| | Karzai's brother calls for U.S. to shore up Kabul Bank as withdrawals accelerate The Washington Post
09/02/2010
By Andrew Higgins and Ernesto Londoño
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DUBAI - As depositors thronged branches of Afghanistan's biggest bank, Mahmoud Karzai, the brother of the Afghan president and a major shareholder in beleaguered Kabul Bank called on Thursday for intervention by the United States to head off a financial meltdown.
"America should do something," said Karzai in a telephone interview, suggesting that the U.S. Treasury Department guarantee the funds of Kabul Bank's clients, who number about a million and have more than a billion dollars on deposits with the bank.
Kabul Bank handles salary payments for soldiers, police and teachers. It has scores of branches across Afghanistan and holds the accounts of key Afghan government agencies. The collapse of the bank would likely spread panic throughout the country's fledgling financial sector and wipe out nine years of effort by the United States to establish a sound Afghan banking system, seen as essential to the establishment of a functioning economy.
Action by the United States, said Mahmoud Karzai, would prevent a run on Kabul Bank and protect other banks, too. He said Kabul Bank is "stable and has money" but cannot withstand a stampede by panicked depositors.
"If the Treasury Department will guarantee that everyone will get their money, maybe that will work," said Karzai, who holds 7 percent of the bank's shares, making him the third-biggest shareholder. Karzai, who spends most of his time in Dubai - where he lives in a waterfront villa paid for by Kabul Bank - rushed to Kabul on Wednesday to join efforts to salvage the bank.
Treasury officials have said they have confidence in Afghanistan's Central Bank, which ousted Kabul Bank's top officials earlier this week and has sought to stabilize the bank's finances.
But those moves may have spurred a panic: Depositors, said people familiar with the situation, yanked at least $90 million from Kabul Bank on Wednesday and the hemorrhaging of funds accelerated Thursday.
"Yesterday was not too bad, but today is worse," said a Kabul Bank insider. "It is a very bad situation."
At a press conference in Kabul on Thursday, Finance Minister Omar Zakhilwal played down concerns about the bank's future, blaming foreign media for stirring alarm. "Kabul Bank will never collapse," Zakhilwal said. "It will remain strong. The government will support Kabul Bank."
The finance minister acknowledged that fearful customers have flocked to Kabul Bank branches over the past two days to try to withdraw their savings. Withdrawals, he said, were "more than usual" but "it's not a crisis."
The Afghan government, he added, will "give back every last penny. People should not bother getting in line to withdraw their money." Banks had shorter than usual hours Thursday because of Ramadan, the Islamic holy month, and Friday is a holiday, which will give authorities some respite and could help calm public alarm.
The finance ministry issued a statement Thursday assuring all government employees they would be able to cash their paychecks at Kabul Bank. The Afghan Banks Association issued its own statement of support for Kabul Bank.
Earlier Thursday, throngs of customers swarmed tellers at Kabul Bank's main branch in central Kabul. Shafiq Javed, 38, said he decided to withdraw $900 of the $2,000 he had in savings. "We used to trust them," he said, referring to bank managers. "Since this revelation, everybody is concerned."
At a nearby branch where many government workers cash their paychecks, tellers were giving out no more than $1,000 to each customer. Zaburzay, 40, a surgeon who works at a government hospital, said he gave up on trying to withdraw his money because the branch was too crowded and tellers were only giving out $20 notes.
"All these people are thieves and we don't trust them," he said. "Whether or not it collapses, I want to take my money out."
The U.S. Treasury Department has assigned a small team of experts to work with the Afghan Central Bank on the Kabul Bank mess, but it has so far given no hint of any readiness to step in more robustly. In an interview Wednesday, Treasury's Assistant Secretary for Terrorist Financing, David Cohen, said the United States has "confidence" in the Afghan Central Bank's ability to handle the situation and praised it for acting "aggressively, decisively."
The fierce storm now hammering Afghan banking broke late Tuesday following news - first reported on the Web site of The Washington Post - that Afghanistan's Central Bank had removed Kabul Bank's two top executives - who are also its biggest shareholders - and installed one of its own senior officials as chief executive.
The Central Bank has since presented its intervention as a routine affair aimed at bringing Kabul Bank into line with new regulations that bar shareholders from management.
But bank insiders give a more dramatic account of events. The Central Bank's move on Kabul Bank followed weeks of volatile feuding between Sherkhan Farnood, the bank's now ousted chairman, and Khalilullah Fruzi, its purged chief executive, as well as mounting concern over large and likely illegal loans to the bank's own shareholders and other well-connected insiders.
Finance Minister Zakhilwal said Thursday that Kabul Bank's lending was not excessive or particularly risky and amounted to a total of roughly $300 million. But it was not clear whether this figure included roughly $160 million that former Kabul Bank chairman Farnood sunk into real estate in Dubai, where prices have slumped, or other off-the-book transactions.
U.S. officials are hoping that because only 5 percent or fewer Afghans hold bank accounts and most of the economy revolves around cash, the fallout from the Kabul Bank crisis can be contained. Afghan businessmen and others, however, said that should Kabul Bank fall, the consequences would be catastrophic for both the economy and security of Afghanistan.
Before the crisis began, Kabul Bank had taken in about $1.3 billion in deposits and boasted liquid assets of $500 million, a substantial cushion that, in ordinary circumstances, would allow it to meet depositors' demands for cash. But the rush to withdraw money over the past two days has forced the bank to impose limits on withdrawals at some branches and strained the Central Bank's ability to release the cash it holds for Kabul Bank.
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