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Financials

UPDATE 3-Afghanistan freezes troubled bank shareholder assets

(Corrects 13th paragraph to show postponed IMF meeting was in Washington, not Kabul)

* Kabulbank in crisis after directors step down

* IMF meeting in Washington postponed

* Central Bank freezes former chairman and CEO’s assets

* Brother of first vice-president subject to asset freeze

(Adds IMF meeting postponed)

By Sayed Salahuddin

KABUL, Sept 7 (Reuters) - Afghanistan has frozen the assets of leading shareholders and borrowers at the country’s top private bank, officials said on Tuesday, causing long queues of anxious depositors to throng its branches.

Signs of trouble at politically powerful Kabulbank threaten to add a financial crisis to the country’s other woes.

Tens of thousands of soldiers, police and other state employees receive their salaries -- funded by the United States and other Western donors -- through accounts at the bank, which has 250,000 state employees as customers.

One of Karzai’s brothers is a major shareholder, as is a brother of his first vice president. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For more on Afghanistan click on [ID:nAFPAK]

or see link.reuters.com/syx62d

Afghan blog: blogs.reuters.com/afghanistan/ ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The case has raised questions about the handling of funds from Western donor countries, channeled through a nascent commercial banking sector that the United States has encouraged Afghanistan to build and which is tied so 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. The United Nations estimates 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.

The central bank on Monday ordered frozen the assets of Kabulbank’s former chairman, Sher Khan Farnood, and chief executive officer, Khalilullah Fruzi, together with those of several other shareholders and major borrowers.

“This basically stops the sale of their assets until the situation becomes clear,” said Aimal Hashoor, the central bank’s spokesman. He did not give a reason for the move.

It was announced last week that Farnood and Fruzi had resigned from the bank. U.S. media reported that the central bank had taken control of Kabulbank, forced the two men out and attempted to seize $160 million in luxury villas in Dubai that may have been bought with Kabulbank funds.

The central bank and other officials said the two men had resigned to comply with new financial regulations.

The Washington Post and other U.S. media have reported that luxury homes in Dubai, bought in Farnood’s name, have been used as homes by various senior Afghan officials.

In Washington, a spokesman for the International Monetary Fund said Afghan authorities had asked to postpone an IMF board meeting set for Friday in the U.S. capital to discuss Afghanistan’s program “to allow time to assess recent developments in the banking system.”

An IMF mission is in Kabul to discuss progress under an economic programme being supported by the Fund.

QUEUES AT BANK

Concern over the fate of Kabulbank sent jittery customers rushing to its branches last week. Long lines formed again on Tuesday as customers queued, sometimes for several hours, to withdraw funds before a three-day holiday to mark the end of the Muslim fasting month of Ramadan.

“I’ve been sweating in the sun for three hours,” Abdullah, a Kabul man in his 40s, said as he rested on a walking stick.

“I can’t afford to waste any more time. I will have to come back tomorrow.”

At two Kabulbank branches in the capital, no customers who were served said they were unable to withdraw money.

Farnood and Fruzi each own separate 28 percent stakes in Kabulbank.

Karzai and Finance Minister Omar Zakhilwal, seeking to avert a run on the bank, said the pair had not been forced out but had stepped down because of new banking rules forbidding shareholders from holding senior management positions at banks.

An official, speaking on condition of anonymity, said Mahmoud Karzai, the president’s brother and a major shareholder, was not subject to the central bank’s asset freeze because he does not have property registered in his name. However, he said Mohammad Haseen, the brother of First Vice President Mohammad Qasim Fahim, was among those whose assets were frozen.

Last week, U.S. officials said the Treasury Department had sent a team to Kabul and that it supported the Afghan Central Bank’s action in response to reports of fraud at Kabulbank.

The officials said the United States was not taking any steps to recapitalise Kabulbank. (Additional reporting by Paul Eckert in Washington; Editing by Paul Tait and Peter Graff)

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