The project development objective is to support the authorities in restructuring and/or privatizing state-owned banks

The proposed project is consistent with the Country Partnership Framework for FY 2022-2026, specifically its Objective 1.3 on Enhancing the Productive Contribution of Land and Capital to Growth and the Uzbekistan Second Systematic Country Diagnostic. The project aims to support the authorities of Uzbekistan in restructuring and/or privatizing state-owned banks. The fundamental transformation of SOCB governance, business models and operations and subsequent privatization thereof will help the private sector access better financial services, create a level playing field between state and private banks, reduce distortions created by directed and preferential lending that has benefited the survival of inefficient and non-viable firms. Positive effects will arise from increased bank competition in collecting deposits, granting loans, and overall provision of financial services that are more affordable and suited to the risk profile of the customers. Refocusing the remaining SOCBs toward well-defined economic, social, and political objectives will complement the activity of private banks and foster financial inclusion. The proposed project is a five-year Investment Project Financing (IPF) operation. The project will have one technical component and a project management component. The proposed budget is US$ 5.1 million. Component 1: State-owned banks modernization, commercialization, and privatization (US$4.3 million). This Component will support the implementation of the adopted banking sector reform strategy. The ultimate objective is to rationalize state ownership in the banking sector to a point where the number, size, and reach of the SOCBs is commensurate with the state policy objectives, and support development of Human Resources for early and successful the banking system transformation. This component will provide: (i) consultancy support and institutional capacity building for MOF to support its ownership function for SOCBs, including transaction-oriented TA on SOCB privatization, (ii) consultancy services to support SOCB restructuring, and (iii) support to the Banking and Finance Academy for developing and deploying targeted, specialized, and continuous short-term trainings for all levels of banking and financial sector specialists and people interested in financial sector careers, as well as training of trainers program, certification programs and partial scholarship grant program for people who want to pursue new career in the financial sector and compete for financial sector jobs. Component 2: Project Management (US$ 0.8 million). This component will support Project implementation, including the Project's monitoring and evaluation, application of environmental and social standards, Project related audits, training and financing of incremental operating costs. The project implementation unit (PIU) at the MoF will manage the provision of financial resources, perform fiduciary functions, ensure compliance with environmental and social safeguards, and monitor and evaluate the project implementation.