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)