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Afghan Central Bank: Kabul Bank has ‘stabilized’

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KABUL, Afghanistan (AP) — Afghanistan's largest bank remained solvent Sunday after a nearly weeklong run on the troubled institution, according to the governor of the nation's central bank, which is being criticized for looking the other way at the bank's mismanagement problems for too long.

Nervous depositors continued to make withdrawals, but Central Bank Governor Abdul Qadir Fitrat said the Kabul Bank was on sound footing. He said no decision had been made about whether the central bank would use money in its coffers to shore up Kabul Bank, partly owned by President Hamid Karzai's brother.

"It's stabilized. The bank is already stabilized, and hopefully in the next few days it will become 100 percent normal," Mr. Fitrat told the Associated Press. "It is almost 60 percent to 70 percent returned to normal. Most of the branches are now empty (of customers). People have taken their money and gone home. It's very good today. The operation is becoming very normal."

Abdullah Abdullah, who challenged Mr. Karzai in last year's presidential election, criticized the government, saying it should have acted more quickly to correct management problems at Kabul Bank. The run on the bank began on Wednesday following a change in leadership and reports that tens of millions of dollars had been lent for risky real estate investments involving the political elite.

"The extent of the problem seems to me to be massive, and the misconduct seems to be a very prolonged one," Mr. Abdullah said.

"Why wasn't it dealt with earlier?" he asked reporters gathered at his home for a news conference, in which he also questioned whether central bank reserves should be used to bolster the bank's balance sheet.

Uncertainty about the bank's future has further destabilized the war-torn country and efforts by the central government to build an efficient political and financial system to drag Afghanistan out of poverty. If not resolved, problems at the bank could have wide-ranging political repercussions.

Kabul Bank handles the pay for Afghan public servants, soldiers and police in this unstable nation, which is beset by a Taliban insurgency and is awash in drug money and billions in international aid. Kabul Bank's woes further underscore entrenched problems with cronyism and corruption, with millions of dollars allegedly lent to relatives and friends of the ruling elite to buy property in Dubai.

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. Mr. Farnood, a world-class poker player who raised money for Mr. Karzai's re-election campaign, and Mr. Ferozi each own 28 percent of the bank's shares. Mr. Karzai's brother, Mahmood Karzai, is the bank's third largest shareholder, with 7 percent.

Mr. Karzai said the government will guarantee every penny of the deposits in the bank.

"Yes, government officials, including Mr. Karzai himself, assured the citizens of Afghanistan that they were going to save the bank. . . . fair enough," Mr. Abdullah said. "You'll save the bank, in which your brother is a shareholder . . . fair enough. But with which money? Whose money?

"The money belongs to the people of Afghanistan. It's not anybody's private entity. . . . Which money will be channeled or is being channeled to the bank? How much money, for what reason and how will it be refunded to the government?"

"We strongly urge the government of Afghanistan and the shareholders as well as the authorities with the central bank to provide clear answers — not to put dust in the eyes of the citizens."

Mr. Abdullah said he had heard the central bank already has given the bank $200 million. Mr. Fitrat said that was not true — no decision had been made on whether central bank funds would be used to help Kabul Bank.

Deputy U.S. Treasury Secretary Neal Wolin said Saturday while American officials were providing technical assistance to the Afghan government: "This is an Afghan issue. They are taking immediate steps to ensure the stability of Kabul Bank and to protect the financial assets of the Afghan people. . . . No American taxpayer funds will be used to support Kabul Bank."

Mahmood Karzai said the bank, which he said lost $170 million during the first two days of the run, got in trouble for three reasons.

"First of all, it was lending over the limit of the bank," he said. "Second was investing in Dubai's property. Third was lending to shareholders. These were the three areas where the bank violated central bank regulations.

"I'm sure that the bank has learned the hard way that this is not acceptable," he said.

He said the bank's former chairman said $155 million was invested in two business properties and 18 villas in Dubai.

"Right now, the value of the property is about $160 million, so in principle there is no loss, but the loss is in the accumulated interest," Mahmood Karzai said.

He said he had been living in one of the villas but planned to move to escape from the controversy over the properties.

"I'm moving out this week," he said. "I rented another place. I never owned that villa. It was in the name of Sherkhan Farnood, the chairman. I was there, and I'm moving out just to get rid of all this talking on this."

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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