Finances: UN warn of collapse of the Afghan banking system

The United Nations has warned of the serious consequences of a collapse in the Afghan banking system. The economic costs with the social consequences are “colossal”, according to a report published on Monday by the UN Development Program (UNDP).

The longer the delay in restoring the financial and banking system, the longer the recovery phase due to the subsequent loss of confidence in international markets. This erosion is difficult to fix and can last for decades. The protection of at least part of the commercial banking system is also necessary in order to be able to provide humanitarian aid.

After the withdrawal of international NATO troops, the Taliban had conquered large parts of Afghanistan. On August 15, the militant Islamists entered the capital Kabul without a fight and have been in power ever since. At the same time, donor countries provided aid and development funds for the country. The Afghan central bank’s reserves of more than $ 9 billion have been frozen. International transfers to the country through the Swift system are on hold.

Since then there have been no more regular dollar deliveries to the country, which led to a liquidity crisis. Account holders can only withdraw small amounts of money. Banks have stopped lending. According to the UNDP report, deposits in Afghan banks will also decrease – according to estimates, by around 40 percent by the end of the year compared to the end of 2020. At the same time, non-performing loans in the comparatively small credit market rose from around 30 percent at the end of 2020 to 57 percent in September.

According to forecasts by the International Monetary Fund, the Afghan economy could shrink by up to 30 percent in 2021-2022. In addition to the collapse of the economy, problems in the banking system could further reduce the survival of small and medium-sized businesses, which are vital to the population, the report said.