Kabul Bank to Be Liquidated Next Month

KABUL—Afghanistan’s biggest lender Kabul Bank will be liquidated starting next month, in a step required by the International Monetary Fund to renew financial assistance to the country, Afghan officials said.

Kabul Bank experienced a run on deposits last fall after massive fraud at the lender was exposed. The bank’s biggest shareholders, including a brother of the Afghan president, Mahmood Karzai, allegedly used improperly obtained loans to speculate on the Dubai property market that has since gone bust, and to lead luxurious lifestyles. Mr. Karzai has denied wrongdoing.

The process of liquidating the bank will start in April, when performing assets will be sold off and the lender will be split into a “bad bank” containing the troubled loans and a “good bank” with a viable business, Afghan officials said. The bad bank will be placed in Central Bank receivership, while the good bank will be put on the market for sale. If no buyer comes forward within six months, the good bank may also be liquidated, officials said. The plan was first reported in The Washington Post.

In the coming weeks, Afghan Finance Minister Omar Zakhilwal expects to travel to the IMF’s headquarters in Washington to agree on a set of financial reforms, including Kabul Bank’s future.

“We’re still negotiating with the IMF,” said a senior Afghan official. Calls to the Central Bank spokesman went unanswered Sunday while the IMF representative in Kabul was not immediately available to comment.

The IMF and the Afghan government have been at loggerheads since the fall, when the IMF suspended its financial assistance to the country partly because the government refused to shut down Kabul Bank.

Afghan officials say they have been advised by the IMF to liquidate the bank to stymie its losses, which could be contained at about $600 million, compared with an estimated $900 million if Kabul Bank remains afloat. Several bilateral aid programs rely on the IMF’s endorsement, and they could resume funding Afghan projects once the IMF strikes a deal with Kabul.

Earlier this month, the British government said it delayed £85 million pounds ($137.6 million) in aid to Afghanistan this year “in light of a continuing absence of an IMF program in the country.”

Caroline Atkinson, the IMF’s external relations director, told a press briefing last week that renewing any assistance program to Afghanistan depends on solving the Kabul Bank issue.

“That’s an important element of a comprehensive plan that is needed to make sure that we know what we’re dealing with in the country,” she said.

The Afghan government channels most payments to public servants, soldiers and policemen through Kabul Bank, and the run on its deposit sparked a national crisis last fall.

The lender was taken over since then by the Central Bank. The Central Bank has launched an investigation into Kabul Bank and Azizi Bank, the country’s second largest.

In a separate development, at least 30 Afghan policemen were ambushed and captured by Taliban fighters in eastern Kunar province on Saturday, Khalil Zyayee, the provincial police chief said. He added that the government is talking to the area’s tribal elders to negotiate the captives’ release.

Taliban spokesman Zabiullah Mujahid said that 50 policemen were caught and that a decision will be taken on “whether the Taliban will release them or punish them.”