Financial Crime World

Vulnerabilities in Afghanistan’s Banking Sector Leave Economy on Brink of Collapse, Say Experts

Kabul, Afghanistan - A devastating report by the United Nations Development Programme (UNDP) has revealed that Afghanistan’s financial and banking systems are in disarray, threatening to plunge the war-torn country into an unprecedented economic crisis.

The Situation Report: A Dire Picture

The situation report, released yesterday, paints a dire picture of a sector in chaos. Humanitarian interventions are crippled by a crippling liquidity crisis, according to the International Monetary Fund (IMF). The IMF is predicting a contraction of up to 30 percent in Afghanistan’s economy for 2021-2022.

Banking System Crises

  • Banking system deposits have plummeted from 268 billion AFN ($2.9 billion) at the end of 2020 to 194 billion AFN ($2 billion) in September, and are expected to fall further to 165 billion AFN ($1.8 billion) by year’s end - a staggering loss of approximately 40 percent.
  • Non-performing loans have also skyrocketed from around 30 percent at the end of last year to a whopping 57 percent in September, as banks struggle to meet their obligations.

Consequences of Inaction

The report warns that without swift and decisive action, the consequences could be catastrophic. “The collapse of the financial system is exacerbating fast diminishing economic activity,” said Abdallah Al Dardari, UNDP Resident Representative in Afghanistan. “Banking is also one of the most important connectors of the country to the outside world.”

Recommendations for Stabilization

  • Deposit insurance for depositors
  • Adequate liquidity and credit guarantees
  • Loan repayment delay options for the real economy

The Consequences of Collapse

Without swift intervention, experts fear that Afghanistan’s banking system could collapse, leaving the country isolated and vulnerable to financial crime. As Al Dardari starkly put it: “Without the banking sector, there’s no humanitarian solution for Afghanistan. Do we really want to see Afghans completely isolated?”