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News & Updates
  February 15, 2010
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DAB Public Statement on Kabul Bank  

Actions taken so far In early 2010, Da Afghanistan Bank (DAB) received information indicating that some Kabul Bank shareholders may have used depositors’ money for investments in Dubai properties. Subsequently, DAB Supreme Council passed a resolution banning shareholders from holding top management positions (Executive Board) in banks. At that time shareholders occupied senior executive positions in some commercial banks. In August 2010, DAB learned more about Kabul Bank’s other investments in Pamir Airline, Gas Group, Kabul Naft, Zakhira, Gulbahar Center, and Gulbahar Towers. It turned out that most of these investments were made in violation of the Law of Banking in Afghanistan. Shortly after, DAB removed shareholders from their positions as the chairman of Supervisory Board and CEO of Kabul Bank. In early September 2010, news about problems at Kabul Bank caused a run and the withdrawal of about US$ 600 million of deposits – almost half of the bank’s deposit base – DAB placed Kabul Bank under conservatorship, thereby assuming control of its day to day operations. DAB removed the Chairman of the Supervisory Board and the CEO of the bank and appointed professionals to oversee Kabul bank operations and protect depositors. Furthermore, to stabilize the situation and ensure that all depositors would have access to their savings, the government of Islamic Republic of Afghanistan announced a full guarantee of Kabulbank’s deposits and provided a US$400 million lender of last resort loan to Kabul Bank to enable it to discharge the deposit guarantee. The conservatorship team conducted a detailed review and analysis of Kabul Bank’s records, many of which had been withheld from DAB by the previous board and/or management of Kabul Bank. The conservator’s investigations of the operations and the loan portfolio of the bank revealed that during the past 6 years Kabul Bank has extended US$ 579 million of fraudulent and undocumented loans, mostly to its own shareholders and a limited amount to other borrowers. Adding interest to these fraudulent and currently non performing loans would raise the amount due to approximately US$ 909 million. However, to deceive DAB examiners during these years, Kabul Bank seemingly manipulated its balance sheet to hide the true beneficiary of most of these loans and show a fictitious profit, and even paid taxes based on these fabricated profit reports. The external and internal auditors and bank examiners of Kabul Bank, reportedly, failed to detect this massive fraud. The conservatorship team took steps to secure and recover bank funds. Shortly after their appointment, the conservator team froze the accounts of those shareholders who had allegedly benefited from improper loans. With the efforts of the team, monthly expenses of the bank decreased from US$ 10 Million to US$ 3.5 Million, resulting in significant annual savings to the bank. In addition, the conservator’s team started investigations to identify fictitious loans made by the management of the bank through careful falsification of identities and collaterals. The conservator also tried to set up repayment agreements with the debtors and rescheduled the repayments. To date, debt agreements and repayment schedules have been prepared and signed for the amount of US$ 345 Million. However, the amounts acknowledged and the collaterals received are not deemed satisfactory, and therefore the receiver will be reopening negotiations on many of these agreements for a maximum period of one month to improve chances for asset recovery. As part of this process, some properties improperly purchased with bank funds, valued at US$ 110 Million, are being returned to Kabul Bank and US$ 47 Million in cash has been paid back by the shareholders and other customers of Kabul Bank to date. The conservatorship team and DAB took steps to identify those responsible for the fraud and crimes, and bring them to justice. DAB’s investigations have discovered that a significant number of Kabul Bank shareholders and employees may have been involved in different kinds of irregularities and fraudulent activities including forgery, fraud and misrepresentation of facts. To date, the Central bank has referred 19 cases of fraudulent activities to the attorney general’s office for further investigation and possibly prosecution. The Attorney General’s Office has also launched independent investigations of other employees of the Kabul Bank. Investigations on other perpetrators are in progress and a credible process will be established by the government to investigate and prosecute those responsible for criminal activity at Kabul Bank. DAB will not comment or offer details on any ongoing legal proceedings, as those matters will be decided in due time and consistent with the laws of Afghanistan. In addition, a special High Commission for Kabul Bank Inquiry has been created to look into the matter and inform the public about the details of what has happened in Kabul Bank and why. This process, including the preparation, conduct, and publishing of the inquiry report is expected to take about 9 months. Ongoing and Future Actions Now after months of intensive assessment of the options