Yogyakarta, 14 Oktober 2009

Once rocked by an embezzlement scandal, where a top executive allegedly skimmed hundreds of millions of dollars worth of bank assets into a personal account, yet it didn’t prevent them from having another one. This time the effect is bigger, in the sense of who is indicated to be involved. Boediono and Sri Mulyani, two biggest name that could provide how severe Century Bank’s problem. Nonetheless, there were concerns last year that the country might need assistance from the International Monetary Fund (IMF) to stabilize its complex and loosely regulated banking system. Century Bank represents merger of three smaller banks (i.e. Bank Danpac, Bank Pikko and Bank CIC) whose balance sheets were combined and re-opened under a new banner in 2005.


It all begins at 13 November 2008 when Century Bank failed to made bank clearance because a technical mistake—late prefund depositing (table 1). Therefore, Indonesia Stock Exchange (BEI) suspended Bank Century’s stock activities for one day. At the next day, Century is available to make any bank clearance again. All offices and branch reopened and operated as usual. Meanwhile, Century’s stocks are unsuspended. November 16th 2008, PT Century Mega Investindo and First Gulf Asia Holdings Ltd as the shareholder of PT Bank Century Tbk signed the Letter of Intent (LoI) to acquisated almost 70% stock issued by Century Bank. Four days later, the Financial Sector Stabilizer Committee (KSSK) which consist Central Bank (BI), Deposit Insurance Corporation (LPS), the Capital Market and Non-Bank Financial Institution Supervisory Board (Bapepam-LK), to decide where Century’s needs a bailout or not. At the second day of the meeting, KSSK decided to declare Bank Century as insolvent. Yet it is unclear either there is a political motivation or not within the decision until this moment. Government will take over Bank Century through the State Deposit Insurance Corporation (LPS). November 23rd, the first injection due the bailout program was made. It cost Rp 632 billion from the LPS fund. Sunday 26 November 2008, Robert Tantular the top executive who allegedly skimmed hundreds of millions of dollars worth of bank assets into a personal account was arrested. Early December, LPS made a second injection about 2.201 Trillion to cover Bank Century’s liquidity needs until Des 31th. In the middle of the month, 18 December 2009, Perppu JPSK was rejected by the house (DPR), though government claimed that the official letter from the head of house wasn’t clear whether it is a rejection or not. This event thus became one of the polemics until now. 3 February 2009, LPS made a third injection because Bank Century’s Capital Adequacy Ratio (CAR) is below 10%. LPS reinjected about Rp 1.55 Trillion. Then the last Rp 630 Billion injection was made at 21 July 2009, ballooned the total cost of bailout which erupted the Bank Century’s controversy became Rp 6.76 Trillion at the end. It soared tenfold from the original estimate of Rp 600 billion (US$60 million) proposed during the meeting on 20-21 November 2009.

Table 1 Bank Century’s Debacle Chronology

Date Event
13 November 2008 Century Bank failed to made bank clearance because a technical mistake—late prefund depositing
14 November 2008 Bank Century is available to make any bank clearance again. All offices and branch reopened and operated as usual. Meanwhile, Century’s stock are unsuspended
16 November 2008 PT Century Mega Investindo and First Gulf Asia Holdings Ltd as the shareholder of PT Bank Century Tbk signed the Letter of Intent (LoI) to acquisated almost 70% stock issued by Century Bank
20-21 November 2008 Financial Sector Stabilizer Committee (KSSK) meeting to decide Century’s bailout
21 November 2008 Bank declared as insolvent. Bank Century take over by the Government through the State Deposit Insurance Corporation (LPS)
23 November 2008 Rp 632 billion capital injection by Deposit Insurance Corporation (LPS) on Bank Century
26 November 2008 Robert Tantular arrested
5 December 2008 Second injection by the LPS as much as Rp 2,201 Trillion to cover Bank Century’s liquidity needs until Des 31th.
18 December 2009 Perppu JSPK rejection by the house of representatives (DPR) . This rejection claimed as “unclear” by the government. Sri Mulyani explained that official letter from the head of the house at 24 December 2008 only asked the government to propose draft on JPSK Act before 19 January 2009.
03 February 2009 Because Bank Century’s Capital Adequacy Ratio (CAR) are below 10%, LPS reinjected Rp 1,55 Trillion
21 July 2009 LPS made an another injection as much as Rp 630 Billion
31 July 2009 By the end of July, The Century controversy erupted after the bank’s bailout costs soared tenfold from the original estimate of Rp 600 billion (US$60 million) proposed during the meeting.

Source: Analisa Daily (2009), Detik Finance (2009), Johan (2009), Jakarta Post (2009)

Government’s bailout didn’t emerge without no reason. Global financial crisis won’t give a nice effect if the government let Bank Century failed. Indrawati, who is also acting chief economics minister, said the bailout was necessary to prevent the bank from failing and to maintain financial sector stability. When asked if the bailout was politically motivated, she replied, “Absolutely not. It was part of the government’s strategy to cope with the financial crisis.” She added that the only part politics played in the bailout was the positive side effect of allowing for a greater government role in supervision and control over financial institutions’ management (Guntensperger, 2009). BI has repeatedly argued the rescue was necessary to prevent a systemic threat to the banking sector, saying that 23 banks of the same size as Century would have been dragged down had Century been allowed to fold.

