P

ublicly listed Bank Danamon expects to bolster lending by 15 to 17 percent this year after seeing flat loan growth and suffering a decline in net profits last year, its executives say.

The loan growth target is in line with other banks in the industry, after Danamon saw only a slight 3 percent increase in lending last year to an outstanding balance of Rp 139.05 trillion (US$10.9 billion), compared with a 13 percent average banking loan growth in 2014.

'€œ[Macroeconomic conditions] provided a challenge for the banking industry to maintain profitability at a satisfactory level. Amid this backdrop, Danamon has maintained a good foundation for future growth with a healthy loan-to-deposit ratio and ample capitalization,'€ Danamon president director Henry Ho said.

Indonesia'€™s economic growth slowed from 5.72 percent at the end of 2013 to its lowest level in five years at 5.01 percent in the third quarter of 2014, while oil prices halved last year along with other weakening commodities prices. Indonesia'€™s benchmark Bank Indonesia (BI) rate also increased 25 basis points to 7.75 percent last year, discouraging lending.

These conditions have affected the banking industry as loan growth was slower, Ho said, making Danamon'€™s net profits drop 15 percent to Rp 3.45 trillion in 2014. A new insurance regulation has also affected the premium calculations of its Adira Insurance unit, which provides automotive, property, heavy equipment and marine cargo policies, to name a few.

Bank Danamon finance director Vera Eve Lim said loans to the micro, small and medium enterprise (MSME) segments constituted 28 percent or Rp 39 trillion of the lender'€™s total credit, while the commercial segment and the corporate segment stood at Rp 15 trillion and Rp 17.5 trillion, respectively.

The remaining loans went to the consumer segment, which includes automotive loans channeled through its subsidiary, Adira Finance.

'€œThe increase in interest rates between 2013 and 2014 was very high, but we think the Bank Indonesia rate will be stable and loan demand will increase again,'€ Vera said.

The gross non-performing loan (NPL) ratio remained at a manageable level at 2.3 percent last year, even though it had increased from 1.9 percent in 2013.

The bank also suffered from a 4 percent decline in operating income to Rp 17.63 trillion last year from
Rp 18.46 trillion in 2013, while its operating expenses increased by 2 percent to Rp 9.82 trillion from Rp 9.69 trillion. Danamon saw a 1 percent increase in net interest income from Rp 13.53 trillion in 2013 to Rp 13.68 trillion last year.

Vera said the lender'€™s net interest margin (NIM) decreased to 8.4 percent last year from 9.6 percent in 2013 but expects that the NIM would be stable this year.

On the liability side, Danamon posted Rp 145.7 trillion in third-party funding last year, a growth of 4 percent from Rp 139.85 trillion in 2013. The amount constituted 49 percent of the bank'€™s current account and savings account (CASA), while the rest are in time deposits.

The higher growth of third-party funding compared to loans has made an improvement in the bank'€™s loan-to-deposit ratio (LDR) to 92.6 percent last year from 9.6 percent in 2013.

'€œWe have seen a solid growth in our CASA, which grew 10 percent from Rp 158 trillion,'€ Vera said.

Shares in Danamon, which are traded under the code BDMN, dropped 2.2 percent on Friday after the financial results were announced on Thursday afternoon, closing at Rp 4,400 a share. The value of the stocks has dropped 2.7 percent so far this year, underperforming the broader Jakarta Composite Index'€™s (JCI) 1.2 percent gain.