Don't knock BI for loan scams, pleads new deputy governor

The Jakarta Post, Jakarta

People seeking to blame the central bank for the recent scandals involving bad loans at state-owned banks are misdirecting their criticism, according to a newly elected deputy governor of Bank Indonesia.

"It's strange that third parties, such as Bank Indonesia, are being blamed," said Siti Chalimah Fadjrijah during a forum held by the Association of State-owned Banks (Himbara) on Thursday.

"The main responsibility lies on each bank's management, which initially approved the loans."

She was referring to the high-profile probes into alleged irregularities at some state-owned banks, with many of the loans subsequently turning sour. The Bank Mandiri case has attracted particular public attention.

The Mandiri scandal, which revolves around Rp 1 trillion worth of bad loans, has given rise to suggestions that the central bank, which is responsible for supervising the nation's banking sector, has not been doing its job properly.

Siti said that the main problem stemmed from the approval of loans by bank personnel who were usually involved in a conflict of interest vis-a-vis the borrowers.

"The damage is already done when personal interests become involved," she said.

Echoing her comments was Sigit Pramono, Himbara chairman, who said that outside intervention in state-owned banks was dangerous.

"State banks need to have the courage to say no to any form of intervention, from any party, as in the end it will only endanger the bank itself," said Pramono, who is also the president director of Bank Negara Indonesia (BNI), the nation's third largest bank by assets.

Pramono said that he fully understood why state-owned banks were currently afraid to extend loans due to the recent spate of scandals. However, he hoped that this would only be a temporary phenomenon as economic growth would be heavily dependent on a fully-functioning banking system.

He added that the current "reckless" assumption that all bad debts involved criminality had to be discouraged as it would only result in potential borrowers being deterred from seeking loans and adversely affect the reputation of the Indonesian banking system.

"If the recent investigations were meant to serve as shock therapy for corrupt bankers, I think they succeeded," said Pramono. "However, don't keep shocking the rest of the system."