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Analysis: Troubled Indonesia Eximbank hit by another round of Rp 2.5 trillion fraud

Jakarta Post - March 27, 2024

Tenggara Strategics, Jakarta – The financially troubled Indonesian Export Financing Agency (LPEI), known as Indonesia Eximbank, has suffered from another round of bad debts, resulting from fraud.

Finance Minister Sri Mulyani Indrawati recently submitted a report of fraud at the bank involving four borrowers, amounting to Rp 2.5 trillion, to the Attorney General's Office (AGO). More problems are expected to be revealed as more borrowers also fall under the AGO's investigation.

The four borrowers are PT RII, which emerged as the company with the highest indication of fraud at Rp 1.8 trillion, followed by PT PRS with Rp 305 billion, PT SMS with Rp 216 billion and lastly PT SPV with Rp 144 billion. These companies operate in various sectors, ranging from palm oil and nickel to coal mining and shipping.

According to Attorney General ST Burhanuddin, the finance minister's report represents the first stage of findings from an integrated team, comprising the deputy attorney general for civil and state administrative court affairs (Jamdatun), the Financial and Development Supervisory Agency (BPKP), and the Finance Ministry's Inspectorate General. A second stage of findings is expected to follow, allegedly involving six companies with fraud amounting to Rp 3 trillion.

As of now, these six companies are still undergoing examination by the integrated team, and Burhanuddin advised them to cooperate and to carry out the team's recommendations, as failure to do so may lead to criminal prosecution by the AGO. Burhanuddin added that the report on the six companies will subsequently be handed over to the Jamdatun for asset-recovery purposes.

The recent cases had been detected since 2019 following reports of the bank's worsening non-performing loan (NPL) rate, which has been consistently high since 2018, with double digit net NPL, far above the 5 percent limit set by the Financial Services Authority (OJK). The OJK issued a new ruling in 2022 stating that the 5 percent bad debt ratio only applied to commercial banks but not the LPEI, and therefore, the LPEI has not broken any OJK regulation.

The high NPL rate prompted the Supreme Audit Agency (BPK) to audit the bank from 2017 to 2019. The BPK concluded that the bank had not been prudent in extending loans and identified a number of bad debtors. One was a business group belonging to businessman Johan Darsono, which eventually led to an noncollectable loan of Rp 2.18 trillion. Another big debtor was textile producer PT Duniatex, with problematic debt totaling Rp 3.05 trillion, which according to Eximbank had already been restructured. In addition, the bank also recorded problematic debt of Rp 766.7 billion owed by coal miner PT Bara Jaya Utama.

Based on the BPK audit, the AGO launched an investigation in 2022 into the Johan Darsono group, Duniatex, Bara Jaya Utama and six other firms that had borrowed from the bank and eventually named Johan Darsono and his executive Suryono suspects in embezzlement and money laundering cases, along with former LPEI managing director Arif Setiawan and four other former executives of the LPEI.

Last month, the BPK reported other allegations of corruption at Eximbank to the AGO. The BPK had conducted an audit that found indications of criminal deviation involving parties related to Indonesia Eximbank's export financing from 2013 through 2019.

What's More

Indonesia Eximbank itself is a special mission vehicle (SMV) or financial institution established through Law No. 2/2009 with the mandate of encouraging the country's economic growth through exports. The institution, under the supervision of the Finance Ministry, carries out this responsibility by providing support for export financing facilities and guarantees to exporters, both at the corporate and small and medium enterprises (SME) level.

What we've heard

Several government sources have said the cases at the AGO involving Indonesia Eximbank (LPEI) are just the tip of the iceberg. The financial institution's poor loan management has been going on for years, the sources say, and the OJK even issued a warning letter to LPEI in 2018.

Unfortunately, an auditor suggested that the Finance Ministry had long been neglecting supervision of LPEI's credit disbursement. The OJK meanwhile stated that it had been overseeing and evaluating LPEI's proposed improvement plans and periodically reported the results to the Finance Ministry.

Poor risk management and absence of sanctions led to the bank's nonperforming loans rising above the 5 percent threshold, as set by the OJK. The institution's net NPL at the end of 2020 reached Rp 16 trillion, or 13 percent, while its gross NPL reached a staggering Rp 42 trillion. These figures prompted the government to inject Rp 28.7 trillion as state capital participation (PMN) into LPEI over the decade from 2010 to 2021 to strengthen the institution's capital structure.

Another source said the AGO cases covered just a fraction of NPLs at LPEI, and that there were many other NPLs involving higher sums. For example, at least nine business groups received substantial loans from LPEI including Duniatex Group, which received Rp 3 trillion. However, Duniatex was fortunate to escape legal entanglements because the LPEI loan it received was approved for restructuring under a debt payment suspension (PKPU) scheme that was resolved amicably at the Semarang Commercial Court.

One key issue is that LPEI officials often did not consider borrowers' financial performance before disbursing loans. Another is that potential debtors provided insufficient collateral, while some had expired collateral insurance. As a result, the collateral value did not cover the outstanding value of the nonperforming loan.

[This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia's political and business landscape.]

Source: https://www.thejakartapost.com/opinion/2024/03/27/analysis-troubled-indonesia-eximbank-hit-by-another-round-of-rp-2-5-trillion-fraud.htm