Left to right :
Sumantri Slamet
Independent Commissioner
$JOHAN%MIR3ETIJOSO President Commissioner
Raden Pardede
Independent Commissioner
Cyrillus Harinowo Independent Commissioner
Tonny Kusnadi Commissioner
Review of the Indonesian Economy and Banking Sector The 2019 economy experienced a slowdown across the globe, centered around the uncertainties of the US-China trade war ANDTHEANXIETYOVER"REXITINTHE%UROZONE-AJORDEVELOPED countries saw lower growth relative to the previous year.
Global policymakers have implemented an accommodative approach by lowering their policy rates to boost economic GROWTH4HISWASLEDBY4HE53&EDERAL2ESERVE&ED WHICH CUTITS&ED&UND2ATE&&2 BYBPSTOWHILEOTHER countries followed suit.
The Indonesian economy has been resilient, with a moderate 5.0% GDP growth in 2019, supported by large private consumption, government spending, and prompt monetary and fiscal measures. Bank Indonesia cautiously eased its monetary policy by gradually lowering its 7-day reverse repo rate by 100 bps in total to 5.0%.
The government focused on managing the current account deficit and maintaining the attractiveness of the domestic financial market. The current account deficit was curbed at USD30.4 billion, or 2.7% of GDP, as the government placed necessary actions to control imports, particularly for oil and CONSUMERPRODUCTS)NmATIONWASCONTAINEDATTHELOWRATE OF &OREIGN lNANCIAL MARKET INmOW REMAINED STRONG resulting in a capital account surplus for the country and a relatively stable local currency. By the end of the year, the Rupiah closed at Rp13,866 per USD.
While the Indonesian banking sector posted modest growth in both loans and third party funds, banks were cautious to safeguard loan quality after the economic slowdown and to address liquidity challenges. The sector LDR has been above 93% since 2018, triggering intensified competition for third party funds. The race for funding was also heightened by government initiatives to raise funds through a series of government bonds issuance offering more attractive returns compared to conventional savings products. Overall, banking sector liquidity remained adequate as loan demand was softer than expected.
Stagnant domestic growth over the last few years has caused a deterioration of loan quality in many sectors.
Nominal non-performing and special mentioned loans showed an increasing trend throughout 2019. Restructured loans as a percentage of total loans also showed no signs of improvement. Despite declining asset quality, the overall banking sector NPL ratio remained at a manageable level, standing at 2.5% compared to 2.4% in the previous year. The capital position remained robust to absorb potential loan losses. CAR stood at 23.4% compared to 23.0% a year ago.
We believe the regulator will continue to focus on protecting macroeconomic and banking industry stability through policies tailored in accordance to the global and domestic market developments.
Assessment of Performance of Board of Directors
The Board of Commissioners acknowledges the Board of Director’s strong performance in delivering positive business growth and maintaining sound asset quality with full support from employees. BCA’s overall performance was above the banking industry average, on the grounds of good corporate governance and prudent risk management practices.
Execution of appropriate strategies and initiatives played a pivotal role to respond the macroeconomic developments and business dynamics.
In 2019, BCA achieved its strategic targets both in financial and non-financial aspects. On the financial side, net profit grew by 10.5% to Rp28.6 trillion, on the back of a 13.6% increase in operating income to Rp71.6 trillion. Balance sheets grew healthily with loans expanding 9.1% to Rp586.9 and third party funds rose 11.0% to Rp699.0 trillion. CASA, being the bank’s core funding, grew by 9.8% to Rp530.6 trillion, higher than the industry average of 8.6%, thanks to customer trust in the Bank’s transaction banking franchise. The growth was in sync with the Bank’s aspiration to consistently provide convenient, secure and reliable transaction banking services in reaching customers across all segments. Return on Assets (ROA) and Return on Equity (ROE) also achieved the set
targets. The Bank maintained its sound capital and liquidity position, with a Capital Adequacy Ratio (CAR) of 23.8%, a Loan to Deposit Ratio (LDR) of 80.5% and a Liquidity Coverage Ratio (LCR) of 276.3%. The Board of Commissioners appreciates the steps taken by the management team to maintain the Bank’s solid performance.
On the non-financial front, we are excited to see the Bank has well embraced the era of digitalization which has changed the banking industry landscape. The bank’s various digital initiatives and innovations are the key differentiators to strengthen the transaction banking franchise. BCA has developed a host of attractive features and facilities using state-of-the-art technology to meet evolving customer needs and to facilitate convenient transactions. Management has built an agile organization promoting an innovative culture, automation and digitalization of business processes and operations, and developing staff competencies. We believe agility is one of the key features for the organization to grow sustainably in these ever-changing business dynamics.
