Afghan central bank says Kabul Bank is sound after officials leave amid corruption allegations

Afghan central bank insists Kabul Bank is sound

KABUL, Afghanistan — Afghanistan’s central bank tried to shore up confidence in the country’s biggest financial institution Wednesday after its top executives resigned amid allegations of mismanagement and corruption.

“The bank is solvent,” Abdul Qadir Fitrat, governor of the central bank, told reporters at a hastily called news conference to rebut news reports that the bank is deeply in the red. “The bank has enough liquid assets to meet its liquidity demands.”

Fitrat said the top two executives of Kabul Bank had resigned as part of reforms being implemented by the central bank to improve professionalism at some of Afghanistan’s 10 private banks. Fitrat was trying to prevent depositors from rushing to pull their money out of the institution, but some customers showed up to make withdrawals.

“I give you this confidence that you can keep your account in Kabul Bank,” said Fitrat, who appeared with officials from the central bank and the two former top executives of Kabul Bank.

Mohammed Azimi, a businessman in Mazar-i-Sharif, said he went anyway to a branch of the Kabul Bank to withdraw $50,000 or $60,000, but the bank would only let him withdraw $5,000.

“They wouldn’t give me the money,” Azimi said. “They said they would give me the money tomorrow.”

He said some of the 50 people at the bank had not heard of the bank’s troubles.

“After noon, rumors had spread, but the bank had closed for the day,” Azimi said.

The New York Times and The Wall Street Journal reported Wednesday that Kabul Bank’s losses could exceed $300 million — and that that figure is more than the bank’s assets. The Washington Post reported that the extent of its bad loans, many to the families and friends of powerful politicians, remains unclear.

The U.S. welcomed the central bank’s decision to “confront the mismanagement of Kabul Bank,” U.S. State Department spokesman P.J. Crowley said Tuesday.

“The individuals suspected of illegitimate activities have been replaced and the Afghan government is taking the necessary steps to strengthen the bank and protect its depositors,” he said. “The situation presents a unique opportunity for the Afghan government to take a strong stand against corruption. We fully expect President (Hamid) Karzai to back the central bank’s efforts and any law enforcement actions that follow to hold those responsible for illicit activity accountable.”

Sherkhan Farnood, former chairman of Kabul Bank, and Khalilullah Ferozi, former chief executive officer, voluntarily resigned because, under new reforms, only banking professionals can hold the top operating positions at banks, Fitrat said. He said the bank is being run by Masood Ghazi, a former official at the central bank. Fitrat said top executives at other banks will be resigning, too, to conform with the reforms.

Kabul Bank, which opened in 2004, has 68 branch offices in all 34 provinces in Afghanistan. It handles the pay for Afghan teachers, soldiers and police.

Farnood, a world class poker player, and Ferozi each own 28 percent of the bank’s shares. The president’s brother, Mahmood Karzai, is the third largest shareholder, holding a 7 percent share of the bank.

Two months ago, the central bank told Afghan banks that it was going to start requiring banking professionals to hold top management positions.

“Kabul Bank initiated this change for itself,” Fitrat said. “The central bank has not taken over Kabul Bank, and it was purely a Kabul Bank decision, which was approved by the central bank. Of course, we welcome this decision. This is a positive move.”

Fitrat would not confirm whether the central bank was probing the bank’s lending practices.

“We will always investigate any irregularities in any bank whenever we receive reports,” he said.

News reports said Gen. David Petraeus, commander of U.S. and NATO forces in Afghanistan, attended a meeting about a month ago in which the governor of the central bank gave President Hamid Karzai evidence of illicit activities at Kabul Bank. Fitrat said he couldn’t discuss the activities of Karzai or Petraeus.

Maj. Joel Harper, a spokesman for the military coalition in Kabul, issued a statement, saying, “This is an action we believe is being addressed competently by the governor of the central bank and the president of Afghanistan.”

Associated Press Writer Amir Shah in Kabul contributed to this report.