Bank cleanup in doubt<\/p>\n
Whatever the reason or objective in delaying the bank cleanup,
\nand however strongly the move was endorsed by the World Bank and
\nthe International Monetary Fund (IMF), the decision does not bode
\nwell for the credibility of bank restructuring measures now being
\nfinalized. Without credibility, the program will be unable to
\nrestore public trust in domestic banks, which is, in the first
\nplace, the ultimate goal of the costly scheme.<\/p>\n
Coordinating Minister for Economy, Finance and Industry
\nGinandjar Kartasasmita is correct to argue that in view of the
\nmassive state funds at stake, the recapitalization program should
\nbe fair, transparent and accountable. Key reasons for the
\npostponement -- allowing more time for evaluation teams to
\ncomplete their assessment and for banks to revise business plans
\nand raise funds to replenish their capital --, however, make
\nlittle sense. After all, the program is already one month behind
\nschedule as specified in the reform package defined in
\nconjunction with the IMF.<\/p>\n
A valid and viable business plan was announced as early as
\nlast September as one of the requirements for banks to take part
\nin the government-sponsored recapitalization program. If the
\nbankers were acting in good faith and were strongly committed to
\nimproving their banks, why did they submit their plans so close
\nto the Feb. 15 deadline?<\/p>\n
Even more puzzling was the rationale that due to the large
\nnumber of banks requiring assessment, evaluation teams were
\nstrapped for time to finish their job. This explanation indicated
\nthat the central bank was evaluating banks of which they had no
\nprior knowledge. It is hard to believe that the central bank,
\nwhich often boasts of its intensive on-site and off-site bank
\nexaminations, does not already have the results of such audits on
\nfile.<\/p>\n
Moreover, international auditors have completed a
\ncomprehensive due diligence of most domestic banks seven months
\nago. Though the banks' condition was changing quickly, due to the
\nrapid economic deterioration, the evaluation process should not
\nhave started from zero.<\/p>\n
One therefore cannot help but suspect that technical grounds
\nare not the main reason behind the postponement. It would appear
\nthat several bankers succeeded in going over the head of the
\nministerial team, taking their plight directly to key political
\nplayers.<\/p>\n
If this was the case, the bank restructuring program -- billed
\nas the most comprehensive ever and considered a crucial element
\nto jump-start economic recovery -- was obviously suspect even
\nbefore it was launched.<\/p>\n
If the forthcoming measures are unable to restore public trust
\nin the banking industry, no amount of capital will enable banks
\nto conduct business in a sound manner. Trust is the anchor of a
\nbank.<\/p>\n
Observing the flip-flop manner in which the government has so
\nfar handled the bank restructuring plan, we have increasing
\nmisgivings about the program to which the government has pledged
\nmore than Rp 300 trillion (US$35 billion) in state funds. The
\nhefty sum almost equals 50 percent of the gross domestic product.
\nIn addition, the government faces payments of several billion
\ndollars to reimburse depositors of the insolvent banks and
\nredundancy payments to bank employees affected by the closures.<\/p>\n
Despite the current fiasco, bank restructuring must go on.
\nBut the government must go all out to prove to the public that
\nthe additional two weeks required is necessary. This could be
\nachieved if the long-awaited announcement, rescheduled for the
\nmiddle of this month, was complicated enough to justify the
\nadditional time for the work. Additionally, the program must be
\ntransparent and accountable to avoid even the slightest doubt or
\nquestion about its performance.<\/p>\n
The damage could also be offset if the upcoming announcement
\nfully discloses all important aspects concerning the banks to be
\nrecapitalized and closed. Such details must include: the amounts
\nof their bad loans, the names of, at least, their 10 largest
\nborrowers, their debts to the central bank, the names of their
\nmanagements and shareholders, their capital standards before
\nrecapitalization and other basic, pertinent facts.<\/p>\n
Two factors of importance also need to be addressed. First, it
\nshould be disclosed which banks violated the legal lending limits
\n(connected lendings), and are therefore liable to prosecution.
\nSecond, the government should pursue all bad debtors,
\nspecifically ones from the state banks, which will take up more
\nthan Rp 100 trillion in recapitalization funds.<\/p>\n
Any announcement short of these details would disprove the
\ngovernment's claim on the technical basis for the two week delay
\nand cast great doubt on the viability of the total bank cleanup
\nproject.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bank-cleanup-in-doubt-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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