Banks show mixed first-half results

Banks show mixed first-half results

Rendi A. Witular, The Jakarta Post, Jakarta

During the first semester of this year large-sized Bank
Central Asia (BCA) and Bank Lippo lost ground over their net
profits while their rivals Bank Internasional Indonesia (BII) and
Bank Panin advanced forward with impressive growth.

Banking analyst M. Fendi Susiyanto from BNI Securities told
The Jakarta Post on Wednesday that the decline in the first two
banks' profits was mostly attributed to the lower interest income
earned from the government's recapitalization bonds.

"The income from recap bonds was declining because the
benchmark interest rates fell drastically during the second
quarter," said Fendi.

The central bank has been cutting the one-month SBI rate lower
by around 30 percent since early this year to the current level
of 9.23 percent.

Fendi explained that the decline had heavily impacted on BCA
and Lippo because their recap bonds mostly consisted of variable
net bonds carrying floating indicative rates.

Floating rates were considered too risky for a bank that
heavily depended on revenue from the yield of recap bonds because
when the rates declined, then their income from interests would
also decline, Fendi said.

Fendi gave out an example that 95 percent of BCA's total recap
bonds currently worth Rp 40.3 trillion carried a floating rate,
which made it very sensitive to any fluctuation in the benchmark
rates.

Government bonds make up around 35 percent of BCA's assets and
about 25 percent of Lippo's.

"BCA and Lippo must have anticipated the fluctuations, but I
do not know why they are still relying on the bonds," said Fendi.

He forecasted that the profits of the two banks could plunge
further at the end of the year if they failed to significantly
unload their recap bonds, cut the cost of fund and increase the
channeling of lending.

BCA's net profit for the first half plunged by 33 percent to
Rp 1.02 trillion (US$120 million) from Rp 1.52 trillion in the
same period last year while Lippo's fell to Rp 26.4 billion from
Rp 78.1 billion.

The capital adequacy ratio (CAR) of BCA, the country's third
largest bank in terms of assets, also declined to 38.25 percent
from 41.55 percent and Lippo's to 23.21 percent from 26.48
percent.

The drop in Lippo's profit is worrisome because the
government, which controls 55 percent of the bank, plans to sell
a 51 percent stake in it in the fourth quarter.

Fendi suspected that the bank's bad performance could lower
the price of the bank's shares, which in turn would open the way
for the former owner of Lippo, the Riyadi family, to repurchase
the bank cheaply.

Under the current price, the government's 55 percent stake in
the bank would only be worth around Rp 600 billion, way below the
Rp 7.2 trillion in state funds the government had injected for
its recapitalization in 1999.

Meanwhile, the competitors of the two banks, BII and Panin,
managed to record better performances last semester.

BII, which is also a recap bank with government bonds
currently worth Rp 16.6 trillion, booked a net profit of Rp 143
billion as compared to the losses of Rp 251 billion.

The surge was mainly driven by an increase in interest income
to Rp 311 billion from Rp 245 billion. The bank's CAR has soared
to 25.88 percent from -58.09 percent.

Meanwhile, Panin, a bank which managed to survive the
financial crisis without receiving any bailout from the
government, recorded a jump in the net profit mostly from
interest and fee-based incomes.

The company's profit rose by more than 1,000 percent to Rp 196
billion in the first semester from just Rp 16.8 billion in the
same period last year. The bank's CAR has also increased to 34.6
percent from 32.9 percent.