Committed to the prosperity and future of Afghanistan
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Annual Report 2020
Your partner for growth.
Committed to the prosperity
and future of Afghanistan
Bank of the Year Best Corporate Governance Euromoney Best Bank
Afghanistan Afghanistan Afghanistan
AFGHANISTAN 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and 2020 2014, 2015, 2016, 2017, 2018, 2019, and 2020 2020
Afghanistan International Bank Annual Report 2019 Statement in Changes of Equity 1
01 Introduction
02 Chairman’s Statement
04 CEO’s Management Review
07 Financial Highlights
08 Afghanistan Economic Outlook
12 Governance Report & AIB Committees
16 Board of Supervisors
18 Record of Attendance
19 Organisation & Management Profiles
20 History & Performance of AIB
22 Financial Statements
68 Shariah Board’s Statement
Our Story From inception in 2004, Afghanistan International
Bank’s major objective has been to assist in
developing the Afghan economy and to conduct
business in accordance with international standards
of governance and integrity. The many awards
received from authoritative industry bodies is
independent endorsement of AIB’s success in
achieving its goals, notably being named The
Banker magazine’s ‘Bank of the Year, Afghanistan’
for nine consecutive years from 2012 to 2020,
and Euromoney’s bank of the year in 2020.
AIB is now well-established as an industry leader,
and widely acknowledged to be the nation’s most
respected and trusted financial institution. Its growth
as an enduring institution combines international
expertise with intimate local knowledge and a
deep-rooted understanding of customer needs.
Afghanistan International Bank Annual Report 2020 Introduction 1
Our Vision Our Mission Our Future
We aspire to remain the most Our mission is to foster economic Through our financial performance
reputable financial institution, development in Afghanistan, to be and the specific investments, we have
and bank of choice in Afghanistan. a catalyst for growth, and ultimately made in our people and infrastructure,
contribute to the prosperity of the AIB has become a positive emblem for
country and its people. We strive to achievement and transformation in
adhere to international best practices in Afghanistan, despite the challenging
corporate governance, financial and risk environment. In our second decade
management (including anti-money of operation, we remain committed
laundering and ‘know your customer’), to enabling a better future for the
customer service, operations, country and we are proud to play a
information technology and internal role in shaping the opportunities that
controls. A major factor in our success lie ahead.
is dedication to staff development and
training within a culture of integrity
and professionalism.
Afghanistan International Bank Annual Report 2020 Chairman’s Statement 2 Chairman’s Statement A year like 2020 shows the value of partnering with a strong and prudent bank such as AIB with a strong balance sheet, built to weather difficult times. Samuel Sidiqi Chairman
Afghanistan International Bank Annual Report 2020 Chairman’s Statement 3
“One of the major developments this year has been a change in CEO: Anthony Barned, who
has been CEO since 2016, and active with the Bank for much longer, is stepping down. Mr.
Barned did a fantastic job, growing AIB as an institution while showing profitable financial
results and building a strong balance sheet.”
2020 has been a difficult year for the world his leadership were the opening of the first of banking is in electronic delivery channels
and particularly for Afghanistan, which was Shariah window, obtaining a new US dollar and efficient back end systems. AIB is at the
not only hit by the global pandemic but also clearing bank, completing the construction forefront of this for Afghanistan, and it will
had to navigate an election and the start of an of a new and prestigious head office building, continue to invest to keep its leadership
uncertain peace process. AIB had to face this developing the Bank’s digital offering, position in electronic banking. Further, AIB will
difficult environment, and, while it certainly obtaining the license to issue Visa credit cards continue to invest in its compliance including
felt the effects of these massive changes, it and completing the sale of shares to bring IFC FCC, KYC and DAB regulations – this strong
succeeded in navigating through a problematic on board as a new investor. governance is a key basis for AIB to keep its US
year whilst taking steps to further advance as dollar clearing capabilities that are so vital to
Afghanistan’s leading bank. A year like 2020 During his tenure the Bank received numerous Afghanistan’s economy. All of these initiatives
shows the value of partnering with a strong and accolades; AIB won Banker’s Magazine bank of will be delivered by the AIB team, and the
prudent bank such as AIB with a strong balance the year award every year and won the CFI Best board will support management in its efforts to
sheet, built to weather difficult times. Corporate Governance award every year of his train, reward and develop the AIB team.
tenure. In 2020 AIB also won the Euromoney
The COVID-19 pandemic was not a scenario Best Bank Award. AIB has had a phenomenal The AIB board is confident in the new CEO and
the board predicted for 2020 and the disease run under Mr. Barned’s leadership, the Bank is the entire AIB management team’s ability to
caused a level of death and suffering not better for it, and I would like to thank him for deliver this plan and continue developing AIB as
seen since the Spanish flu a century before. his efforts. the leading financial institution for Afghanistan.
Afghanistan did not have the medical tools
to manage the pandemic and the poorer Stepping into the shoes of CEO is Mr. Joseph
segments of the economy could ill afford the Carasso Jr. This was a planned transition: the
type of shutdowns that could slow the spread board has spent some time searching for a
of the virus. The main asset Afghanistan had suitable replacement, and Mr. Carasso joined
in its fight against the disease was its young more than a year before taking the role of CEO.
population, leaving a smaller percentage of Over the past year Mr. Carasso served first as
vulnerable people than most countries in the head of Business Development and later as Samuel Sidiqi
world. At AIB we took steps to address the Deputy CEO. During this time, he has been Chairman
situation within the Bank but could not change deeply involved with all aspects of the Bank.
the effect of COVID-19 on the larger economy Mr. Carasso joined AIB with a strong track
in Afghanistan and globally. record at Citibank, most recently as CEO of
Citibank Tanzania. Prior to that, Mr. Carasso
2020 also saw a presidential election in lead the Financial Institutions, Foreign
Afghanistan. As a young democracy, the Correspondent Bank (FCB) and Non Presence
outcome of the election created a lot of Countries Unit for Citibank across Africa and
uncertainty. Similarly, the current peace had other experiences across Africa and Brazil
process does not have a clear outcome. also with Citibank. Mr. Carasso is a leader of
The Bank has found that most businesses delay people and is the right person to take AIB
major investments in times of uncertainty, so forward as the leading financial institution in
it becomes more difficult to find good loans to Afghanistan.
