UN Calls for Support Before Afghani Banks Collapse

The United Nations wants to help prop up the banks of Afghanistan as there has been an increase in people who can’t pay back their loans, along with lower deposits and a cash liquidity crunch, a Monday (Nov. 22) Reuters report says.

Without intervention, that could all cause the financial system to collapse “within months.”

The U.N. Development Programme (UNDP) has warned that it could be a “colossal” impact if the banking system collapses, along with the social impact that follows.

“Afghanistan’s financial and bank payment systems are in disarray,” the UNDP report said. “The bank-run problem must be resolved quickly to improve Afghanistan’s limited production capacity and prevent the banking system from collapsing.”

The economy in Afghanistan has gone into crisis mode, with the rapid takeover of the Taliban in August causing much of the foreign development support to withdraw.

That has put a good amount of stress on the banking system, including the implementation of weekly withdrawal limits to curb run-on deposits.

Abdallah al Dardari, head of the UNDP in Afghanistan, has said that there needs to be a way “to make sure that if we support the banking sector, we are not supporting Taliban.”

“We are in such a dire situation that we need to think of all possible options and we have to think outside the box,” he said. “What used to be three months ago unthinkable has to become thinkable now.”

The banking system was already on thin ice prior to this year’s Taliban takeover, but as development aid has dried up, there are billions of dollars in Afghan assets that were frozen. As that happened, the United Nations and aid groups have been trying to get more cash in.

The report notes that if the current headwinds continue, almost 40% of Afghanistan’s deposit base will be lost by the year’s end. Banks are no longer extending new credit, and non-performing loans have almost doubled to 57% as of September.

In late August, PYMNTS reported that the Taliban takeover had seen “drastic” money shortages in the country, with Taliban commanders ordering the banks closed in a bid to stop the fall of the banking system.

See also: Afghani Banks Remain Closed After Takeover; Consumers Struggle To Get Cash

While the banks were supposed to reopen a week after the takeover, many banks were still closed by late August, and outside funding and pay were beginning to be cut off.