By Ernesto Londoño, Andrew Higgins and David Nakamura
Washington Post Foreign Service
Saturday, September 4, 2010; 12:48 PM
KABUL -- The two ousted executives of Afghanistan's largest bank have blamed a hasty management purge for a run on the embattled institution this week.
President Hamid Karzai ordered the dismissal of the managers at Kabul Bank this week after concerns about questionable loans that shareholders had approved for themselves, including some to fund the purchase of high-end real estate in Dubai, in the United Arab Emirates.
Fearing a collapse, thousands of customers withdrew a total of $200 million Wednesday and Thursday, raising the possibility that the bank used to pay government workers could run out of cash as soon as next week.
Kabul Bank reopened Saturday with a long line of anxious customers outside the main branch by 8 a.m., clamoring to withdraw their savings. With hundreds crammed in the bank lobby, trying to get cash from a dozen overwhelmed tellers, the line stretched out the door onto the sidewalk. Men waited in the sun for hours, clutching printed ticket numbers indicating their turn at the window.
By late-morning, the bank had run out of U.S. dollars and had only Afghanis left. Khalid Arian, 35, a trainer for Afghan Civil Service International, was trying to withdraw $2,000 of the $10,000 he stored in the bank. "Of course I'm worried," he said. "Some friends told me to withdraw the money because there's no stability."
Khalilullah Fruzi, the bank's former chief executive officer, said he warned Afghan officials that dismissing the top executives could create uncertainty among customers.
"I was saying, 'You have to be very cautious and careful about these changes,' " he said in an interview Friday. "This didn't take place, and when I resigned, people started panicking."
Late Friday, Karzai called Fruzi, ousted chairman Sherkhan Farnood, the governor of the Central Bank and other officials to a meeting at the presidential palace to discuss the crisis, said a person familiar with the matter.
Crowds were reported Saturday at Kabul Bank branches in Kandahar and other provinces. The main Kabul branch had extended service hours from the usual Ramadan half-day all the way until 6 p.m.
While mostly businessmen appeared to be withdrawing cash on Wednesday and Thursday, ordinary residents seeking smaller withdraws thronged the bank Saturday. One window dedicated to serving female customers was mobbed.
Nasima, a female customer, waited five hours to withdraw $2,200. "This bank has no future," she said. "When they publicly announced the problems, they were finished. They should have done it behind the scenes.
Afghan and U.S. officials worry that a collapse could undermine Afghans' confidence in a government the United States has spent billions shoring up.
"I don't see a good future for the bank," Fruzi said. "I hope our government can save us."
Farnood, in an interview late Thursday, also said the dismissals had left customers nervous.
"The big mistake was that they put pressure on me to resign," said Farnood, who set up the bank in 2004. "The people all believed in me."
Fruzi acknowledged that the bank's loan system wasn't perfect, but he argued that was to be expected "in a country like Afghanistan," where personal relationships carry more weight than "being a professional in the field."
Farnood and Fruzi, who are also among the banks' top shareholders, helped themselves to loans for real estate ventures - which both men defended as solid investments.
Farnood used about $160 million from the bank's coffers to buy 16 seafront properties and two towers under construction in Dubai, where the real estate market has fluctuated wildly in recent years.
Fruzi said he took $5 million earlier this year to build a large low-income housing complex on the outskirts of Kabul.
The loans came to the government's attention in recent weeks after Farnood opened the bank's books to U.S. Embassy officials in Kabul, Fruzi said. He added that he and Farnood disagreed about whether the bank should be steering its investment capital to Dubai, as the chairman favored, or keeping a greater share in Afghanistan.
Fruzi, Farnood and fellow bank shareholder Mahmoud Karzai, a brother of the Afghan president, have been occupying three of the Dubai villas rent-free. Other residents at the Palm Jumeirah villas are politically connected Afghans. The properties are registered to Farnood and his wife - not the bank.
Afghan government officials said this week that the bank remains solvent and encouraged customers to keep their money there. They played down the management shake-up, saying it was routine to comply with new rules barring bank shareholders from executive roles at banks. They also accused foreign reporters of sensationalizing the case.
Fruzi, who said he has no regrets over the way the bank was managed, said he worries that the episode could trigger violence.
"The money that has been withdrawn hasn't gone to other banks," he said. "They just take it home. That will create more instability, more killings, more robberies."
Fruzi said he fears for his life. On Friday morning, he said, an angry customer showed up at his residence in Kabul demanding his money back.
"They are threatening me to death," he said. "I'm really worried about it."
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Higgins reported from Dubai.