BNI scam exposes new risk in banking sector: PIB

BNI scam exposes new risk in banking sector: PIB

Dadan Wijaksana, The Jakarta Post, Jakarta

The New Indonesia Alliance (PIB) said on Wednesday that the Bank
Negara Indonesia (BNI) lending scam had exposed poor internal
control on the part of the bank, as well as the impotence of Bank
Indonesia's supervisory mechanism.

As such it would pose a worrying threat to the still-fragile
banking industry and put at risk hard-won public confidence in
the sector, PIB told a media briefing here.

A panel of PIB economists including Sjahrir (who is also PIB
chairman), Chatib Basri and Pande Radja Silalahi, shared the view
that the scam simply confirmed that Indonesia had learned nothing
from the last banking crisis in the late 1990s.

"This is worrying: After all the efforts to restructure the
banking sector, we have still ended up with a poor supervisory
mechanism for our banks.

"Despite the Rp 640 trillion of sacrifice, we're now back to
square one," Sjahrir said, referring to the amount the government
was forced to spend to bail the banking sector out of trouble.

He questioned the logic of how a central bank, with a
supervisory function, had failed to smell anything fishy about
the scandal until after August 2003, upon receiving BNI reports,
while the credit graft itself had taken place from July last
year.

Chatib focused more on its impact, saying that even now,
public confidence in the banking industry was not that good, as
evident from the large portion of short-term deposits that made
up bank third-party liabilities.

"Currently, one-month deposits account for some 30 percent of
the total, which shows a relatively low level of confidence in
the sector. And now we have the BNI case.

"Such a fraud is liable to create shock waves. If this happens
again, a second banking crisis is likely," Chatib said.

The fact that fraudulent behavior had occurred in a publicly
listed bank -- which presupposes such an organization should have
a high audit standard and tight disclosure requirements, should
be sounding alarm bells, he added.

The scandal centers on the bank's failure to carry out a
proper credit appraisal before allowing a Jakarta branch to
disburse export credits to local exporters who held letters of
credit guaranteed by foreign banks that were not BNI
correspondent banks. The credits totaled Rp 1.7 trillion, of
which Rp 580 billion has been returned to the bank.

The exporters claimed to be exporting certain commodities to
Congo and Kenya, both African nations. However, it later turned
out that the transactions had been faked.

On Wednesday, international rating agency Standard & Poor's
placed its "B" long- and "B" short-term BNI ratings on
CreditWatch with negative implications, following the scam
revelation.

The CreditWatch placement comes after the government said it
intended to call an extraordinary meeting next month to consider
replacing senior managers of the bank.

The case has been highly publicized by media in the past
weeks, although both Sjahrir and Chatib acknowledged a lack of
objective analysis on the matter from experts.

"Maybe they're too busy, since becoming commissioners in
private and state-owned companies," Sjahrir quipped, referring to
a recent trend that has seen many analysts become company
commissioners.

Meanwhile, in the latest development of the case, National
Police chief Da'i Bachtiar reiterated that the investigation into
the case would proceed, even though there had been talk of a
proposal by the suspects to return the money.

"The investigation will still go on, because there has been a
violation of extant legislation" Da'i said.

The police have so far detained 5 people for their alleged
involvement in the scam, with six others still at large. Of the
five, two are BNI officials while the others are from companies
allegedly involved in the scam.