Bailout in the Works for Afghan Bank as Panic Continues

 

S. Sabawoon/European Pressphoto Agency

Afghans in Kabul lined up Saturday to withdraw their savings from Kabul Bank amid fears of the bank's imminent collapse.

By ADAM B. ELLICK

Published: September 4, 2010

KABUL, Afghanistan — In a bid to fend off the threat of a nationwidefinancial crisis, the Afghan government scrambled to come up with the funds to bail out Afghanistan’s largest bank on Saturday after lines of frantic depositors mobbed the bank for a third day.

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Details of the deal were still being worked out on Saturday by the Central Bank of Afghanistan with technical assistance from the United States Treasury Department, Afghan and American officials said. But American officials said no United States funds were involved in the bailout.

The planned injection of cash into the beleaguered Kabul Bank is meant to slow the run on the bank by its customers, who have withdrawn more than $200 million in the past few days amid fears of a wider economic collapse.

But on Saturday, thousands of nervous Afghan depositors, unaware of the bailout and unconvinced of the bank’s solvency, stormed the bank’s central branch in Kabul to withdraw their savings.

Hundreds of men pushed and shoved their way to the front, while others waited behind them for hours in the saunalike atmosphere of the lobby, making it impossible to discern where the lines ended and began. Furious customers shouted angry complaints. An elderly woman in a black dress cried out in distress.

But the teller drawers were largely empty and most customers left empty-handed. “What should I give you when I have nothing to give?” a teller told one agitated customer.

Similar scenes were reported at branches in other cities.

The panic began last week when the Central Bank ousted the chairman and the chief executive officer of Kabul Bank, after discovering that the bank had acted recklessly, lending tens of millions of dollars to allies of President Hamid Karzai and pouring money into risky real estate investments in Dubai.

The crisis threatened to undermine confidence in Afghanistan’s fledgling financial system, which was built under American guidance after the collapse of the Taliban government in 2001. Among the clients of the bank is the government, which pays about 250,000 public employees through the bank, including those of security officials and the military.

Top officials at Kabul Bank and a senior leader at the Central Bank declined to comment publicly on the proposed bailout, which was still being negotiated Saturday. However, a manager at the Central Bank and a senior American official confirmed that there would be what the American official called an “intervention.”

The Afghan government has withdrawn roughly $300 million of its own reserve funds held by the Federal Reserve Bank of New York, as well as Afghan funds held by central banks outside the United States, a senior Obama administration official said.

But the United States is not contributing any American money to the rescue.

“No American taxpayer funds will be used to support Kabul Bank,” said Jenni LeCompte, a Treasury Department spokeswoman.

The Treasury Department is advising the Afghan government on how to manage the crisis, and has sent a team of experts to Kabul. While the Afghan Central Bank has intervened, the official said, it has not yet taken over Kabul Bank, an option it still has should the panic continue.

The official at the Afghan Central Bank, who requested anonymity because he was not authorized to speak to the news media, said that the bank’s risk management department was preparing to take over operations at Kabul Bank, and that Kabul’s existing management would be purged.

Other officials did not confirm those plans.

A major shareholder in the bank, Mahmoud Karzai, the brother of the Afghan president, said Saturday that he was unaware of a bailout. He said such intervention would be unnecessary considering that the bank still retained half of its $600 million in assets.

The bailout comes several days after President Karzai and other top government officials pledged that they would guarantee deposits. The government has blamed the international and local news media for inciting fears.

Mahmoud Karzai said that the government “will absolutely guarantee” the salaries of public servants. He said the government was transferring money to Kabul Bank each day and that half of the bank’s assets were still solvent.

But those assurances failed to curtail the rush of withdrawals.

Officials at Kabul Bank said they had not yet calculated how much money customers withdrew on Saturday, but that they believed that the figure was less than in previous days. On Thursday, one of the bank’s principal owners said depositors had withdrawn $180 million in the previous two days.

Khalilullah Frozi, one of the two largest shareholders of Kabul Bank, said the bank retrieved $17 million in loans from borrowers on Saturday.