Banking Crisis in Afghanistan; People Withdraw Their Deposits from Banks

Under the influence of the deteriorating economic situation in Afghanistan and the lack of trust in the Taliban government, which has not been recognized by the international community, an increasing number of people in this country are withdrawing their deposits from banks and closing their accounts. According to Radio Free Europe/Radio Liberty, experts say that the public's distrust of banks and the withdrawal of deposits have intensified pressure on the liquidity cycle and the overall economy of Afghanistan. One significant consequence of the Taliban's seizure of power in August 2021 has been the banking crisis and turmoil in the liquidity market. Since then, the Taliban government has been sanctioned, and a large portion of international financial aid that previously funded the former government's budget has been cut off. Following this trend, Afghanistan's connection with the international banking network has also been severed, and billions of dollars of the central bank's foreign reserves in Western banks, particularly in the U.S., have been frozen. Due to the severance of Afghanistan's connection with the international banking system, many people have turned to remittances, an informal method for transferring money and borrowing. As a result of this crisis, 12 private and state banks have closed, and other banks continue to operate with very limited capacity. A specific ceiling has also been set for withdrawals from bank deposits. Recently, although Afghanistan's economy has somewhat revived, the country still struggles with a severe hunger crisis, widespread unemployment, and increasing poverty. Meanwhile, trust in the conventional banking system has evaporated. "6.5 million children" in Afghanistan are at risk of acute hunger, a worrying trend. According to World Bank statistics, between December 2022 and December 2023, Afghan banks lost at least 11% of their customers. One individual who no longer uses a bank is Ahmad, a resident of Herat. He told Radio Liberty that after several unsuccessful attempts to transfer money within Afghanistan's banking system, he closed his account. He adds, "This shows that banks cannot do their job and are no longer trustworthy." Basir, a resident of Kabul who also recently closed his bank account, said he lost trust in banks after a specific ceiling was set for withdrawals. He told Radio Liberty, "When we wanted to withdraw our deposits, bank staff harassed us." Initially, the Taliban set the withdrawal limit from each bank account at $200 per week. In December, the central bank of Afghanistan, controlled by the Taliban, increased this amount to $1,000 per week. An employee of a private bank in Kabul, who wished to remain anonymous, believes that the strict restrictions on withdrawals from personal accounts have damaged the banks' credibility. He told Radio Liberty that the banks' inability to return people's deposits has rendered them worthless in the eyes of customers. According to international World Bank indicators, in 2017, only 15% of Afghanistan's adult population had bank accounts, and since the Taliban came to power, this figure has significantly decreased. The World Bank reported in April 2024 that Afghan banks have lost about 25% of their total deposits since 2020, which is a worrying trend for the small banking industry in this country. The report added, "The banking sector in Afghanistan is under severe pressure due to turmoil and instability in liquidity. This situation has led to an increase in people's use of unconventional money transfer methods and reliance on cash, resulting in a more limited liquidity cycle and exacerbating the currency devaluation process." Azarakhsh Hafizi, an economist and former head of the Afghanistan Foreign Chamber of Commerce, emphasizes that a modern economy is incomplete without an efficient banking system. He adds, "Countries that can channel people's deposits into investments such as trade and industrial development are in a much better situation. When banks do not have sufficient deposits and liquidity, they cannot lend to people and economic companies that need capital.