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)