Kabul's banker

Peter van der Krogt, a veteran of Asian banking, is now based in Amsterdam for ING where he runs its somewhat unique institutional and government advisory division - a department that primarily gives emerging markets banks advice and seconds ING bankers to help run the banks in question. One of the division's more recent tasks has been to set up Afghanistan's first bank. We met Van der Krogt to discuss the challenges of setting up a bank in Kabul:

You have become involved in banking in Kabul. How did that come about?

The first initial contacts were made two years ago. We were approached by the ADB. They simply asked us the question: "If we wanted to set up a bank in Afghanistan, from a practical point of view how long does it take, and how do you do it?"

In the early 1990s ING set up all kinds of greenfield banking operations in the emerging markets, such as Central Europe. I checked within ING and asked what it took to start from scratch and do we have a manual somewhere? They said yes, and that's how we got involved.

In the end, several US/Afghan business groups became involved, and we signed a management contract. Six months ago our people went in and started going through the checklist from A to Z. About a month ago they started operating. It is called the Afghanistan International Bank (AIB).

What kind of business is this bank looking to do?

It's payments, remittances and deposit taking, particularly supporting international organizations and embassies. Afghanistan is still a cash society. Even international payments, I am told, are very physical and involve carrying bags of money. We're trying to create a payments system which is transparent and a lot of people seem to like it.

But it is a domestic, not an international bank - and is not a part of ING, although we provide full support to AIB. AIB will also try and use our network to do trade finance, provide guarantees for projects and so forth. But if the economy further improves, AIB will look to build out retail banking operations.

It has started off with one branch, but they will be in five or six cities in a couple of years.

It is difficult to picture a bank branch in Kabul. Does it have a big safe like branches in the old US Wild West?

Yes. We will have an official opening at the start of June. The branch is really a compound with a big wall for security, and they have renamed the street in front of it as Bank Street. But if you want to picture it like such a bank in Wild East you probably could!

So the operational risk - to use the jargon - of being robbed like in the old West is pretty high?

Security measures are a prerequisite for operating a bank in Afghanistan. I also have two people there and both are very experienced and been in emerging market all of their life - so they are not easily scared - but they are telling me that Kabul is very liveable. They even have their wives there.

That said, I understand it may not be the right time to branch out to the other cities.

Is this advisory business that ING does unique?

The way we do this business is quite unique. The concept is quite simple. We make available the knowledge and expertise of ING to other financial institutions. We are selective with whom we work. We are not a big, big operation and in total we have about 100 people involved in 15 of these projects.

Is it less about profit than PR and cultivating good relations?

It has good PR, but that is a spin-off. Our chairman thinks that we at ING should have a responsibility for society. Projects like the one in Afghanistan, or another in Mongolia fit that. But large projects such as the work we are doing in Taiwan for Chang Hwa Bank are done on a commercial basis. So it's both.

What's the average life of these projects?

It differs. Normally we don't do the short, consultancy-style business. Most will be long term engagements of a couple of years. At Chang Hwa we are entering the third year, and Indonesia [at Lippo Bank] we were there for nearly four years from 1999.

How long will you be in Afghanistan?

We have signed a three year management contract initially.

What is the project in Mongolia?

It is for the Trade Development Bank of Mongolia. This has been bought by an ING client, the international commodity trader, Gerald Metals. They are not in the business of running banks, but they see potential in the Mongolian mining industry. The bank is actively involved in financing Mongolia's primary industries including gold, copper and fluorspar mining.

Have you been approached about projects in China?

Yes. We have not announced it yet, but we will be doing some work for one of the Chinese banks. We are tentatively looking at the second tier banks, the city banks.

How long has ING been doing this type of advisory work for?

About 15 years. It grew out of the fall of the Berlin Wall when the Eastern Bloc opened and we went into Poland to help reform the financial sector. Banks like ours were asked by the World Bank to twin with local institutions. Today, we are one of the few international financial firms that still has this capability. Most other banks did not see this as a core activity, but it "survived" in ING.

We are not a management consultant. We are a bank talking to a bank and we talk the same language - and we put our bankers inside the bank. It's a more pragmatic approach.

Are you giving advice on Basel 2 to Asian banks?

Yes. But if you mention Basel 2 everybody becomes very political. My approach is that if you look at the core principles, if any bank adheres to them, then the bank will be able to do better portfolio management. The bank will have less NPLs, less problems and be more profitable. So Basel is a way to modernize and upgrade your whole banking operations. We have developed one product out of this, which we call Risk & Capital Management. ING itself has spent a huge amount itself to meet Basel 2 standards and gained a lot of experience.

We are able to make that experience accessible to other banks. When I mentioned how much ING had spent to a Chinese bank, the banker said "We are not going to invest that much money" and I said, yes, just recruit us instead and we can help you to shorten the process.

How receptive are Asian banks to this advice?

A lot of the banks here are waiting for the central banks to give them guidelines. I am telling banks not to wait for that but to be proactive. But all over Asia the central banks are at the brink of sending letters to banks telling them what to do.