Bank scandals may destabilize economy<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Loan fraud at state-owned banks could further shatter public
\nconfidence in the country's banking sector and put the overall
\neconomy at risk if such cases were not immediately curbed,
\nMinister of Finance Boediono warned on Thursday.<\/p>\n
\"The fraud may have an impact on the country's economic
\nstability if it cannot be contained immediately,\" he told
\nreporters.<\/p>\n
He explained that there were three factors needed by banks to
\nhelp prevent such fraud from reoccurring in the future, which
\nincluded improvement in banks' internal control, removal of
\ncorrupt officials and better implementation of the \"know your
\ncustomer\" principle.<\/p>\n
\"This is the time for us to remove corrupt officials who could
\nharm public confidence in our banking sector,\" he said.<\/p>\n
He was commenting on the revelation on Wednesday of a Rp 294
\nbillion (US$34.5 million) lending fraud at the giant state-owned
\nBank Rakyat Indonesia (BRI), the second case to hit a state-owned
\nbank in just less than two months. In October, banking
\nauthorities uncovered that Bank Negara Indonesia (BNI) was
\ninvolved in a Rp 1.7 trillion lending scam allegedly masterminded
\nby top officials of a branch of the bank and a number of
\nbusinesspeople. Certain top politicians were also reportedly
\ninvolved in the BNI scandal.<\/p>\n
The BRI scandal is similar to that of the BNI case. It centers
\non the channeling of loans by three bank branches to local
\ncompanies supported by cash collateral deposits that they falsely
\nclaimed as theirs.<\/p>\n
The BRI and BNI cases underscore the weak supervision in the
\ncountry's banking sector, which has just started to recover from
\nthe late 1990s financial crisis. It also highlights the fact that
\nthe old habit of corruption die hard. The financial crisis, which
\nhad forced the government to spend around Rp 450 trillion in tax
\npayers money to bailout ailing banks, was mainly due to poor
\nlending practices and violations of banking regulations.<\/p>\n
The fraud cases occur at a time when the government is trying
\nhard to sell state-owned companies and to win the confidence of
\ninvestors and foreign donors to help fix the country's economic
\nwoes.<\/p>\n
\"This scandal is further proof that the supervision of the
\nbanking sector especially in state banks is still weak,\" said
\neconomist Rizal Ramli, who is also a former finance minister.<\/p>\n
Vice President Hamzah Haz also voiced similar concerns, saying
\nthere was an urgent need for banks and the central bank to
\nimprove their supervisory system which had been proven to be
\nspineless.<\/p>\n
He also said there must be strong legal measures taken against
\nthose involved in the scandal to prevent similar cases from
\noccurring in the future.<\/p>\n
State Minister of State Enterprises Laksamana Sukardi
\nconcurred. \"We must be resolute against those violating banking
\nregulations. Otherwise they'll continue to commit such crimes.\"<\/p>\n
As of now the Attorney General's Office has detained three
\nofficials of BRI, but businessmen Yudi Kartolo, whose company
\nobtained part of the loan is still free. Yudi was also allegedly
\ninvolved in a Rp 1.1 trillion fraud at BNI in 2001, a Bank
\nIndonesia senior official has said.<\/p>\n
BRI internal supervisory officials uncovered the fraud in
\nSeptember, two months before the bank's IPO in November. The BRI
\nmanagement has claimed that it had informed investors about the
\nloan problem prior to the IPO, and had allocated sufficient funds
\nto cover the potential losses.<\/p>\n
Indeed, the case for the time being seems not to have had a
\nnegative impact on BRI shares in the stock market. The shares
\nended higher at Rp 1,050 on Thursday, after falling by Rp 25 at
\nRp 1,025 on Wednesday.<\/p>\n
Investment director of state-owned PT Jamsostek Samuel Tobing
\nsaid that BRI shares remained strong because investors were
\nneither surprised nor worried about the fraud as they had already
\nbeen informed of it in BRI's IPO circular, and that the bank had
\nset aside Rp 294 billion as a provision.<\/p>\n
\"Investors have already calculated the risk, and that it will
\nnot impact BRI profit,\" said Samuel, who manages around Rp 24
\ntrillion of Jamsostek's investment portfolios, and had invested
\nsome money in the BRI shares.<\/p>\n
President of the Jakarta Stock Exchange Erry Firmansyah said
\nthat the bourse would not suspend trading in BRI shares because
\ninvestors had already been informed of the fraud.<\/p>",
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