Danamon profit up 68%, to buy more Adira shares

Tony Hotland, The Jakarta Post, Jakarta

Publicly listed Bank Danamon reported on Wednesday that net profit in the first nine months of the year surged by 68.1 percent compared to the same period of last year on the back of higher net interest income.

The country's fifth largest lender by assets said net profit increased to Rp 1.75 trillion (US$192.63 million) from Rp 1.04 trillion in the third quarter of last year.

Net interest income rose by 67.6 percent to Rp 2.94 trillion.

"Net interest income increased as a result of an expansion in net interest margins, which largely benefited from lower cost of funds amid the low interest environment," Danamon chief financial officer Vera Eve Lim told a press conference when announcing the bank's unaudited third quarter financial results.

Banks here have been enjoying higher net interest income due to the declining trend in the central bank's benchmark interest rate. This helped lower the interest expenses paid by banks to depositors, thus reducing cost of funds.

Danamon, which currently manages Rp 36.44 trillion in third- party funds, trimmed interest expenses to Rp 1.77 trillion from Rp 2.61 trillion.

The net interest margin improved to 8.1 percent in the first nine months against 5.3 percent previously.

Outstanding loans grew by 27.7 percent to Rp 26.75 trillion from Rp 20.95 trillion, largely boosted by significant growth in consumer and commercial loans (including loans to small and medium enterprises), leading to a higher loan to deposit ratio at 74 percent.

These two loan categories accounted for 76 percent of the bank's loan portfolio as of September, while corporate loans made up the rest.

Danamon's president director, Francis A. Rozario, said full- year net profit was expected to hit around Rp 2.2 trillion, which was higher than the initial target, while lending was targeted to reach Rp 30 trillion.

"Next year, we project net profit to grow by 20 percent as total lending is set to expand by 30 percent," Rozario said.

The bank also plans to pay out 50 percent of its nine months profit as interim dividend, amounting to Rp 877 billion or Rp 178 per share, by December.

Danamon's profitability was also backed by the growth of its financing unit, Adira Finance, which booked Rp 257 billion in net profit in the first nine months -- up 122 percent compared to the same period last year.

Adira's total new financing grew by 102 percent to Rp 4.4 trillion, mainly driven by financing for new motorcycle purchases.

"In total, Adira will likely contribute about 15 percent to our profit. Adira will also possibly issue Rp 500 billion to Rp 1 trillion worth of bonds next year," said Rozario.

He added that Danamon planned to acquire another 20 percent of the shares in the firm by 2006 at the latest. Danamon holds 75 percent of the shares in Adira at the moment.

Danamon's capital adequacy ratio climbed to 31.9 percent from 25.3 percent due to both the bank's better earnings as well as the issue of $300 million worth of subordinated debt in March.

However, the non-performing loan ratio went up to 5.8 percent from 5.1 percent previously, 70 percent of which was due to loan assets purchased from the now disbanded Indonesian Bank Restructuring Agency.