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.