Bank Niaga to issue subordinated debts

Bank Niaga to issue subordinated debts

Tony Hotland, The Jakarta Post, Jakarta

Bank Niaga announced on Tuesday it planned to issue up to Rp 800
billion (about US$87.91 million) worth of subordinated debts in
March next year to raise funds to improve its capital adequacy
ratio (CAR).

Niaga, the country's tenth largest lender, said that due to a
significant increase in lending, its CAR declined by nearly 1.6
percent at the end of September.

"Our CAR slipped to 11.01 percent (in September 2004) against
12.07 percent in the same period last year due to expansion and
an increasing amount of disbursed loans," Niaga president
director Peter B. Stok said, when announcing the bank's unaudited
third-quarter financial results.

The current CAR figure, however, is still above the central
bank's minimum requirement of 8 percent.

CAR is the ratio between a bank's capital and risk-weighted
assets such as lending. The higher the CAR, the healthier the
bank is.

Issuing subordinated debts was Niaga's second choice to raise
funds after an initial plan to issue new shares via a rights
issue -- then expected to raise Rp 1 trillion -- was rejected by
the government on the grounds that such a move would dilute the
government's ownership in the bank if it failed to exercise the
rights. The cash-strapped government is unlikely to be able to
purchase the new shares.

However, Stok asserted that the government's rejection of the
plan was not the main reason why the management decided to go for
the second option, but it was because of greater flexibility and
benefits in issuing subordinated debts.

"We see that the current market condition and the timing is
more appropriate and profitable for us to issue sub-debts. Of
course, in addition to that, the scheme is less of a burden for
the shareholders," he argued.

Stok expected the issue of the subordinated debts, which would
be carried out after acquiring required approvals from the
capital market authorities, would help increase Niaga's CAR by 3
to 5 percentage points.

Niaga, which managed Rp 21.76 trillion of third-party funds as
of September, booked a 31.82 percent increase in net profit
during the first nine months of the year from the same period
last year, thanks to a higher net interest income.

It recorded a net profit of Rp 435 billion as year-on-year net
interest income rocketed to Rp 1.09 trillion against Rp 746
billion last year.

"(Higher net interest income) was boosted by the declining
interest cost for deposits as the composition of low-cost funds
is larger. Our net interest margin, subsequently, grew to 6.17
percent compared to 4.78 percent last year," said Stok.

Niaga, which serves about 1.5 million customers through 185
branches nationwide, saw its outstanding loans increase by 42.10
percent to Rp 18.7 trillion. The composition of loans were 41
percent for small and medium-sized enterprises, 38 percent for
large businesses, and the rest for consumers.

"We expect to cut lending to large businesses to less than 30
percent by 2007," Peter said.

He added that lending next year was projected to increase by
Rp 5.5 trillion.

Niaga is 52.82 percent owned by Malaysia's Commerce Asset
Holding Bhd., 21.53 percent by the government and the rest by the
investing public.