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Banking Supervision and Financial Services Directorate General

The Banking Supervision and Financial Services Directorate General (BSFSDG) is one of the key departments within the organizational structure of Da Afghanistan Bank (DAB), aiming to ensure the safety of depositors’ funds held in banks and to oversee the implementation of applicable laws and regulations across the banking sector.

This directorate was first established in late 2003, following the enactment of the Banking Law, under the name Banking Supervision Directorate. Its main objective was to ensure compliance with the Banking Law, regulations, directives, and instructions issued by DAB, thereby safeguarding customers’ deposits.

With the growth and development of banking activities and financial institutions in the country, the organizational structure and operations of this department also expanded considerably. Recruitment of staff began through open competition, and not only were long-term training programs for the department’s staff undertaken by experienced domestic and international consultants and specialists, but the supervision of banks was also conducted under their guidance and oversight. In subsequent years, however, the department expanded further under the Directorate General of Supervision of Financial Affairs of Banking and Non-Banking Financial Institutions.

Currently, after the separation of the Non-Banking Financial Institutions Supervision Directorate General (in 2019) and the Directorate General of Islamic Banking and Financial Services (in 2018) from the Directorate General of Financial Supervision, the Directorate General of Banking Supervision exclusively reviews licensed banking financial institutions in the country. It evaluates and rates them based on the CAMEL system standards and the risk-based supervision approach.

Meanwhile, to enhance capacity and increase professional and supervisory knowledge, training programs—including online courses and practical on-the-job training—have been organized for the staff of the Directorate General of Banking Supervision as needed. These programs primarily focus on bank and financial institution supervision, covering topics such as financial analysis, risk assessment and management, liquidity, weak bank management, asset/liability management, and international best practices for supervision.

The BSFSDG, considering the conditions and requirements, proposes necessary amendments to the Banking Law and related regulations. Following the completion of legal procedures and approval, these amendments are continuously implemented across the banks. Furthermore, to improve banking operations and undertake required actions, the directorate issues instructions and necessary decisions to banks through official circulars whenever deemed necessary.

To ensure further safety of the banking system, in addition to conducting comprehensive on-site examinations and annual AML/CFT inspections, the directorate also undertakes specialized and follow-up inspections to ensure compliance with prescribed conditions. It further carries out unannounced cash inspections, supervision, and assessment of information technology (IT) systems, as well as other specialized reviews.

In addition to the above-mentioned on-site supervision carried out by assigned teams within the banks, the financial condition of the banks and, in general, the banking sector is analyzed on a monthly, quarterly, and annual basis by off-site teams.

Vision

Having a stable and trusted banking sector along with a resilient banking system is the vision of the Banking Supervision and Financial Services Directorate General.

Mission

Improving the situation and performance of the country’s banks using the best supervisory practices and enforcing banking laws and regulations to ensure the safety of customer deposits, maintain a sound banking system, preserve the reputation and credibility of the banking sector, and develop banking services and facilities at both the national and regional levels.

Objective:

The Main Objectives of the Banking Supervision and Financial Services Directorate General are as follows:

  • Ensuring compliance with the Banking Law, regulations, circulars, and other directives of DAB to safeguard public deposits and prevent unsafe banking activities.
  • Maintaining a sound and robust financial system.
  • Preserving the continuous trust of domestic and foreign citizens in the banking sector and supporting overall economic stability.
  • Establishing and developing a sound supervisory and regulatory framework, and implementing serious and effective banking prudential measures.

Duties and Responsibilities:

  • Issuing banking licenses to qualified individuals after completion of the required documentation, and granting authorization for banks to establish branches.
  • Drafting, revising, or amending banking laws, regulations, and guidelines to prevent unsafe banking activities.
  • Conducting comprehensive on-site supervision to ensure compliance with banking laws, regulations, and circulars, and rating banks according to the CAMELS rating system.
  • Implementing targeted, specialized, and follow-up supervision to enforce regulatory measures and review specific cases.
  • Conducting unannounced cash inspections as deemed necessary by the Governor’s Office and the directorate.
  • Establishing enforcement measures, resolving banking issues, and improving the condition of weak banks.
  • Performing off-site analysis and monitoring to assess the financial condition of banks and the banking sector on a monthly, quarterly, and annual basis.

Organizational structure:

Following the merger of the Banking Supervision Directorate General, the Banking and Supervision of Islamic Financial Services Directorate General, and the Deposit Protection Directorate General, the BSFSDG comprises 182 positions in its organizational structure. These include one position for the Directorate General, three deputy directorates (Off-Site Supervision Deputy Directorate, On-Site Supervision Deputy Directorate, and Regulatory Deputy Directorate), the Quality Control Management, Financial Stability Management, Deposit Protection Management, Secretariat, and the Executive Management, the details of which are provided below:

    1. Off-Site Supervision Deputy Directorate:

The Deputy for Off-Site Supervision, in accordance with its terms of reference, is responsible for implementing plans, executing activities, and ensuring the enforcement of the resolutions and decisions of the Supreme Council and the Executive Board of DAB. Moreover, the Deputy Directorate shall scientifically and technically assess the functions and operations of the departments under its supervision.

