* Brother of first vice-president subject to asset freeze (Adds details, background, paragraphs 1-2, 5)

By Sayed Salahuddin

KABUL, Sept 7 (Reuters) - Afghanistan has frozen the assetsof leading shareholders and borrowers at Kabulbank, officialssaid on Tuesday, throwing graft-riddled Afghanistan's topprivate bank into crisis and sparking long queues of anxiousinvestors.

Afghanistan is one of the world's most corrupt countriesand President Hamid Karzai's seeming inability to attack graftwill be a major issue at a Sept. 18 parliamentary election. TheUnited Nations estimates graft costs Afghans $2.5 billion ayear.

The central bank on Monday ordered frozen the assets ofKabulbank's former chairman, Sher Khan Farnood, and chiefexecutive officer, Khalilullah Fruzi, together with those ofseveral other shareholders and major borrowers.

"This basically stops the sale of their assets until thesituation becomes clear," said Aimal Hashoor, the centralbank's spokesman.

Corruption is one of the most common complaints fromordinary Afghans and Washington fears widespread graft isboosting the Taliban-led insurgency and complicating efforts tostrengthen central government control so U.S. and other foreigntroops can begin withdrawing.

Last week, U.S. media reported the central bank had takencontrol of Kabulbank, forcing Farnood and Fruzi to resign andordering the chairman to hand over $160 million worth of luxuryvillas bought with bank funds in Dubai.

The Afghan government and the central bank governor haveboth rejected the allegations, denying that the central bankhad stepped in and saying Farnood and Fruzi had stepped asidein line with new financial regulations.

The allegations sent jittery customers rushing to the bankslast week, although queues eased at the weekend.

Long lines formed again on Tuesday as customers queued,sometimes for several hours, to withdraw funds before athree-day holiday to mark the end of the Muslim fasting monthof Ramadan.

"I've been sweating in the sun for three hours," Abdullah,a Kabul man in his 40s, said as he rested on a walking stick.

"I can't afford to waste any more time. I will have to comeback tomorrow."

There were no complaints from customers at two Kabulbankbranches in the capital about not being able to withdraw money.


Farnood and Fruzi both own a 28 percent stake in Kabulbank.

Karzai and Finance Minister Omar Zakhilwal, seeking toavert a run on the bank, both said the pair stepped downbecause of new banking rules forbidding shareholders fromholding senior management positions at the bank.

One of Karzai's brothers and the brother of one of his twovice presidents are also major shareholders at Kabulbank, whosecustomers include about 250,000 state employees.

An official, speaking on condition of anonymity, saidMahmoud Karzai, the president's brother, was not subject to thecentral bank's asset freeze because he does not have propertyregistered in his name. However, he said Mohammad Haseen, thebrother of First Vice President Mohammad Qasim Fahim, was amongthem.

Last week, U.S. officials said the Treasury Department hadsent a team to Kabul and that it supported the Afghan CentralBank's action in response to reports of fraud at Kabulbank.

But the official said the United States was not taking anysteps to recapitalise Kabulbank. (Reporting by Sayed Salahuddin; Editing by Paul Tait and DavidFox)