CLSA Banking Update

Mandiri (BMRI IJ) to restructure Rp3tn of problem loans
According to Director, Abdul Rahman, loans that will be restructured are still performing but experiencing some difficulties due to drop in issuance of L/C and weak external demand
Sectors affected are mainly export-import related ranging from textile, pulp and paper, to shoe manufacturers
Restructuring will be mild i.e. in the form of maturity extension, usually one year, carrying the same interest cost

Nico’s comment: It is unclear at this point whether there will be downgrades or additional provisioning as these loans could be classified as non-performing already. In any case, Mandiri appears to pre-empt this move by moving provisions higher for category 2-5 loans in recent quarters. Maintain U-PF.

Bank Rakyat (BBRI IJ) - Local governor to propose Rp4tn loans from BRI to fund Lapindo
Minarak Lapindo Jaya is reported no longer able to compensate the victims from Lapindo mudflow, while state budget is also no longer available
Therefore, governor proposes BRI extend loans to Minarak Lapindo Jaya in the amount of Rp4tn to help muflow victims

Nico’s comment: Commercially, this is impossible to do as Minarak Lapindo Jaya does not have the capacity or collateral to take out Rp4tn worth of loans. In addition, Rp4tn is equivalent to 21% of BRI’s total capital, which has exceeded the legal lending limit. Share price weakness on this news should be a buying opportunity. Maintain O-PF.