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Afghanistan's banks brace for bedlam after Taliban takeover

Afghans wait in long lines to withdraw money, in front of a bank, in Kabul. File photo   | Photo Credit: AP

Afghanistan's banks, critical tot he country's recovery from crisis, are facing an un certain future say its bankers, with doubts over everything from liquidity to employment of female staff after the Taliban swept to power.

Banks were expected to reopen imminently, a Taliban spokesman said on August 24, 2021, after they were closed for some ten days and the financial system ground to a halt as the Western-backed government collapsed amid the pullout of U.S. and allied troops.

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Yet, there has been scant evidence so far of a reopening or of banking services returning to normal, with large crowds thronging the streets outside banks in Kabul on Wednesday, August 25.

"The banks continue to be closed — with no clear signs of reopening, they have run out of money," said Gazal Gailani, trade and economic adviser at the Afghan embassy in London.

"Afghanistan's banking system is now in a state of collapse,and people are running out of money."

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Many rural areas get by largely without banks. But in the cities, where government worker salaries are often paid into bank accounts, closures are causing hardship in a mostly cash-based economy.

The outlook for lenders looks precarious, with looming questions about the Taliban's grasp of finance and its ability to restart an economy shattered by 40 years of war.

Liquidity

With no significant exports apart from illegal narcotics bringing in cash, one immediate obstacle is liquidity in a country that is heavily dollarised and relies on regular physical dollar-shipments that have been halted, according to former central bank chief Ajmal Ahmady.

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The Afghanistan Banks Association (ABA) had reached out to the central bank to coordinate steps on a return to normality,said Syed Moosa Kaleem Al-Falahi, chief executive and presidentof Islamic Bank of Afghanistan (IBA), one of Afghanistan's three largest banks.

Commercial banks had collectively decided to suspend services until the central bank confirmed liquidity and security arrangements, he said.

"It would be rather difficult to control the rush if banks reopen immediately," he added.

Liquidity had already been an issue in the run-up to the bank closures as people scrambled to withdraw cash.

Da Afghanistan Bank (DAB), the central bank, provided financial support to banks during last week's cash squeeze, said a banker at one of Afghanistan's largest lenders, speaking oncondition of anonymity.

But its ability to continue to do so appears uncertain, with DAB's roughly $9 billion in foreign reserves looking largely ou tof Taliban reach.

"Banks will face major liquidity challenges as central bankofficials have not had access to reserves yet," the banker said.

"They will face foreign currency liquidity issues which willcause huge fluctuations in the exchange rates."

Scarce dollars

The afghani plunged on the expectation of dollar scarcityand further volatility is expected, with Afghanistan's import coverage reportedly collapsing from more than 15 months

Bankers in Afghanistan are also waiting for clarity from foreign-based correspondent banks, which provide services such as currency exchange and money transfers, on whether ties will continue after the Taliban takeover. Any new sanctions could seemany links cut.

A senior Afghan banker said their bank's correspondent banksin Turkey, Russia, Spain, United Arab Emirates, Qatar, Pakistanand India were still showing support.

Faith in the banking system was severely damaged by the 2010 collapse of Kabul Bank, in one of the biggest corruption scandals of the 20-year Western presence in Afghanistan.

Banks emerged in generally good health from the COVID-19pandemic, said DAB in its 2020 report, noticing no liquidityshortfall, while capital positions met regulatory thresholds andassets swelled 4% to 327 billion afghanis ($3.8 billion).

But the current crisis will further set back confidence in asector which has struggled to expand services in a thinly bankedcountry.

According to the International Monetary Fund, only 183 ofevery 1,000 people hold a deposit account; there are less thantwo bank branches or cash machines for every 100,000 adults.

Female staff worries

This week, the Taliban said it had named Haji Mohammad Idris, a loyalist with no formal financial training, as DAB's acting governor. A senior Taliban leader defended the appointment, saying Mr. Idris was respected for his expertise.

It is so far unclear whether Afghanistan's less than a dozen banks, all but one of which are conventional, will have to convert to Islamic banking, a lengthy and costly procedure.

More uncertainty surrounds the future employment of female staff.

"So far there is no official communication from them (theTaliban) with respect to female staff," said IBA's Al-Falahi."Our female staff will return to work when we reopen."

But given the Taliban's track record, their assurances that women would be allowed to work consistent with Islamic law have been met with scepticism.

The banker at one of Afghanistan's largest lenders said their bank had a plan to ensure it could continue operations in the event of it having to dismiss its roughly 20% of female staff.

"We expect we will face challenges such as losing qualified and high-skilled staff as most of them are planning to flee thecountry at the first opportunity," the banker said.


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Printable version | Nov 27, 2021 10:33:07 PM | https://www.thehindu.com/news/international/afghanistans-banks-brace-for-bedlam-after-taliban-takeover/article36111391.ece

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