Bank Central Asia Says Profit May Rise 10% on Loans

Bank Central Asia Says Profit May Rise 10% on Loans

Linus Chua and Bernard Lo Bloomberg/Jakarta

PT Bank Central Asia, Indonesia's second-largest lender by assets, expects 2005 profit to rise 10 percent as demand for credit expands, President Commissioner Eugene Galbraith said.

The Jakarta-based bank, which lends 30 percent of its deposits, in November forecast a 30 percent increase in 2004 profit to Rp 3.1 trillion (US$344 million). The lender expects its loan-to-deposit ratio to double to 60 percent within three years as it offers more mortgages, credit cards and other loans, Galbraith said in an interview in Singapore.

"The loan-to-deposit issue is certainly an issue the bank is aware of and we have been growing our loan books aggressively," Galbraith said. "The results continue to be encouraging. Next year, the ability to grow further is quite significant."

Bank Central Asia and other Indonesian lenders are benefiting from increasing demand for credit from consumers and companies in an economy forecast by the government to expand as much as 5.5 percent next year, the fastest pace in nine years.

Bank Central Asia, a unit of U.S. hedge fund Farallon Capital Management LLC, has Rp 35 trillion of outstanding loans, Galbraith said. In the nine months ended Sept. 30, the lender's net income rose 40 percent to Rp 2.34 trillion from Rp 1.67 trillion a year earlier.

Bank Central Asia has targeted extending as much as Rp 10 trillion in new loans this year, from Rp 9 trillion last year. It expects to make Rp 4 trillion of new loans in the second half of 2004.

Since the start of the year, Bank Central Asia's stock rose 64 percent, more than the 42.5 percent gain for the benchmark Jakarta Composite Index. The stock fell Rp 25, or 0.9 percent, to Rp 925 at the close of trading today.

Three peaceful elections, including the first direct presidential poll, have bolstered consumer and business confidence in Southeast Asia's largest economy. Susilo Bambang Yudhoyono, a former general, was inaugurated as the nation's sixth president on Oct. 20, after he defeated Megawati Soekarnoputri in a second-round run-off in September.

The government is counting on consumer spending, which makes up 70 percent of the $208 billion economy, to help overcome a slump in overseas investment.

"The Indonesian market has been picking up and with the domestic consumption driving the economy, the sentiment has improved a lot and banks will likely ride on that," said Pieter van Putten, Singapore-based managing director of APS Asset Management Ltd., which manages about US$600 million. "However, what we don't see is foreign investments flowing back there yet."

Overseas investment approvals fell 30 percent to $3.76 billion in the eight months ended Aug. 31, Investor Daily Indonesia newspaper said on Sept. 16.

Increased spending on local projects may help counter the slump in foreign investment, helping banks. In October, the Asian Development Bank estimated Indonesia needs $150 billion of investment in oil wells, factories and infrastructure during the next decade to raise growth to an average 6.5 percent a year.

Bank Central Asia will probably benefit from increased investment in public works projects, said Liny Halim, an analyst at Macquarie Securities in Jakarta.

"The economic growth is just starting to accelerate and that should continue to drive growth," said Halim, who has an "outperform" recommendation on Bank Central Asia. The bank "has the best deposit franchise and given that there will be more corporate lending next year in the infrastructure sector and other investments, that should drive loans growth going forward."