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Cablegate: Afghan State-Owned Pashtany Bank President Defends Against

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PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2634/01 2431131
ZNR UUUUU ZZH
P 311131Z AUG 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 1262
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0882
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RUEHZG/NATO EU COLLECTIVE
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E.O.12958: N/A
TAGS: EFIN ECON PREL PGOV BEXP EAID AF
SUBJECT: Afghan State-Owned Pashtany Bank President Defends Against
Corruption Charges

1. (SBU) SUMMARY: Pashtany Bank President Hayat Dayani condemned
allegations of corruption and mismanagement by critics in the Afghan
finance industry and by Central Bank examiners as coordinated
attacks by private sector bank owners who seek a competitive edge
against state-owned banks which hold a significant market share of
active customers. However, both Afghan Central Bank Governor Fitrat
and Finance Minister Zakhilwal have expressed concern to Embassy
officers about the health and activities of Pashtany Bank. They are
both eager to remove Dayani from office as one step in a reform
process that could include consolidating Pashtany with its sister
state-owned Bank Millie and opening state-owned bank ownership to
private shareholder investment. Such reform measures would require
parliamentary approval and currently sitting ministers may be
reluctant to proceed with reform measures until parliament confirms
the cabinet picks of the incoming administration. End Summary.

2. (SBU) On August 4, Treasury Attach met with Pashtany Bank
President Hayat Dayani to discuss successes at the bank, as well as
a series of allegations made against him by critics in the Afghan
finance industry and bank examiners within the Central Bank.
Founded in 1954, Pashtany Bank is one of two remaining state-owned
banks in Afghanistan and is in the top half of all licensed Afghan
banks in terms of assets and depositors. Over the past few months,
the Central Bank has privately accused Pashtany Bank of corruption,
improper loans, and general mismanagement as part of their onsite
examination process. Pashtany Bank's primary shareholder is the
Ministry of Finance (approximately 96% ownership), which is
responsible for making management decisions, including naming senior
management and dismissing them as necessary. (Note: The Ministry of
Finance is also the majority shareholder of Bank-e-Millie,
Afghanistan's other state-owned bank, which appears better
positioned from both a financial and management perspective.)

3. (SBU) Responding to these allegations against him, Dayani argued
that he has been "too successful" in reforming Pashtany Bank and has
made enemies in the process, including "elite" private bank owners
who are part of a larger "economic mafia." Dayani believes these
elites see Pashtany as a threat because the people of Afghanistan
prefer a well run state bank over a private bank.

4. (SBU) When asked about disagreements between his bank and the
DAB, Dayani's attitude and physical posture visibly changed. He
pointed out that his financial institution was recently audited by
an international company -- KPMG -- and that this audit is more
trustworthy than the Central Bank's Supervision Department that
"cannot add five lines together." Dayani labeled the Central Bank's
report as "unbelievable" and "full of errors." He further noted
some of the Central Bank's concerns stem from banking operations
that occurred before he joined the bank and should not be attributed
to him.

5. (SBU) Recent discussions with Central Bank Governor Fitrat and
others with firsthand knowledge, indicate that the original problems
at Pashtany Bank are still valid, despite Dayani's claims to the
contrary. Afghan Central Bank leadership remain concerned about the
health and activities of Pashtany Bank (as recent as an August 10
meeting with Governor Fitrat) and are still actively pushing for the
removal of its President. Indeed, the Central Bank governor told
Embassy Kabul Coordinating Director for Development and Economic
Affairs Ambassador Tony Wayne in late July that he had wanted action
taken against Pashtany weeks earlier. Furthermore, in an August 8
meeting with the USAID Director (septel) and in an earlier meeting
with Ambassador Wayne, the Minister of Finance indicated his
intention to remove the President of Pashtany Bank following
presidential elections. The Finance Minister also indicated a
preference for consolidating the two state-owned banks over the
medium-term and exploring strategies to open ownership to private
shareholder investment.

6. (SBU) COMMENT: The Mission's interest is in ensuring that the
financial system of Afghanistan is properly regulated and that
Pashtany Bank's significant presence in the market (Pashtany
currently controls a sizable percentage of total system deposits and
loans) does not create system-wide problems. Just as importantly,

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we are interested in making sure the right message is sent to other
bank executives who may calculate -- as a result of Pashtany's push
back -- that they can defy the Central Bank and operate outside of
governmental regulation. Once a new administration is in place, the
removal of Dayani and the launch of a comprehensive strategy for the
reform of state-owned banks may be viable given recent problems with
Pashtany Bank. Reform measures may include the consolidation of the
two state-owned banks, removal of staff, and/or other measures that
would make them more transparent, effective, and efficient. Such
steps, however, will depend on how quickly Parliament confirms
incoming ministers and how open they are to state-owned bank reform
(in the past Parliament has opposed consolidation).

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