BCA's profit drops due to falling interest earnings

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Central Asia (BCA), the country's largest private bank, announced a 43 percent drop in first-quarter net profit, in what analysts said was further evidence of the sector's continued gloomy outlook.

The publicly listed bank's first three-month net profit stood at Rp 476.0 billion (about US$51.4 million), as compared to Rp 832.69 billion posted in the same period last year, as reported in a press statement issued on Tuesday.

The profit slump was largely attributed to a 6.2 percent drop in the bank's interest income to Rp 3.35 trillion as the declining central bank benchmark interest rate has lowered income from government recapitalization bonds.

Currently, the bank holds Rp 45.7 trillion worth of recapitalized bonds, making up a significant part of around Rp 116 trillion of its total assets. It has also some Rp 28 trillion in central bank bills.

Thanks to a more stable rupiah and manageable inflation, the central bank's interest rate is now hovering at around 11.2 percent, as against more than 16 percent last year in the same period.

Banking analyst Aviliani of the Institute for Development of Economics and Finance (Indef) said that BCA's case reflected the current overall weak state of the country's banking sector, which relied too much on interest earnings from recapitalized bonds instead of earning from core lending activities.

"That only reflects the real condition of our banking sector, some 60 percent of their earnings come from the interest payment of the government's recap bonds," Aviliani told The Jakarta Post, adding that because of that, banks were reluctant to extend a considerable amount of lending to the private sector.

During the first three months of the year, BCA extended some Rp 600 billion in new loans, bringing its outstanding loans to around Rp 22 trillion.

"There is no other choice for BCA but to increase its loans exposure if it wants to obtain more revenue to help cover the declining earning from the recap bonds," Aviliani said.

She added, however, that it would not be easy because credit demand from the indebted corporate sector remains low.

Economist Faisal Basri has said that credit from the banking sector grew slowly over the last couple of years, which saw in 2001 and 2002, new credit growth of 11.9 percent and 14.4 percent, respectively.

"By comparison, the average growth of new credit before the crisis stood at around 26 percent," Faisal said.

Elsewhere, also contributing to BCA's profit fall was the higher operating costs, which had risen by 28 percent to Rp 875.87 billion from Rp 682.30 billion last year.

The bank's capital adequacy ratio (CAR) stood at 38.81 percent on March 31, lower than 40.30 percent posted in the same period last year. As for the non-performing loans (NPLs), they accounted for some 3.43 percent of total loans at the end of this quarter, a slight increase from 3.24 percent last year.

Bank Indonesia requires a minimum of 8 percent for CAR and 5 percent for NPLs.

BCA is 52 percent owned by Farallon Capital Management. The government holds 8.5 percent with the public owning the remainder.

On Tuesday, the bank's shares rose by Rp 100 to Rp 2,450 compared to the earlier day's closing amid a sharp increase in the Jakarta Stock Exchange index. Analysts said that investors had anticipated the rise in share value.