Date of Submission

Fall 2023

Academic Program

Economics

Project Advisor 1

Dimitri Papadimitriou

Abstract/Artist's Statement

Over the past two decades, the global financial sector, particularly the banking industry, has undergone significant transformations impacting its performance. Recognizing the pivotal role of the financial sector in economic growth, this study focuses on Afghanistan's banking sector, tracing its roots to the establishment of the first commercial banking institution, Bank Millie Afghan, in 1933. Following decades of war, the banking sector experienced revitalization after 2001, marked by the emergence of a new government, international aid inflow, and increased business activities. Despite remarkable growth, Afghanistan's banking sector faces challenges such as security concerns, cultural issues, and a developing banking culture. The sector comprises 15 banks, with growth attributed to market economy reforms. However, the sector's vitality poses opportunities and challenges, necessitating attention to technology, experience, and regulatory frameworks. The 2010 Kabul Bank crisis underscored weaknesses in banking regulation and international standards enforcement. This study addresses the problems and gaps in the literature concerning Afghanistan's banking sector, focusing on factors influencing bank profitability. The research questions explore determinants of profitability, the Central Bank's role, and factors affecting bank performance. The study aims to investigate these factors for 11 Commercial Banks from 2015 to 2019, examining internal and external elements and their impact on profitability ratios. The significance of the study lies in its contribution to identifying determinants of profitability, benefiting bank managers, regulators, depositors, investors, and policymakers. Findings may guide policies to stabilize, profit, and make the banking system investor-friendly. Additionally, the study is a reference for future research on the relationship between risks and bank profitability in Afghanistan, offering insights into research procedures and unexplored areas. The banking sector in Afghanistan, with both Islamic and commercial banks, provides a choice between risk and security, catering to diverse preferences for stability and potential profits.

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Open Access

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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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