Central Bank of Uzbekistan Identifies Excessive Loan Penalties Exceeding Principal Amount

Tashkent, Uzbekistan (UzDaily.com) — The Central Bank of Uzbekistan has published the results of an analysis of practices regarding the imposition of measures and sanctions on borrowers who violate the terms of credit and microcredit agreements.

The review revealed that in some cases, the fines and late fees charged by banks for overdue payments significantly exceed both the original loan amount and the actual costs incurred by the lender.

Specifically, when repayment deadlines are missed, interest charged on overdue amounts can exceed the annual rate specified in the loan agreement by 1.5–3 times, and in some cases reach 150–180% per annum.

In effect, such sanctions act as an alternative source of interest income for the bank.

Additionally, a daily penalty is applied for overdue interest, with no legal cap, which can ultimately surpass the original loan amount multiple times. Banks also impose one-time fines for each delay, which are not tied to the lender’s actual expenses.

In some cases, an elevated interest rate, daily penalties, and one-time fines operate simultaneously, causing the borrower’s total additional costs to exceed the cost of timely repayment by several times.

According to the Central Bank, this practice imposes a real financial burden on borrowers and makes it economically difficult to fulfill obligations.

The regulator emphasizes that the current model incentivizes lenders to profit from overdue payments rather than prevent them and encourage timely repayment. Certain loan agreements effectively turn borrower penalties into an independent source of income for the bank, disrupting the balance of interests, increasing social risks, and undermining trust in the banking system.

The Central Bank believes that penalties for overdue payments should be purely compensatory and not a tool for generating additional profit. The presence of such cases is a key reason for reviewing legislation to clearly define borrowers’ financial responsibilities, ensure transparency of overdue consequences, and make them predictable.

The regulator stressed that transparent and predictable lending terms are essential to strengthening public trust in the banking system and creating a fair financial model for interactions between borrowers and lenders.