Jerome Starkey
The Times 6th September, 2010
A razor-wire barricade ringed the head office of the embattled Kabul Bank yesterday and a pick-up truck mounted with a heavy machinegun was parked outside amid fears that Afghanistan’s key financial institution was in danger of collapse.
Customers queued on the street to withdraw their money as a run on the country’s largest bank continued for a fourth day and it emerged that it had asked Da Afghanistan Bank — the country’s central bank — for a $200 million (£130 million) bailout to keep it solvent. Sources told The Times that Kabul Bank’s new management filed the request on Saturday, although it was unclear last night if it had been approved.
Outside the troubled institution’s head office, customers waited for hours to get inside, only to be turned away empty handed. Sealed boxes containing documents were carried out by a courier. Afghan officials have blocked US efforts to examine the bank’s loan book and a source familiar with a government investigation said that the outlook was bleak. “The problems are more severe than people believed when [President Karzai] directed the intervention,” he said. “It’s a problem that’s not going away.”
Mr Karzai ordered the central bank to intervene last week, under pressure from General David Petraeus, the commander of US and Nato forces in Afghanistan.
Mr Karzai’s brother, Mahmood, owns a 7 per cent share of Kabul Bank, which he bought with a loan from Kabul Bank. The Vice-President’s brother, Haseen Fahim, is also a major shareholder. The owners have been accused of lending millions of dollars to themselves to fuel lavish lifestyles in Dubai.
It is not clear why staff were removing documents yesterday; a courier told The Times that the papers were till receipts on a routine move to another branch.
Investigators who have been refused access to accounts fear they may never know the full extent of any alleged fraud. Afghanistan’s leading opposition politician, Abdullah Abdullah, said the central bank knew that Kabul Bank had been flouting the law for more than a year but he said the governor was too weak to face down the well-connected shareholders. “There’s no doubt that the family ties of powerful people were part of the problem,” he said.
Officials fear that frustration among customers and others could boil over into violence if the run on deposits is not stopped. More than $300 million of the bank’s $500 million in liquid assets is believed to have been withdrawn.
Mr Karzai promised that the bank would not be allowed to fail, but his efforts to reassure investors appear to have had little effect. “I’ve come two days in a row,” said Mohammed Reshad Zaki, 24. “First the bank said come back tomorrow, then the police wouldn’t let us inside. I’m nervous I’ll lose everything. If I get my money out I’ll never put it back again.”
Help is unlikely to come from Afghanistan’s biggest donor. given Washington’s insistance that it will not throw US tax dollars into a bailout. “This is an Afghan issue,” Neal Wolin, the Deputy US Treasury Secretary, said on Saturday.
Since opening its doors in 2004, the bank has accepted $1.2 billion in deposits from two million depositors. Most of the country’s soldiers, policemen and teachers get their salaries paid directly into accounts at Kabul Bank, which has roughly 50 per cent of the Afghan market.
Dr Abdullah told reporters yesterday that the bank had won the contracts to pay government staff after funding President Karzai’s re-election campaign last year.
Sherkhan Farnood, the bank’s chairman, and Khalilullah Fruzi, the chief executive, were ordered to resign last week. Officials said that shareholders had lent themselves and their friends hundreds of millions of dollars for doomed business ventures, vanity projects and a lavish property portfolio in Dubai. Other debtors took loans with no intention of paying them back, two senior officials said. “They were just looting the bank.”
A source told The Times that the bank’s possible collapse was as much a political crisis as a financial one, because Mr Karzai’s clique “had been caught once again with its hand in the till”.
The President has accused foreign media of “negative and provocative” reporting, telling aides that it was another attempt to embarrass him.
Asked if the West should bail out Kabul Bank, Dr Abdullah said: “They are already bailing out a failing Government … the interests of the people have to be protected and the trust of the people has to be restored.”The country’s Finance Minister, Omar Zakhilwal, is expected to present a Cabinet meeting today with the latest details of the crisis.
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