Kabul Bank at risk of going under, todayonline, 05:55 AM Sep 06, 2010

http://www.todayonline.com/World/EDC100906-0000073/Kabul-Bank-at-risk-of-going-under


KABUL - Queues formed at branches of Afghanistan's biggest bank yesterday as customers clamoured to withdraw their savings.

The privately-owned Kabul Bank is mired in a corruption scandal that implicates the country's wealthiest and most powerful people.

The New York Times and The Wall Street Journal reported on Wednesday that the bank's losses could exceed US $300 million ($403 million) or more than its assets.

To prevent panic, President Hamid Karzai said every penny of the bank's deposits would be guaranteed by the government.

The Washington Post said the bank's third-biggest shareholder, Mr Mahmoud Karzai - the elder brother of the President - called for a United States bailout of the stricken bank.

The US Treasury Department on Saturday denied that the US would bail out the bank.

Its chairman and chief executive - the two largest shareholders - have resigned.

Problems at the bank could also have wide-ranging political repercussions since it handles the pay for Afghan public servants, soldiers and police. Its collapse would create havoc, as well as hit the Afghan economy.

Western officials with intimate knowledge of the financial drama said the US Treasury department wants to see the appointment of a fully independent board capable of standing up to over-mighty shareholders.

Such independence would risk bringing to light further details of how members of the country's business and political elite have for years got away with using the deposits of thousands of ordinary Afghans to fund lavish lifestyles.

The Washington Post said Afghanistan's central bank had ordered Kabul Bank chairman Sher Khan Farnud, who has resigned, to hand over US$160 million worth of luxury property purchased in Dubai for himself and for cronies.

Yesterday, Mr Abdullah Abdullah, who was Mr Karzai's main rival in last year's presidential elections, questioned the government's conduct in dealing with the banking crisis, saying it had a responsibility to help ordinary Afghans and not just the President's family.

"If there was misconduct, as it seems there was by the bank itself, what was the regulatory role, the supervisory role of the government of Afghanistan and the central bank? Why wasn't it dealt with earlier?" AGENCIES