Panicked Afghans nearly collapse Kabul Bank after loan corruption scandal

Branches of Kabul Bank across the country were crowded as anxious depositors joined hundreds of thousands of government employees queuing to collect their salaries, which were being paid through the bank on Saturday.

The privately-owned bank has been the subject of reports alleging large-scale corruption by executives, though the government and central bank have said it is solvent and there is no need for customers to panic.

Banks were closed on Friday for the weekly holiday, providing respite after a day of mild panic following the reports, which saw the Washington Post say the Kabul Bank had been taken over by the central bank.

The governor of Afghanistan's central bank, Adbul Qadir Fitrat, said the bank had not been taken over and along with the finance minister reassured depositors their money was secure.

US newspapers, including the New York Times and the Wall Street Journal, reported on Wednesday that the central bank had replaced the bank's two top executives -- chief executive Khalilullah Ferozi and chairman Sher Khan Farnud -- and ordered Farnud to hand over 160 million dollars' worth of luxury property purchased in Dubai for himself and for cronies.

Fitrat denied the reports, saying the men had resigned voluntarily as new regulations did not permit shareholders to hold executive positions.

Finance Minister Hazrat Omar Zakhailwal reassured Kabul Bank customers the institution was solvent, saying the administration of President Hamid Karzai gave its full backing and cash was being delivered to branches nationwide.

He said 100 million dollars had been deposited in the bank to cover government salaries, which were due to be paid Saturday to police, army, teachers and many other civil servants.

The US newspaper reports said a cash crisis at the bank could undermine the stability of Afghanistan's financial system and efforts to quell a nine-year-old Taliban-led insurgency.

On Saturday, the Washington Post quoted Ferozi as saying he had warned Afghan officials that a change of senior bank personnel could be destabilising.

Finance ministry spokesman Aziz Shams told AFP: "A change in the leadership of the bank is a normal thing. The government of Afghanistan has always supported the private sector, including private banks.

"People are always chasing rumours and speculation," he said, referring to the reports.

"There is no real problem in this bank. We support the bank and we are not concerned that it will collapse."

The deputy commander of NATO's International Security Assistance Force (ISAF),Lieutenant General Nick Parker, said Afghan and foreign forces were prepared for any potential security threat that might arise from the bank's troubles.

"We have to be ready to react to a security situation," Parker told reporters.

Crowds thronged Kabul Bank branches in the capital, in eastern Herat, southern Kandahar and northern Mazar-I-Sharif cities on Saturday, many simply wishing to withdraw money ahead of the upcoming Eid holiday.

Eid marks the end of the fasting month of Ramadan, when Muslims buy gifts, clothes and special foods to celebrate with their families.

Mohammad, a 35-year-old doctor, said he came to withdraw 800 dollars from his savings of 2,500 dollars at Kabul Bank's main branch in the capital "because Eid is approaching and I need the cash".

"I don't believe the bank will go bankrupt," he said.

By contrast, 22-year-old Waheed, after waiting in line at a Herat branch for two hours, said: "Kabul Bank has lost the trust of the people, I heard from the news that even the chairman resigned so everyone is concerned.

"I am pulling my money out of the bank."

The Washington Post said on Friday that the US Treasury Department had despatched a team to Kabul to help deal with the crisis, and said that a brother of the president had called for Washington's intervention.

The US embassy did not answer queries.