No More Banking Crisis, Please
THE drying up of Bank Bukopin’s liquidity should be addressed through an economic approach, not politics.
THE drying up of Bank Bukopin’s liquidity should be addressed through an economic approach, not politics. The interests of customers and the public, which needs a stable national financial system, should be the focus of the rescue, not the interests of the group of businesspeople who own the bank.
Therefore, the confusion that has arisen around the move by the Financial Services Authority (OJK) to save Bukopin should not have happened. Policy makers in the economic and financial sectors must not lose their nerve in the face of the political guerrilla activities of tycoons. The regulators and monitors in the financial sector must act fairly to ensure that the endeavor to safeguard the rights of the public is not hijacked by other interests.
After all, the solution to save Bukopin is staring us in the face. A Bukopin shareholder, Kookmin Bank, part of a South Korean business conglomerate, has already paid US$200 million of additional capital into an escrow account. If this process continues smoothly, Bukopin’s liquidity problem will be quickly solved, and the Kookmin Bank will become the controlling shareholder.
It is true that the additional funds from Kookmin will mean that Bosowa will lose its controlling position in Bukopin, and it is here that the tug-of-war of interests is believed to have started. Bosowa’s owners have been busy lobbying to retain their ownership share. The slogan “protecting the national interest” has been used to try to stop the injection of foreign capital. This is misplaced. Nationalistic arguments are not relevant here.
It is certain that Bosowa understands that the only way to save Bukopin is additional capital. For the public, an option to save the bank without using state funds must take priority, especially during this Covid-19 pandemic. The government is facing demands to fund the coronavirus response program, provide a stimulus for the business world and provide social assistance for people facing difficulties. State funds set aside for all of this are already insufficient.
When Kookmin’s commitment to save Bukopin is so clear, the government clearly has no choice. Intervening in the ongoing process of capital injection by asking for state-owned banks to save Bukopin, for example, will send a negative signal to the market. The government could be accused of protectionism for the interest of a few tycoons.
Not only that, Bukopin’s problems originate from the bank itself. For the last few years, the bank has had a serious problem with non-performing loans. This only became public knowledge on December 31, 2019 in the report of the Supreme Audit Agency (BPK) to the OJK. In December 2017, the BPK discovered non-performing loans at Bukopin totaling Rp824.64 billion with Amanah Finance, a sharia finance company owned by the Kalla group. Former vice-president Jusuf Kalla is the uncle of Erwin Aksa, president of the commissioners of Bosowa Corporindo, which controls the bank. Bukopin’s financial reports in 2015 to 2017 also had to be revised following the discovery of overreported credit card income.
The problems with Bukopin would not have become this bad if the oversight system had been working properly. According to the 2017-2019 BPK audit reports, the OJK did not carry out its function properly at Bukopin. The authority was said to have been too late placing Bukopin in the category of banks needing intensive oversight.
As a result of a number of problems, Bukopin’s health continued to worsen. As of the beginning of last July, third-party funds at the bank had fallen to Rp15.67 trillion. Customer savings had dropped by Rp4 trillion in only three months, while Bukopin continue giving out long term loans despite the fact that the bank’s funding was dominated by short term deposits.
It is easy to guess the result: two of Bukopin’s liquidity indicators, namely the capital adequacy ratio and the net stable funding ratio, have fallen to near to the minimum allowed level. If there is no rescue operation, Bukopin could collapse.
The problems afflicting Bukopin should be an important lesson for the government and those in the economic sector in Indonesia. The OJK must work more professionally. It should not take into account any aspects apart from technical banking considerations when overseeing and regulating banks in Indonesia.
Bukopin’s new directors, who were appointed in a general meeting of shareholders last week, should do their best to calm customers. Together with the OJK, they must ensure that the process of increasing Bukopin’s capital goes smoothly. None of us wants to experience a banking crisis in the middle of the Covid-19 pandemic.