The recent near collapse of mid-size Bank Century has raised questions over Bank Indonesia's (BI) ability to supervise the banking sector, especially as it often treated Century as "too important to fail".

Bank CIC, the former name of Century before it merged with Bank Pikko and Bank Danpac in late 2004, was mired with problems that should have forced BI to close the bank in 2002 after it posted a negative capital adequacy ratio (CAR).

However, former BI deputy governor Aulia Pohan, who oversaw the banking sector at the time, decided to spare CIC. Aulia, who is the father-in-law of President Susilo Bambang Yudhoyono's eldest son, is now a suspect in a bribery case involving legislators.

"BI's banking supervision is a mess. I believe the Bank Century case is not merely a liquidity problem but also something else related with irregularities," said House of Representatives Commission XI deputy chairman Endin A.J. Soefihara recently.

The commission, which overseas financial affairs, including the central bank, is slated to summon BI senior officials Wednesday for a special hearing on the Century dilemma.

"I suspect the bank has used its resources to speculate in the money market. BI should be transparent in this because taxpayer money will be at stake if the bank has to be liquidated," Endin said.

BI deputy governor Siti Chalimah Fadjrijah, who is responsible for the supervision of the banking sector, said Sunday there had been no irregularities in the Bank Century case, and that BI had done its supervision job accordingly.

"What happened to the bank in the past was never sufficient for us to halt its operation. The bank does not fall in the category of liquidation," she said, adding that the bank was attractive enough to have lured South Korea's Hana Bank, Malaysia's Maybank and the UK's HSBC.

"However, because of the recent global financial turmoil, Hana Bank, which was the closest to buying Bank Century, decided to pull out from the deal."

However, a source at the central bank challenged Siti's claim, saying BI had to persuade Sinar Mas Group to buy Century because if it had to be liquidated the Deposit Insurance Agency (LPS) did not have the funds required to cover the bank's deposits.

"BI has invited private investors to help clean up its mess. They want Century to be fixed by the LPS before being taken over by Sinar Mas as the group thinks it is a great risk to buy Century in its current condition," the source said.

Sinar Mas is controlled by tycoon Eka Tjipta Widjaya, the former owner of Bank Internasional Indonesia.

PT Sinar Mas Multiartha, owner of Bank Sinarmas, which has sought to acquire a 70 percent stake in Century, has said the company is conducting a due diligence.

"We have not canceled our plan (to take over Century)," Sinar Mas director Gandhi Sulistyanto said Friday.

Fadjrijah refused to comment on the issue, saying merely, "It is no longer relevant to link Sinar Mas with Century because the bank is already in control of the LPS."

BI has also been blamed for compromising too much with banks whose assets composition are deemed risky during any financial market turmoil as indicated in the case of Century, which has too many unrated securities portfolio as assets.

"The Century case is more or less similar to those of Indover Bank (BI's collapsed Netherlands unit) in terms of assets sustainability. Both banks had too many problematic securities and BI never tried to strictly warn them before they eventually got burned," the source said.

Commission XI member Dradjad Wibowo, who is a former economist, said there were still huge holes in BI's banking supervision despite the 10 years it had in which to learn from the late 1997 financial crisis.

"The Century case highlights this problem. BI needs to be more transparent and prudent in supervising the banks," he said.

Timeline of Bank Century fiasco

2002

Bank CIC, which later becomes Bank Century, purchases high-risk Republic of Indonesia Credit Link Note (CLN-ROI) bonds worth US$225 million.

2004

Bank CIC merges with Bank Pikko and Bank Danpac to form Bank Century

2006

Bank Century shareholders exchange the CLN-ROI bonds for several unrated securities and loans under the so-called Asset Management Agreement (AMA). The shareholders pledge the papers and the loans with a bank deposit worth $260 million in Luxembourg. The papers are issued by foreign financial institutions whose custodian banks include Citigroup, Dresdner Bank and Standard Chartered Bank. (The information was disclosed by BI deputy governor Siti Chalimah Fadjrijah on Sunday.)

2008

Oct. 30

Bank Century defaults payment of $55 million. The payment is part of the $140 million loan under the AMA that should be settled by the end of 2009. (According to Fadjrijah.)

Nov. 3

Bank Century again defaults on the $55 million payment. (According to Fadjrijah).

Nov. 12

Bank Century fails to settle its Rp 5 billion payment with the central bank's clearing system.

Nov. 13

09:30

The Indonesia Stock Exchange (IDX) suspends trading of Bank Century, pending clarification from the bank over the clearing problem. The shares are traded at Rp 50 prior to the suspension.

13:00

Bank Century says in a statement to the IDX:

"The bank's failure to join the clearing scheme today was caused by a technical delay in allocating pre-fund cash for the clearing requirements which should have been received on time. However, the bank was able to meet the obligation afterwards.

"The condition was related to the high intensity of inflow and outflow transactions amid the current tight liquidity. However, the issue has been addressed as the allocation of the pre-fund cash has been met today, and thus the bank can perform the clearing on Nov. 14."

16:00

BI says that although Bank Century is having problems in settling its clearing payments due to a technical problem, the issue will not undermine the country's banking system.

"The problem will not disrupt the flow of payments and the banking system in Indonesia," a BI statement says.

Nov. 14

11:00

Century Bank CEO Hermanus Muslim says the bank has failed in its obligation as "a branch in Sumatra was late in channeling cash".

According to Hermanus, Century will receive an FPJP (short-term fund facility) from the central bank to anticipate a potential rush of withdrawals as the bank may not have enough cash if depositors panic and decide to pull their money out.

15:00

BI governor Boediono says, "BI is concerned over rumors of a liquidity shortage and a deposit run at certain banks, which could disrupt investor confidence in our banks. The rumors are not true and are groundless.

"The reform and restructuring of the national banking (sector) in the past 10 years has made our banking (sector) one of the most solid in Asia."

19:00

BI's Fadjrijah says several people have been arrested for allegedly spreading rumors of a deposit run, including at Century. The rumors are mostly sent via short message services (SMS).

Nov. 16

The National Police announces the detention of a stock market broker Erick Jazier Adriansjah of PT Bahana Securities for allegedly spreading rumors by email about a deposit run at Century, Bank Panin, Bank Bukopin, Bank Artha Graha and Bank Victoria.

Nov. 17

PT Sinar Mas Multiarta, a unit of Sinar Mas Group, declares it has agreed to buy 70 percent of Bank Century, with the purchase expected to be completed "immediately".

Nov. 21

The government declares it has taken control of Century, the first such move since the 1997-1998 crisis, to save it from collapse and restore confidence in the banking sector troubled by rumors that several small banks are short of liquidity.

Source: The Jakarta Post file

Popular

Govt eyes September for mass relocation of civil servants to Nusantara

Govt claims 'mudik' 2024 traffic management a success

Public hopes swell ahead of election dispute ruling