Mon, 31 Jan 2005

Big banks book higher profit on lending, lower costs

Rendi A. Witular, The Jakarta Post, Jakarta

Bank Central Asia (BCA) and state-owned Bank Negara Indonesia (BNI) -- the nation's second and third-largest lenders respectively -- had low-cost funds and aggressive lending expansion to thank for their sharp increase in profit last year.

While their audited financial reports are yet to be released, both lenders have predicted a significant increase in their net profit for 2004.

BCA estimates its 2004 profit to rise by 30 percent to Rp 3.1 trillion (US$344 million) from Rp 2.39 trillion the year before, according to its finance director Jahja Setiaatmadja.

"The profit increase is attributed primarily to the lower cost of funds and aggressive lending channeling," Jahja told The Jakarta Post, adding that the bank had channeled some Rp 11 trillion in lending last year, higher than its initial target of Rp 9 trillion.

The bank's outstanding loans as of last year are estimated to have reached Rp 40.33 trillion, with loans to small and medium businesses accounting for 44 percent of total loans, and loans to large corporate groups, 42 percent.

BCA, like most banks here, is enjoying hefty net interest earnings in line with a declining trend in Bank Indonesia's benchmark interest rate (SBI) last year, which hovers at its lowest level of around 7.4 percent.

Banks generally adjust their deposit rate downward in line with the SBI, faster than they do for lending rates, thus reducing their costs for funding interest for deposits.

For this year, BCA has set its sights on at least a Rp 10 trillion increase in lending, to further capitalize on the declining trend in the SBI and on funding for the government's massive infrastructure projects.

The publicly listed BCA -- the assets of which were valued at Rp 143 trillion as of the third quarter last year -- is 51.30 percent owned by U.S. hedge fund Farallon Capital Management LLC, 41.9 percent by the public, 5.03 percent by the government, and 1.77 percent by business tycoon Anthony Salim.

Meanwhile, BNI president director Sigit Pramono told the Post that the bank's 2004 profit was likely to reach Rp 3.1 trillion, up by more than seven fold from Rp 420 billion posted in 2003.

"Like most other banks, our profit has resulted from higher lending and low funding costs for interest," said Sigit.

The publicly listed bank, with assets valued at Rp 133 trillion in the third quarter of last year, channeled Rp 12 trillion in lending last year.

About 43 percent of that was channeled to the corporate sector, 37 percent to small and medium businesses and the remaining 20 percent to consumers.

The bank's outstanding loans, as of last year, are estimated to reach Rp 58.4 trillion, with plans to add at least another Rp 12 trillion to its lending portfolio this year.

The government, which controls 99 percent of the bank's shares, is scheduled to sell some 30 percent of its stake in the bank later in June or July to raise cash and help plug the state budget deficit.