BI blames BNI board over loan scandal

BI blames BNI board over loan scandal

Dadan Wijaksana, The Jakarta Post, Jakarta

The central bank faulted the directors of Bank BNI over its
huge loan scandal as they had failed to act on an internal audit,
which had reported something amiss long before the scam
eventually became public knowledge.

Had the bank followed up on its own audit, it might have
reduced the potential losses resulting from the scandal, Bank
Indonesia senior deputy governor Anwar Nasution said on Thursday.

"...There was an internal audit carried out in BNI in early
2003, which stated suspicions over the those fictitious
transactions. This was reported to the board of directors, but
there was no follow-up.

"Why didn't they do something about it? This is negligence,
which could put them (directors) at risk of being fined or
suffering other punishments," Anwar told reporters, adding that
the central bank had sent a letter to BNI asking for
explanations.

He said that if the BNI directors failed to properly respond
to it or gave unsatisfactory answers, they could face up to Rp 60
million (US$7,100) each in fines.

Anwar's statement adds to the pressure for BNI's directors to
be held responsible for the Rp 1.7 trillion loan scandal.

The loans were disbursed between July 2002 and July 2003, and
started when BNI's Kebayoran branch issued export credits to some
exporters without first conducting sound appraisals.

The exporters -- claiming to be exporting certain products to
the Congo and Kenya -- used as their credit collateral letters of
credit (L/Cs) guaranteed by questionable banks in Switzerland,
Kenya and the Cook Islands. The banks were not even BNI
correspondent banks.

The exports in question never took place.

While currently two of the bank's officials have been taken
into police custody, along with six suspects deemed to have
received the funds, calls have been rising for BNI's board of
directors to be dismissed.

Not only did they failed to ensure proper loan appraisal
mechanisms in the bank, they had also the moral obligation as
leaders to take the blame for the mistakes committed by their
subordinates.

Elsewhere, Anwar said he expected to receive a response soon
from BNI regarding the central bank's letter, saying that fines
would be the least they would have to worry about if found guilty
of negligence.

"If found guilty, it will not be just fines that they will
receive. There will also be a fit and proper test by Bank
Indonesia, and those who are found guilty could receive severe
punishments, such as a ban from working in the banking industry,"
Anwar stressed.

Meanwhile, the National Police have so far questioned 21
witnesses, 16 of whom are BNI employees, two people are from
private companies, and three others from related banks.

It has also blocked 29 bank accounts belonging to companies
and individuals linked to the scandal, while confiscating
$238,000 in cash and related documents.