Heavily tarnished BNI strives to come back with new strategies

The discovery of a Rp 1.7 trillion (US$203 million) fraud case at state Bank Negara Indonesia (BNI) has hurt the publicly listed bank just as it was beginning to get back on its feet after the 1997-1998 financial crisis.

The case exposed the bank's weak internal controls, which were not strengthened even after the government bailed out the bank with trillions of rupiah of taxpayer money to prevent it from collapsing.

BNI's newly elected president Sigit Pramono spoke with The Jakarta Post's Rendi A. Witular about his strategies for repairing the bank's image and increasing its profit.

Question: What are your plans for fixing BNI's image and improving its performance in the wake of the fraud case?

Answer: We must admit that the bank has a very bad image now, and at the same time it is in a crisis. The crisis here is not because of numbers, but because of the eroding trust of the public and a growing distrust among the bank's employees.

Thus, our first priority is to restore public confidence and to eliminate distrust among the employees. Without their support, it will be hard for the management to lift BNI back to its feet.

We have set three restructuring stages for BNI: stabilization, turnaround and transformation.

For stabilization, we need around three months to implement all of the programs needed, starting in January. During this phase, we will launch several programs aimed at improving the bank's human resources quality, career system and reward and punishment procedures, in order to prevent employees from being involved in corruption.

We are also trying to improve our internal supervision system by working together with Ernst & Young and by reforming our internal supervision unit.

This unit was previously under the auspices of branch managers; the branches paid their salaries and conducted personnel performance evaluations. To prevent a conflict of interest and any psychological barriers, we are removing the unit from the branches' chain of command and putting it under the command of the compliance director at headquarters.

To lower the risk of nonperforming loans, we are also planning to decrease the legal lending limit of 20 percent to about 10 to 15 percent of the bank's total equity, which currently reaches about Rp 9 trillion.

We don't want to channel a huge amount of lending anymore, because it will only jeopardize our business.

Another effort to fix the bank's image is that we will become more transparent to the public. We will report any developments or problems in the bank to the press. We are trying to prove that we are serious.

After stabilization, there is a turnaround phase, which is scheduled to last from April to June.

During this phase, we will launch a "zero fraud" program aimed at boosting the awareness of employees toward fraudulent practices.

After the turnaround stage, the bank is expected to enter the transformation stage, in which we expect that business at BNI will be back to normal. There is no schedule for this stage.

In the end, all of our restructuring programs will be just a theory unless we are able to improve our revenue, net profit and (financial) indicators.

Do you feel that you are now working to clean up a huge pile of "garbage"?

No, I don't feel that way. Actually, BNI has a good business. Before the fraud case broke, all of our indicators and performance were fairly satisfying. But because of the scandal, all the positive (facts) became at once negative.

But this is BNI's fate. The bank had to be hit first by a scandal in order to change. I think there is a "blessing in disguise" in the fraud case. If there was no such scandal, the bank would feel perfect and would not change.

What I am facing here is different than what I faced at Bank International Indonesia (Sigit was the president of Bank BII before taking over the top position at BNI in December 2003).

BII had a vast and multicomplex problem but at a small magnitude. On the contrary, BNI has a small problem but at a huge magnitude.

BNI will remain negative in the eyes of the public until its operation becomes stable again.

Are you sure that your restructuring efforts can be successful? BNI was long been known as the "cash cow" for some government officials, and the government has always intervened in its operation.

Before I took the job, the government gave me an order to restructure BNI based on professionalism. And they promised they would not intervene in any way. Therefore, we will reject all requests from government officials which do not meet our professional values and risk management standards.

If the rejection has consequences for us (such as dismissal), we will accept it.

We are now like in an aquarium, being watched by everyone. I don't think that anyone will dare to disrupt BNI because they would be on the spot.

What will be the future focus of the bank's business?

BNI is designed to be a universal bank. Overall, there will be no changes. The bank just needs to sharpen its focus. We are planning to focus on markets that Bank Mandiri and Bank Rakyat Indonesia (BRI) are not fully covering.

For example, Mandiri's segment covers large and medium businesses, while BRI covers medium and small companies. Therefore, we are not playing to the largest or the smallest segments, but in between.

For sure, we are not going to compete head-to-head with them. Our businesses will not be as large as those handled by Mandiri.

How is the development of the bank's secondary stock offering coming?

The offering will remain on schedule because the government, as the (controlling) shareholder of the bank, needs money to help finance the state budget deficit. BNI does not need the proceeds from the offering because its capital adequacy ratio (CAR) is deemed good enough for three years lending expansion at Rp 9 trillion.

The recent quasi-reorganization has boosted our CAR to about 18 percent from 14 percent.

We have proposed to the government to launch the offering in the early months of the second semester, because we still need time to restructure the bank.