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)