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.