Scandal may delay sale of BNI

Scandal may delay sale of BNI

Associated Press, Indonesia

The Indonesian government will probably delay a sale of its stake in the nation's second-largest state bank following the recent revelation of alleged lending fraud, a Cabinet minister said on Saturday.

The government planned to sell some of its 98 percent stake in Bank Negara Indonesia (BNI) in the first quarter of next year.

"We are not going to do that if we are not ready. Who will buy the shares?" Minister of State Enterprises Affairs Laksamana Sukardi said on the sidelines of a business conference on the Indonesian Island of Bali.

The scandal allegedly involved the issue of approximately US$200 million in letters of credit by institutions in Kenya, Switzerland and the Cook Islands to cover exports by Jakarta- based companies.

A Jakarta branch of BNI issued export credits to the companies, but they never made the exports, police said.

Bank Negara Indonesia acknowledged in October that it could lose up to half its forecast profits this year because of the scandal.

The government will reshuffle BNI's top management Dec. 15, although it is still unclear who will be sacked. Laksamana said some BNI directors recently tendered their resignations, but the government would decide later whether to accept them.

Indonesia has sold stakes in several state-owned companies following the 1997-98 Asian financial crisis to help finance its budget deficits.

This past week, the fourth-largest state-run, Bank Rakyat Indonesia, announced that it faces potential losses of Rp 294 billion ($35 million) because three of its branches provided credits backed by fictitious deposits in the bank.

The scandals highlight the weakness of internal control mechanisms in state banks, where corruption remains a problem.

"The state-owned enterprises are such a rampant breeding ground for corruption," Laksamana said.

He said selling stakes in state companies to private investors is one of the most effective ways to tackle corruption.

"Once there's substantial private ownership of the (state- owned) enterprises, the new management will be less tolerant of having their revenues skimmed or squeezed," Laksamana said.