Friday, 12 August 2022

Azizi Bank’s Omaid: “The economy will take time to recover”

5 min read

By Mohammad Salem Omaid

In this piece for the CEO Perspectives series, Azizi Bank’s President and CEO Mohammad Salem Omaid offers an insightful perspective on the pandemic’s impact on Afghanistan and its banking sector.

  • The pandemic will have an adverse effect on industries across the board
  • Banks may see a sharp decline in deposits with the economy at a standstill
  • Afghanistan’s economy will take at least two to three years to stabilise

It is quite tough to predict the outcome of the COVID-19 crisis presently from an overall perspective. In Afghanistan, the government has taken every possible measure to control this outbreak. There has been a complete shutdown of the economy for weeks, barring the essential sectors including the banking industry. The lockdown has also been extended as the scare of COVID 19 continues to grip the country.

Afghanistan and its banking sector in light of the pandemic

Afghanistan, being predominantly an import-driven economy, will witness a surge in the cost of commodities, thus affecting the normalcy of people’s lives. Industries, including the financial sector, will take a huge hit, affecting the economic growth of the country.

With the standstill in the economy, lack of positive economic activities and implemented projects, rise in the cost of commodities and uncertainty in the minds of the public at large, there might be a panic situation among the people and banks may witness a sharp decline in their deposits. Afghanistan’s modern banking sector is a mere $3 billion industry, having only a history of less than two decades and a limited number of banks. Any steep plunge in banks’ deposits will adversely affect the entire country’s economic growth.

Though the Central Bank of Afghanistan has taken certain positive and appreciable steps in terms of relaxations across parameters, the banking industry will definitely be affected. This standstill will affect the trade finance business, and the recovery of loans will also be a major issue. It is reasonable for banks to anticipate a rise in defaulters and a negative impact on their non-performing loans (NPL) ratios. Recovery might take at least 8 months to start happening.

Ensuring preparedness in times of uncertainty

In terms of preparedness, speaking as the Chairman of the Afghanistan Banks Association, I can say that all banks in the country have framed a strategy for the next three to five years, per the requirement of the Central Bank.

As a banking unit, we at Azizi Bank are always prepared and ready to face any sort of adverse situation, including this crisis. So, in addition to the aforementioned broad strategic plan, we had also created a disaster recovery plan. With this plan at hand, we aim to address this unfavourable situation from all perspectives, including any emergency situation that may arise as well. I believe our bank’s financial stability and key ratios are strong enough to face this adversity.

Even before the government announced any official measures, we already took steps and planned accordingly in terms of business contingency, staff contingency and operational contingency initiatives. Prior to the lockdown’s announcement, we had taken immediate steps and issued advisory messages about COVID-19 on all our mediums of communication to reach the public at large.

We formed a committee to analyse and plan for this emergency situation. Safety precautions were initiated at all our branches – including the complete sanitisation of premises, use of thermal scanners, wearing of face masks and gloves and making hand sanitizers available – for the benefit and safety of both our customers and staff.

We rotated staff so as to avoid close contact and to observe social distancing. Expatriate staff were also allowed to work from home. We stopped all meetings, conferences, customer gatherings, trainings and meetings as well.

Recovery will take time

Amid all the measures to ensure business remains unhampered, this crisis will stifle the growth of the banking industry unless things go back to normal. With political uncertainty still prevailing, international donors sceptical to pump in additional funds, and the coronavirus scare, the overall growth of Afghanistan will definitely remain affected.

My personal assessment is that this pandemic will definitely have an adverse effect on all the industries and jeopardise economic growth. I foresee it will take at least two to three years’ moving forward for things to get restored in this country. It will take some time for the economy to stabilise and recover.

Mohammad Salem Omaid is the President and CEO of Azizi Bank, Afghanistan’s largest commercial bank.

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