In a timely sign of international confidence on the country's banking system, the U.S. fourth largest bank, Wachovia Bank, has agreed a US$100 million loan to state-run Bank Negara Indonesia (BNI), the nation's third biggest.

BNI is to use the loan equally both for working capital, and to expand its trade financing business, according to BNI president director Gatot M. Suwondo on Wednesday.

"We are hoping this loan will strengthen both of these financial institutions in practicing their international business," he said.

BNI treasury and international director Bien Subiantoro said the one-year loan was given with a relatively low interest rate 2.4 percentage points above the three-month London interbank offered rate (Libor).

LIBOR is a daily rate based on the interest rates used in the borrowing of unsecured funds from banks in the London wholesale money market.

Bien said the loan would also help increase foreign denominated liquidity.

However, he added, the bank would be more cautious in channeling dollar-denominated loans due to the global economic slowdown, which would cause more risks of closure for companies.

"We cannot afford to give dollar-denominated loans to companies that do not have underlying foreign currency cash flow at this time," he said, adding the loan would be aimed at exporters facing difficulties in securing financing.

BNI is also looking for loans from other international financial institutions to strengthen its capital structure.

"We've some other offers but the costs are too high," he said.

Wachovia is soon to be merged with another U.S company Wells Fargo & Co after a failed attempt at a takeover by Citigroup earlier this year.

The merger will see the new entity having total deposits of $713 billion and more than 6,500 branches and offices in the U.S. (dis)

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