UPDATE 1-Afghanistan assures bank customers amid graft fears

(Adds comments by U.S. official in Washington, paragraphs 5-6)

By Sayed Salahuddin

KABUL, Sept 2 (Reuters) – Afghanistan’s government sought to avert a run on the country’s top private bank by nervous investors after directors at Kabulbank resigned, ostensibly to meet new rules but also amid media allegations of graft.

Long queues were seen outside several Kabulbank branches in the Afghanistan capital, with customers rushing to withdraw their funds a day after central bank governor Abdul Qadir Fitrat said Kabulbank’s chairman and chief executive officer had quit.

“We have assurances to people that their deposits are not lost, will not be lost,” Afghanistan’s Finance Minister Omar Zakhilwal told a news conference.

“We are requesting people not to rush. We know the money is there, they must not panic. We are sure, a hundred percent, that the bank is safe,” he said.

In Washington, a U.S. official said the Treasury Department had sent a team to Kabul and that it supported the Afghan Central Bank’s action in response to reports of fraud at Kabulbank. But the official said the United States was not taking any steps to recapitalize Kabulbank.

“Corrective action in response to any instance of abuse or fraud is essential for the maintenance and growth of public trust in Afghan financial institutions and the development of Afghanistan’s financial sector,” the U.S. official said.

Corruption is one of the most common complaints from ordinary Afghans and Washington fears widespread graft is boosting the Taliban-led insurgency and complicating efforts to strengthen central government control so U.S. and other foreign troops can begin withdrawing.

Kabulbank Chairman Sher Khan Farnood and Chief Executive Khalilullah Fruzi stepped down this week because of new banking rules forbidding shareholders from holding senior management positions at a bank, Zakhilwal said.

Farnood and Fruzi each own a 28 percent share of the bank, according to the bank’s website. The bank is also part-owned by a brother of Afghan President Hamid Karzai and each of the men still own their shares, a spokesman for Kabulbank has said.

Wednesday, U.S. media reported the central bank had taken control of Kabulbank, forcing its top two managers to resign and ordering the chairman to hand over $160 million worth of luxury villas purchased with bank funds in Dubai.

Fitrat Wednesday described the reports as “baseless information and rumours.”

Zakhilwal also denied the government had stepped in.

Kabulbank customers include some 250,000 state employees, army and police, whose salaries are paid through the bank.

Visiting U.S. Defense Secretary Robert Gates said he believed the central bank and Ministry of Finance had acted prudently over the issue and had sought to reassure depositors.

“As I understand it, the bank is open. Last time I checked it was providing money to the depositors that wanted it. The government, the central bank, has provided additional cash to them that was on deposit with them,” Gates told reporters in Kabul. (For more Reuters coverage of Afghanistan and Pakistan, see: here) (Additional reporting by Phil Stewart and by Glenn Somerville in Washington; Editing by Padraic Cassidy) – Reuters