Publicly listed company Bank Danamon expects that the central bank and the government will undertake necessary action to maintain the stability of rupiah and boost infrastructure spending to help ease pressures on the economy.

Danamon, the nation'€™s sixth-largest bank by assets, considers the recent fall of rupiah to Rp 14,000 per US dollar to have deep ramifications for the economy.

Seow Wah, the bank'€™s president director, said deeper rupiah depreciation would increase pressures on the already-weak purchasing power of the majority of people, 80 pecent of whom do not have '€œdiscretionary income.'€ Discretionary income is the amount of spare money saved after taxes and personal necessities have been paid,

'€œWhen the rupiah is weak, the cost of living goes up and that means there will be less discretionary money,'€ Seow Wah said during a visit to The Jakarta Post on Thursday.

Seow Wah added that the impact of the fall in the rupiah in addition to inflation pressures had already been shown in declining sales in basic foodstuffs such as instant noodles, noting that '€œcup noodles sales dropped more than the packaged ones, because packaged noodles are cheaper.'€

Danamon finance director Vera Eve Lim meanwhile said the mix of pressures between falling purchasing power and more expensive prices due to the decline in the rupiah had also been revealed in automotive sales. Automotive sales fell by 30 percent as a result of the heavy reliance on imported raw materials in the industry.

Vera said the declining sales of vehicles had also impacted Danamon'€™s business performance as the bank owned 95 percent of the auto-financing unit, Adira Finance.

'€œI think sales in the motorcycle industry will drop from an earlier target of 7.7 million to 6.5 million this year, a level unseen since 2008,'€ Vera said.

Indonesia'€™s economy has sunk to its lowest level in more than five years and automotive sales, which are among the key indicators of economic growth in Southeast Asia'€™s largest economy, have slumped.

As the bank saw weak loan demand from the automotive and micro sectors, Danamon'€™s lending contracted by 3 percent to Rp 136.3 trillion (US$9.6 billion) as of June this year, a fall from the Rp 140.64 trillion listed in the same month of last year.

The drop in loan growth has affected Danamon'€™s net profits, which plunged 16 percent to Rp 1.25 trillion in the January to June period of this year from Rp 1.49 trillion in the same period of last year.

In an effort at risk management, Seow Wah said Danamon, which is owned by Asia Financial, a subsidiary of Singapore'€™s Temasek, had conducted several stress-tests up to the point where the rupiah depreciated to Rp 16,000 per US dollar and Indonesia registered zero growth in its Gross Domestic Product (GDP).

'€œOur shareholders have confirmed that they'€™re ready anytime we need capital injections,'€ Seow Wah said, adding that the bank had ample liquidity and capital.

As of June, Danamon posted 89.57 percent in its loan-to-deposit (LDR) ratio, a decrease from 98.93 percent in the same month last year, showing a slight hike in the liquidity level.

Danamon had Rp 31.2 trillion in consolidated capital as of June, an increase from Rp 29.26 trillion from the same month of last year, making its consolidated capital adequacy ratio (CAR) stand at 18.47 percent, an increase from 17.75 percent in June last year.

With this level of capital, Danamon is now included in the BUKU III category, which lists lenders whose core capital amounts to between Rp 5 and Rp 30 trillion.

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