Reuters: Afghan banking system experiencing crisis

The United Nations on November 22 pushed for urgent action to prop up Afghanistan’s banks, warning that a spike in people unable to repay loans, lower deposits and a cash liquidity crunch could cause the financial system to collapse within months, Report informs referring to Reuters.

In a three-page report on Afghanistan’s banking and financial system seen by Reuters, the UN Development Program (UNDP) said the economic cost of a banking system collapse - and consequent negative social impact - "would be colossal."

An abrupt withdrawal of most foreign development support after the Taliban seized power on August 15 from Afghanistan's Western-backed government has sent the economy into freefall, putting a severe strain on the banking system which set weekly withdrawal limits to stop a run on deposits.

"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," the UNDP report said.

Afghan banks heavily relied on physical shipments of US dollars, which have stopped. While there is about $4 billion worth of afghanis in the economy, only about $500,000 worth is in circulation.