KABUL, Afghanistan — Fraud and mismanagement at Afghanistan’s largest bank have resulted in potential losses of as much as $900 million — three times previous estimates — heightening concerns that the bank could collapse and trigger a broad financial panic in Afghanistan, according to U.S., European and Afghan officials.
The extent of these losses make it clear that keeping the bank afloat — something the government has said it is determined to do — would require large infusions of cash from an already strained budget.
Banking specialists, businessmen and government officials now fear that word of Kabul Bank’s troubles could even prompt a run on solvent banks, destroying the country’s nascent banking system and shaking the confidence of Western donors who already are questioning the level of their commitment to Afghanistan.
The scandal has severe political and security implications. Investigators and Afghan businessmen suspect much of the money has gone into the pockets of a small group of privileged and politically connected Afghans, preventing earlier scrutiny of the bank’s dealings.
The spotlight on how political and economic interests in Afghanistan are intertwined threatens to further undermine President Hamid Karzai’s government. The bank is also the prime conduit to pay Afghan security forces, leaving the U.S. military, which pays the salaries, looking for new banks to process the $800 million payroll.
As Afghan regulators struggle to find out where the money went, many officials and international monitors concede that the missing millions may never be recovered, raising questions of how the losses could be replaced to keep the bank from failing.
The Afghan Central Bank and American officials are conducting their own parallel investigations, but the problems are so serious that the International Monetary Fund has not yet renewed the assistance program to Afghanistan that expired in September.
Although other banks here have had questionable loan practices, so far it is only Kabul Bank where what amounts to an enormous fraud scheme was conducted over a period of years and whose troubles are sending tremors through the Afghan business community and worrying Western donors.
Mahmoud Karzai, Hamid Karzai’s brother and a prominent investor in the Kabul Bank, said that the new president of Kabul Bank, Masood Musa Ghazi, told him in the past several days that there were approximately $800 million in loans still outstanding. These are potentially unrecoverable.
