Impairment Committee
4. Capital Allocation
The Company realizes that the key to good capital management is good risk management. The lack of understanding of bank’s business risks, especially as those relate to credit, can lead to the reduction in capital.
To ensure that its capital is used in accordance with the Company’s risk management practices and generates a sufficient return to allow an efficient use of capital, the
models by mapping the capital allocation and the return of capital on the bank’s asset profile. The Company applies the Risk Adjusted Return on Capital (RAROC) as its measuring instrument.
When applying RAROC as a tool to make accurate business decisions, both at the working and strategic levels, or evaluate its business units, the Company became aware of several challenges involving:
a. The preparation and processing of data in order to reflect the right risk profile of the Company with minimum bias;
b. An in-depth analysis that requires in-depth knowledge of the Company’s various credit products; and c. A balanced cross-directorate synergy at each work
level.
THE APPLICATION OF BASEL III IN THE BANKING INDUSTRY
The application of Basel III in the Banking Industry
As a response to the global crisis of 2008, the Basel Committee on Banking Supervision issued Basel III in December 2010, a framework that aims to:
• Improve the ability of banks to take potential losses caused by financial and economic crisis, and prevent financial crisis from spreading to other sectors of the economy;
• Improve the quality of risk management, governance, transparency and openness;
Principally, Basel III regulates the following:
• The definition of quality and higher capital levels with a key focus on common equity components and the availability of capital reserve conservation buffer;
• The indicators of monitoring the level of procyclicality of the financial system and the preparation of a buffer during stable economic conditions in order to absorb losses incurred during a crisis;
• Standards for short-term liquidity, or Liquidity Coverage Ratio (LCD), and long-term liquidity, or Net Stable Funding Ratio (NSFR), to contemplate the bank’s monitoring tools for bank liquidity.
• Capital framework and Basel III liquidity framework will be implemented gradually, with full implementation scheduled for January 2019.
the relevant regulator issued Bank Indonesia Regulation (PBI) No. 15/12 / PBI / 2013 dated December 12, 2013 on Capital Adequacy Ratio (CAR) that accommodates the Commercial Bank capital adequacy standard in accordance with the provisions of the Basel III standards. In addition to a minimum capital adequacy based on the risk profile, in early 2016 the Bank will also be required to hold additional capital as a buffer, consisting of Capital Conservation Buffer, Countercyclical Buffer and Capital Surcharge for Domestic Systematically Important Bank (D-SIB).
This regulation also considers other comprehensive income as potential losses from a decline in fair value of financial assets which classified as available for sale. In order to meet the minimum capital adequacy requirement, the Bank can take corporate action to raise capital, limit the exposure of financial assets classified as available for sale, improved risk profile and monitor the growth of risk-weighted assets.
Aside the above PBI, the regulator has also published several consultative papers that serve as an informal reference, which include papers relating to the Liquidity Coverage Ratio (LCR) and the leverage ratio.
The calculation framework of LCR aims to encourage short- term resiliance based on a bank’s liquidity risk profile by ensuring that it has an adequate HQLA (High Quality Liquid Assets) in order to survive for 30 calendar days at a time of a significant crisis. A consultative paper related to the leverage ratio has been published to limit the formation of excessive leverage within the banking system, which can have an unexpected impact on the value of assets and the Bank’s capital resilience, causing credit contraction that leads to losses to the banks and the entire economy.
IMPLEMENTATION OF RISK MANAGEMENT-BASED STRATEGY
The global economy slowdown has had a direct impact on the state of Indonesia’s economy and the banking industry.
The mining sectors, which constituted a very promising focus for the Company 3 years ago, is now experiencing a decline in prices. This has severely impacted the Company’s balance sheet. Learning from that lesson, the Company is planning to implement a number of risk-based strategies.
The Company is committed to periodically reviewing its risk exposure portfolio, identifying potential risks and implementing strategies to mitigate risks and maximize opportunities.
appetite.
Implementation of ‘Risk Appetite’ in the Company’s Strategy
The Company is planning to execute a risk-based strategy to deal with the current challenging economic conditions, while an emphasis on risk management will be the basis for the Company’s future business strategy.
debtors who are likely become the primary targets. The Company will also pay more attention to the composition of its loan portfolio, rating associated risks by type.
For SME Banking, the ‘Risk Appetite’ will be adjusted to the Bank’s strategy by determining the characteristics of customers based on risk measurement. The Company has a different strategy for each type of customers, such as Principal Strategy (Strategy Focus), Service Strategy and Pricing Strategy. These 3 strategies are outlined in the following diagram.
