Afghan bankers see growth despite insecurity

KABUL (Reuters) - As the Western financial system buckled under the strain of the economic crisis in 2008, Afghan banker Noorkhan Haidari was wrapped-up in Afghanistan's own rescue deal for a bank on the verge of collapse.

With angry customers forming lines outside branches and the specter of bankruptcy looming, the Development Bank of Afghanistan (DBA), a private bank, needed a rescue package and 34-year-old Haidari, who worked at Afghanistan's Central Bank at the time, helped restructure it.

Now he heads Afghanistan's second-largest private bank, Azizi Bank, and hopes that in 2010 the bank will turn a profit for the first time in its four-year history.

Afghanistan's economy is largely dependent on aid and there is little domestic industry. The commercial banking sector, which grew after the Taliban fell in 2001, is still in its infancy and a lack of regulation has meant many private banks have failed.

Azizi bank has about 250,000 customers, most are ordinary Afghans or foreign and Afghan companies. Altogether the bank manages $370 million. The sum is peanuts for big global banks, but for war-ravaged Afghanistan, it is a crucial source of funding which lubricates private enterprise in a country desperate for jobs.

While Haidari hopes the bank will make a modest profit of $3.5 million to $4 million this year, his optimism is tamed by the fact that last year loan sales were the slowest ever.

"We get very few businesses asking for loans, compared to two years ago. We can't sanction loans for them because they are not qualified," Haidari told Reuters.

"The major obstacle to the economy of Afghanistan is security. We have very limited business in the country. The rate of growth is slowing and it definitely affects the financial sector," he said, adding that low literacy levels and a lack of understanding of basic finance prevents people from qualifying.

Azizi Bank recently opened a mansion-like, multi-storey white marble headquarters in Kabul about one km from where the Taliban attacked a shopping center in January. Extra armed guards and a new concrete wall have been added in the past month.

Among Azizi Bank's most popular products is the "Qismat" account, which complies with Islamic banking laws by not paying interest and instead rewards customers with generous lottery prizes such as cars, property or cash.

Haidari plans to introduce credit cards and wants Azizi bank to be the first Afghan bank to issue its own credit cards from Kabul in the next two to three months. He also plans to start selling mortgages and to open 15 new branches across the country.

CONFLICT PROS AND CONS

While insecurity because of the conflict in Afghanistan is the still the biggest barrier to healthy profits for private banks, it does also bring opportunity, in the form of foreign companies and organizations running aid programs and contracts.

Seventeen banks now operate in Afghanistan, but the only major global bank with a permanent office there is Standard Chartered Bank (SCB). It primarily caters for foreign companies and international aid organizations.

For Standard Chartered, being in Afghanistan, with all the high level security and financial risk it entails, is an opportunity to develop the country's banking system and meet the demands of a growing number of foreign organizations.

"We play a key role in the re-development of the nation. Our strong relationship with leading international aid agencies and multi-lateral funding agencies globally enables us to play a more meaningful role in Afghanistan," Ammar Husain, head of Standard Chartered's office in Kabul said.

So far SCB makes a modest a profit in Afghanistan, although Husain would not say how much or give forecasts for next year. It has a pool of about 16,000 customers, including Afghan nationals via payroll accounts for foreign companies and organizations.

Despite insecurity, Husain is upbeat about the growth of domestic banks such as Azizi Bank.

"We have seen a strong move toward achieving capital adequacy, liquidity and prudential norms of management, quite comparable with international standards."

Azizi bank's Haidari laments that foreigners are still reluctant to entrust large sums to Afghan banks.

"It is a pity Western organizations which send huge sums to their agents in Afghanistan do not use Afghan banks to deposit the money ... it could create so many jobs," Haidari said, referring to Western government aid providers.

"There is no risk involved in putting your money in an American or global bank -- but there is also little reward," he said, adding that large lump deposits would enable his bank to provide bigger loans to qualified Afghan businessmen, who will in turn create jobs for Afghans.

(Reporting by Golnar Motevalli; Editing by Megan Goldin)