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Development of the Commercial Banking System in Afghanistan; Risks and Rewards

  • Joshua Charap
  • Jelena Pavlovic
Registered author(s):

    Lending practices of commercial banks in Afghanistan were analyzed using CAMEL ratings. Statistically significant correlations were found: Banks with worse ratings (a) had more lending to domestic clients and (b) paid less tax. There was no statistically significant relationship between profits and total assets or between lending/assets versus profit/assets. Interviews of senior management of 8 banks accounting for about 90 percent of the commercial banking system corroborated evidence that poorly rated banks lend to domestic clients, whereas highly rated banks do not lend. Banks that lend extensively domestically engage in extra-judicial, non-traditional contract enforcement.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/150.

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    Length: 28
    Date of creation: 01 Jul 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/150
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    1. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
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    3. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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    8. Clarke, George & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M, 2005. "Bank Lending to Small Businesses in Latin America: Does Bank Origin Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 83-118, February.
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    14. Anuchitworawong, Chaiyasit, 2004. "Financial fragility under implicit insurance scheme: Evidence from the collapse of Thai financial institutions," CEI Working Paper Series 2004-16, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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    19. repec:ner:tilbur:urn:nbn:nl:ui:12-3125519 is not listed on IDEAS
    20. Jose A. Lopez, 1999. "Using CAMELS ratings to monitor bank conditions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun.
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