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Minggu, 11 Mei 2014

Major banks to see lingering NIM contraction

As lenders saw their profits slump in the first quarter of this year, several bankers said that they were expecting further decline throughout the year as rising costs overshadow their earnings.

According to the latest financial reports published by the top 10 largest banks by assets, a majority of them recorded a lower net interest margin (NIM) and higher expenses during the January to March period.


Private lender PermataBank, for example, posted an 83 basis points (bps) decline in its NIM to 3.37 percent in the first quarter of 2014 from 4.2 percent a year ago. Compared to its 2013 full-year achievement, Permata’s latest NIM figure decreased by a total of 85 bps.

The lender, which is equally owned by Astra International and Standard Chartered Bank, attributed the tight NIM to the narrowing spread between lending and funding interest rates over the past 12 months.

Its March financial report shows that while its interest income surged 36.7 percent year-on-year (y-o-y), its interest expenses rose at a faster rate, up 61 percent. In the end, Permata could only book 3.1 percent growth to Rp 366.83 billion (US$31.83 million) in its bottom line, whereas in the first quarter of 2013, it posted 7.3 percent growth.

Permata’s interim president director, Roy Arman Arfandy, said that he predicted the NIM would continue to fall in 2014, though slightly. “This year is indeed a very challenging time for the national banking industry,” he said.

Bank Indonesia (BI), the central bank, increased its benchmark interest rate by a total of 175 bps to
7.5 percent during the period of June to November 2013 in an attempt to reduce the country’s current-account deficit and control inflation.

The higher rate triggered lenders to jack up their deposit rates to secure liquidity, but at the expense of their own profits, as costs of funds started to soar.

To cope with the challenges, Roy said that Permata would be more selective in disbursing its loans and would boost its funding, especially low-cost funds or CASA, which consist of savings and demand deposits.

Bank Internasional Indonesia (BII), part of Malaysia’s Maybank, is among those who were affected and posted a poor performance as well. In the first quarter of 2014, its NIM slumped 59 bps to 4.73 percent from the same period in 2013.

Similar to Permata, BII said that increasing costs of funds and challenging market conditions impacted its NIM and thus, severely affected its bottom line, which was down 38.8 percent to Rp 189.12 billion.

Further NIM contraction is also predicted by CIMB Niaga and Bank Negara Indonesia (BNI), currently the fifth- and fourth-largest bank, respectively.

CIMB Niaga finance director Wan Razly Abdullah said that it expected a 20 bps to 30 bps compression in its margin from what it recorded in 2013. “[In] 2013 our NIM is 5.3 percent, so our guidance for 2014 is 5 percent,” he said in a text message.

During the January-March period, its NIM was actually up by 8 bps y-o-y to 5.22 percent, but fell 12 bps from 5.34 percent at the end of 2013. That resulted in CIMB posting Rp 1.1 trillion in profits in the first quarter, rising slightly by 4.2 percent.

In an effort to address the issue, CIMB plans on adjusting the pricing of its new and current loans and build its CASA with the assistance of its digital strategy, according to Razly.

Meanwhile, Yap Tjay Soen, BNI finance director, said that the state lender was expecting a 75 bps to 100 bps drop in its NIM for the whole year. With that estimate, BNI’s NIM is predicted to hover between 5.1 percent and 5.35 percent, much lower even compared to the 5.9 percent that it achieved in 2012.

“When BI increased its benchmark interest rate last year, we adjusted our deposit rate, but did not immediately do the same for lending. We are planning to make more adjustments, but we cannot raise the lending rate too high out of fear that our debtors will collapse,” he said.

However, contrary to their counterparts, state lender Bank Rakyat Indonesia (BRI) and Bank Mandiri said that they were optimistic that this year they would be able to book higher NIM than what they reported in 2013.

BRI finance director Achmad Baiquni said that it was looking to book 8.81 percent in interest margin, higher than 8.55 percent in 2013, supported by its robust micro loans that generate high yields.

Separately, Mandiri finance director Pahala N. Mansury said that it was convinced that it would be able to post an NIM of 5.7 percent by year-end, up from 5.57 percent in 2013.

He based his conviction on the lender’s low-cost funds that dominated its total deposits and its relatively higher loans disbursement to the retail segment as it carried higher interest rates than the wholesale segment. “We also have around Rp 70 trillion in recap bonds that generate high yields for us,” he said.

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