The Off-Site Supervision Deputy Directorate is composed of the following sections:

  • Accounting and Reporting Section
  • Off-Site Supervision Section
  • Bank Settlement Section
  • Asset Evaluation Section
  1. Accounting and Reporting Section:

The section is responsible for collecting daily reports on cash and deposits, as well as monthly and annual financial reports from banks. After ensuring the accuracy and conducting preliminary analysis, these reports are submitted to the relevant sections for further review, analysis, and necessary actions.

If banks fail to submit the reports in the requested format and structure (or submit incorrect reports), the matter is communicated by the sections to the respective bank. Once the corrected report is received, the revised version is shared with the concerned sections of the directorate.

  1. Off-Site Supervision Section

The primary duties of this section include preparing consolidated reports on the banking sector based on individual reports received from banks, as well as preparing analytical reports on the status and performance of the banking system on a monthly, quarterly, and annual basis.

In addition, the section conducts individual financial analyses of banks monthly and shares its findings with other relevant supervision sections for further action. It also reviews external audit reports and takes appropriate measures regarding any violations committed by banks.

Furthermore, this section is tasked with preparing the necessary information and reports for publication in the DAB’s Bulletin and providing the required data, based on banks’ financial reports, to the National Statistics and Information Authority.

  1. Bank Settlement Section
    The primary responsibility of the Bank Settlement Section is to oversee and manage matters related to the settlement of banks. The section is obligated to take the necessary actions in connection with the assigned duties and to monitor and review the performance and progress of each bank’s liquidation process carried out by its respective liquidation department.
  2. Asset Evaluation Management

The primary responsibilities of the section include the effective monitoring of loans and their collateral, ensuring the accuracy of the location, documentation, and real value of properties held as collateral, and analyzing the financial condition of the bank borrowers.

    1. On-Site Supervision Deputy Directorate

The On-Site Supervision Deputy Directorate is responsible for implementing plans, executing tasks, and enforcing the approvals of the Supreme Council as well as the decisions of the DAB Executive Board. In addition, the section is tasked with academically and technically evaluating and supervising the activities and operations of the sections under its jurisdiction. During on-site supervision, the deputy ensures that supervision teams are effectively carrying out their responsibilities.

The deputy directorate comprises the following sections, with their respective duties and responsibilities outlined below:

  • On-Site Supervision Section
  • IT and Systems Supervision Section
  • Special and Follow-Up Supervision Section
  • Field Supervision Coordination Section
  • AML/CFT Section
    1. On-Site Supervision Section:

The On-Site Supervision Section, composed of five supervisory groups, conducts annual supervision of the country’s banks in accordance with its Terms of Reference (ToRs) and the annual action plan of the Banking Supervision Directorate General. These supervisions are based on the analysis of financial reports, off-site supervision reports, reports from the Enforcement Measures Section, and letters from external auditors. Moreover, the section is responsible for preparing the supervision plan, reviewing the internal policies of the banks under supervision, and presenting the relevant reports on the banks’ performance.

It is worth noting that during comprehensive on-site supervision, all components of CAMEL—including capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to exchange rates and interest rates—are evaluated and rated according to the CAMEL rating system.

    1. IT and Systems Supervision Section:

The section is responsible for supervising and assessing the systems and IT departments of the banks and ensuring the accuracy of transactions and submitted reports.

    1. Special and Follow-up Supervisions Section:

The Special and Follow-Up Supervision Section is responsible for conducting targeted follow-up supervisions and verifying the accuracy of reports submitted for the implementation of enforcement measures. Additionally, the section carries out special supervisions as required.

    1. Field Supervision Coordination Section:

The primary responsibility of the section is to conduct unannounced supervision of cash funds and to observe and review the activities of debtors and bank branches across the provinces. On behalf of the DAB/BSFSDG, the section’s staff are also responsible for reviewing and evaluating special supervision issues in the provinces.

    1. AML/CFT Section

The responsibilities of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) Section include establishing monitoring activities related to anti-money laundering and counter-terrorism financing, conducting follow-up supervision within the AML/CFT section, and performing specialized supervision of international money transfers.

The primary objective of these monitoring activities is to ensure full compliance with banking laws, the Anti-Money Laundering and Proceeds of Crime Act, the Counter-Terrorism Financing Law, regulations on responsibilities and preventive measures against money laundering and terrorism financing, as well as other guidelines and instructions related to AML/CFT.

    1. Regulatory Deputy Directorate

The Regulatory Deputy Directorate is responsible for implementing plans, executing tasks, and enforcing the approvals of the Supreme Council as well as the decisions of the DAB Executive Board. Besides, the directorate is tasked with academically and technically evaluating and supervising the activities and operations of the sections under its jurisdiction.

The Deputy Directorate comprises four sections:

  • Licensing Section
  • Regulation Section
  • Enforcement Measures Section
  • Sharia Board
  • Sukuk and Takaful Section

The duties and responsibilities of each section are presented below.

