MESSAGE FROM H.E. A.Q FITRAT GOVERNOR DA AFGHANISTAN BANK AND HONORARY MEMBER OF THE AFGHANISTAN BANKS ASSOCIATION
Afghanistan continues to make remarkable progress on the road to reconstruction and economic development. The Afghan economy recorded a brisk 11.5 percent growth rate in SY 1386, up from 8.2 percent in SY 1385 buoyed by vibrant economic activity in construction, telecommunications and other services. Inflation accelerated to 20.7 percent in SY 1386 up from 4.8 percent in SY1385. The spike in prices was largely due to imported inflation driven by a surge in cereal and fuel prices in international commodity markets.
Notwithstanding the surge in inflation, the public continued to maintain confidence in the domestic currency with the exchange rate of the Afghani to the US dollar trading in a narrow margin around 50 AF/$. On the external front, exports maintained an upward trend posting a 10 percent increase from SY 1385, as value addition in agriculture continued to boost the trade balance.
On the banking side, total assets of the banking system increased from US$ 580 million in 2005 to US$ 1,510 in 2007; the market share of private commercial banks has expanded from 37 percent to 63 percent with an increase in the amount of their assets from US$ 215 million to US$ 945 million. However, notwithstanding this impressive record, much more can be achieved. The share of total credit to GDP (6.7 percent) is far lower than the average share of credit to the private sector (43 percent) in South Asia. Large parts of the economy still do not have access to the formal banking sector. A recent World Bank Survey shows that only 30 percent of surveyed firms had bank accounts and access to formal financial services.
Building a robust banking system is a long and arduous process. Better banks--banks that are better at identifying creditworthy firms, mobilizing savings, pooling risks, and facilitating transactions—are critical to private sector growth. Cognizant of this fact, the Central Bank of Afghanistan, as the statutory regulator of the banking sector, continues to spare no effort to build a robust banking sector.
In this regard, the Central Bank has continued to put in place the necessary groundwork to support the phenomenal growth in the banking sector we have observed over the past 5 years. This has included: (i) policies designed to improve bank governance and information disclosure that enhances lending discipline, (ii) regulatory measures to dilute risk concentration, limit connected lending, establish realistic provisioning rules and to improve inspection process; (iii) the evolution in supervisory strategy from "ratio watching" (checking bank positions against predetermined prudential ratios) to examining the bank's risk management process. The Central Banks’ ability to take early action to deal with incipient problems has also been enhanced by increased authority, independence and legal protection for bank supervisors operating under the mandate of the Central Bank.
Some of these improvements have been helped by efforts to adopt international standards for best practice (Basel Core Principles for Effective Banking Supervision, Basel I and Basel II). Challenges remain for commercial banks, including changing the culture in audit departments of banks towards more effective risk management, the lack of adequately trained staff and increasing the provision of credit to the private sector while maintaining a low non-performing loans ratio.
We have also introduced several innovative measures to help foster a sound a progressive banking sector. These include the necessary ground work for the establishment of a credit information bureau, a collateral registry for moveable property and a Banker’s Training Institute; the launching of secondary market trading for capital notes and the establishment of a Financial Disputes Resolution Commission. Undoubtedly, these initiatives will further enhance the capability of the banking sector to act as an engine of economic growth and mark yet another milestone in the development of the financial sector of the country.
In concluding this message, let me stress that the Da Afghanistan Bank and the Afghan Banks Association are partners in the task of fostering a sound and progressive banking sector. Your success is our success.
I wish you a profitable and successful year.
Abdul Qadir Fitrat
Governor Da Afghanistan Bank
History of Da Afghanistan Bank (Central Bank)
In accordance with council of ministers approval (152) dated 3/2/1318, national council's approval (11) dated 9/6/1318 and historical approval of senate dated 12/6/1318 by ratification of his majesty king (5280/1317) dated 17/11/1318, Da Afghanistan Bank (Central Bank of Afghanistan) was inaugurated in the capital of the country Kabul with initial capital of 120 million Afghani and is able to open branches and sub branches in country and abroad according to need.