Rahmanullah Rasa

Abstract

 

The objective of this study is to find the main risk drivers, risk measurement approaches and deficits in risk management procedures in the Afghan banking sector. To study risk management in commercial banks in Afghanistan, all sixteen registered commercial banks with DAB (Da Afghanistan Bank) have been selected for this research. Using descriptive statistics and sub-sample analysis, it was found that the main risk drivers are credit risk-the most relevant risk factor, liquidity risk and operational risk. Forty-three percent banks use simplified standardized approach to measure credit risk exposure. In addition, 64% of banks use standardized measurement to measure market risk. Regarding operational risk measurement, 54% of banks use a basic indicator approach. Large banks use more sophisticated and advanced approaches in order to measure risk. The main deficits in risk management procedures that negatively impact the whole Afghan banking sector are the lack of technical knowledge, qualified and trained personnel in risk management, difficulties in quantifying risks, quality of information and high cost of information technology. The study also found that missing and lack of expertise in risk management have adverse consequences on the stability and development of the financial sector in Afghanistan.

Download here