February 2, 2011 / 2:57 PM / 7 years ago

Afghan cbank says will sell troubled Kabulbank

KABUL, Feb 2 (Reuters) - The Afghan central bank said on Wednesday it will seek to sell the troubled Kabulbank within three years once it has been rehabilitated after fraud and mismanagement cost it hundreds of millions of dollars.

Widespread mismanagement at Kabulbank has threatened to add a financial crisis to security and governance woes in Afghanistan, where violence is at its worst in a nearly decade-long war and military and civilian casualties are at record levels.

Governor Abdul Qadir Fitrat said the central bank would also impose stricter rules on banks wanting to handle about $1.5 billion worth of salaries for government and security officials, which until now has been done by Kabulbank, Afghanistan’s top private lender.

Fitrat also told Reuters the total amount of money at risk over suspected irregularities at Kabulbank amounted to $579 million, almost twice the figure estimated when the bank’s troubles surfaced last year.


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Despite Kabulbank’s widely reported troubles, Fitrat brushed off concerns that it faced liquidation, saying it would be privately owned again within three years.

“Kabulbank is stabilised, it has enough cash at its disposal and the central bank is trying to rehabilitate the bank and then at some point sell it to potential buyers in two or three years,” Fitrat told Reuters.

In September, Fitrat said the central bank had stepped in to take control of Kabulbank due to allegations of misconduct and had begun investigations into the bank’s top two former directors and shareholders.

The case of the politically well-connected Kabulbank has raised questions about the handling of billions of dollars of foreign-donated funds and underscored major concerns among Kabul’s backers about poor governance and corruption.


Kabulbank’s customers include hundreds of thousands of government employees and it also handles salaries for Afghanistan’s security forces, totalling at least $100 million a month and paid for by international donor countries.

Fitrat said Kabulbank would be allowed to bid again for the contract to handle government salaries -- due to expire in the next couple of months -- but new regulations meant it could not outbid other lenders simply by offering its services for free, as it had done over the past few years.

“In the past, the (Kabulbank) owners and shareholders were playing a criminal scheme. Now we do not want anything for free, there is no free lunch anywhere,” Fitrat said.

The crisis developed after Kabulbank’s top two directors, former Chairman Sher Khan Farnood and former Chief Executive Officer Khalilullah Fruzi, were told to resign amid media allegations of corruption, including dishing out improper loans.

The central bank has ordered a probe into the activities of Farnood and Fruzi, as well as another leading Kabulbank shareholder, Mohammad Haseen, the brother of First Vice President Mohammad Qasim Fahim.

Other major shareholders include Mahmoud Karzai, who owns about 7 percent of the bank and is the brother of Afghan President Hamid Karzai, although he is not the subject of any investigations, Fitrat has said.

Fitrat said those under investigation would have their shareholdings “extinguished” and that he wanted “transparent prosecutions” of those involved.

The crisis caused a run on the bank last year, with thousands of jittery customers queuing for hours outside branches in the capital, fearing their savings would be lost.

On Monday, The New York Times reported Kabulbank’s losses may have been as much as $900 million, but Fitrat said that figure was greatly exaggerated. He said the central bank was working towards getting most of the money repaid.

“The principal amount of loans issued by Kabulbank was $579 million. We have got acknowledgements to repay $315 million and at the same time we have got properties in Dubai and here ... that are recoverable and can be sold,” he said.

The sale of those properties, Fitrat said, would bring the total potential amount of recovered funds to $436 million, still more than $100 million short of the amount at risk.

Editing by Paul Tait and Yoko Nishikawa If you have a query or comment on this story, send an email to newsfeedback.asia@thomsonreuters.com

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