Financial panel to decide Kabul Bank`s fate

Kabul Bank nearly collapsed last year after allegations of mismanagement.

Updated: Mar 27, 2011, 16:14 PM IST

Kabul: An independent Afghan financial commission has been asked to recommend whether to dissolve Kabul Bank, the nation`s largest financial institution that nearly collapsed last year after allegations of mismanagement, cronyism and questionable lending, an Afghan official said on Sunday.

The bank currently is controlled by the central bank, which has transferred several hundred million dollars to shore up the institution after a run on it last year by nervous depositors.

Last month, the International Monetary Fund recommended that Kabul Bank be placed into receivership and then quickly sold off as part of a broader effort to stabilise the country`s shaky financial system. US Treasury Department officials agreed with the decision.

Afghan central bank officials could not be reached for comment.

"Normally such a decision goes to the Financial Disputes Resolution Commission, an independent commission, and we are waiting for the FDRC decision," Mustafa Mastoor, deputy finance minister, said on Sunday.

The bank, which plays a key role in the Afghan economy by handling payrolls for government workers and security forces, 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.

A brother of one of Afghanistan`s two vice presidents is also a shareholder and Karzai`s eldest brother, Mahmood Karzai, owns 7 percent.

Mahmood Karzai said he had never heard of the Financial Disputes Resolution Commission and was not aware that it was being asked to recommend whether the bank should be dissolved.

Government banking officials have serious problems with the way the bank`s management conducted business over the years, he said in a telephone interview. The shareholders had not been part of the bank`s day-to-day management but should now be kept informed of decisions being made about its fate.

Mahmood Karzai said he was not a banking expert and did not have an opinion about whether the bank should be dissolved, but that he hoped the government was getting expert advice from international banking authorities.

"Nobody has ever been involved with a thing like this in Afghanistan ... I am in favour of forensic auditing to get to the root of the problems, to find missing money, trace the accounts where the money went. ... What to do with the bank? I`m not an expert on that and I couldn`t tell you."

The international community has been pressuring Afghan government officials to resolve the bank issue.

In February, Afghan officials said an "erroneous" audit and inadequate help from international banking advisers compounded long-running financial problems at the embattled Kabul Bank.

The audit was conducted by AF Ferguson & Co, a Pakistan-based member firm of PricewaterhouseCoopers, an international accounting and consulting company. In an e-mailed response then, AF Ferguson said: "We don`t understand the basis for this comment."

The US government responded, saying the responsibility of supervising Afghan banks rests with the Afghan government, not with outside auditors or international banking advisers.

Earlier this month, the US Agency for International Development ended the banking-related part of its contract with the international accounting firm of Deloitte, saying its advisers at the central bank "could have been more aggressive in following up on indications of serious problems at Kabul Bank”.

On March 16, UN Secretary-General Ban Ki-moon said Afghans must overcome "major obstacles" to demonstrate their ability to control the country`s future, including the impasse over what to do with the bank.

The United Nations chief said in his quarterly report to the UN Security Council that the impasse was weakening confidence in Afghanistan`s financial system and preventing the International Monetary Fund from completing a new program for the country.

The Kabul Bank issue could affect the prospect of international partners giving assistance in line with Afghanistan`s development priorities and would threaten to undermine the government`s vision for economic growth, he added.

Without an IMF program, Ban said, it will be difficult for international partners to meet commitments they have made to help Afghanistan and direct funds through the government`s budget. Britain`s Department for International Development already has said that it would delay nearly USD 138 million in aid to Afghanistan this year because of the lack of IMF support.

Bureau Report