Afghanistan's biggest bank is taken to brink by corruption

The debauched Dubai lifestyles of Afghanistan's corrupt political elite have pushed the country's biggest bank to the brink of receivership and sparked fears of a billion-dollar bailout to stop the poorest savers rioting.

Swimming pools, tower blocks and at least 16 luxury villas on Dubai's lavish Palm Jumeirah are among hundreds of bad assets bought by the Kabul Bank's shareholders - with money they lent themselves, out of soldiers' and teachers' savings.

The governor of Afghanistan's central bank promised they would "never let it collapse" yesterday, but he insisted Kabul Bank was not yet under government control.

The banks losses might exceed $300 million. That number far exceeds its assets.

President Hamid Karzai's millionaire brother, Mahmood, and the vice-president's brother, Haseen Fahim, are both part-owners. Kabul Bank provided millions to Mr Karzai's re-election campaign last year.

They lured more than two million Afghan depositors to invest roughly $1.2 billion since the opened in 2004. The bank advertised a lottery scheme which rewards lucky account holders, instead of paying interest.

"The real risk is a short run on the bank which could quickly escalate into violence," said an analyst in Kabul. "It's humiliating for the Afghan government to have been caught with its hands so deep in the till."

Most of Afghanistan's soldiers, policemen and teachers get their salaries paid into accounts at Kabul Bank. Most of them earn less than $200 (125) a month.

Mr Karzai ordered the Central Bank to intervene on Monday, under pressure from General David Petreaus, the commander of US and Nato forces in Afghanistan. He promised to crack down on the "cancer of corruption" in his government when he took office last year, but has been repeatedly criticised for failing to honour his commitment.

"This is probably the only bank in the world where the shareholders give loans to themselves," said Haroun Mir, director of Afghanistan's Centre for Research and Policy Studies.

He said his attempts to investigate the banks last year were blocked.

The bank loaned Mahmood Karzai the money to buy four coal mines and Afghanistan's only Toyota franchise. In the nine years his brother has been president, Mahmood has gone from a restaurateur in Maryland, in America, to one of Afghanistan's richest men.

"The Kabul Bank is a example of the level of corruption and partnership between politicians and business," Mr Mir said. "If they bail out the shareholders they are supporting the Mafia.They must only bail out the poor depositors."

Afghan and US investigators are now wading through hundreds of murky deals and unrecorded loans to fully grasp the scale of the crisis.

"The central bank, the government of Afghanistan, is standing behind Kabul Bank and will never allow it to collapse," central bank governor Abdul Qadir Fitrat said yesterday.

Mr Fitrat was adamant the Kabul Bank had not been taken over, but confirmed the company's chairman Sherkhan Farnood a world-class poker player - and chief executive Khalilullah Feruzi had been summoned to the Central Bank on Monday and ordered to resign.

"Kabul Bank itself has appointed a new CEO and the rest of the staff are Kabul Bank staff," Mr Fitrat said. "The only people who have resigned are the chairman and the CEO on the instructions of the central bank."

Most of Kabul Bank's 68 branches were open for business as usual yesterday. Although there were reports of slightly more withdrawals than usual, many depositors seemed unaware of the looming crisis.

Mr Fitrat is understood to have demanded the men sign over the purchase of more than $160m of Dubai property - including the 16 houses on a frond of the Palm known as Kabul Bank Street.

Although Afghanistan was spared the worst of the global financial crisis as it has an aid dependent economy with few exports, financial analysts have long warned the banks were over exposed to Dubai property.