underwrite. That was certainly the case in 2020
and the Bank saw a slowdown versus its plan to The board also saw some changes, and joining
increase lending. the board is Michael Pearce. Mr. Pearce has a
strong set of experiences across Europe Middle
Despite these negative effects, AIB continued East and Africa (EMEA). Most recently he was
to run a profitable and stable business. Managing Director Citibank EMEA with a focus
AIB clearly benefited from its strong risk on improving productivity. Michael Pearce
management and underwriting process. served as a Director in Citibank’s Subsidiaries’
The majority of AIB’s loans have been to strong Boards in Switzerland, South Africa, Morocco,
companies that responded to the environment, Cameroon, Gabon and the Democratic Republic
ran their businesses well and continued to of Congo. Before that he served as the CFO for
service their debt. Similarly, AIB’s conservative Citibank Africa and prior to that held a number
investments continued to yield positive returns of leadership finance roles across EMEA at
despite the large decrease in interest rates. both Citibank and NatWest. Mr. Pearce is an
AIB’s fee income also continued to be a strong independent director and is chairing the
pillar for the Bank. Risk Committee.
Leadership Changes Focus of the Bank
One of the major developments this year has Due to the strength of the Bank, there is no
been a change in CEO: Anthony Barned, who need for AIB to step backwards or retrench.
has been CEO since 2016, and active with the Rather, AIB will continue to grow as an
Bank for much longer, is stepping down. Mr. institution with deliberate and prudent steps.
Barned did a fantastic job, growing AIB as an Customers are the reason our business exists,
institution while showing profitable financial and AIB will advance initiatives in 2021 that
results and building a strong balance sheet. enhance its delivery capabilities and address
Some of the Bank’s accomplishments under points of customer dissatisfaction. The future
Afghanistan International Bank Annual Report 2020 CEO’s Management Review 4 CEO’s Management Review I am delighted to welcome you to AIB’s Annual report for 2020, and pleased to announce that the Bank has successfully navigated all of the challenges of the past 12 months to again deliver a profit, alongside a comfortable capital adequacy ratio. In a personal capacity, I am proud to be taking over stewardship of this exceptional and essential institution, and am excited about what we can achieve with our customers and partners, driving prosperity for Afghanistan and its people. Joseph Carasso Chief Executive Officer Afghanistan’s efforts to extract itself from a decade of armed conflict Total revenue remains at the same level at AFN 2.84 billion (2019: and establish a stable political and economic environment continue, AFN 2.83 billion), boosted by Department of Justice withdrawing its but a solution will probably take time. In addition to this difficult longstanding legal action and returning US$4.18 million to the Bank. backdrop, 2020 brought other challenges for AIB as it did for many banks, However, reduction in US dollars interest rates and Eurobond Yields with COVID-19, and the resulting reduction in US dollars interest rates decreased interest earned on placement and bonds by US$ 3.7 million. presenting significant unforeseen upheaval. Nonetheless, I am pleased This reduction is likely to continue until the FED increases US$ rates. to say the Bank navigated all of these challenges successfully and was Interest income from the bond portfolio will not feel the full effect in the profitable in 2020. AIB finished the year with a capital adequacy ratio of short term as the bond portfolio’s maturity is spread over the next four 15.43%, 3.4% above the central bank’s regulatory requirement. years. Any reduction in interest rates automatically increases the value of
Afghanistan International Bank Annual Report 2020 CEO’s Management Review 5
response to COVID-19 AIB developed a system to talk to
“In
each borrowing customer weekly, which helped to identify
problems early.”
AIB’s bonds so there has been an opportunity operations, and employees. Well-being of our bank in 2021. These prospect relationship banks
to realize capital gains, which we have very staff remained a priority, and all the Bank’s appear to be comfortable with AIB risk but need
selectively taken advantage of. As such, In employees received their normal compensation to grow more comfortable with the risk for
2020, active management of the Bank’s bond during the pandemic. Afghanistan as a whole.
portfolio generated revenues of AFN 0.17 billion.
We have continued to pursue and execute in To be able to provide these services to
Non-interest income accounted for 64% of our core business and client franchise strategy. exporters, we have strict anti-money
total revenue; growth was led by the 4.20% In 2020 we have increased our use of alternative laundering procedures and stringent
increase in outward international transfers to channels by 87% moving customers from the onboarding requirements, comfortably the
AFN 181 billion from AFN 175 billion in [2019]. branches and had a growth of 8% in transactions most robust in Afghanistan and indeed higher
The volume of outward transfers grew to 25,473 compared to last year. We also grew our Credit than in neighbouring countries. We appreciate
transactions, while AIB also received 33,374 Card business by 26.6%, We expanded and the patience of our customers in adhering to
inward transfers totalling AFN 138 billion. modernized our 131-strong ATM network, and these procedures. Providing the US$ clearing
Together, these transactions underline the continued to take full advantage of our ability to requires a major investment in human resources
value of strong correspondent partnerships, issue VISA and Mastercard cards. and IT systems, totalling annually around 5% of
enabled by sound regulatory compliance. the Bank’s revenue
The liquidation of real estate collateral for In addition the Bank introduced our
AFN 5.7 million also boosted revenues, even E-commerce gateway, the first domestic Our initiatives to encourage exports from
though loan recovery was negatively affected gateway in the country, that has the capacity Afghanistan and investment in Afghanistan
by the lengthy foreclosure process and to accept MasterCard and Visa cards. We on- continue but the global lockdown placed limits
obtaining vacant possession. boarded five large customers into the platform, in terms of in person events and seminars.
including a major airline. The annual SIBOS networking event organized
Operating expenses increased by 1.13%, as was by SWIFT and the US-Afghanistan Business
anticipated when preparing the budget. Corporate and Institutional Banking Matchmaking Conference & Investment Summit
The main contributor was depreciation of the The COVID-19 pandemic and its impact on the organized by Afghan American Chamber of
new Head Office building. During the latter wider economy has placed unprecedented Commerce and the Afghan Embassy in London
half of the year, the Bank suffered an apparent pressure on businesses across the country. We took were both cancelled in 2020.
