Economy & Development

The Kabul Bank Investigations; Central Bank Gives Names and Figures


On Wednesday, 27 April 2011, the head of Afghanistan’s Central Bank, Abdul Qadir Fitrat, and the new (Central Bank appointed) chief of the Kabul Bank, Massud Ghazi, briefed the Parliament on what was going on with the Kabul Bank. They named names, gave detail of the close to one billion USD irregular loans that brought the bank on the brink of collapse, and called for the prosecution of those involved. The individuals that were singled out and the links they have, provide a glimpse into the world of Afghanistan’s big business.

Central Bank head Fitrat singled out ten individuals as having taken out irregular and irresponsibly large loans, while Kabul Bank chief Ghazi provided the figures. This is what they told us (see also here and here):

Sher Khan Farnud, Kabul Bank’s former chairman: 504 million USD in loans
Haji Khalil Ferozi, Kabul Bank’s former deputy chairman: 66.9 million USD
Haji Abdul Hassin Fahim: 78 million USD
Gul Bahar Habibi: 39.7 million USD
Abdul Ghafar Dawi: 37 million USD
Mahmud Karzai: 22 million USD
Haji Abrahim: 15 million USD
Sufi Nesar Ahmed: 14 million USD
Haji Taher Zaher: 11 million USD
Daud Nasib: 9 million USD

A closer look at the list shows that all but two of these men were shareholder in the Kabul Bank and most of them were partners in the Afghan Investment Company (AIC), the company that won the lease for Karkar Coal Mine and the formerly state-owned Ghori Cement Factory in Baghlan province (subsidiary companies of AIC were Afghan Cement LLC and Afghan Coal LLC). Recent Central Bank investigations, that have not been made public but were the subject of this recent NYT article, show that the loans were, among others, used to pay for shares in the Kabul Bank and AIC, to buy property, and to invest in risky business schemes – apparently with little intention or urgency to pay the money back any time soon. In most cases there was no collateral and in most cases fake files were created to cover up the enormity of the loans.

Some of the loans were given in person, while others were given to companies. This complicates the picture, as often more than one person was involved. Loans given to companies, according to the Central Bank, included Hewadwal Group, Zahed Walid Group, Gaz Group, Pamir Airways, Shaheen Money Exchange, Kabul Oil and also to the Sher Khan Group to set up fuel reserves in Hairatan.

There are distinct patterns. Hewadwal Group was headed by Haji Abrahim, with Khalilullah Feruzi as deputy and Hassin Fahim as CEO. Zahed Walid Group was headed by Hassin Fahim and served as a subcontractor for Hewadwal.* Gaz Group was headed by Sher Khan Farnud, with (again) Khalil Feruzi as deputy and Hassin Fahim as CEO. Pamir Airways was also headed by Farnud, Feruzi and Fahim. Shaheen Money Exchange, located in Dubai, was headed by Sher Khan; the company was a source of additional loans through a parallel accounting system, but also was found to have received by far the greatest loan from the Kabul Bank. Kabul Oil was a little more diversified; its four shareholders were Hassin Fahim, Mohammad Ismail Ghazanfar who however sold his shares to Sher Khan in 2009, well-known Balkh province governor Atta Mohammad Nur, and Kamal Nabizada (see NYT article). The move into the northern fuel business scene apparently did not go very well (or was never very serious) and according to the Central Bank investigations neither Kabul Oil, nor the Hairatan initiative of the Sher Khan Group has any operations or assets.

Abdul Ghaffar Dawi and Gul Bahar Habibi are the odd ones out on the list.** They were no shareholders of Kabul Bank and do not feature in most of the cross-cutting business ventures. But both are partner in the AIC’s coal & cement venture, headed by Mahmoud Karzai and Hassin Fahim (Dawi is secretary of the Executive Board) and bankrolled with Kabul Bank loans. Kabul Oil shareholders Ghazanfar Group and Kamal Nabizada, two prominent northern companies with strong links into the cross-border fuel business, are also no natural partners for the Kabul Bank network. Such joint ventures, of which there are many, illustrate the occasional cooperation of different, possibly competing business networks.

