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Surging costs squeeze Danamon's profits
Listed lender Bank Danamon Indonesia has reported a decline in profits in the first quarter (Q1) of the year, as last yearâs economic turbulence is now fully reflected on its balance sheet
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Listed lender Bank Danamon Indonesia has reported a decline in profits in the first quarter (Q1) of the year, as last year's economic turbulence is now fully reflected on its balance sheet.
The company announced on Wednesday that it booked Rp 875 billion (US$76 million) in net profits in the first quarter of the year, a 13 percent fall compared to Rp 1 trillion in the same period last year.
Danamon finance director Vera Eve Lim attributed the declining profits to the higher interest rate that the company had to pay to depositors.
She pointed out that along with the increase of the central bank's interest rate, Danamon saw the cost of funds for saving accounts, current accounts and deposits rise to 6.8 percent in the first quarter of the year from 4.6 percent in the same period last year.
Moreover, she continued, the bank's swelling costs was also caused by an increase in the cost of funds in its subsidiary, PT Adira Dinamika Multi Finance, which rose 9.2 percent in the first quarter of the year versus 8 percent in the same period last year.
'That is why our interest burden rose by 51 percent, also the main factor for the declining NIM [net interest margin],' Vera said.
The bank's net interest margin fell 150 basis points (bps) to 8.6 percent at the end of this March from 10.1 percent year on year.
Danamon's poor first quarter performance followed flat profit growth last year, when the central bank lifted its benchmark rate by 175 bps in an attempt to support the weak rupiah.
Vera said her company believed that the impact of the benchmark rate increase was reflected in its performance in the first quarter. Thus, the lender is expecting to see better quarters ahead while carrying out measures to maintain growth, including the planned increase in lending interest rates at an average of 150 to 225 bps this year.
'The interest rate adjustment will be for credits to corporations, commercial and small medium enterprises. For fixed rate portfolios, we won't adjust the interest rate,' Vera said.
The bank is expecting to see 16 percent lending growth by year-end, a percentage that the company already booked in the first quarter of the year. Danamon's lending stood at Rp 136 trillion in the first three months of the year, growing by 16 percent year-on-year.
Lending to the non mass market segment, which covers lending to small and medium enterprises, commercial and wholesale, grew 27 percent to Rp 65.5 trillion.
Lending to the mass market segment, which covers the company micro loans program called Danamon Simpan Pinjam (DSP), automotive loans and credits for durable goods ' rose slower by 6 percent to Rp 70.4 trillion in the first quarter, contributing about 52 percent to Danamon's total credit.
Adira Finance president director Willy Dharma said his company booked Rp 8 trillion in new financing during the January to March period of the year, increasing by around 15 percent compared to
Rp 6.9 trillion year on year.
'About 56 percent of the new financing was for two-wheel vehicles and the remaining 44 percent for four-wheel vehicles,' Willy said.
Shares in Danamon, which are traded on the Indonesia Stock Exchange (IDX) under the code BDMN, closed slightly lower following the financial report announcement. Its shares dropped 0.44 percent to Rp 4,530 on Wednesday compared to Rp 4,550 a day earlier.
