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).