Bank Bali scandal

The government should act quickly to clarify the issues in a scandal allegedly involving millions of dollars at Bank Bali because it puts at stake the integrity of the Indonesian Bank Restructuring Agency (IBRA), which directly or indirectly controls over Rp 600 trillion (US$88 billion) in government assets.

The issues that surfaced only one week after the surprise and questionable takeover of the publicly listed bank by the central bank on July 23 could damage the public's confidence in the viability of the whole Rp 550 trillion bank recapitalization program.

As reported in the mass media over the last three days, Bank Bali owners, pressured to meet the deadline for putting up their portion of the bank's recapitalization fund, were forced to use the "good offices" of influential government lobbyists reportedly of the ruling Golkar Party to obtain reimbursement from IBRA for about Rp 3 trillion in interbank credits it had in several banks closed recently as part of the massive banking reform.

Bank Bali, as the reports said, succeeded in getting back in early June Rp 900 billion of the interbank credits from IBRA, but in return had to pay the lobbyists a Rp 550 billion "brokerage fee". The story turned another twist when a great portion of the fee was allegedly transferred to the Golkar coffers and another powerful political leader. The reports went on to disclose that Bank International Indonesia, another publicly listed bank in the government-sponsored recapitalization program, had earlier been similarly squeezed by lobbyists. This bank allegedly paid Rp 400 billion in a brokerage fee to have its interbank credits reimbursed by IBRA.

The takeover of Bank Bali by the central bank actually raised puzzling questions as to why it was done quietly without clear explanation. Bank Indonesia only said it had to transfer the bank to IBRA because the owners failed to come up with their share of the recapitalization fund. But two days later IBRA signed an investment agreement with Standard Chartered Bank whereby the UK bank acquired 20 percent of the bank and took over its management.

These deals were really perplexing and lent credence to suspicions that a multimillion dollar offense did hit Bank Bali. The puzzling question is why Bank Bali was not automatically reimbursed by IBRA for its interbank credits because these claims are covered by the government blanket guarantee on bank deposits and claims.

When Bank Bali was pronounced qualified for joining the recapitalization program in April, its capital adequacy ratio (CAR), as determined by international accountancy firms assigned by IBRA and the International Monetary Fund, was a negative 8.2 percent, and its recapitalization requirement was set at Rp 2.8 trillion. But IBRA announced early last week that the bank's capital standard, as reassessed under a due diligence by Standard Chartered, had deteriorated sharply to a negative 32 percent, thereby catapulting its recapitalization requirement to Rp 4.3 trillion.

Bank Bali has always been known for its conservative lending strategy and its CAR, though negative, was the highest among other publicly listed banks selected for the recapitalization program. Some rumors had it that the majority owners robbed the bank of its best assets. But how could this have happened when Standard Chartered had signed a letter of intent for acquiring 20 percent of the bank as early as April and had put $56 million in an escrow account to back up its commitment? Moreover, since assessment deemed the bank entitled to almost $34 million in government equity funds for its recapitalization, its operations should have been put under stringent supervision by the central bank.

It is most imperative for the government to quickly straighten out the issues because the alleged scandal could subvert the whole economic reform program. Given the universal power and the huge assets IBRA now controls, estimated at almost twice as much as Indonesia's gross domestic product, even the slightest suspicion of corruption and collusion within the agency would damage the public's confidence in the whole banking industry. Without confidence from the general public as well domestic and foreign investors, the banking industry will remain crippled and the economy will stay moribund as it is now because banks act as the brain of the economy, determining the most efficient allocation of resources.

The issues also make it most urgent and imperative now for the government to require IBRA to publish an audited quarterly financial report to enhance its accountability and transparency.