Mandiri strives to rein in bad debts, reform services

Mandiri strives to rein in bad debts, reform services

Aside from trying to fix its image following a massive lending
scandal involving its previous management, state-controlled Bank
Mandiri also faces the daunting task of recovering several large
bad loans, as well as reforming its poor bureaucracy and
services.

The Jakarta Post's Rendi A. Witular interviewed the bank's
newly installed president director, Agus Martowardojo recently,
to find out his strategies in addressing the problems, which can
be detrimental to nation's banking sector as it is the largest
lender by assets. The following are some key excerpts from the
interview:

Question: How is the present condition of Bank Mandiri now that
you have been at the helm since May? Has there a sharp rise in
the number of the bank's non-performing loans (NPLs)?

Answer: Although it is not mandatory, the bank's first half
financial report is still being audited now. The audit is aimed
at giving us a clearer picture of the bank's real and accurate
condition before we can move forward.

Regarding the bad loans, we realize that it may take some time
to address the problems. If there is a rising trend in the number
of NPLs at other domestic banks this year, I think Bank Mandiri
may also experience the same condition.

However, we still cannot be sure of that unless our account
auditing has been completed, which is scheduled for later this
month.

Will there be any revision of your performance target this
year?

We have finished revising our performance target this year
with several adjustments. However, we cannot disclose the details
to the public as we are a listed company.

For sure, our lending expansion will be slower than last year
as we revised down our lending growth to 15 percent this year
from our initial target of about 35 percent. The slowdown will
automatically affect other figures, such as revenues.

The slowdown is partly attributable to problems in our
corporate lending (as of March this year, some 70 percent of the
bank's NPL comes from this sector).

Our lending activities are still growing but not as
aggressively as last year, especially in the corporate sector
where we are currently consolidating our portfolio and trying to
grow selectively.

At the end of this year, we have estimated that our lending
portfolio for the corporate sector will be less than 45 percent,
from the current 46 percent. The remaining 55 percent will come
from the consumer and small and medium businesses loans.

Aside from that, the country's relatively unfavorable macro-
economic conditions have also discouraged the banking sector from
expanding their lending aggressively to the corporate sector.

Loans should be given carefully now, especially when there is
a rising trend in the benchmark interest rates and skyrocketing
global oil prices. We will pay closer attention to these issues.

So have you adjusted your interest rates yet?

Relatively, we haven't. But for new lending we have imposed an
adjusted rate of between 13 percent and 15 percent. Our time
deposit rate is around 8 percent.

Have you come up with any new strategy to improve the bank's
performance?

We are now applying the so-called "five pillars strategies" to
help address problems in the bank and improve its performance.

The first strategy is to rein in our NPL level. We are
currently selecting which bad debts need to be restructured. We
will not restructure debts which have no prospects or whose
owners are not cooperative. We will go to litigation with those
debtors, in addition to seizing their assets.

Secondly, we'll try to fix our tarnished image by improving
transparency and good corporate governance. We will no longer try
to cover up any bad news regarding the bank's operations.

A focus on lending to small and medium businesses as well as
on consumers will be our third strategy. We will still channel
loans to selected corporate borrowers.

We will also try to boost operational efficiency to offset a
possible decline in our profitability. This is our fourth
strategy.

As for the fifth one, we will reform our human resources and
working culture so that our workers will have a strong
understanding of good performance, sales and risks. This bank is
a newly merged bank. There are so many things which have not been
settled since then, such as the working culture.

What about reform in the bank's bureaucracy? Analysts said
that the bank could not perform well compared to other banks
because of all the unattractive red tape.

In an organization, there needs to be a visible leader. If the
leader has a strong commitment to services, then the entire
operation will be service-oriented. I am committed to improving
the bank's service, eliminating bureaucracy and upholding
professionalism.

We should see the results of our efforts in improving our
services and bureaucracy during the release of the latest market
research on local banks in March of 2006. At present, we rank
11th in terms of services.

How long will it take for you to apply the strategies and are
there any plans for expansion?

Our goal is to be able to expand in 2007, that is by becoming
an anchor bank, which will enable us to acquire more of our
smaller rivals. However, the expansion can only be possible if we
manage to go trough the five strategies within the next two or
three years.

We've heard that Bank Mandiri will settle its bad debts with
troubled pulp and paper company PT Kiani Kertas soon. Is that
true?
(Kiani owes some US$201 million to Bank Mandiri. The company is
currently negotiating with new investors to revive its business
so that it can pay its debts to the bank no later than 2007, as
was agreed to in a restructuring agreement with the bank that had
been signed late last year).

We expect Kiani to be able to secure some new investors next
year, at the latest, and eventually settle its debts to us. More
times are needed for the new investors to carry out due
diligence, negotiations and documentation prior to taking over
the company.

If the new investor(s) can come up with a good price then it
will be a smooth deal, but if they offer too low, we have to ask
Kiani to seek other investors. We don't want Kiani to hastily
wrap up a deal at too low of a price.

We are optimistic that the company can settle its debts to us
because the pulp industry has good prospects now.