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)