Karzai Calls Kabul Bank 'Safe' Amid Signs Of Panic
September 3, 2010
Radio Free Europe/Radio Liberty
Afghan President Hamid Karzai has vowed his
government has enough money to cover scandal-hit Kabul
Bank, which is reeling from the loss of millions of dollars
The assurance comes as some depositors in the
country's largest privately held bank have been
prevented from withdrawing money amid a run that
followed reports of serious financial woes.
"[Kabul Bank] is safe and people should not be
concerned," Karzai said on September 2. "The Afghan
government and the central bank are supporting this
bank. This is one of the biggest banks of Afghanistan.
Today, the Finance Ministry transferred $100
[million]-$150 million to Kabul Bank."
He said the transfer would assure that the bank,
which the government uses to pay the monthly salaries
of some 250,000 officials, will cover this month's
Karzai's assurance -- the strongest he has issued
yet in the crisis -- comes amid reports that many
depositors have already withdrawn money from the bank
amid fears it could collapse.
Khalilullah Feruzi, one of the two largest
shareholders of Kabul Bank, told "The New York Times"
on September 2 that depositors had withdrawn $180
million over the course of two days. "If this goes on,
we won't survive," he told the paper.
Fridays are bank holidays in Afghanistan.
Holes In The Portfolio
The partial run on the bank follows the resignation
of the bank's chairman, Sherkhan Farnud, and chief
executive Feruzi on August 30.
The resignation of the two men, both major
shareholders of Kabul Bank, came after the Afghan
central bank discovered evidence that the private
financial institution had lost some $300 million in
speculative investments and other dealings.
Among those investments was paying $160 million for
houses and offices in Dubai at the height of the
global real estate boom in 2007. After the real-estate
market collapsed, the prices of the properties
plunged, reducing the value of the bank's assets.
Farnud reportedly lent money to both to himself and
to influential people with ties to the government.
Among the loans was a reported $100 million to Hasin
Fahim, the brother of Afghan First Vice President
The bank helped funded Karzai's presidential
campaign last year with large but unknown amounts of
money. Karzai's brother, Mahmood, is one of the bank's
Throughout these alleged dealings, Farnud is
reported to have clouded his operations in secrecy,
making it difficult to ascertain the true value of his
The crisis at Kabul Bank concerns thousands of
ordinary Afghans as well as the country's powerful
elite, because the bank was popular among small
savers, including public-sector workers, police, and
Kabul residents interviewed on September 2 near the
bank's downtown headquarters showed a range of
emotions over the crisis.
"We have heard that this bank had losses in Dubai
and there are differences among the managers of the
bank," Tela Ahmadzai told RFE/RL's Radio Free
Afghanistan. "I hope the government will do everything
possible to explain to the people what has happened
and try to save the credibility of the Afghan banks."
"According to the information given by the
president of the Afghanistan Bank [central bank],
there is no problem with the Kabul Bank," said another
resident. "There is only a change of leadership in
this bank. He gave assurance to the people through
media, and I believe, Inshallah, everything is OK."
The president of Afghanistan's central bank, Abdul
Qadir Fitrat, has assured the public that the state
bank will fully support the troubled financial
institution. He has also said Kabul Bank has no
Questions Looking Forward
A central bank official, Masood Khan Musa Ghazi,
has been appointed as Kabul Bank's new chairman.
The troubles at Kabul Bank are a major blow to U.S-backed
efforts to create a stable banking system in
Afghanistan that can help fuel the country's economic
growth by amassing capital for local investment.
The troubles also raise questions about whether
other closely-held private financial institutions may
have followed similarly irresponsible patterns of
lending or investing money both for financial and
apparent political gains.
In the case of Kabul Bank, at least some of the
villas purchased in Dubai were reportedly offered to
Farnud's politically connected friends and allies for
negligible prices. Many of the villas are occupied by
prominent Afghans, like former Vice President Ahmad
Zia Masud and Mahmood Karzai.
As the Kabul government now moves to contain the
Kabul Bank crisis, Washington has signaled it has no
plans of its own to guarantee the bank's viability.
White House spokesman Tommy Vietor told reporters
in Washington on September 2 that "we are taking no
steps to bail out Kabul Bank."
"We support the Afghan central bank's efforts to
uphold international standards on transparency and its
decisive action in response to reports of fraud at the
Kabul Bank," Vietor said.