Q+A-What went wrong at Kabulbank?

(For more on Afghanistan, click [ID:nAFPAK])

By Tim Gaynor

KABUL, Sept 8 (Reuters) - Afghanistan's leading private bank is in turmoil after its top two directors stepped down last week amid unproven media allegations of corruption and property deals gone wrong, triggering a run of withdrawals.

Here are some questions and answers about the bank, its troubles and what it means for President Hamid Karzai and his Western backers. (For the main story, click on: [ID:nSGE68708W]

WHAT IS KABULBANK?

Kabulbank began operations in 2004, almost three years after U.S.-backed Afghan forces ousted the Taliban, and is Afghanistan's largest private bank in terms of business volume, number of branches, customer base and employees.

Financial records posted on its website (www.kabulbank.com) show it had total assets of $1.01 billion and liabilities of $991 million in 2009. It has 68 branches, most of them in the capital, and plans to open 11 more elsewhere.

It also has links with international banks in Germany, China, Tajikistan, Saudi Arabia, India, Belgium, Italy and Iran, and is the principal agent for Western Union Money Transfer, handling remittances from Afghans living abroad.

The bank handles payrolls for the state, and its customers include about 250,000 soldiers, police officers and other state employees, whose salaries are funded by the United States and other Western donors. It also lends money to the private sector.

Kabulbank has close ties to Afghanistan's government and ruling elite. One of Karzai's brothers is a major shareholder, as is a brother of First Vice President Mohammad Qasim Fahim.

HOW DID THE CRISIS UNFOLD?

Problems flared last week when the bank's chairman, Sher Khan Farnood, and chief executive officer Khalilullah Fruzi, resigned from the bank.

U.S. media reported that the central bank had taken control of Kabulbank, forced the two men out and ordered Farnood to hand over $160 million worth of luxury villas in Dubai that may have been bought with Kabulbank funds.

The central bank, Karzai and Finance Minister Omar Zakhilwal all said the pair had resigned to comply with new financial regulations preventing shareholders from holding senior bank management positions. Those regulations were outlined in a June statement by the central bank (www.centralbank.gov.af).

The central bank on Monday ordered Farnood and Fruzi's assets frozen, as well as those of several other leading shareholders and borrowers.

The crisis triggered jitters among customers, who staged a run on the bank despite assurances from the central bank and government their money was safe.

On Wednesday, National Security Directorate officers beat people with batons outside one Kabul branch.

HOW SERIOUS IS IT FOR KARZAI AND AFGHANISTAN?

The United Nations estimates that Afghans spend $2.5 billion a year -- a quarter of GDP -- on bribes. Washington fears corruption is boosting the Taliban-led insurgency and complicating efforts to strengthen central government control so U.S. and other foreign troops can leave. [ID:nSGE67T05T]

The crisis has flagged concerns about the handling of funds from Western donor countries, channelled through a nascent commercial banking sector that the United States has encouraged Afghanistan to build and which is tied closely to Karzai's family and members of his inner circle.

A widespread perception among Afghans that Karzai's government is corrupt will be a major issue at a Sept. 18 parliamentary election, which the Taliban has vowed to disrupt.

(Writing by Tim Gaynor; Editing by Paul Tait and Sugita Katyal)