Scam torpedoes BNI profit

Scam torpedoes BNI profit

Rendi A. Witular, The Jakarta Post, Jakarta

Net profits at the publicly-listed Bank Negara Indonesia
(BNI), the country's second largest bank in terms of assets,
plunged by 45 percent in the first nine months of this year due
to a huge loan scandal.

BNI president Saifuddien Hasan said that net profit fell to Rp
1.17 trillion (US$138.46 million) from Rp 2.10 trillion in the
same nine-month period of last year as the management decided to
set aside a huge loan-loss provision against potential losses
from the scandal.

"The decline in our net profit is mostly attributable to the
graft case," said Saifuddien at a press briefing on Thursday.

He said that the bank set aside a provision of Rp 941 billion
to cover the loss. This is about half of the Rp 1.7 trillion
allegedly embezzled from the state-owned bank.

He also said that although the bank had set aside loan-loss
provisions, the bank would work hard to recover the loans.

The BNI loan scandal centers on the channeling of export
credits without proper appraisals by the bank's Kebayoran Baru
branch in South Jakarta to a number of local companies to finance
the export of commodities to Congo and Kenya. The exporters
(Saifuddien identified them as the Petindo Group and Gramarindo
Group) backed up their loans requests with letters of credit
(L/Cs) from banks in Kenya, Switzerland and the Cook Islands as
collateral. It later turned out that the exports never
materialized, causing BNI to lose the money.

Shares in BNI have plunged by around 27 percent over the past
couple of days since the case first came to light, although on
Thursday the share price put on 5.3 percent to close at Rp 100
per share.

Although analysts have said that the lending scandal could
seriously undermine confidence in the country's banking sector,
which was been badly hurt by the late 1990s banking crisis due to
chronic corruption, the government's efforts to sell stakes in
local banks have so far not been affected.

The Indonesian Bank Restructuring Agency (IBRA) has just
completed the sale of a majority stake in Bank Internasional
Indonesia to a Singapore-South Korean consortium, and the planned
initial public offering of state-owned Bank Rakyat Indonesia was
reported to be 14 times oversubscribed due to strong demand from
investors. The government is planning to sell a further stake in
BNI next year.

Reports quoting government officials said that a shareholders
meeting of BNI would be held in December, in which part of the
agenda would be the possible dismissal of top executives of the
bank due to the scandal.

But the BNI board of directors has so far denied
responsibility for the scam.

Saifuddien acknowledged that scandal was caused by weak
supervision in the bank, and possible collusion between certain
officials of the bank's Kebayoran Baru branch and the companies
concerned.

He said between December 2002 and July 2003, some $157.4
million and 56.1 million euros in loans were channeled in 105
transactions without any formal assessments being conducted or
checks made (the above mentioned foreign banks were not BNI
correspondent banks).

"At that time, the board of directors did not know that there
was a huge amounts in export credits being extended by one of our
branches," he said.

Meanwhile, after a meeting with BNI management, Jakarta Stock
Exchange president Erry Firmansyah said that the bourse had
ordered BNI to submit a weekly written report on the progress of
the bank's efforts to recoup the loans. But the JSX would not
suspend BNI's shares.

The police confirmed this week that they had detained two
senior executives of BNI in connection with the scandal, and more
detentions would likely follow.