DISCUSSION ON MATERIAL BOND FOR CAPITAL EXPENDITURE
In 2014, the Company spent Rp 871 billion on capital expenditure, an increase of Rp138 billion from the previous year. This is lower than the Company’s projection of Rp2.0 trillion, but higher than the actual expenditure in 2013. The increase was mainly derived from higher expenditure of Rp 301 billion in System and Infrastructure development, which was offset by a decrease in land and buildings investments from Rp132 billion in the prior year to Rp25 billion.
For the Consumer Banking segment, risk assessment will be conducted for each line of the Bank’s products. The Company uses risk evaluation and recalibration to focus on future business prospects.
Support Customization Advisory EDC System Online Taxes Value Chain
Cross Selling
Main Focus Service Strategy Price
Low Low - Moderate Moderate
Risk Exposure HR
Distribution Channel
Product Process
Silverlake Axis Integrated Banking Solution (sibs) version 2.0 to 10.0, known as project “1Platform Kita Satu”
designed to make the Company more competitive in both domestic and regional banking industry.
By developing this core banking system, the Bank will be able to deliver faster services, enable faster real-time transaction, manage cost more efficiently, and introduce new products to customers more quickly, offer integrated products and services, improve risk management, mitigate operational risks more responsively, provide E-Trade Option
transactions 24/7.
The long time needed to prepare the implementation of this system has delayed investment projects scheduled to be accomplished in 2014, and caused shortfall in the achievement of capital investments. The Company continues to make optimization efforts to develop the concept of Branchless Banking, which aims to improve the overall customer experience in supporting an expansion of services network to customers.
Details of Capital Goods Investment CAPITAL EXPENDITURES
Rp billion 2012 2013 2014 Estimation for
2015
Land and Building 129 157 25 774
Equipment, Machines, Office Furniture, and Assets in construction 291 430 392 368
System and Infrastructure Development 101 142 444 1.017
Motor Vehicle 7 4 10 0
Jumlah 528 733 871 2.159
In 2015, the Company will emphasize on the development of Branchless Banking and Digital Banking services to expand its domestic customer service network and regional customers and will continue to make innovations in customers’ services comprehensively in accordance with demand and latest market developments.
In financing its capital expenditure places its priority on purchases of capital goods in Rupiah. The management believes that the impact of foreign currency fluctuations does not have significant effect on bond for capital investments.
The company also cooperates with other parties to run carry out business activities. Here are significant agreement/
engagement with third parties:
1. Transfer of Subscription Agreement for ATM Bersama Network Services on January 7, 2002 with PT Artajasa Pembayaran Elektronis (Artajasa);
2. Agreement with PT Bursa Berjangka Jakarta (BBJ) dated December 14, 2000 in relation to the placement of compensation funds collected from the futures brokers who are members of BBJ and other legitimate sources approved by the Commodity Futures Trading Regulatory Agency (Bappebti);
3. Cooperative Agreement for the Development and Implementation of Internet Banking dated November 1, 2006 with PT Pacific Communications Network (Pacomnet) with the intention of providing an application for internet banking transactions. In addition to the above agreement, on July 2, 2002 another agreement was made for SMS Mobile Banking to develop banking services development through mobile GSM;
4. Agreement for credit card and ATM card, which are Visa International Service Association (VISA) Program of Security for Letter of Credit Agreement with VISA dated October 9, 2001;
5. Agreement for License for Card Master Membership with MasterCard International Incorporated dated July 9, 1996;
6. Master agreement with PT Silverlake Informatikatama dated November 15, 1996 in the licensing of software for a variety of applications;
7. On September 15, 1989, the Company signed a lease agreement with PT Permata Birama Sakti for a building located at CIMB Niaga Plaza Building, Jl. Sudirman Kav.25 Jakarta.
8. On April 7, 2008, the Company signed a lease agreement with PT Niaga Manajemen Citra for a building located at Griya Commercial Building 2, Jl. Wahid Hasyim Block B.4 3, Bintaro Jaya Sector VII Tangerang.
Company.. This agreement would have expired on June 30 2013 but the validity period has been extended to November 30, 2016 upon consent from both parties.
Kelapa Dua Sub District, Curug District, Tangerang with a rent period ending February 28, 2020. The total rent fee varies from Rp 80,000/m2 to Rp 220,000/m2 paid in advance for every 3 (three) months rent period. The Company and PT Star Pacific also agreed that the rent fee will not fluctuate during the term of the lease.
