Afghanistan’s banking sector has grown quickly since the Taliban regime’s demise in 2001. However, holding a bank account is still a new concept in Afghanistan, with many hesitant to get one due to a lack of trust, illiteracy, restricted financial services and facilities and involvement of interest. In Afghanistan, there are only 12 banks operating, with three state banks, seven private banks and two international bank branches serving a population of 37 million people, 99% of whom are Muslim. Despite the fact that online banking is very common in other parts of the world, many in Afghanistan do not feel comfortable using it for their transactions. Some people are skeptical of the online system, while others want to use it but have restricted access to high-quality internet services.

The Central Bank of Afghanistan and the Afghanistan Banking Association have made many achievements and successes in recent years. However, there are still challenges and weaknesses in some areas, such as a lack of professional expertise, a developed system, online banking, an internal control system and compliance. Aside from all of these challenges, COVID-19 has impacted Afghanistan’s banking system, especially as online banking is not widely used.

Review of 2021
Afghanistan has had a difficult year in 2021. Afghanistan’s financial industry, like that of the rest of the world, has been hit hard by the COVID-19 pandemic. However, the pandemic situation is more difficult in Afghanistan since online banking is relatively new and a large percentage of customers lack access to technology, reliable electrical sources, reliable internet connection and a restricted number of ATMs and point-of-sale terminals.

More seriously, the 15th August 2021 was the turning point for Afghanistan. Afghanistan’s people believe that history is repeating itself, that the country has turned back 20 years. Since the Taliban’s takeover of Kabul, the banking industry has faced an uncertain future.

Banks were closed for several days, as they ran out of cash. The Taliban leadership instructed banks to gradually begin operations, and they were instructed to pay US$200 or approximately AFN20,000 to their customers once a week.

Customers panicked and feared what will happen if banks are unable to pay their deposits. They queued at banks to withdraw their money, but the banks did not have enough cash to pay them.

The Biden administration has frozen Afghanistan’s central bank’s assets held in the US, the IMF has blocked millions in aid and other international organizations’ sanctions have been imposed.

Recently, the UN warned that Afghanistan’s financial system could collapse if immediate action is not taken. People are unable to repay loans, there is a cash liquidity crunch and deposits are low. The economic cost of a collapse and the resulting social fallouts would be “colossal”. It has been reported that nonperforming loans increased to 57% in September from around 30% at the end of 2020. The IMF predicts that the Afghan economy may shrink by up to 30% this year.

Preview of 2022
2022 is highly unpredictable since it is mostly dependent on the survival of the Taliban regime and its political connection with the rest of the world. Banks may continue to pay consumer deposits, but only to a limited extent. However, because Afghanistan is heavily reliant on imports, what would happen to the economy if businesses are not allowed to transact? It will be extremely difficult, and the entire country will be put in jeopardy.

In addition to the liquidity problems, banks will confront a staff shortage because females may not be allowed to work under the Taliban regime. According to the head of the United Nations Development Programme in Afghanistan, the breakdown of the financial sector is impeding the country’s rapidly declining economic activity and could jeopardize foreign aid operations, as banking is also one of the most important connectors of the country to the outside world.

Conclusion
The banking industry’s two decades of progress and success have been jeopardized since the Taliban took control of the country. The entire country is dealing with an uncertain future. In addition to political unrest, the COVID-19 situation presents yet another hurdle for the banking industry. The COVID-19 problem will have a significant impact on Afghanistan’s economy, as it will take years to recover and will be further hampered by political and security uncertainties.

Manezha Sukhanyar is the former chief of Islamic banking at Maiwand Bank. She can be contacted at [email protected]