BRI expects to beat 2005 profit forecast

BRI expects to beat 2005 profit forecast

Agencies, Jakarta

PT Bank Rakyat Indonesia (BRI), the nation's fourth-largest lender, said it expects to beat its profit forecast of Rp 3.73 trillion (US$378 million) this year because of higher lending to small and medium businesses.

Net income for the full year will probably increase about 3 percent from Rp 3.63 trillion last year, Wayan Alit Antara, chief financial officer at the Jakarta-based lender, said on Tuesday as reported by Bloomberg.

Profit next year may increase by as much as 10 percent, fueled by loan demand from small and medium companies, Wayan Alit said.

Indonesia's $258 billion economy is forecast to expand by 5 percent to 5.7 percent in 2006, lower than the government's 6.2 percent growth projection, Bank Indonesia said on Dec. 15. Indonesia's economy grew 5.1 percent last year.

The bank also expected its lending in 2006 to grow by up to 20 percent from expected total outstanding loans of Rp 79 trillion at the end of 2005.

"The higher loan growth should provide support for net profit growth of 10 percent in 2006," BRI President Sofyan Basir was quoted by Dow Jones as saying.

Credit demand is still strong, even though the central bank has increased its benchmark rate by 175 basis points to 12.75% since Nov. 1, he said.

He said BRI's lending has increased 25 percent on year in the nine months to Sept. 30, as a result of the bank's decision to maintain its rate on loans for small and medium-sized enterprises at around 18 percent, despite the recent benchmark rate hikes by Bank Indonesia.

The expansion in lending helped fuel an 11 percent increase in net interest income to Rp 9.3 trillion for the nine-month period, from Rp 8.37 trillion a year earlier.

Wayan Alit said the bank is planning to sell up to Rp 6 trillion in government bonds next year to raise funds for the expansion of lending.

Analysts said the government bond sale is also aimed at reducing the bank's risk from the decrease in value of the government bonds as a result of rising interest rates.

The bank's net profit during the nine months to Sept. 30 fell 8 percent on year to Rp 2.5 trillion, mostly as a result of the decrease in the value of its government bonds.

In a recent research note, Macquarie Securities said BRI may book Rp 800 billion in losses on its government bond holdings in 2005.

The bank's end-September government bond portfolio totaled Rp 17.19 trillion, down from Rp 25.15 trillion in the same period in 2004.

The government injected around Rp 600 trillion in bonds into local banks following the 1997-1998 Asian financial crisis.