2014 TARGET ACHIEVEMENT
TARGET AND REALIZATION IN 2014
(%) Target 2014 Realization in
2014 Status
Credit Growth 8-12 12 Achieved
Customer Deposit Growth 9-14 7 Not Achieved
Net Interest Income Growth 7-9 6 Not Achieved
Low Cost Funds Ratio 42-45 45 Achieved
Loan to Deposit Ratio 89-95 99 Achieved
Capital Adequacy Ratio 14-18 16 Achieved
In general, 2014 was a year full of challenges, which the Company successfully managed through and closed with key achievements follows:
1. The Company recorded credit growth of 12.4% YoY.
2. Third party funds grew 6.7% YoY reaching Rp 174.7 trillion in 2014, slightly below stated target. This was due to the tough competition among banks for customer deposit liquidity tightened. The increase in customer deposit was supported by the growth of 11.2% in savings that was above the industry average of 5.9%.
3. The growth of 5.6% YoY in net interest income, still below the stated target. This was due to an increase in the cost of fund and an increase of 25 bps in Bank Indonesia benchmark rate during 2014 to 7.75%.
However, during the second half of 2014, the Company made some price adjustment for loans denominated in Rupiah, increasing the share of low-cost fund (current and savings accounts) and increasing credit denominated in US dollars, which helped the Bank to maintain in Net Interest Margin at an adequate level.
4. Low-cost fund was Rp 78,4 trillion in and represented 44.9% of total fund.
5. The Company managed to keep its Loan To Deposit ratio (LDR) slightly above the stated target.
6. Along with the increase in profitability, the Company continued to maintain a strong capital position at a strong 15.6% in 2014.
In accordance with letter No 553/HCAL-KP/VI/2014 dated June 20, 2014 regarding Submission of Revised Bank Business Plan (RBB) of PT Bank CIMB Niaga Tbk in 2014 (Including Sharia Business Unit), the Company has submitted revised target for fiscal 2014 to adjust to the recent development in the Indonesia economy.
2015 TARGET
The projected key financial ratios and certain items based on historical figures, macro economic figures and the Company’s strategy in 2015 are as follows:
1. Loan growth of 10-12%
2. Customers deposit growth of 9-13% with low-cost fund share of 43-45%.
3. The quality of assets maintained with non-performing loan ratio of 3.0-4.0%.
4. Loan to Deposit Ratio of 94-96%
5. Net interest margin of <5%.
6. Net income before taxes increase to 25-35%.
7. Capital Adequacy Ratio (CAR) of 14-16%.
OCCURRED AFTER THE DATE OF REPORTING
As has been reported to the OJK-Bank Supervisor, OJK- Securities and Exchange Commission, and the Indonesian Stock Exchange respectively through letters 002/DIR/
II/2015, No. 003/DIR/II/2015, and No.004/DIR/II/2015 all dated February 6, 2015, the Company informed the resignation of Mr. Arwin from his position as President Director effective from the closing of the General Meeting of Shareholders (AGM) which will be held in 2015.
IMPORTANT TRANSACTIONS WITH SIGNIFICANT AMOUNTS
Included in the sale of fixed assets, in December 2014, the Company and third parties signed a contract of sale of land and buildings CIMB Niaga Karawaci Towers at a price of Rp 314 billion. Profit after taxes from the sale has been
payment (non-refundable) of Rp 63 billion was paid on December 30, 2014.
PROCEEDS FROM PUBLIC OFFERING
Proceeds from public offering PUB phase II in the amount of Rp 1.5 trillion or after deducting the cost of emission of Rp 1.4 trillion (net), as of March 30, 2014, proceeds from the public offering have been allocated fully to finance credit expansion. Report on the realization of fund allocation has been submitted to the Financial Service Authority through letter No. 021/WR/IV/2014 dated April 11, 2014.
Type of Public
Offering Effective
Date Period
Value of the Realization of Public Offering
Plan of Use of Funds According
to the Prospectus
Realization of the Use of Funds in 2014
Remaining Funds from the proceeds
from Public Offering Total Proceeds
from Public Offering
Cost of Public
Offering Net Income Credit Expansion
(100%)
Credit Expansion
(100%) Sustainable Bonds
I Obligasi CIMB Niaga Phase II Year 2013
20 Nov 13 Mar 14 Rp1,450 billion Rp3.3 billion Rp1,447 billion Rp1,447 billion Rp1,447 billion Rp0
INFORMATION CONTAINING MATERIAL TRANSACTIONS WITH CONFLICT OF INTEREST AND/
OR TRANSACTION WITH AFFILIATED PARTIES
During 2014, there were no material transactions undertaken by the Company that can be classified as transactions that contain conflict of interest.
