Sun, 02 Mar 2003

Finance ministry to probe Bank Lippo auditor

Dadan Wijaksana, The Jakarta Post, Jakarta

The Ministry of Finance launched on Friday an investigation into three appraisal firms and one auditor that had conducted an appraisal on assets and the audited financial report of Bank Lippo, for possible involvement in the alleged financial manipulation by the bank's management.

Darmin Nasution, the ministry's director general for financial institutions, said that if found guilty, the firms could face penalties ranging from warnings to closure.

"The probe will focus on whether the appraisals were conducted in compliance with the standard procedures. We also need to check on the auditor, because there are rules regarding how to put the results of an appraisal into financial report," Darmin said.

Although still in the early stages of the investigation, the fact that there is an investigation at all appears to indicate that the government is finally serious about dealing with the problems surrounding Bank Lippo.

Darmin's remarks came only a day after the Indonesian Bank Restructuring Agency (IBRA) hinted that it would replace the management of the bank at the extraordinary shareholders' meeting, planned to be held soon. IBRA currently holds a 59 percent stake in Lippo.

Another investigation is also underway by the Capital Market Supervisory Agency (Bapepam), focusing on Lippo's management and board of commissioners.

Darmin refused to name the appraisal and auditing companies, but it was recorded that PT Profalindo Nusa, PT Pronilai Consulist and PT Satya Graha Tara had conducted appraisals on the bank, while Ernst & Young was Lippo's auditor.

Darmin added he had called for the investigation upon learning that one of the two financial reports presented by Lippo late last year was issued by one of the four companies.

Allegations of fraud flared several months ago when the bank issued two different financial reports. In its November version, the bank reported a net profit of Rp 99 billion as of September, and a 24.8 percent capital adequacy ratio (CAR). But a month later, it reported completely different figures.

Not only did the December report show a Rp 1.27 trillion in losses, the bank also said that its CAR had declined to around 4 percent during the same period.

The management has repeatedly said that the reports were different, because there was a subsequent foreclosure that could not be included in the first report.

It claimed that the subsequent event -- detected as a sharp decline in value of its foreclosed assets -- had dragged the bank's CAR down, as it had to set aside around Rp 1 trillion in provision to back up the lost value. The foreclosed assets referred to Rp 2.7 trillion the bank had seized from defaulted debtors, mainly in property assets.

But this raised more than a few eyebrows, for at least two reasons: Not only were the assets appraisals not transparent, but also, the claims of a decline in the value of property assets are rather hard to believe, especially when the property sector has been promising lately, with demands continuing to rise.

These have led to allegations that the bank's deteriorating capital was only part of the maneuvers conducted by its former owner to regain control of the bank, saying these maneuvers only aimed to justify the bank's long-standing plans for a rights issue.

A rights issue, which involves issuing new shares to obtain fresh capital, would only cause the dilution of IBRA's shares, and worse still, it would clear the way for the bank's former owner to buy back the shares at a much lower price.

According to current prices, the government's ownership in the bank is worth only around Rp 600 billion, compared to around Rp 6 trillion of the bail-out funds it provided to the bank under the recapitalization program.

Darmin added that he expected the investigation into the appraisal firms to last two weeks, but a longer period would be needed to investigate the auditor.