The Kabul Bank investigations provide insight in the main sectors that Afghanistan’s business networks are invested in and how they intersect. These sectors include fuel (import, storage and transport – partly for the normal consumer market, but to a large and increasing extent to service the large US/NATO contracts, among others through the expanding Northern Distribution Network); mining (not much money is being made yet, but contracts are competed over); banking (every self-respecting businessman would like a bank of his own); real estate (mainly in Dubai, but also in Afghanistan); and construction materials and consumer goods (import, distribution, manufacturing) – although the latter did not surface here so much.*** Powerful business groups tend to have, or seek, a foothold in most, if not all, of these sectors.

The ongoing case against the Kabul Bank is the slow and public unpeeling of one of Afghanistan’s politically-connected business networks. Although it is by no means certain that those involved will be prosecuted,**** the revealing of uncomfortable details will probably not stop here. MPs welcomed the fact that names were named, but asked for more – pressing the Central Bank to disclose the names of all others that were involved in the crisis***** (there are reports that up to 200 people received irregular loans, including 103 former MPs and several governors and ministers). Moreover, although everyone hopes that the other banks are not in as bad a shape as the Kabul Bank, it seems that several of them are having similar problems (although some more than others).****** As long as banks can be used as a source of cash for their shareholders, the banking system in Afghanistan will remain very shaky indeed.

* For instance in 2008 the Zahed Walid Group subcontracted for Hewdwal, receiving a 33 million USD contract with the Ministry of Energy to supply diesel to power plants in Kandahar, Qalat, Lashkargah and Kabul (seehere).

** Abdul Ghaffar Dawi heads the Dawi Group, of which Dawi Oil, a major aviation fuel supplier and an important provider for the US and NATO forces, is the most prominent company. Dawi comes from a well-known family of Afghan constitutionalists (his father Abdul Hadi Dawi was close to reformer-king Amanullah and later speaker of parliament) and is married to Shukria Barakzai, an MP who has been outspoken on the need to prosecute those responsible for the Kabul Bank near-collapse. Dawi does not have his own bank, but he is on the Board of Supervisers for the Bank-e Melli. He is also one of the vice chairmen (services) of the Afghan Chamber of Commerce.

Gul Bahar Habibi belongs to the Gulbahar Group, which like many large Afghan businesses has its main offices in Dubai. In Afghanistan it has invested among others in the Gul Bahar Towers and Gul Bahar Centre (which now may be bank property).

*** Many influential businessmen additionally seek to expand their reach by establishing a television channel or becoming involved in philantropy. Booming sectors for more the localised entrepreneurs, who have less well-established international links, include trucking, construction, security contracting or NGO management.

**** During his press conference on 11 April President Karzai stressed that the investigation into Kabul Bank was ongoing and that those responsible would be prosecuted, but focused mainly on the lack of proper regulatory oversight by the international community and its “consultants” and their failure to uncover the problems during last year’s audit (see also here). He sidestepped a question on the impact the investigation may have on his brother, simply reiterating that no one would be immune from prosecution.

***** Parliament is walking a bit of a tightrope. Some MPs may be directly or indirectly implicated, and the public acknowledgement of the involvement of parliamentarians does little for the prestige of an institution already under pressure (due to the election fraud allegations, the ongoing Special Court probe, and criticism over the large-scale absence of MPs). On the other hand, it is a publicly emotive issue. Speaking out strongly against the blatant cronyism can be seen as an attempt to voice public discontent and to regain popular backing, but also to jump on the bandwagen to either help along the potential downfall of political and economic rivals or to use the opportunity to increase pressure on the executive. Unsurprisingly, not everyone is impressed by the seemingly principled stand of the MPs. Some point out that parliamentarians never showed much interest when the bank was still in a position to give out easy loans (the Kabul Bank is now under Central Bank governorship and stricter rules have been enforced on credit issuance).

