Feds to Bank
of Honolulu:
Fix problems

Hawaii's smallest bank
denies breaking any laws but says
it is working with regulators

By Russ Lynch
Star-Bulletin

Bank of Honolulu has engaged in unsafe or unsound banking practices, apparent violations of banking laws, and has inadequate management and insufficient capital, according to the Federal Deposit Insurance Corp.

The regulatory agency has issued an order requiring the bank to correct its problems, but it continues to insure the bank's deposits.

Business was normal this morning after the FDIC's charges were made public, the bank said. Bank of Honolulu also said it has not violated any federal or state regulations and has not been charged with any violations.

The FDIC has been taking a close look at the bank since its majority owner Sukamto Sia disclosed late last year that he was nearly $300 million in debt, including $28 million owed to casinos. Sia filed for personal bankruptcy.

The FDIC said the bank has been "following hazardous lending and lax collection practices" with "inadequate provisions for liquidity and funds management."

The FDIC also found that the bank was "operating in such a manner as to produce operating losses."

Bank of Honolulu is now required to boost its management with experienced bankers, subject to FDIC approval, and raise capital either by selling stock or a direct infusion of cash from the directors.

Sia, formerly known as Sukarman Sukamto, gained an interest in Bank of Honolulu in 1987 when his Indonesian father-in-law, Atang Latief, bought 70 percent of the bank and Sia bought 30 percent. Latief later sold his portion to Sia. Sia has since brought in another investor but still owns 76 percent of the bank, according to his bankruptcy file.

A spokesman for the bank said Bank of Honolulu has been working closely with regulators to make sure it complies with the rules. "The bank is working on it even as we speak and it has been a continuing, ongoing program," said Will Page, the bank's public relations consultant.

Page said Sia was well aware that his personal bankruptcy could adversely affect the bank and that is why he resigned as chairman in early November.

"The bank has worked very closely with the state banking commissioner and the FDIC to make sure the bank is fully in compliance with the banking regulations," he said. "The bank is carrying on business as usual and it's doing good business."

Page said Sia has never had a role in the day-to-day running of the bank. He was replaced as chairman by Takao Sato, a director since 1992 and vice chairman and chief executive officer since 1993.

Bank of Honolulu, Hawaii's smallest bank, was founded in 1972 by investors in Tacoma, Wash., and Honolulu and opened for business in April 1973.

The bank, headquartered in the Davies Pacific Center downtown, has branches on Kapiolani Boulevard and in Kaneohe, Manoa and Pearlridge.

The bank's latest public report on its financial condition lists assets of $83.1 million. It listed loans and leases of $52.2 million, after a $2.5 million allowance for losses on loans and leases. As of Dec. 31, the bank had deposits of $74.5 million. Analysts say the quality of a bank's loans is important to its viability and the dollar volume listed in the public disclosures doesn't show whether the loans are all solid and collectible.

The FDIC inspectors found that Bank of Honolulu had "a large volume of poor quality loans" and inadequate allowance for possible loan losses.