BI to tigthen banking operations amid scandals

BI to tigthen banking operations amid scandals

The Jakarta Post, Jakarta

The central bank, which has been on the receiving end of
criticism following the disclosure of recent banking scams, will
improve its supervisory role within the banking system, a senior
official has said.

Anwar Nasution, Bank Indonesia senior deputy governor, said on
Friday the central bank was mulling a scheme to strengthen
current banking regulations in a bid to help avoid similar fraud
in the future.

He did not provide details as to what regulations needed
revision but said it was necessary to ensure a smooth passage for
current bank restructuring efforts.

"We shall work tirelessly to see that such incidents (fraud)
can be prevented in the future," Anwar told a business conference
in Bali, as reported by Dow Jones.

The statement was the first response from the central bank
amid mounting public pressure to strengthen the supervisory
mechanism on the banking system, which has proved itself to be
weak and helpless in preventing fraudulent conduct within the
industry, as evident from the Bank Negara Indonesia (BNI) and
Bank Rakyat Indonesia (BRI) fraud cases.

Branch offices in the two banks, both state owned and publicly
listed, are alleged to have abused their respective authority in
their role in the banking scandal.

In the BNI case, a branch in Jakarta granted a loan proposal
from a group of self-proclaimed exporters, amounting to Rp 1.7
trillion, to finance export transactions backed by fictitious
letters of credit.

As for BRI, the country's fourth-largest lender in terms of
assets, three of its branches also improperly channeled some Rp
300 billion in loans to businesspeople backed by fictitious cash
collateral deposits.

As both scams occurred in the banks' branches, calls
intensified to revise and strengthen their internal control
procedures.

Banking law expert Pradjoto also suggested a revision in the
banking supervisory system.

He told The Jakarta Post, "What has happened in the two banks
reflects the need for a regulation that requires a branch manager
to secure approval from the bank's board of directors before
granting credit, and for other banking transactions."

Anwar earlier admitted that the central bank could only carry
out its supervisory role effectively on bank headquarters, but
not their branches, citing a lack of resources. He said it would
be virtually impossible to closely monitor thousands of branches
of some 141 local banks operating across the country.

Bank Indonesia Governor Burhanuddin Abdullah has said, though,
that it planned massive staff recruitment to overcome such a
resource problem.

Meanwhile, the Attorney General's Office declared on Friday
Yudi Kartolo and Hartono, owners of PT Delta Makmur Experindo, as
suspects for their alleged involvement in the BRI loan scam.

"We have declared them suspects today. Accordingly, we have
also slapped a travel ban on both so they can't flee abroad,"
said office spokesman Kemas Yahya Rahman.

He also said that the office had not yet been able to arrest
them, although efforts to locate and arrest the two suspects were
under way.

However, the office has managed to rescue Rp 100 billion in
state funds in the case. "We have been able to save another Rp 10
billion in the case. In total, we have Rp 100 billion in our
hands," said Kemas.

In a related development, director of the banking supervision
unit at the central bank Aris Anwari said Bank Indonesia had
issued a regulation requiring large local banks to equip
themselves with a director of its risk management unit.

Aris said the move should form part of efforts to make banks
more prudent in their business operations. As for smaller banks,
he said, such authority would rest with the compliance director.