Afghanistan's Banking System Likely To Collapse Within Months, Says UNDP Report

After the Taliban captured power in Kabul in mid August, the United States froze Afghanistan's international reserves, leading to a financial and banking crisis.

Due to the financial crisis, the Taliban have imposed withdrawal limit of $200 per week in Afghanistan (Representational)

New Delhi: Asserting that Afghanistan's banking and financial systems were on the verge of collapse, possibly within months, the United Nations warned of a spike in people unable to repay loans and a cash crunch, Reuters reported.

A report by the UN Development Program (UNDP) said, "Afghanistan's financial and bank payment systems are in disarray. The bank-run problem must be resolved quickly to improve Afghanistan's limited production capacity and prevent the banking system from collapsing." 

After the Taliban captured power in Kabul in mid August, the United States froze Afghanistan's international reserves. 

Due to the financial crisis, the Taliban have imposed withdrawal limit of $200 per week. The amount was recently increased to $400, Sputnik reported. 

Afghanistan's total banking system deposits fell to $2 billion in September from $2.8 billion at the end of 2020, the UNDP report said. The report further said that deposits were projected to fall to $1.7 billion by the end of 2021.

"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?"

The country's credit market is also in decline, with total credits falling to $307 million in September from $33 billion at the end of last year. Non-performing loans have almost doubled to 57% in September from the end of 2020, the report said, according to Reuters.

"If this rate continues of non-performing loans, the banks may not have a chance to survive in the next six months. And I am being optimistic," al Dardari said.

In a bid to prevent the collapse of the country's banking system, UNDP has sought deposit insurance for depositors, adequate liquidity for the banking system and credit guarantees and loan repayment delay options.