Top Afghan banker: Kabul Bank's fate undecided

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Posted: Mar 27, 2011 10:10 AM
Top Afghan banker: Kabul Bank's fate undecided

International bankers have pushed Afghan officials to sell Kabul Bank, but the nation's top banker said Sunday that no decision has been made about whether to dissolve the nation's largest financial institution, which nearly collapsed last year from mismanagement and questionable lending.

Central Bank Governor Abdul Qadir Fitrat told The Associated Press in a telephone interview Sunday, "We have not decided anything with regard to Kabul Bank yet. Kabul Bank is still under control of the central bank and under conservatorship."

Last month the International Monetary Fund recommended that Kabul Bank be placed into receivership and then quickly sold off as part of a broader effort to stabilize the country's shaky financial system. U.S. Treasury Department officials agreed with the recommendation.

Top officials at the central bank met March 16 and 17 to make decisions about the Kabul Bank, but Fitrat and another participant would not say what they were.

The bank, which plays a key role in the Afghan economy by handling payrolls for government workers and security forces, has close ties to Afghanistan's ruling elite.

Sherkhan Farnood, the former bank chairman and a world class poker player who raised money for President Hamid Karzai's re-election campaign, owns 28 percent of the bank's shares.

A brother of one of Afghanistan's two vice presidents is also a shareholder, and Karzai's eldest brother, Mahmood Karzai, owns 7 percent.

Government banking officials have serious problems with the way the bank's management conducted business over the years, Mahmood Karzai said in a telephone interview. The shareholders had not been part of the bank's day-to-day management but should now be kept informed of decisions being made about its fate.

Mahmood Karzai hoped the government was getting expert advice from international banking authorities.

"Nobody has ever been involved with a thing like this in Afghanistan ... I am in favor of forensic auditing to get to the root of the problems, to find missing money, trace the accounts where the money went. ... What to do with the bank? I'm not an expert on that and I couldn't tell you." he said.

The international community has been pressing Afghan government officials to resolve the bank issue.

The USAID inspector general said in a report this month that it is estimated that "fraudulent loans were used to divert $850 million to insiders. This amount reportedly represented 94 percent of the bank's outstanding loans."

On March 16, U.N. Secretary-General Ban Ki-moon said Afghans must overcome "major obstacles" to demonstrate their ability to control the country's future, including the impasse over what to do with the bank.

The United Nations chief said in his quarterly report to the U.N. Security Council that the impasse was weakening confidence in Afghanistan's financial system and preventing the International Monetary Fund from completing a new program for the country.

Without an IMF program, Ban said, it will be difficult for international partners to meet commitments they have made to help Afghanistan and direct funds through the government's budget. Britain's Department for International Development already has said that it would delay nearly $138 million in aid to Afghanistan this year because of the lack of IMF support.

"The establishment of a new (IMF) program remains dependent on agreement between the government and IMF on how to deal with Kabul Bank, which has been declared bankrupt," Ban said in his report. He said IMF officials visited Kabul in February to continue negotiations with the government.

Though there is agreement the bank should be sold, he said, "there is no agreement on how the sale should be financed."

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Associated Press writer Rahim Faiez contributed to this report.