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.