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Jakarta Post

Most Century bailout funds covered fraud and bad loans

More than half of the amount spent on bailing out Bank Century went towards covering mounting fraud and bad loans, a BI report shows

(The Jakarta Post)
Jakarta, Makassar
Thu, September 10, 2009

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Most Century bailout funds covered fraud and bad loans

M

ore than half of the amount spent on bailing out Bank Century went towards covering mounting fraud and bad loans, a BI report shows.

Bank Century's bailout costs ballooned to Rp 6.76 trillion mainly as a result of an alleged Rp 5.98 trillion (US$598 million) fraud, bad loans and irregularities undermining the ailing bank, a Bank Indonesia (BI) report shows .

Aryanto Amir Jusuf & Mawar, the independent auditor that conducted the audit report on Bank Century in 2008, also confirmed these findings.

The auditor indicated in the report the need to inject more than Rp 6 trillion to keep the bank afloat.

"Most of the bailout was indeed allocated to cover all of the irregularities spotted after we *BI and the government* decided to salvage the bank," said BI spokeswoman Dyah NK Makhijani recently.

"Based on these findings *in the report*, the auditor recommended the LPS *Deposit Insurance Agency* provide the necessary bailout."

The government and BI, grouped under the Committee for Financial Sector Stability (KSSK), decided on Nov. 21 to salvage Bank Century to prevent any systemic threat to the banking sector, should the bank be allowed to fold during the peak of the global financial crisis.

The decision to save the bank did not factor in the massive alleged embezzlement by key shareholders, leaving the bank near to collapse.

According to BI, the KSSK meeting had agreed to provide a Rp 632 billion cash injection into the bank. But after spotting more irregularities, despite the bank having been under BI intensive supervision since late 2004, the KSSK decided it had to increase the amount of the bailout.

Meanwhile, Vice President Jusuf Kalla repeated his call Wednesday for a thorough investigation into the bailout, since otherwise it risked becoming a precedent for other bank owners who might rob their own banks and then seek bailouts to rescue them.

"Where's the logic here? The owner robs his own bank and then the government bails it out. A small bank like Century should not have been injected with this whopping bailout," he said in Makassar.

He also said there were indications the channelling of the bailout fund was not based on prudent and meticulous assessments.

Bambang Hartono of Kailimang & Ponto law firm, who is defending former Bank Century owner Robert Tantular, said the bailout fiasco could have actually been prevented had the BI deputy governor for banking supervision, Siti Fadjrijah, allowed the Sinar Mas Group to take over the bank early November.

"Pak Robert told me the mess could have been prevented, and that it *would have* cost less than Rp 1 trillion to keep the bank afloat at that time," he said.

Robert is facing a court verdict today for alleged embezzlement.

Causes for the Soaring bailout

The Rp 6.76 trillion bailout was for:

- Jacking up the bank's negative 35.6 percent capital adequacy ratio (CAR) to 9 percent at the end of July.

- Covering more than Rp 5 trillion of fleeing depositors funds.

- Covering the bank's unrestructured and dubious securities papers worth US$179 million bought in 2002.

- Covering provisions worth Rp 412 billion caused by non-performing loans.

- Covering provisions worth Rp 526 billion caused by unrealized interest income.

- Covering $178 million worth of fictitious letters of credit (L/Cs).

- Covering provisions worth Rp 1.1 trillion for bad loans.

- Covering provisions worth Rp 198 billion for dubious securities.

- Covering other frauds worth $18 million.

- Covering up-front bills of Rp 317 billion.

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