Can I invest in Kabul Bank?

Kabul Bank is a private bank. A monopoly, if you like: the only avenue for government employees to receive their salaries.

A great money making machine. A bank that likes to say its “Touching Hearts, Changing Lives” – it certainly has for its shareholders.

In America’s attempt to break the stranglehold of the informal cash economy, mostly the hawalas – used to transfer vast amounts of money that they fear is driving the insurgency and drugs trade – they’ve inadvertently created a behemoth on an Afghan scale.

In fact, Western Union is the preferred partner for remittances.

I want to share some numbers with you. Numbers that if they were ever presented in a prospectus or accounts would make you believe this bank was well run, on a par with Western institutions, if not better.

And we all know what happened to Lehman Brothers and Co almost two years ago.

The boring numbers first: Even before Basel III was signed this weekend, Kabul Bank had a Tier 1 capital ratio – the money you need to set aside to make sure you don’t go belly up – of 11 per cent, much much higher than Basel requires.

Kabul Bank had total assets of $1.1bn and liabilities of $987m.

Now the interesting numbers and details: There are 16-lucky shareholders, all with political links to the ruling elite.

The bank made a profit of $13.7m in 2009, split evenly amongst its shareholders means they would all receive about $850,000 each.

If that wasn’t enough, the former chairman Sherkhan Farnood and the former CEO Khalilullah Fruzi were doing such a good job of running this near-monopoly that they were awarded a bonus of $500,000 each.

Key management personnel, including directors, also shared a salary pool of almost $3m.

Now if you’re a shareholder you can dip into the bank’s funds and award yourself a loan at anytime or to one of your companies.

And professional poker player Sherkhan, certainly did that, giving Pamir Airways $11.5m. Sherkhan is the chairman of Pamir.

It’s good to know that the directors, key management and close family members were big depositors, lodging $59.4m with the bank. They withdrew slightly more but that’s their money to do what they like with.

What of the allegations that Sherkhan and Khalilullah actually used Kabul Bank funds worth $160m to buy property in Dubai?

Well the bank’s records for the year ended December 31 2009, don’t actually show any transfer of money to the United Arab Emirates.

In fact, they’re accused of using off-balance sheet funding for that purpose. The accounts show that the bank does have off-balance loans and commitments totalling $121m but none had been given to the property sector.

I’m not in the slightest bit defending these chaps. Money could have flowed out in the years before these accounts were prepared.

But I’m sure the people of Afghanistan would like to know where all that reconstruction money is going. No doubt countries with troops on the ground would like answers as to how their money is being spent.

Just how is money flowing out of the country to finance these purchases? James Bays, our long-time correspondent in Kabul, told Counting the Cost that money is taken out in suitcases through the VIP channels at the airport.

I just wonder, as a private bank, if Kabul Bank will be as open and transparent as it has been in the past? I’m looking forward to the 2010 accounts.

In the meantime, you too can get a copy of the accounts for 2009 audited by AF Ferguson & Co, a member firm of Pricewaterhousecoopers, from Kabul Bank’s website.

As for being a shareholder: Don’t bank on it!