Restrictions on errant bankers welcomed

Restrictions on errant bankers welcomed

Tony Hotland, The Jakarta Post, Jakarta

Banking observers supported Bank Indonesia's decision to bar
former owners of insolvent banks, who in the past had violated
banking rules, from having a controlling share in any bank within
the next 20 years and urged the central bank to impose a stricter
test of suitability.

Institute for Development of Economics and Finance (INDEF)
economist Aviliani told The Jakarta Post that the decision was a
good move for the banking sector, confidence in which had been
hanging by a thread since the 1997 economic crisis.

"Banking is a matter of developing public trust, and it will
take forever to regain the same trust. They've ruined their own
reputation with their mistakes," Aviliani said.

She said that the ban was indeed necessary because otherwise
errant bankers would repeat the same mistakes should they re-
enter the industry as major players.

She cautioned that those bankers prohibited from becoming
major shareholders in banks could invest money through third
parties.

"They could, as has been the practice lately, become a
shareholder but under other people's names," said Aviliani.

Therefore, she asserted, the central bank should impose a test
of suitability for current shareholders of banks to provide an
assurance of their capability.

"The test must include an assessment of professionalism and
the track record of the owners and management," said Aviliani.

Bank Indonesia recently issued regulation No.5/25/2003 on the
test, which bans errant former owners of troubled or closed-down
banks from having a controlling stake in any bank within the next
20 years.

The former bank owners violated legal lending limit
regulations by channeling most of the money from their banks to
affiliated business groups. This created trouble for the banks
(some of which were closed down following the late-1990s
financial crisis) and threatened the banking system in general
with collapse. The government was forced to inject a huge amount
of public money to bail out the banks and maintain confidence in
the banking industry.

Although some of the former bank owners repaid their debts to
the government, which plans to release these particular bankers
from their past banking crimes, the central bank's rule would
prohibit them from controlling a bank for some considerable time.

Former bank owners deemed as cooperative by the authorities in
settling their obligations to the government include
Sudwikatmono, Anthony Salim, Ibrahim Risjad, The Nin King,
Hendra Liem, Hashim S. Djojohadikusumo, Njoo Kok Kiong, Honggo
Wendratmo, Suparno Adijanto, Andy Hartawan, Ganda Eka Handria,
Philip S. Widjaja and Mulyanto Tanaga.

Controlling shareholders include those who possess,
individually or in a group, a minimum 25 percent shareholding and
directly run the management or can intervene in a bank's
decisions.

Meanwhile, chief economist of state-owned Bank Mandiri Martin
Panggabean said that the central bank's move was nothing unusual,
but was logical and to be expected.

"I think this is just an attempt by Bank Indonesia to avoid
creating a controversy. If the central bank were to allow those
bankers (to have a major share), the public would then question
its credibility," he said, adding that the policy was consistent
with the bank's need for prudence.

With regard to the possibility of entrusted money, Martin said
that Bank Indonesia had to be very smart in controlling and
tracing where such money came from.