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.