Bank Bali imbroglio
Bank Bali imbroglio
The decision by Indonesian Bank Restructuring Agency (IBRA)
chairman Glenn Yusuf last week to review the agency's management
and investment agreements with Standard Chartered Bank (SCB) of
Britain for Bank Bali, though rather late, is imperative to
resolving the imbroglio between Bank Bali local staff and SCB
management team.
The protracted hostility of local staff toward SCB may dampen
the future entry of foreign bankers who are needed to introduce
an international culture into domestic banks. The dispute may
also discourage foreign investors, who are expected to play a key
role in helping the country's economic recovery.
That many Bank Bali staff members have staged nearly daily
protests against the SCB-led management and initiated a campaign
of noncooperation with the management since October, braving the
risk of dismissal at a time when thousands of bank employees have
been made redundant amid the banking crisis shows that the SCB
management team has failed to execute its basic function --
managing people.
The local staff's complaints about the alleged hiring by SCB
of an excessive number of expatriates and the hefty expenses
subsequently incurred by the foreign staff should be verified
against Bank Bali's financial performance since the bank's
management was taken over by the British bank in late July.
Investigations are also warranted to ascertain as to whether
there is any evidence supporting SCB's suspicions that former
owners and other shareholders of Bank Bali were engaged in
underhanded maneuverings to engineer the local staff protests to
force SCB to drop its option to buy 20 percent of the bank.
True, Bank Bali's problems have been exacerbated by the
disclosure, only two days after its management was taken over by
SCB, of its questionable transfer of Rp 546 billion in commission
to PT Era Giat Prima under what is now notoriously known as the
politically charged Bank Bali scandal.
But the local staff's allegations that Bank Bali's financial
condition is now much worse than it was in late July and that the
remuneration and expenses of the 60-member management team
brought in by SCB almost equals the combined salary of the bank's
6,300 local staff are quite damaging.
In fact, perusing the IBRA-SCB management contract for Bank
Bali, one should be surprised by the virtual blank check granted
to the UK bank in managing Bank Bali. The three-year contract
does not stipulate any parameter to assess SCB performance but
grants SCB unlimited authority to appoint the majority of
directors and supervisors and all senior nonboard management
without any specified limitations on their remuneration and
expenses.
Most surprising is the stipulation that IBRA and Bank Bali are
obliged to indemnify SCB against any and all losses, costs,
expenses, claims and other liabilities incurred in connection
with its operational management of Bank Bali. In case of
termination of the management contract by IBRA prior to the
expiry of its three-year term, SCB is entitled to an early
termination fee of US$25 million. Even if the agreement is
terminated by SCB before the expiry date, SCB is still entitled
to $2.5 million in compensation.
Since SCB does not face any risks and will continue to get its
management fee irrespective of whether Bank Bali loses money or
not, there seems no incentive at all for SCB to control its
expenses in the provision of management services to Bank Bali.
Since SCB has no stake in Bank Bali and is instead competing with
it for corporate and private banking customers, it appears that
the UK bank faces a conflict of interest, especially because it
can at anytime waiver its option to buy 20 percent of Bank Bali.
The restlessness of Bank Bali local staff, the disadvantages
of the contract for IBRA and SCB's apparent conflict of interest
in its management of Bank Bali are all imperative reasons for a
review of the management contract.