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.