Election dents lending: Mandiri

Election dents lending: Mandiri

Rendi A. Witular, Jakarta

Bank Mandiri, the country's largest bank in terms of assets,
said lending during election year had been slow as companies put
their investment plans on hold amid the political uncertainty.

"We had planned to provide a great amount of loans this year,
but the loans cannot be absorbed by the corporate sector due to
political and security uncertainties during the general
election," Mandiri president director ECW Neloe said on Tuesday.

Indonesia, Southeast Asia's largest economy, concluded its
legislative election on April 5 and will hold its first direct
presidential election on July 5. A likely presidential run-off is
scheduled for Sept. 20.

Analysts said the country's 6-month general election was
inefficient for businesses, as it was the longest election period
in the world.

Neloe said Mandiri was unlikely to attain this year's lending
target unless a single majority winner emerged in the
presidential election and thus ended the wait-and-see corporate
trend.

"Lending growth, not just for Mandiri but also other banks, is
likely to remain flat this year due to election jitters," he
said.

Mandiri has targeted lending to grow by 15 percent this year,
or about Rp 11.4 trillion (US$1.21 billion). By the end of March,
the bank's gross lending had risen by 11.6 percent to Rp 76.65
trillion from Rp 68.67 trillion a year ago, but the change is
minimal from the Rp 75.94 trillion record at the end of 2003.

Corporate lending made up 52 percent of the bank's lending
portfolio, while non-corporate lending accounted for the
remaining 48 percent.

In order to channel Mandiri's excess liquidity funds -- as it
cannot be absorbed by the corporate sector -- Neloe said the bank
had been investing them in Bank Indonesia promissory notes (SBIs).

Aside from SBIs, banks also channel their excess funds into
the consumer or retail sectors.

The banking sector is estimated to have an excess liquidity of
about Rp 40 trillion daily, due to slow lending.

The central bank had initially hoped a lower benchmark
interest rate would push banks to boost corporate lending to help
accelerate economic growth.

In regards the bank's massive bad loans in pulp and paper
company PT Kiani Kertas, Neloe said it was currently seeking new
investors with $50 million in fresh funds so it could run its
operation independently.

Once the company's operation is back on track, Mandiri
expects to be able to recover its loans from Kiani, Neloe said.

"We have urged the Kiani management to seek new investors to
help get the company running again. We have given them a deadline
until the end of this month to find investors," he said.

Mandiri's gross non-performing loans rose to 8.4 percent from
6.6 percent as of the first quarter, primarily because the bank
had to spare huge provisions to cover Kiani's bad loans.

Mandiri bought Kiani loans from the Indonesian Bank
Restructuring Agency in 2001 for about $150 million.