Edhi Pranasidhi

Edhi Pranasidhi Dow Jones Jakarta

PT Bank Danamon Indonesia expects net profit growth to slow to around 25 percent this year, from 38 percent projected in 2002, due to a fall in interest income amid declining interest rates.

"We expect our net profit to increase to around Rp 1.25 trillion next year (2003)," Bank Danamon's finance director Prasetio said in a recent interview.

Net growth of the bank, Indonesia's fifth largest bank by assets, will mostly come from miscellaneous operating income, including fee-based income, commissions and foreign exchange gains, he said.

In 2002, Bank Danamon expected to book around Rp 1 trillion (US$1121 million) in net profit, up 38 percent from Rp 723 billion in 2001.

The net profit rise last year, which was above a previous estimate of 18 percent, was due to a forecast increase in the bank's loan portfolio to Rp 18 trillion by year-end from an earlier projected Rp 10 trillion.

Prasetio said interest income for 2003 is likely to remain flat or slightly lower, given expected falling interest rates, but he wouldn't provide an estimate.

The government has been guiding rates lower to help boost growth, with the benchmark one-month central bank note now at 12.99 percent, down from over 16 percent in 2001.

Bank Danamon booked net interest income of Rp 3.74 trillion in the nine months ended Sept. 30, 2002 down 11 percent on year from Rp 3.91 trillion.

But higher miscellaneous operating income of Rp 456.12 billion, compared with Rp 250.69 billion in 2001, lifted net profit for the first nine months of 2002 to Rp 725.26 billion, a rise of 26 percent from Rp 576.82 billion a year ago.

In a bid to support net profit growth, the bank expects to increase its loans-to-deposits ratio this year to around 56 percent from a target of 48 percent this year, Prasetio said.

Bank Danamon expects to extend Rp 28 trillion in loans this year.

Established in 1956, Bank Danamon has Rp 48 trillion in assets representing 5 percent of the system. The bank is publicly listed, but is 99.35 percent owned by the Indonesian government after a bailout following the 1997 Asian economic crisis.

The government plans to divest most of its stake in the bank this year. It plans to sell a 20 percent stake via a public offering and a 51 percent stake to a strategic shareholder, which will also have management control of the bank.

In an effort to attract investors to buy the government's stake, Bank Danamon's management and senior government officials will hold a roadshow early this year in several countries in Europe and Asia, Prasetio said. He didn't elaborate.

Banking industry sources said the government expects to complete the sale of the planned 71 percent stake by March or April.

The government had planned to sell the stake in November 2002, but it had to delay the move to early this year as the recent bomb blasts in Bali damped investor sentiment.

The roadshow is expected to become a vehicle for the government to brief investors on the investment climate in Indonesia after the bombings, said Prasetio.

To attract investors, Bank Danamon's management also plans to boost the share price by combining five existing shares to one new share. The 5-for-1 reverse stock split is expected to be held in the first quarter of this year.