****** The Central Bank has frozen the registration of new banks. Currently the main local banks include Azizi Bank and Bakhtar Bank, both part of the Azizi Hotak General Trading Group; Ghazanfar Bank from the Ghazanfar Group (Azizi and Ghazanfar are both largely family businesses); AIB (Afghanistan International Bank; set up by four shareholders: Asia Development Bank, Afghan Investment Partners Corporation, one of the Mohib Group’s companies, and a company of the Rahmat Group); Afghan United Bank and Maiwand Bank, which both have links to hawala businesses that were implicated in the Kabul Bank crisis (AUB chairman Haji Mohammad Jan is closely linked to New Ansari Exchange, while Maiwand Bank chairman Faridun Noorzad used to work for Shaheen Exchange, Kabul Bank and Azizi Bank). The Alokozay Group, that recently landed the exclusive bottling rights for Pepsi, has been on the look-out for a bank for a while now. Its Dubai manager recently indicated that a deal might be in the making (probably referring to the possible acquisition of Brac Bank).

****** List of Kabul Bank shareholders (according to this Who’s Who website):

Sher Khan Farnud, 28.16% – former chairman
Khalilullah Feruzi, 28.16% – former CEO
Mahmud Karzai, 7.41%
Mohammed Taher Zaher, 6.74%
Farida Farnud, 6.68%
Haji Shirin Khan, 5.93%
Gholam Faruq Naseeb, 2.96%
Zahed Fahim, 2.96%
Ahmad Javid, 2.16%
Jamal Kheil, 1.93%
Sufi Nesar Ahmad, 1.70%
Abdul Rab, 1.48%
Hayatullah, 1.48%
Mohammad Ehsan Rafet, 0.89%
Shukrullah Shukran, 0.74% – former deputy CEO
Rabiulla Kakar, 0.59%

NB Hassin Fahim’s share in Kabul Bank is in the name of his son Zahed Fahim.

On Wednesday, 27 April 2011, the head of Afghanistan’s Central Bank, Abdul Qadir Fitrat, and the new (Central Bank appointed) chief of the Kabul Bank, Massud Ghazi, briefed the Parliament on what was going on with the Kabul Bank. They named names, gave detail of the close to one billion USD irregular loans that brought the bank on the brink of collapse, and called for the prosecution of those involved. The individuals that were singled out and the links they have, provide a glimpse into the world of Afghanistan’s big business.

Central Bank head Fitrat singled out ten individuals as having taken out irregular and irresponsibly large loans, while Kabul Bank chief Ghazi provided the figures. This is what they told us (see also here and here):

Sher Khan Farnud, Kabul Bank’s former chairman: 504 million USD in loans
Haji Khalil Ferozi, Kabul Bank’s former deputy chairman: 66.9 million USD
Haji Abdul Hassin Fahim: 78 million USD
Gul Bahar Habibi: 39.7 million USD
Abdul Ghafar Dawi: 37 million USD
Mahmud Karzai: 22 million USD
Haji Abrahim: 15 million USD
Sufi Nesar Ahmed: 14 million USD
Haji Taher Zaher: 11 million USD
Daud Nasib: 9 million USD

A closer look at the list shows that all but two of these men were shareholder in the Kabul Bank and most of them were partners in the Afghan Investment Company (AIC), the company that won the lease for Karkar Coal Mine and the formerly state-owned Ghori Cement Factory in Baghlan province (subsidiary companies of AIC were Afghan Cement LLC and Afghan Coal LLC). Recent Central Bank investigations, that have not been made public but were the subject of this recent NYT article, show that the loans were, among others, used to pay for shares in the Kabul Bank and AIC, to buy property, and to invest in risky business schemes – apparently with little intention or urgency to pay the money back any time soon. In most cases there was no collateral and in most cases fake files were created to cover up the enormity of the loans.

