The Afghan banking system is on the verge of collapse – World

The UN today called for urgent action in support of banks in Afghanistan, warning that a sharp increase in the number of people unable to repay loans, reduced deposits and lack of liquidity could collapse the financial system in a few months, Reuters reported. “.

In a three-page report on Afghanistan’s banking and financial system that Reuters read, the United Nations Development Program (UNDP) warned that the economic cost of a banking system collapse and the subsequent negative social impact would be colossal.

Suddenly stopping most foreign development support, after the Taliban took power on August 15th from a Western-backed government, plunged the country’s economy into a state of free fall. Thus, the banking system was put under serious pressure and it imposed a weekly limit on withdrawals to stop the mass “outflow” of deposits.

Afghanistan’s financial and banking payment systems are in chaos. The problem of withdrawing money from banks needs to be addressed quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing, UNDP said.

Finding a way to avoid collapse is complicated by international and unilateral sanctions against Taliban leaders. We need to find a way to ensure that if we support the banking sector, we do not support the Taliban, UN special envoy to Afghanistan Abdullah Ad Dardari told Reuters.

The Afghan banking system was vulnerable even before the Taliban came to power, but support for development has since stopped and billions of dollars in Afghan assets have been frozen abroad. That is why the UN and other support groups are now struggling to provide sufficient liquidity in the country.

UNDP proposals aimed at rescuing the banking system include a deposit guarantee scheme, measures to ensure sufficient liquidity for short- and medium-term needs, as well as credit guarantees and options for delaying loan payments.

Coordination with international financial institutions, along with their extensive experience in the Afghan banking system, will be crucial to this process, the UNDP report said, taking into account the World Bank and the International Monetary Fund. Since taking over the Taliban, the United Nations has repeatedly warned that the Afghan economy is on the verge of collapse, which will further exacerbate the refugee crisis. UNDP emphasizes that if the banking system collapses, it will take decades to recover.

According to the report, with current trends, about 40 percent of deposits in Afghan banks will be lost by the end of the year. Banks have stopped lending, and non-performing loans nearly doubled to 57 percent in September from the end of 2020.

Liquidity is also a problem. Afghan banks have so far relied heavily on physical US dollar inflows, which have been suspended. Ad Dardari said Afghanistan’s local currency in the economy was worth about $ 4 billion, while only $ 500,000 was in circulation. / BTA

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