Afghan central bank insists Kabul Bank is sound

[September 01, 2010]  KABUL, Afghanistan (AP) -- Afghanistan's central bank tried to shore up confidence in the country's biggest financial institution Wednesday after its top executives resigned amid allegations of mismanagement and corruption.

"The bank is solvent," Abdul Qadir Fitrat, governor of the central bank, told reporters at a hastily called news conference to rebut news reports that the bank is deeply in the red. "The bank has enough liquid assets to meet its liquidity demands."

Fitrat said the top two executives of Kabul Bank had resigned as part of reforms being implemented by the central bank to improve professionalism at some of Afghanistan's 10 private banks. Fitrat was trying to prevent depositors from rushing to pull their money out of the institution.

The New York Times and The Wall Street Journal reported Wednesday that Kabul Bank's losses could exceed $300 million -- and that that figure exceeds the bank's assets. The Washington Post reported that the extent of its bad loans, many to the families and friends of powerful politicians, remains unclear.

The U.S. welcomed the central bank's decision to "confront the mismanagement of Kabul Bank," U.S. State Department spokesman P.J. Crowley said Tuesday.

"The individuals suspected of illegitimate activities have been replaced and the Afghan government is taking the necessary steps to strengthen the bank and protect its depositors," he said. "The situation presents a unique opportunity for the Afghan government to take a strong stand against corruption. We fully expect President (Hamid) Karzai to back the central bank's efforts and any law enforcement actions that follow to hold those responsible for illicit activity accountable."

Sherkhan Farnood, former chairman of Kabul Bank, and Khalilullah Ferozi, former chief executive officer, voluntarily resigned because under new reforms, only banking professionals can hold the top operating positions at banks, Fitrat said. He said the bank is being run by Masood Ghazi, a former official at the central bank. Fitrat said top executives at other banks will be resigning, too, to conform with the reforms.

Farnood and Ferozi each own 28 percent of the bank's shares. The president's brother, Mahmood Karzai, is the third largest shareholder, holding a 7 percent share of the bank.

Kabul Bank, which opened in 2004, has 68 branch offices in all 34 provinces in Afghanistan.

[Associated Press; By DEB RIECHMANN]

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