Kabul Bank Bailout? Mahmoud Karzai, President's Brother, Calls For U.S. To Shore Up Bank

Kabul Bank Bailout? Mahmoud Karzai, President's Brother, Calls For U.S. To Shore Up Bank

Hamid Karzai's older brother wants the U.S. to guarantee deposits at Afghanistan's largest bank to stop a developing bank run fueled by fears of fraud.

Mahmoud Karzai, Kabul Bank's third-biggest shareholder, told The Washington Post that "America should do something":

Action by the United States, said Mahmoud Karzai, would prevent a run on Kabul Bank and protect other banks, too. He said Kabul Bank is "stable and has money" but cannot withstand a stampede by panicked depositors.

"If the Treasury Department will guarantee that everyone will get their money, maybe that will work," said Karzai, who holds 7 percent of the bank's shares, making him the third-biggest shareholder. Karzai, who spends most of his time in Dubai - where he lives in a waterfront villa paid for by Kabul Bank - rushed to Kabul on Wednesday to join efforts to salvage the bank.

Larger than usual crowds gathered to withdraw funds from Afghanistan's largest bank Wednesday and Thursday after two top executives resigned amid allegations of mismanagement and unorthodox real estate loans. But Afghan Finance Minister Omar Zakhilwal said that fears about the stability of Kabul Bank had not sparked a "crisis" at Kabul Bank.

"We are 100 percent sure that Kabul Bank is safe," Zakhilwal said. "I, as finance minister, am giving you my guarantee that your money is safe - if it's one Afghani, one dollar, one euro, up to millions. ... Kabul Bank is not in danger." Zakhilwal said every penny of customers' deposits would be guaranteed.

Afghan television stations broadcast remarks Wednesday night from the central bank governor, Abdul Qadir Fitrat, who insisted that Kabul Bank was solvent and had enough liquidity to meet demands. On Thursday, the Afghanistan Banks Association issued a statement of support for the bank, and Zakhilwal sought to reassure customers that their deposits were safe.

"The government of Afghanistan guarantees that every penny that they have deposited will be paid back to them if they request it," he said. "But what we are requesting of the Afghan people is not to rush because rush is not good for them, and it's not good for the banking system. We guarantee the money."

Some customers went anyway.

Nazifa Amiri, who works for a foreign aid agency in Kabul, said problems with the bank would have an especially devastating effect on poor Afghans like herself.

"I need this money to feed my children, plus we have the festival coming up," said Amiri, referring to next week's celebration of the end of the Muslim holy month of Ramadan.

Amiri successfully drew her monthly salary of $390 from the bank's branch in Kabul's Wazir Akbar Khan neighborhood. However, Defense Ministry employee Mohammad Zami said he had been rebuffed when attempting to withdraw dollars from his account at the same branch, with managers saying more currency was on its way.

"I don't have a lot of money in it, but this is supposed to be a trustworthy bank to serve the Afghan people. It's not good to see it tied up in politics," Zami said.

A branch manager, who declined to give his name because staff had been ordered not to speak to media, said dollar stocks ran out about one hour after opening, although supplies of Afghan currency were sufficient to meet demand.

Shah Masood Azha, a businessman in the southern city of Kandahar, said residents remained worried about the safety of their accounts.

"This is a result of poor oversight, and the government needs to have many more checks and balances," Azha said.

Problems at the bank could have wide-ranging political repercussions since it handles the pay for Afghan teachers, soldiers and police in this unstable, impoverished nation beset by the stubborn Taliban insurgency, widespread drug trafficking and plundering of aid money.

The Finance Ministry issued a statement assuring government employees that they would continue to be able to deposit and withdraw their salaries at Kabul Bank. The statement added that the replacement of top executives would improve management and services and was "part of the life cycle of a business."

The bank's woes also tie into the web of corruption and personal connections that has soured many Afghans on their government.

Gen. David Petraeus, top commander of U.S. and NATO forces in Afghanistan, was asked about Kabul Bank's woes at a round-table with reporters on Thursday.

"I'm not really the guy in the financial sector here in Afghanistan but financial issues can have security issues and therefore we keep an eye on them," Petraeus said. "In this case our assessment is that the governor of the central bank has taken prudent measures. He has announced what it is that he has been doing to reassure depositors ... Our sense is that he and the minister of finance have taken a very prudent course," that should reassure depositors. "I think this will be OK."

Sherkhan Farnood, former chairman of Kabul Bank, and Khalilullah Ferozi, former chief executive officer, resigned because, under new reforms, only banking professionals can hold the top operating positions at banks. The bank is being run by Masood Ghazi, a former official at the central bank. The bank said top executives at some of Afghanistan's other 16 private banks might have to step aside as well to conform with the reforms.

Farnood, a world class poker player, and Ferozi each own 28 percent of the bank's shares. President Hamid Karzai's brother, Mahmood Karzai, is the bank's third largest shareholder with 7 percent.

The New York Times and The Wall Street Journal reported Wednesday that Kabul Bank's losses could exceed $300 million - and that the figure is more than the bank's assets. The Washington Post reported that the central bank had ordered the newly resigned chairman to hand over $160 million in real estate holdings in Dubai purchased for relatives and friends of the political elite.

Zakhilwal challenged claims that the bank was on a shaky foundation. Kabul Bank has more than $1 billion in deposits. He said the property pledged as collateral for loans at the bank is "way more - in fact twice as much - as the loans that they have given out."


Associated Press Writers Amir Shah in Kabul and Mirwais Khan in Kandahar contributed to this report.

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