Nervous Afghans withdraw cash from Kabul Bank despite assurances

Sep 4, 2010, 12:29 GMT

Kabul - Nervous depositors have continued to withdraw their money from Kabul Bank, despite assurances by Afghan leaders that the nation's largest institution is safe with the government backing it.

Hundreds of people, mostly government employees, crowded Kabul Bank branches around the Afghan capital and in major provinces on Saturday to withdraw funds or empty their accounts.

The bank handles salary payments for Afghan government civil servants such as teachers, soldiers and police officers throughout the war-torn country, along with personal accounts.

The run on the bank began Wednesday, after major media outlets in the United States reported that two of Kabul Bank's top executives were replaced by the central bank after being accused of large-scale corruption and inappropriate lending procedures.

The reports also said that the government ordered the bank's chairman, Sher Khan Farnood, to hand over 160 million dollars he had borrowed to purchase property for himself and his allies in Dubai.

Farnood and CEO Khalilullah Froozi resigned this week, ostensibly because of new banking rules that require banking qualifications for senior officials and forbid shareholders from holding senior executive positions at the bank.

The bank's losses are also said to exceed 300 million dollars, more than its assets.

Afghan Finance Minister Hazrat Omar Zakhailwal and the governor of Afghanistan's central bank, Adbul Qadir Fitrat, called press conferences in the past two days to assure depositors that their money is safe and that the bank is solvent.

President Hamid Karzai also personally threw his support behind the bank, saying that people did not need to panic as the Afghan government stands behind Kabul Bank.

The president said the country's central bank has 4.8 billion dollars available to solve any financial crisis the country should face.

But despite the high-level support, customers were not reassured.

'The bank will collapse in two days if the run on bank continues,' Gholam Omar, a medical doctor, predicted to the German Press Agency dpa as he stood in a long queue at Kabul Bank's main headquarters, holding the 870th ticket.

'To be honest, I can not believe what our leaders say. I have 13,000 dollars and I want to withdraw all of it,' he added.

Long queues - more than usual - were also seen outside other private bank branches on Saturday, raising fears that people had lost confidence in the country's fragile financial system.

Mohammad Usman, a Kabul resident, said he had withdrawn 1,800 dollars before closing his account with the Aziz Bank, the second largest private bank in the country.

'If the crisis happened in Kabul Bank today, it might happen in Aziz tomorrow, so I want to be on safer side,' he said.

According to a Washington Post report on Friday, President Karzai's brother, who is one of the shareholders of the Kabul Bank, has called for the US government to intervene.

The US Treasury Department has reportedly sent a team to Kabul to help authorities deal with the crisis.