OC wants old owners of recap banks out
OC wants old owners of recap banks out
The Jakarta Post, Jakarta
Bank owners whose mismanagement of their banks forced the government to spend billions of dollars to bail them out, should be barred from future management, the Oversight Committee (OC) says.
"Their (old bank owners) involvement in the management hampers efforts to recover these banks because of vested interests," OC chairman, Mar'ie Muhammad was quoted as saying by Antara after meeting Finance Minister Boediono on Monday.
OC oversees the operation of the Indonesian Bank Restructuring Agency (IBRA), which took over a number of banks after recapitalizing them in the late 1990s. The committee however has no power to enforce any of its recommendation made to the Financial Sector Policy Committee, which groups several senior economic ministers.
Mar'ie suspected at least two recapitalized banks, namely Bank Internasional Indonesia (BII) and Bank Lippo, have retained their old owners under their management.
According to him, it is difficult for banks to impose good corporate governance, and greater transparency if the old owners retained their influence over the current management.
IBRA has required banks to adhere to the good corporate governance principles in a bid to make banks more prudent.
But demanding greater transparency of the bank's management might push into the spotlight its past mismanagement practices.
"The old owners are now part of the country's banking problems," Mar'ie said.
According to him, the interference of these old owners may have contributed to the fact that Indonesia's banks ranked as the worst among 78 countries surveyed.
He was quoting a recent survey by international rating agency Moody's, which has placed the local banking sector at its lowest rating level.
Mar'ie said he would demand IBRA reveal the management structures of its banks, to reveal what old names were still there.
Some old owners have purchased the certificate of entitlement when they injected fresh capital as a prerequisite to join the state-sponsored recapitalization program without losing their ownership in the banks.
The certificate allows owners to raise their stakes using proceeds from IBRA's asset sales. But Bank Indonesia bans those who have been blacklisted from owning a bank to exercise its certificate right.
Upholding good corporate governance among recapitalized banks is seen as crucial amid persistent concerns that banks fail to perform despite billions of dollars spent on bailing them out.
The government injected more than Rp 430 trillion of state bonds in the ailing banks to keep them afloat when industries defaulted on loans en masse during the financial crisis.
Many bank owners in the past had forced their banks to channel most of depositors money into affiliated business groups, thus violating the legal lending limit rule.
As their lending activities were not based on prudential banking practices, many banks plunged into deep financial trouble when the country was hit by the regional financial crisis in the middle of 1997.