Afghanistan International Bank (AIB), the biggest commercial bank in the country, is seeking to attract business in Dubai and to invest its US$800 million (Dh2.93 billion) worth of liquidity with banks abroad. But it is facing difficulties.
The Afghan nascent banking system has been "tainted" after the collapse of Kabul Bank, Ronald Stride, the chairman of the board of supervisors at AIB, said in an interview with The National.
"The picture has been painted in a very negative way and people have … not a wrong impression, but a one-sided impression," he said. "So we have taken it upon ourselves to try and paint a more balanced picture of banking and finance in Afghanistan."
Kabul Bank experienced a run on deposits in 2010, following the revelation that shareholders had used it as their personal funding vehicle. According to a report, published in March by the central bank, about $900m in loans were made to bank officers and insiders - including shareholders - with little or no collateral.
The majority of those were connected to 19 related parties.
More than 100 rubber stamps for shell companies were used to provide fake documents a patina of legitimacy for a "well-concealed Ponzi scheme", the investigative firm Kroll said in a report, The New York Times revealed last week.
"The problem with the way that the patronage system works in the country, is that if you are well-connected you can get access to credit from any bank," said Peter Middlebrook, the managing director of Geopolicity, an international management consultancy and think tank. "The regulatory environment and regulatory enforcement is phenomenally weak.
"Nothing can be worse than what happened to Kabul Bank, the ramifications of which are expected to be felt in Afghanistan for many years to come."
The disposal of Kabul Bank's assets abroad, including in Dubai, must be satisfactorily completed for Afghanistan to renew its credit programme with the IMF.
AIB, which counts the Asian Development Bank, the multilateral lender based in Manila, as one of its shareholders, has five independent directors, adopts corporate governance practices and requires companies it deals with to provide audit and legal documents.
"We need to be seen as a clean well-run institution. We would like to be introduced to new customers, Afghan and non-Afghan, in Dubai," said Mr Stride.
"We also have a lot of liquidity and we have to approach other financial institutions to invest that liquidity, but those banks are very particular about who they take money from," he added.
In September, the Afghan private lender acquired the assets of Standard Chartered Bank's business in the country, after the international emerging markets lender decided to withdraw from Afghanistan, citing concerns over security.
More than nine years after the invasion of Afghanistan led by the United States, and with foreign troops scheduled to be drawn down by 2014, bankers are preparing themselves.
The focus has been on the attrition of customer accounts, to reduce the risks associated with capital flight that is expected as foreign troops leave.
Only 5 per cent of the population of more than 30 million people have a bank account, according to World Bank estimates. After a profit of 378.9 million Afghani (Dh26.5m) last year and 326.2m Afghani in 2010, AIB is expecting flat growth next year.
"There's no doubt we are going to see changes in the economy," said Mr Stride.
With most of the country's GDP made up of aid and direct foreign inflows, "any reduction in that is going to have a ripple effect".
A lot of that money moves directly and indirectly, he said. "It pays contractors, it reaches people and gradually flows back to the banking sector."
