Thu, 19 Jun 2003

BII to use profit for plugging earnings deficit

Rendi A. Witular, The Jakarta Post, Jakarta

Bank Internasional Indonesia (BII) announced that it would not distribute dividends from its 2002 net profit this year, as the fund would be entirely used to plug the bank's retained earnings deficit of Rp 16.1 trillion (US$1.9 billion).

After the bank's annual shareholders meeting on Thursday, BII president Sigit Pramono told reporters that the shareholders had decided to allocate the bank's profit of Rp 132.5 billion toward reducing the deficit.

"We will allocate our profit for cutting the bank's negative retained earnings in a bid to improve our balance sheet," said Sigit.

The move was part of the lender's efforts to resolve accumulated financial losses dating back to the beginning of the economic crisis.

Analysts said the negative earnings were a concern for the management and the government, since it could give investors a negative impression ahead of the bank's divestment program in mid-2004.

The government, through the Indonesian Bank Restructuring Agency (IBRA), owns 93.6 percent of BII stakes, while the remainder is held by the public.

IBRA is currently preparing to sell a 71 percent stake in BII, consisting of 51 percent to strategic investors and 20 percent to the public through the stock market.

Sigit also explained that the bank's management and shareholders were now in talks to conduct a quasi-reorganization as a means of erasing the earnings deficit.

Quasi-reorganization is an accounting engineering tool employed to improve the bank's balance sheet by revaluating assets and all liabilities to their present value.

During the meeting, shareholders also agreed to reduce the bank's non-performing loans (NPL) by continuing the sales of its assets worth Rp 805 billion, which were formerly owned by its troubled 22 borrowers.

The asset sales, scheduled to start in July, is expected to help the bank reduce its NPL, which currently stands at 6.43 percent, to below 5 percent by July.

BII, which was once controlled by the indebted Sinar Mas Group, had previously sold assets worth Rp 2.7 trillion from its troubled borrowers with a recovery rate of only 25 percent.

As of March this year, the bank's capital adequacy ratio (CAR) was 28.8 percent.

The bank gained a profit of Rp 67.8 billion in the first quarter of this year, compared to a loss of Rp 157 billion in the same period a year ago.

Satisfied with its first-quarter result, the bank's management was optimistic that it would see a significant net profit growth of more than 50 percent this year.