Danamon's loan expansion boost profits

Danamon's loan expansion boost profits

The Jakarta Post, Jakarta

Bank Danamon, the country's fifth largest lender, reported on
Tuesday that it posted a 57 percent increase in net profit last
year from the previous year, with loan expansion being one of its
main contributors.

Net profit stood at Rp 2.4 trillion (about US$260 million) for
the 12 months of 2004 from Rp 1.53 trillion, "On the back of
significant increase in net interest income," the bank said in a
statement.

It said its net interest income -- the difference between
interest earned from debtors and that paid to depositors --
jumped from Rp 2.55 trillion in 2003 to Rp 4 trillion.

With the central bank maintaining its benchmark interest rate
at multi-year lows, rates for lending and deposits are also
dropping, although lending rates are dropping faster than
interest paid on deposits.

According to Bloomberg data, the average six-month deposit
rate was 6.2 percent last year, as compared with an average
lending rate of 15.6 percent -- which means that a bank makes
more money by extending loans than luring depositors.

Some Rp 8.6 trillion in new loans was extended throughout the
year, bringing the bank's outstanding loans to Rp 29.4 percent
and pushing the bank's loan-to-deposit ratio (LDR) to 75 percent
-- way above the national LDR average of 50 percent.

In 2003, Danamon's LDR reached 57 percent.

Of the total loans, about 37 percent were extended as small
and medium enterprise and commercial loans.

Aside from an increase in interest-based income, the bank also
experienced a surge in its fee-based income, which grew in 2004
by 25 percent to Rp 756 billion thanks to credit commissions and
transactional fees.

However, the bank's total noninterest income dropped by 29
percent, said the statement.

Danamon also reported a healthy capital adequacy ratio (CAR)
and nonperforming loans (NPLs) standing -- common indicators by
which to gauge a bank's financial health.

CAR, the ratio between capital and risked-weighted assets,
improved slightly to 37 percent in 2004 from 36 percent in 2003
-- well above Bank Indonesia's minimum requirement of 8 percent.

NPLs stood at 4 percent, which is below the maximum rate of 5
percent as set out by the central bank. (003)