Bank Danamon 2006 loan growth like to slow

Bank Danamon 2006 loan growth like to slow

Esther Fin Harini, Dow Jones/Jakarta

PT Bank Danamon Indonesia will likely experience slower on-year growth in its loan portfolio in 2006 due to the impact of rising interest rates, its president said recently.

Bank Danamon has had to raise rates in tandem with the central bank's four month monetary tightening trend, Danamon's President Sebastian Paredes told Dow Jones Newswires.

The benchmark Bank Indonesia rate has been hiked to 12.25 percent at present from 8.50 percent in July. Analysts say an inflation surge of 17.89 percent on-year in October, linked to the more-than-double on-average increase in fuel prices imposed on Oct. 1, will help push the benchmark rate to around 14.0 percent by end-2005.

"Like other banks, we have to pass on the (Bank Indonesia) interest rates to our loan book," Paredes said.

"We are still optimistic that the rate of growth is going to be positive (but) maybe it's not going to be as rapid as it was in 2004 nor as rapid as the rest of this year."

Parades said on-year loan growth will range from 15 percent to 20 percent in 2006 compared to "more than 20 percent" this year.

Danamon's total outstanding loans stood at Rp 35.73 trillion (US$3.56 billion) at the end of September, up 38 percent from Rp 25.98 trillion a year earlier.

Concern about the effect of higher rates on profits recently prompted JP Morgan to downgrade Bank Danamon's full-year 2005- 2007 earnings per share estimate by 10 percent to 19 percent.

"While (Danamon) has raised its average lending rates for new loans by 100 basis points to 200 basis points since September, one-third of Bank Danamon's existing loans can't be re-priced over the next 12 to 18 months," a JP Morgan research report issued on Thursday said.

Despite the challenges of rising interest rates, Paredes said Danamon will intensify efforts to expand its small business and consumer lending portfolios. However, he didn't elaborate on Danamon's 2006 loan growth targets.

He said Indonesia's vast consumer loan market is currently overlooked by the bulk of the country's bank sector.

Danamon will seek to expand its consumer loan portfolio in tandem with PT Adira Dinamika Multi Finance, in which Danamon holds a majority stake.

"Seventy percent of the (consumer loan) segment isn't serviced by banks, but by informal sources of financing like friends, loan sharks or non-banking institutions," Paredes said.

"While standard consumer finance entities don't have banks attached to them to look for the funding, we have a comparative advantage (in loan growth) by providing funding for Adira," he added.