  1. Licensing Section:

Issuing banking activity licenses to eligible applicants is one of the primary responsibilities of DAB, carried out by the Licensing Section of the directorate. Before granting a business license, the section collects and evaluates a range of necessary information and documents, including:

  • Reviewing documents and evaluating shareholders
  • Assessing the business plan, policies, and procedures of the bank
  • Processing requests for interviews and approving senior board members, including the Supervisory Board, Executive Board, and Audit Committee

The section also handles the collection of necessary documents for the issuance of branch licenses, the establishment of bank counters, and the issuance of licenses for installing ATMs and POS machines. Additionally, the section oversees the application process of external audit firms seeking permission to conduct supervision of banks.

  1. Regulations Section:

The primary responsibility of the section is to draft and develop banking regulations and procedures to ensure effective supervision of banks. Additionally, the section is tasked with amending banking regulations and related procedures based on prevailing conditions, as well as issuing circulars to regulate and guide banking activities.

  1. Enforcement Measures Section:

The main responsibilities of this section are to implement targeted strategies for improving weak banks, enforce regulatory measures, and review banks’ corrective plans in accordance with these measures. The section is tasked with applying stricter disciplinary actions as prescribed by law if banks fail to fully comply with the established requirements. In addition, the section prepares reports for internal and external stakeholders in coordination with relevant offices and monitors the status of weak banks.

  1. Sharia Board

The Sharia Board was established to coordinate among the Sharia Supervisory Board, Islamic Banks / Islamic Banking Windows, and the directorates of DAB within the framework of the Banking Supervision and Financial Services Directorate General.

The board is involved in the development of Islamic banking policies, products, and guidelines before they are presented to the Sharia Supervisory Board and is responsible for organizing the board’s meetings. It ensures coordination among all relevant entities, including the Sharia Supervisory Board and the DAB directorates.

Its tasks include preparing the agenda for the board meetings, collecting and reviewing Sharia compliance documents from DAB, policies and procedures of commercial banks, and all matters requiring Sharia approval. The board provides guidance in drafting policies related to Sharia matters and Islamic banking products, collects policies and products from Islamic Banks / Islamic Banking Windows according to established standards, and reviews them for compliance with circulars, sharing any discrepancies with the respective banks.

Overall, the Sharia Board facilitates the approval process of products, policies, and procedures by the Sharia Supervisory Board of DAB and subsequently for commercial banks.

  1. Sukuk and Takaful Section

The Sukuk and Takaful Section has been established to coordinate with the Ministry of Finance and the directorates of Da Afghanistan Bank regarding the issuance of Sukuk. Its main responsibilities include:

  • Facilitating the investment of idle funds in the country through the issuance of Sukuk to enhance financial stability and improve the national financial system.
  • Establishing appropriate financial and Sharia-compliant structures.
  • Preparing and arranging regulatory procedures as needed for Sukuk issuance.

In addition, the section collaborates with relevant national and international institutions, particularly with the Ministry of Finance, throughout the Sukuk issuance process to ensure the process is conducted effectively and successfully.

The directorates directly reporting to the Banking Supervision and Financial Services Directorate General are as follows:

    1. Quality Assurance Section:

The Quality Assurance Section, alongside the Banking Supervision and Financial Services Directorate General, is not only responsible for ensuring the quality of assigned tasks for the Director General of Banking Supervision and Financial Services but also reports directly to the Director.

The section is tasked with evaluating supervisory reports from a quality perspective and ensuring the overall standard and accuracy of these reports. Moreover, it oversees the process of reviewing supervisory reports, forwarding them to the banks (after approval), and maintaining the original copies as assets and property of the Directorate.

Furthermore, the Quality Assurance Section is responsible for consolidation, preparing, and organizing the Directorate’s annual plans derived from the banks, as well as, in certain cases, supervising the implementation of the banks’ supervision plans under the guidance of the Directorate.

    1. Financial Stability Section:

The primary duty of this section is to analyze the country’s banking sector, prepare financial stability reports, and submit them to the National Financial Stability (NFS) Committee, which is chaired by the Ministry of Finance, with its secretariat held by DAB. The Financial Stability Section also coordinates regular and emergency NFS Committee meetings quarterly between DAB and the Ministry of Finance.

The section is responsible for collecting financial information from all relevant departments of DAB, the Ministry of Finance, and other pertinent entities to prepare the country’s financial stability reports. Additionally, the section prepares annual and semiannual reports on financial stability, conducts quarterly stress testing, performs scenario analyses under different conditions, and examines issues related to the financial stability of the banking sector.

    1. Bank Deposit Protection Section

The Bank Deposit Protection Section operates under the Banking Supervision and Financial Services Directorate General as a senior section, with the primary purpose of protecting public deposits, especially those of vulnerable segments of society, in commercial banks licensed by Da Afghanistan Bank. The section ensures banking stability and fosters public confidence and trust in the country’s banking system.

All commercial banks licensed to operate by the Da Afghanistan Bank are members of the senior section of the Bank Deposit Protection Section. Each of these banks contributes a specified amount of funds annually, paid monthly as a premium to the accounts of the section.

    1. Secretariat and Executive Section

The Executive and Secretariat Section, operating under the Banking Supervision and Financial Services Directorate General, is responsible for registering, dispatching, and receiving official correspondence and letters.