Banking reform<\/p>\n
The liquidation of 38 commercial banks was announced as an
\ninitial measure to save the national banking industry. As banks
\nserve as the main pillars of economic activities, local banks
\nmust first be subjected to revamping before the real sector can
\nbe revived. In response to this government policy on the banking
\nsector, a number of things need to be put forward as follow-up
\nmeasures in the national banking reform.<\/p>\n
The reform of Bank Indonesia: The fact that there was a credit
\ncrunch and banks were being squeezed by their financial trouble
\nand eventually liquidated must have involved quite a complicated
\nprocess of credit extension. The extension of a loan to a bank
\nmust be conducted under the supervision of the monetary
\nauthorities, namely Bank Indonesia (BI).<\/p>\n
In this respect, we are familiar, for example, with the
\n"triple L" (Legal Lending Limit) regulation. If many of the loans
\nextended by a bank turn into bad debts, the bank itself is to
\nblame because the process of loan extension must have been in
\nviolation of the loan extension provisions stipulated by the bank
\nitself. These loans, which have turned into outstanding debts,
\nmust have been approved months or even years before.<\/p>\n
This shows that BI does not exercise its supervision
\neffectively and this may be caused by any or all of the following
\nreasons: (a) a poor supervising system; (b) corrupt personnel and
\n(c) external intervention.<\/p>\n
One thing that may clearly indicate that BI supervision is not
\neffective is the tendency on the part of private banks to place
\nBI people or pensioners as "bumper commissioners" or "bumper
\ndirectors". Maybe the banks concerned will argue that these BI
\npeople\/pensioners are hired because of their professionalism, an
\nargument that I cannot accept because BI is a central bank while
\na commercial bank, unlike BI, is profit oriented.<\/p>\n
I tend to believe that they are hired because they can quickly
\nget access to valid information from BI and easily "deal with"
\ntheir BI colleagues or "juniors" who audit the banks. All these
\nyears we have pretended to be ignorant of and turned a blind eye
\nto this ulterior motive behind the hiring of BI people\/pensioners
\nby private banks. Therefore, BI must reform itself so that it
\nwill be a truly independent monetary authority (in practice, not
\nonly in words).<\/p>\n
Moral responsibility of the board of directors:
\nRecapitalization or other policies supporting an improvement in
\nthe banking industry will not be of much help unless the
\npersonnel are subjected to a fundamental reform. As banks
\nundertake a service, we can say that the collapse of the banking
\nindustry is attributable to the greedy and careless behavior of
\nbanking personnel.<\/p>\n
Therefore, it is necessary for BI to continue supervising its
\nmembers of the board of directors involved in the extension of
\nnonperforming loans to a bank already liquidated but being
\ntransferred to another bank before the loans turn into backlogged
\ndebts.<\/p>\n
Theoretically, it is possible to estimate from the very
\nbeginning whether or not a loan will eventually become a bad
\ndebt. Even if a loan becomes outstanding later, this credit
\nfacility is covered by adequate collateral, in terms of value and
\nlegality, set out in complete and orderly credit documentation.<\/p>\n
If necessary, BI could also demand that these members of the
\nboard of directors should be held accountable, at least morally,
\nfor the loans they initially approved. Moral responsibility is an
\ninseparable part of a trust-based business.<\/p>\n
M. GDE SIRIANA YUSUF<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/banking-reform-1447899208", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }