Bad lending to cost BRI billions, BPK says

Bad lending to cost BRI billions, BPK says

Rendi A. Witular, Jakarta

State Bank Rakyat Indonesia (BRI), the country's fourth
largest bank by assets, would likely suffer billions of rupiah in
losses because of weak internal controls and poor supervision of
lending activities, the Supreme Audit Agency (BPK) says.

The warning came in the agency's first semester report for
this year that was submitted recently to the House of
Representatives. The report highlights the bank's bad lending
practices.

Board member Amrin Siregar, who oversees the audit of state
owned enterprises, said the BPK audit had shown the fragility of
BRI's internal controls and supervision, especially in the
channeling of loans.

"Imprudent management of state funds does not only occur in
BRI but in all state enterprises. The audit is part of BPK's
attempt to make BRI's operations more compliant with
regulations," Amrin said.

The BPK audit is focused on BRI's 2003 financial account.

One improper lending case centers on the channeling of loans
to plastic producer PT Sido Bangun Plastic Factory worth US$56
million.

According to the report, the BRI had recently categorized the
loan, which was disbursed in 1992, as "non-performing".

The report said the loan from BRI was not used for the purpose
it was disbursed for -- as working capital.

After receiving the loan PT Sido Bangun channeled some $32
million of the money into its subsidiary PT Sido Bangun Malaysia
(SBM).

The loan to SBM is not included in PT Sido Bangun's audited
2002 financial account, nor in the SBM financial account.

The BPK said BRI account officers were responsible for failing
to supervise the loan.

Another case is linked with a Rp 31.7 billion (US$3.5 million)
loan to developer PT Elsana Persada in 2002, in which the
property collateral delivered to BRI was not fully secured by the
bank.

BRI is also facing potential loss from a lending fraud worth
Rp 20 billion in Jakarta, using the account of "Mrs. AG", as
identified by the BPK.

In February and May last year, Mrs. AG received loans worth Rp
15 billion and Rp 5 billion respectively from BRI, based on a
deposit collateral worth $3 million.

However, the BPK found out the application for both the
lending and the opening deposit for collateral were not proposed
by Mrs. AG, but instead by a "Mr. C," who faked her signature
without an authorization letter.

Upon receiving the money, Mr. C immediately transferred the
funds to a "Mr. RL".

Mrs. AG later denied she had applied for the credit.

The BPK also reported fraud worth some Rp 3.36 billion at
BRI's Makassar branch, involving a BRI official, "Mr. DD".

Mr. DD allegedly stole money from back depositors without
authorization from 1997 until May last year, to cover personal
expenses.

The BPK said BRI had not yet investigated or reported Mr. DD
to police for the fraud as of June, but had only tried to reclaim
the property owned by Mr. DD to cover the losses.

Meanwhile, BRI finance director Wayan Alit Antara confirmed
there were several potential losses for BRI as reported by the
BPK, which had conducted a joint audit with the bank's public
auditor during late 2003 to early this year.

"The potential losses have been covered by provisional (funds)
in 2003. And those involved in the fraud have been processed by
the authorities."

"We actually announced these findings in our 2003 audited
financial report," Wayan told The Jakarta Post on Sunday.