operating fraud of significant scale, and as a forward-looking approach to risk mitigation,
any eventual loss from the event could not be successfully implementing a regular stress testing Business and Community Banking
quantified at year end, a substantial provision mechanism over the loan portfolio to identify and While this remains a difficult segment, few new
was made. Continuing the Bank’s practice of quantify risk and to assist clients in these difficult delinquencies arose during the lockdowns.
accounting fully for potential losses, provision times. While our corporate customers weathered AIB developed a system to talk to each
was increased to nearly 100% in first quarter the pandemic relatively successfully, loan demand customer weekly, which helped to identify
of 2021. The Bank was able to achieve this was subdued until the last quarter of the year, at problems early. A number of loans required
using previously unallocated provision and by which point we saw a small number of customers restructuring but overall, AIB’s customers
realising capital gains from the sale of bonds, increase their borrowing by US$4million in total. weathered the storm. Credit backing from the
causing no reduction in first quarter 2021 Afghan Credit Guarantee Foundation (ACGF)
earnings and no deterioration in the capital 2020 saw the government continue placing was undoubtedly important in AIB’s ability to
adequacy ratio. an emphasis on infrastructure development. provide finance to this sector. We look forward
Whilst the funding is normally from donors to working with ACGF to expanding our SME
Meeting all these challenges, the Bank returned with AIB’s resources too small to participate, loans in 2021.
an after tax profit of of AFN 310 million. we are able to provide performance guarantees
AIB’s deposits at year end increased by backed by inward letters of credit from Islamic Banking
5.72% to AFN 62.2 (2019: AFN 58.8 billion). international banks. The strength of AIB’s Islamic products - and staff trained to explain
This performance underscores public and balance sheet and its capitalization makes it them - are now available in all AIB’s branches.
customer confidence in AIB as a bank to be bank of choice for most international banks and In line with the wider bank our Islamic unit
trusted in difficult times. their customers. These totalled AFN 2.3 billion increased US$ deposits from $15 million to $21
relating to 46 projects in addition to the AFN million and AFN deposits from 96 million to
Business Initiatives 7.8 billion we have provided in previous years. 135 million.
The Bank’s resilience capabilities were put
to test in 2020 as Covid-19 restrictions We continue to be the primary bank used by Consumer Banking
mandated social distancing and working importers making US$ payments worldwide and Our branches were the Bank’s front line during
from home to help limit the spread of the are able to make payments to most countries the pandemic. We are proud of the shift system
disease. We activated our Business Continuity not subject to international sanctions. we introduced across our network, which
plan by enabling an additional three Business Our correspondent bank network includes enabled us to remain open throughout the
Continuity sites with computer facilities and Crown Agent Bank in London, Transkapital municipal lockdowns, with the government
network connectivity to decentralize work Bank in Russia, State Commercial Bank of rightly deeming banks to be essential services.
locations. This decentralization was continued Turkmenistan, Aska Bank in Uzbekistan
for four months until restrictions were lifted by and CenterCredit Bank in Kazakhstan. • Strict protocols were introduced to protect
the authorities. Our relationship with Transkapital Bank, with both our staff and customers
its wide network of correspondent banks in the • Facemasks were compulsory for both bank
We also recognized that remote working ex-Russian Federation countries and China, has employees and customers
could expose the Bank to cyberattacks, and grown substantially. We continue working to • Social distancing was enforced between
we conducted detailed risk assessments to expand this network and are optimistic that customers, and between customers and
identify, and prioritize risks to our assets, we will add a new European bank and a US branch staff
Afghanistan International Bank Annual Report 2020 CEO’s Management Review 6
“Our branches were the Bank’s front line during the pandemic. We are
proud of the shift system we introduced across our network, which
enabled us to remain open throughout the municipal lockdowns,
with the government rightly deeming banks to be essential services.”
• All surfaces and equipment were disinfected location. We are proud to be the first and I would like to thank my predecessor, Anthony
several times each day only institution in Afghanistan to attain Barned, who has stewarded the Bank for the
• We enforced handwashing and hand this certification. It will further solidify our past five years through a range of difficult
sanitizer use after each transaction market leadership position and reputation for obstacles and a generally challenging
operational excellence. In the same vein, we environment for banking. As an institution,
To help customers unable to return to successfully re-certified to the requirements of we are undoubtedly stronger for his leadership
Afghanistan and international organizations SWIFT Customer Security Controls Framework and have continued to reinforce our position
locked down, we modified our requirements for Version 2019. as the Bank of choice in Afghanistan, both
using internet banking and introduced a system for customers, and international partners.
to deliver cash to their locations. Social Responsibility Moreover, the Bank continues to serve as a
As would be expected, both AIB’s conventional beacon for good-governance in the country,
Providing secure electronic access to money and Shariah units substantially expanded their regardless of sector. I am confident in our
for internet and in-store purchases during community activities during the COVID-19 crisis. ability to continue along this trajectory.
the pandemic was another priority for the We supported over 1,000 families in need with
Bank. For the first time in Afghanistan, AIB essential food item packages (including flour Finally, I would like to thank all of our
launched Visa Credit Cards, allowing credit and cooking oil). Additionally, in conjunction stakeholders, including DAB, our shareholders,
card purchase both in Afghanistan and with with the Women for Afghan Women and our depositors and clients, and our directors
overseas merchants. We also introduced talking Enabled Children Initiative we supported and staffed, who have all themselves endured
ATM machines with braille keyboards, enabling a myriad of families with similar essential a challenging 12 months. I look forward to
the visually impaired to use the machines packages, plus hygiene items and access to speaking with all of them soon in what we hope
independently and to help those customers fresh water. Our branches also distributed fresh will be an easier year than the last.
who have not previously used ATMs. meat to people in their local neighbourhoods.
