Stringent bank audits must go on: Expert

Stringent bank audits must go on: Expert

JAKARTA (JP): Bank Indonesia should not surrender to pressures
to review contracts with accounting firms which audit banks using
international standard practices, analysts said.

They said internationally accepted auditing was needed to
attract foreign investors into the banking industry.

Umar Juoro of the Center for Information and Development
Studies (CIDES), said foreign investors would only come if banks
were audited using internationally accepted practices.

"Whether you like it or not, we need the foreign money to
rehabilitate the ailing banking sector," Umar told The Jakarta
Post.

Pande Raja Silalahi of the Centre for Strategic and
International Studies (CSIS) said: "If we want to restore
international confidence in the banking sector we need to audit
local banks using international standards."

Recovery of the banking sector was a key to lifting the
country out of the economic crisis, he said.

State Bank BNI's former director Sutan Remy Sjahdeni said the
crisis had caused people to lose confidence in the banking
sector, although some banks had been managed prudently and would
pass the test of international auditors.

"If we audit banks using local standards, people will remain
doubtful about the banks," he said.

If several banks passed international audit, then overseas
confidence would return and the banks could resume their
international businesses, including letters of credit
arrangements, he said.

Letters of credit issued by local banks have been rejected by
overseas banks in the wake of falling international confidence.

Pande added: "If an audit came up with only 20 healthy banks,
we'd have to accept it. If we needed to 'amputate' some of the
banks, we'd have to do it right away."

Umar said banks passing an audit could kick-start financing
for the real sector. "With improved confidence in the banking
sector, interest rates could be lowered," he said.

The central bank agreed with the IMF in April to use several
international auditors to examine local banks. The results would
be used to decide how to restructure the ailing industry.

Several parties, including top government officials, have
suggested the immediate closure of banks that have no hope of
meeting the new 4 percent capital adequacy ratio requirement by
the end of this year.

Six banks under the management of the Indonesian Bank
Restructuring Agency (IBRA) have been audited.

The results of four have been made public: Bank Danamon, Bank
Umum Nasional, Bank Tiara and Bank PDFCI. IBRA has postponed
announcing the results for Bank BDNI and Bank Modern.

The agency said last week that the assets of the four banks
were much smaller than reported by their managements and that the
banks needed large amounts of cash to fulfill the capital
adequacy ratio requirement. Bank Danamon needs Rp 28.3 trillion
(US$1.9 billion), Bank Umum Nasional Rp 10.47 trillion, Bank
PDFCI Rp 3.2 trillion and Bank Tiara Rp 2.89 trillion.

Several bankers have been pressing Bank Indonesia to review
the use of international standards in the auditing process.

"Using international standards isn't relevant to efforts to
revive the ailing banking sector, especially amid the current
economic crisis," said a banker who declined to be named.

Local banks could not fulfill the conditions demanded by
international auditors because the banks had been practicing
under Indonesian accounting standards, he said.

He said employing international standards would result in many
banks being categorized as unhealthy.

Former BI director I Nyoman Moena said international auditors
should not force their standards on local banks, arguing that it
would only confuse the banks because they had been operating
under Indonesian accounting standards.

"BI should review the auditing procedures," he said.

International auditors are expected to complete auditing 32
banks under the supervision of IBRA and 15 non-IBRA banks by the
end of this month. The remainder is expected to be completed in
October. (rei)