E&Y named to fix BNI's internal controls

E&Y named to fix BNI's internal controls

The Jakarta Post, Jakarta

State-owned Bank Negara Indonesia (BNI), under intense public
scrutiny following a recent high-profile lending scam, has named
international consultants Ernst & Young as an advisor to improve
its internal control mechanisms.

BNI president Sigit Pramono told reporters on Friday that the
move was part of the bank's efforts to improve risk management,
which is crucial to help avoiding the reoccurrence of financial
fraud in the country's second largest bank in terms of assets.

"If BNI's internal control system or procedures are in
trouble, and are not in line with international standards, we'll
ask Ernst and Young to make recommendations as to what we should
do to improve them," Sigit said.

The publicly-listed bank has been under fire following the
disclosure of a Rp 1.7 trillion (about US$200 million) lending
scam, which centers on the improper disbursement of export loan
facilities by one of the bank's South Jakarta branches to a
number of companies backed up with fictitious export documents.

The fact that the scandal had been going on for around a year
before it was eventually detected in September confirmed poor
internal control mechanisms on the part of BNI.

Financially, the bank admitted that it could lose half of its
estimated profit of some Rp 3 trillion this year because of the
scam. It has revised this year's profit downwards to a range of
between Rp 800 billion and Rp 1 trillion.

More importantly however, the case had impacted negatively on
the bank's image in the eyes of investors, something that is
particularly worrying as BNI has been slated for sale in the
coming months.

Sigit's announcement may be seen as part of an effort to try
to repair the bank's shattered image.

The shareholders of BNI earlier this week dismissed seven of
the bank's nine-member board of directors. Sigit, who was
previously the president of Bank Internasional Indonesia, was
named the new president of the bank.

Sigit has said that his immediate priority is to boost the
bank's internal supervisory system.

The BNI lending scam, however, does not only highlight the
bank's internal control weaknesses, but also underscores the
weakness of Bank Indonesia's banking supervision mechanisms, one
of the main factors which led to the country's late 1990s
financial crisis.