Govt bank probe on credits 'may send wrong signal'

JAKARTA (JP): The government's hastiness in trying to recover massive liquidity support given to ailing banks may send out a wrong signal about efforts to rehabilitate the troubled industry, an expert has warned.

Pande Raja Silalahi, an economist at the Center for Strategic and International Studies, said on Saturday that last week's marathon interrogation of several bankers could lead people to think that the main target of the bank restructuring program was to recover the liquidity support.

"The government is moving hastily and creating an impression that its main target is to get its money back," he said. "They're exaggerating it. Is this for political reasons? The authorities must come up with a more systematic program to restructure the banking sector," he added.

The Attorney General last week started questioning several bank officials and owners, including Mohammad (Bob) Hasan, the long-time golfing partner of former president Soeharto, in connection with efforts to recovering the massive Bank Indonesia liquidity support given to their banks.

Some of them have promised to return the liquidity support before the Sept. 21 deadline set by the government last month after discovering that their personal assets would be confiscated if the did not.

The central bank started giving liquidity support to troubled banks in January to help them face down runs on deposits due to plunging confidence in the sector.

The central bank is believed to have channeled more than Rp 140 trillion in liquidity support to commercial banks.

Last month the authority suspended the operations of three banks, including Bob Hasan's Bank Umum Nasional, which were deemed to have no prospect of rehabilitation. Four other banks, including the country's largest Bank BCA and Bank Danamon, were nationalized.

These banks had received liquidity support equivalent to more than 500 percent of their capital.

Pande agreed that bank owners who had been proven to have misused liquidity support, including to speculate on the currency, could be sent to jail, but reminded authorities that hastiness of their part would blow the issue out of proportion and lead people to distrust all bankers.

He explained that some bankers were actually professional and their banks needed liquidity support not because of mismanagement but because of the crisis.

"Will they (the good bankers) also have to face the Attorney General?" he asked.

Liquidity support was also given out prevent a collapse in the banking sector in the wake of plunging depositors' confidence, he said.

"There is an impression that Bank Indonesia has giving all the responsibility to commercial bankers," Pande said, adding that it would be impossible to recover a large part of the liquidity support and that bankers might only be able to return non-cash assets.

He also said that hasty measures were usually short-lived, and had proved to be an ineffective way of stamping out banking crime in the past.

He urged the government to come up with systematic measures to deal with violations of the legal lending limit and massive non- performing loans, which could amount to 50 percent of all outstanding loans or more than 40 percent of the country's gross domestic product (GDP).

The central bank issued a decree in 1993 obliging banks to lower their intra-group lending to below 20 percent within five years, but this ruling was largely ignored.

Former central bank governor Soedradjad Djiwandono told bankers in 1995 that those who failed to follow the decree by the end of 1997 would be brought to court for breaching the legal lending limit. If found guilty they could be jailed for six years or fined Rp 6 billion under the 1992 Bank Law.

The government, however, has to date not sanctioned negligent bankers, although the Attorney General exaggerated the importance of the questioning of a number of allegedly corrupt bankers, and the police boasted that Soeharto's son Bambang Trihatmodjo would also be summoned for interrogation. (rei)