Banks facing uncertain future in Afghanistan

Afghanistan's banks, critical to the country's recovery from crisis, are facing an uncertain 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 Tuesday, 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 US and allied troops.

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.

"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."

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.

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.

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 president of 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 on condition of anonymity.

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

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

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

The afghani plunged on the expectation of dollar scarcity and further volatility is expected, with Afghanistan's import coverage reportedly collapsing from more than 15 months to a couple of days.

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 see many links cut.