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PT Bank Mandiri said on Tuesday it would increase the size of its planned rights issue by up to another Rp 5 trillion ($550 million) by issuing new shares amounting to around 11 percent of its total equity in the second half of this year.

Bank Mandiri, Indonesia’s largest bank, had earlier said it would raise more than Rp 2 trillion from the rights issue, but Agus Martowardojo, the bank’s president director, said the sights were now set higher. “Our target is Rp 6 trillion to Rp 7 trillion,” he said.

He said the proceeds would be used to help maintain the bank’s capital adequacy ratio (CAR) at 12 percent to 14 percent, to support an annual credit growth target of around 21 percent until 2014.

CAR — the ratio between a bank’s capital and risk weighted assets — measures a bank’s strength in dealing with credit, market and operational risks. The higher the CAR, the stronger the bank is. Bank Indonesia requires lenders to have a minimum CAR level of 8 percent.

At the end of 2009, Bank Mandiri’s CAR stood at 15 percent, but it will fall if the bank increases its lending without raising fresh capital.

Agus said that unless Bank Mandiri gets government permission for the rights issue it would issue Rp 3 trillion of subordinated debt at the end of this year or early next year. “If we get permission for the rights issue, then the subdebt issuance will be canceled.”

However, the rights issue plan should get approval from the government’s Privatization Committee — made up of the coordinating minister for the economy, and the finance and state-owned enterprises minister — and the House of Representatives. Bank Mandiri is 66.76 percent-owned by the government.

Its shares closed up 0.9 percent on Rp 5,250 on Tuesday.

Meanwhile, SOE Minister Mustafa Abubakar said on Tuesday that another state-owned bank, PT Bank Negara Indonesia, was planning to issue subdebt worth $600 million in the second half this year.

Earlier, BNI president director Gatot Soewondo said that his bank also planned to increase its CAR either by issuing new shares or issuing subdebt. At the end of last year, BNI’s CAR was 13 percent.

“If we cannot increase CAR, we cannot grow our credit,” Gatot said. BNI is targeting loan growth of 15 percent to 17 percent this year, lower than the industry average of 23.8 percent. However Gatot said the target could be raised if BNI’s CAR improves.

BNI’s share price closed unchanged on Rp 2,350.