Mandiri’s bank subsidiaries to sell shares

JAKARTA. Indonesia’s largest lender, Bank Mandiri (BMRI) is encouraging its two banking subsidiaries to start preparing to go public next year, to comply with the new banking ownership rule.

Under the new regulation, banks that are owned by other banks are required to float at least 20 percent of their respective stakes on the Indonesia Stock Exchange (IDX) within five years, starting in 2014.

Mandiri’s president director Zulkifli Zaini said its sharia subsidiary Bank Syariah Mandiri (BSM) and its mid-sized niche bank subsidiary Bank Sinar Harapan Bali (BSHB) would start assessing their initial public offering (IPO) plans next year.

“Going public could provide additional capital for BSM to expand its business without burdening Mandiri as a holding,” Zulkifli told reporters in a presentation late on Monday. “BSM has a good reputation and credibility, so [going public] will positively affect BSM and Mandiri.”

BSM, a leading sharia lender, had Rp 49.7 trillion (US$5.26 billion) in assets as of the end of June, almost 10 percent of Mandiri’s consolidated assets of more than Rp 571 trillion. It had Rp 43.31 trillion in deposits and Rp 39.93 trillion in financing still outstanding as of mid year.

Meanwhile, BHSB is a niche bank focusing on the underserved segment of the population in Bali, primarily focusing on micro financing. It had Rp 628.71 trillion in outstanding loans as of June, with a double-digit net interest margin (NIM) of 10.34 percent, reflecting the high return BHSB gets for every credit it channels.

“BHSB’s corporate action of going public could be done through strategic partnerships with preferred investors that could give optimal synergy to BHSB, like PT Pos,” Zulkifli explained. Post offices currently act as sales outlets for BHSB.

BHSB and BSM each carried return on equity (ROE) of 12.33 percent and 25.66 percent, which measures their own profitability by revealing how much profit a company generates with the money shareholders have invested.

Mandiri has enjoyed an increasing contribution by its subsidiaries to the bank’s consolidated earnings. In the first quarter of this year, net profits of Mandiri’s subsidiaries accounted for 13.1 percent of the lender’s overall bottom line, compared with a 5.6 percent share in 2009.

Pahala N. Mansury, Mandiri’s chief financial officer, expected to secure $230 million foreign exchange (forex) loans from two banks in a swap mechanism with Mandiri’s Rp 2 trillion recap bonds before the end of this month.

“We are expecting a total of $480 million forex borrowing this year to be channeled into forex credit,” Pahala said. Mandiri’s year-on-year growth of forex credit channeling dropped to 8.5 percent in the second quarter.

The bank has previously raised $250 million in loans from Standard Chartered Bank Singapore in exchange for its Rp 1.8 trillion recap bonds. Mandiri had about Rp 54.7 trillion worth of recap bonds in hand, which were initially intended as the government’s bail out for ailing local banks in light of the 1997/1998 Asian financial crisis. But declining return of the recap bonds has encumbered the bank’s performance, while funds raised from the recap bond release could be used to extend its credit. (Esther Samboh/ The Jakarta Post)