Karzai Blames Western Press for Run on Kabul Bank

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Hamid Karzai
Afghanistan President Hamid Karzai
AP

GlobalPost's Jean MacKenzie writes about the bank crisis in Afghanistan, with President Karzai stepping into fray, blaming the Western press and insisting that the government is in control of the situation.

KABUL, Afghanistan - President Hamid Karzai has tried to reassure his worried countrymen that their deposits in the troubled Kabul Bank are safe, blaming any panic on the Western media.

"The Western press is ... printing out our decisions in a negative way and in a provocative way," he told a press conference Thursday evening. "It's sad to hear that. It's unfortunate."

Kabul Bank, one of the country's largest, is in deep trouble. With just over $1 billion in assets, according to its latest audited statement from 2009, it has more than $990 million in liabilities. It is also facing potential losses of close to $300 million, according to government officials.

The central bank, known as Da Afghanistan Bank, stepped in on Tuesday to try and bring some order out of the deepening chaos, removing the bank's chairman, Sherkhan Farnood, as well as its chief executive officer, Khalilullah Ferozi. Both men were major stakeholders in the bank, each holding slightly more than 28 percent of the stock. Third on the list was Mahmoud Karzai, brother of the Afghan president, Hamid Karzai, who held 7 percent.

Amid allegations of mismanagement and corruption, bank officials insisted that the removals were part of a normal reform of the banking industry, according to which major stakeholders could no longer serve as bank officials.

Masoud Ghazi, a former official at the central bank, was installed as CEO, but the post of chairman remains empty.

Karzai late on Thursday did not deny that Kabul Bank had its difficulties, but insisted that the government was able to control the situation.

"We deemed it necessary to take action immediately [in the case of Kabul Bank]," he said. "But Kabul Bank is safe. People don't have to panic ... The government of Afghanistan is fully behind that bank."

But his remarks are unlikely to quell the growing fears among his countrymen, hundreds of whom were lined up in the hot sun outside the main branch of Kabul Bank on Thursday, patiently waiting their turn. Inside, the crush was almost suffocating - there was barely room to push between the crowds desperately trying, first to get a number, then to be served.

There was little panic in the air, more a grim determination to get their money as soon as possible and get away from what many see as a tainted organization.

"We do not trust this bank any more," said a young man who identified himself as a researcher at a local think tank. "The government is corrupt, and that corruption is spreading."

Some lucky few could be seen walking away with bags filled to the brim with dollars and afghani, the local currency. One man in a grey suit had wrapped both of his arms around his precious package, while beside him a uniformed bodyguard swaggered.

Much more casual was a young man in the characteristic Afghan pirohon-tunbon, loose pants topped by a buttoned tunic. He had no bodyguard, just a large, heavy-looking, yellow plastic bag, which he placed nonchalantly on the sidewalk as he spoke.

"I work for a USAID project," he explained, referring to the U.S. Agency for International Development, which runs multi-million dollar programs inside the country. "Our bosses told us to take all of our money out of Kabul Bank. The bank gave me everything I asked for."

He had been there since early morning, he explained.

Aini, 22, said he had arrived at 10 a.m. and had already been waiting for an hour and a half. "I am Number 688," he said wryly. "It will be at least another two hours before I can get money."

But the bank closed its doors at 2 p.m. because of the Ramadan fast. Many customers will walk away unsatisfied.

Kabul Bank's problems were most likely due to the same close political connections that had ensured its success.

Protected by high-ranking connections, and spreading money freely among the political elite, Kabul Bank engaged in practices that soon landed it in hot water.

According to numerous reports, Farnood used bank funds to purchase up to $160 million in property on Dubai's lavish Palm Jumeirah, an artificial island on the Persian Gulf built in the shape of a palm tree and catering to the super-rich.

Mahmoud Karzai had been living in a seaside villa belonging to Kabul Bank for about a year and a half. He told Al Jazeera television on Tuesday that he did not own any of the properties, but had been renting his villa from Farnood. He promised that he would relinquish the property and seek another address.

But the bottom dropped out of Dubai's property market two years ago, making Farnood's villas a liability rather than an asset. Once he signs over the deeds to the Kabul Bank, as he has promised to do, the financial institution is likely to find itself facing a hefty loss.

Other loans made to powerful people exceeded legal limits or were unsecured, according to Afghan officials.

And the bank was renowned for oiling the political machines of those close to the center of power. Kabul Bank reportedly bankrolled Karzai's presidential campaign last year, and has, by all accounts, been spreading the wealth among this year's crop of pro-government parliamentary candidates.

"There is a distinct linkage between business and politics," said Haroon Mir, head of the Afghanistan Center for Research and Policy Studies. He was speaking just hours before the scandal broke. "We all know that Kabul Bank is bribing ministers. But no one goes after Kabul Bank. Instead they go after the politicians."

That may no longer be so. The State Department has expressed confidence that the government's actions in the case are a sign of the president's determination to fight corruption.

But the central bank has been at some pains to downplay the scandal, hoping to avert wholesale panic. With more than $975 million on the books in customers' deposits, a run on the ban could force it to close its doors.

"The bank is solvent," said Abdul Qadir Fitrat, governor of the central bank, at a press conference on Wednesday. "The bank has enough liquid assets to meet its liquidity demands."

That was not enough to calm all of the population.

In volatile Helmand province, where the news of the crisis sparked a major run on the small branch, a uniformed guard had to hold off angry depositors at gunpoint.

Farhod Ahmad, a soldier with the Afghan national Army 5th battalion, who has been stationed in Helmand for six months, said he would withdraw whatever he could once he managed to get inside.

"I am going to put it in my jacket bank," he laughed, patting his pocket."

Even in the more cosmopolitan Kabul, the crisis could do serious and long-term damage to the Afghan banking industry. Many of those waiting to withdraw their money on Thursday said they would not put it back in any other bank.

"I don't trust any Afghan bank," said a young woman in black, wearing braces on her teeth. She gave her name as Mutahar. "I will take all of my money out, and I won't go near any bank associated with this government."

Others said they would put their cash in one of the foreign banks operating in Afghanistan, such as Alfalah, owned by the Abu Dhabi Group.

But the government assurances were more than enough for some.

"Nobody is really worried," said one burly, mustached man who said his name was Mahmoud. "The money in Kabul Bank is guaranteed by the central bank. It was just a switch of directors." He then added, confidently if erroneously," My money is insured by the central government."

The central bank does not, in fact, insure individual deposits. It is unlikely, however, that Da Afghanistan Bank would let Kabul Bank go under, since it uses the institution to pay its teachers, police, and soldiers.

Karzai emphasized this in his press conference Thursday evening: "The Ministry of Finance today, I believe, released ... between $100 [million] and $150 million ... from the bank to handle the payments and the salaries of our government employees," he said.

Denying salaries to men with guns is not a winning policy in any country.

"Depositors are not going stand around drinking lattes and waiting for their money," laughed Najib, a young scholar who has recently returned from a year in the United States. "These guys have Kalashnikovs."

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