Bank Permata play down drop in SBI rate

Evi Mariani, The Jakarta Post, Jakarta

Bank Permata said that the drop in the interest rate of one-month Bank Indonesia SBI promissory notes would not create financial difficulties for the medium-sized bank, as its main source of profit is its lending activities.

Bank Permata director Elvyn G. Masassya acknowledged on Saturday that the steep decline in the SBI rate would reduce interest revenue from recapitalization bonds, but this could be offset by a higher interest revenue from loans.

"We still make a profit every month," he said.

The bank currently holds Rp 11.3 trillion (US$1.37 billion) in bonds, of which Rp 7 trillion is in variable rate bonds, whose interest rate is directly linked to the SBI rate. The lower the SBI rate, the lower the interest revenue from the bonds.

The government injected an enormous amount of bonds into some ailing banks in the late 1990s to help them survive the financial crisis of the time. The banks obtain interest revenues from the bonds, which have been the main source of revenue for the banks in the last few years.

The central bank has been paring down its SBI rate in a bid to make bank loans more affordable to the corporate sector, and to help ease the burden of the government in servicing its domestic debts, which will have a positive impact on the national economy.

The SBI rate dropped to an historic level of 9.71 percent last week, compared to around 17 percent earlier last year. Central bank officials said that there was still room for further cuts in the SBI rate.

But the falling SBI rate may negatively affect the profitability of banks whose revenue still rely on the interest from recapitalization bonds.

Elvyn said that Bank Permata would provide up to Rp 3 trillion in new loans this year, after booking a net profit of Rp 102 billion in the first quarter.

The bank's capital adequacy ratio (CAR) stands at 10.3 percent, above the central bank's minimum requirement of 8 percent. The CAR is the ratio between capital and risk-weighted assets, and the higher the CAR, the healthier the bank.

Meanwhile, Bank Permata's non-performing loan (NPL) ratio is at 9.7 percent, well above Bank Indonesia's maximum of 5 percent.

To reduce the ratio, Bank Permata has started selling its NPL assets and taken restructuring measures.

Elvyn voiced his optimism that the bank's NPL would reach below 5 percent by the end of the second quarter, the deadline set by the central bank.