Key Achievements Central Bank of Afghanistan (DAB) 2007/08 (1387)

1. Key AchievementsCentral Bank of Afghanistan(DAB)2007/08 (1387) Farzana Rashid Rahimi Advisor to Governor Central Bank of Afghanistan

2. Introduction • Five Year Strategic Plan • Financial Sector Laws • Financial Sector Developments • Monetary Policy and Inflation Trends • Foreign Reserves • Valuation, Verification and Classification of Precious Metals • Credit Information Bureau • Afghanistan Institute for Banking and Finance • Afghan Deposit Insurance Corporation (ADIC) • Financial Disputes Resolution Commission (FDRC) • DAB Programs for Internal Capacity Development • Modernization of the Central Banking System (CBS) • Financial Risk Management • Capacity Development of the Human Resources & Administrative Reform

3. Five Year Strategic Plan • Strategic plan developed and approved in 2008 • The plan has five strategic pillars: Improve the effectiveness of monetary policy; deepen financial intermediation, enhance information management; accelerate capacity building; and promote good corporate governance. • Fully aligned with the ANDS. • Annual Work Plans and DAB budget will be organized in light of the priorities of the strategic plan.

4. Financial Sector Laws • Laws that support financial transactions have been drafted and submitted to parliament, with several already enacted. The laws are • Mortgage Law • Negotiable Instruments law • Law on Secured Transactions for Movable Collateral • Leasing Law • Afghan Deposit Insurance Corporation Law • Law on Islamic Banking

5. Financial Sector Developments • 17 commercial banks have been licensed • Total assets of the banking system of USD 2.41 billion as of Jan-09, up by 66.5 percent since Jan-08 • Gross loans portfolio of USD 1 billion; is up by 37 percent since Jan-08 • Deposits of USD 2 billion in Jan 09 up by 69 percent since Jan-08 • Banking sector is well capitalized and profitable. About 5000 jobs created in the banking sector

6. Monetary Policy and Inflation Trends • Objective is to keep inflation in single digits. • Two quantitative performance criteria (ceiling on CIC and floor on net international reserves) under the PRGF; DAB has met both. • Inflation declined from over 40 % in mid-2008 to 8.9 % in Feb-2009 • Exchange rate regime is a managed float with DAB intervening only to smoothen volatility. • Volume of capital notes increased to about Afs 20 billion in March 2009

7. Foreign Reserves • Gross foreign reserves of DAB increased by more than 50% to USD 3.6 billion USD by March 2009. • DAB auctioned USD 1.4 billion in 2008/09 to achieve its currency in circulation targets. • Interest earned on foreign reserves was USD 61 million USD in 2008/09.

8. Credit Information Bureau • Asymmetric information in credit markets is a source of market failure • Lack of information on the credit worthiness of customers is a major impediment to lending. • A credit information bureau is a prerequisite for a stable banking sector and for moving from physical collateral towards reputational collateral • DAB initiated arrangements for establishment of a Credit Information Bureau in September 2008 • Credit Information Bureau to start its operations within one year.

9. Afghanistan Institute for Banking and Finance (AIBF) • Urgent need in the financial sector for training in fundamentals of banking led to phase I of the AIBF. • Phase I is the establishment of a banking institute in rented premises provided by Banke Milli to upgrade the skills and knowledge of credit officers, managers, mortgage officers, financial specialists and administrators; • Phase I of AIBF is a component of the WB FSSP to start its operations in mid 2009.

10. Afghan Deposit Insurance Corporation (ADIC) • Objective: (i) administer a deposit insurance scheme to protect small depositors in the unlikely event of a bank failure. (ii) promote and contribute to the stability of the financial system (iii) enhance sound risk management in banking sector • Start-up capital of USD 30 Million USD approved by the cabinet. • ADIC unit within the DAB has been established, law drafted, once established will operate independently of the central bank

11. Financial Disputes Resolution Commission (FDRC) • Established in March 2008 in accordance with Article 106 of The DAB Law to resolve financial disputes in an amicable manner before the matters are taken to the court of law. • The FDRC will develop capacity of the Afghan Telecom Regulatory Authority (ATRA) and court system to ensure that they understand the FDRC concept, its purpose, and functions.

12. Valuation, Verification and Classification of Precious Metals • Precious metals in the Presidential palace which had not been valued and organized for 60 years, were valued, verified, classified and computerized into a database. • Consequently, the attributes of these precious metals have been formally listed, classified, verified and reflected in the financial statements of the Central Bank

13. DAB Programs for Internal Capacity Development Automation of Accounting: The Central Banking System (CBS) • Simultaneous visualization of transactions • Currently CBS is activated in 20 branches & the DAB headquarters • 500 staff of the DAB trained in running the CBS program • Modernization of accounting system facilitates internal reporting & control at DAB & enables the MoF and other stakeholders to have access to their statement of accounts through internet.

14. DAB Programs for Internal Capacity Development (cont) External Audit of Balance Sheet • Disclaimer of opinion by external auditor (KPMG) in 2006-07 (1385) • During 2007-08 (1386) financial report of DAB was improved and auditor issued qualified opinion • Financial statements are currently being audited, attempts made to remove the qualified opinion

15. DAB Programs for Internal Capacity Development (cont) • SWIFT used for international transfers, Afghanistan Fund Transfer System (AFTS) used for DAB’s inter branch transfers and Afghanistan Clearing & Settlement System (ACSS) used for inter bank clearance and settlements • 780 computers in use at DAB branches and headquarters • 40 branches connected to the DAB headquarters either by VSAT or internet

16. Financial Risk Management • The Financial Risk Management Department was established in 2007/08 and regulations on market risk, credit risk, operations risk, and liquidity risk were approved by the Supreme Council of DAB • Risk-based supervision is now being implemented in off-site exam of banks.

17. DAB Programs for Internal Capacity Development (contd) • Human Resources • Significant number of skilled and qualified young professionals hired on merit basis • over 1,000 DAB employees have participated in training programs inside and outside the country • 545 employees of the DAB voluntarily retired during the first phase of reform • a number of DAB branches in Kabul were merged recently • 20 reconstruction and renovation projects of DAB offices across the country initiated

18. Conclusion • Implementation of the strategic plan is the highest priority. • Annual Work Plans will need to be developed by each department. • Senior Management will monitor and evaluate progress towards achievement of the goals as set in the strategic plan. • Donors will be requested to identify areas they intend to support within the plan.

19. END Thank you