The World Bank today approved a $19 million grant from the International Development Association (IDA) to strengthen the capacity of Afghanistan’s Central Bank to foster a sound financial system. The Afghanistan Financial Sector Rapid Response Project will assist the Da Afghanistan Bank (DAB) to develop a set of action plans to improve banking supervision and implement a modern payment system for efficient and transparent payment transactions.
The Afghanistan’s financial sector has been deeply affected by the near collapse of Kabul Bank, Afghanistan’s largest bank, in September 2010. The activities supported by the project are an important part of the international community’s collective response to assist the government in tackling the Kabul Bank crisis.
The Kabul Bank crisis has revealed critical weaknesses in banking oversight and has thus cast a doubt over the health of Afghanistan’s entire financial sector. In addition, the crisis highlighted the need to modernize Afghanistan’s national payment system”, said Nicholas Krafft, World Bank Country Director for Afghanistan. “The audits of ten commercial banks will help to identify some critical and very specific actions for follow up to strengthen the oversight of the commercial banking sector. Our new intervention complements efforts from other development partners to strengthen the Afghanistan financial sector.
The proposed grant would help finance the costs associated with three main activities: (i) carrying out audits of ten commercial banks in Afghanistan; (ii) modernization of Afghanistan National Payment Systems to international standards; and (iii) support to Afghanistan Institute of Banking and Finance (AIBF).
Specifically, the Afghanistan Financial Sector Rapid Response Project aims to allow the DAB to accurately assess the financial situation of ten commercial banks through audits conducted in accordance with international standards. The audits will lead to the development of actions plans to address weaknesses that are identified, with oversight from the DAB. The project also aims to modernize the national payment system with the goal of reducing the use of cash transactions, currently the main means of making payments in Afghanistan, and transitioning to electronic, card or mobile payments. The project will also provide further support to AIBF to allow the institute to scale up its activities, in order to increase the availability of banking sector skills in Afghanistan.
This project builds on the World Bank’s ongoing Financial Sector Strengthening Project ($8 million grant) approved in 2009. The project comprises two components: 1) strengthening capacity of DAB in the areas of accounting, internal audit, human resources management; and 2) developing necessary financial sector infrastructure, such as a public credit registry (PCR), collateral registry and creation of the Afghanistan Institute of Banking and Finance (AIBF).