Banks told to improve prudential management
JAKARTA (JP): A top consultant says Indonesian banks must improve prudential management and include government-appointed, professional independent auditors within their boards of commissioners.
The chief executive of Reform Consulting, Laksamana Sukardi, told a seminar on "Bad Loans, Problem Loans" here Saturday that these steps could prevent activities which could lead to bad loans and cause severe financial losses on the part of creditors.
"Independent auditors, who will have the authority to implement a management process audit, should be professionals who are not easily tempted or pressured by shareholders or superiors," Laksamana said.
His proposals come amid public concern that bad loans have been increasing in the country since the introduction of a tight money policy in 1990 following the announcement of deregulatory measures in the banking industry in 1988.
Laksamana said auditors will act independently if they are appointed by Bank Indonesia, the central bank, to which they will be responsible.
Laksamana suggested that the presence of such independent auditors should be an absolute obligation for banks in the future.
He said before providing loans to customers, banks should test their credit initiation, analyze the feasibility of their businesses, document the credit well and monitor the use and management of the loan funds.
"The absence of any of these factors may cause the credit to go sour," he warned.
Bapindo
"In the Bapindo case, none of these steps were taken. In fact, each one involved has violated the standard procedures," he said.
The state-owned Bank Pembangunan Indonesia (Bapindo) provided loans of US$430 million to the Golden Key Group without any contract of transaction. The loans have now gone sour and a number of Bapindo executives and the owner of the business group have been detained. Several high-ranking officials have been questioned by the Attorney General's Office for their alleged support of the provision of the loans.
Laksamana, who was a former vice president of Citibank and former top executive of Lippobank, said that bad loans and problem loans encountered by the banking system are caused mainly by a lack of control from Bank Indonesia and an uncontrolled desire of the major shareholders of the banks to exploit the funds for their own interest.
Meanwhile, President of Bank Dharmala T.A. Sutanto suggested that banking executives take an oath at the time of their appointment and that a special court be established to deal with banking problems. (10)