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Afghan officials defend crisis-stricken Kabul Bank

Afghan men wait to withdraw money from the Kabul Bank in Kabul on Thursday.
Afghan men wait to withdraw money from the Kabul Bank in Kabul on Thursday.
STORY HIGHLIGHTS
  • Central Bank governor: Corruption allegations "wrong and baseless"
  • Customers queuing outside Kabul Bank branches to withdraw money
  • Central Bank says CEO, chairman quit because of new banking rules
  • U.S. media reports claim bank's losses exceed its holding assets
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(CNN) -- The Central Bank of Afghanistan has said it won't allow the country's biggest private financial institution to collapse in the wake of U.S. media allegations of corruption and heavy losses.

Kabul Bank's two most senior executives, chairman Sherkhan Farnood and chief executive Khalilullah Fruzi, resigned on Monday, with Masoud Ghazi, a former senior Central Bank official, taking over the latter role.

Customers have been queuing outside branches in recent days amid fears for the bank's future, but many have been unable to withdraw their money, CNN Correspondent Atia Abawi said.

"Many people are saying that this is another sign of the corruption that has taken place in Afghanistan. For the Afghans themselves this is another sign of the people in power not taking care of their money," Abawi said.

But Central Bank Governor Abdul Qadir Fitrat said corruption and money-laundering allegations reported by the New York Times, the Washington Post and the Wall Street Journal, were "wrong and baseless."

At a press conference Wednesday, Fitrat said the resignations of Farnood and Fruzi had been instigated by the bank to conform with new rules banning shareholders from holding senior operating positions.

"Reforms will follow in other banks should their shareholders continue holding CEO positions," he told journalists. "The Kabul Bank took the initiative and decided voluntarily to reform their leadership and took Mr. Massoud Ghazi as their CEO. The appointment of Masoud Ghazi has been an initiative by the Kabul Bank."

Farnood also dismissed allegations of an argument between executives and Central Bank officials and said Kabul Bank had been looking for a new CEO for two months.

Ghazi had been offered a monthly salary of $15,000, he said. "We referred him to the Central Bank for approval (and) he was approved."

The New York Times on Tuesday quoted a senior Afghan banking official saying that reported losses at Kabul Bank could be "catastrophic" for the country's financial system.

The newspaper said speculation on property in the Gulf emirate of Dubai had resulted in estimated losses in excess of $300 million, with the bank holding assets worth only $120 million.

Kabul Bank handles salary payments for thousands of Afghan soldiers, police and public workers and is reported to hold up to $1 billion in deposits belonging to Afghan citizens.

It has 68 branches covering 34 provinces, including 28 branches in Kabul, according to the bank's website. Mahmoud Karzai, the brother of Afghan President Hamid Karzai, owns a seven percent stake in the bank.

CNN's Atia Abawi and journalist Ahmed Buhari contributed to this report.