Dude, I totally swear: Former Bank Indonesia deputy governor Anwar Nasution takes an oath before testifying before the House of Representatives’ Bank Century bailout inquiry committee at the House in Senayan, Jakarta on Monday. JP/P.J. Leo
Two former Bank Indonesia top officials said Monday that Bank Century was too small to cause a systemic threat to the banking sector and the economy, and therefore might not have needed to be rescued.
The House of Representatives’ inquiry team into the Bank Century’s Rp 6.76 trillion (US$716 million) bailout case grilled on Monday the former BI governor Burhanuddin Abdullah, along with two former
BI senior deputy governors — Miranda S. Goeltom and Anwar Nasution.
Legislators had previously confirmed the attendance of former BI deputy governor Aulia T. Pohan, the father-in-law of President Susilo Bambang Yudhoyono’s son, but he failed to attend at the last minute.
The scheduled session for the questioning of BI’s former deputy director for banking supervision, Sabar Anton Tarihoran, was postponed until Tuesday.
Of the three former BI top officials attending the hearing, Burhanuddin and Anwar told legislators that Century did not necessarily need to be rescued, leaving only Miranda who insisted that the state of the ailing bank could possibly have constituted a systemic threat to the integrity of the banking system had it not been rescued.
“If I were still in charge, I would definitely have decided to close the bank [as opposed to rescuing it],” Anwar, who left the BI in the middle of 2004, said.
The failure of the small Century would only have caused a minor negative impact on the national banking system, he said.
“Bank Century did not meet the criteria for a bank that needed to be rescued,” the former Supreme Audit Agency (BPK) chief said.
In some ways Miranda actually took a somewhat similar view that Century in its own right did not play a very significant role in the banking system and therefore the impact of its collapse on the whole industry would not necessarily have constituted a systematic threat if closed “in a normal situation”.
“However, in a crisis situation, a little tiny bank could possibly cause psychological effects. If people were very sensitive then there might be a run [on the banks] situation if the bank was closed,” Miranda said.
Burhanuddin said that BI had determined that if anything negative happened to any of the 15 big banks then this could lead to a systemic threat to the banking system, leaving 110 banks outside this group, including Bank Century.
“The 15 banks comprise about 80 percent of national banking system [by assets]. And Century was too tiny compared to the 15.”
Legislators also asked Burhanuddin whether he had any knowledge of the condition of the three ailing banks — Pikko, Danpac, and CIC — prior to their merger to become Century in 2004.
“I have no knowledge about the three banks’ owners and status,” Burhanuddin said.
“The person who has the most knowledge about the merger was the then director of bank supervision, SAT,” he said.
Burhanuddin admitted however that the central bank was weak in its supervision of Century.
“We all know that the bank was salvaged on the basis of being a bank that could cause a systemic threat, if we let it go down. However, even after being salvaged, the bank still caused a lot of problems,” he said.
Golkar Party legislator Bambang Soesatyo pressed Miranda as to why she was of a different opinion and reached a different policy conclusion from that of her former colleagues Abdullah and Anwar.
“I would say they might have said [what they did] because they did not [experience] BI [functions] during the crisis period, in late 2008.
“They did not see the data on how banks were in a very volatile situation, which was moving fast. Even big banks like BRI and BNI told us that they were in difficulty to find third-party funds,” she explained.
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