Danamon enjoys strong profit from lending, fee-based income

Rendi A. Witular, The Jakarta Post, Jakarta

Bank Danamon, the country's fifth largest bank in terms of assets, announced on Thursday its net profit surged by 44 percent in the first nine months of this year compared to the same period last year on the back of higher income from interest and fees.

The bank said net profit increased to Rp 1.04 trillion (US$122 million) from Rp 725 billion.

"The surge in the bank's net profit is mostly attributed to a substantial increase in the bank's lending interest and fee-based income," said Danamon's chief financial officer Vera Eve Lim in a press briefing.

She said the bank booked a 35.8 percent jump in interest income to Rp 1.82 trillion from Rp 1.34 trillion because of higher loan volume during that period.

She said interest income from lending activities accounted for about 58 percent of the bank's total interest revenue in the first nine months of the year, up from 33 percent in the same period last year, while revenue from the government's recapitalization bonds fell to 42 percent from 67 percent.

As of September, the bank had unloaded about Rp 6 trillion worth of recap bonds from about Rp 22 trillion at the end of last year.

Vera also attributed the higher net profit to an increase in the bank's fee-based income, which soared by 91 percent to Rp 1.04 trillion from Rp 549 billion.

The increase in profit helped push the bank's return on asset (ROA) and return on equity (ROE) in the first nine months of this year up to 3.1 percent and 29.6 percent respectively, from 2.0 percent and 23.1 percent in the same period last year.

With the higher-than-expected profit, the bank decided to pay an interim dividend of Rp 417 billion, representing 40 percent of the bank's net profit.

However, Vera said the bank was still seeking approval from the Indonesian Bank Restructuring Agency for the plan.

Danamon also announced that its outstanding loans in the first nine months of this year grew by 40.7 percent, or Rp 6.64 trillion, to Rp 22.95 trillion.

Of the total new loans, about 65 percent were channeled to small and medium-sized enterprises and consumers, 32 percent to the corporate sector and 3 percent to the commercial sector, Vera said.

The aggressive lending expansion improved the bank's loan to deposit ratio (LDR) to 71.4 percent as of September this year, from 40.6 percent in the same period last year.

However, at the same time the expansion has caused a drop in the bank's capital adequacy ratio (CAR) to 25.3 percent as of September this year from 27.4 percent in September last year.

The bank's nonperforming loans increased to 5.1 percent from 3.5 percent last year as a consequence of the bank's decision to downgrade the collectibility rating of some loans to reflect debtor's business risks as well as their payment records.

The bank said the policy was in line with international standards to better reflect credit risk.

Danamon also announced that its third party funds dropped by 20.2 percent as of September to Rp 32 trillion from Rp 40.1 trillion due to a weakening interest rate environment.

The investment arm of the Singapore government, Temasek Holdings Pte. Ltd., holds a 51 percent stake in Danamon, while the Indonesian government owns a 28.35 percent stake, with the remaining 20.65 percent publicly held.