VZCZCXRO4999
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
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 KABUL 002634 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS AID/ASIA BUREAU 
DEPT PASS USDA FOR FAS MICHNER 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS TDA FOR STEIN AND GREENIP 
DEPT PASS OPIC 
CENTCOM FOR CSTC-A, USFOR-A 
OSD FOR SEDNEY 
TREASURY FOR MNUGENT, ABAUKOL, AWELLER, AND JCASAL 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
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, 
 
KABUL 00002634  002 OF 002 
 
 
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). 
 
EIKENBERRY