| | Ex-bank executives say their dismissals caused panic withdrawals in Kabul The Washington Post
09/04/2010
By Ernesto Londono and Andrew Higgins
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KABUL - The two ousted executives of Afghanistan's largest bank have blamed a hasty management purge for a run on the embattled institution this week.
President Hamid Karzai ordered the dismissal of the managers at Kabul Bank this week after concerns about questionable loans that shareholders had approved for themselves, including some to fund the purchase of high-end real estate in Dubai, in the United Arab Emirates.
Fearing a collapse, thousands of customers withdrew a total of $200 million Wednesday and Thursday, raising the possibility that the bank used to pay government workers could run out of cash as soon as next week.
Khalilullah Fruzi, the bank's former chief executive officer, said he warned Afghan officials that dismissing the top executives could create uncertainty among customers.
"I was saying, 'You have to be very cautious and careful about these changes,' " he said in an interview Friday. "This didn't take place, and when I resigned, people started panicking."
Late Friday, Karzai called Fruzi, ousted chairman Sherkhan Farnood, the governor of the Central Bank and other officials to a meeting at the presidential palace to discuss the crisis, said a person familiar with the matter.
Kabul Bank, which was closed Friday for the Islamic weekend, was to reopen Saturday. A renewed stampede by depositors would jeopardize its future.
The bank has about $300 million left in cash, Fruzi said. Afghan and U.S. officials worry that a collapse could undermine Afghans' confidence in a government the United States has spent billions shoring up.
"I don't see a good future for the bank," Fruzi said. "I hope our government can save us."
Farnood, in an interview late Thursday, also said the dismissals had left customers nervous.
"The big mistake was that they put pressure on me to resign," said Farnood, who set up the bank in 2004. "The people all believed in me."
Fruzi acknowledged that the bank's loan system wasn't perfect, but he argued that was to be expected "in a country like Afghanistan," where personal relationships carry more weight than "being a professional in the field."
Farnood and Fruzi, who are also among the banks' top shareholders, helped themselves to loans for real estate ventures - which both men defended as solid investments.
Farnood used about $160 million from the bank's coffers to buy 16 seafront properties and two towers under construction in Dubai, where the real estate market has fluctuated wildly in recent years.
Fruzi said he took $5 million earlier this year to build a large low-income housing complex on the outskirts of Kabul.
The loans came to the government's attention in recent weeks after Farnood opened the bank's books to U.S. Embassy officials in Kabul, Fruzi said. He added that he and Farnood disagreed about whether the bank should be steering its investment capital to Dubai, as the chairman favored, or keeping a greater share in Afghanistan.
Fruzi, Farnood and fellow bank shareholder Mahmoud Karzai, a brother of the Afghan president, have been occupying three of the Dubai villas rent-free. Other residents at the Palm Jumeirah villas are politically connected Afghans. The properties are registered to Farnood and his wife - not the bank.
Afghan government officials said this week that the bank remains solvent and encouraged customers to keep their money there. They played down the management shake-up, saying it was routine to comply with new rules barring bank shareholders from executive roles at banks. They also accused foreign reporters of sensationalizing the case.
Fruzi, who said he has no regrets over the way the bank was managed, said he worries that the episode could trigger violence.
"The money that has been withdrawn hasn't gone to other banks," he said. "They just take it home. That will create more instability, more killings, more robberies."
Fruzi said he fears for his life. On Friday morning, he said, an angry customer showed up at his residence in Kabul demanding his money back.
"They are threatening me to death," he said. "I'm really worried about it."
londonoe@washpost.com higginsandrew@washpost.com
Higgins reported from Dubai.
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