Can non-resident non-bank entities buy banks' shares in Uzbekistan?

Strict requirements apply to the takeover of shares in a local bank's charter capital by non-resident non-bank entities. In this post, we have briefly outlined the legal framework, requirements, procedures, necessary documents, timelines, and restrictions that apply when non-resident non-banks take over shares.

I. LEGAL FRAMEWORK

The sale and purchase of shares in local commercial banks by non-resident non-bank legal entities (hereinafter referred to as "Non-banks") are primarily governed by the following legal acts:

- Law No. LRU-580 on "Banks and Banking Activities";

- Law No. LRU-701 on "Procedures for Issuance of Licenses, Permissions, and Notifications";

- Law No. LRU-850 on "Competition";

- Regulation No. 3252 on "Procedure and Conditions for Permission for Banking Activities".

II. PROCEDURE FOR OBTAINING PRELIMINARY CONSENT

To acquire shares in local banks, non-banks need to obtain preliminary consent from the regulator – the CBU. Along with a written application, the following documents should be submitted to the CBU:

- Certificate of state registration and incorporation documents (charter and shareholders' agreement upon incorporation)

- General information about all shareholders in the form provided by regulations

- General information about the ultimate beneficiary in the form provided by regulations

- General information about the potential buyer in the form provided by regulations

- Resolution of the competent governing body on acquiring decisive possession of the bank

- Copy of audit reports for the past three years; if the company has operated for less than three years, a copy of the report for the years it has operated

- Confirming documents on the source of origin and movement of funds to be used for buying the shares

- Completed questionnaire in the form provided by regulations

- Information on the conformity of members of the supervisory and management board to business reputation criteria

- Consent of the regulator where a non-bank entity resides in participating in the charter capital of a Uzbek bank or a confirmation of the unnecessary nature of such consent.

During the review process, the CBU is entitled to request additional documents and information. The CBU reviews applications within 2 (two) months. If a potential take-over leads to acquiring more than 25% of the total shares of the bank, it is also necessary to obtain separate preliminary consent from competition authority.

III. ASSESSMENT OF POTENTIAL BUYER

The assessment of a potential buyer is conducted based on the following criteria:

- Business reputation of the potential buyer

- Business reputation, knowledge, and experience of members of the supervisory and management board planned to be appointed upon completion of the takeover

- Financial capability of the potential buyer and the bank

- Ability of the bank to meet prudential requirements after the takeover

- Suspicions of potential breaches of AML regulations, as well as after the takeover

- Likelihood of the buyer harmonizing with the bank's activities

- Influence of corporate governance and related persons in regulating the bank.

The CBU considers several criteria in its decision-making process. The decision on the results of the review of applications is announced on the CBU's website. A granted preliminary consent remains valid for 6 (six) months.

IV. RESTRICTIONS

Non-banks can purchase shares of local banks in Uzbekistan, but the total amount of shares they can buy is limited to 50% of the entity's charter capital. However, entities registered in tax havens cannot be shareholders of a bank. Additionally, the Central Bank of Uzbekistan (hereinafter referred to as "CBU") may impose additional requirements regarding the capital and credit rating of non-banks, as well as the rating of the non-banks' place of residence.

To avoid complications, investors are advised to consult with lawyers who are knowledgeable about the regulatory environment and the current practices of the CBU. At FC, we are banking law specialists with over 10 years of experience, ready to assist you at every step of your relationship with the CBU or any other regulatory matter in the financial sector in Uzbekistan.

Contact us via info@fairlex.uz.