The Board of Commissioners appreciates the efforts carried out by the Board of Directors in registering solid performance of CASA growth, stronger transaction banking franchise and quality loans. With customer satisfaction as our top priority, the Board of Directors has our full support throughout THE JOURNEY OF BECOMING THE BANK OF CHOICE OFFERING comprehensive financial solutions across the country. We are also supportive of BCA in strengthening the synergies with its subsidiaries and in providing full support to subsidiary business performance.
Supervision of Strategy Implementation
The Board of Commissioners recognizes the consistent execution of the business plan with the Bank’s stated vision, mission and strategic directions. The Bank successfully adapted its business strategy in responding to the dynamic economic environment, growing competition, and rapid technological changes.
The Bank established strategic steps to continuously enhance its capabilities as a provider of reliable transaction banking services while maintaining customer trust. Its competitive advantages are sustained by the adoption of technology- based products and services, and expansion of the payment ecosystem through collaboration with fintech and e-commerce companies. Development initiatives always take into account security, convenience and good governance, both from the perspective of customers and the Bank itself.
E-channel capabilities, particularly the Bank’s internet and mobile banking and application-based services, are constantly upgraded to cater to the shift in customer behavior and the need for convenience. These efforts have garnered encouraging results as 98.2% of transactions were conducted through the internet, mobile banking and ATMs, while the remaining 1.8% came from branches. In terms of value, some 49.1% of the total transaction amount originated from branch banking. This strongly indicates the important role of branches for serving large banking transactions and maintaining close customer relationships.
We are pleased to see that BCA’s robust transaction franchise supported CASA growth of 9.8% to reach Rp530.6 trillion, accounting for 75.9% of total third party funds, its main source of funding. Time deposits grew by 14.7%, even though the interest rates were relatively lower than competitors, REmECTINGSTRONGCUSTOMERTRUSTOFTHE"ANK4OTALTHIRDPARTY funds grew by 11.0% to Rp699.0 trillion, outperforming the average industry growth.
On the loan side, apart from improving its products and services, BCA also focused on strengthening its credit process infrastructure by leveraging technology. BCA aims to improve the turnaround time from the loan application cycle up to loan disbursement, while still adhering to prudential banking principles. The bank emphasizes disbursing loans to sectors with growth potential and to customers with strong track records.
BCA’s loan growth was seen across segments, especially from corporate, commercial and SME. Disbursement was well diversified in various economic sectors to manage concentration risk, while regular stress testing was carried out to measure the adverse impact of macroeconomic changes on loan quality. The Bank consistently outperforms its competitors and the industry average when managing ASSETQUALITYASREmECTEDINTHELOWEST.0,RATIOWITHINTHE industry.
To support overall performance and provide comprehensive financial services, BCA strengthened the coordination between transaction banking, loans and other business units, and established synergy with its subsidiaries. During the year, BCA accommodated the needs of its subsidiaries through the provision of capital, with cooperation in various ventures SUCH AS JOINT lNANCING AND MARKETING WHICH WILL GENERATE mutual benefits for all parties. The subsidiaries showed positive business growth and made a positive contribution to overall group profitability.
BCA completed the acquisition of Bank Royal as part of our commitment to support Indonesian banking consolidation.
The Bank also signed a conditional sale and purchase agreement to acquire all stakes in Rabobank Indonesia, which is expected to reach completion in 2020.
The Board of Commissioners and the Board of Directors are committed to maintain public trust while setting appropriate strategic initiatives to deliver value added to stakeholders.
The executions must be within the framework of good governance principles, prudent risk management and effective internal control.
Board of Commissioners View on Board of Directors Assessment in relation to the Bank’s Business Prospect The Board of Directors is of the view that global economic challenges will remain in 2020. After the first stage of the trade agreement between the US and China, the next trade arrangement will be one of the main factors affecting future global economic growth. The corona-virus outbreak toward the end of 2019 is likely to add pressure to business players across industries, and may lead to an imbalance of supply and demand.
&URTHERINTERESTRATECUTSAREEXPECTEDINTOSTIMULATE economic growth, while banks may face tight liquidity, presenting more funding competition. The success story of the presidential and legislative elections and the formation of the new cabinet are expected to be the catalysts for domestic reform and boosting investor confidence to support long term economic growth. As for 2020, Indonesia’s '$0GROWTHISPROJECTEDATAMODESTnLEADINGTOA moderate pace of growth in loans and third party funds in the banking sector.
