Karzai takes action on Afghanistan's troubled Kabul Bank

AFP, Tuesday 12 Apr 2011

Rogue shareholders must pay back $900m loans within a month to stem crisis that threatens to hit war-torn nation's crucial sources of foreign aid

Afghan President Hamid Karzai on Monday announced action against bad loans and rogue shareholders in the war-torn country's troubled Kabul Bank, which came close to collapse last year.

The bank had to be taken over by Afghanistan's central bank after claims that former executives granted themselves off-the-book loans worth a reported US$900 million which were partly used to buy luxury properties in Dubai.

The crisis has highlighted chaos and corruption in Afghanistan's financial system, more than nine years after Karzai's Western-supported government replaced the Taliban regime following a US-led invasion in 2001.

"They (the rogue shareholders) will not have shares in the bank and the loans they have taken they must pay back within one month," Karzai told a press conference.

"If they are paid back within one month, excellent. If not, they'll be legally pursued by the government of Afghanistan."

He added that the rogue shareholders, who include one of his brothers, "have been expelled from the bank totally" and their shares are now in state hands.

Although the International Monetary Fund (IMF) in February recommended that the bank be placed in receivership before being sold or closed, Karzai made no reference to receivership in his comments.

The IMF is currently considering a financial assistance programme to help stabilise the troubled Afghan economy after a previous facility ended in September.

But it has indicated this is conditional on an agreement with Afghan officials on resolving the Kabul Bank crisis.

The IMF's resident representative in Afghanistan is currently abroad and his office could not immediately comment.

The crisis threatens to hit crucial sources of foreign aid to Afghanistan, one of the poorest countries in the world.

The lack of a deal with the IMF prompted Britain to say last month it was delaying payment of nearly $140 million dollars in aid to Afghanistan.

The United Nations has also warned that international donors "may have to suspend or redirect their assistance" if the government fails to reach an agreement with the IMF, threatening desperately needed development programmes.

During his press conference in Kabul, Karzai also said he would be urging banks in the United States and Europe to return money invested in them from Kabul Bank to Afghanistan.

He reiterated his criticism of the role of international institutions in the affair.

"International institutions that, at a cost of hundreds of millions of dollars of Afghanistan's money, were assigned to improve Afghanistan's banking system and create capacity for us... they not only did not do this but gave wrong information to the central bank and did not create capacity," he said.

Previous similar comments drew a furious response from a senior US official speaking anonymously in February, who stressed that responsibility for supervising banks had always been with Afghan authorities.

The president also insisted that deposits by ordinary Afghans who had money in Kabul Bank were safe.

Some 80 percent of government employees are thought to receive their wages through Kabul Bank, Afghanistan's biggest commercial lender.

The bank was founded in 2004 by Sherkhan Farnood, a leading international poker player, and other co-owners included Mahmood Karzai, a brother of the president.

The crisis surrounding it was triggered last September when reports that former executives had granted themselves huge loans off the books led to fears that it could collapse.

A run on the bank was only halted after government assurances and injections of public money.

A spokesman for Afghanistan's central bank, Da Afghanistan Bank, was not immediately contactable for comment on Karzai's remarks.

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