EXCLUSIVE JURIST – Law students and lawyers in Afghanistan file reports with JURIST on the situation there after the Taliban takeover. Here, a JURIST correspondent in Kabul comments on the current state of the struggling Afghan banking system under the Taliban. For reasons of confidentiality and security, we retain his name and institutional affiliation. The text has only been slightly retouched to respect the author’s voice.
The banking system had developed a lot over the past two decades in the country. Until 2001, only state-owned banks with limited banking systems were active in Afghanistan. With the fall of the Taliban regime in 2001, the government – with foreign aid – developed a system that attracted many financial institutions as well as investors to invest in the banking system. The central bank has authorized up to 10 private banks and some branches of foreign banks to operate in the country.
Currently, 12 banks are active, three of which are state-owned and others are private banks. The latest central bank reports (July 2021) indicate that the total assets of commercial banks are AFN 311 billion of which AFN 276 billion include debts / loans and only AFN 36 billion cover net assets or the shares of shareholders of these banks.
The total assets and capital of AIB, Azizi, Bank Millie and Islamic Bank amount to more than AFN 30 billion. Capital note investments, long-term investments and business loans are the main areas in which commercial banks have mainly invested. The total amount of loans to the various companies is around AFN 32 billion and around AFN 45 billion is invested in central bank capital notes. The problem with business loans is that many businesses have already collapsed and / or are in the process of collapsing due to the current economic situation. Businesses are unable to pay debts and interest. As a result, commercial banks are losing and / or have already lost a large amount of income.
In addition, around 97 billion AFN from commercial banks are currently at the central bank. The central bank is unable to pay this amount to commercial banks. The central bank is unable to pay the amount invested in capital notes because it is very difficult for them to cash such an amount easily. Therefore, for the central bank to repay the 97 billion and 45 billion to the commercial banks, it takes at least one to two years.
Reports indicate that of the total debts of commercial banks, AFN 245 billion are deposits from individuals, companies, NGOs, and only 31 billion of these debts come from other sources. This means that about 88 percent of the total assets and capital of commercial banks is owned by the people and the rest is owned by the banks themselves.
The banks that have the most deposits of the population have faced and are facing challenges since the Taliban took power in the country. People are still lining up to withdraw money from banks on a daily basis.
Commercial banks have invested heavily in real estate in the country. This industry has been hit hard since the Taliban took power – prices have dropped dramatically and these investments have no customers at the moment. For example, a three-room apartment in our area used to cost around $ 50,000, but now it is no more than $ 30,000.
Commercial banks are unable to preserve their liquidity and this leads them to bankruptcy. The liquidity problem and the restrictions imposed by the Taliban on international monetary transactions cut Afghan banks’ relations with the world, resulting in delays in the importation of goods, especially food, which resulted in a rise in the prices of food and other things, the lack of raw materials for the factories and companies in the market.
More importantly, commercial banks have lost much of their income because they no longer do the following:
• Not to issue loans;
• No money is transferred abroad by these banks;
• Less interest on loans due to insolvency;
• No money transfer commission;
• No foreign exchange income;
• No salary withdrawal income from state employees as a large number of civil servants have not received their salary in the past two months;
• They no longer invest in capital notes; and
• Fewer bank guarantees are issued.
In addition to the above, commercial banks are losing confidence because people are withdrawing their deposits and it will be difficult for banks to get them back. This challenge will negatively affect the country’s newly developed banking system.
In view of the above, the Taliban must enforce new policies if they are to save the banking systems. These policies should be carefully evaluated and reviewed in order to achieve positive results.
In my opinion, they should take one or more of the following actions in close consultation with experts from the IMF, World Bank and other major financial agencies:
• Maintain the reputation of currently active banks;
• Maintain the liquidity of currently active banks;
• Collection of long-term loans; and
• Payment of deposits by the central bank.
Given the current situation, for the Taliban to take any of the above actions, they must work closely and honestly with the IMF, World Bank, and other development banks. Indeed, the Taliban alone cannot prevent the economic collapse of Afghanistan. But I don’t know when and how these entities will resume their operation in Afghanistan.