Rescue plan for Afghan bank seeks to recover insider loans

Afghan officials plan to sell part of troubled Kabul Bank, the country’s biggest financial institution, in hope of clearing the way to resume international aid temporarily suspended last year after the bank’s loan scandal.

The head of the country’s central bank announced Wednesday that his institution had placed Kabul Bank in receivership and plans to have a government commission collect on its problem loans, then privatize what’s left of the bank within three months.

“All those who violated law and committed fraud in Kabul Bank, whether they are shareholders or employees, will be prosecuted strictly,” said Abdul Qadir Fitrat, head of the central bank, which took over day-to-day operations of Kabul Bank after the scandal. “A high-level commission has been established and has been empowered to collect the loans. If somebody doesn’t cooperate, we will take action. We will seize their property.”

Kabul Bank was the flagship of Afghanistan’s 17 commercial banks, responsible for processing the salaries of the nation’s 300,000 public employees.

In September, thousands rushed to withdraw their money from the bank as news spread that the institution had lost hundreds of millions of dollars that its owners, many of them members of Afghan President Hamid Karzai’s inner circle, had borrowed.

The International Monetary Fund suspended support for Afghanistan because of the scandal, in effect preventing the country from receiving about $70 million from many foreign donors, and recommended that the bank be placed in receivership or sold.

A review released last month by the U.S. Agency for International Development showed that the bank had fraudulently lent about $850 million to insiders, sometimes through “fictitious companies.” Those transactions represented 94% of the bank’s loans.

Fitrat said a government investigation found that the bank had lent about $909 million to shareholders, including interest, and that only about 5% of that had been collected. The attorney general’s office was investigating 19 cases of suspected fraud and questionable lending by the bank, he said, and two large corruption cases were being investigated by the High Office of Oversight, an independent anticorruption commission set up by the Karzai administration.

The Afghan leader has blamed foreign firms for failing to audit the bank, including PricewaterhouseCoopers, Deloitte and BearingPoint, insisting that they should be prosecuted as well as bank shareholders who accepted illegal loans. His spokesman did not return calls Wednesday.

Experts said Karzai and other officials have failed to adopt financial regulations that would prevent another scandal but would alienate bank leaders who helped fund their campaigns. They say the Kabul Bank debacle illustrates the lack of accountability that continues to pervade the Afghan economy, benefiting the president’s cronies while relegating much of the population to poverty.

“The Kabul Bank case is just the tip of the iceberg of an economy that stands on shaky ground,” said Thomas Ruttig of the Afghan Analysts Network. “Because there is a lack of rule of law -- or more precisely, the powerful often are able to put themselves above the law -- there is a deep lack of transparency.”

Foreign officials working to rebuild Afghanistan’s economy bear some of the responsibility for allowing the banking crisis to unfold, said Candace Rondeaux, an analyst with the International Crisis Group in Kabul, the capital.

“International donors have been sitting on their hands for years when it comes to assisting the Afghan government in developing a regulatory system not only for the banks but the credit system as a whole,” Rondeaux said.

Afghanistan’s 30 million inhabitants have a per capita income of about $500, the IMF says, and only 7% have bank accounts, according to the central bank. Many of those with accounts at Kabul Bank have been tracking developments and said they were encouraged by Wednesday’s announcement.

“If the government itself, President Karzai or other authorities, guarantee or back up the bank, then it’s possible for the bank to regain the people’s trust,” said Allah Mohammad Rateb, 27, an engineer who came to the bank Wednesday to pick up his paycheck.

molly.hennessy-fiske@latimes.com

Special correspondents Hashmat Baktash and Aimal Yaqubi contributed to this report.