Resource information
Financial intermediation in Tajikistan
has deepened in recent years, albeit from a low base. This
is reflected in the overall growth of the financial system,
greater diversification, and the expansion of lending to
previously under-served sectors, such as agriculture and
small- and medium-sized enterprises. Even after the
expansion, however, the financial sector remains small and
cannot serve all the financing needs of the economy. While
banks are generally well capitalized and liquid, their rapid
growth has brought new risk exposures that should be
carefully monitored and appropriately addressed. In
particular, rapid loan growth could lead to a build-up of
unrecognized credit risk and give rise to an increase in
non-performing loans (NPLs). Because of extensive
dollarization, the exposure of banks to exchange-rate
induced credit risk is another significant cause for
concern. Also, the exceptionally rapid growth of nonresident
deposits without clear knowledge of their sources exposes
the banking system to reputational risk. Significant
strengthening of the regulatory and supervisory framework
will be needed to sustain the system's health in the
face of rapid growth. Governance in the financial sector
needs significant strengthening. Improvements are needed to
ensure the integrity of the regulatory bodies and to
guarantee that all financial transactions are conducted at
arms' length and priced on a market basis. Fair and
transparent resolution of the large stock of distressed
cotton debt would demonstrate the government's
commitment to market principles and good governance.
