BI rules may affect listed banks

JAKARTA (JP): Several new restrictive policies from Bank Indonesia may adversely affect the performance of listed banks in 1997, according to PT BZW Niaga Securities.

Bank Indonesia has announced measures to restrict lending, fine banks which fail to make target loans to small business, and limit borrowing offshore.

PT BZW Niaga Securities suggested last week that listed commercial banks increase their fee-based income so that their profitability will not be so dependent on loan growth and interest margins.

The sound earning growth of most listed banks last year was backed by strong loan growth and improvements in efficiency, the firm said.

Last year all listed banks except the large state-owned Bank Negara Indonesia (BNI) 1946 and the smaller Bank Tiara, recorded a net profit increase of over 30 percent.

The growth of large banks in 1996 was impressive. BNI's net profits rose by 22 percent to Rp 335.1 billion, Bank Internasional Indonesia (BII) by 36 percent to Rp 260.4 billion, Bank Lippo by 39 percent to Rp 116.5 billion, Bank BDNI by 36 percent to Rp 190.4 billion and Danamon by 52 percent to Rp 201.7 billion.

The smaller banks also performed well in 1996. Bank Bali's net profits rose by 38 percent to Rp 126.1 billion, followed by Bank Niaga to 53 percent to Rp 98 billion, Bank Panin by 60 percent to Rp 80.2 billion, Bank Bira by 99 percent to Rp 60.2 billion, Bank Tiara by 24 percent to Rp 41.3 billion, Bank PDFCI by 38 percent to Rp 31.8 billion and Bank Modern by 38 percent to Rp 30.6 billion.

"In terms of share prices, however, the positive results were largely offset by an over reaction to the central bank's regulatory changes to small business loans, loan limits and offshore borrowing," said Mirza Adityaswara, a banking analyst from BZW Niaga Securities.

In a bid to control the growth of monetary aggregates, the central bank has set limits for growth of loans, based on the size and financial health of each commercial bank.

BZW Niaga Securities suggested that if the macroeconomic situation remained stable, the central bank could allow banks with good fundamentals to expand their earning assets over and above the set limits.

The central bank has recently revised the regulation of loans to small businesses, by introducing financial penalties to increase banks' willingness to channel credit to small businesses.

A central bank reclassification of small business credits has meant that there is a new total of Rp 350 million (US$144,630) up from Rp 250 million.

Mirza said listed commercial banks would not face any serious difficulties in meeting small business credit targets due to increases in loan size.

"The real losers are the foreign and foreign/joint venture banks to whom the small credit regulations will now apply," he said.

The only new offshore borrowing regulation has been the introduction of penalties to banks which exceed the limits placed on raising offshore loans.

"We are unaware of any bank which has done so (raising foreign loans exceeding the central bank-set limits) in the past and nor do we expect any to do so in the future," Mirza said.

Until now, the central bank has set offshore loan limits at US$1.5 billion per annum for all commercial banks, of which $1 billion has been allocated to the seven state banks.

Performance

Among the 12 listed banks, BII, Bali and Bira recorded the highest return on assets (ROA) within the big, medium and small bank sub-sectors respectively. The ROA is the most important profitability ratio for a commercial bank.

"At an respective 1.7 and 1.8 percent, BII and Bali maintained their ROA above our benchmark of 1.5 percent," reported the BZW Niaga Securities Bulletin.

Bira's ROA improved from 2.2 percent in 1995 to 2.7 percent last year; Niaga's also improved from 1.1 to 1.4 percent; Panin from 1.3 percent to 1.7 percent; PDFCI from 1.6 percent to 1.8 percent.

BII, Bali, Niaga and Bira maintained their return on equity (ROEs) at above 20 percent last year, while BDNI, Panin and PDFCI recorded ROEs of below 20 percent, which was an improvement.

Lippo, Danamon and BII achieved an international loan to deposit (LDR) ratio of below 110 percent. Others recorded LDR ratios of over 110 percent.

The International LDR, established by the Bank of International Settlement,is calculated by using straight loans divided by third party deposits (demand, savings and time deposits).

In Indonesia, however, the central bank allows banks to include shareholder's and borrowed funds with a maturity of beyond three months in the denominator of the LDR calculation. Certainly, in Indonesia, all listed banks have an LDR of below the statutory 110 percent.

Danamon, Panin and Tiara showed the most aggressive performers in growth of loans within the big, medium and small bank sub- sectors respectively. Danamon recorded credit growth of 61 percent last year, Panin 33 percent and Tiara 61 percent.

Other banks which recorded high credit growth last year were BII with 41 percent, Bira with 47 percent and PDFCI with 39 percent. It was only BNI, Bali and Modern which booked credit growth of 20 percent or less.

Bank Danamon recorded the highest growth in net interest income of 93 percent due partly to unusually high growth of loans. Meanwhile, BDNI maintains its lead position among big banks in non-interest income growth.

The operating efficiency of BII, Panin, Tiara and Bira was relatively constant, with cost to income ratios of less than 45 percent.

"It is not easy to achieve a cost to income ratio of less than 45 percent such as these banks have consistently done so over 1995 and 1996," BZW Niaga Securities.

It predicted that BNI's net profits would increase by 35 percent to Rp 453 billion this year, BII's by 51 percent to Rp 394 billion, Lippo's by 49 percent to Rp 173 billion, BDNI's by 75 percent to Rp 333 billion, Danamon's by 35 percent to Rp 273 billion.

Meanwhile, Bali's net profits are estimated to rise by 26 percent to Rp 159 billion, Niaga's by 35 percent to Rp 133 billion, Panin by 26 percent to Rp 101 billion, Bira by 38 percent to Rp 83 billion, Modern by 23 percent to Rp 37 billion, Tiara by 34 percent to Rp 55 billion and PDFCI by 43 percent to 46 billion. (rid)

Table: Basic statistics of Listed Banks

Total Net Profits PE'97 EPS'97 Banks Assets (Dec.'96) 1996 1997E (x) Growth

(Rp trillion) (Rp billion) (percent) --------------------------------------------------------------- BNI 34.88 335.1 453 12.7 4 Danamon 22.02 201.7 273 9.8 21 BII 17.71 260.4 394 13.7 23 BDNI 16.65 190.4 333 9.4 26 Lippo 10.18 116.5 173 11.9 38 Bali 8.00 126.1 159 9.6 23 Niaga 7.87 98.0 133 10.0 21 Panin 5.37 80.2 101 9.8 26 Bira 2.84 60.2 83 9.4 25 Modern 2.47 30.6 37 6.8 21 Tiara 2.17 41.3 55 9.1 34 PDFCI 2.06 31.8 46 7.3 3

Source: PT BZW Niaga Securities