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BI new rules to filter out crooked bankers
Banking cleanup: Cleaning service workers working on the front of the Bank Indonesia building in Jakarta
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Banking cleanup: Cleaning service workers working on the front of the Bank Indonesia building in Jakarta. The central bank will introduce a new regulation highlighting a much tougher screening process for bankers. JP/J. Adiguna
After admitting to apparent weaknesses in banking supervision, the central bank (BI) plans new rules to screen out crooked bankers.
“Cooking the books”, currency exchange speculation, and sale of risky capital market derivatives are some of the improper practices that have added risks to local banking amidst the global banking crisis.
While these practices have been less exposed to public criticism due to their sophisticated nature, BI is trying to keep up with recalcitrant bankers to at least reduce the risks.
“There’s a lesson learned from recent events in the United States and in Indonesia. Bankers can be smart but integrity plays a greater role,” BI deputy governor Muliaman Hadad, who oversees the banking sector, told The Jakarta Post recently.
“Screening bankers during a fit and proper test will be upgraded.... We’re in the process of designing new (supervision) mechanisms.”
Those who seek top bank jobs must pass central bank screening based on assessing banking knowledge, leadership and integrity.
With 130 conventional banks with their 9,680 branches operating in Indonesia by December last year, the central bank is facing a huge task to filter out bad apples in banking.
Muliaman said BI would cooperate with banking associations to access inputs on the track record of bankers during screening .
“We will meticulously check their track record. But this won’t guarantee they’ll behave accordingly, which is difficult. At least we are doing an extra check,” he said.
“We also hope associations will punish bad bankers. So it’s a kind of social punishment for them.”
Although affected less than in the West by the global banking crisis, Indonesia’s banking sector is not immune to future threats and risks.
Mid-size Bank Century, for example, is the first casualty from a combination of the financial crisis along with reckless banking practices.
Its board of directors and founding-family representative Robert Tantular are now in police custody for an alleged banking fraud.
Despite some alleged abuses that nearly brought down the bank in 2002, Robert was spared to manage the bank by former BI deputy governor Aulia Pohan. Aulia, who is the father-in-law of President Susilo Bambang Yudhoyono’s eldest son, and is now a suspect in custody for hisalleged involvement in a bribery case implicating legislators.
Another case, still yet to surface, reflects a decision by a banker in a state-owned bank in conducting financial acrobatics to try to cover up the extent of non-performing loans.
“Several local bankers are manipulating their books so that the bank looks healthy. This include some state banks. I’ve reported the case to BI but to no avail,” said lawmaker-turned-economist Ichsanuddin Noorsy.
He also said some bankers were colluding with BI supervisors to keep skeletons inside the closet.
Some bankers, according to Ichsanuddin, were also involved in protracted currency speculation and the selling of risky derivative products, while some joint-venture banks were putting up local bankers as puppets to shield foreign-hired colleagues from legal problems.
“We have been under intense scrutiny (on banking supervision). That’s why we are fixing this problem. Recent experience has convinced me that the key is in good governance of each bank and in good supervision by the regulator,” BI governor Boediono said recently.
“BI will redesign and improve its supervision system. In the banking industry, supervisors are always several steps behind crooked bankers ,” said Boediono, who has been in the BI’s top job since mid-2008.
Noorsy thought the pledge of Boediono’s to improve banking supervision was to make BI look good and avoid the start up of a new financial authority agency (OJK) next year. This had been put on hold as BI strongly opposes the plan.
“BI is trying to keep its portfolio intact. That’s why they’re now doing intense public relations work to show that they’re good at probing banks,” said Ichsanuddin.
