Mandiri upbeat on improving performance

Urip Hudiono, The Jakarta Post, Jakarta

Learning from a disappointing first quarter result of rising bad loans and falling profits, management at state-owned Bank Mandiri has launched an "internal consolidation program" to put the country's largest lender back on track.

The bank's president Agus Martowardojo told the press on Monday that the consolidation program would focus on implementing good corporate governance principles and a better risk management system. Both efforts are needed to push Mandiri's non-performing loan (NPL) level back under the central bank's maximum 5 percent level and to achieve a 15 percent growth in loans for this year.

With such efforts, the management is confident that Bank Mandiri will be able to fulfill Bank Indonesia (BI)'s requirements in order to become an "anchor bank" for the consolidation of the country's banking industry through mergers and acquisitions.

"We have identified problems that have been plaguing our performance recently, and have prepared the appropriate strategies to tackle them," Agus said.

Among the problems, he said, was the surge in the bank's bad loans due to poor risk management systems and an imbalance in its credit portfolio.

"We will conduct a thorough audit of all our credits, particularly corporate loans which have a potential to turn bad, and restructure them accordingly."

Corporate loans currently account for some 31 percent of the bank's credit portfolio.

Bank Mandiri has recently been the center of probes into massive lending scams, after the Supreme Audit Agency revealed that a total of Rp 12 trillion (US$1.23 billion) worth of loans to 22 of the bank's major debtors had turned bad.

The bank's net NPL as of March shot up to 10.3 percent, dragging down its first quarter profits by as much as 70.2 percent, to Rp 519 billion, as compared to Rp 1.7 trillion during the same period last year. The bank's net interest income also dropped 8.1 percent from Rp 2.58 trillion to Rp 2.37 trillion.

Agus expected the consolidation program would help improve the bank's performance by the end of the year and secure its candidacy as an anchor bank, which will be decided by the end of this year, although the operation will be effective in 2007.

Earlier this month, BI announced its criteria for anchor banks, including a NPL of under 5 percent, a capital adequacy ratio (CAR) of 12 percent, and a credit growth 22 percent or a loan-to-deposit ratio (LDR) of more than 51 percent.

Bank Mandiri, with Rp 249 trillion worth of assets and 19 percent market share, reported a 26.6 percent CAR in the first quarter, slightly better than last year's fourth quarter of 25.3 percent but still below 2004's first quarter of 29.8 percent.

"Bank Mandiri also has a fine experience of mergers in its hands," Agus said, referring to the bank's creation from four troubled private banks the government bailed out and acquired following the 1997 Asian financial crisis.