Conformed Copy - L4479 - Financial Institution Building Project - Supplemental Letter

Page 1 REPUBLIC OF UZBEKISTAN June 23, 1999 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Re: Loan No. 4479 UZ (Financial Institution Building Project) Paragraph 1 of Schedule 5 of the Loan Agreement Performance Monitoring Indicators Dear Sirs and Mesdames: This refers to Paragraph 1 of Schedule 5 of the Loan Agreement (Financial Institution Building Project) of even date herewith between the Republic of Uzbekistan (the Borrower) and the International Bank for Reconstruction and Development (the Bank), for the above –captioned Loan. The Borrower hereby confirms to the Bank that the indicators set forth in the attachment to this letter shall serve as a basis for the Borrower to monitor and evaluate the progress of the Project and the achievements of the objectives thereof. Very truly yours, REPUBLIC OF UZBEKISTAN By /s/ S. Safayev Authorized Representative Attachment Performance Monitoring Indicators 1. Improved corporate governance and management capacity: (i) Short-term: improvements in the banks’ management capacity, including strategic planning, organizational structure; information technology and accounting; and credit analysis procedures; (ii) Medium-term: increase in commercial lending to the private sector; and (iii) Long-run: attracting foreign banks to participate in the privatization of selected Uzbek banks. 2. Increased competition between commercial banks: reduced market concentration; decreased sectoral segmentation of existing banks; increased corporate borrowing; better customer service and introduction of new financial products. 3. Improved prudential regulations and stronger supervision capacity of the Central Bank of Uzbekistan (CBU), including better reporting capacity by the commercial banks. Stronger and more transparent internal and external reporting by commercial banks to facilitate supervision, including on-site and off-site audits; improved organization and skills of the supervision function in the CBU. Page 2