Lippo Bank prepares Rp 2t for IBRA assets purchase

Lippo Bank prepares Rp 2t for IBRA assets purchase

JAKARTA (JP): Publicly listed Bank Lippo said on Tuesday it
was allocating up to Rp 2 trillion (about US$184 million) for the
purchase of assets under the control of the Indonesian Bank
Restructuring Agency (IBRA) as part of its program to soak up its
excess liquidity.

Lippo Bank president Ian B. Clyne said the bank allocated
between Rp 1 trillion to Rp 2 trillion mainly for the purchase of
small and medium sized companies taken over by IBRA.

He said the bank had participated in several IBRA bidding
initiations, albeit without concluding any deals.

"Lippo Bank is interested in looking into IBRA assets, but we
clearly want to be in a position where we can carry out properly
the due diligence procedure," Clyne said in an interview with The
Jakarta Post.

He said the bank had its eye on export-oriented companies, or
those with businesses in the consumer or agriculture sectors.

Investment in these companies would largely depend on the
quality of their assets, he added.

Given the slow recovery of the real sector, he said, Lippo
Bank was very careful not to purchase companies with large bad
debts.

IBRA, a unit of the Ministry of Finance, controls assets worth
around Rp 600 trillion taken over from nationalized, closed and
state banks.

These assets were pledged by the owners of local banks, whose
banks' non-performing loans were transferred to IBRA.

He added, however, that a weaker-than-expected economy could
force Lippo Bank to scale back its investment in asset
acquisitions closer to the Rp 1 trillion mark.

He said the bank was also giving consideration to swapping
part of its government recapitalization bonds with IBRA assets.

IBRA injected Lippo Bank with Rp 9 trillion in government
bonds when the agency took over the bank's non-performing loans
in 1999.

Its non-performing loans subsequently declined from 86.4
percent to 20.5 percent last year. While for this year, the bank
targeted a range of 10 percent to 12 percent, Clyne said.

For the year 2000, the bank also managed to rebound to a net
profit of Rp 246.41 billion, compared with a net loss of Rp 1.64
trillion in the year before.

Its net interest earnings rose to Rp 658.99 billion, from the
previous year's loss of Rp 1.09 trillion.

Operational profit climbed to Rp 191.09 billion, from a loss
of Rp 1.82 trillion in 1999.

For this year, Clyne added, the bank is targeting a net profit
of over Rp 300 billion.

"However, given the current increase in interest rates and the
impact of currency devaluation, we believe we should be
conservative," he added.

Clyne said that based on the bank's first quarter performance
for this year, he was confident of at least exceeding the bank's
year 2000 results.

Bank Indonesia has said it will maintain its tight monetary
policy to cope with inflationary pressures caused by the ailing
rupiah.

Banks competing for funds must raise their deposit rates above
Bank Indonesia's benchmark short-term interest rate, currently
hovering at 16 percent, at the risk of suffering negative spread.
(A bank suffers from negative spread if interest earnings from
its loans cannot cover the interest payments on its time
deposits).

But with the slow economic recovery, many recapitalized banks
have refrained from lending, and instead rely mainly on interest
earnings from government bonds.

"Given the current economic situation, it is going to be more
difficult for banks in Indonesia to lend aggressively and expand
their portfolios," Clyne said.

He estimated that local banks would need another two to three
years before they could reach their normal lending levels.

"On the current state of its financial position, I believe the
bank today is 60 percent to 70 percent along the road to
recovery," Clyne said of Lippo Bank's efforts to resume its pre-
crisis lending levels.

In 1997, he said, Lippo bank channeled Rp 12 trillion in
loans, which had now shrunk to Rp 4 trillion.

He said the bank now focused its lending on small to medium
sized enterprises, which had withstood the crisis better than
large corporate borrowers.

"We tend to lend to consumer, retail, food and beverage,
export-oriented businesses and pharmaceuticals, which have
recovered relatively well since the crisis," he said.

About 30 percent of Lippo Bank's loans were channeled to the
manufacturing sector, 24 percent to trading facilities, 16 to
property, with the remainder allocated to other sectors.

In the year 2000, Lippo Bank approved Rp 1.1 trillion in new
loans, of which however, only 50 percent were realized.

As for this year, he said, the bank was targeting new loan
approvals amounting to Rp 2 trillion.

"If quality borrowers are there, then we are in a position to
lend to them," he added.

Thus far, however, the bank has deposited 80 percent of its
funds in Bank Indonesia certificates, with the remaining 20
percent invested in inter-bank loans.

To avoid negative spread, the bank has also downsized its time
deposit assets, he added.

"We realized that the interest rates we were paying on time
deposits gave us a negative spread (during the crisis)," he said.

In reducing this risk, he said the bank lowered interest rates
on its time deposits, thereby managing to unload some of them
worth Rp 2 trillion.

To offset the outflow of third party funds from its time
deposits, Lippo Bank attracted more funding into its saving
accounts.

He said that new product launchings for the bank's saving
accounts had thus far generated an inflow of Rp 2 trillion.

"The focus for the year 2001 will be to improve our product
range," he added.

The new products, he said, would cover among other things,
home loans, credit cards, and personal banking services.

For this year, he said, the bank would also refurbish its
branches across the country, and expand its ATM network with the
addition of 370 new machines.

He said Lippo Bank was also considering mergers with other
local banks in a bid to increase its assets.

Some local banks may have to merge to meet the minimum capital
adequacy ratio (CAR) of 8 percent this year.

"The government objectives have been clearly stated, they
believe that there needs to be further consolidation within the
banking industry.

"Lippo Bank has, as a matter of strategic planning, merged its
balance sheet with that of every major bank in Indonesia just to
see what would happen in respect of asset growth, liability and
market share," he said.

Although some banks were potentially suitable for Lippo Bank,
he said, the bank had made no serious approach yet.

To remain the surviving entity in a merger scenario, Lippo
Bank, which holds total assets of around Rp 23 trillion, is
eyeing banks with asset value of between Rp 10 trillion to Rp 15
trillion.

Lippo Bank is 59 percent owned by IBRA, 7.4 percent by the
Lippo Group, and 33 percent by the investing public.(bkm)