In­done­sia’s big­gest bank to hold back ex­pan­sion on mar­gin squeeze

The Pak Banker - - COMPANIES/BOSS -

In­done­sia's big­gest bank by mar­ket value Bank Cen­tral Asia (BCA) said it would hold back some ex­pan­sion plans this year af­ter reg­u­la­tors an­nounced a se­ries of mea­sures that will lower banks' mar­gins, its top ex­ec­u­tive said on Tues­day.

The govern­ment is tar­get­ing low­er­ing banks' lend­ing rate for com­pa­nies to 9 per­cent by the end of this year from the cur­rent av­er­age of 12 per­cent, in­clud­ing by cap­ping the max­i­mum rate banks pay for sav­ings.

Forc­ing banks to of­fer low credit rates by re­duc­ing costs of fund­ing can pres­sure banks' mar­gins, BCA Pres­i­dent Di­rec­tor Jahja Se­ti­aat­madja said.

BCA's net in­ter­est mar­gin (NIM) may fall 50-70 bps this year from 6.7 per­cent­age points at end-2015 due to the mea­sures, cre- at­ing a "chal­leng­ing" profit en­vi­ron­ment for 2016, he said. "In a sit­u­a­tion when (lend­ing) rate is fall­ing, it means mar­gin is de­creas­ing. We have to be more ef­fi­cient in the sense that ex­pan­sion am­bi­tion must be re­duced," Se­ti­aat­madja said in an in­ter­view with Reuters.

Se­ti­aat­madja said BCA had planned to add 40 new branches and 2,700 ATMs this year but might have to cut back plans to 20 branches and 1,700 ATMs due to the mar­gin squeeze. The com­pe­ti­tion for liq­uid­ity is also ex­pected to be tougher this year as banks com­pete with govern­ment bond is­suance for sav­ings, he said.

But BCA still wants to ac­quire two small banks this year as fund­ing for the deal has been set aside since the plans emerged in 2014, Se­ti­aat­madja said.

The two banks will cater to a niche mar­ket that BCA does not serve un­der a "cheaper and more ac­ces­si­ble brand", he said. "Maybe we will start to look around in June," he said, adding that the process might take a long time. In 2015, BCA posted a 9.3 per­cent in­crease in net profit to 18 tril­lion ru­piah ($1.37 bil­lion), one of the best per­form­ing In­done­sian banks.

That com­pares to an es­ti­mated 6.7 per­cent drop in 2015 net profit in the over­all bank­ing in­dus­try, based on In­done­sia's Fi­nan­cial Ser­vices Au­thor­ity's sta­tis­tics.

Banks in South­east Asia's largest econ­omy were hit by ris­ing bad loans in 2015 as eco­nomic growth slowed to the weak­est in six years, forc­ing them to set profit aside for pro­vi­sions. BCA's non per­form­ing loan (NPL) ra­tio in­creased marginally from 0.6 per­cent in De­cem­ber 2014 to 0.7 per­cent in 2015.

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