Bank supervision tightened<\/p>\n
The measures being taken to cope with problem loans and the new
\nmechanism of bank supervision being implemented by the monetary
\nauthority reassure us of the long-term, sound foundation of the banking
\nindustry. The US$440 million loan scandal at the state Development Bank
\nof Indonesia (Bapindo) seemed to teach all of us a great, though an
\nexpensive, lesson.<\/p>\n
As Minister of Finance Mar'ie Muhammad and Bank Indonesia's (central
\nbank) Governor Soedradjad Djiwandono explained in hearings with the
\nHouse of Representatives over the last three days, the banking industry
\nis being set to the tough tasks of overall consolidation to restore it
\nto stronger footing. This includes subjecting it's operations to
\nincreased scrutiny.<\/p>\n
The way that the monetary authority is coping with the huge sum of
\nproblem loans is encouraging because, besides being ad-hoc measures to
\nremove the overhang non-performing assets, a more effective mechanism of
\nbank supervision is being enforced to prevent a recurrence of bad loans
\nand to force banks more accountable and transparent in their lending
\noperations.<\/p>\n
The emphasized scrutiny on the 50 largest borrowers from state banks
\nmakes a lot of sense. The bulk of the Rp 18.8 trillion ($8.7 billion) in
\ndoubtful and bad loans were incurred by state banks. And as the case of
\nthe Bapindo loan scandal indicated, we reckon the bulk of the problem
\nloans also are owed by big business conglomerates.<\/p>\n
We should commend the special team of the finance ministry and
\ncentral bank for its courage and integrity in thoroughly investigating
\nthe largest borrowers and for pressuring them to settle their overdue
\nloans and interest arrears, because we know that many of them have
\nstrong political connections. It is also encouraging to know that
\nFinance Minister Mar'ie is closely monitoring the team's work. Mar'ie
\nrecently showed his consistency regarding the enforcement of prudent
\nfiscal and monetary policies by resisting strong political lobbying to
\napprove a large budget for the procurement of used war ships from
\nGermany.<\/p>\n
Many are welcoming the new mechanism of bank supervision because the
\nnew system will keep bank executives and owners on their toes. The new
\nmechanism seems to promise better results because each step of the chain
\nof supervision is being enforced. For example, the central bank has
\nrequired banks to keep them apprised of all large loan approvals, are
\nimproving the standards of credit reports and are obliging bank
\ncommissioners (supervisors) to report the findings of internal auditors.<\/p>\n
Bank internal supervision also is being strengthened by requiring
\ninternal auditors to report directly to commissioners, imposing tougher
\nrequirements for the appointment of commissioners and obliging banks to
\nreport periodically on any large loans extended to individual or
\ncorporate borrowers related to bank executives or owners. Bank
\ncommissioners are obliged to thoroughly examine projects and assess the
\nquality of credit securities in case a loan application involves more
\nthan Rp 50 billion.<\/p>\n
The new system thus provides the central bank with an early warning
\nsystem regarding problem loans.<\/p>\n
We hope the measures will not only force banks to fully implement the
\nprudential rulings but also strengthen the moral courage of bank
\nexecutives, notably those at state banks, to resist strong political
\nlobbyings for loans outside the prudent credit standard procedures. As
\nMar'ie himself has admitted over the weekend, and as the Bapindo case
\nhas shown, part of the problem loans had also been caused by
\n\"intervention\" by unauthorized parties into bank lending decisions.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bank-supervision-tightened-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}