Government told to start plans on bank supervising agency

Government told to start plans on bank supervising agency

JAKARTA (JP): The government must immediately start making
preparations to create a new independent body to take over Bank
Indonesia's banking supervisory role by 2002, a senior official
at the central bank said on Friday.

Bank Indonesia director for bank licensing Sukarwan said in a
seminar that the new body would help allay fears that the country
would suffer another banking crisis if supervision continued to
be in the hands of Bank Indonesia. Many people have accused the
bank of being partly responsible for the current banking
troubles.

"This (the new agency) will improve banking supervision. It
will be a totally new agency run by new faces," Sukarwan said.
"But I don't know if this idea will be realized. My impression is
that it's drifting away," he added.

He said that certain measures could be implemented now, as
2002 was not so far away, and the measures taken could be
endorsed by the new bank supervisory agency later.

Sukarwan was responding to a growing demand for the
liquidation of Bank Indonesia, seen in the past as a corrupt and
weak institution, to create a totally new and clean central bank
like in the Philippines to help prevent another banking crisis.

"There's no need for that (liquidating Bank Indonesia). The
solution I believe is in a new supervisory agency," he said.

The House of Representatives approved in April last year a new
law on Bank Indonesia which guarantees its independence.

Under the new law, Bank Indonesia must transfer its bank
supervisory role to a new independent agency starting in 2002.

The government said last year that the new agency was expected
to supervise not only the banking sector but also financial
institutions including the capital market, multifinance
companies, insurance firms and pension funds.

The country's banking crisis, which started in 1997, caused
the government to close down over 60 banks, nationalize a dozen
more and provide financing for the country's bank
recapitalization program at an estimated cost of more than Rp 500
trillion (US$53 billion).

Both the government and Bank Indonesia have already taken
several measures to help prevent a second crisis, including
introducing fit and proper tests for controlling owners and
managers of banks.

But many have said that the blame for the banking crisis
should also be shouldered by Bank Indonesia.

Critics have said that the central bank was responsible for
the mushrooming of banks in the country in the late 80s without
implementing proper supervision.

Some have also alleged that the massive legal lending limit
violations, channeling most of the bank's money to affiliated
business groups, were made with the knowledge of central bank
officials.

Fit and proper test

"If we want to prevent a similar (banking) crisis from
reoccurring, the infrastructure and the human resources must be
revamped," Sukarwan said.

He said that the implementation of fit and proper tests was a
key measure to ensure that bank owners and managers had the
necessary integrity and competency.

Sukarwan explained that fit and proper tests were only applied
to people already in the banking sector, while those who had
never been in the industry but had been proposed to run a bank or
to become a controlling owner would only have to go through an
interview process to know his or her "vision."

He said that integrity had the largest weighting in the fit
and proper tests, while competency only counted for 5 percent.

"Bankers who are not too savvy should not be too worried about
failing the test," he said, adding that fit and proper tests were
based on the bankers' past track records.

He said that the integrity factor had the highest weighting in
the test because many bankers had violated bank rulings in the
past including credit mark ups, and practiced 'financial
engineering' to escape legal lending limit stipulations.

Sukarwan also said that failing a fit and proper test was not
a "death penalty" for bankers.

"If (unsuccessful) bankers can prove that they have changed
after 1-2 years they can be considered to be accepted back into
the industry," he said.

The central bank's fit and proper test has attracted
controversy. Reports have alleged several key executives from the
state Bank Rakyat Indonesia (BRI) failed such a test, and that
President Abdurrahman Wahid asked Bank Indonesia to repeat the
test to allow his preferred men to run the bank.

Bank Indonesia Governor Sjahril Sabirin, now under the
detention of the Attorney General Office over alleged involvement
in the high-profile Bank Bali scandal, rejected the President's
demand.

Others have questioned the credibility of the central bank's
fit and proper test.

Former owner and CEO of Bank Bali Rudy Ramli said that fit and
proper tests could easily be manipulated by Bank Indonesia to
achieve its own goals.

Rudy said that fit and proper tests must be conducted in a
transparent way with a clear set of criteria.

He suggested that the criteria be designed by an independent
consultant.

He also said that there must be a mechanism for a banker to
make an appeal if he or she had been judged to have failed a
test. (rei)