An investigative audit into the Bank Century bailout reveals several controversial central bank policies to keep the ailing bank floating amid allegations of graft committed by its shareholders and management.
The Supreme Audit Agency (BPK) pointed out it was weak BI supervision that failed to stop a string of Bank Century frauds and manipulations since 2001, which led to its near collapse in the midst of the 2008 global bank crisis.
The condition led BI, as banking supervisor, to insist the government salvage the bank, prompting the bailout in late November 2008, which eventually cost a whopping Rp 6.76 trillion (US$704 million).
Irregularities at the central bank started in late 2001 when it issued an “approval in principle” for Chinkara Capital Ltd. to acquire controlling stakes in small-sized Bank Pikko, Bank Danpac and Bank CIC — officially merged in late 2004 to form Bank Century.
Chinkara, registered in the Bahamas, had share in the banks but needed to buy more to merge them.
British national Rafat Ali Rizvi controled Chinkara, and had close links with the other main controlling shareholder, Robert Tantular.
According to the BPK audit, BI approval to merge was given despite Chinkara’s failure to meet BI’s regulatory requirements to submit the last three years financial reports and a recommendation from the Bahamas authorities. This was to ensure Chinkara was financially healthy and free of money laundering.
Before approval was given, according to BPK, the BI regulatory directorate revealed it could not ensure if Chinkara was free of money laundering. There were also indications of possible fraud at Bank CIC — already controlled by Chinkara.
JP/Irma
However, the BPK audit revealed, BI insisted on the approval, initiated by then BI senior deputy governor Anwar Nasution, and then deputy governors Aulia Pohan and Miranda S. Goeltom and then director for banking supervision Siti Ch.
Fadjrijah — now deputy governor for banking supervision.
In May 2002, BI mid-level officials confirmed findings of illegal banking practices involving Chinkara at Bank CIC, recommending revocation of approval for Chinkara to take over and merge the three banks.
Rizvi then failed BI’s screening test to ensure his capabilities and integrity as a controlling shareholder.
However, senior officials from the banking supervision directorate rejected this, insisting on the takeover.
Aulia, currently the in-law of President Susilo Bambang Yudho-yono, was then overseeing this directorate.
Despite these irregularities, then BI deputy governor Maman. H.
Soemantri granted an “official approval” to Chinkara for the takeover on July 5, 2002, according to BPK.
After this, BI investigated the three banks, revealing non-performing overseas securities papers worth $127 million purchased by Bank CIC via Chinkara. The BPK says around $50 million of these were fictitious.
But it was not until March, 2004, that discussion over the merger of the three banks was revived after Bank Pikko and Bank CIC suffered a financial downturn.
On Dec. 6, 2004, BI granted approval for the merger, initiated by Anwar, Aulia, and then deputy governor Maulana Ibrahim despite opposition from then BI governor Burhanuddin Abdullah. Burhanuddin, now serving five-years jail for bribing lawmakers, said in a letter on Nov. 9 that his recommendation to Anwar, Aulia and Maulana was manipulated to show he supported the merger, says BPK.
The officials approving the merger did not refer to the BI findings of graft allegations and dubious transactions involving Chinkara.
Due to the dubious securities transactions and non-performing loans, Bank Century — the result of the merger — suffered a negative 132 percent in its CAR as of Feb. 28, 2005, two months after the merger.
Deputy governor Fadjrijah, put the bank under intensive supervision, allegedly in violation of BI rules as special supervision was needed.
Under special supervision controlling shareholders of the troubled bank would have six months to solve the problems or risk closure. But intensive supervision set no time limit.
As controlling shareholders, Rizvi and Robert promised to solve the securities problems, but to no avail.
BI officials reportedly turned a blind eye to this and new violations, including channeling fictitious loans to firms affiliated to shareholders, and issuing dubious letter of credit to affiliates, all between 2005 and 2008, according to the BPK.
After July 2008, Bank Century suffered significant liquidity problems, until it was proposed on Oct. 30, 2008 that it should receive short-term liquidity assistance (FPJP).
Fadjrijah responded recommending to BI officials to help the bank, citing an alleged edict from then BI governor Boediono that Bank Century was too important to fail.
The BPK says Boediono never issued any such disposition. Fadjrijah could not be reached for comment as she is recovering from stroke.
Several BI deputy governors eventually managed to engineer the channeling of liquidity into Bank Century by forcing the revision of BI regulations to accommodate the salvaging of the bank, says BPK.
According to the BPK, aside from Fadjrijah, deputy governors Muliaman Hadad, Budi Rochadi and Budi Mulya played a crucial role in the channeling of the FPJP funds worth Rp 689 billion. The BKP auditor says this channeling of funds involved several irregularities.
In response to the BPK audit, the BI has repeatedly claimed that no regulations were violated. It has said the measures taken in supervising Bank Century were based on the national interest and to defend the integrity of the banking sector.
In response to allegations as to the maladministration of FPJP funds, BI says changes in regulations were based on the government’s regulation in-lieu-of-law on the central bank issued in mid 2008 granting flexibility to BI to issue and revise regulations during the global financial crisis starting mid-2008.
- JP/Rendi A. Wintular
