Bank Permata play down drop in SBI rate

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.