Banks have a critical role to play in the economy of a country. These institutes are known for bringing money into circulation by supporting the micro to macro level businesses to grow through its various functions. Banks facilitate the government functions and help individuals securely deposit or invest their monies. In Afghanistan banks were established as early as 1930s. Until before the USSR invasion, Afghanistan had several numbers of functioning banks – even banks for supporting agriculture and industry were operating. But the three decades of war and conflict besides all other economic and non-economic infrastructures left the banking sector completely destructed and under developed. In some banks, even today, the systems are quite traditional and have not been computerized.
In the post Taliban Afghanistan the banking sector has had a prominent growth. One bank that went winning the hearts of its customers was the Kabul Bank. It was the greatest private bank of Afghanistan that had contemporary banking system equivalent to or even better than the banks in our neighboring and countries in the region. The success of Kabul was also special because this success was made possible in country with the lowest level of security – Kabul Bank established its branches in the most insecure areas of Afghanistan.
Kabul Bank started facing crisis when last year a Western paper published a report about its huge financial losses. People began withdrawing their deposits which finally resulted in its complete collapse. Kabul Bank no more exists. Da Afghanistan Bank (DAB) – central bank of Afghanistan has renamed it to New Kabul and issue new license. Kabul Bank has been changed to New Kabul Bank that will be functioning under government. On Wednesday the DAB handed over the license of New Kabul Bank to the Ministry of Finance. The New Kabul Bank will be operating with new structure but will use the systems of the Kabul Bank.
Concerns regarding the deletion of Kabul Bank and formation of New Kabul Bank exist as it is believed that the matter has been fully politicized. And a major reason behind the fall of Kabul is conceived presence of people relating to political figures in its management. Family members of our President and his Vice President were the influential shareholders of Kabul Bank.
The formation of New Kabul Bank somehow means regaining the trust of people and making this bank stand on its feet. Also, the issue of Kabul Bank has apparently been resolved.
The fall of Kabul Bank has serious negative impacts on the credibility of other private banks. But at the same time it is a lesson for the government of Afghanistan. The government now needs to tighten its control and improve its oversight, monitoring and audit functions not only for the banks but also other institutions.