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Central bank says no decision to break up Kabul Bank

Central bank says no decision to break up Kabul Bank

Mar 28, 2011 - 16:46

KABULinfo-icon (PANinfo-icon): The central bank, Da Afghanistaninfo-icon Bank, on Monday denied it has agreed to dissolve the embattled Kabul Bank, after the disclosure that bank executives and shareholders had been taking out loans to invest abroad.

"No commission is established and no decision has been taken to break up the bank," the central bank said in a statement, quoting deputy foreign minister, Mustafa Mastoor.

Kabul Bank’s founder and chairman, Sherkhan Farnood, and its chief executive, Khalilullah Fruzi, were removed from their posts last fall and barred from leaving the country, following the scandal.

Media reports on Sunday said the chiefs of the Central Bank, which regulates the country’s banking sector, passed a resolution this month recommending that Kabul Bank be put into receivership.

Quoting finance ministry officials, the reports said the process, which must be approved by a government committee, would separate the bank’s deposits and performing loans from investments and loans unlikely to be repaid.

The reports also quoted Mastoor as saying that they needed to know how much the loss was so they could determine how to respond. The government would then seek to find a buyer to assume the deposits and good assets, which would be used to start a new bank, he said. The bad assets would be liquidated.

After the multi-million dollar scandal broke in September, the central bank abruptly took control of Kabul Bank, the country's largest private institution, and injected hundreds of millions of dollars to keep it afloat.

The government, particularly President Hamid Karzai, assured customers that their money was safe.

Central Bank officials had suggested the bank be under a guardian for a few years until it could be stabilised and sold off. But international pressure to put the bank in receivership grew stronger last month. The International Monetary Fund (IMF), which suspended its funding to Afghanistan as a result of the scandal, sent a delegation to Kabul in early February to review the steps the country had taken to restructure the banking sector.

The Afghan government agreed to break up the lender to prevent the loss of support from the IMF and billions of dollars in aid, the reports said.

Quoting Kabul-based diplomats, media reports said government approval for placing Kabul Bank into receivership would be given later on Monday and the process would be complete within two weeks.

But chief advisor of the central bank, Syed Ishaq Alvi, rejected the reports as baseless and unfounded. "The central bank takes decision in agreement with Afghan organisations, not under pressure from foreign countries," he said.

He said technical talks were in place with foreign stakeholders, but did not provide further details.

A spokesman for the central bank, Aimal Hashor, earlier told Pajhwok Afghan News, that talks were underway with a delegation of the IMF to find a solution to the crisis.

He also rejected reports that a committee had been set up to dissolve the bank.

"There is no exclusive committee set up to resolve the matter," he said, assuring depositors that their money was safe.

Calls seeking comment from Mastoor were not answered, but the finance ministry advisor, Najibullah Manalai, also denied reports a commission had been formed to resolve the bank dilemma.

"It is possible the context of Mastoor's statement is wrongly reflected in media reports," he said, adding any decision from the central bank would be acceptable to the finance ministry.

Mahmood Karzai, the president’s brother, said he had no report about the establishment of a special committee for resolving the crisis.

Kazai, who is among the shareholders, has committed to pay back the loans he took out. A US citizen, he is reportedly under investigation by federal prosecutors in New York for possible tax evasion — an accusation he has denied.

He accused the government of not informing stakeholders about any possible changes in the bank.


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