The Board of Commissioners shares the same view as the Board of Directors on the above outlook, and remains cautiously optimistic. We agree with the Bank’s strategic directions, particularly in keeping a balance between the aspects of liquidity and capital positions, as well as loan growth and asset quality. All of these have been accommodated in the Bank’s 2020 business plan as the base to tap opportunities and manage risks.
The Bank will continue focusing on strategic initiatives in strengthening transaction banking capabilities, applying a prudent intermediary role and promoting collaboration with subsidiaries. We are confident that BCA will maintain robust growth in the long run and offer added value to stakeholders.
Implementation of Good Corporate Governance
BCA implements the principles and practices of good corporate governance (GCG) at all levels. GCG implementation is based on transparency, accountability, responsibility, independence and fairness, and conforms with the prevailing regulations.
The corporate governance manual is regularly reviewed to ensure it is in line with the latest regulatory updates, and has become more consistent with the ASEAN Corporate Governance Scorecard.
BCA is committed to preserve the trust of stakeholders and sustain long-term corporate performance. This goal is inseparable from constant implementation of GCG. In recognition of this, and for transparency and information disclosure while keeping a sound sustainable business, the
"ANKRECEIVEDANAWARDINTHE"EST&INANCIAL3ECTORCATEGORY from the Indonesian Institute for Corporate Directorship ))#$ &URTHERMORE'#'SELFASSESSMENTSONASTANDALONE and consolidated basis with its subsidiaries, were rated
“Good”.
Sustainable Finance Initiatives
BCA is devoted to implementing economic, social and environmental sustainability programs under the supervision of the Board of Commissioners. Sustainability programs were set through the formulation of the sustainable finance action plan, and are implemented and monitored on a regular basis.
The Board of Commissioners fully supports BCA’s sustainable finance vision which is “to become the bank of choice and A MAJOR PILLAR OF THE )NDONESIAN ECONOMY THAT ALIGNS WITH Indonesia’s sustainable development” The Bank is committed to supporting Indonesia’s sustainable development, which is in line with the Bank’s mission statement of “to align corporate activities with the principles of sustainable finance”.
BCA is inspired to go beyond making profit and to create VALUE IN A SUSTAINABLE WAY REmECTED BY A INCREASE in its financing portfolio for sustainable business activities CATEGORY ++5" TO 2P TRILLION WITH THE 3-% SECTOR PROVIDINGOFTOTAL++5"lNANCING4HEREMAINING comprised of non-SME environmentally-friendly businesses.
The Banks’s ESG program was also carried out through a number of initiatives, such as promoting energy savings activities, embracing diversity and gender equality, and creating social and environmental impact. Achievement highlights include a MSCI ESG Rating of “A”, the highest in the country and a score of 4.67 out of 5.00 for the Gallup Customer Engagement index.
Board of Commissioners Role and Opinion on Whistleblowing System
The Board of Commissioners has directed and supervised the formulation and implementation of a whistleblowing system.
The whistleblowing policy aims to improve the effectiveness of the system in detecting internal fraudulent activities and violations. A special working unit has been set up for the system’s implementation, which is responsible to the President Director and reports directly to the Board of Commissioners.
To promote the whistleblowing system to employees as part of anti-fraud awareness, socialization is conducted through compulsory e-learning, e-posters and visual advertisements WITHIN "#! PREMISES &RAUD AND OTHER VIOLATIONS CAN BE reported by internal and external parties through the company website. The whistleblowing system is expected to detect and provide early warning signs of fraudulent activities and violations, supporting the implementation of good corporate governance.
Supervising and Advising the Board of Directors
The Board of Commissioners and the Board of Directors work together to ensure the Bank’s sustainable growth. The Board of Commissioners supervises the activities of the Board of Directors, and provides guidance and advice to the Board of Directors regarding policy and strategic plans, through meetings and memorandums. There were 37 meetings of the Board OF #OMMISSIONERS AND JOINT MEETINGS OF THE "OARDS OF #OMMISSIONERS AND $IRECTORS 4HE "OARD OF #OMMISSIONERS ALSO conducted ad-hoc meetings as required.
Below is a summary of the input and advice provided by the Board of Commissioners to the Board of Directors from January to December 2019.