AIB’s Ombudsman was the first service of its Empowering women in Afghanistan
kind in Afghanistan, introduced in April 2019. and protecting vulnerable children is an
The service continues to help us improve ongoing priority for the Bank. We are taking
customer service. The unit handled 200 cases opportunities to empower small businesses
in 2020 varying from six a month during the owned by women, in conjunction with AWCCI
COVID-19 lockdowns to 26 in the busiest (Afghanistan Women Chamber of Commerce Joseph Carasso
month. On average, cases are resolved within and Industry). Together we organized the Bibi Chief Executive Officer
six days. During the year seven cases were Khadija Award ceremony, now in its fourth
reported to the central bank’s Financial Dispute consecutive year. Forty successful female
Resolution Committee. The Bank was not found entrepreneurs, from different categories
to be a fault in any of the cases. chosen by AWCCI, AIB, Ministry of Commerce
and Industry and Ministry of Women Affairs,
Information Technology received awards from AIB.
In line with our “Digital at the core” initiative,
we started the next phase of our core and AIB also supports various charitable local
online banking system upgrade, forging community groups. This includes Women for
ahead with our digital transformation efforts. Afghan Women, which provides education for
Leveraging our Oracle Flexcube 14.4 technology women in remote areas. The Enabled Children
platform and the Oracle Banking Digital Initiative runs Window of HOPE. “Window of
Experience OBDX 20.1, updated core and online Hope” is private centre in Kabul, which provides
banking platforms will enable the Bank to offer care to abandoned or orphaned Afghan
new and improved financial services focusing children and youths with disabilities from
on digital payments and operational efficiency. around the country.
By the end of 2021, the Bank will have
upgraded to the latest Oracle technologies Unfortunately, we have not been able to
and be in a strong position to consolidate its participate in international exhibitions and
market leadership. We also plan to upgrade conferences as initially planned due to
the Financial Crimes Compliance software for the lockdowns, but domestically we have
AML transactions monitoring, and Customer participated in a number of events aimed at
Screening. This will enhance our capabilities promoting local products and showcasing the
in detection and response while meeting importance of digital banking and technology.
regulatory and correspondent bank compliance
requirements. AIB believes women have an important role in
the process of economic growth and poverty
During the year, the Bureau Veritas Certification reduction in the local community and society.
Holding audited the Information Security The Bank has continued to prioritise women
Management System and found it compliant both as customers and members of staff.
with the requirements of the ISO/IEC Our diversity efforts are vital to us as a business:
27001:2013 standard. The Scope of Certification our head office allows wheelchair access to any
was the provision of an Information Security part of the building and we continue offering
Management System related to the Information employment to the physically challenged and
Technology Department and Data Centre visually impaired.
Afghanistan International Bank Annual Report 2020 Financial Highlights 7
Financial Highlights
2.85bn 66,605mn 63mn
Revenue Total Assets Capital Growth
0% 5% 2%
Deposits Total Assets Capital
(AFN) Millions (AFN) Millions (AFN) Millions
80,000 80,000 4,500
70,000 70,000 4,000
60,000 60,000 3,500
3,000
50,000 50,000
2,500
40,000 40,000
2,000
30,000 30,000
1,500
20,000 20,000 1,000
10,000 10,000 500
0 0 0
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2019
Revenues Net Profit Advances
(AFN) Millions (AFN) Millions (AFN) Millions
3,000 700 4,000
600 3,500
2,500
3,000
500
2,000
2,500
400
1,500 2,000
300
1,500
1,000
200
1,000
500 100 500
0 0 0
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Afghanistan International Bank Annual Report 2020 Afghanistan Economic Outlook 8
Afghanistan Economic Outlook
Annual GDP Growth* (%) Afghanistan Import (Millions US$)
30 10,000
25
8,000
20
6,000
15
10 4,000
5
2,000
0
-5 0
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 2020
Financial Year Financial Year
Inflation Rate – Yearly** (%) Top Four Exporting Items* (Million US$)
15 90
80
10
70
60
5
50
0
40
30
-5 20
10
-10 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 2019
Financial Year
Afghanistan GDP - Share of Agriculture** (Millions US$) Top Five Import Partners of Afghanistan
50
45
40
35
30
25 Pakistan
20
18% China
15 24%
10
5
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Kazakhstan
18% India
Afghanistan Export* (Million US$) 12%
1,000
Iran
800
28%
600
400
200
0
08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 2020
Sources:
* Da Afghanistan Bank and NSIA
Financial Year ** National Statistics and Information Authority (NSIA)Afghanistan International Bank Annual Report 2020 Afghanistan Economic Outlook 9
Overview of COVID-19 In response to COVID-19, the government has and refrigerating rooms, while also buying
The first COVID-19 case in Afghanistan had to adjust revenue estimates downwards fruit and vegetables drying machines and
was identified on February 22, 2020 in from AFN 209 billion (US$2.71 billion) to AFN signing contracts with the farmers to supply
the cities bordering Iran. The government 144 billion (US$1.87 billion) during the mid-year vegetables and fruits direct to government
swiftly announced a state of emergency budget review in 2019. However, the end of organizations. The project cost US$177 million
and subsequently introduced lockdown the year figures shows the collection of AFN 174 and built 4,332 raisin storage units, each with
measures throughout the country. billion (US$2.2 billion), a AFN 30 billion (US$400 a capacity of 16 tons. In addition, 14,633 zero-
Of note, it implemented new working million) increase on the adjusted target energy cold storages were constructed with
hours for government and non-government (Source: MoF). The decline in overall revenue is a storage capacity of 5 to 10 tons each.
organizations to reduce crowd density, and mainly due to an average 17% reduction in tax The project created 60,309 permanent and
a presidential decree was issued to release revenues in 2020 (Source: World Bank). 191,670 temporary jobs in Afghanistan.
