Afghan Firm Offers $31 Million to Buy Defrauded New Kabul Bank

(Bloomberg) -- Afghanistan’s Joint-Stock Company has offered $31 million to purchase New Kabul Bank, which was once the country’s largest lender before it was defrauded six years ago.

“The financial offer received from the JSC is the best we received compared to the previous offers,” Mohammad Aqa Kohistani, treasury director at the Finance Ministry, said by phone on Thursday. JSC, a company with operations in Dubai, has also placed a $20 million financial guarantee and “plans to build and develop capacities of staff workers, install international-standard machines, and it has also pledged to invest $1 billion in the bank in the next five years.”

The privatization of New Kabul Bank, with 114 branches nationwide, would rid Afghan President Ashraf Ghani of a longstanding financial headache, as the lender has lost $65 million since 2010, according to U.S. investigations. The bid by JSC will be submitted to the central bank for review and later it will be sent to Ghani’s cabinet, he said, without elaborating how long a final approval will take.

The government took the bank over after its owners were accused of embezzling $825 million using fake loans and spending it on, among other things, 11 villas in Dubai and an airline they used to smuggle cash there. The privatization is a test for Ghani, who wants to show the foreign donors who provide most of his budget that he’s committed to fighting corruption in a country that has been devastated by decades of war.

While trying to find a buyer for New Kabul Bank over the past four years, the government rejected two proposals, one from an Afghan company and another from a foreign company. Afghanistan’s finance industry is tiny -- its 15 banks have about $630 million in outstanding loans, said Kohistani.

A call to JSC’s office in Afghanistan wasn’t answered. JSC is a commercial company which mainly trades gold in Dubai and elsewhere, Kohistani said. The company is a very “reliable world-wide company” and also has a $200 million refinery of oil and gas in Russia, he said.

To contact the reporter on this story: Eltaf Najafizada in Kabul at enajafizada1@bloomberg.net. To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Chris Kay, Jeanette Rodrigues