House may reject govt plan to divest BNI after scam: Lawmaker

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives will oppose the government's plan to further divest shares in publicly listed Bank Negara Indonesia (BNI) next year because of the recent lending scandal at the bank, according to a senior lawmaker.

Not only had the scandal tarnished the bank's image, but it would also do damage to the bank's financial balance -- two factors that would dent investor interest, Paskah Suzetta, deputy chairman of House Commission IX, which oversees banking and financial affairs, said over the weekend.

With potential losses arising from the case estimated at Rp 1.2 trillion, BNI would find it difficult to book a full-year profit of Rp 2.7 trillion, as targeted earlier.

"While this will shake up the revenue target, we will also see an increase in BNI's NPLs (nonperforming loans) and consequently its CAR (capital adequacy ratio) will be reduced," Paskah said in a discussion in Bandung, West Java, as reported by Antara.

The government is planning to sell more shares in the state- owned bank, one the country's largest in terms of assets, early next year as part of its privatization program, the proceeds of which will be used to help finance the state budget deficit.

However, the recent credit frauds -- which saw the bank extend export credit facilities to some local exporters during the period July 2002 to July 2003, in transactions proved later to be fictitious -- would likely prompt rejection of such a plan, Paskah said.

Paskah's remarks did not represent the commission's, but any indication of rejection from legislators would be the last thing the cash-scrapped government needs, already burdened next year to collect Rp 5 trillion from privatization.

Paskah explained that after the scam, the bank could rake in a maximum of only Rp 1.5 trillion in revenue this year, while NPLs were expected also to rise from the current figure of Rp 2.3 trillion to Rp 3.5 trillion.

"This will significantly bring down BNI's CAR from around 13.5 percent currently," Paskah added. CAR measures the ration between a bank's capital and its risk-weighted assets such as loans.

Not to mention the fact, he continued, that around 42 percent of those profits were to come from the state budget as interest payments on the bank's recapitalization bonds.

Consequently, Paskah was against the sale plan until after the bank improved its financial position; whoever was responsible for the scandalous case had to be punished and to ensure no similar frauds took place in the future stronger internal control mechanisms had to be in place.

"Even if there is a major shake-up in the bank's board of top management, it would come to nothing without establishing a sound and proper internal control mechanism."

The case, which first emerged in August, exposed the bank's poor credit appraisal mechanism as it allowed a Jakarta branch to disburse export credits to exporters holding letters of credit guaranteed by foreign banks that were not BNI correspondent banks. The credits totaled Rp 1.7 trillion, of which Rp 580 billion has been returned to the bank.

The National Police are now investigating the matter, with 5 people already detained so far.

The scam has also prompted international rating agency Standard & Poor's to downgrade its short-term ratings on the bank.