24,000 prisoners as 47 positive COVID-19 cases
were found in prisons. In May, the government Despite all these challenges, the November Export
started a national program to fight hunger, 2020 Afghanistan Conference in Geneva was The economy was hit hard by border
distributing over 100 million units of bread an important milestone in fostering sustainable closures and lockdowns in the major cities,
through local bakeries across the country. development, prosperity, and peace in which disrupted trade and transportation,
Afghanistan, with the international community undermining industry and services in the
The virus has since spread, with over 50,667 pledging a relief package to restart the country. In 2020, Afghanistan registered
positive cases and 2,110 deaths recorded to economy and ensure the financial stability of around US$434 million in exports. Recent data
date, with a recovery rate of 77.3% and a 4.2% the Afghan Government, totalling US$13 billion indicates that exports declined 28% in the first
fatality rate as at the end of 2020. Afghanistan from 2021 to 2024. (Source: MoF). half of 2020 compared to the same period last
policymakers accordingly proposed measures year. (Source: NSIA, 3Q)
to tackle risks in the healthcare sector and Inflation
socio-economic challenges. In response, the In line with other economic indicators, the Prior to the pandemic, exports had been
donor community has pledged half a billion pandemic affected the inflation rate, and strong, climbing 10% in the first quarter of
dollars of aid, including US$240 million from the annual inflation hit 5.7% (NSIA) in 2020, 2020 compared to the same period in 2019 -
Afghanistan Reconstruction Trust Fund (a pool of compared to 2.27% in 2019. The rise was due to from US$182.57 million to US$203.64 million.
34 donors), US$160 million from the World Bank’s a surge in public demand for food items, with After the lockdown measures and global
International Development Association, US$18 panic over food shortages in a number of cities. supply chain disruption, exports fell in the
million from the US Government, and US$115 second quarter to US$32 million compared to
million from the European Union. (Source: CIC) Meanwhile, the government increased its US$143.28 million in the same quarter of 2019.
spending on the healthcare sector and relief After easing trade restrictions and opening of
Gross Domestic Product (GDP) packages which also contributed to the sharp ports in the third quarter, Afghanistan exports
The Afghanistan economy has stagnated in increase in inflation in 2020. The speedy bounced back to US$198.42 million (NSIA,
2020, with GDP contracting by -5% in 2020. response of Afghanistan’s international partners, 3Q). According to the Ministry of Industry
The fiscal deficit is estimated to have increased providing grants of almost US$1.1 billion, has also and Commerce, exports through air corridors
to around 4% of GDP, following an expected helped push up prices. Projections suggest that increased by 29% in terms of volume and 17% in
17% decline in corporate tax revenue and 18% the inflation rate will remain around 4.5% for terms of value. (MOIC)
decline in personal income tax revenue. UNICEF 2021 if similar trends continue.
data suggests that around 12 million Afghans Regiment and regiments seeds (heeng) were
could be pushed into food security deprivation, Agriculture the leading exports from Afghanistan in 2020
which may lead multi-dimensional poverty to 2020 was a strong year for agriculture and with roughly one million kilograms exported at a
rise from 51.7% to 61.4%. Afghanistan ranked farming in Afghanistan. The country enjoyed monetary value of US$78.87 million. Raisin exports
180th among the 185 countries in the acute a considerable amount of rain throughout were worth US$47.36 million, while green caraway
food insecurity index (WFP). the year, and these favourable weather exports were US$18.62 million (NSIA, 3Q).
conditions mitigated the negative impact
In the near term, Afghanistan’s GDP is projected of the pandemic and helped the country Import
to rebound by 3% in 2021 (IMF Forecast). combat hunger and poverty. The value and volume of imported goods
The growth is largely attributable to the and services trended downwards in 2020.
reopening of the economy and the US$1.1 billion Rice planting and yields increased by 15% Imports fell by 23% in the first six months
stimulus package approved by H.E president in 2020 compared to 2019. Rice yields were of 2020. Lower imports reflected weaker
Ghani. Meanwhile, the provision of US$220 million 383,000 metric tons a year earlier, but this economy-wide demand amid political
concessional financial assistance by the IMF increased to 440,000 metric tons in 2020. uncertainty and the onset of the COVID-19 crisis
under the Rapid Credit Facility and the approval Meanwhile, the wheat yields in 2020 reached (MOIC, WB). For 2020 as a whole, Afghanistan
of US$300 million assistance by the World Bank 5.1 million metric tons compared to 4.9 million imported around US$4.5 billion worth of goods
should stimulate growth in the short term. metric tons in 2019 due to the good weather and services. (Source: NSIA, 3rd Q)
conditions and an increase in the productivity
The pandemic continues to threaten lives and of grain farms. (Source: MAIL & NSIA) Imports from five countries account for around
livelihoods, with a second wave of the virus half of the imported value of goods and services.
expected to arrive by early 2021. In a nation The Ministry of Agriculture, Irrigation, and Iran is the country’s biggest supplier, accounting
where 90% of the economy is informal and Livestock responded well to the COVID-19 for US$782 million in the value of goods and
operated by medium and small enterprises, outbreak, implementing the Agricultural Export services (NSIA, 3rd Q). This is followed by China
further economic shutdowns could be very Production Management Program. This was a and Pakistan with shares of US$668 million and
significant and impact the economy for a project to avoid agricultural product wastage US$482 million respectively. Kazakhstan and
number of years. (Source: UNDP) by constructing emergency raisin storage units India are positioned in fourth and fifth places.Afghanistan International Bank Annual Report 2020 Afghanistan Economic Outlook 10
Afghanistan Economic Outlook
continued
Infrastructure The Ministry of Public Health responded to to be reduced and a nationwide cease-fire
1.1 Energy COVID-19 by establishing 11 testing laboratories implemented by both sides.
Electricity demand is growing rapidly in with a capacity of 2500 tests per day, alongside
Afghanistan and is essential for the country’s specific areas for quarantine. It also assigned Banking Sector
economic growth. Afghanistan relies on energy health teams to screen passengers at airports In 2020, the Central bank of Afghanistan
imports from neighbouring countries to meet and other border entry points. It launched a developed the National Financial Inclusion
its domestic demand. Despite significant nationwide awareness campaign as part of its Strategy (2020-2024) to reduce financial
progress since 2002, only about 34% of the broader response. exclusion in the country by 10%. NFIS analysis
population has access to grid-connected suggests 85% of adults in Afghanistan do
electricity (Source: ADB). To expand access, the Afghanistan Human Development Index not have a bank account while the share
government has 30 renewable energy projects The Human Development Index (HDI) is a of outstanding SME loans was 0.17% of GDP
open for investment in 20 provinces with an summary measure of average achievement in in 2018, the lowest of all similar economies.
