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.