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.