aggregate capacity of 100,000 (KW). key dimensions of human development: a long The strategy is designed to help the economy
(Source: AISA) and healthy life, being knowledgeable, and in terms of financial access for individuals
having a decent standard of living. and MSMEs, along with agriculture financing,
Meanwhile, in response to ongoing electricity consumer protection and financial capability,
shortages, ADB approved a US$110 million Despite the huge challenges and decades of plus payment and digital financial services.
grant in 2020 to enhance the power supply in protracted conflict, Afghanistan has made a
Afghanistan. The project will provide 500,000 great deal of progress since 2002. Afghanistan In the first quarter of 2020, total banking assets
new connections for households, commercial scored 0.511 out of 1 in HDI of 2019 compared fell by 9% from US$4.118 billion in 2019 to
entities, and industrial customers. In September to 0.496 in 2018 and 0.498 in 2017. Afghanistan US$3.712 billion, as deposits were withdrawn
2020, the Afghan Government signed another ranked 169 with an annual growth rate of in response to the COVID-19 outbreak.
USAID-funded Independent Power Producers 0.89%. The growth rate suggests an optimistic However, banking assets recovered and reached
(IPPs) agreement; these projects will add 110 outlook for Afghanistan, where more Afghans to US$4.146 billion by the 3rd quarter of 2020.
megawatts of power and serve over a million enrol in school, live longer, and eat healthily The Banking sector registered an additional
Afghans. (Source: USAID) (Source: UNDP). 375,338 new accounts, which increased the
total banking accounts number by 8.9%
1.2 Education Political Outlook compared to the same period in 2019.
The National Education Plan (NESP) III 2017- Increasingly there is hope that Afghanistan can (Source: ABA, 3rd Q)
2021 has made significant progress since 2001 sustain long-lasting peace. After years of war
in expanding girls’ access to education. and violent conflict, 2019 saw the beginning of Meanwhile, the Banking sector issued US$512
Since 2001, the number of children enrolled negotiations between the US and the Taliban million in loans, a 7.1% drop compared to
in General Education (grades 1-12) has risen by on the withdrawal of international troops and same period in 2019. The decrease in private
almost nine times, from 0.9 million, almost none ongoing security arrangements. An agreement sector loans was largely as a result of financial
of them girls, to 9.2 million with 39% girls. between the two sides was signed in February institutions deciding not to extend loan
The number of schools has also increased from 2020 in Qatar and was designed to lead to Intra commitments as credit risk increased among
3,400 to 16,400 across Afghanistan (Source: Afghan Peace Negotiations. borrowers. Non-Performing loans doubled from
UNICEF). The number of schoolteachers grew to 3rd quarter of 2019.
241,797 in 2019 from 231,949 in 2018, a 4.25% After long delays, the peace negotiations
increase. (NSIA) Meanwhile, according to MoHE between a government delegation and a To ensure the stability of the financial sector
as of Dec 2020, there are 39 governmental delegation of the Taliban began on September in the face of COVID-related shocks, Da
and 127 private higher education institutions in 12, 2020, in Doha, Qatar. Talks were halted due Afghanistan Bank (DAB - the Central Bank)
Afghanistan. to conflicts of interest and a lack of agreement has intensified monitoring of weaker banks
on priorities. The Afghan government and the and taken measures to reduce their operating
The MoE and MoHE launched alternative Taliban have now agreed on framework rules costs. Other measures include the suspension of
learning solutions during COVID-19 to respond for peace talks after more than two months of administrative penalties and fees, postponement
to lockdowns and social distancing measures. discussions, finally allowing negotiations on of the IFRS-9 implementation, and relaxation of
Schoolbooks are available online, while ending a near-20 year long civil war. mandated loan re-classification.
National TV has broadcast lectures and the
MoHE has introduced HELMS – the first national The difficult journey to peace is ongoing: 2.1 Islamic Banking
online learning management solution. some steps have been taken, but there Afghanistan’s banking sector is small, but
is some way to go: the release of 5,000 Islamic finance has the potential to draw
1.3 Health Sector Taliban prisoners was a welcome sign by more people into the formal economy.
Afghanistan’s health system has been steadily the Afghan Government, while a three-day The country is now home to a full Islamic bank
progressing over the last 20 years, with Consultative Peace held in Kabul from 7-9 and several Islamic windows in conventional
increasing coverage throughout the country. August by Loya Jirga has opened the way for banks. The bulk of Islamic financing in the
The government assigned 4% of the total the Afghan government to release a final 400 country is offered via two types of Shariah-
2019 budget to the Ministry of Public Health, Taliban prisoners from government jails. compliant structures, a cost-plus-profit
of which 80% was funded by donors (Source: On September 2020, the High Council for arrangement known as Murabaha and a
WHO). The World Health Organization (WHO) National Reconciliation (HCNR) was established leasing-based contract known as Ijara.
reported in 2018 that 3,135 healthcare facilities and the first meeting of the Leadership There was US$418 million of deposits held
were in operation, providing healthcare to Committee of the HCNR was held on 5th in Islamic banking arrangements at the end
approximately 87% of the population within a December 2020. This is designed to speed up of the fourth quarter of this year, 12% of total
two-hour distance. the process and involve community members banking sector deposits.
in decision- making. However, violence needsAfghanistan International Bank Annual Report 2020 Afghanistan Economic Outlook 11
“Meanwhile, in response to ongoing electricity
shortages, ADB approved a $110 million grant
in 2020 to enhance the power supply in
Afghanistan. The project will provide 500,000
new connections for households, commercial
entities, and industrial customers.”
Joseph Carasso
Chief Executive OfficerAfghanistan International Bank Annual Report 2020 Governance Report & AIB Committee 12
Governance Report
& AIB Committee
As a matter of principle and good business practice, AIB has conducted its
banking business in an ethical, prudent, and professional manner, according to
international standards of governance.
