Afghan Elite Borrowed Freely From Kabul Bank

A damning internal report by Afghanistan’s own Central Bank depicts the Afghan political elite as using Kabul Bank, the country’s biggest financial institution, as its private piggy bank, the International Herald Tribune reported. The report both raises questions about why the authorities did not act sooner and suggests that the answers lay in the political connections of the bank’s officers and shareholders — the recipients of most of the more than $900 million in loans. “Transparency and accountability were sacrificed to widespread falsifications in order to cover up the use of influence,” the Central Bank’s officials wrote in the Oct. 20 report, a copy of which was recently obtained by The New York Times. “It was like a Ponzi scheme,” said a Western diplomat familiar with the bank’s dealings, who spoke on the condition of anonymity because he was not authorized to speak to reporters on the highly delicate matter. “The bank had to keep marketing and getting more deposits to fund the loans that they weren’t getting interest on.” The report also suggests that Kabul Bank’s long-term finances are in much more dire shape than previously understood, a condition that explains why the Central Bank has been discussing putting the bank into receivership. The International Monetary Fund is pressing for receivership as a condition of renewing its program with Afghanistan. Without the I.M.F.’s blessing, some major donors are required by their own laws to withhold aid from the country. Read more. (Subscription required.) In a related story, Reuters reported that diplomats in Kabul said government approval for placing Kabulbank into receivership would be given later on Monday and the process would be complete within two weeks, clearing the way for the IMF to renew its support programme under which billions of dollars of foreign aid are mandated. Read more.