Bloomberg News

Afghanistan Plans to Sell Scandal-Scarred Kabul Bank in June

April 11, 2012

Afghanistan’s government plans to sell the country’s biggest commercial bank in June after seizing it in 2010 from owners who lost more than $800 million of depositors’ money through illegal insider loans.

“We expect to sell Kabul Bank in June” following a tender process, Noorullah Delawari, governor of Afghanistan’s central bank, said in an interview April 10 at his Kabul office.

The scandal led the International Monetary Fund to halt its loans to the country in 2010, prompting the U.S. and other governments to suspend aid on which President Hamid Karzai’s administration relies for most of its budget. The IMF said it sought the sale of Kabul Bank, as well as prosecution of Kabul Bank founders who lent money to themselves and to Karzai allies.

The IMF resumed lending to Afghanistan in November, saying it did so on the expectation that prosecutions and a recovery of lost assets would be accelerated this year.

Karzai ordered April 3 the establishment “at the earliest” of a special prosecutor and tribunal to pursue criminal charges against “those who have illegally taken loans from Kabul Bank,” his office said that day in a statement. Karzai and top aides, including Delawari, “set a two-month deadline for the full repayment of the loans illegally received” from Kabul Bank, the statement said.

Any recovery of the loans will take longer, Delawari said in the interview. “The illegal borrowers so far have admitted to receiving about $361 million and have promised to repay those loans within the next five years,” Delawari said in his office at the central bank headquarters, adjacent to Karzai’s presidential palace in central Kabul.

Karzai ‘Deadline’

Karzai’s announcement of a “deadline” was not a demand for full repayment, but rather an offer that “if people pay the loans in the next two months, they will not be charged interest on those loans,” Delawari said.

The central bank, or Da Afghanistan Bank, has paid between $925 million and $935 million to bail out Kabul Bank, Delawari said, mostly to replace deposits that its former ousted chairman, Sherkhan Farnood, and chief executive officer, Khalilullah Ferozi, used to make insider loans.

In July, Deputy Attorney General Rahmatullah Nazari said the two men had been arrested and charged with “embezzling more than $900 million.”

As of January, authorities had recovered about $77.5 million from Kabul Bank, about $40 million coming from repayment of illegal loans, Delawari said. IMF Deputy Managing Director Nemat Shafik said in November that “asset recovery and legal actions against the architects of the fraud have lagged and need to be pursued more forcefully” before the fund’s next review of its lending program, scheduled for May.

Budget Rejected

The government’s difficulties in raising money for the bailout were underscored April 10 when its lower house of parliament, the Wolesi Jirga, rejected Karzai’s proposed budget for a second time in two weeks as legislators complained about an $80 million allocation for the bank rescue, the Pajhwok and state-run Bakhtar news agencies reported.

Delawari headed Da Afghanistan Bank from 2004 to 2007 before being named to run the Afghan Investment Support Agency. He worked for more than 20 years at U.S. commercial banks, serving as vice president of Lloyds Bank California, according to his biography on the investment agency website.

Karzai sent Delawari back to the central bank in November after the previous governor, Abdul Qadir Fitrat, fled the country amid government infighting over the Kabul Bank scandal. Fitrat, a U.S. citizen, returned to his home in suburban Washington saying he had received threats over his calls for the prosecution of Kabul Bank officials.

Karzai’s office said at the time Fitrat had fled after being summoned for questioning over his role in managing the aftermath of the scandal.

To contact the reporters on this story: Eltaf Najafizada in Kabul at enajafizada1@bloomberg.net; James Rupert in New Delhi at jrupert3@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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