TURKMENISTAN'S COMMERCIAL BANKS

UNCLAS SECTION 01 OF 02 ASHGABAT 001002 SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: N/A TAGS: PGOV PREL ETRD EFIN BEXP TX SUBJECT: TURKMENISTAN'S COMMERCIAL BANKS ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. SUMMARY: Turkmenistan's banking system consists of 11 banks. All Turkmen banks are owned and run by the state, which controls virtually all economic activities. The primary goal of these banks is to serve as financial clearinghouses for state and private enterprises' trade and investment operations in Turkmenistan. While all seem to function well enough in Turkmenistan's current, closely controlled environment, most are organized along old Soviet models and will need to change to meet the demands of a more international clientele. END SUMMARY. BANKS IN TURKMENISTAN ¶3. (SBU) During its visit to Turkmenistan the financial enforcement team of the Office of Technical Assistance from the U.S. Department of Treasury met with the Central Bank and three commercial banks in Turkmenistan on July 21-25, 2008. The main focus of the meetings was to identify possible areas for U.S. technical assistance to enhance the enforcement and effectiveness of anti-money laundering policies and procedures that will soon be required of all financial institutions. ¶4. (SBU) Aside from the Central Bank of Turkmenistan, there are a total of 11 banks operating in Turkmenistan: - Five state-owned banks: the State Bank for Foreign Economic Affairs of Turkmenistan, the Turkmenbashy State Commercial Bank, Dayhanbank State Commercial Bank, and Halkbank State Commercial Bank; - Two joint stock commercial banks: Senagatbank and Garagum International Joint Stock Bank; - Two foreign banks: the National Bank of Pakistan and Bank Sedarat of Iran; - One joint venture bank: Turkmen-Turkish Joint Stock Commercial Bank; and - One specialized real estate bank: Presidentbank State Commercial Bank. ¶5. (SBU) According to Turkmenistan's banking legislation, all commercial banks must register with the Central Bank of Turkmenistan, which awards them a license allowing commercial banks to handle hard currency operations. After the Central Bank of Turkmenistan set the single official exchange rate of 1 USD to 14,250 Manats, all banks in Turkmenistan were authorized to buy 1 USD at 14,215 manats from the Central Bank and sell it for 14,240 manats. The state commercial banks focus on certain areas of economic activity. For instance Dayhanbank deals with agriculture related projects, Turkmenbashy Bank with the financing of industrial projects (particularly in the oil and gas sector),and Presidentbank, with real estate financing. SENAGATBANK ¶6. (SBU) State Commercial Bank Senagatbank is one of two banks (along with the State Bank for Foreign Economic Affaires -- Vneshekonombank) that produces financial statements according to international accounting standards. Because it is a joint-stock bank, Senagatbank offers only business accounts, and no personal accounts. It has 350 employees and eight branches throughout the country. Since 2000 it has operated a Western Union office that has been working successfully. To the enforcement team's question about the likelihood of money laundering, the Chairman of the Board Eyeberdi Atayev stated that not even a one-dollar transaction leaves or enters the banking system without proper documentation. In order to make payments for goods purchased from abroad, the list of proper documents a firm must submit to make a financial transaction includes the copy of the contract, certificate of origin of the product, and the customs declaration. (NOTE: Payments for goods can be made only after the goods have crossed the Turkmen border and has ASHGABAT 00001002 002 OF 002 been cleared through customs. END NOTE.) Atayev came across as extremely confident, outgoing, and supportive of Western banking practices. In the middle of the meeting, he even pulled out a book he was reading on Western banking practices. HALKBANK ¶7. (SBU) Formerly called "Sberbank" (Savings bank),the State Commercial Bank, Halkbank, is one of the largest banks in Turkmenistan and has branches all over the country. It has some 182,000 private accounts and 5,000 business accounts. In contrast to his Senagatbank counterpart, Halkbank Chairman Gurbanmurad Begmuradov was reserved and careful, but well read-in and knowledgeable, especially about the operations of a Financial Action Task Force (FATF). Unlike Senagatbank Chairman Atayev, Begmuradov was quite well aware of the draft law on anti-money laundering and financing terrorism and was extremely supportive of the idea of creating a Financial Investigation Unit. He even was curious whether or not the unit would be under the Central Bank or Ministry of Finance. PRESIDENTBANK ¶8. (SBU) The state commercial bank, Presidentbank, was established in 2000 by an initiative of the late President Niyazov. This relatively new bank was set up with the primary goal of extending loans to small and medium-sized commercial projects. However, now Presidentbank largely focuses on financing mortgages for "Elite" apartment candidates. Presidentbank's Chairman of the Board, Dovran Babayev, said that, at present, the mortgage program is solely focused on the financing of elite housing in Ashgabat, but the financing will soon be extended to the rest of the country. (NOTE: The president has been very critical at recent cabinet meetings of the bank's slowness to extend their loans outside Ashgabat. END NOTE.) Currently, the bank holds the mortgages of 1,700 private citizens, worth some 560 billion manats. Presidentbank continues to support small and medium enterprises as well, and provided 70 billion manats ($5 million) to finance the "Gush Toplumy" chicken farm not long ago. ¶9. (SBU) COMMENT: Each of the banks appear to have been created to meet some specific financial service need of the state, and each has developed its areas of service to meet those needs. As the banks gradually take on international financial accountability obligations and interact more with international financial institutions, it will be interesting to see whether they will be able to adapt to these new requirements. END COMMENT. CURRAN