Bank in corruption scandal to get $200m lifeline from state as thousands of customers queue to withdraw savings
The Afghan government is preparing a $200m (£130m) bailout for the country’s biggest commercial bank, which is mired in a corruption scandal that has prompted a rush by thousands of customers to close their accounts.
Officials at the country’s Central Bank confirmed that regulators asked the Ministry of Finance on Saturday for permission to make the huge loan from the country’s reserves to help prop up Kabul Bank.
There are widespread suspicions that the payment has already been made. Large queues continued to form outside Kabul Bank branches across the country on Sunday as desperate customers tried to withdraw their money.
Security guards put up razor wire in front of the largest branch in Kabul to prevent anxious customers getting in.
Although the Central Bank has reserves worth $4.5bn (£2.9bn), the $200m figure is an enormous amount for one of the world’s poorest countries. The Afghan government’s entire tax revenues are just $1.2bn a year.
At the weekend the US Treasury department insisted that no US money would go into the bailout of a bank that got into financial trouble in part by buying luxury properties in Dubai, which were then used as the private homes of shareholders and other friends of the bank’s management.
Earlier, Mahmoud Karzai, a brother of the president, who owns 7% of the bank’s shares, had called for a US financial guarantee. Today the bank’s spokesman said he had no information about a bailout.
The prospect of so much public money being used to prop up a bank reeling from allegations of corruption prompted an angry response from Abdullah Abdullah, the leader of the opposition movement, who competed against Karzai in last year’s fraud-marred presidential election.
“Mr Karzai himself assured the citizens of Afghanistan that we were going to save the bank. Which money?” he asked. “The money belongs to the people of Afghanistan – it is not anybody’s private entity.”
He said he feared the cash would be used to prop up the bank, which would then continue with “business as usual”. That has included unorthodox business practices, such as the flouting of rules designed to prevent risky lending.
Abdullah demanded to know how the bailout money would be repaid to the state’s coffers, and lambasted the government and regulators for failing to stop the looming disaster earlier.
He claimed that Abdul Qadir Fitrat, the Central Bank governor who has ultimate responsibility for regulating the financial system, had last year admitted to him that he knew the bank was breaking banking rules by using depositors’ money to invest heavily in risky ventures, including the luxury property market in Dubai.
Hundreds of millions of dollars, out of a total cash pile that before the bank run stood at more than $1bn, was used to buy up properties, which then crashed in value after the global financial crisis.
Money was also lent to the loss-making business ventures of the main shareholders, including Sherkhan Farnood and Khalilullah Frozi, the former chairman and chief executive, who were both ordered to step down this week.
Abdullah also alleged that the bank had used its financial clout to buy favours from politicians, including the president, who received millions of dollars from the bank for his re-election campaign
He said that those payments coincided with the decision to award to Kabul Bank the contracts to run the accounts of the country’s soldiers and policemen, who have all been given accounts for the payment of their salaries.
It is not clear how much money has so far been withdrawn. On Friday Mahmoud Karzai said $160m had been withdrawn from Kabul Bank’s cash reserves of about $400m. But frantic withdrawals continued at the start of the new business week on Saturday – Guardian
