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I partnered with Sudono Salim, front row, center, to create what I thought would be the ideal bank. (Photo provided by company)
My Personal History

A fateful meeting with a powerful tycoon: Mochtar Riady's story (16)

After weathering the banking crisis, I convinced Sudono Salim to join me

In the mid-1960s, political power in Indonesia was shifting from Sukarno to Suharto. It was expected that the country's sky-high inflation would start to come down, making it harder for businesses and merchants to raise prices. That, in turn, would likely increase the number of borrowers unable to repay their loans, leaving banks with massive amounts of bad debt.

Until then, banks in Indonesia had extended loans without demanding collateral. It was now clear that this had to change.

Bank Buana, which I managed, offered to cut interest rates on loans by half in exchange for collateral to secure them. Many customers welcomed the proposal, and the bank switched to a low-interest, secured loan policy. The upshot was an increase in the amount of loans the bank extended.

In 1966, many banks went under, but Bank Buana managed to weather the crisis.

Bank Kemakmuran, the first bank I headed, was on the brink of bankruptcy because of lax credit assessments by Wu Wenrong, a friend of mine who was involved in the bank's management. I came to the bank's rescue when they asked for help. At the same time, I also agreed to help bail out Bank Industri Dagang Indonesia, which was managed by an ethnic Chinese businessman from Xinghua (present-day Putian), in China's Fujian Province.

When my mother-in-law heard that I had set about rescuing these banks, she asked me if I had any opportunities for her relatives. I agreed to invite the son of my wife's elder sister to join me in the management of a new bank I was opening in Surabaya. I ended up in control of four banks.

As the financial crisis began to abate, the government set about developing measures to prevent a recurrence. One such measure was to promote the consolidation of small and midsize banks.

I proposed to their shareholders a merger of the four banks I managed, but Bank Buana's shareholders were against it. I left Bank Buana's management team and in 1971 merged the three other banks into a new entity named Pan Indonesia Bank, also known as Panin Bank.

I took control of the management of Panin Bank, which became a foreign exchange bank. But I soon discovered misconduct among the senior executives. Some of them would use money from deposits at the bank to make loans to businesses for their own profit. When the borrowers failed to repay their debts, the executives put the bad debts on the bank's books. My relatives were also involved in these activities.

I handled the issue without making it public, but it made me ponder some basic questions about managing a bank.

What is my purpose in running banks? Do I only want to make them bigger? Should I care if our borrowers engage in unscrupulous activities? Shouldn't banks try to create wealth and jobs through their commercial lending? I decided I should become a good banker rather than just a successful one. In May 1975, I quit Panin Bank.

After purging all the Sukarno-era leftists from power, Suharto officially became president in 1968. Salim Group expanded its business empire on the back of the rapid economic growth of the Suharto era. This conglomerate was founded by Sudono Salim, also known by his Chinese name of Liem Sioe Liong.

Sudono was born in Fuqing in China's Fujian Province and immigrated to Indonesia. During Indonesia's war of independence, he supported pro-independence forces and came into contact with Suharto.

His conglomerate was involved in such businesses as soap making, spinning and cement production. Under the Suharto administration, the group acquired the exclusive right to import cloves (used to flavor a type of cigarette in Indonesia) and wheat. Its position as clove supplier gave the group control over the Indonesian tobacco industry.

I felt that my partner in banking should be someone with influence over the tobacco industry, which was one of the largest business sectors in Indonesia at the time.

In 1975, I happened to sit next to Sudono on a plane to Hong Kong. I seized the opportunity to tell him about my ideal bank. Then and there, Sudono decided to partner with me.

 

Mochtar Riady is the founder of Lippo Group.

Click here to read Mochtar Riady's full "My personal history" series.

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