Bank Danamon eyeing wholesale banking business expansion

Corporate lending is only 11% of its loan book.

According to OCBC Investment Research, Bank Danamon aims to expand its wholesale banking business, particularly lending to corporate borrowers, which makes up just a small portion of its loan book now (11% at 31 Mar 2013).

Here's more from OCBC:

Though Danamon’s profitable micro and vehicle finance loans have powered the group’s growth in recent years, management expects margins to decline and growth rates to slow as competition in these segments intensifies, particularly from bigger rivals Bank Rakyat Indonesia and Bank Mandiri.

To maintain its earnings growth, Danamon needs to diversify its sources of income – and quickly. Management believes that partnering a big bank with an established wholesale banking business such as Singapore’s DBS Group would give it the ability to make more profitable use of the cheap retail deposits gathered by its large branch network.

A more diversified loan book could also reduce the bank’s cost-to-income ratio from above  50% now, which is relatively high compared to its bigger rivals. But management stressed that it aims to keep its mass-market loans at over 50% of its loan book even as it expands its wholesale lending.

Tighter financing rules pose a challenge to near-term growth
Given the importance of vehicle financing to Danamon, the stricter rules on vehicle financing introduced by the government since early last year have cast a cloud over the bank’s short-term growth prospects.

Danamon’s listed vehicle finance unit, Adira Dinamika Multi Finance (Adira Finance) accounted for 38% of the group’s total loans at end-Mar.