Wed, 16 Apr 2003

Lingering Lippo saga

The extraordinary shareholders meeting of publicly listed Bank Lippo succeeded in replacing the majority of both the boards of directors and commissioners, but failed to straighten out the controversies that have damaged the bank's reputation and integrity as an institution.

The appointment of such competent persons with high integrity, such as Djisman Simandjuntak, rector of the Prasetiya Mulya Business School, and I. Nyoman Tjager, an assistant to the state minister of state enterprises, to the board of commissioners will help improve oversight in the bank.

Likewise, the selection of Joseph Luhukay, a leading member of the National Committee on Good Corporate Governance, as the new president will contribute to propagating prudential principles within the bank.

But the meeting miserably failed to address once and for all the roots of the controversies over the bank's two fundamentally different financial reports for the third quarter of 2002, questionable appraisal of foreclosed assets in the bank's books and allegations of share price manipulation.

Yet even more mind-boggling was the inability of the government, the controlling shareholder with an almost 60 percent holding, to rid the bank of people of questionable integrity such as Mochtar Riady and his associates Roy E. Tirtadji, Masagus Ismail Ning and Rudi T. Bachrie.

They sat on the board of commissioners when the controversy over the two different financial reports exploded late last year and were again reappointed on Tuesday. This is further evidence of how helpless the government is in dealing with big conglomerates.

As reported late last year, Bank Lippo's audited financial report for the third quarter of 2002 that was published in the mass media in late November put the bank's total assets at Rp 24 trillion (US$2.6 billion) and net profit at Rp 98 billion. However, another audited report for the same period that the bank filed with the Jakarta Stock Market on Dec. 27 reduced its assets to Rp 22.8 trillion and booked a net loss of Rp 1.3 trillion.

The bank management explained that the discrepancy was caused by the reappraisal of Rp 2.4 trillion worth of foreclosed assets in its books that resulted in a deep cut in their value to Rp 1.42 trillion. This consequently caused the bank's capital adequacy ratio to plunge from 24.77 percent to 4.23 percent, way below the minimum capital standard of 8 percent.

Even though the Riady family remains a minority shareholder of the bank after the government, through the Indonesian Bank Restructuring Agency (IBRA), took over almost 60 percent of the bank in May 1999 and is entitled to have seats in the management, the family should be represented by other personalities with unquestionable reputations.

IBRA's inability to boot out Riady and his associates once again raises big questions about the investment, management and performance agreement that the government and IBRA signed with the Riadys in May 1999, which reportedly virtually gave the Riady family, as the founding shareholders, carte blanch to run the bank.

The position of Riady and his associates on the board of commissioners was also strengthened by the questionable ruling last month by the stock market watchdog that freed them from any implication in the controversy and which deemed the dual financial reports as a mere misdemeanor and not as an act of disseminating misleading information.

But did they not breach the code of conduct of good corporate governance that is so vital to a publicly listed company, let alone a bank? Hasn't the two different financial reports done severe damage to the bank?

The decision last month by the finance ministry to revoke the work permit of two appraisers of the bank's assets for one year for failure to comply with the appraisal procedures, as well as auditor Ruchijat Kosasih for failure to fulfill auditing procedures, should have prompted the shareholders meeting to question the management about the motive of and terms of reference attached to the appraisal order.

After all, the allegations that the Riady family had tried to reacquire majority ownership of the bank were tied to the two different reports, the questionable asset reappraisal and the flurry of dubious transactions to push down the bank's share prices in the last quarter of last year.

It is now the responsibility of Bank Indonesia to ensure, through its fit-and-proper test mechanism, that all the persons appointed to the boards of directors and commissioners meet the strictest requirements of integrity, character and technical competence.