Afghanistan’s banking system may crash within months if urgent action is not taken to fix it, the United Nations warned on Monday.
Reuters quoted a UN Development Programme (UNDP) report as saying a breakdown of the banking system and resulting negative social impact would lead to a huge economic cost.
The UNDP report, seen by Reuters, stresses: “The bank-run problem must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing.”
Abdallah al Dardari, UNDP chief in Afghanistan, said: “We need to find a way to make sure that if we support the banking sector, we are not supporting Taliban.”
He commented: “We are in such a dire situation that we need to think of all possible options and we have to think outside the box. What used to be three months ago unthinkable has to become thinkable now.”
In an effort to save the banking system, the UNDP proposed a deposit insurance scheme, steps to ensure enough liquidity for short- and medium-term needs, as well as credit guarantees and options to defer loan repayments.
The report reads: “Coordination with the International Financial Institutions, with extensive experience of the Afghan financial system, would be critical to this process.”
With current trends and withdrawal curbs, about 40% of Afghanistan’s deposit base would be lost by the end of the year, the report added.
Banks had halted offering new credit, with non-performing loans had almost doubled to 57% in September from the end of 2020, the UNDP report revealed.— Agencies