Govt may allow state banks to reduce dividend payout

The State-Owned Enterprises (SOE) Ministry is seeking approval from other ministries to gradually lower state banks’ dividend payout ratio to give them additional sources to boost lending capacity.

SOE Minister Mustafa Abubakar said last week that the dividend payout ratio of state banks could be reduced to between 40 and 50 percent from the current 50 to 60 percent within the next two to three years.

“It won’t be a radical drop. If current dividends are 50 to 60 percent [of the banks’ profits], it may be lowered to 40 to 50 percent in a gradual manner,” he said over the weekend in response to criticism by Bank Indonesia (BI) Governor Darmin Nasution.

In a speech at the central bank’s annual bankers’ dinner Friday, the BI governor strongly criticized the government for using state banks as cash cows despite the fact that most of the banks still lacked capital to support their businesses.

“State banks dividend payout must be taken seriously at this moment. With loan growth targeted at 20 percent, state banks will need more capital in the coming years,” Darmin said in the annual gathering, which Mustafa also attended.

Sigit Pramono, the chairman of the National Banks Association (Perbanas), said state banks’ dividend payout ratio should be in line with that of other commercial banks, or at about 35 percent of the banks’ profits.

“If state banks have to pay 50 percent of their profits in dividends, their capital will be very weak. The banks could gradually lose their competitiveness,” he added.

State bankers welcomed Darmin’s suggestion and Mustafa’s plan to lower their dividend payout ratio, saying the move would help the banks increase capital to boost lending and support the country’s economic growth.

Bank Negara Indonesia (BNI) president director Gatot M. Suwondo said an ideal dividend payout ratio for state banks would be between 25 and 30 percent “to give them room for growth”. He said that previously, BNI’s dividend payout ratio hovered at 50 percent.

“State banks have tight capital. If most of the profits are paid to shareholders as dividends, banks would face difficulty strengthening their capital structure to meet the surging demand for loans,” Gatot said.

Bank Rakyat Indonesia (BRI) president director Sofyan Basir and Bank Mandiri chief financial officer Pahala Mansury said latest figures showed both lenders paid out 35 percent of profits as dividends.

“The dividend payout ratio has been at 35 percent for the past two years. I think it’s a balance between the need for [Mandiri’s] growth as well as shareholder expectations,” Pahala told The Jakarta Post via text message Sunday.

Mustafa added that he did not want dividend payouts to hamper state banks’ loan growth and expansion, although he admitted that the government needed the dividends from banks to finance the state budget.

“In the coming years, the government will need to ask for an interim dividend usually at the beginning of the year so banks can use their income to strengthen their lending capacity,” he said.

State banks Mandiri, BRI, BNI and Bank Tabungan Negara (BTN) have grown in line with the average national banks’ lending this year, with growth reaching 22.8 percent in 2010.

Mandiri is currently offering a rights share issue to strengthen capitalization and maintain credit growth this year. The bank expects to follow the success of BNI’s rights issue late last year.