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Afghan central bank takes over Kabulbank
September 14, 2010 / 7:39 PM / 7 years ago

Afghan central bank takes over Kabulbank

KABUL (Reuters) - Afghanistan’s central bank has stepped in to take control of the troubled Kabulbank, its governor said on Tuesday, after suspected irregularities raised concerns over the country’s top private financial institution.

<p>Afghan people walk past a Kabulbank branch in Kabul, September 14, 2010. REUTERS/Andrew Biraj</p>

Central Bank Governor Abdul Qadir Fitrat told Reuters investigations had also started into the dealings of the bank’s top two directors and shareholders, who were told to resign, and a brother of Afghan First Vice President, Mohammad Qasim Fahim.

Kabulbank’s troubles have threatened to add a financial crisis to Afghanistan’s other woes, with military and civilian casualties at record levels as a Taliban-led insurgency grows and ahead of parliamentary elections on September 18.

Corruption is a major concern in Afghanistan and a frequent source of tension with its Western allies.

The Afghan government and the central bank had previously maintained that Kabulbank had not been taken over, despite a central bank official being appointed as chief executive officer.

For the first time on Tuesday, Fitrat acknowledged the central bank had taken over. He said the bank decided to step in after customers started a run on the bank in the last two weeks.

“Now the central bank has control over Kabulbank,” Fitrat said in an interview with Reuters at his Kabul office.

“Once we saw that people were anxious, then we thought it would be better to take it over. So it is good that we assured the people that their deposits are safe,” he said.

Asked how long the central bank would remain in control, Fitrat said: “For the foreseeable future.”

CORRUPTION ALLEGATIONS

The crisis developed after the company’s top two directors, former Chairman Sher Khan Farnood and former Chief Executive Officer Khalilullah Fruzi, were told to resign amid so far unproven media allegations of corruption.

The government and the central bank have previously said Farnood and Fruzi stepped aside in line with new financial regulations that said major shareholders could not hold management positions in a bank.

Fitrat had described reports in The Washington Post and New York Times newspapers and other U.S. media of possible graft at the bank as “baseless information and rumors.”

However, on Tuesday Fitrat said Farnood, Fruzi and Fahim’s brother, Mohammad Haseen, were now under investigation for suspected irregularities, among other shareholders.

“We will investigate any irregularities, any violations of the law of the central bank or any internal policies,” he said.

While the central bank said last week it had frozen the assets of the bank’s leading shareholders and borrowers, it had previously not given a reason.

Fitrat said the central bank was now seeking help from the United Arab Emirates to freeze the assets of one of the two main shareholders, where the majority of his assets are located. He said this could apply to more shareholders with assets there.

U.S. media reported last month that the central bank had attempted to seize $160 million in luxury villas in Dubai that may have been bought with Kabulbank funds.

Concerns over dealings at Kabulbank, Fitrat said, had forced the central bank to institute the new regulations in June under which Farnood and Fruzi later stepped aside.

“We conduct our own investigation (and) once we see that there are elements of criminality involved, then we submit those cases to the attorney general’s office,” Fitrat said of the investigation process.

Farnood and Fruzi each own 28 percent of the bank. According to financial records on its website (www.kabulbank.com), the bank had total assets of $1.01 billion and liabilities of $991 million in 2009.

One of President Hamid Karzai’s brothers, Mahmoud Karzai, who holds a seven percent stake in the bank, is not under investigation, Fitrat said.

Concerns over the bank worried many of its customers, including 300,000 government employees, resulting in long queues outside branches. The bank also handles salaries for Afghanistan’s security forces.

Fitrat insisted Kabulbank was still solvent and that its troubles would not spread to Afghanistan’s other private lenders.

“Fortunately, in other banks, mostly professionals are in charge. The good thing is that the other banks follow the rules.”

Reporting by Jonathon Burch; Editing by Paul Tait

Our Standards:The Thomson Reuters Trust Principles.
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