Due diligence audit on 56 banks completed: BI

Due diligence audit on 56 banks completed: BI

JAKARTA (JP): A due diligence audit of the financial status of
56 commercial banks has been completed, part of the central
bank's target to examine all of the country's more than 200
institutions by the end of October.

Bank Indonesia director Soebardjo Djojosoemarto said on Friday
the financial authority believed the October deadline could be
met even though only a quarter of the banks had been audited.

"We're confident that the auditing process on all of the bank
population can be completed as scheduled," he told the media on
the sidelines of a House of Representatives (DPR) debate on the
government-proposed bill on revision of the banking law.

Sixteen foreign exchange banks were audited by six of the
world's major accounting firms, he said, and 40 banks were
audited by Bank Indonesia.

Contract

He added that a new contract had just been assigned to the six
accounting firms to audit 40 foreign exchange banks, with the
central bank to complete due diligence on the remaining 60 banks.

The audit started in May and includes the scrutiny of asset
quality, capital, management and networking. Providing a complete
profile of each bank, it will be used as a basis for formulating
the country's bank restructurization plan, including measures for
institutions which may not be able to meet the minimum 4 percent
capital adequacy ratio (CAR) required by year's end, Soebardjo
explained.

He said the authority would not automatically close banks
unable to fulfill the CAR requirement, but would seek
recapitalization measures, particularly through inviting foreign
investors.

"Closing down banks is not an easy task," he said, citing the
panic which followed the liquidation of 16 banks last November.

Foreign investors

He said many overseas investors had listed their names with
the central bank with the intention to purchase local banks. He
identified GE Finance, a unit of U.S.-based giant General
Electric, as among the most serious.

Negotiations with prospective foreign investors will start
when the bank restructurization plan has been formulated, he
said, adding that the revised banking law would eliminate foreign
ownership restrictions for local institutions.

Use of foreign auditors, as recommended by the International
Monetary Fund, had raised concerns among local bankers because
the international auditing criteria significantly lowered the
evaluation of asset quality.

The government defended the choice by contending that the
international criteria were a requirement to attract foreign
investors into the banks.

The international accounting firms include Price Waterhouse,
Arthur & Andersen, KP&G and Ernst & Young.

Financing for the foreign auditors' services is derived from a
US$2.2 million loan from the Asian Development Bank to finance
preparations for the bank restructuring plan, including in
designing the new banking legislation.

Now into its second year, the economic crisis has sent the
country's banking sector into a severe tailspin, including the
closure of 26 banks. It has also forced several tycoons to
relinquish many of their assets to the government to repay their
banks' debts to the central bank, which channeled more than Rp
140 trillion (US$12.7 billion) in liquidity support to troubled
institutions.

The Salim Group, for instance, has reportedly surrendered
assets of about 100 companies -- including publicly listed PT
Indofood Sukses Makmur and PT Indocement Tunggal Prakarsa and
nonlisted units PT Bogasari Flour Mills and automaker PT
Indomobil -- to repay the Rp 48 trillion emergency loan provided
to its banking arm, Bank Central Asia (BCA). (rei)