Afghanistan's biggest bank in near disastrous collapse

1 Sep 2010, 1:06 pm   -   Source: AFP
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Hamid Karzai has reportedly blessed the installation of interim managers. (AAP)

Hamid Karzai has reportedly blessed the installation of interim managers. (AAP)

Managers who presided over the potentially disastrous collapse of Afghanistan's biggest bank have been deposed by President Karzai, after huge losses which could affect the US's war-effort there, reports said.

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Authorities have reportedly intervened to try to avert the potentially disastrous collapse of Afghanistan's biggest bank after uncovering a web of shady transactions involving well-connected insiders.
  
The suspect dealings at Kabul Bank, whose shareholders include a brother of President Hamid Karzai, have sparked huge losses that could bring down the lender and undermine the US-led war against the Taliban, US press reports said.
  
The central bank threw out Kabul Bank's two top executives and installed its own temporary managers in a move that was blessed by Karzai himself, the Wall Street Journal, Washington Post and New York Times reported Tuesday.
  
The central bank on Monday ordered Kabul Bank chairman Sherkhan Farnood to hand over 160 million dollars' worth of property including luxury villas bought in Dubai for his personal use and for associates, the reports said.
  
After the implosion of the Gulf emirate's property bubble, Kabul Bank is now saddled with estimated losses exceeding US 300 million dollars, and its assets stand at only about 120 million, the New York Times said.
  
"This could be catastrophic for the country," a senior Afghan banking official told the Times. "The next few days are critical. I am worried."
  
Kabul Bank has more than one billion dollars in deposits, and handles the pay of hundreds of thousands of Afghan soldiers, police and teachers, the Wall Street Journal said.
  
Any run on the bank or interruption to the flow of pay cheques could seriously harm the US-led war effort, the newspaper noted, at a time when President Barack Obama is pouring thousands more troops into the anti-Taliban struggle.
  
Farnood is also suspected of syphoning off Kabul Bank funds to shore up a struggling private airline that he owns, the Journal said.

Political connections shielding bank: Reports
  
The bank had previously been shielded by the political clout of its shareholders, who include Mahmood Karzai, the president's brother, and Haseen Fahim, the brother of Vice President Mohammed Qasim Fahim, the reports said.
  
The bank gave millions to President Karzai's fraud-tainted re-election campaign last year, they said.
  
But after being briefed on the extent of the bank's perilous finances, Karzai intervened at the urging of the central bank and of General David Petraeus, the US commander in Afghanistan, the Washington Post said.
  
"Some Afghan businessmen said they considered Karzai's decision to confront Kabul Bank as his first significant move in the fight against corruption in Afghanistan," it said.
  
Karzai's brother, who has a minority stake in Kabul Bank, distanced himself from the bank's former chairman and its ousted chief executive Khalilullah Frozi.
  
The central bank's action was "good for the bank and good for business in Afghanistan", Mahmood Karzai told the Wall Street Journal.
  
"The concern was that the shareholders' input was not part of the operation of the bank; there were no shareholders' meetings; decisions were made by the two men at the top," he said in a telephone interview from Dubai.
  
US officials have stepped up warnings about the corrosive effect of rampant corruption in Afghanistan.
  
Congressional approval of nearly four billion dollars in US aid to Afghanistan is being blocked amid fears that US money is being stolen by crooked officials.
  
Kabul Bank also figures in a major fraud inquiry targeting New Ansari Exchange, the biggest of Afghanistan's "hawala" money-transfer firms which play an even bigger role in the war-torn nation's economy than commercial banks.
  
The Journal said the bank had secretly transferred almost one billion dollars out of Afghanistan via New Ansari - which is accused of handling billions of ill-gotten gains for corrupt officials, drug lords and the Taliban.
  

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