Da Afghanistan Bank Financial Supervision Department

1. Da Afghanistan Bank Financial Stability Da Afghanistan Bank Financial Supervision Department SAARCFINANCE Governor’s Symposium Kumarakom, Kerala June 9-11, 2011

2. Da Afghanistan Bank Financial Supervision Department Core Objectives • Price Stability • Efficient Payment System • Financial Stability

3. Da Afghanistan Bank Financial Supervision Department Outline of Presentation • Financial System in Afghanistan • Legal Framework • Financial Stability

4. Da Afghanistan Bank Financial Supervision Department Afghanistan’s Financial System Financial System Banking Institutions Non-Banking Institutions BanksMoney Service Providers Foreign Exchange Dealers

5. Da Afghanistan Bank Financial Supervision Department The Banking System of Afghanistan Initially there were six nonfunctional state-owned commercial banks, today banking system in Afghanistan consists of 17 duly-licensed and permitted banking organizations: - State-owned banks 2 Private full-fledged banks 10 Branches of foreign banks. 5 The number of banking facilities all across the country is as follows: Full Service Branches 177 Limited Service Branches 184 Automated Teller Machines 88 Point of sales 101 Other ` 194 744

6. Da Afghanistan Bank Financial Supervision Department Non-Banking Institutions Initially MSPs and FXDs ware operating without having license and no respective regulations were drafted and approved, while today the number of licensed MSPs and FXDs are 331 and 654 respectively and operating under regulatory framework.

7. Da Afghanistan Bank Financial Supervision Department Assets Total assets of the banking system are AFN 203.84 billion (USD 4.49 billion), up by 12.59 percent since Hoot 1388(March 2010), where the total assets of the system were AFN 181.04 billion (USD 3.85 billion).

8. Da Afghanistan Bank Financial Supervision Department Loan Portfolio Loans/Advances portfolio of the systemcurrently is AFN 80.24 billion (USD 1.77 billion), up by 20.68 percent since Hoot 1388 (March 2010)

9. Da Afghanistan Bank Financial Supervision Department

10. Da Afghanistan Bank Financial Supervision Department Legal Framework • Da Afghanistan Bank Law ( Dec. 2003) • Law of Banking in Afghanistan (Dec. 2003) • Anti-Money Laundering Law (Nov. 2004) • Afghanistan Law on Combating the Financing of Terrorism (Jan. 2005) • Law of Mortgage on Immovable Property • Secure Transaction of Movable Property Law • Negotiable Instruments Law • 25 Regulations • Proposed New Laws • Islamic Banking Law. • Leasing Law. • For more details www.centralbank.gov.af

11. Da Afghanistan Bank Financial Supervision Department Financial Stability • Why financial stability important ? • Function of financial system in an economy  Intermediation role • Safeguarding depositors’ interests • Supervision and Prudential Regulation strives to:- • Develop sound regulatory and supervisory framework (promote sound rules and code of practices in the financial market to benefit the economy at large). • Undertake effective surveillance (exert influence & set direction on particular activities) • Enforce compliance (gain control over the activities of financial institutions – should the need arises)

12. Da Afghanistan Bank Financial Supervision Department Financial Stability Framework Achieve Financial Stability Through Continuous Monitoring Conduct assessment of the general & financial conditions of FIs Strategy: - Avoid Amber Institutions

13. Da Afghanistan Bank Financial Supervision Department Evolution of Banking Supervision in Afghanistan • Early Years of Supervision • Rigorous process whereby examination scope ranged from assessing banking institutions from a macro perspective to transaction testing • Risk-Based Supervision • Greater priorities in areas which entail higher level of risk and areas where internal risk management are less effective • Regular & ad-hoc on-site examination, supplemented with dynamic off-site monitoring • CAMELS assessment • Prompt corrective measures • Enhanced Risk-Based Supervision • Focus on significant activities and quality of risk management • Relationship managers & continuous surveillance concept • Universal framework

14. Da Afghanistan Bank Financial Supervision Department Risk Assessment Approach DAB is using following risk assessment approaches for onsite and offsite monitoring. On-Site Monitoring Off-Site Monitoring Capital Adequacy Capital Adequacy Asset Quality Asset Quality Management Earnings Earnings Liquidity Liquidity Sensitivity Sensitivity

15. Da Afghanistan Bank Financial Supervision Department Financial Indicators

16. Da Afghanistan Bank Financial Supervision Department To Strengthening Financial System Stability • Off-site Automation. • Developing “Certified Financial Sector Regulator” program to give staff career path. • Broadening scope of on-site examinations to include IT, business continuity, and disaster recovery. • Quickening enforcement action and follow up with tougher action if required. • Completing regulatory regime for DMFIs.

17. Da Afghanistan Bank Financial Supervision Department To Strengthening Financial System Stability • Establishing of Afghan Deposit Insurance Corporation (ADIC) • Establishing Credit Information Bureau (CIB). • Establishing Collateral Registry.

18. Da Afghanistan Bank Financial Supervision Department THANK YOU !