Banking Supervision and Financial Services Directorate General
The Banking Supervision and Financial Services Directorate General (BSFSDG) is one of the key directorates within Da Afghanistan Bank's (DAB) organizational structure. It aims to ensure the security of customer’s deposits in banks and enforce applicable laws and regulations, thereby contributing to the banking sector's stability.
The Directorate was established in late 2003 and named “Banking Supervision”, after approval of the Afghanistan Banking Law. The main purpose of establishing the directorate was to ensure the implementation of Afghanistan banking law, regulations, guidelines, and instructions of DAB for guaranteeing customers' deposits. With the growth and development of the banks and financial institutions’ activities in the country, the organizational structure and activities of the directorate have been improved, operating with an initial structure of 12 employees.
However, the directorate’s staff has increased significantly over time. In addition, DAB has started conducting long-term and short-term training programs for its staff, led by qualified national and international experts. This contributed to increasing skillful staff and enhancing their capacities. However, in subsequent years, with the continued development of the directorate, Non-Banking Financial Institutions, in addition to Banking institutions, were also brought under its supervision.
Following the separation of the Non-Banking Financial Institutions Supervision Directorate in 2019 and the Islamic Banking and Finance Directorate in 2018 from the Financial Institutions Supervision Directorate General, the Directorate solely supervised licensed banking institutions in the country, assessing and categorizing them based on the CAMEL rating system.
Meanwhile, staff training programs, including online and practical sessions, were organized domestically and internationally to enhance their capacity and professional supervisory knowledge. These training programs mainly focused on issues related to the supervision of banks and financial institutions, covering important topics such as financial analysis, risk assessment, governance, liquidity, management of underperforming banks, asset/liability management, and international best practices in supervision.
The BSFSD proposed necessary amendments to the banking law and applicable regulations based on prevailing conditions and needs and enforced these amendments on banks after obtaining approval. In addition, BSFSD issued directives and decisions through circulars to banks to further enhance their operations and performance when needed.
While conducting annual comprehensive on-site supervisions and AML/CFT supervisions to ensure the secure operation of the banking sector, the directorate also performs special and follow-up supervisions to ensure the implementation of applicable terms and conditions, conducts unannounced cash inspections, supervises and audits the IT systems of banks, and performs special audits.
Beyond the on-site inspections carried out by assigned teams at the banks, the financial position of the banks and the overall condition of the banking sector are analyzed and reviewed by off-site supervision teams on a monthly, quarterly, and yearly basis.
Vision
A stable and trusted banking sector and a resilient banking system.
Mission
Enhancing the performance and stability of the country’s banks by adopting best-practice supervision methods, enforcing banking laws and regulations to safeguard customer deposits, ensuring a sound and reliable banking system, preserving the reputation and credibility of the financial sector, and expanding banking services and facilities both domestically and regionally.
Objectives
The objectives of the directorate are to:
• Ensure compliance with Afghanistan's banking laws, regulations, guidelines, and circulars issued by DAB, safeguarding public deposits and preventing insecure banking practices;
• Promote and sustain a sound and robust financial system;
• Maintain the continued trust of both Afghans and foreign stakeholders in the banking sector and economic stability; and
• Establish and enhance a sound supervisory and regulatory framework while adopting serious banking supervisory measures.
Duties and Responsibilities
The duties and responsibilities of BSFSDG are the following:
• Issuing banking licenses to eligible individuals upon completion of the required documentation and granting branch licenses to banks;
• Preparing, developing, and amending banking laws, regulations, and guidelines to prevent insecure banking practices;
• Conducting on-site full-scale supervision to ensure compliance with banking laws, regulations, and circulars, and evaluating banks using the CAMEL rating system;
• Implementing special, targeted, and follow-up supervision to enforce prescribed measures and investigate specific cases;
• Carrying out unannounced supervision of cash as requested by the DAB Governor's Office and the BSFSDG;
• Imposing enforcement measures, resolving banking issues, and improving the condition of underperforming banks;
• Conducting off-site analysis and reviews to assess the financial health of banks and the overall banking sector on a monthly, quarterly, and annual basis.
Organizational Structure
After merging three directorates—namely the Banking Supervision Directorate General, the Islamic Banking and Financial Services Supervision Directorate, and the Afghanistan Deposit Protection Directorate—the BSFSDG now has 189 positions in its structure. This includes one directorate general, three deputy directorates (Off-site Supervision, On-site Supervision, and Regulatory deputy directorates), a Quality Control Section, a Financial Stability Section, an Afghanistan Deposit Protection Section, a Secretariat, and an Executive Section. The details of each section are as follows:
1. Off-Site Supervision Deputy Directorate
The deputy directorate is responsible for implementing the plans, approvals, and decisions of the Supreme Council and the Executive Board of Da Afghanistan Bank. In addition, it bears technical and academic responsibility for evaluating and supervising the tasks and operations of the relevant sections. The Off-site Supervision Deputy Directorate consists of the Accounting and Reporting Section, the Off-site Supervision Section, the Banks Reconciliation Section, and the Asset Assessment Management Section. A summary of the duties and responsibilities of each section is provided separately below:
1) Accounting and Reporting Section
This section is responsible for receiving daily reports on cash and deposit positions, and monthly and yearly financial reports from banks. After verifying their accuracy and conducting a preliminary analysis, these reports are referred to other related sections of the Section for further review, analysis, and necessary actions. The matter is communicated to the respective bank through this section if banks fail to submit the required reports in the predefined format or provide incorrect reports. Then, the bank shall submit corrected versions of the reports, which are subsequently shared with the relevant sections of the directorate.
