Danamon to triple funds disbursed to credit banks

Leony Aurora, The Jakarta Post, Jakarta

To promote increased lending to small and medium-size enterprises (SMEs) and micro-businesses, Indonesia's fifth largest lender, Bank Danamon, will triple its lending portfolio to credit banks (BPRs) to Rp 600 billion (US$64.86 million) in 2005.

Danamon, which had been criticized for moving in on the customers of BPRs with its Danamon Simpan Pinjam (DSPs), or Danamon Savings and Loans branches, will increase the number of BPRs receiving Danamon's two-step loans to 300, the bank's vice president director, Emirsyah Satar, said on Tuesday.

The two-step loan system allows Danamon to provide loans to the credit banks, which then extend loans directly to customers at higher interest rates.

"We hope to achieve this target by the end of 2005 or early 2006 at the latest," Emirsyah said after a hearing with House of Representatives Commission XI for financial affairs.

Danamon currently extends loans to about 100 BPRs, channeling more than Rp 200 billion to these credit banks.

Danamon, which is 62 percent owned by the consortium of Singapore-based Temasek Holdings and Deutsche Bank, was reported to the House earlier this year by the Association of Indonesian Credit Banks (Perbarindo), which accused Danamon of killing their business with its DSP branches.

Danamon told the House that of approximately 42 million micro- businesses and SMEs operating across the country, only 13 percent were able to obtain loans from banks, proving there was room in the market for new players.

"(Our) entry into this segment was to fill a void," said Danamon president director Francis Andrew Rozario.

This year has been anointed the year of the microcredit by the government and the United Nations. The disbursement of loans to small enterprises, which have proven to have the resilience to survive economic crises, is seen as vital for alleviating poverty.

Danamon hopes to increase its lending portfolio to Rp 15 trillion this year, with most of that increase going to the micro and SME sector.

Rozario further said upon the complaint made by Perbarindo, Danamon had made a policy not to hire employees of credit banks.

Since their introduction in March last year, 264 DSP branches have served about 147,000 customers. As of the end of December 2004, the DSPs had a total of about Rp 280 billion in savings and had channeled Rp 655 billion in loans.

Danamon plans to open 609 new branches -- including DSPs -- across the country this year.

House members questioned whether Danamon, after being acquired by foreign investors, should be allowed to open branches at the district level.

According to Bank Indonesia regulations, foreign banks can operate only in provincial capitals. However, it is unclear whether Danamon would be categorized as a foreign bank.