Lingering Lippo saga

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.