Afghans resist IMF pressure to sell off bank

The International Monetary Fund wants Afghanistan to wind down and sell off Kabul Bank to stabilise the financial system, according to the governor of the country’s central bank.

Afghan officials fear, however, that any move to place the country’s largest bank into receivership may trigger renewed panic in the banking sector, which was rocked by Kabul Bank’s near-collapse amid corruption allegations five months ago.

The scandal at the bank, in which a coterie of businessmen and politicians took out huge loans, has become an emblem of the crony capitalism that has flourished in Afghanistan since the fall of the Taliban in 2001.

A protracted dispute over the lender’s fate could complicate attempts by donors to boost aid flows to shore up the government of Hamid Karzai, president, against a spreading insurgency, while further straining its ties with the west.

The central bank, which took over management of Kabul Bank after removing its top executives in September, believes it can nurse the lender back to health by working to recover assets from a loan book it values at $579m.

Abdul Qadir Fitrat, central bank governor, said he had secured commitments to return $315m of loans and was confident the bank could return to profitability by the end of this year and find a buyer by 2014.

“We tell them [the IMF] that we can achieve this without going into receivership, because we have now devised a rehabilitation plan,” Mr Fitrat told the Financial Times. “But they say no, we should do it through receivership.”

The IMF believes that placing the bank into receivership would represent the quickest and most effective option for resolving the scandal, officials in Kabul said.

The disagreement has emerged as a sticking point in Afghanistan’s attempts to regain the support of the fund, which was on the verge of signing a new support agreement when the Kabul Bank scandal erupted five months ago.

Afghanistan is keen to conclude a new deal, since many donor countries only provide budget support to governments with the fund’s seal of approval. An IMF delegation from Washington is due to arrive in Kabul this month.

Mr Fitrat was confident of signing a new agreement. “Once we negotiate I think everybody will agree, and I think our IMF colleagues will also understand our position,” Mr Fitrat said.

An IMF spokesman confirmed that a team would be visiting Afghanistan shortly to continue discussions on a possible fund-supported programme. “In this context, the authorities and the IMF will be discussing possible measures to reinforce the country’s financial system and a course of action with regard to Kabul Bank,” he said.

The IMF is expected to seek Afghanistan’s proposals for financing the money it has committed to shoring up the bank, perhaps by issuing debt. The cost of keeping it afloat is estimated to run into hundreds of millions of dollars.

The scandal widened this week when a series of media reports named prominent reformers in Mr Karzai’s government as among politicians who benefited from payments designed to buy their silence over illicit dealings at the bank.

Omar Zakhilwal, the finance minister, urged anti-corruption authorities to launch an investigation into the allegations against him on Wednesday. He and the other officials named in the reports deny wrongdoing.