Afghan banking system on brink of collapse, UNDP warns

Afghanistan's banking and financial systems are on the verge of collapse following the country's takeover by the Taliban. According to a UN report,"Afghanistan's financial and bank payment systems are in disarray," the report by UN Development Program (UNDP) said. "The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing. Currently, the country's central bank could not meet deposit demands, prompting the Taliban to impose withdrawal caps of a maximum of USD 200 per week. The amount was recently increased to USD 400, Sputnik reported.

The report said that Afghanistan's total banking system deposits fell to USD 2 billion in September from USD 2.8 billion at the end of 2020. With the current pace and withdrawal restrictions, deposits are projected to fall to USD 1.7 billion by the end of 2021, likely leading to the collapse of Afghanistan's banking sector, the report said. Soon after the Taliban assumed power in Kabul, the United States froze Afghanistan's international reserves. This has led to a dramatic shock in the country's financial and payment systems.

"Without the banking sector, there's no humanitarian solution for Afghanistan," UNDP Resident Representative Abdallah Al Dardari said. "Do we really want to see Afghans completely isolated?" In addition, the country's credit market is also in decline. Total credits fell to USD 307 million in September from USD 33 billion at the end of last year. To prevent the collapse of the country's banking system, UNDP urged for prompt and decisive action, which includes deposit insurance for depositors, adequate liquidity for the banking system and credit guarantees and loan repayment delay options.