Finance ministry to probe Bank Lippo auditor

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.