Danamon focuses on organic growth for consolidation

The Jakarta Post, Jakarta

To meet the central bank requirement for banks to boost their capital within five years, Bank Danamon is focusing on expanding its business rather than looking at merging with or acquiring other banks.

Danamon president director Sebastian Paredes said the bank would focus on organic growth to meet Bank Indonesia's new Indonesian Banking Architecture guidelines, designed to streamline the number of banks within five years by requiring each bank to have between Rp 100 billion (US$10.23 million) and Rp 50 trillion of capital.

"There are many ways to grow, including through acquisitions or organic growth. We will focus on organic growth because we are confident of our outlook. Our capital adequacy ratio (CAR) of 23.5 percent is one of the highest in the industry," he said during the bank's first half performance expose on Monday.

The bank reported a net income of Rp 1.28 billion in the first semester of 2005, an increase of 17 percent from Rp 1.1 trillion in the first half of last year.

The increase was driven by improvements in productive assets, combined with the widening of its net interest margin from 8.2 percent to 9.1 percent.

However, Paredes said Danamon would look at the possibility of merging with or acquiring other banks if such a move would improve its strategic position.

"When the time comes, we will consider only those acquisitions that will allow us to expand our geographical network, expand our customer segments and support our objective of becoming a leading financial institution in the country," he said.

The bank's chief financial officer, Vera Eve Lim, said that in the first six months, Danamon expanded its business through its Adira Finance, Dana Simpan Pinjam (DSP) and Syariah units, boosting its operational expenses by 40 percent.

She said Adira Finance generated a net profit of Rp 233 billion in the first half, while DSP generated Rp 2.5 trillion.

This business expansion, she said, led to the bank's CAR decreasing from 31.1 percent as of the first half of 2004 to 23.5 as of the first half of 2005.

Vera said the bank would not hesitate to review its business units that were not vital to the bank's objectives, including its investment in the Korean Exchange Bank Danamon (KEBD).

"We once owned 15 percent of KEBD but it was not part of our strategic position. We sold 14 percent of the shares last week and the remaining 1 percent will be sold in the near future," she said. (006)