Indonesian banking sector remains shaky: EIU
Dadan Wijaksana, The Jakarta Post, Jakarta
Banking reform in the country is still far from complete despite the closure of the Indonesian Bank Restructuring Agency (IBRA), according to a new survey.
The Economist Intelligence Unit (EIU), a global agency that reviews risk ratings of 100 emerging and indebted markets on a monthly basis, said the setting up of other government agencies to complete the IBRA's unfinished business confirmed the huge challenge ahead.
"Much still needs to be done to restore the banking sector to health and many of the IBRA's duties will be taken up and quietly continued by other bodies, probably for at least another 12 months," the study, released on Tuesday, said.
The IBRA was set up in 1998 to restructure Rp 600 trillion (about US$70 billion) worth of assets it took over from indebted banks. It was dissolved last month and three state bodies have been established to take over its unfinished work.
They are a department in the Office of the State Minister of State Enterprises, who will restructure some Rp 60 trillion worth of unsold assets; a body under the Ministry of Finance, which will continue the blanket guarantees program; and a new trouble- shooting team, which will oversee legal battles with recalcitrant debtors.
The government had already found selling distressed unsold assets had proved a headache, and dealing with large debtors in the future would not be any easier, the study said.
"On the legal front, only three bad debtors have been taken to court, seven other cases have been filed, and a further eight are still being completed. And all of the three tycoons who were prosecuted were acquitted," it said.
While consolidation of the banking system had taken place -- seen in the improvements of many banks' balance sheets and in successful mergers and sell offs -- about two-thirds of the banking system remained in the government's control.
While acknowledging bank borrowing had started to improve, the EIU raised concerns over the quality of due diligence on the loans, saying: "While credit risk assessment has undoubtedly improved, many question marks remain."
It cited high-profile banking scams involving officials from Bank Negara Indonesia and Bank Rakyat Indonesia -- both state- owned -- amounting to Rp 1.7 trillion and Rp 294 billion, respectively.
EIU warned of similar occurrences if banking fraud was not dealt with properly.
"Combined with Indonesia's endemic corruption, short-term lending buoyancy could in fact develop into a medium-term bubble that will burst into another, albeit smaller, banking scandal," the study said.
In a related development, the Supreme Audit Agency said on Tuesday it would complete its audit of IBRA's bank restructuring performance on April 30.