2) Off-Site Supervision Section
The primary responsibilities of the section include preparing integrated reports of the banking sector, based on the individual reports of banks, and preparing analytical reports on the status and performance of the banking system on a monthly, quarterly, and annual basis. In addition, the section conducts monthly analyses of the financial situation of individual banks and shares its findings with relevant Sections for further action. Moreover, it reviews external audit reports and takes appropriate measures regarding any violations committed by banks. In terms of communication, this section is responsible for preparing the necessary information and reports for publication in the DAB Bulletin and providing relevant data to the National Statistics and Information Authority (NSIA) based on the bank's financial reports.
3) Banks Reconciliation Section
The Banks Reconciliation Section is responsible for ensuring the performance of the related Bank Reconciliation Section per the Afghanistan Banking Law, as well as relevant regulations, circulars, and approved plans after the appointment of a Reconciliation Head (liquidator) to the failed (bankrupt) bank and continues until the reconciliation process is completed. In addition, to facilitate and expedite the reconciliation process, the Section coordinates and follows up with the relevant Reconciliation Section to ensure the efficient execution of affairs.
4) Asset Assessment and Management Section
The primary tasks of this section are effectively assessing the status of loans and collaterals, ensuring the evaluation of properties under collateral in terms of location, documentation, and real value, and analyzing the financial condition of bank creditors.
2. Deputy Directorate of On-Site Supervision
The deputy director is responsible for implementing plans, executing tasks, and enforcing the Supreme Council's approvals and the executive board's decisions of DAB. The deputy director’s responsibility also includes academically and technically evaluating and supervising assigned tasks and activities to the relevant Sections. In addition, the Deputy Directorate shall evaluate the on-site supervision teams during the on-site supervision and ensure their activities are carried out effectively. The Deputy Directorate comprises the on-site supervision, information technology and systems supervision, special and follow-up supervision, field supervision coordination, and AML/CFT sections.
1) On-Site Supervision Sections
The on-site supervision section, consisting of six supervisory teams, supervises the country's banks annually per its Terms of Reference (ToR) and the annual plan developed by the Banking Supervision and Financial Services Directorate General. These supervisory activities are carried out based on the analysis of financial reports, off-site supervision reports, enforcement measures section reports, and correspondence from external auditors. Besides, the Section is responsible for preparing supervision plans, reviewing the internal policies of the banks under supervision, and presenting the relevant reports of the banks.
It is worth mentioning that during comprehensive on-site supervision, all components of the CAMEL —capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to exchange rate fluctuations—are assessed and rated per the CAMEL rating system.
2) IT and Systems Supervision Section
This section is responsible for supervising and checking the systems and IT departments of the banks and ensuring the accuracy of transactions and submitted reports.
3) Special and Follow-up Supervision Section
This section is responsible for conducting targeted follow-up supervision and verifying the accuracy of reports submitted regarding the implementation of enforcement measures. Meanwhile, it is tasked with carrying out special supervision as needed.
4) Field Supervision Coordination Section
The main responsibility of this section is to conduct unannounced supervision of cash and to monitor and review the activities of debtors and bank branches across the country. Representing the Directorate General of Banking Supervision and Financial Services, the section staff are also tasked with reviewing and evaluating issues related to special supervision in the provinces.
5) AML/CFT Section
This section is responsible for supervising activities related to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT). It also conducts follow-up and special supervision of international transfers. The main objective of this supervision is to ensure compliance with the Banking Law, the AML and Proceed of Crime Law, the Counter Financing of Terrorism Law, AML/CFT Preventive Responsibilities and Measures Procedure, and other related AML/CFT instructions and guidelines.
3. Regulatory Deputy Directorate
The Regulatory Deputy Directorate is responsible for implementing the plan and enforcing the Supreme Council's approvals and the executive board's decisions of DAB. In addition, this section is tasked with the academic and technical evaluation and supervision of the performances and activities of other sections.
The Deputy Directorate consists of six Sections: the Licensing, the Regulation, the Enforcement Measures, the Sharia Board Affairs, the Sharia Research and Product Development, and the Sukuk and Islamic Insurance Sections. The duties and responsibilities of each section are outlined below:
1) Licensing Section
Issuing banking licenses to eligible individuals is one of the primary responsibilities of DAB, carried out by the Licensing Section of the directorate. The Section collects and evaluates essential information and documents before granting a banking license to a qualified applicant. This includes assessing the necessary documentation related to shareholders, reviewing the business plan, policies, and procedures of the applicant bank, processing banks' requests for interviews, and approvals of the key ranking members of the supervisory board, management board, and audit committee.
