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Closed Before the Deadline

For the first time ever the Supreme Court reactivates a bank that had previously been frozen by BI. Shareholders are convinced there are new investors.

THE three-story building on Jl. Gajah Mada in Denpasar was locked. There were guards, let alone smartly dressed officials like bank employees coming in and out. Nowadays the central office of Bank Dagang Bali (BDB) is like a building without a master. Three years ago Bank Indonesia (BI) withdrew the operating license of the bank that was the pride of the Balinese people. “If BI permits it, Bank Dagang Bali could begin operating again,” said the bank’s majority shareholder I Gusti Made Oka on Wednesday last week.

The 74-year-old man isn’t just dreaming. It is the Supreme Court that has raised his hopes. Late last year, the Supreme Court handed down a decision on an appeal that revoked an earlier decision by the Governor of Bank Indonesia which stated that as of April 8, 2004 BDB was no longer allowed to operate. The decision also ordered BI to restore the bank to its original condition. Although the verdict was handed down late last year, the owner of Bank Dagang Bali only just heard about it two weeks ago.

The case began in late 2003 when BDB got caught up in financial problems with its capital adequacy ratio (CAR) continuing to decline. Seeing that BDB’s “ship” was becoming unstable, BI asked shareholders to inject fresh capital into the bank. Through a letter dated January 28, 2004, Bank Indonesia declared the bank to be under special supervision and it was given a deadline of April 28 to get its affairs in order. But on April 8 BI revoked BDB’s operating license and around 700 bank employees lost their jobs.

Oka immediately challenged the decision at the Jakarta State Administrative Court (PTUN). He accused BI of acting in an arbitrary manner. “[The bank was] given until April 28, but on April 8 it was frozen,” he said. Oka also asserts that BI failed to assist his bank when it had wanted to release funds deposited in four banks, Bank CIC, Bank NISP, Bank Eksekutif and Bank Asiatic, which totaled around Rp1.2 trillion.

PTUN Jakarta found in Oka’s favor but then at the State Administrative High Court (PTTUN) he lost again. Oka then submitted an appeal to the Supreme Court. This time his hopes were answered with the Supreme Court revoking PTTUN’s decision. According to the presiding judge in the case, Paulus Efendi Lotulung, Bank Indonesia had imposed the penalty before the deadline had passed. “If a deadline is given, it must be adhered to,” said Paulus.

According to Paulus, even though there were other compelling reasons for closing the bank—shareholders for example were unable to inject fresh capital into the bank—these issues should not have been included in the consideration of the decision to freeze the bank. “So the consideration must be clear.” As a result of this decision, BI has been ordered to restore BDB to the position it was in prior to being frozen. Although there is a judicial review pending, the decision, said Paulus, must be carried out.

Bank Indonesia has submitted a request for a judicial review of the decision. The Deputy Director of Bank Indonesia’s Legal Directorate, Oey Hoey Tiong, said he resented the fact that the judge failed to consider the issue behind the bank being frozen. “The deadline of January 28 to April 28, 2004 was the second chance,” he said.

Prior to this said Oey, shareholders had already been given a deadline of October 2003 to January 2004. Moreover BI regarded the shareholders as having “thrown in the towel,” given up. “On March 31, 2004, before a notary, the shareholders declared that they were unable to inject any capital,” said Oey.

For BI, said Oey, the health of the bank was essential to avoid even greater financial losses to the state. Even with the freezing of the bank on April 8, the government had already issued program funds guarantees of around Rp1.4 trillion. “The April 8 closure was to prevent larger financial losses to the state,” said Oey.

BI also shrugs off the accusation that it failed to assist Bank Dagang Bali in withdrawing its deposits from the four banks. According to Oey, BI had already checked with the four banks that it was said had deposits from BDB. “It turned out that the claim was a lie,” said Oey. The majority of the deposits, said Oey, had already been “offset” by the banks because BDB already had obligations to other banks. “Now the bank wants to be reactivated? Does it want to be a zombie bank?” said Oey.

But through his attorney, Bachtiar Yacob, Oka insists that they have a claim against the four banks. According to Bachtiar, Bank Dagang Bali would be financially healthy if monies of as much as Rp1.2 trillion that are held in the four banks could be collected.

Bachtiar is aware that the Supreme Court’s decision will not immediately make his client’s bank operational again. “How can it be operational, the liquidation team still exists,” he said referring to a team that was formed based on a decision by the Denpasar District Court on June 11, 2004. Bachtiar hopes that BI will comply with the Supreme Court’s decision. “I’m optimistic, if BDB is allowed to begin operations again, there will be investors that will finance it.”

According to banking industry observer Iman Sugema, this is the very first time that a bank that has been frozen has been able to be reactivated. According to Iman, the Supreme Court should have respected the authority of the central bank, which has the authority to provide an assessment of a bank’s health. “This is entirely outside the court’s authority, except where there are legal violations,” said the teacher at the Bogor Agricultural Institute’s Department of Economic Science. Even if there was a difference in days he says, this is still an administrative issue. “The substance must be looked at, don’t just give precedence to administrative procedures.”

Bank Dagang Bali’s victory itself was not immediately greeted with clamorous applause by its former employees. According to the coordinator of BDB’s former employees, Anak Agung Sudipta Panji, they are now focusing more on fighting for outstanding severance pay equivalent to three months wages—which has been promised on five separate occasions but up until now has yet to be paid.

The matter of the severance pay is now before the Supreme Court after the liquidation team submitted judicial review against a decision by PTTUN that the outstanding severance pay was the obligation of the liquidation team. “This is what we are now prioritizing. On the question of the bank being reactivated, that’s another matter,” said Anak Agung Sudipta Panji.

Abdul Manan, Made Mustika

Box: Chronology of a Closure

BANK Dagang Bali was established by I Gusti Made Oka on August 22, 1970. Around 90 percent of its shares are owned by Oka and the remainder by members of his family. The bank, which has its central office in Denpasar, focuses on credit for small-scale enterprises. Up until it was closed in 2004, the bank had seven offices and around 700 employees. Below is a chronology of the bank’s closure.

January 28, 2004
Bank Indonesia gives a second chance to Bank Dagang Bali to inject fresh capital into the bank. A deadline is set for April 28, 2004. The first deadline was October 2004 to January 2004.

March 31, 2004
In a declaration made before a notary, BDB shareholders state that they are unable to inject fresh capital into the bank.

April 8, 2004
The Governor of Bank Indonesia issues a decision to revoke BDB’s business license.

May 2004
I Gusti Made Oka submits a challenge against the withdrawal of his bank’s license with the Jakarta State Administrative Court (PTUN).

June 11, 2004
The Denpasar District Court issues a decision to form the Bank Dagang Bali Liquidation Team.

October 20, 2004
PTUN finds in Oka’s favor and annuls the BI Governor’s decision.

May 3, 2005
The State Administrative High Court (PTTUN) annuls the PTUN Jakarta decision.

July 25, 2005
Oka submits a request for a judicial review with the Supreme Court against PTTUN’s decision.

September 4, 2006
The Supreme Court finds in Oka’s favor, annuls the BI Governor’s decisions and obliges BI to restore Bank Dagang Bali to its original status.

Tempo Magazine, No. 24/VII/Feb 13 - 19, 2007


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