Philosophy of governance Shareholders as far as possible. Ensuring the upholding of
AIB endeavours to enhance shareholder The Bank has three shareholders, each with an good corporate governance is key to the Bank
value; protect the interests of all stakeholders ownership percentage as shown in the table achieving its goals, and the Board ensures that
including shareholders, customers, employees, below. The shareholders operate under a policy best practices are maintained.
regulators, and the public at large; and ensure of non-interference in management decisions
compliance with international best practices and the Bank’s operations. The positive The Board is composed of the Chairman,
for financial institutions. The Bank complies reputation and widespread business interests shareholder-appointed directors, and
with all legal and regulatory requirements of and relationships of the Bank’s shareholders in independent directors. The Chairman is an
Afghanistan – but also formulates and adheres Afghanistan have contributed significantly to independent director, which complies with
to strong corporate governance practices the success of the institution. Each shareholder central bank regulations. Independent Board
beyond what is mandated by Afghanistan has the right to appoint one individual to the members are in the majority, in line with
regulators. In fact, ‘international’ in our name Board of Supervisors. regulations and international governance
reflects the standard of performance we strive standards. According to the Articles of
to achieve. Board of Supervisors Association, each shareholder has the right to
The major purpose of the Board of Supervisors appoint one shareholder-designated director.
The adoption and implementation of corporate is to formulate the overall strategic and The shareholders have agreed to a Board of
governance is the direct responsibility of the financial objectives of the Bank; to monitor Supervisors consisting of seven individuals.
Board of Supervisors. In this role, the Board these objectives to ensure they are met by There are currently six Board members: four
ensures that the management of the Bank is management; and to ensure that the risks independent and two shareholder-appointed.
meeting the requirements and obligations of associated with operating a financial institution Two vacancies occurred during the year with
good governance. in Afghanistan are managed and mitigated resignation of Mr Aditya Srivastava and theAfghanistan International Bank Annual Report 2020 Governance Report & AIB Committee 13
retirement of the Chairman Mr. Ronald Stride, Each quarter, the Board reviewed the anti- maximising customer and product profitability
Mr. Michael Pearce joined the Board and Mr money laundering/compliance dashboard to are also in progress.
Samuel Sidiqi was elected as chairman. ensure the Bank’s adherence to the policies
We expect the remaining vacancy to be filled and procedures established for this function The findings from a positive customer survey
at the next Annual General Meeting in March by outside experts. conducted during the year have been analysed
2021, At the very end of the year Mr. Mansoor to improve service levels further. A review is
Tirmzi resigned from the board for personal One of the key factors in the success of AIB is also under consideration to evolve and align
reasons and a search for a new director will our correspondent banking relationships that AIB’s optimal organisation structure, and
commence shortly. Brief biographical profiles of permits the Bank to do direct clearing of US$ distribution network for the future.
the directors are included in this annual report. and other currencies. The Board were intimately
involved in retaining our correspondent The Operating Plan for 2021 has been finalised
The Chairman is a non-executive director relationship network, the expansion of which taking into account the business environment
and is responsible for leadership of the Board was curtailed by the COVID-19 pandemic. expected as a result of the ongoing COVID-19
and ensuring its effectiveness. Shareholder- However, we look forward to concluding pandemic, as well as national eco-political
nominated directors are appointed by the relationships with two additional banks placed developments. The committee will continue
respective shareholders and represent their on hold due to the pandemic. US$ nostro to closely monitor business performance to
interests. There are currently two shareholder- accounts are maintained with UK, Kazakhstan, ensure that AIB pursues the optimum path for
appointed directors. Russian, and Uzbekistan banks. balanced and sustainable growth in support of
the Afghan economy.
Independent directors are expected to bring Another key success for 2020 was AIB
impartial judgement to the Board through response to the COVID-19 pandemic. The Bank Risk Committee
their expertise in the financial world, as well as responded quickly and effectively by modifying The Risk Committee reports directly to
governance experience through having served work practices, implementing additional safety the Board of Directors and its principal
on other boards. Independent directors are precautions and preventive measures to ensure responsibility is to ensure a robust framework
elected/appointed for terms of four years but the safety of our customers and staff. is in place for effective governance and risk
must stand for re-election each year. management.
Planning and Strategy Committee
The Board has five committees: Remuneration; This committee reports directly to the Board, is The committee reviews the Bank’s risk exposure
Nominating; Risk; Planning and Strategy, and responsible for the development of the Bank’s under different products. This encompasses
Audit. Each committee has a Chairman and a Strategic and Annual Operating Plans, and for foreign exchange positions, assets and
formal charter to guide its activities. The Board monitoring their timely achievement; it reviews liabilities, capital adequacy, credit and market
Chairman, with advice and consent of the business performance on a quarterly basis and risk, and sovereign risk. The committee also
full Board, selects committee members and escalates any issues identified to the Board for reviews performance of the classified and
committee chairs annually. remedial action. non-performing loan portfolio, and reviews
and submits to the Board of Supervisors
The Board of Supervisors meets monthly: The committee has closely monitored business all the Bank’s policies associated with risk
normally four times in person and the balance performance during a very challenging 2020 management. Finally, the committee identifies
by conference call. This year the board met ensuring that the Bank remains as agile and unacceptable risk conditions to the full Board
once in person and thereafter by zoom effective as possible towards achieving its for consideration and action.
conference call due to the COVID-19 pandemic. performance targets.
The committees of the Board met once in AIB considers effective compliance with global
person in conjunction with the in-person Board During 2020, this Committee has worked standards for anti-money laundering (AML) and
meeting, and at least three times by zoom closely with the Risk Committee to mitigate counter-terrorism financing (CTF) a foremost
conference calls. Board committee meetings the impact of USD interest rate reduction priority -- and continues to make further
are attended by the Chief Executive Officer. on income from the bond and placement progress via a close partnership with a leading
Minutes of committee meetings are circulated portfolios. consulting firm to ensure these standards are
to all Board members for their information. firmly embedded in AIB’s risk framework.
