting declines in deposits of both individuals and legal entities, both in local and foreign currency, the report says, noting that this decline could also reflect to some extent sales of collateral in exchange for frozen customer deposits in the two insolvent banks. The gradual decline in the average weighted interest rate for foreign currency time deposits (from 6.7 percent in 2017 to 5.2 percent in 2018 and further to 4.7 percent in June 2019) contributed to this trend, as did regulatory changes to individual deposit insurance.
As part of de-dollarization efforts, the maximum insurance coverage for local currency deposits was raised to 25,000 somoni (equivalent to 2,500 USD). In contrast, the amount remained unchanged at 17,500 somoni (equivalent to about 1,750 USD) for foreign currency deposits. Such a dual coverage rate is not in line with international good practice, according to the report.
