September 15, 2010 / 1:36 PM / 9 years ago

Kabulbank directors were paid $500K bonuses - audit

KABUL (Reuters) - Afghanistan’s ailing Kabulbank paid its top two directors and shareholders, currently under investigation for banking fraud, $500,000 (321,548 pounds) each in bonuses in 2009, according to an independent audit earlier this year.

Afghan people walk past a Kabulbank branch in Kabul September 14, 2010. REUTERS/Andrew Biraj

Afghanistan’s Central Bank said on Tuesday it had taken over the country’s top private bank because of suspected irregularities and began investigations into former chairman Sherkhan Farnood and former chief executive Khalilullah Fruzi.

Kabulbank’s troubles have threatened to add a financial crisis to Afghanistan’s other woes, with military and civilian casualties at record levels as a Taliban-led insurgency grows. Parliamentary elections will be held on Saturday.

Farnood and Fruzi were ordered to stand aside. Fears over the bank resulted in a run this month as many of the bank’s jittery customers rushed to withdraw savings even though the government and the central bank assured them their money was safe.

Farnood and Fruzi received bonuses of $500,000 each in 2009, according to an audit conducted by the Pakistan-based accountancy firm A.F. Ferguson & Co, a member company of PricewaterhouseCoopers. (www.kabulbank.af/html/notes.pdf)

The audit, published on February 10, showed that Farnood and Fruzi were the only two directors to receive bonuses.

Central Bank Governor Abdul Qadir Fitrat told Reuters on Tuesday he had requested another international audit of Kabulbank “six or eight months ago.”

INVESTIGATIONS

The Kabulbank case has raised questions about the handling of funds from Western donor countries, channelled through a nascent commercial banking sector that the United States has encouraged Afghanistan to build.

The crisis at Kabulbank developed earlier this year after Farnood and Fruzi were told by the central bank to resign amid so far unproven media allegations of corruption at the politically powerful bank.

Fitrat said the central bank has also ordered an investigation into another leading Kabulbank shareholder, First Vice President Mohammad Qasim Fahim’s brother, Mohammad Haseen.

Farnood and Fruzi each own 28 percent of the bank. The government and the central bank had previously said Farnood and Fruzi had stepped aside to meet new financial regulations and that Kabulbank had not been taken over.

According to the 2009 audit, Haseen’s son, Zahid Fahim, owned 2.96 percent of Kabulbank’s shares. It also showed Farnood’s wife, Farida Farnood, had a 6.68 percent stake.

Kabulbank refused to comment and it was not clear if Zahid Fahim or Farida Farnood were being investigated for banking fraud. A spokesman for the central bank could not be reached.

Mahmoud Karzai, who owns about 7 percent and is the brother of President Hamid Karzai, is not under investigation.

The bank’s customers include 300,000 government employees and it also handles salaries for Afghanistan’s security forces.

There were no signs of long queues outside the bank’s branches in Kabul on Wednesday. According to its website (www.kabulbank.com), the bank had total assets of $1.01 billion and liabilities of $991 million in 2009.

Reporting by Jonathon Burch; Editing by Paul Tait and Sanjeev Miglani

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