Banks Association Says Afghanistan Faces Millions of USD in Bad Debt

News - Afghanistan

Thursday, 09 July 2015 18:13 Last Updated on Thursday, 09 July 2015 21:32 Written by Zabiullah Jahanmal

Afghan Banks Association officials have warned that out of 500 USD loaned out by banks, some 30 percent of the debt is likely to not be repaid, which could cause major problems for the country's financial sector.

Experts say the outstanding loans are tied to existing legal structures involving real estate deposits and the length of time it takes for debt disputes to be resolved in court. In addition, corruption in some legal and judicial institutions has also been cited as a major contributing factor.

Regardless of the source of the problem, however, the Afghan Banks Association has warned that if the government fails to take action, banks will decrease lending activity.

"Currently, we are facing major issues, when the loans we provide become unrealized, then the banks are forced to inject more money and it also reduces our cash reserves, which creates financial issues for us," Banks Association head Siyar Quraishi said on Thursday. "Today, you can see that 30 percent of 500 million USD in loans provided by the banks in Afghanistan are unrealized while in Pakistan only three percent of 20 billion USD remains unrealized."

In response to emerging lending crisis, economic experts have criticized the Central Bank of Afghanistan (CBA) for not pursuing a more cohesive and comprehensive strategy when it comes to the lending market.

"Despite the gains we have made in the banking sector, the central bank still has not formulated a proper strategy for bank loans," economic analyst Abdul Majid Jabbar Khail told TOLOnews. "We need to focus on this area and new laws should be in place to repay the loans and resolve the disputes."

Providing loans to customers with easy conditions is considered a profitable activity in banking sectors around the world, yet Afghan banks been largely failed to do so over the years. Afghanistan's banks are said to keep some four billion USD in deposits.

Source : tolonews[dot]com
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