Unibank fallout raises concern over BI roles

Dadan Wijaksana and Berni K. Moestafa, The Jakarta Post, Jakarta

The closure of publicly listed Unibank, which Bank Indonesia (BI) officials said was linked to heavy loan exposure to a former controlling owner, has renewed concern over the central bank's poor bank supervisory capability.

University of Gadjah Mada economist Sri Adiningsih voiced concern that the central bank had fallen short in carrying out its supervisory role.

"We have to question the effectiveness of BI in supervising the country's banking industry. They keep repeating the same mistakes," Sri told The Jakarta Post on Tuesday.

"The violation of the legal lending limit regulation is not really a new thing. Through experience, BI should have been able to detect this very early on."

BI closed down Unibank on Monday, citing its worsening financial condition as massive loans channeled to companies belonging to the bank's ex-controlling shareholder, business tycoon Sukanto Tanoto of the Raja Garuda Mas (RGM) group, had turned sour sending its capital adequacy ratio (CAR) to plunge to minus 200 percent in September against the minimum 4 percent requirement.

In July 2000, the bank's CAR level was still around 8 percent.

BI said that Unibank had channeled some $230 million worth of its export credit facility, which was equal to 51 percent of the bank's total assets.

According to Bank Indonesia's legal lending limit ruling, a bank can only lend up to 20 percent of its assets to its affiliated companies.

Sukanto bought Unibank in 1986, but two years ago he sold a large chunk of his ownership in the bank. The publicly listed bank was owned by various investors with individual ownership of less than 5 percent prior to the closure, although some suspect that Sukanto is behind the various vehicle investment firms owning Unibank shares, which makes him remain in control of the bank.

The government has imposed a travel ban on Sukanto and Unibank's directors and commissioners.

According to Sri, following the massive closure of banks in 1998, which was also triggered by the violation of the legal lending limit ruling, the central bank should have learned a lesson particularly as the banking crisis had cost taxpayers dearly to finance the government bank bailout program.

"But this kind of mistake keeps recurring without being detected. I just do not understand it.

"It's even more confusing to think the violation occurred when the bank was under BI supervision."

BI admitted that it had kept a close watch on Unibank since 1998 and placed the bank under special surveillance in November last year after its financial health continued to deteriorate.

Meanwhile, a regional banking analyst at SG Securities Lin Che Wei said BI should show more responsibility in handling the Unibank case.

"The blunder (with Unibank) occurred while the bank was under Bank Indonesia's supervision, but now they just leave the matter to IBRA," he told The Post, referring to the Indonesian Bank Restructuring Agency, which is responsible for cleaning up the mess created by the closure of Unibank including paying depositors their money.

Che Wei said that during the supervising period, BI should have acted more firmly on Unibank, instead of waiting for it to be rushed.

Bank analyst at Indosuez W.I. Carr Securities Mirza Adityaswara questioned why BI had allowed Unibank's former owner to escape responsibility.

Mirza suspected the transaction had simply served Sukanto's exit from Unibank so he could avoid responsibility should the bank close down.

"Who would want to buy a bank that has troubles with its owner?" he said.

BI Governor Sjahril Sabirin said the central bank had gone all out to save the bank from liquidation.

"Surveillance was conducted to the best of our abilities... we were not late because we took every step necessary to strengthen the bank," Sjahril said.

Meanwhile, Sukanto said on Tuesday that the travel ban imposed on him and his wife was against the law and the principles of human rights.

There is concern that the closure of Unibank could trigger new difficulties in the banking industry particularly as RGM has also borrowed heavily from other banks at a time when the group's main business, pulp, is now experiencing a downturn.