Fri, 05 Dec 2003

Selecting bank managers

History has taught us that the collapse of the country's banking system, which cost the economy thousands of trillions of rupiahs until 2020, was among others caused by the reckless attitude of bank managers.

Bank owners raised public funds and channeled them to their respective business groups without adequate collaterals. Bank managers, directors and commissioners alike are an integral part of this practice. Even managers of state banks frequently come under political pressure from all sides to channel credit to certain interest groups.

On top of that, the weak process of selecting bank managers and lenient sanctions against violators of bank management principles have made banks a target of fraud, ruining public confidence in banks.

After five years of banking crisis, bankers, particularly private ones, saw a shift in majority shareholders. Large banks such as BCA, Danamon, Niaga and BII are now owned by new investors. Most managers of these banks have been replaced. Yet, reckless bank management practices show no sign of abating.

BNI must set aside Rp 960 billion to cover losses resulting from the questionable issuance of L/Cs worth Rp 1.7 trillion. Likewise, BRI has to put aside Rp 300 billion to offset losses due to fake deposits. Meanwhile, Mandiri must set aside Rp 1.7 trillion due to a halt in the restructuring of PT Kiani Kertas.

In general, Bank Indonesia Regulation No 5/25/PBI/2003 is a forward step by the central bank to improve the quality of bank owners and managers, provided it is firmly implemented.

For instance, when it comes to owners, Bank Indonesia requires their banks to disclose the structure of their ownership.

As such, the public would have an adequate knowledge of the quality of bank owners and managers, something that is badly needed to improve public confidence in the banking system.

-- Bisnis Indonesia, Jakarta