Bank Danamon net profit jumps by 79%

Rendi A. Witular Jakarta

Publicly listed Bank Danamon announced on Tuesday that its first half net profit as of the end of June jumped by 79 percent as compared to the same period last year, primarily on higher net interest income resulting from lending expansion and lower funding costs.

The country's fifth largest bank in terms of assets said that net profit increased to Rp 1.1 trillion (about US$122 million) in the first six months of this year as against Rp 615 billion a year ago.

The bank's net interest income rose by 93.3 percent to Rp 1.97 trillion.

"Net interest income increased due to the rise in net interest margins, which have benefited from lower funding costs," said Danamon chief financial officer Vera Eve Lim at a press briefing on Tuesday.

Vera said that the current declining trend in the Bank Indonesia benchmark interest rate had pushed down interest rates for savings and deposits, thus reducing the cost of funds. The bank's interest expenses declined to Rp 1.17 trillion from Rp 1.95 trillion.

The bank's net interest margin improved to 7.9 percent in the first half as compared to 4.4 percent during the same period last year.

Danamon said that outstanding loans grew by 12.4 percent to Rp 23.8 trillion from Rp 21.2 trillion, mainly due to significant growth in consumer loans, which increased by Rp 2.4 trillion, and commercial loans (including loans to small and medium enterprises), which grew by Rp 753 billion.

These two loan categories accounted for 67 percent of the bank's total loan portfolio as of June this year.

Other operating income, which includes fee-based income, dropped to Rp 797 billion in the first half from Rp 856 billion in same period last year due to losses resulting from a decline in the value of marketable securities.

Overall, however, the bank said that strong profitability had improved the bank's financial ratios, with capital adequacy ratio (CAR) increasing to 33.3 percent from 24.2 percent, and return on equity and return on assets increasing to 35.2 percent and 4.2 percent respectively.

But the bank acknowledged that its non-performing loan ratio had increased to 3.2 percent from 1.5 percent previously, but said this was mainly attributable to the bank's new policy of downgrading the collectibility of some loans, including unrestructured non-performing loans purchased from the now- defunct Indonesian Bank Restructuring Agency (IBRA).