The role of these committees is explained in Major initiatives undertaken during the year
more detail in the following subsections. include the approval of a comprehensive and Ensuring robust cyber-security remains another
balanced set of predictive Key Performance key priority, and the Bank undertakes regular
In 2020, the Board met 15 times. During each Indicators (KPIs) – these include financial reviews and further investment to ensure
meeting the Board monitored the financial metrics, as well as qualitative targets for that the Bank’s IT architecture, network and
performance of the Bank as well as the status controls, process efficiency and service systems remain robust and secure against cyber
of non-performing loans and operational risks. levels. Further refinements for measuring and breaches and threats.
Shareholder Beneficial Shareholder Type of Company Incorporated Board Members Ownership (%)
International Finance Corporation Not applicable Global development institution Washington, No one appointed 7.50
(IFC) District of Columbia
Horizon Associates Mohammed Abrahim Mohib Holding Company Delaware, USA Lutfullah Rahmat 46.25
Wilton Holdings Lutfullah Rahmat, Holding Company Cayman Islands Hamidullah A. Mohib 46.25
Izzatullah Rahmat,
Nasrullah RahmatAfghanistan International Bank Annual Report 2020 Governance Report & AIB Committee 14
Governance Report & AIB Committee
continued
During 2020, the COVID-19 pandemic required management responses, and remediation Nominating Committee
AIB to respond quickly and effectively by activities The committee regularly monitors The Nominating Committee works as a
modifying work practices, implementing and assesses the role and effectiveness of the preparatory committee for the Board of
additional safety precautions and preventive internal audit function. Supervisors with respect to nomination and
measures to ensure the safety of our customers appointment of candidates to the Board of
and staff. The committee also reviews the Bank’s annual Supervisors, the Management Board and
budget and business plan and recommends other key senior managers as determined by
A challenging risk to mitigate during 2020 was to the Board of Supervisors the payment the Committee.
the sharp decline in USD interest rates, and the of dividends.
resulting impact on the income streams from During 2020 met five times in person and
the bond and placement portfolios. The Risk The committee receives quarterly reports on virtually. Further, the Committee interviewed
Committee undertook a comprehensive review major operational issues such as non-performing candidates for the board and for management
of these portfolios restructuring these portfolios loans, operational losses, and financial reports of positions. The Committee’s major activities
towards the most optimal mix of issuers/ the Bank, at every quarterly meeting. were ensuring board level and management
counter parties, credit ratings, maturity tenors, succession:
and yields. During 2020, the committee continuously
focused on the status of overall internal Board Level
The Risk Committee will continue to monitor controls of the Bank and issues relating to • Following the retirement of two
domestic and international developments to money laundering and countering financing independent board members, submitted
ensure that AIB remains vigilant and prepared of terrorism. remaining board members and audit
to take timely and effective action to manage committee members for reappointment at
any emerging risks. During the year the Charter of Audit Committee the Annual General Meeting
amended to be in line with central bank’s new • Commencing a review of candidates to
Audit Committee regulation on composition of Audit Committee. replace two independent board members
The Audit Committee (AC) is responsible for who retired. The committee interviewed
overseeing financial reporting; compliance Remuneration Committee a number of candidates and subsequently
with risk management policies and procedures; • The Remuneration Committee has five submitted two to Da Afghanistan Bank
internal controls; ethical behaviour; and major responsibilities: (DAB) for confirmation, DAB confirmed
management and functioning of the Internal • Establish compensation policies for the one candidate and one confirmation is
Audit Department. Bank’s senior management, including base still awaited.
salary, fringe benefits, and bonus scheme • Complying with DAB’s regulation that
The committee currently has three members, • Establish performance goals for each independent board members should not
all qualified and experienced in audit, member of senior management and serve on the Audit Committee, commenced
accounting, business, or banking. The Board monitor performance against these goals reviewing candidates for the Audit
of Supervisors appoints members to the • Establish and review development and Committee and subsequently submitted
committee, from qualified person, who are succession plans for senior management two to DAB for confirmation. DAB confirmed
not members of the Board of Supervisors • Recommend to the full Board for final one candidate and one confirmation is
subject to the approval of Da Afghanistan decision matters relating to senior still awaited.
Bank (the central bank), Any individual, who is management compensation and
proposed to join the committee, is subject to bonus actions Management
the same ‘fit and proper’ requirements as any • Review and approve the Bank’s human • In order to ensure the smooth succession
other member of the Board of Supervisors. resource policies of the CEO, the committee recommended
The committee at the end of 2020 had two the Head of Business development become
non-Board member and one member of the The Committee has three members, two of Deputy CEO and subsequently CEO. DAB
Board of Supervisors. whom are independent directors including the approved the Deputy CEO appointment,
Chairperson. The Committee met three times and the confirmation of CEO was received
The committee is responsible for relationships during 2020. Key issues addressed included: early in January
with the external auditors and meets them on • Recommending the appointment of Afghan
completion of the annual audit and quarterly • Reviewed, approved, and monitored senior as Head of Internal Audit, furthering the
reviews. On the committees recommendation, management goal achievements Bank’s goal of Afghanization. DAB has
the Board of Supervisors approves the • Reviewed and approved 2020 bonus scheme subsequently confirmed this appointment.
annual audited financial statements and adjustment and approved 2021 bonus pool • Recommending the appointment of a
three quarterly reviewed interim financial • Reviewed and approved the implementation new Chief Credit Officer pending
statements. These meetings enable committee of the mandatory pension scheme for the DAB confirmation.
members to discuss matters relating to the staff as outlined in the Labor Law
external auditor’s remit and issues arising from • Reviewed and approved remuneration and The committee will continue to spend time on
the audit. contract for the new CEO of the Bank both board and management succession and
• Reviewed and approved tri-annual (3 years) ensure training and recruitment plans are in
Consistent with previous years, in 2020 the review of the staff salaries place to support Afghanization.
committee assessed and approved the annual
internal audit plan, including budget and Good staff retention and attraction remains
resources, and regularly monitored progress the primary goal of the management and the
of the plan. The committee discusses control committee. In the uncertain Afghan political
environment issues reported by the Internal and economic environment, the committee
Audit Department, their root causes and believes that they succeeded in this direction.You can also read