available, reviewing all the legal and executive aspects of the matter, and after a series of consultation with H.E President and H.E Minister of Finance and the government of Afghanistan, the central bank of Afghanistan, has come to the conclusion that instituting receivership proceedings against Kabul Bank and setting up a bridge bank to house the “good bank” constitutes the best legal, optimal and reasonable approach. Through the receivership, all Kabul Bank’s good assets and legitimate liabilities including performing loans , the people’s deposits, offices, IT and liquid assets will be transferred to a new “good” bank called New Kabul Bank, effective immediately The new bank will operate on restricted activities and will not undertake new lending and will be put up for sale to a suitable private sector owner within next 3 months or, if a satisfactory sale does not materialize, it will be downsized and/or merged into other financial institutions, but by September 2012 its existence as a separate bank will be terminated. Kabul bank, which constitutes the “bad bank” will hold the debt of bank’s former shareholders and other suspicious loans, for collection. Shares in Kabul Bank held by Kabul Bank’s shareholders and their ownership rights and interests were extinguished by the formal of placing Kabul Bank into receivership through approval of the receivership application submitted to the Financial Dispute Resolution Commission (FDRC). Kabul Bank’s depositors can continue transacting with Kabul Bank normally as before. The ownership of the bank will go to the government temporarily and will be held by the MOF. The Oversight Committee of the bank will consist of three members: One member from MOF, one from DAB and one from the private sector preferably from the academic community. In addition, the following elements of the plan are detailed below. Summary 1. Kabul Bank is put into receivership as of today, Wednesday 20 April 2011. 2. Nothing will change for Kabul bank depositors. Depositor will continue to have full access to their deposits, as before. The government, to safeguard the interest of the poor and vulnerable Afghan depositors, has guaranteed full amount of deposits of Kabul Bank customers. The DAB is backing this commitment with another US$ 425 million lender of last resort loan, sufficiently covering all deposits. 3. Since the shareholders have failed to respond to the capital call, thereby failing to pay for their committed shares, all their interest in Kabul Bank and its movable and immovable assets have now been extinguished. 4. As stated above, the “good bank” will continue to provide the services it provides now, but will not extend any new lending. The “good bank” will be put up for sale - if a satisfactory sale does not materialize, the “good bank” will be downsized and/or merged into other banks within 18 months, but, in any case, by September 2012 its existence as a separate bank will be terminated. This newly-licensed bank will be completely “clean” of the problems that faced the former Kabul Bank and will be dedicated to customer service and efficiency. 5. DAB and the Kabul Bank receiver, as its representative, under the supervision of the Financial Disputes Resolution Commission, will immediately take steps to recover the bad and problematic loans made to the shareholders and other borrowers by identifying their assets and properties through due legal process. 6. All Kabul Bank suspicious loans will continue to be investigated and, if evidence of violations of the law are found, responsible persons will be prosecuted by legal authorities 7. All relevant key parties previously involved in Kabul Bank, including shareholders who held executive positions in the bank, senior employees, and loan officers and other employees and DAB examiners responsible for examining Kabul Bank will be investigated for wrongdoing, including involvement in mismanagement, misrepresentation of facts and fraud, and will be prosecuted should relevant corroborating evidence be found. 8. As H.E President Karzai, announced in his press conference on Hamal 22 1390 / 11 April 2011, all debtors who have not already reached an agreement on repayment schedules must agree to a repayment plan or pay the full sum owed within one month’s time. In the case they refuse to cooperate with the KB receiver their case will be referred to relevant legal and judicial authorities and they will be dealt with the full force of the law. 9. The Ministry of Finance, as a financial representative of the government of Afghanistan, assumes financial responsibility for covering the cost of Kabul Bank resolution and will reimburse DAB for the loans extended to the bank in support of banking sector stability. These costs will be repaid by the Ministry over eight years, hopefully through vigorous recovery of Kabul Bank’s misappropriated assets. 10. Da Afghanistan Bank, together with the Ministry of Finance, pledges to work to develop a prosperous financial system that protects the savings of all Afghan customers and fosters lending for investment and development. 11. A comprehensive Action Plan to effectively supervise the banks and strengthen the architecture of the Afghan financial sector has recently been developed and is currently being implemented, taking into account the lessons learned from the Kabul Bank failure.


