Monday, March 28, 2011
What went wrong with The Kabul Bank?
Pretty much what every bank failure entails, they made bad loans to unreliable people. The problem in Kabul was that the borrowers were part of or related to the power elite in Afghanistan.
When a brother and nephew of an Afghan vice president wanted to build up their fuel transport business, they took out a $19 million loan from Kabul Bank. When a brother of the president wanted to start a cement factory, he took out a $2.9 million loan; he also took out $7.9 million for a luxury townhouse in Dubai. When the bank’s chief executive officer wanted to invest in newly built apartments in Kabul, he took almost $18 million.Things are so bad it looks like they will have to kill this golden goose and create another, theoretically with proper safeguards on place. HEY! You over there! Stop laughing!
The terms were hard to beat: no collateral, little or no interest. And repayment optional, at least in practice.
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