Indonesian banking sector remains shaky: EIU<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
Banking reform in the country is still far from complete despite
\nthe closure of the Indonesian Bank Restructuring Agency (IBRA),
\naccording to a new survey.<\/p>\n
The Economist Intelligence Unit (EIU), a global agency that
\nreviews risk ratings of 100 emerging and indebted markets on a
\nmonthly basis, said the setting up of other government agencies
\nto complete the IBRA's unfinished business confirmed the huge
\nchallenge ahead.<\/p>\n
\"Much still needs to be done to restore the banking sector to
\nhealth and many of the IBRA's duties will be taken up and quietly
\ncontinued by other bodies, probably for at least another 12
\nmonths,\" the study, released on Tuesday, said.<\/p>\n
The IBRA was set up in 1998 to restructure Rp 600 trillion
\n(about US$70 billion) worth of assets it took over from indebted
\nbanks. It was dissolved last month and three state bodies
\nhave been established to take over its unfinished work.<\/p>\n
They are a department in the Office of the State Minister of
\nState Enterprises, who will restructure some Rp 60 trillion worth
\nof unsold assets; a body under the Ministry of Finance, which
\nwill continue the blanket guarantees program; and a new trouble-
\nshooting team, which will oversee legal battles with recalcitrant
\ndebtors.<\/p>\n
The government had already found selling distressed unsold
\nassets had proved a headache, and dealing with large debtors in
\nthe future would not be any easier, the study said.<\/p>\n
\"On the legal front, only three bad debtors have been taken to
\ncourt, seven other cases have been filed, and a further eight are
\nstill being completed. And all of the three tycoons who were
\nprosecuted were acquitted,\" it said.<\/p>\n
While consolidation of the banking system had taken place --
\nseen in the improvements of many banks' balance sheets and in
\nsuccessful mergers and sell offs -- about two-thirds of the
\nbanking system remained in the government's control.<\/p>\n
While acknowledging bank borrowing had started to improve, the
\nEIU raised concerns over the quality of due diligence on the
\nloans, saying: \"While credit risk assessment has undoubtedly
\nimproved, many question marks remain.\"<\/p>\n
It cited high-profile banking scams involving officials from
\nBank Negara Indonesia and Bank Rakyat Indonesia -- both state-
\nowned -- amounting to Rp 1.7 trillion and Rp 294 billion,
\nrespectively.<\/p>\n
EIU warned of similar occurrences if banking fraud was not
\ndealt with properly.<\/p>\n
\"Combined with Indonesia's endemic corruption, short-term
\nlending buoyancy could in fact develop into a medium-term bubble
\nthat will burst into another, albeit smaller, banking scandal,\"
\nthe study said.<\/p>\n
In a related development, the Supreme Audit Agency said on
\nTuesday it would complete its audit of IBRA's bank restructuring
\nperformance on April 30.<\/p>",
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