Faulty bank owners 'banned from banking'

Faulty bank owners 'banned from banking'

JAKARTA (JP): Former owners of suspended and nationalized
banks will be barred from reentering the banking industry if it's
proven they've committed banking crimes, according to a director
of the central bank.

Bank Indonesia director for banking supervision and
development Soebardjo Djojosoemarto said on Monday that the
financial authorities would issue rulings that impose stricter
requirements, including a good "moral track record", for bank
owners.

"They (bank owners) must have good morals and character," he
told reporters on the sidelines of the House of Representatives'
debate on the government-proposed bill on the revision of the
1992 banking law.

The government regulation will be based on article 26 of the
bill regarding bank ownership. The draft law is expected to be
approved by the House on Oct. 16.

Soebardjo declined to give details of the "moral" criteria,
saying that the regulation had yet to be formulated.

The government suspended seven banks in April and took over
four and suspended three others in August. Their owners were
among the Who's Who of Indonesian businessmen, including some of
the country's richest tycoons Sudono Salim alias Liem Sioe Liong,
Mohammad "Bob" Hasan, Usman Admadjaja, and Sjamsul Nursalim.

The 14 banks have received massive Bank Indonesia liquidity
support, and most of them are believed to have breached the 20
percent legal lending limit requirement by lending between 70
percent and 90 percent of their equity capital to affiliated
parties.

Under article 49 of the 1992 Banking Law, bank owners who fail
to prevent their banks from violating the legal lending limit are
liable to face imprisonment of up to six years and a fine of Rp 6
billion and can be put on the central bank's blacklist.

"If the court decides that he (a bank owner) is at fault, he
will be surely included on our blacklist," Soebardjo said.

The Salim family, the former majority owner of the
nationalized Bank Central Asia, last week ceded some 100
companies claimed to be worth Rp 48 trillion (US$4.4 billion) in
exchange for the Rp 35 trillion in liquidity support the bank
received from the central bank, and Rp 13 trillion to cover its
intra-group lending excesses.

The assets have yet to be revalued by the government to see if
they're legally acceptable and enough to cover the ex-owners'
obligations.

It's not clear whether the Salim family can reclaim ownership
of the country's largest private bank upon repayment of the
bank's debts to the central bank.

Sjamsul Nursalim, the owner of the suspended Bank BDNI, has
also pledged assets in return for the bank's debts.

Bob Hasan, co-owner of suspended Bank Umum Nasional, and Usman
Admadjaja, the former owner of nationalized Bank Danamon, failed
to meet the Sept. 21 deadline to settle their obligations.

Foreigners

Soebardjo said that foreign investors intending to buy local
banks or to tie up with local bankers would also be subject to
the "good morals" criteria.

Under the proposed new banking bill, a foreign entity wishing
to establish a commercial bank must have recommendations from the
monetary authorities of their country of origin. The
recommendations must at least contain a clarification that the
foreign entity has a good reputation and has never committed
crimes in the banking sector, he said.

Soebardjo added that the government would also impose capital
criteria for the would-be foreign investors.

"We want to see whether the investors have money or not," he
said, pointing out that the government would prefer foreign
investors with a strong cash flow.

He said last week that a number of foreign investors had
contacted the central bank about the possibility of buying local
banks.

Among of the foreign investors are GE Finance, a unit of the
U.S.-based General Electric, ABN Amro, and Canada's Nova Scotia
Bank.

The new banking law is scheduled abolish the current 49
percent cap on foreign ownership of local banks.

The entry of foreign investors will be part of the
government's plans to recapitalize the ailing banking sector.

A due diligence study on the financial condition all of the
country's 200 commercial banks is scheduled to be completed by
the end of October. The audit results will be the basis for
setting the next stage of the government's bank recapitalization
and restructuring agenda. (rei)