BII to use profit for plugging earnings deficit

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.