The state of the banking sector under the Taliban
By John Manninginternational banker
IAt the end of September, the managing director of the Islamic Bank of Afghanistan, Syed Moosa Kaleem Al-Falahi, warned of an imminent collapse of the Afghan banking system. “There are huge withdrawals at the moment,” Al-Falahi told the BBC (British Broadcasting Corporation). “Only withdrawals take place, most banks do not operate and do not provide full services.”
Reports strongly suggest that much of the Afghan banking sector was taken by surprise when it was revealed that the central bank had run out of dollar reserves after the government fell to the Taliban in mid-August, two only weeks before the US pulls out completely. his troops and put an end to his 20-year presence. Indeed, the speed of the Taliban victory, which they managed to achieve in just a few days, their forces easily overpowering the US-trained Afghan security forces and capturing all the major Afghan cities, seriously compromised chances of a smooth transition for the country’s banking system. And according to Ajmal Ahmadi, the former central bank governor who fled the country, almost all of the central bank’s roughly $10 billion is held offshore.
As such, the Afghan banking sector is fast running out of dollars, meaning a number of local lenders may soon have to close their doors to customers, especially if the new Taliban regime does not release additional funds. “Although the shortage of liquidity has lasted for weeks, the country’s banks have in recent days repeatedly raised their concerns with the new government and the central bank, said two of the interviewees,” he said. added. Reuters reported September 15. “Banks have already cut services and imposed weekly payment limits of $200 amid a scramble for savings, with long lines outside branches as people try to put the hands on dollars.” Afghanistan’s central bank, Da Afghanistan Bank (DAB), also limits withdrawals by private companies and entrepreneurs to $25,000 once a month from their bank accounts, local media have reported in recent weeks.
Some even claim that no bank has enough money to serve its customers. “With regard to banking and finance, the former government has taken steps to obtain [the] public confidence in [the] banking sector, which is under attack these days. There are no new customers for the banks, and the people queuing behind the banks are only there to withdraw money. Therefore, cash withdrawal is the only thing the banks currently deal with in the country,” a Kabul lawyer noted on September 21 when filing a report with the online legal information service at non-profit JURIST. “I think some small banks such as Maiwand Bank, Afghan United Bank, Ghazanfar Bank and others will go bankrupt very soon.” The capital adequacy of these lenders had already been under scrutiny for some time, and they would no longer meet asset quality requirements, management performance conditions, gain principles and liquidity requirements set by the central bank.
Concerns also continue to mount over the Afghan banking sector’s foreign reserve capacity, particularly in US dollars, if Western powers insist on keeping them frozen and cutting ties with Afghan lenders and businesses. Already, the World Bank (WB), the International Monetary Fund (IMF) and the European Union (EU) have suspended their financing facilities for projects based in Afghanistan, while the United States has frozen 7 billion dollars of Afghan foreign reserves held in New York. Without access to these crucial funds, the government cannot even pay import taxes on food containers from Pakistan, according to the vice president of the country’s Chamber of Commerce and Industry, Yonus Momand.
According to a report sent to aid agencies by senior international officials overseeing the Afghan economy, the outlook remains bleak and the economy could shrink by a third if this banking crisis is mishandled. The new government therefore faces a huge challenge in stabilizing the economy, especially given the significant increases in food prices such as flour, fuel and rice in recent months. The current economic situation is so dire that the United Nations World Food Program (WFP) estimates that only 5% of Afghan households have enough to eat each day.
“The liquidity crunch…has disrupted supply chains and halted [the] flow of money and goods,” the report says, according to Reuters. “Many businesses…are unable to pay…vendors, and many traders are unable to make international payments…to import food. NGOs… are not able to pay the salaries of their staff. It is also unclear how much money the new government should release. “The Taliban inherited a central bank with depleted dollar and AFN liquidity reserves,” the report acknowledges.
Exactly how long these central bank reserves will remain out of reach remains unclear at this stage. Nonetheless, US officials believe aid groups can circumvent the Taliban government to provide much-needed resources to Afghan citizens. “It is certainly still possible to meet the basic needs of Afghans without rewarding the government with broader economic assistance and diplomatic recognition,” said Lisa Curtis, former director of the United States National Security Council for South Asia. South and Central, to The Associated Press September 16.
So how can the banking sector get out of this mess? Access to international funds and foreign aid appears to be the highest immediate priority for ensuring Afghanistan’s long-term stability. Foreign aid to the country, which previously amounted to $8.5 billion a year, or around 40% of the country’s gross domestic product (GDP), has been cut almost completely as Western powers seek to put a tight grip on the finances of the Taliban in an attempt to obtain concessions from the new leaders on the way in which they intend to govern the country. The United States, for example, has indicated that it is willing to work with the Taliban as long as it meets certain preconditions, such as its treatment of women and minorities.
“Da Afghanistan Bank assures our compatriots that all commercial banks operating in the country are under serious scrutiny and are conducting their operations better than before,” Haji Mohammad Idris, former acting governor of the country, said in mid-September. Afghan central bank. “Given the country’s economic situation, all banks, FXD [foreign exchange desks] and companies, including domestic traders, will soon adjust their operations in a normal and steady manner and conduct their business safely.
While such a picture seems wildly optimistic to say the least, a recent silver lining was the bank’s announcement that it had made progress in transferring money via telegraphic transfer (TT), most commonly used by traders when importing commodities. Thus, commercial banks can now execute international monetary transactions.
And it would seem that the Taliban are also looking for other channels of financial support. “They are looking forward to China and Russia, as well as other countries. It seems that sooner or later they will manage to dialogue,” according to Al-Falahi. Pakistan is also considering options to help its neighbor. notification from Pakistan Ministry of Economic Affairs, Governor of State Bank of Pakistan (SBP), Dr. Reza Baqir presented various options to support Da Afghanistan Bank.
“Sources maintained that the SBP governor highlighted areas of cooperation, especially where the Taliban government needed immediate assistance from Pakistan. They said that Dr. Baqir said that for the smooth functioning of the banking system under the Taliban regime, Pakistan could help print the Afghan currency,” the Pakistani news publication said. The Express Grandstand reported on September 29, adding that the governor has also reportedly offered to extend credit lines to Afghanistan’s central bank and provide technical assistance. “However, Dr Baqir raised the issue of extending support in [the] lack of formal recognition of the Afghan government by Pakistan. He was not available to comment on development.