BCA profit drops on lower interest

BCA profit drops on lower interest

Rendi A. Witular, The Jakarta Post, Jakarta

Bank Central Asia (BCA), the country's third largest bank in
terms of assets, said on Tuesday it had posted a 6 percent
decline in its 2003 audited net profit due to a lower interest
income.

The bank said its profit had fallen to Rp 2.39 trillion
(US$281 million) from the Rp 2.54 trillion it booked in 2002. The
bank's interest income declined to Rp 12.18 trillion from Rp
13.99 trillion.

BCA president Djohan Emir Setijoso said the lower interest
income was mainly attributed to a lower income from government
recapitalization (recap) bonds as the central bank had
aggressively cut down its benchmark interest rate.

He explained that the decline in the interest rate had heavily
impacted on BCA because most of its recap bonds carried a
variable interest rate, which is linked to the Bank Indonesia
(BI) rate.

Floating rate bonds are considered too risky for a bank that
heavily depends on revenue from recap bonds, because their income
from interest is directly related to fluctuations in the central
bank rate.

Of BCA's Rp 37 trillion in recap bonds, 93 percent carry a
floating rate.

The government recapitalized BCA with bonds in the wake of the
late 1990s financial crisis.

Last year, revenue from bonds contributed 39.2 percent of
BCA's income, with the remainder consisting of 26.15 percent from
lending and 34.65 from investment in Bank Indonesia SBI
promissory notes, fees and corporate bonds.

In 2002, recap bonds contributed 61.4 percent, lending 18.9
percent and the remaining 19.7 percent from other income sources.

Setijoso said the bank could not unload its unprofitable recap
bonds because nobody was willing to buy them, and that such an
attempt could even hurt BCA's profit further, as the price of the
bonds would plunge drastically.

Despite a continuous decline in the BI? interest rate last
year, the bank's third party funds rose by Rp 14.30 trillion to
Rp 118 trillion, from 103 trillion in 2002. BCA's third party
funds breaks down into 47.79 percent from savings, 21.42 percent
from demand deposits and 30.79 percent from time deposits.

Setijoso explained that in an effort to minimize the impact of
the declining interest rate, the bank had been trying to boost
lending. The bank's lending surged 36.44 percent last year to Rp
29.33 trillion, from Rp 21.50 trillion in 2002.

He said BCA planned to disburse around Rp 9 trillion in
lending this year, mostly to toll road projects, resource-based
businesses such coal and crude palm oil, small and medium
enterprises and the consumer sector.

According to BCA finance director Jahja Setiaatmadja, with an
increase in lending and a gradual unloading of recap bonds, the
bank expected its net profit before taxes to grow by 10 percent.

BCA, of which 53 percent is controlled by U.S. investment firm
Farallon Capital Management, plans to allocate about 50 percent
of its 2003 net profit toward dividend payments this year.