Angry customers wait outside the Kabul Bank in the Afghan capital on September 5.
Afghanistan's central bank governor, Abdul Qadir Fitrat, says privately owned Kabul Bank is on solid financial footing despite thousands of depositors who have rushed to withdraw their savings during the past week.
Nervous depositors today continued to queue up at branches in the capital to make withdrawals -- and were still able to do so -- as Afghan officials tried to prevent concerns about the bank from escalating into a full-fledged panic run. Bank branches in Kabul remained open extra hours today despite the Ramadan holiday.
Fitrat said today that no decision had been made about state funding to shore up Kabul Bank, which has more than 1 million customers and handles the salary payments for Afghan soldiers, police, and teachers.
"As far as President [Hamid] Karzai's instruction for any new money injection into Kabul bank or the cabinet's decision, no such decision was taken today," Fitrat said. "But the entire cabinet and the president, with one voice, announced their full and unconditional support for the decisions taken by the governor of the central bank and the minister of finance with regard to Kabul Bank in the last few days."
Sloppy Lending?
Some troubles at Kabul Bank are said to stem from dubious loans given to the bank's own shareholders and from risky investments in Dubai real estate. Reports of corruption within Kabul Bank have led thousands of retail customers to try to withdraw their savings, creating concerns about liquidity, or cash on hand.
Fitrat said today that Kabul Bank's liquidity has been high enough to meet all withdrawal requests so far.
"Still Kabul Bank is using its own money," Fitrat said. "The best practice is banks keep liquidity between 15 and 25 percent [of deposits], but Kabul Bank's liquidity was more than 40 percent."
WATCH: Hundreds of worried Afghans wait in line to withdraw their money from Kabul Bank:
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Signs Of Financial Panic In Kabul
Indeed, few financial institutions in the world are able to withstand such a run when a large number of withdrawal requests are made at the same time. Panic spreads when there are rumors that a bank is refusing to allow people to immediately withdraw their savings.
Afghan authorities are therefore reassuring depositors and trying to prevent Kabul Bank's troubles from escalating.
On September 5, Fitrat ordered Kabul's mayor to block the sale of property in the capital by five of the main shareholders of Kabul Bank who also have received loans from the institution.
Aziz Shams, a spokesman for Afghanistan's Finance Ministry, explained to RFE/RL today that "one decision that the government could take to reassure people [about the stability of Kabul Bank] was to ask the Kabul mayor to freeze any kind of sales of the properties of those who are [the main] shareholders in [Kabul Bank] until the problems there are clear."
Barricading The Bank
But another, less reassuring step taken by the government on September 5 was to set up barbed wire around Kabul Bank's main branch in the capital and encircle the building with armed trucks and security forces -- replacing guards from a private security company that is owned by the brother of the bank's former chief executive.
Abdullah Abdullah, head of the leading political opposition group in Afghanistan's parliament, suggested that Kabul Bank is struggling because of corruption within. He said Karzai's government needs to be more open about the stability not only of Kabul Bank but of all banks in Afghanistan.
"We don't expect this to hurt all people. Benefits from the recent situation have gone to a handful of individuals, and now the bank's losses will be broad and impact many. We don't want that," Abdullah said. "The central bank should come and tell us not only about the case of Kabul Bank but about other Afghan banks -- whether there are similar problems in other Afghan banks.
"They should give assurances to people, but it should not be assurances that are made only after the bank already is hanging on the edge of a cliff."
Speaking to journalists at his home in Kabul on September 5, Abdullah also said he had received information that the Afghan government has recently "funded" Kabul Bank. He said the government should announce how much cash it has injected into Kabul Bank.
But Shams, the Finance Ministry spokesman, told RFE/RL today that the funds recently sent to Kabul Bank are not part of a bailout package.
"The money that was officially transferred to Kabul Bank [by the government] is 3 billion afghanis [or about $67 million] and it is for the salaries of government employees. That's because the salaries of government employees in the past have been distributed through Kabul Bank," Shams said. "So now, with salaries due, the Finance Ministry has approved the transfer of 3 billion afghanis [to Kabul Bank]."
Last week, Afghanistan's central bank ordered the removal of Kabul Bank's chairman, Sherkhan Farnud, and its chief executive officer, Khalilullah Feruzi.
Both men were major stakeholders in the bank, each holding ownership stakes of about 28 percent. Officials insist the removals were part of a normal reform of the banking industry -- with new rules that prohibit major stakeholders from serving as bank officials.
Depositor Concern
Shams said the government's confidence in Kabul Bank is demonstrated by the fact that it is still being used to distribute the salaries of 250,000 state employees -- including soldiers, police, and teachers.
He suggested that "if there was a concern [about the stability of Kabul Bank], after all these changes in the bank's leadership, the Ministry of Finance would not transfer 3 billion afghanis to Kabul Bank."
But many depositors who had queued over the weekend were turned away before they could speak to a bank teller because the bank closes early during Ramadan.
Some frustrated customers told RFE/RL's Radio Free Afghanistan that they are concerned about whether they will be able to get their money, whether from salaries or personal deposits, from the bank.
"We are poor people. We work and we come here every 15 days to collect our salary. But we now face such a problem just trying to get our salary," one man said. "We don't know whether Kabul Bank has been guaranteed by the Afghan government or by the international community. But who will give us a guarantee [that this bank will continue to function]?"
Torpekai Sabour, a young woman who teaches at a high school in Kabul, told RFE/RL that she is not panicking because she has been able to collect her salary and withdraw money.
"I am one of Kabul Bank's customers. I can assure you that our salary was distributed here," she said. "We have gotten our salaries on time. I came here and my work was finished -- my request was processed and I am happy with Kabul Bank."
Meanwhile, "The Wall Street Journal" reported that there are conflicting accounts of how much money the Afghan government may be prepared to divert to Kabul Bank in the future from roughly $4.8 billion in foreign-exchange reserves.
The financial newspaper quotes one unnamed central bank official as saying that $200 million may eventually be needed. An unnamed official in Afghanistan's Finance Ministry says the figure could be closer to $400 million.
"The Wall Street Journal" also quotes an unidentified central bank official who says several options are being discussed to recover funds if a bailout becomes necessary. He says one option is to force major shareholders who bought their stakes with loans from Kabul Bank to either repay what they borrowed or hand over their shares.
He says another option would be to confiscate properties or businesses that were bought or built by bank insiders using loans from Kabul Bank.
RFE/RL's Radio Free Afghanistan contributed to this report from Kabul and Prague