Topic Summary
Business Strategy and Management
s 4HE"OARDOF#OMMISSIONERSALONGWITHTHE"OARDOF$IRECTORSREGULARLYREVIEWED and assessed the Bank’s performance and the competition landscape in banking industry.
s 4HE"OARDOF#OMMISSIONERSGAVEGUIDANCEASWELLASAPPROVALONTHE"ANKS corporate actions, including among others the decision on dividend payouts, plan and follow up on the acquisitions process.
Risk Management s 4HE"OARDOF#OMMISSIONERSEMPHASIZEDTOMAINTAINTHESOLIDLIQUIDITYPOSITIONSAS one of the Banks priority.
s $IRECTIONTOPERFORMEDREVIEWSONCERTAININDUSTRIESCONSISTENTWITHTHELATEST development of macroeconomic.
s 4HE"OARDOF#OMMISSIONERSPUTHIGHATTENTIONONPOTENTIAL"ANKSSTRATEGICRISKS and ask for an assessment and mitigation plans on those risks.
s )NRELATIONTOTHEIMPLEMENTATIONOFINTEGRATEDRISKMANAGEMENTTHE"OARDOF Commissioners always focus on the importance of monitoring the interdependence risks among entities within BCA’s financial conglomeration.
Audit and Compliance s 4HEIMPLEMENTATIONOFTHEDUTIESANDRESPONSIBILITIESOFTHE"OARDOF#OMMISSIONERS are aligned with the latest laws/regulations.
s 4HE"OARDOF#OMMISSIONERSPUTATTENTIONTOTHERESCHEDULINGOFAUDITRESULTSFOLLOW ups that requires its consent, while ask to submit the proposal before the deadline.
s %MPHASIZETHEIMPORTANCEOFTHEQUALITYOFAUDITPROCESSANDINSTITUTIONINEACH subsidiary regarding the implementation of integrated internal audit.
Assessment of Performance of Committees Under Board of Commissioners
The audit, risk oversight, remuneration and nomination and the integrated corporate governance committees showed good performances and upheld high standards of competency. These committees supported the performance of the Board of Commissioners throughout the year.
The audit committee ensures the appropriate implementation of internal controls, and assists the Board of Commissioners in overseeing the implementation of internal and external audit functions, corporate governance, and compliance with prevailing laws and regulations. The committee held 21 meetings, met with the internal audit division 6 times, and reviewed more than 114 internal audit reports.
The risk oversight committee supports, and provides recommendations to the Board of Commissioners to improve the effectiveness of its risk management duties and responsibilities. The committee held 14 meetings that covered credit risk, operational risk, cyber security and the business continuity plan, as well as evaluating the performance of the
risk management committee, the risk management working unit and the IT Steering Committee.
The remuneration and nomination committee provides recommendations to the Board of Commissioners on BCA’s overall remuneration policy. It held five meetings, including those related to the tantiem policy, remuneration and talent mapping.
The integrated corporate governance committee supports the Board of Commissioners in supervising the implementation of the integrated corporate governance of BCA and its subsidiaries. It held four meetings and reported on the implementation of integrated corporate governance to the Board of Commissioners.
Changes to Composition of Board of Commissioners
There were no changes to the membership of the Board of Commissioners. Commissioner profiles are elaborated in the company profile section of this report on pages 75-79. Each member of the Board carries out their supervisory function and provides advice to the Board of Directors in accordance with their respective competencies and experience.
Members of the Board of Commissioners are:
Name Position
$JOHAN%MIR3ETIJOSO President Commissioner
4ONNY+USNADI Commissioner
Cyrillus Harinowo Independent Commissioner and the Head of the Audit Committee
Raden Pardede Independent Commissioner and the Head of the Remuneration and Nomination Committee
Sumantri Slamet Independent Commissioner and the Head of the Risk Oversight Committee and the Integrated Corporate Governance Committee
Appreciation of Stakeholders
We understand the Bank’s achievements are inseparable from the support given by all stakeholders. The Board of Commissioners wishes to express our gratitude to all shareholders, business partners, staff and other stakeholders for their trust and supports. We applaud the Board of Directors, who managed business growth and steered toward a solid financial position, and to the subsidiaries who contributed to the overall performance of the BCA group.
Jakarta, March 2019
On behalf of the Board of Commissioners,
$JOHAN%MIR3ETIJOSO
President Commissioner
7E WOULD LIKE TO EXTEND OUR APPRECIATION TO THE &INANCIAL 3ERVICES !UTHORITY /*+ AND "ANK )NDONESIA FOR CARRYING out their supervision and providing support this year, and in the years to come. BCA is committed to making a positive contribution to the Indonesian economy and providing the best possible value for customers, stakeholders and the Indonesian community.