Worried Afghans withdraw Kabul Bank deposits

Despite media reports of corruption at Kabul Bank, Afghan officials insist that it is not in danger of collapse.
By David Nakamuraand Andrew Higgins
Washington Post Staff Writers
Thursday, September 2, 2010; 8:03 AM

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.

On Thursday morning, scores of Afghans again flooded the Kabul Bank offices to withdraw their savings. The scene was crowded but orderly. At one branch, where government employees were trying to cash their paychecks, the bank staff declared a limit of $1,000 per customer.

Later in the day, the Ministry of Finance issued a statement declaring that all government employees would be able to cash their checks from Kabul Bank, which the ministry called "a reliable bank."

Still the uncertainty was taking its toll. One source with knowledge of Kabul Bank's books said depositors had withdrawn $90 million on Wednesday and far more than that Thursday. Afghan President Hamid Karzai had scheduled a news conference for 5 p.m. Thursday at the presidential palace, though the subject of the conference was not disclosed by aides.

Haji Rafi, head of rival Afghan United Bank, said his bank had prepared for a potential run on its own assets by account holders but added that there was not much change in activity Thursday. Asked if he was concerned that a potential collapse of Kabul Bank would harm Afghanistan's nascent banking industry, Rafi said: "I'm not worried because the Central Bank already assured us they are behind the bank."

The tumult in Kabul suggested that a decision 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. 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.

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