"Sale of buildings are not within the purview of banks and represent unhealthy banking practices," - Economist in Uzbekistan

High-rise buildings constructed by three state banks in Tashkent have been listed for sale on May 29. Economist Otabek Bakirov argues that investing in real estate diminishes the financial effectiveness of banks.

Economist Otabek Bakirov has raised concerns about the banks' involvement in real estate ventures, stating, 

"It's evident that the shareholders, board, and management of the bank are unable to explain why the buildings were constructed and why they are now being sold, or what economic and financial benefits this process entails. However, the Central Bank should address this issue. Construction and sale of buildings are not within the purview of banks and represent unhealthy banking practices. One of the central bank's roles as a regulator is to prevent banks from engaging in activities that jeopardize the interests of creditors and depositors. This is particularly crucial given that the three state banks in question seem to be prioritizing narrow interests over sound financial management. Moreover, this trend extends beyond recent plans, as reports suggest that these banks have received directives to construct new buildings in the rapidly developing city of Tashkent." 

Bakirov also questioned the decision to sell the buildings through the Davactive agency, expressing skepticism about the choice of sales agent and suggesting potential ulterior motives behind the selection.

Moreover, Bakirov highlighted the significant financial burden incurred by the banks in financing these real estate projects. Loans ranging from $100 mn to $140 mn from Chinese banks were obtained for each building, leading to increased costs totaling millions of dollars after factoring in interest payments, commissions, and project preparation expenses.

The economist warned that such investments in real estate could sharply worsen the financial efficiency of the banks, citing previous research on the negative impact of real estate investments on financial performance.

Despite these criticisms, SQB is reportedly proceeding with plans to construct a 21-story building for $40 mn at the site of its Yashnabad branch. The building is slated to house a shopping and entertainment complex on the lower floors, with the upper floors designated for offices and apartments.