In this piece for the CEO Perspectives series, Azizi Bank’s President and CEO Mohammad Salem Omaid offers an insightful perspective on the pandemic’s impact on Afghanistan and its banking sector.
April 30, 2020 | Mohammad Salem Omaid
- The pandemic will have an adverse effect on industries across the board
- Banks may see a sharp decline in deposits with the economy at a standstill
- Afghanistan’s economy will take at least two to three years to stabilise
It is quite tough to predict the outcome of the COVID-19 crisis presently from an overall perspective. In Afghanistan, the government has taken every possible measure to control this outbreak. There has been a complete shutdown of the economy for weeks, barring the essential sectors including the banking industry. The lockdown has also been extended as the scare of COVID 19 continues to grip the country.
Afghanistan and its banking sector in light of the pandemic
Afghanistan, being predominantly an import-driven economy, will witness a surge in the cost of commodities, thus affecting the normalcy of people’s lives. Industries, including the financial sector, will take a huge hit, affecting the economic growth of the country.
With the standstill in the economy, lack of positive economic activities and implemented projects, rise in the cost of commodities and uncertainty in the minds of the public at large, there might be a panic situation among the people and banks may witness a sharp decline in their deposits. Afghanistan’s modern banking sector is a mere $3 billion industry, having only a history of less than two decades and a limited number of banks. Any steep plunge in banks’ deposits will adversely affect the entire country’s economic growth.
Though the Central Bank of Afghanistan has taken certain positive and appreciable steps in terms of relaxations across parameters, the banking industry will definitely be affected. This standstill will affect the trade finance business, and the recovery of loans will also be a major issue. It is reasonable for banks to anticipate a rise in defaulters and a negative impact on their non-performing loans (NP...
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