Mandiri profit to grow 10-20% next year

Rendi A. Witular, The Jakarta Post, Jakarta

Publicly listed Bank Mandiri, the country's largest bank in terms of assets, said on Thursday net profit for 2004 was expected to grow by between 10 percent and 20 percent on higher income from lending.

"Based on our performance projection, next year our profit could grow by between 10 and 20 percent," said Mandiri president I.C.W. Neloe prior to a hearing with House of Representatives Commission IX for finance and banking.

Neloe said the bank's net profit this year was expected to reach about Rp 4 trillion (US$470 million), up from Rp 3.5 trillion in 2002.

He said the growth would mainly be attributable to an increase in the bank's lending activity this year, with loan exposures projected to increase by about Rp 8 trillion to Rp 73.4 trillion.

As of September this year, the bank had channeled credits totaling about Rp 70 trillion, of which about 65 percent went to the corporate sector.

Analysts fear that the high exposure to the corporate sector could harm Mandiri's profitability in the future, as the sector is still considered volatile and prone to default.

Last month, Neloe said the bank might miss this year's lending target for the corporate sector because the overall business climate remained unfavorable.

He said there were two reasons the bank might miss the target: first, some companies were still reluctant to expand their businesses because of the poor investment climate and a lack of incentives from the government.

Second, banks still consider lending to the corporate sector a risky business because of the slow debt restructuring process in the sector.

Mandiri has listed several sectors that it considers risky, including the textile, forestry and footwear sectors, because their competitiveness in the international market has declined.

The bank said that as of the third quarter of this year, its loan to deposit ratio had increased to 39.5 percent from 30.2 percent in the same period last year. Mandiri's capital adequacy ratio declined to 22.3 percent from 29.5 percent at the end of last year.

Neloe did not provide details for the cause of the decline or other information on the bank's third quarter performance.