The recent Century Bank - now Bank Mutiara - saga is a reminder that the Indonesian financial and regulatory architecture still needs to be improved and fine-tuned. But how could financial authorities possibly mishandle the Century Bank case?
When a banking scandal pops up, such as that of Century Bank, it is appropriate to ask oneself questions that would have probably not surfaced had things gone well.
How did financial regulators end up in such a disastrous situation, after experiencing a decade of stricter regulations and law enforcement, witnessing mushrooming ethics in business and finance, in which the adoption of good corporate governance and ethical codes seemingly spread?
Was the emergency financial assistance extended to Century Bank the result of an erroneous decision - injecting capital into an institution that seemed "too big to fail" rather than into those who take the risk of creating real opportunities for development? Why was the emphasis not put on verifying incidents, which would have then led to a reflection on, and a better handling of the problem?
The scandal is indeed like a pinprick in the already well-functioning banking sector and good governance system in Indonesia.
It is also an eye-opener for us, about the need to keep various initiatives strengthening good governance in the financial industry alive at all times, and continue efforts to ensure that good governance principles are woven into the organizational culture and operations of all supervised institutions.
The corporate governance principles of fairness, accountability and transparency should complement the efforts to reform the banking sector.
When we are trying to flesh out the implementation of these tenets for banks, we have to ask ourselves where better to set the tone of good governance than at the executive and board level.
We must ensure that only those deemed "fit and proper" for the jobs are given posts and asked to run a business.
The Century Bank crisis was clearly brought about by individual actions, namely that of the shareholders, who helped themselves to the bank customers' money by collective action for their own interests.
It would have been like the brainchild of a much bigger Ponzi scheme if we had let them go on.
In this case, we should have known about the integrity and competency of Century Bank's shareholders as well as their ethos of good governance, long before the scandal happened, the same way we must also constantly monitor and evaluate other bank owners and senior management.
This presents regulators with a challenge. As an overseer of good governance in the financial system, the BI must recognize the need to constantly enhance and improve its supervisory and monitoring tools.
BI should also make its expectations from the board of directors and commissioners of all supervised financial institutions explicit.
Regulations clearly identifying the duties and responsibilities that the board itself and the members of the board, in their individual capacity, should carry out, must be fully enforced and implemented.
The BI must also prescribe that risk management, corporate governance and audit committees be created in the board of all financial institutions, especially banks.
Certainly, this is not the case for Century Bank. The government and the regulators are also not very transparent when it comes to opening up the Century Bank books to let the public know what had actually happened inside the bank.
Commercial banks cannot operate without trust; and without transparency and strict rules there can be no trust.
Hence, for the banking sector to function well, the government and regulators must play an important role by establishing the rules of good corporate governance and have them respected by all.
It must be recalled, however, that no intervention of regulation can guarantee its efficacy by dispensing with a well-formed moral conscience and the daily responsibility of the bank's operators, especially of the shareholders and senior management.
Governance, therefore, is a reflection of the values of individuals within an institution.
The initiatives to promote good governance are only as good as the people observing them.
It is necessary to reach the most profound moral being of people, a real education in the exercise of responsibility towards the good of all, on the part of all individuals, at all levels: financiers/bankers, families, businesses, financial institutions, public authorities, civil society, etc.
The writer is a vice president and senior business economist at PT Asia Select Indonesia. The views expressed in this article are the author's own.
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