Misinformation may ruin Bank Mandiri

Misinformation may ruin Bank Mandiri

The recent allegations of serious lending irregularities at
state-owned Bank Mandiri, the largest domestic bank in terms of
assets, has put the credibility of the country's recovering
banking industry, as well as the credibility of the new
government, at stake. The Jakarta Post's Rendi A. Witular along
with reporters from Tempo magazine and newspaper talked to State
Minister of State Enterprises Sugiharto on how he views the
ongoing investigation by the Attorney General's Office (AGO) of
Mandiri's top executives. Here are the highlights of the
interview:

Question: How do you see the ongoing investigation by the AGO
into Bank Mandiri?

Answer: My office and other government offices have pledged to
combat corruption in state-owned enterprises (SOEs). Just
recently, President Susilo Bambang Yudhoyono has repeated his
instruction to us to seriously intensify the efforts.

But the state minister's office does not have any supervisory
division that could be tasked with spotting corruption within
SOEs. Therefore, we rely heavily on the Supreme Audit Agency
(BPK), the Development Finance Comptroller and accounting firms.

The irregularity allegations at Bank Mandiri came out of BPK
audit reports, submitted to the House recently, with the AGO
asked to follow up on the findings. Thus, reports on the
irregularities are not from my office.

The audits are done independently, my office has no authority
to intervene in the result.

The AGO investigation into a number of Bank Mandiri executives
is not related with my plan to reorganize the management of state
banks, including Bank Mandiri.

This is not a pre-arranged scenario so I'll have a reason to
replace the bank's management by requesting the AGO for
investigating the case. There is no political motive behind the
proposal of reorganization for the management.

President Susilo also has sternly warned us not to accommodate
the interests of political parties into SOEs.

I have asked the bank's commissioners and directors about the
investigation by the AGO three weeks ago, and they said it all
started with the BPK findings, which were then followed up by the
AGO.

Is there any possibility that you will fire the entire
management of Bank Mandiri during the bank's upcoming shareholder
meeting on May 16?

The management replacements occur for a number of reasons,
their tenure expires or their unable physically or mentally to
perform their duties or the formation of new divisions or a
resignation.

Another reason would be if the management is simply not
running the bank as well as they should.

My office and the central bank have studied plans to change a
number of executives at Bank Mandiri since January. We will
review our plan following the irregularities found by the BPK at
the bank. The recruitment process is currently underway.

The recruitment has to go through three phases. First, the
candidates have to go through an interview/screening process with
Bank Indonesia; second, be assessed on capability, psychology and
morals by an independent human resource consultant; and last, an
examination by one of my officials.

In the case of Bank Mandiri, which is a public company, the
management's replacement should be approved during the upcoming
shareholder's meeting. The bank has proposed an agenda of
management reorganization at the meeting due to the recent
developments at the bank.

At this point, I can't disclose the names of candidates for
the bank's new management since it might have an adverse affect
on stock market shares.

In general, however, we should see the context of the
reshuffle in a more objective way. We should strongly uphold
presumption of innocence toward the bank's executives, although
they are currently being questioned by the AGO.

We should not rush in to punish the management by replacing
them as there is no legal status yet confirming them as suspects
in the corruption case.

I agree that the bank's image is reflected by the attitude of
its management, but it does not mean they will all be replaced.
We should fairly assess them since there are a number of
executives who are still capable and have high integrity.

Several high-ranking government officials seem to be defending
Bank Mandiri's management team in this corruption investigation.
How do you see this?

The banking industry is the most stringent industry in
business as it manages massive amounts of funds channeled to
creditors and at the same time receives funds from the public.
Banks really need very trustworthy institutions to maintain
public confidence.

There are several parties saying the central bank is basically
unhappy with the AGO investigation into Bank Mandiri. I think
it's because BI wants to avert a "rush on the bank" due to slump
in the confidence among the bank's depositors.

Since the financial crisis (in late 1997), the country's
banking industry suffered mightily following massive withdrawal
and account closures by thousands of depositors due to the
declining confidence in banks. Since the crisis, BI, the AGO and
the police have formed a joint team tasked with coordinating
corruption investigations involving domestic banks. The
coordination is needed to prevent misleading information being
leaked to the public -- which can jeopardize the performance of
the bank -- and create panic.

Financially, Bank Mandiri is a healthy bank, but due to the
lack of coordination we are concerned it will send a negative
signal to the public.

Before the AGO conducted its inquiry into Bank Mandiri, it had
to first consult the BPK on its findings with BI. In a recent
meeting with Vice President Jusuf Kalla, we understand that the
AGO neglected to coordinate with BI on the investigation.

We fear a misquote in the media over information from the AGO
could devastate the bank, and yet the investigation may not
actually find any corruption.