Danareksa strives to boost accountability, performance

Danareksa strives to boost accountability, performance

Faced with various problems in its operations, state-owned
financial management firm PT Danareksa is striving to boost its
performance by improving internal control to prevent leaks in the
funds it manages.

Nurtured in the captive market of state enterprises and
government support, Danareksa is the country's largest integrated
institution operating in the investment banking, debt capital
market, equity capital market and investment management.

Danareksa's newly appointed president director Lin Che Wei
shared his views with The Jakarta Post's Rendi A. Witular about
how the company should be managed. The following are excerpts
from the interview.

Question: What serious problems in Danareksa have been
inherited from previous managements?

Answer: The most significant problem for Danareksa is that the
company is not focusing on its business. Its direction is not
clear, with so many conflicting businesses engaged in by former
managements.

For example, previous managements focused more on "proprietary
trading", meaning the company conducted trading for its own book.
The company sold or bought stocks and bonds for its own benefit
and at the same time functioned as a broker for investors.

The priorities in these transactions are unclear as the
company is playing two roles: as a broker for its customers and
as a company seeking profit from its selling and trading
portfolio. Before investors decide to use the company's services,
they often ask what are Danareksa's priority is -- providing
service to the investor or gaining profit for its own book.

If we can refocus our operations, I'm sure Danareksa can
maximize its functions as it already has a big name, a captive
market and government support.

In the first six months of this year, the company only managed
to achieve some 10 percent of its targets. But I was able to
achieve between 40 percent and 50 percent of the full year target
in less than a month.

How do you expect to fix this problem?

We will focus our business on investment banking, such as
acting as advisor and underwriting. We expect one third of the
business will come from the private sector and the remainder from
state enterprises. We cannot focus our business entirely on state
firms, which have long been our captive market. How can we
benchmark ourselves if we do not deal with private sector
clients.

Aside from this business, we will also focus on fee-based
business. We plan to avoid risky businesses like those engaged in
by previous managements.

We've heard that Danareksa has big non-performing loan (NPL)
problems. How do you expect to resolve this problem?

NPLs in this company are huge. The consolidated amount of bad
debts here could reach between Rp 800 billion (US$80.8 million)
and Rp 900 billion. In this first semester, we have agreed to set
aside a provision of Rp 248.9 billion for the bad debts.

The bad debts are a result from various irregular transactions
approved by previous managements. As you know, the government, as
the sole shareholder in the company, has not given discharge and
acquittal to the previous management. They (the previous
management) must be called to account for the problems at
Danareksa.

We have launched a special audit to find irregularities, and
its findings will be followed up on by the commissioners. The
management will not deal with the problem as it would disrupt our
concentration on turning the company around. We want to do
business here. That is why we are leaving it to the commissioners
to decide later on what action needs to be taken against the
previous management.

I have also overhauled the oversight and control mechanisms in
the company to avoid any irregularities in the future.

Are there any indications that the irregularities are the
result of acts by previous managements to enrich themselves or
their cronies?

I can only say that previous managements were guilty of
negligence in respect of the irregular transactions that took
place, some of which date back between five and eight years,
without any efforts to reach a settlement.

What about the productivity of your employees?

The work culture in this company is also a problem, with most
employees displaying the typical mentality of civil servants.
When I first came here, people were shocked to have to come to
the office before 8:30 a.m. as they usually came at 9 a.m. or
even 10:30 a.m., and spent more time on lunch than working.

My plan is to gradually change the work culture by molding
them to be more productive and accountable, like the employees of
foreign firms. I don't want to instill a work culture here like
that in a factory, but at least the employees have got to be
accountable.

Are there any new projects that you are eyeing at the moment?

We are in the process of preparing investment instruments for
infrastructure funds. We expect to be able to raise between $1
billion and $1.5 billion from pension funds, state enterprises
and the investing public. The instruments will be available
starting next year. However, we cannot disclose the details of
the instruments yet.

Another project we are working on now is on how to become a
restructuring engine for state enterprises. We are planning to
become some kind of special research and analysis center for the
companies.

No other financial institutions know as much about state firms
than Danareksa.

Is there any hope that Danareksa will make a profit this year?

We are still going for it. But I think it will be hard. We
expect the company will record a loss this year due to the
provision we've made for NPLs. As for next year, we are
optimistic that we can make a profit.

(In this year's first half, Danareksa recorded a loss of Rp
198.2 billion and an operating profit of Rp 123.7 billion).