BCA's profit
I refer to the article BCA books 50% raise in pre-tax profit in Q1, which appeared in The Jakarta Post on May 22, 2001.
Once again the spin doctors at BCA have succeeded in publishing an incomplete and misleading report of the bank's financial condition. The recent press release announcing the bank's first quarter results and stating that pretax profit had risen 50 percent over earnings for the same period last year, is another example of the type of selective reporting and questionable accounting that bank management has become noted for. While gross revenue may have increased over last year's poor results, the statistics are misleading and the bank's overall financial condition actually appears to have weakened.
The press release states that the bank now has total assets of Rp 99.73 trillion and outstanding loans of Rp 9.14 trillion. What these figures really reveal is that less than 10 percent of the bank's assets are earning assets in the form of loans to the public. If fixed assets have not increased significantly in the past year or if the bank is not sitting on a pile of cash, then by far the majority of total assets consist of government recapitalization bonds. Absent in the publication of a complete balance sheet, exact percentages cannot be calculated.
As has been well reported over the past two years, these recapitalization bonds yield an interest rate well below the market and have demonstrated their extreme illiquidity. Currently there is no, nor has there ever been, active secondary market for these instruments. Despite their implied government backing, proper accounting would not allow these bonds to be considered to have a zero risk-weight for the purposes of determining any bank's capital adequacy ratio. BCA does not have a 35.66 CAR, except in the minds of those who still labor under the false belief that this exercise really "recapitalized" the bank.
The incomplete press release which touts the bank's "amazing" increase in profitability, cannot hide the fact that the majority of these earnings come from interest on government bonds and not from a bank's normal intermediation role as a lender to the economy. The fact is that BCA, as with most other banks under control of the Indonesian Bank Restructuring Agency (IBRA), remains illiquid and unable to expand its loan portfolio without further deterioration in its fragile financial structure. It also appears that a significant number of the new loans that have been made are not paying as agreed.
The bank reports that 7.6 percent of its increased portfolio is now nonperforming, up from 6.03 percent on a much smaller base. Such an increase would mean that approximately Rp 695 billion in credits or 9 percent of all new loans are already in trouble. So much for improved risk management competence at BCA.
Meanwhile, operating expenses have increased by 132 percent (greater than loan growth) while other operating income increased at a pace only slightly above the annual inflation rate. Contrary to what the bank announced, the third party fund composition (i.e. deposits) has not improved during this period. It appears that total deposits grew by less than 0.6 percent this past year, which in itself is a less than stellar performance, and the composition is in fact more volatile than last year.
While demand checking account deposits grew by 14 percent, the more stable time deposit base decreased by 19 percent. Such movement often reflects the publics' wariness of a bank's long- term viability. The bank's incredibly low loan to deposit ratio, if revealed, would also reflect the institution's troubled past and the fact that IBRA removed some Rp 63 trillion in bad loans from its books before "going public" last year.
Only when the bank is finally subjected to an audit by a qualified independent accounting firm employing international accounting standards, which require a proper classification of all risk assets (not only the loan portfolio but the government recapitalization bonds as well), will the true picture of BCA's financial condition emerge.
MELVILLE BROWN
Jakarta