Monday, November 16, 2009

Structural flaws on bank supervision

While it's bit too late, members of the House Commission XI questioned Bank Indonesia's ability in banking supervision, especially in relation to controversy surrounding Bank Century bailout late last year.
Senior deputy governor of Bank Indonesia, Darmin Nasution, immediately responded to legislators' doubt saying "we have the capability. We have data about troubled banks and assets like securities held. The problem arise when a crisis emerged, and all of a sudden the securities classified as loss category."
But some legislators rejected to simply accept the argument. Melchias Mekeng, legislator from Golkar Party, for example, grilled Bank Indonesia over Bank Century's balance sheet. Mekeng said Century failed to operate as an intermediary institution because too many portfolio investments in its balance sheet. "My question, were banks allowed to invest more in securities than provide loans?"
Darmin replied with big laugh. "Your question is far-reaching one. Let's talk about basic principles first, and we could talk more about that later," Darmin replied. 
But that's one of key questions raised by those who signed a petition to exercise legislators' right into inquiry of Century bailout. "Where was Bank Indonesia's supervision, including on the so-called fictitious assets," Maruarar Sirait, legislator from opposition party PDI-P asked.
As of last week, 139 legislators from eight political parties have signed the petition. They are PDI-P legislators (80), Golkar (24), Hanura (14), PKS (8), Gerindra (8), National Mandate Party/PAN (3), United Development Party/PPP (1), and National Awakening Party/PKB (1). Golkar, PKS, PAN, PPP, and PKB are members of SBY-Boediono ruling coalition.
PDI-P, the main driver of the petition, has all legislators signed except Taufik Kiemas (husband of former president Megawati, who is also Assembly Speaker).
The petition is the first major test on the solidity of SBY-Boediono coalition.
Structural flaws of Bank Indonesia supervision in relation to Bank Century could be seen in the preliminary report of Supreme Audit Agency (BPK) to the House of Representatives (DPR). What are the flaws?
A. Bank Century's Operations:
(1) Dewi Tantular and Robert Tantular transferred US$96 million time-deposit from a depositor from Surabaya branch to Jakarta office. They then cashed out portion of the time-deposit (US$18 million) in November 15 to fill the gap emerged from bank notes transactions. Century then replaced the depositor's money with funds from Bank Indonesia's short-term financing facility. 
(2) Century-related party withdrawn Rp454 billion plus US$2.22 million from Century after central bank instituted Century as a bank under special surveillance. This is a violation of Bank Indonesia Regulation No. 6/9/PBI/2004. 
B. The Bailout
(1) The initial cost was Rp632 billion, but then skyrocketed to Rp6.7 trillion.
(2) Bank Indonesia changed the regulation about short-term financing facility (FPJK) the same day the bank lends Rp632 billion to Century. Bank Indonesia changed the CAR minimum of 8% for banks provided with FPJK to "CAR positive".
(3) Abuse of power from officers involved in the decision making. 
The question, who should be held responsible for the flaws which may have led to a "wrong" decision?
(Ferdy Hasiman & Haryanto Suharman contributed to this article)




Post a Comment

<< Home