BI bent rules to save banks: Report

BI bent rules to save banks: Report

JAKARTA (JP): Bank Indonesia's criteria for determining which
of the country's troubled banks to save and which to shut
were bypassed to accommodate allies of President B.J. Habibie,
the Far Eastern Economic Review reports in its Aug. 19 issue.

The business magazine said a confidential report prepared for
the central bank by consulting firm McKinsey & Co. shows Bank
Indonesia bent its own rules to save seven institutions earlier
this year.

The most prominent was Bank Nusa National, owned by the family
of influential businessman Aburizal Bakrie, a member of Habibie's
board of economic advisers.

Strict rules, announced in February by the central bank,
ordered that banks failing to meet a minimum capital-adequacy
ratio of minus 25 percent were to be closed. A recent audit by
accounting firm PricewaterhouseCoopers and cited in the McKinsey
report concluded that Bank Nusa's capital adequacy ratio was
minus 210 percent, the Review reported. But Bank Indonesia
rejected the auditor's interpretation of the balance sheet in
favor of the bank management's view -- and revised the figure to
minus 24.6 percent, making it eligible for government money.

The McKinsey report determined that 99 percent of the bank's
loans were doubtful and that 29 percent of all loans went to
companies linked to the Bakrie family, beyond the legal lending
limit designed to protect banks from overexposure to any one
borrower. The report quoted Bank Nusa officials as either denying
the violation occurred or claiming it received permission from
the central bank to break the rules. (02)