IMF Recommends Troubled Kabul Bank Be Wound Down

KABUL, Afghanistan (AP) - The International Monetary Fund is pushing for Afghanistan's troubled Kabul Bank to be placed into receivership and then quickly sold off as part of a broader effort to stabilize the country's shaky financial system.

The IMF made the recommendations Tuesday after a visit by fund officials to assess the Afghan economy and work through an impasse over extending Kabul further credit. It urged Afghan officials to put together a "transparent, credible and fully financed" plan to settle problems at the country's largest bank, which came close to collapse last year after allegations of mismanagement, cronyism and questionable lending.

The bank has close ties to Afghanistan's ruling elite. Sherkhan Farnood, the former bank chairman and a world class poker player who raised money for President Hamid Karzai's re-election campaign, owns 28 percent of the bank's shares. The president's eldest brother, Mahmood Karzai, owns 7 percent. A brother of one of Afghanistan's two vice presidents is also a shareholder.

Afghanistan's central bank took control of Kabul Bank in mid-September after a run on the lender sparked by the removal of two top executives. It has spent the past several months combing the lender's books to determine the size of its exposure and recoup loans.

The bank plays a key role in the Afghan economy by handling payrolls for government workers and security forces. Afghan officials have repeatedly tried to reassure the public that the lender is sound, hoping to prevent another bank run that could further destabilize the country's fledgling banking system.

In a statement issued late Tuesday, the IMF called on Afghan officials to lay out clear steps to deal with Kabul Bank and safeguard the financial system, and to prosecute those involved in fraud or other illegal activity at the company.

Placing Kabul Bank into receivership - a type of bankruptcy - is "the most appropriate mechanism" for resolving problems there, the IMF said.

"This will be followed by a process where the bank will be rapidly sold or wound down and the central bank is recapitalized with government resources as needed," the IMF said.

That stance puts the IMF at odds with Afghan officials, who want to keep the bank afloat. Afghan leaders have said they would stand fully behind Kabul Bank and are committed to collecting all the lender's outstanding loans.

An investigation by Afghanistan's attorney general is ongoing, though no charges have been brought.

A $120 million IMF lending program ended in September. Afghan officials hope to regain the support of the IMF or risk losing millions of dollars in international aid that depends on good standing with the fund.

The IMF is open to further talks on a new line of credit to Kabul, but said its focus is on finding a resolution for Kabul Bank and increasing transparency and accountability in the banking system.

The Afghan government has vowed a thorough audit of other private banks that have sprung up since the U.S.-led invasion in 2001 to determine the depth of problems within the financial sector.

That round of evaluations could cover about seven or eight lenders, and will include forensic audits - aimed at uncovering fraud or other illegal activity - at Kabul Bank and possibly one other institution, said an international official in Kabul familiar with the country's financial system. The official asked not to identified because of political sensitivities surrounding the country's banking system.

The governor of Afghanistan's central bank said this month that Kabul Bank has made $540 million worth of loans. But international officials say the size of the loan book could stand closer to $900 million - loans they fear may never be fully repaid.

Abdul Qadir Fitrat, the central bank governor, declined to comment on the IMF recommendations when reached by The Associated Press on Wednesday.

But Najibullah Manalai, an adviser to the finance minister, voiced support for the actions taken by the central bank to shore up the financial system. He said discussions with the IMF are still ongoing.

"So far, we are happy with whatever decision has been taken by the central bank," Manalai said. "The finance minister supports any measures that will maintain the stability of the country's banking system."

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Associated Press writer Rahim Faiez contributed to this report.