Ex-executives say their dismissals triggered run on Kabul Bank

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By Ernesto Londoño and Andrew Higgins
Washington Post Foreign Service
Saturday, September 4, 2010

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.

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.

Kabul Bank, which was closed Friday for the Islamic weekend, was to reopen Saturday. A renewed stampede by depositors would jeopardize its future.

The bank has about $300 million left in cash, Fruzi said. 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."


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