MICROCAPITAL STORY: PT Danamon Optimistic About Microfinance Growth in Second Quarter 2009

PT Bank Danamon, the fifth largest bank in Indonesia by assets, expects loan growth may exceed 10 percent in the second quarter after key economic indicators painted a better-than-expected picture for 2009. According to Danamon President Director Sebastian Paredes, the bank originally expected growth to be lower than 10 percent in 2009 and the first half of the year to be very difficult. “We now feel the second half will be better because interest rates will continue to decrease. First-quarter gross domestic product was also not as low as we expected and our microfinance growth was better than predicted.” Paredes added that beyond 2010 the bank believed loan growth would be as fast it was in the past five years and that loan growth would likely center around microfinance, consumer lending, and small- and medium-sized enterprises

Danamon’s microfinance arm, Danamon Simpan Pinjam (DSP), was launched in 2004. In an interview with Asian Banker last month, Paredes claimed that micro-lending provides 65 percent of Danamon’s bottom line, however the bank’s overall market share in microfinance is still relatively small at 8 percent. The bank intends to expand if economic conditions improve – something its strong capital position would allow. Danamom now has a capital adequacy ratio of 23 percent, versus 8 percent required by Indonesia’s central bank, after completing its last USD 362 million rights issue, discussed further in this MicroCapital story.

Asia Financial Indonesia Pte. Ltd (AFI) owns 66 percent of Danamon shares, another 10 percent are owned by the Republic of Indonesia (Ministry of Finance), with the remaining 24 percent being publicly owned. The holders of the AFI shares are Temasek Holdings (Pte) Ltd. and Deutsche Bank AG. Temasek Holdings is a Singapore investment holding company. According to its most recent quarterly report, PT Danamon had total assets as of March 2009 of IDR 104.8 trillion (USD 10.2 billion) and total gross loans of IDR 63.3 trillion (USD 6.2 billion).

The Central Bank of Indonesia, Bank Indonesia, has welcomed the entry of foreign banks into the microfinance sector, stating that it believes the additional competition will expand the reach of financial services, improve the competitiveness of local banks, and enhance capital and managerial skills. The Indonesian microfinance market is large and fragmented, with reportedly over 50 thousand MFIs currently in operation. One of the largest, Bank Rakyat Indonesia (BRI) has been involved in microfinance for over 20 years. As highlighted in a January MicroCapital story, the Promotion of Small Financial Institutions (ProFI) has highlighted three major challenges to the Indonesian microfinance system, including inadequate outreach to remote and marginal areas, inadequate depth of financial services to the poorer sections of the population, and inefficiency of large numbers of MFIs and their integration into the financial system.

MicroCapital has reported on several papers concerning the potential for the microfinance sector to weather to the global credit crunch, including a paper wrap-up entitled “Microfinance Funds Continue to Grow Despite the Crisis” by CGAP, a paper wrap-up entitled “Will the Bottom of the Pyramid Hit Bottom? The Effects of the Global Credit Crisis on the Microfinance Sector” by USAID and another wrap-up “Cautious Resilience: The Impact of the Global Financial Crisis on Latin American & Caribbean Financial Institutions” by Sebastian Von Stauffenberg.

By Laura Anderson, Research Associate

Additional Resources:

PT Bank Danamon: Home

Bank Rayat Indonesia: Home

MICRA Microfinance Innovation Center for Resources and Alternatives: Home

The Jakarta Globe: Danamon Sees Higher Q2 Lending Growth

The Asian Banker: Danamon gears up for microfinance push

MicroCapital Story: Key Indonesian Microfinance Player Bank Danamon Raises USD 362m in Capital

MicroCapital Story: Bank Indonesia Welcomes the Competition of Foreign Banks Into Indonesia’s Microfinance Sector

Promotion of Small Financial Institutions: Home

Temasek Holdings: Home