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Indonesia's banking sector appears to be on the path to
recovery, as further profits are expected from its core activity of
lending.
Several major banks, including the state-owned Bank Mandiri and private
lenders Bank Danamon, Bank Niaga and Bank Permata, have reported for
2006 an increase in profits arising from a healthy growth in lendings.
Banks in the country have weathered criticism of late, for investing
funds into central bank bills and government bonds, rather then
disbursing them as lendings to the industrial sector.
In their defense, however, the lenders pointed out that demand for
consumer and investment loans had slowed due to a surge in inflation
and interest rates in the wake of a 2005 hike in fuel prices.
As a result, bank lendings grew only by some 14 percent to Rp 792.3
trillion (US$88 billion) last year. Bank Indonesia (BI) noted a Rp 15.5
trillion drop in the industry's total lendings during this year's first
month.
Banking analyst Djoko Retnadi estimated that lendings would continue to
increase this year amid the country's improving economic situation.
Inflation slowed to an on-year 6.3 percent in February from previous
double-digit figures, with the central bank having lowered its key rate
to 9 percent from 12.75 percent.
"The business plans of most banks for this year show they are expecting
an average lending growth of some 20 percent, with some middle-sized
banks even looking at 25 percent," he said.
Bank Indonesia's deputy governor, Muliaman D. Hadad, had previously
mentioned that the central bank would raise its loan growth estimate to
20 percent from 18 percent, due to a more optimistic outlook for this
year.
Djoko also said that a more accurate picture of the industry would be
attained after other major state lenders -- Bank Negara Indonesia (BNI)
and Bank Rakyat Indonesia (BRI) -- released their full-year 2006
financial reports.
Yet, based on figures already available, the banks are indeed shaping
up to a healthier condition.
Mandiri, the country's largest lender by assets, said its profits
quadrupled to Rp 2.4 trillion in 2006, on a 15 percent net interest
income increase to Rp 10.3 trillion, as lendings grew 8 percent to Rp
109.4 trillion and a nearly 10 percent fee-based income increase to Rp
2.5 trillion.
Lendings have indeed contributed slightly more than bills and bonds to
Mandiri's net interest income. The bank's provision for possible losses
on assets had, however, slightly increased, despite its net NPL having
dropped to 6.06 percent from 16.17 percent.
Meanwhile, Bank Danamon, the nation's fifth largest lender, saw its
profits rise 16 percent to Rp 1.38 trillion, as loans grew 17 percent
to Rp 42.9 trillion. Lendings contributed to 60 percent of the 34
percent rise in the bank's net interest income to Rp 10.9 trillion, as
compared to 18 percent from investments in government bonds.
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