Mandiri's profit increases by 26%

Rendi A. Witular, The Jakarta Post, Jakarta

State-controlled Bank Mandiri, the country's largest bank in terms of assets, announced a 26 percent increase in first semester net profit compared to the same period last year, attributed mostly to a decline in the cost of funds and gains from the sale of government recapitalization bonds.

In an audited financial report presented to reporters on Thursday, the bank posted a net profit of Rp 2.24 trillion (US$263 million) or Rp 112 per share, up from Rp 1.77 trillion or Rp 89 per share from the same period last year.

Mandiri's interest rate revenue dropped by 15 percent to Rp 14 trillion from Rp 16.6 trillion.

Nevertheless, the bank managed to book a 13 percent increase in income from lending to Rp 3.64 trillion from Rp 3.22 trillion, thanks to a decline in its interest rate burden to Rp 10 trillion from Rp 13.3 trillion.

The lower interest revenue was mainly caused by the falling interest rate of Bank Indonesia SBI promissory notes, as the interest was linked to the interest rate of government bonds the bank kept. Bank Mandiri holds mostly variable-rate bonds. This means that when the SBI rate decreases, the bank's interest revenue from the bonds also drops.

Around 57 percent of Mandiri's revenue is derived from the these bonds.

Realizing this negative effect, Mandiri director I Wayan Pugeg said that the bank had been trying to unload the bonds.

He said that in the first semester the bank had unloaded Rp 13.3 trillion worth of bonds, providing a gain of Rp 1.16 trillion. The sale of the bonds helped the company boost its profit.

The bank also announced that at the end of June, gross nonperforming loans stood at 7.3 percent of total outstanding borrowing, down from 9.1 percent a year ago.

Mandiri extended Rp 66.80 trillion in new loans during the period, up from Rp 50.4 trillion.

Lending to the corporate sector made up 65 percent of the bank's lending portfolio. In the first half, the bank channeled Rp 40.4 trillion to the sector, up from Rp 40.2 trillion in the same period last year.

Analysts feared that such a strategy could harm Mandiri's profit in the future, since the sector was still considered prone to default.

However, Mandiri's chief financial officer, Keat Lee, played down the concern, saying that some companies considered risky by analysts had been able to pay off their debts.

"I don't think its risky, because it (lending) goes through a careful risk management process and obviously depends on the cash flow and collateral that we are able to get," said Lee.

Lee said that Mandiri's focus for the long term would not be on the corporate sector but on the consumer and the small and medium enterprise sectors.

The government, which still holds an 80 percent stake in the publicly listed bank, plans to sell a further 10 percent in the bank next year, after successfully selling a 20 percent stake in July through an initial public offering.