Some of the loans were given in person, while others were given to companies. This complicates the picture, as often more than one person was involved. Loans given to companies, according to the Central Bank, included Hewadwal Group, Zahed Walid Group, Gaz Group, Pamir Airways, Shaheen Money Exchange, Kabul Oil and also to the Sher Khan Group to set up fuel reserves in Hairatan.

There are distinct patterns. Hewadwal Group was headed by Haji Abrahim, with Khalilullah Feruzi as deputy and Hassin Fahim as CEO. Zahed Walid Group was headed by Hassin Fahim and served as a subcontractor for Hewadwal.* Gaz Group was headed by Sher Khan Farnud, with (again) Khalil Feruzi as deputy and Hassin Fahim as CEO. Pamir Airways was also headed by Farnud, Feruzi and Fahim. Shaheen Money Exchange, located in Dubai, was headed by Sher Khan; the company was a source of additional loans through a parallel accounting system, but also was found to have received by far the greatest loan from the Kabul Bank. Kabul Oil was a little more diversified; its four shareholders were Hassin Fahim, Mohammad Ismail Ghazanfar who however sold his shares to Sher Khan in 2009, well-known Balkh province governor Atta Mohammad Nur, and Kamal Nabizada (see NYT article). The move into the northern fuel business scene apparently did not go very well (or was never very serious) and according to the Central Bank investigations neither Kabul Oil, nor the Hairatan initiative of the Sher Khan Group has any operations or assets.

Abdul Ghaffar Dawi and Gul Bahar Habibi are the odd ones out on the list.** They were no shareholders of Kabul Bank and do not feature in most of the cross-cutting business ventures. But both are partner in the AIC’s coal & cement venture, headed by Mahmoud Karzai and Hassin Fahim (Dawi is secretary of the Executive Board) and bankrolled with Kabul Bank loans. Kabul Oil shareholders Ghazanfar Group and Kamal Nabizada, two prominent northern companies with strong links into the cross-border fuel business, are also no natural partners for the Kabul Bank network. Such joint ventures, of which there are many, illustrate the occasional cooperation of different, possibly competing business networks.

The Kabul Bank investigations provide insight in the main sectors that Afghanistan’s business networks are invested in and how they intersect. These sectors include fuel (import, storage and transport – partly for the normal consumer market, but to a large and increasing extent to service the large US/NATO contracts, among others through the expanding Northern Distribution Network); mining (not much money is being made yet, but contracts are competed over); banking (every self-respecting businessman would like a bank of his own); real estate (mainly in Dubai, but also in Afghanistan); and construction materials and consumer goods (import, distribution, manufacturing) – although the latter did not surface here so much.*** Powerful business groups tend to have, or seek, a foothold in most, if not all, of these sectors.

The ongoing case against the Kabul Bank is the slow and public unpeeling of one of Afghanistan’s politically-connected business networks. Although it is by no means certain that those involved will be prosecuted,**** the revealing of uncomfortable details will probably not stop here. MPs welcomed the fact that names were named, but asked for more – pressing the Central Bank to disclose the names of all others that were involved in the crisis***** (there are reports that up to 200 people received irregular loans, including 103 former MPs and several governors and ministers). Moreover, although everyone hopes that the other banks are not in as bad a shape as the Kabul Bank, it seems that several of them are having similar problems (although some more than others).****** As long as banks can be used as a source of cash for their shareholders, the banking system in Afghanistan will remain very shaky indeed.

* For instance in 2008 the Zahed Walid Group subcontracted for Hewdwal, receiving a 33 million USD contract with the Ministry of Energy to supply diesel to power plants in Kandahar, Qalat, Lashkargah and Kabul (seehere).