Supreme Council of Da Afghanistan Bank Announces Moratorium on Licensing of New Commercial Banks.

Governor of Da Afghanistan Bank elected as Chairman of South Asian Housing Finance Forum (SAHFF)


Supreme Council of Da Afghanistan Bank Announces Moratorium on Licensing of New Commercial Banks.

Da Afghanistan Bank, Kabul, June 7, 2010, The Supreme Council of DAB---the highest decision making body of the central bank--announced a moratorium on licensing of new commercial banks at the end of its first quarterly meeting of SY1389 today.

The Supreme Council reached this decision because of the meteoric growth of the banking sector from just two state-owned banks in 2003 to 17 licensed banks to date.Since the passage of the new banking law in 2003 the banking sector has exhibited tremendous dynamism, technological innovation and become more competitive and much financially stronger. The Chairman of the Supreme Council and Governor of Da Afghanistan Bank Mr. Abdul Qadir Fitrat noted that the banking sector had the lowest non-performing loans (NPL) ratio in the region and capital adequacy levels well above international regulatory norms.

Notwithstanding these impressive achievements, the Supreme Council had decided that a cooling-off period was warranted so that banks could achieve full operational efficiency and consolidate their finances. The cooling-off period would also provide the central bank with sufficient time to train its staff in sophisticated risk-based supervision techniques. In another momentous decision, the Supreme Council announced measures to strengthen the corporate governance of commercial banks. Governor Fitrat announced that the Supreme Council had decided that henceforth, board members were to refrain from the day-to-day management of commercial banks. World-wide experience had shown that shortcomings in the corporate governance of banks, such as when a major shareholder acts as the Chief Executive Officer, can destabilize the financial system and pose systemic risks to the real economy. International best-practice required that Board members focus on guiding, approving and overseeing the bank�s strategic objectives, corporate values and polices and refrain from micro-managing bank operations.

Turning to the economic outlook, Governor Fitrat reported that economic growth in Afghanistan was one of the highest in the world at 22 percent in SY1388. Agriculture was the key driver of economic growth as favorable rains spurred agricultural output to a record-high 53 percent. The construction and services sectors also performed well in response to increased security spending by national and coalition forces. GDP growth is projected to remain strong at 11 percent in the current year.

With respect to the central banks statutory responsibility to deliver price stability, Governor Fitrat noted that the conduct of monetary policy had been highly successful in bringing core inflation down to 2.9 percent in May 2010 from about 10 percent in May 2008. Headline inflation was in negative territory for much of the past year but was now approaching positive territory-which was a positive sign of price developments in the economy. Governor Fitrat reiterated the Supreme Council�s commitment to maintaining price stability in the range of 3-5 percent through the prudent use of its two instruments which are capital notes and foreign exchange auctions.

Governor Fitrat noted with satisfaction that the central bank had steered interest rates from about 18 percent in 2008 to about 3 percent to date. In response to the decline in interest rates the Supreme Council had decided to narrow the interest rate corridor from +/- 3.5 percent to +/-1 percent around the 28 day capital note yield. This action was taken to ensure that commercial banks had ready access to liquidity for their operations and received real rates of return on required reserves.



Governor of Da Afghanistan Bank elected as Chairman of South Asian Housing Finance Forum (SAHFF) for


H.E. Abdul Qadir Fitrat, Governor of Da Afghanistan Bank who was elected as head of South Asia Housing Finance Forum (SAHFF) in June 2009 in Jakarta, was once again elected as Chairman of this forum for another two years during a two-day conference on exchange of views and experiences on affordable housing and housing finance which was held on January 27- 28, 2010 in new Delhi.

The two days conference brought together participants from Afghanistan, Pakistan, Bangladesh, Brazil, India, Indonesia, Maldives, Sri Lanka, South Africa and Thailand, and other institutions such as the World Bank, IFC, Affordable Housing Institute, Reserve Bank of India, and representatives from civil society organizations. Mr. Fitrat opened this conference with a statement about importance and the need for affordable housing and formally launched SAHFF website which was developed with assistance from the National Housing Bank of India.

The forum intends to promote cooperation and coordination amongst the south Asia and Asia pacific countries in solving housing problems for residents of these countries and to facilitate provision of financial resources for resolving housing problems in the region.

This forum currently comprises of members from Afghanistan, Pakistan, Bangladesh, Sri Lanka, Thailand, and India, while more Asian and Asia pacific countries are willing to join. The forum discussed ways to address existing challenges and problems in the housing and housing markets, and also issues of financial resources, land titling, housing design, and the need for development of efficient strategies for housing.

H.E Governor Fitrat, while mentioning the need for affordable housing and housing finance in Afghanistan, said that �Housing demand far outstrips supply with a projected deficit of 1.5 million units by 2014�. He further explained that about 80% of the Afghan population lives in informal/slums settlements without access to basic services. He added that in spite of favorable macroeconomic developments and growth of the financial sector in the country, access to credit still remains limited.

He also talked about the need and importance of housing and its linkage to the economy. He said that provision of housing will have direct impact on the living conditions and basic infrastructure; it will support job creation in construction and manufacturing, and will provide motivation to invest and save which will lead to financial sector growth and economic development.

H.E Abdul Qadir Fitrat concluded his statement by emphasizing the role of central banks on affordable housing and added that the Central Bank of Afghanistan is trying to pave the way for creation of an affordable housing bank with cooperation of private and public�sectors, and for this purpose the legal frame work will be strengthened in advance and we will try to access financial resources and investment markets.


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