More Trouble Ahead for Kabul Bank

The run on deposits at the troubled Kabul Bank slowed Tuesday after a long religious holiday, but Afghan financial officials and businessmen said they foresaw further problems in stabilizing the bank, the nation’s largest, The New York Times reported. They raised the possibility of prosecutions of bank officials who were in charge until two weeks ago, when they were ousted because of fears that the bank’s losses far exceeded its deposits. Afghanistan’s central bank has taken several steps to help Kabul Bank, including the appointment of a new chief executive and other employees, that have effectively put the central bank in charge of managing Kabul Bank’s operations. But if more drastic steps were needed, then the central bank would face a hard choice. It would either be forced to dismantle the bank, because under Afghan banking laws, the central bank can not own a bank, or it could provide a financial bailout. Economists and banking officials said, however, that the bailout option was increasingly unlikely as depositors continued to withdraw money, though at a slower pace. A high-ranking Afghan official with knowledge of the bank’s finances, who spoke on condition of anonymity because of the delicacy of those finances, said, “The bank is not out of the woods.” The plethora of irregularities in the bank’s loan practices means it could take months to untangle the mess and bring the bank into compliance with Afghan banking laws, several officials said. Others said it would take years to regain Afghans’ trust in the still-nascent commercial banking sector in this impoverished, war-weary country. Read more.