Bank Niaga targets Rp 700b in new loans this year

JAKARTA (JP): An increase in equity following the government- sponsored recapitalization program in May will enable publicly listed Bank Niaga to channel some Rp 700 billion (US$79 million) in loans this year, a bank executive said here on Thursday.

"We're optimistic we can channel Rp 700 billion (in loans) this year and another Rp 1 trillion next year," Paul Wiranata, the bank's finance director, said after signing a trade financing cooperation agreement with state Bank Expor Impor Indonesia (BEI).

Before the recapitalization, the bank was unable to provide new loans because of its low capital adequacy ratio (CAR), he said. He explained the economic crisis had resulted in the bank's CAR, the ratio between the bank's risk-weighted assets to capital, falling to minus 122 percent, far below the government- set minimum of 4 percent.

"In the past two years, Bank Niaga's new loans were halted," he said.

The government recapitalized Bank Niaga earlier this year, spending some Rp 9.46 trillion to increase the bank's capital adequacy ratio (CAR) from minus 122 percent to around 8.3 percent.

The government took over Bank Niaga after the economic crisis struck in 1997, leaving the bank with negative spread, which is when a bank's interest payments on savings deposits exceed its income from loan interest payments.

The bank is now 97.15 percent owned by the government, with the remaining 2.85 percent belonging to the public.

According to Paul, Bank Niaga's CAR currently stands at about 15 percent.

He said most of the loans offered would be for working capital for exporters. "But we'll retain 20 percent to finance small businesses."

However, Paul said that at present it was difficult to issue letters of credit (L/Cs) to exporters, because the confidence of foreign banks in Indonesian banks had not recovered fully.

"It's not as easy as it was in 1996, although the government has issued a blanket guarantee for our banks' L/Cs," he said.

The signing of the cooperation agreement by Bank Niaga and BEI will allow BEI to channel its funds through Bank Niaga.

The government founded BEI in May 1999 with a paid-up capital of Rp 3 trillion, to help finance the import of raw materials for export-oriented companies.

BEI, as an alternative financial institution, cannot engage in direct lending and must use other banks to channel its loans.

BEI director Budi Mulya said that although it was a two-step loan scheme, both banks could offer exporters lower interest rates than commercial rates.

"We have worked out a deal with Bank Niaga to offer a special rate that is lower than those at other banks," Budi explained.

He said BEI had so far channeled some Rp 3.3 trillion in loans, and expected this figure to reach between Rp 6 trillion and Rp 7 trillion this year.(bkm)