Danamon sees 2005's loan to grow by 27 percent

Danamon sees 2005's loan to grow by 27 percent

Bloomberg, Jakarta

PT Bank Danamon, Indonesia's fifth- biggest lender, is targeting a 27 percent increase in total loans this year as the country's US$222 billion economy stays on course to expand at the fastest pace in nine years.

The Jakarta-based lender, controlled by Deutsche Bank AG and Singapore state-owned investment company Temasek Holdings Pte., had Rp 29.4 trillion ($3.1 billion) in outstanding credits at the end of 2004. It expects to make Rp 8 trillion of new loans in 2005, Chief Financial Officer Vera Eve Lim said in an interview on May 4.

Southeast Asia's largest economy is forecast by the finance ministry to grow 5.5 percent this year, the fastest pace since before the onset of the Asian financial crisis in 1997. One-year lending rates have dropped to a seven-year low of 14.6 percent, stoking borrowing by companies and consumers in the nation of 238 million people.

"Certain banks including Bank Danamon will continue to show strong profit growth this year," said Raymond Gin, who helps manage 860 billion rupiah at PT Manulife Asset Management in Jakarta. "I like Danamon because it has a developed consumer lending franchise which has a high growth rate."

Gin holds shares in Bank Danamon. He also holds stock in PT Bank Central Asia and PT Bank Rakyat Indonesia. Danamon is 65.8 percent owned by Deutsche Bank AG, Germany's biggest bank by assets, and Temasek.

Shares of Danamon have risen 14.3 percent since the beginning of this year, outpacing a 5.7 percent rise in the Jakarta Composite Index. The stock fell Rp 50, or 1 percent, to Rp 5,000 on the Jakarta Stock Exchange yesterday.

Indonesia's economy expanded 5.1 percent last year as interest rates fell to as low as 16.6 percent from a peak of 50.52 percent in October 1998, at the height of the financial crisis caused by a four-fifths plunge in the value of the rupiah.

The decline in interest rates helped spur the construction of homes and shopping malls and fueled consumer spending, which makes up about 68 percent of Indonesia's economy.

"The bulk of our loans will be to small- and medium-sized companies and consumers," Danamon's Lim said. "We are very conservative on corporate loans."

Total loans at the country's commercial banks rose to Rp 595.10 trillion last year from Rp 477.20 trillion at the end of the 2003, according to the central bank. At Danamon, total loans rose 41 percent last year, when it advanced Rp 8.6 trillion to borrowers.

"Many Indonesian banks expect loan growth of around 25 percent," said Tjandra Lienandjaja, a banking analyst at BNP Paribas Peregrine in Jakarta. "Danamon's loan growth target should be achievable given the higher economic growth target set by the government."

PT Bank Central Asia, the country's second-largest lender, expects to make as much as Rp 11 trillion in new loans this year, Chief Financial officer Jahja Setiaatmadja said on April 28. The lender advanced Rp 11.1 trillion last year, taking its outstanding advances to Rp 40.4 trillion.

PT Bank Rakyat Indonesia, the country's fourth-largest lender, and PT Bank Negara Indonesia, the No. 3, in March forecast loan growth of as much as 25 percent this year.

Indonesia's central bank, Bank Indonesia, has forecast economic growth of between 5 percent and 5.5 percent in the first quarter, and as much as 6 percent this year.

"Private consumption is still leading the growth, followed by investment," central bank Governor Burhanuddin Abdullah said on April 12.

Still, investment is picking up. Indonesia approved $1.03 billion of foreign investment in March, compared with $739 million a year earlier, the Capital Investment Board said on April 15. In the first quarter, Indonesia approved $4.28 billion of overseas investment, compared with $1.56 billion a year earlier.

Banks face the risk of an interest-rate increase as the central bank attempts to slow inflation. Bank Indonesia said on May 10 that its board of governors decided to maintain a "tight- biased monetary policy" and may raise interest rates "gradually."

Consumer prices rose 8.1 percent in April from a year earlier, compared with an 8.8 percent gain in March, the fastest rate since at least January 2003, the Central Statistics Bureau said on May 2.

The yield on the central bank's one-month bills rose to 7.81 percent on May 4, from 7.7 percent in the previous sale on April 20, the central bank said.

Bank Danamon has "factored in a possible increase of the interest rates by the central bank" in calculating its loan target for the year, Chief Financial Officer Lim said.

Investors such as Alistair Thompson say there's no reason for interest rates to rise "dramatically."

"There's still availability of credit, still a lot of liquidity around," said Thompson, who helps manage $7 billion in emerging assets as deputy head of Asia Pacific equities at First State Investments in Singapore.

Thomson has PT Bank Danamon shares and will continue to hold them because " it is a very well managed business and it has good quality management and franchise."

Danamon earned Rp 2.41 trillion of profit last year, a 57 percent increase from 2003. Net interest income, or interest earned on loans after deducting interest paid for deposits, rose to Rp 4 trillion last year from Rp 2.55 trillion in 2003.