Nervous Afghans pull money from Kabul Bank, raising fears

Despite media reports of corruption at Kabul Bank, Afghan officials insist that it is not in danger of collapse.
By David Nakamura and Andrew Higgins
Washington Post Staff Writers
Thursday, September 2, 2010

KABUL - With Afghans clamoring to pull their cash from their nation's biggest bank, the United States risks a politically perilous decision: whether to step in to help shore up a wobbly bank critical not only to Afghanistan's economy but also to the battle against the Taliban.

A swarm of customers at the headquarters of Kabul Bank in the Afghan capital on Wednesday raised the prospect of a full-scale bank run that would further alienate dispirited Afghans from their government and imperil American efforts to contain the insurgency.

The tumult in Kabul and reports of crowds at other branches suggested that a decision this week by the Central Bank to purge the management of Kabul Bank and rein in its freewheeling ways - which included disastrous property speculation in Dubai - could backfire and set off the very crisis officials hoped to avoid. President Hamid Karzai's brother Mahmoud, who used to run an Afghan restaurant in Maryland, owns 7 percent of Kabul Bank.

Afghan officials, struggling to prevent panic, insisted Wednesday that Kabul Bank and its rivals, some of which are perhaps even more fragile, are not in danger of collapse.

David Cohen, the Treasury Department's assistant secretary for terrorist financing, praised the Central Bank's leaders for acting "aggressively, decisively and as a bank regulator should act under the circumstances." He said the Treasury Department is "confident" that the Central Bank "has the expertise to handle the situation with Kabul Bank."

Treasury has assigned a small team of experts to work with the Central Bank on the matter.

A senior U.S. official, who spoke on the condition of anonymity because of the sensitivity of the issue, played down the wider consequences that could result should Afghanistan's banking sector implode, noting that only about 5 percent of Afghans have bank accounts. But Kabul Bank, which has taken in $1.3 billion in deposits, plays a pivotal political as well as economic role: It handles salary payments for soldiers, police officers and teachers.

"The teachers will come with their books, but the soldiers have Kalashnikovs," warned a prominent Afghan businessman who spoke on the condition of anonymity.

An unchecked run on Kabul Bank, which could spread alarm to other banks, would jeopardize not only depositors' savings but President Obama's Afghan strategy, which is built around efforts to rally the public against the Taliban. But any move by the U.S. government to help shore up Afghan banks probably would stir fierce opposition in the United States, where the use of taxpayers' money to bail out Wall Street after the 2008 financial crisis still rankles many.

Most members of the crowd at Kabul Bank on Wednesday appeared to be businessmen, some with international operations. They wanted to withdraw large sums to pay employees and protect their assets.

Shareholders said Kabul Bank has $500 million in liquid assets, a substantial cushion. But one major shareholder familiar with the matter reported problems accessing this cash, much of which is stashed with the Central Bank.

The U.S. government has spent millions of dollars on contractors, Treasury Department advisers and computers for Afghanistan's Central Bank in an effort to fortify feeble supervision of a financial sector rooted in the fast-and-loose practices of the "hawala" money exchanges. Sherkhan Farnood, Kabul Bank's founder and ousted chairman, got his start by running a successful but corner-cutting hawala network, with branches in Russia, Dubai, Afghanistan and elsewhere.

CONTINUED     1        >

© 2010 The Washington Post Company