UN warn of bank collapse in Afghanistan

Status: 11/22/2021 11:38 a.m.

The central bank’s reserves have been frozen since the Taliban came to power in Afghanistan. Account holders can only withdraw small amounts, there are no loans. The UN fear a collapse of the 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”, it says in one published Report of 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.

Frozen more than nine billion dollars

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.

The economy could shrink tremendously

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 (IMF), the Afghan economy could shrink by up to 30 percent in 2021-2022.

In addition to the collapse of the economy – so the report says – the problems in the banking system could further reduce the survival probability of small and medium-sized enterprises, which are crucial for the population.


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