** Abdul Ghaffar Dawi heads the Dawi Group, of which Dawi Oil, a major aviation fuel supplier and an important provider for the US and NATO forces, is the most prominent company. Dawi comes from a well-known family of Afghan constitutionalists (his father Abdul Hadi Dawi was close to reformer-king Amanullah and later speaker of parliament) and is married to Shukria Barakzai, an MP who has been outspoken on the need to prosecute those responsible for the Kabul Bank near-collapse. Dawi does not have his own bank, but he is on the Board of Supervisers for the Bank-e Melli. He is also one of the vice chairmen (services) of the Afghan Chamber of Commerce.

Gul Bahar Habibi belongs to the Gulbahar Group, which like many large Afghan businesses has its main offices in Dubai. In Afghanistan it has invested among others in the Gul Bahar Towers and Gul Bahar Centre (which now may be bank property).

*** Many influential businessmen additionally seek to expand their reach by establishing a television channel or becoming involved in philantropy. Booming sectors for more the localised entrepreneurs, who have less well-established international links, include trucking, construction, security contracting or NGO management.

**** During his press conference on 11 April President Karzai stressed that the investigation into Kabul Bank was ongoing and that those responsible would be prosecuted, but focused mainly on the lack of proper regulatory oversight by the international community and its “consultants” and their failure to uncover the problems during last year’s audit (see also here). He sidestepped a question on the impact the investigation may have on his brother, simply reiterating that no one would be immune from prosecution.

***** Parliament is walking a bit of a tightrope. Some MPs may be directly or indirectly implicated, and the public acknowledgement of the involvement of parliamentarians does little for the prestige of an institution already under pressure (due to the election fraud allegations, the ongoing Special Court probe, and criticism over the large-scale absence of MPs). On the other hand, it is a publicly emotive issue. Speaking out strongly against the blatant cronyism can be seen as an attempt to voice public discontent and to regain popular backing, but also to jump on the bandwagen to either help along the potential downfall of political and economic rivals or to use the opportunity to increase pressure on the executive. Unsurprisingly, not everyone is impressed by the seemingly principled stand of the MPs. Some point out that parliamentarians never showed much interest when the bank was still in a position to give out easy loans (the Kabul Bank is now under Central Bank governorship and stricter rules have been enforced on credit issuance).

****** The Central Bank has frozen the registration of new banks. Currently the main local banks include Azizi Bank and Bakhtar Bank, both part of the Azizi Hotak General Trading Group; Ghazanfar Bank from the Ghazanfar Group (Azizi and Ghazanfar are both largely family businesses); AIB (Afghanistan International Bank; set up by four shareholders: Asia Development Bank, Afghan Investment Partners Corporation, one of the Mohib Group’s companies, and a company of the Rahmat Group); Afghan United Bank and Maiwand Bank, which both have links to hawala businesses that were implicated in the Kabul Bank crisis (AUB chairman Haji Mohammad Jan is closely linked to New Ansari Exchange, while Maiwand Bank chairman Faridun Noorzad used to work for Shaheen Exchange, Kabul Bank and Azizi Bank). The Alokozay Group, that recently landed the exclusive bottling rights for Pepsi, has been on the look-out for a bank for a while now. Its Dubai manager recently indicated that a deal might be in the making (probably referring to the possible acquisition of Brac Bank).

****** List of Kabul Bank shareholders (according to this Who’s Who website):

Sher Khan Farnud, 28.16% – former chairman
Khalilullah Feruzi, 28.16% – former CEO
Mahmud Karzai, 7.41%
Mohammed Taher Zaher, 6.74%
Farida Farnud, 6.68%
Haji Shirin Khan, 5.93%
Gholam Faruq Naseeb, 2.96%
Zahed Fahim, 2.96%
Ahmad Javid, 2.16%
Jamal Kheil, 1.93%
Sufi Nesar Ahmad, 1.70%
Abdul Rab, 1.48%
Hayatullah, 1.48%
Mohammad Ehsan Rafet, 0.89%
Shukrullah Shukran, 0.74% – former deputy CEO
Rabiulla Kakar, 0.59%

NB Hassin Fahim’s share in Kabul Bank is in the name of his son Zahed Fahim.

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Thematic Category: Economy & Development