Financial Times
Wednesday Sep 17 2003
By Victoria Burnett in Kabul
Published: September 17 2003 5:00

Afghanistan to grant licences to first foreign banks in years

Afghanistan ratified new commercial and central banking laws yesterday and would issue its first operating licences to private-sector banks this week, the country's top banking official said.

Standard Chartered, the UK-based bank, and the First MicroFinance Bank of Afghanistan, majority-owned by the Aga Khan Fund for Economic Development (Akfed), will tomorrow receive licences to set up what will be the first commercial banking operations for a quarter of a century, Anwar-ul-Haq Ahady, the central bank's governor, said in an interview.

The National Bank of Pakistan might also receive a licence as early as tomorrow if paperwork was completed on time, he said.

"Banking is essential for a modern economy. It is one of the services investors need," said Mr Ahady. "Now we're going to allow banks fully- owned by foreigners and Afghans."

Following the nationalisation of the country's banks 30 years ago and a quarter-century of war, all that remained of Afghanistan's banking sector were six, decaying state-held banks whose principal activity was drinking tea, a technical expert familiar with the banking reform said. Afghan businessmen, foreign aid workers and diplomats bring money into the country in suitcases or through the informal transfer system known as hawala.

Under the laws ratified yesterday by President Hamid Karzai, new local and foreign-owned banks will be able to take deposits, perform international money transfers and offer trade finance for the first time.

Standard Chartered said in July it aimed to open a branch in Kabul by the end of September, pending a licence, and Akfed says it hopes First MicroFinance, in which the International Finance Corporation and KfW, the German development bank, would have minority holdings, will start operating early next year.

Investors from the US, Afghanistan and India have also expressed interest in setting up banks.

The law demands all banks set up with a minimum capital of $5m (4.4m, 3m), and then maintain a ratio of core capital to risk- weighted assets of 6 per cent. There is no limit on the stake a foreign company may hold in a bank. State-owned banks have six months to conform.

The law will hit Afghanistan's plethora of money brokers who are required to deposit 200m afghani ($40,000) in order to maintain or receive new licences.