Three laws, one name: why was the Law "On Banks and Banking Activity" rewritten in 1991, 1996 and 2019?

An accountant reading a loan agreement often overlooks one phrase at its start: "in accordance with the legislation of the Republic of Uzbekistan". Behind that phrase stands one law, whose name has hardly changed for thirty years: "On Banks and Banking Activity". But its text has been written three times. Why? The answer is tied to how the banking system itself changed.

Why did the first law appear even before independence?

Scholarly works (including Akimov's article and the University of New England working paper) state that in February 1991 a republican law "On Banks and Banking Activity" was adopted, which opened the way to a two-tier banking system. What do two tiers mean? At the top, a central institution that conducts monetary and credit policy; beneath it, separate commercial banks that work with customers.

According to the sources consulted, the Central Bank took shape on the basis of the republican branch of the State Bank, and commercial banks appeared alongside it. In other words, the law came out before independence, and the system began to be built on its basis. The exact day of the law is not given in this article: we only know the year and the month.

1996: the second law, which came after the Central Bank law

The economics working paper of the University of New England (Australia) says that, in place of the outdated law, two new laws were prepared: first the Central Bank law (21 December 1995), then the Law "On Banks and Banking Activity". The second was adopted on 25 April 1996 as No. 216-I: this number and date are the same in the records of the Central Bank's official website and LexUZ.

Note the sequence: 1. 1991: the first Law "On Banks and Banking Activity". 2. 1994: the soum enters circulation (more in the article "From the soum-coupon to the soum"). 3. 21 December 1995: the Central Bank law. 4. 25 April 1996: the new banking law No. 216-I.

This sequence shows one thing: the national currency, the central bank and the law on commercial banks are built one after another as three parts of a single system.

2019: why was a new edition needed?

Twenty-three years later the law was again adopted in a new edition: 5 November 2019, No. ZRU-580. At the same time a new edition of the Central Bank law also came out (11 November 2019, ZRU-582; we have a separate article on it). Relying on the Anhor.uz report and the Tashkent Times article, two novelties can be named: - A bank cannot go outside its own business: according to the Anhor.uz report, banks have no right to engage directly in production, trade and insurance (check the exact article in the text of the law on lex.uz). - The capital requirement is set in the law itself: the new edition states the minimum charter capital of banks as 100 billion soum; before that it was set by the Central Bank. Later, in 2023, the capital requirements were changed again (Kinstellar). Check the exact amounts and deadlines today against the current text of the law, so we give no new figures here.

These two points matter to everyone who works with a bank. The first shows that a bank must stay within the limits of its core activity, the second that the capital requirement changes over time.

Then and now

What does the law mean for an accountant?

The banking law does not dictate journal entries directly, but the accounting trace of a loan agreement comes from exactly this system. Under paragraph 292 of NAS No. 21, account 6810 "Short-term bank loans" records the short-term loans received by the organization in accordance with legislation, and analytical accounting is kept separately by the lending bank, the loan amount and the term. The phrase "in accordance with legislation" is a reminder to check that the agreement was indeed concluded with a licensed bank.

Example: when "Qo'qon Plast" takes a loan

The example was compiled by the author; the company and the rate are hypothetical (not the current rate).

The hypothetical "Qo'qon Plast" LLC received a short-term bank loan of 240 000 000 soum: a term of 12 months, an annual rate of 24%, the principal is repaid monthly in equal parts, and interest is accrued on the outstanding balance (2% per month). The result calculated with Python:

Journal entries (NAS No. 21, paragraph 296, rows 1 and 4; paragraph 309, rows 4 and 5). Account 5110 is taken as the settlement account: 1. Loan received: Dt 5110 "Settlement account", Ct 6810 "Short-term bank loans", 240 000 000 soum. 2. Interest for month 1 accrued: Dt 9610 "Interest expenses", Ct 6920 "Accrued interest", 4 800 000 soum. 3. Accrued interest paid: Dt 6920, Ct 5110, 4 800 000 soum. 4. The month 1 portion of the principal repaid: Dt 6810, Ct 5110, 20 000 000 soum.

A practical observation: the most important number in the table is 31.2 million soum. The loan cost not "240 million" but 271.2 million soum. If the accountant records the interest expense separately each month on account 9610, the manager has a ready answer to the question about the "real price of the loan".

Lessons for today's accountant

• Know the version of the law. If the agreement says "in accordance with legislation", check which date's edition is meant: the 1996 text and the 2019 new edition are not the same.
• Take the figure from the source. Banks' capital requirement, rates and thresholds change: take them not from an old article or from memory, but from the current official text.
• Calculate the price of a loan over the year. A 24% annual rate does not mean paying 24% of the loan amount, because the balance declines. Calculate month by month, as in the table.
• Each loan separately. On account 6810 analytical accounting is kept for each loan (bank, amount, term), while interest passes through 6920 and 9610.
• A bank within its own remit. According to Anhor.uz, the new edition provides that a bank cannot directly engage in production, trade and insurance. If a bank offers you a "product package", find out in the contract exactly which service it is and who is responsible.

Link with the previous period: in the 20th century central banks separated from commercial banks and the system became two-tier. In Uzbekistan this separation was formalized by three laws of 1991, 1995 and 1996, and in 2019 both laws were adopted in a new edition. The next stage: the ATM, the plastic card and the mobile app.