Other responsibilities of the Section include collecting the required documents for branch licensing, facilitating the establishment of bank service counters, and issuing licenses for establishing ATMs and POS machines. Furthermore, processing applications sent by external audit firms seeking permission to audit banks is also among the duties of the licensing section.
2) Regulations Section
The primary responsibility of this Section is to prepare and develop banking regulations and procedures to ensure effective supervision of banks. It is worth mentioning that the amendment of banking regulations and related procedures, considering the situation and issuance of circulars to regulate banking activities are also part of the activities of the regulations section.
3) Enforcement Measures Section
The main duties of this Section are to implement special strategies to improve underperforming banks, establish enforcement measures, and review the corrective action plans of banks following these measures. The Section is also responsible for imposing stricter disciplinary enforcement actions on banks, as stipulated by law if they fail to fully implement the required measures or take the necessary actions. In addition, one of the section’s responsibilities is to prepare reports for internal and external partners, in collaboration with other relevant departments, and to provide updates on the situation of underperforming banks.
4) Sharia Board
The Sharia Board was established to coordinate between the Sharia Supervisory Board, Islamic banks, Islamic banking windows, and the Directorates of DAB under the supervision of the BSFSDG. The Sharia Board reviews and presents Islamic banking policies, products, and guidelines to the Sharia Supervisory Board, organize the meetings of the Sharia Supervisory Board, and ensures coordination between all relevant departments, including the Sharia Supervisory Board and the Directorates of Da Afghanistan Bank to prepare the agenda for the Sharia Supervisory Board meetings.
The Section collects and reviews DAB’s legislative documents, policies, procedures from commercial banks, and any issues that require Sharia approval. The section is responsible for providing necessary guidance to banks and relevant departments regarding policies related to Shariah matters and Islamic banking products/windows in accordance with the standards of Islamic banking and the regulations of Da Afghanistan Bank.
Furthermore, the Shariah Board is responsible for sharing products, policies, and procedures of commercial banks with the Shariah Supervisory Board of DAB to ensure that the Board may share its remarks on these matters. The Board approves them for implementation after addressing the provided feedback.
5) Sukuk and Takaful Section
This section has been established to coordinate with the Ministry of Finance and relevant Directorates of Da Afghanistan Bank regarding Sukuk issuance. Its primary responsibilities include:
• Effectively utilizing idle funds to promote financial stability and support the country's economic growth through Sukuk issuance.
• Effectively utilizing idle funds to promote financial stability and support the country's economic growth through Sukuk issuance.
• Developing financial and Sharia-compliant structures, and preparing and organizing the necessary regulatory procedures for Sukuk issuance.
• Actively collaborating with relevant internal and external entities, particularly the Ministry of Finance, to streamline and facilitate the processes involved in Sukuk issuance, ensuring its efficient and successful implementation.
6) Research and Products Development Section:
The Section is a key component of the directorate, responsible for researching, preparing, and developing Islamic banking products. It also oversees the Sharia-compliant formulation of banking laws, regulations, internal procedures of Da Afghanistan Bank departments, and other legislative documents following Sharia law.
The following Sections operate under the supervision of the Banking Supervision and Financial Services Directorate General:
1. Quality Assurance Section
The Quality Assurance Section, in coordination with the deputy directorates of the BSFSDG, is responsible for ensuring the quality of tasks assigned by the Director General and reports directly to the Director. This section evaluates the quality of supervision reports to ensure their accuracy and completeness.
In addition, the Section processes supervision reports and forwards them to the relevant banks (after approval) while maintaining the original reports as the property of the BSFSDG.
Furthermore, the Section is responsible for consolidating, and developing the Quality Assurance Section’s annual plan, processing the bank supervision plans, and ensuring implementation of the plan under the guidance of the Directorate.
2. Financial Stability Section
The primary responsibility of the section is to analyze the country's banking sector, prepare the financial stability report, and present it to the Financial Stability Committee chaired by the Ministry of Finance and Da Afghanistan Bank as its secretariat.
The Financial Stability Section coordinates regular and emergency Financial Stability Committee meetings quarterly between DAB and the Ministry of Finance. It is also responsible for gathering financial information from all relevant directorates of Da Afghanistan Bank, the Ministry of Finance, and other related entities to prepare the country's Financial Stability Reports.
In addition, the section is required to prepare annual and 6-month reports on the country's financial stability and conduct quarterly stress tests. Other key responsibilities include performing scenario analyses under various conditions and analyzing issues related to the financial banking sector’s stability.
3. Deposits Protection Section
This section functions within the Directorate General of Banking Supervision and Financial Services. It aims to safeguard public deposits in commercial banks and maintain banking sector stability. The section makes efforts to foster trust and confidence in the country's banking sector.
All banks licensed by DAB are members of the Deposit Protection Section. Each of these banks annually pays a specific amount as a premium monthly to the accounts managed by this section.
4. Secretariat and Executive Section
The executive section and Secretariat which are under the structure of the Banking Supervision and Financial Services Directorate General, are responsible for recording, sending, and receiving letters and official correspondence.