Time sensitivity added more debate on Century’s controversy. The decision by the Indonesian financial authority in November 2008 to bail out the bank was taken at the peak of the global economic crisis, as several large international banks were collapsing and there was no clear sign when the crisis would end (Wijayanto, 2009). This of course reminds people at the Asian Crisis 1998 where bank failures triggered a domino effect and create a defunct banking system. It is proven that now global economic situation also Indonesia financial and banking system improves, differ from 1998. But is unfair to judge when we criticized the authority decision to bail out Bank Century. If they know that the situation would be like today, maybe the financial authority would not have taken the action it did, and instead would have moved to liquidation.

Furthermore, there will be capital run to Singapore where they gave full guaranty on the deposits. Indonesia already suffered capital out flight due the act of the foreign investors that tried to cut their lose on their US financial assets. If Century Bank is allowed to collapse, then it will bring panic to our banking system. It will bring a massive pain to our financial system. Not impossible it could be bigger than the Asian Crisis 1998.

Concerning about the government decision to increase the amount of bailout tenfold from the original estimate, it make sense when it is correlated to maintain Century’s ratio in a pretty condition.  At table 1 we could see how LPS injected fund with reasons. For example, 3 February 2009, injection are made seeing the CAR of Bank Century is below 10%, as preconditioned by the central bank (BI).

Wijayanto (2009) believed that the decision-making process was proper, but not the data that was used as a reference. In addition to the criminal act by Bank Century’s owners and executives, the investigation should also have focused on those who provided the misleading data. Rp 1 trillion jumped to Rp 6.7 trillion, that should be a big question. Garbage in, garbage out. “No matter how the decision-making process and how capable the person in charge, wrong data would lead to wrong-decision”, added Wijayanto.

But the government decision to bail out from the decision-making process and cost-benefit analysis, Wijayanto (2009) support it. The cost is relatively uncertain and could be more than 6,7 trillion, but at least the result will be certain. Contrarily, liquidation would cost Rp 5,2 trillion but the result would be uncertain, with this uncertainty potentially representing enormous costs to the economy.

Late prefund depositing that Century had was normal. Corporate Secretary PT Bank Century Tbk Deddy Triana said that the incident of late prefund depositing could happen to any other bank. Moreover, mutation transactions in Indonesia banking are increasing at that time. Sigit Pramono, the head of Indonesia Banking Association (Perbanas) couldn’t agree more. He added that the situation at that time is different; there is a liquidity crisis (Detik Finance, 2008).

Now Century Bank is regaining their shattered name by rebranding theirself. With PT Bank Century Tbk letter, No. 1711/Century/DIR/IX/2009, Minister of Law and Civil Rights Decree AHU-41550.AH.01.02 2009, and Bank Indonesia Governor Decree, No. 11/47/KEP.GBI/2009, by 2 October 2009 PT Bank Century Tbk officially changed to PT Bank Mutiara Tbk, but still using BCIC as their listing name on Indonesia Stock Exchange (BEI).  Post restructuring-program, now they’re targeting to increase their asset for the next three years about Rp 12-13 Trillion for the long run and Rp 8 Trillion by the end of this year. Until August 2009, their positions are CAR 9.52 percent, net profit Rp 201 Billion, and NPL net 6.7 percent from 10.2 at the end of 2008.

Reference

Analisa Daily (2009), “BI: Anwar Nasution ‘Bidani’ Kelahiran Bank Century”, Analisa Daily, http://www.analisadaily.com/index.php?option=com_content&view=article&id=30376:bi-anwar-nasution-bidani-kelahiran-bank-century-&catid=26:nasional&Itemid=29, accessed on 6 October 2009.

Detik Finance (2009), “Kronologi Membengkaknya Bailout Bank Century oleh LPS”, Detik Finance, http://www.detikfinance.com/read/2009/08/31/061649/1192723/5/kronologi-membengkaknya-bailout-bank-century-oleh-lps, accessed on 13 October 2009.

Detik Finance (2008), “Perbanas: Kalah Kliring Biasa, Nasabah Jangan Panik”, Detik Finance, http://www.detikfinance.com/read/2008/11/13/174724/1036555/5/perbanas-kalah-kliring-biasa-nasabah-jangan-panik, accessed on 13 October 2009.

Detik Finance (2009), “Kronologi Membengkaknya Bailout Bank Century oleh LPS”, Detik Finance, http://www.detikfinance.com/read/2009/08/31/061649/1192723/5/kronologi-membengkaknya-bailout-bank-century-oleh-lps, accessed on 13 October 2009.

Guntensperger, Patrick (2009), Bank Bailout Scandal Rocks Indonesia, Asia Times Online, http://www.atimes.com/atimes/Southeast_Asia/KI17Ae02.html, accessed on 6 October 2009.

Jakarta Post (2009), http://www.jakartapost.com, accessed on 6 October 2009.

Teddy Johan (2009), “Kasus Bank Century: Masalah Teknis yang Berakibat Fatal”, Another Pursuit of Happiness Blog, http://johanteddy.wordpress.com/2008/11/29/kasus-bank-century-masalah-teknis-yang-berakibat-fatal/, accessed on 13 October 2009.

Wijayanto (2009), “To Bail Out or Not To Bail Out”, Globe Asia, Vol. 3, No. 10, October 2009, Jakarta: Globe Asia.

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