September 5, 2010 in Nation/World

Officials struggle to stabilize Kabul Bank

U.S. sending team of advisers, but no bailout funds
Ernesto Londono Washington Post
 

KABUL, Afghanistan – With crowds again besieging Afghanistan’s largest private bank after a day’s respite for Friday prayer, Afghan authorities on Saturday grasped for a plan to shore up tottering Kabul Bank and avoid potential economic and political turmoil.

One option, according to a person familiar with discussions between President Hamid Karzai and key protagonists in the drama, is that the state take possession of a substantial part of the bank’s shares. This would allow the government to inject money into a bank that, although entirely privately owned, plays a key role in the functioning of the state because it handles payments for soldiers, police and teachers.

In a sign of his determination to stabilize Kabul Bank, Karzai ordered Afghan police to take over guard duties at bank branches from a private security company, said Sherkhan Farnood, the bank’s founder and ousted chairman.

Kabul Bank depositors on Saturday yanked out about $69 million. But this was largely because the bank ran out of cash at many branches when the Central Bank had trouble delivering funds. Kabul Bank began the week with $500 million in liquid assets, most of it stashed with the Central Bank, but now has less than half that amount.

Saturday’s renewed stampede by depositors represented a blunt vote of no confidence in Karzai, who had assured Afghans that Kabul Bank would not collapse and accused Western news media of overstating its problems.

Some Kabul Bank shareholders, including Mahmoud Karzai, the president’s brother, and Khalilullah Fruzi, the bank’s former chief executive, have called on the United States to offer a bailout.

The U.S. Treasury Department has sent a team of experts to Kabul to help but has ruled out sending cash.

“This is an Afghan issue. They are taking immediate steps to ensure the stability of Kabul Bank,” said Deputy Treasury Secretary Neal Wolin. “No American taxpayer funds will be used to support Kabul Bank.”


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