Danamon to extend Rp 2 trillion for lending

JAKARTA (JP): Publicly listed Bank Danamon plans to extend some Rp 2 trillion (US$2.68 billion) in new credit during the remainder of the year in a bid to return the bank into the black, according to credit director Mahendra Wardhana.

Mahendra said that some 50 percent of the lending would go to medium-large size businesses, 25 percent to small businesses and cooperatives, and the remainder in the form of consumer and commercial credit.

"This is quite aggressive amid the current economic conditions," he told reporters on the sidelines of a seminar on small-scale credit.

Indonesian banks virtually stopped lending last year as the industry and the economy had yet to show signs of recovery from the crisis that started in the middle of 1997. But the economy now has started to show stronger signs of recovery.

Mahendra said that the bank's outstanding loans for February amounted to around Rp 2.1 trillion, which was actually not a normal level compared to total assets of Rp 24 trillion.

"We're now trying to expand our credit side," he said.

Mahendra said that the credit expansion was needed to cover the bank's overhead, particularly as the "margin" incurred from the government's bank recapitalization bonds dropped to only around 0.5 percent due to decline in domestic interest rates compared to around 2 percent when the bank first acquired the bonds.

The government recapitalized Bank Danamon in March 1999, boosting its capital adequacy ratio (CAR) to "much higher than 8 percent." The government's minimum CAR requirement is 4 percent.

But instead of injecting fresh cash, the government injected bonds, from which the bank received interest revenue or "margin."

Mahendra said that Bank Danamon suffered a loss last year, but he could not yet disclose the figure.

He said that the bank's management was also trying to reduce costs by restructuring its source of funds.

He pointed out that time deposits were expected to represent only 60 percent of the bank's funding source by the end of this year, compared to around 85 percent in the March-April period last year.

He said that time deposits were relatively more expensive compared to other funding sources. "The amount of time deposits is now around 65 percent. This is part of our defense strategy," he added.

Mahendra said that other cost saving measures implemented by the bank included cutting staff from 20,000 to the current 13,000 and reducing the number of branches from 699 to 490.

Bank Danamon, which was one of the country's largest private banks, was nationalized by the government in April 1998.

The government plans to merge Bank Danamon with eight other smaller nationalized banks this year as part of the government bank restructuring program.

Mahendra said that the merger was expected to be completed before the end of May and consolidation of operations would be completed in September.

"After the merger is complete, Bank Danamon can concentrate fully on its business," he said.

The eight banks to be consolidated with Bank Danamon are publicly listed Bank Rama, Bank Tiara Asia, Bank Duta, and Bank Tamara, and non-listed Bank Pos, Bank Jaya, Bank Nusa Nasional, and Bank Risjad Salim.

The merger will create a new Bank Danamon with total assets totaling Rp 44.5 trillion.

The seven smaller banks (excluding Tiara which already has been recapitalized) have CAR levels below 4 percent.

Asked if the merger would send Bank Danamon's CAR level back into negative territory, Mahendra said that the government would inject or recapitalize Danamon for the second time with the completion of the merger.

He said that the second recapitalization measure was estimated to cost some Rp 30 trillion. (rei)