The Roots of the Chaos
The chaos over the change of control of Bank Bukopin continues. It all started with the supervisor that fails to take action over violations of banking procedures.
THE protracted polemic concerning the transfer of the controlling shareholding in Bank KB Bukopin began with the weakness in the way the Financial Services Authority (OJK) enforces the regulations. The financial mess at Bukopin that has now led to a lawsuit and a banking crimes investigation would not have happened if the OJK had done its job as banking supervisor properly from the outset.
Bank Bukopin has once again become a public talking point in the last two weeks. The police have named Sadikin Aksa, former CEO of Bosowa Corporindo a suspect for not following instructions from the OJK in the Bukopin recovery process. This case is a new episode in the protracted drama of the transfer of control of Bukopin from Bosowa to KB Kookmin Bank that continued throughout last year.
It is strongly suspected that this new case is a counter strike by the OJK on Bosowa, which continues to oppose replacement of the Bukopin controlling shareholder. Only a year ago Bosowa was riding high following its successful legal challenge at the Jakarta State Administrative Court to the OJK’s decision declaring that Bosowa was unfit to be a Bukopin shareholder. As a result of that OJK ruling, Bosowa was powerless at the August 2020 shareholders meeting at which it was decided to increase the capital of KB Kookmin Bank and at the same time to appoint the South Korean bank as the new Bukopin controlling shareholder.
The OJK has lodged an appeal against the administrative court ruling but if this still results in a victory for Bosowa, the transfer of the controlling shareholding in Bukopin to Kookmin Bank could once again be a problem. The entry of Kookmin has begun to change the face of Bukopin, which has had capital and liquidity problems since 2018.
Nevertheless, all of this shambles over the squabble for control of Bank Bukopin is nothing more than ripples on the surface. There is a much more fundamental problem behind all of the drama at Bukopin. In order to explain it, we have to go back to the first episode of this polemic. The disarray over Bukopin’s finances was first recorded in an audit carried out by the Supreme Audit Agency (BPK) into the OJK’s supervisory activities between 2017 and 2019.
The BPK findings showed that the bank supervisor was slow to respond to the problems at Bukopin when various data showed that the bank had been at risk of financial collapse since the end of 2017. The OJK was also seen as lacking firmness in the face of shareholders who continued to ignore instructions to increase Bukopin’s capital.
At that time, inside Bukopin, the BPK found non-performing loans worth Rp1.17 trillion as a result of the lack of clarity regarding repayment of a loan to Amanah Finance, a finance company that is part of the Kalla Group—an affiliate of Bosowa. According to the BPK, this problem occurred because the OJK supervision of banks and other financial institutions is not integrated, meaning that it fails to detect risks with financial conglomerates. Even more worrying is according to the same audit report, the OJK failed to act following improper granting of loans to cronies of shareholders in several other banks, not only Bukopin.
These findings should make us angry. Indonesia went through the bitter experience of the 1998 crisis when it was discovered that a number of banks were simply fronts that for years had been nothing more than giant vacuum cleaners. They were sucking in public money to fund the businesses of the owners and their colleagues.
Therefore, in the future Bukopin is not the only institution that needs to be reformed: so does the OJK. Poor bank management and weak oversight by the OJK must immediately be improved. The national economy will be in serious danger if the finance industry is managed and handled by a paper tiger. The 1998 banking crisis must not happen again.