In 2014, the Company entered into transactions with parties that have special relationship with the Bank, which include loans, customer deposits, and borrowings with further details in Note No. 48, Note of the Audited Consolidated Financial Statements.
FINANCIAL INFORMATION THAT HAS BEEN REPORTED AND CONTAINS EXTRAORDINARY AND RARE EVENTS During 2014, there was no financial information that is extraordinary and rare.
REVIEW OF DIVIDEND POLICY AND TOTAL CASH DIVIDENDS PER SHARE AND TOTAL DIVIDENDS PER YEAR ANNOUNCED OR PAID FOR LAST (TWO) FISCAL YEARS
In accordance with the applicable regulations in Indonesia, dividend distribution must be approved by the shareholders in a General Meeting of Shareholders (AGM) where the distribution and amount of dividend is determined and approved by the AGM. The dividend is distributed when the Company earns profits from operating activities.
the Company will not distribute dividend for the financial year 2013. Retained earnings will be used to strengthen the Company’s capital in order to fund operations.
Meanwhile, the full amount of net profit earned in 2012 in the amount of Rp 4.2 trillion was agreed to be posted as retained earning based on the decision of the AGM on March 28, 2013.
MATERIAL INFROMATION ON INVESTMENT, EXPANSION, DIVESTMENT, AQUISTION, OR DEBT/
CAPIAL RESTRUCTURING
On November 5, 2014, the Company increased its investment in CNAF with 5.9964 million new shares issued by the subsidiary each with a nominal value of Rp50,000.
The percentage of ownership did not change and remained 99.9%. This capital increase was approved by the OJK Letter No. SR-62/PB.33/2014 dated September 12, 2014.
On September 23, 2013, the Company entered into a Conditional Sale and Purchase Agreement (“CSPA”) with Marubeni Corporation, PT Marubeni Indonesia, and PT Citra Niaga Management to increase capital investment in KITA Finance through the share purchase of 48.9% of KITA Finance, so the composition of the Company’s shareholding in KITA Finance increased to 99.9%. The Company has obtained approval for the share purchase plan from Bank Indonesia, which is stated in BI Letter No. 15/158/DPB3/
PB3-3/Rahasia dated December 30, 2013.
REVIEW OF ACCOUNTING POLICES CHANGES
Accounting policy has been applied consistently through the preparation of consolidated financial statements in accordance with Financial Accounting Standards of Indonesia.
The prevailing Accounting Polices of 2014 for 2014 The prevailing Accounting Polices of 2014 for 2014, the Indonesian Financial Accounting Standard Board Institute of Accountants (DSAK-IAI) has adopted Statement of Financial Accounting Standards (PSAK) and the Interpretation of Financial Accounting Standards (ISAK) and Withdrawal of PSAK (PPSAK) as follows:
3. ISAK 29 “Cost of stripping at production stage in open mines”,
4. PPSAK 12 “Withdrawal of PSAK 33 on the Activity To Strip Layers of Soil and Environmental Management in General Mining” and
5. PSAK No. 102 (Revised 2013) “Murabaha Accounting”
The above PSAK and ISAK were effective January 1, 2014 and did not require the Bank to make any change in its accounting policy and did not have any impact on the figures reported for the current year or the prior year.
New Accounting Policies Applicable After 2014
Here are the new and revised accounting standards that have been issued but still not effective as of December 31, 2014:
1. PSAK 1 (revised 2013) “Presentation of financial statements”
2. PSAK 4 (revised 2013) “separate financial statements”
3. PSAK 15 (revised 2013) “Investments in associates and joint ventures”
4. PSAK 65 (revised 2013) “Consolidated Financial Statements”
5. PSAK 66 (revised 2013) “joint arrangement”
6. PSAK 24 (revised 2013) “Employee benefits”
7. PSAK 46 (revised 2014) “Income Taxes”
8. PSAK 48 (revised 2014) “Impairment of Assets”
9. PSAK 50 (revised 2014) “Financial instruments:
presentation”
10. PSAK 55 (revised 2014) “Financial instruments:
recognition and measurement”
11. PSAK 60 (revised 2014) “Financial instruments:
disclosures”
12. PSAK 67 (revised 2013) “Disclosure of interests in other entities”
13. PSAK 68 (revised 2013) “Measurement of fair value”;
and
14. ISAK 26 (revised 2014) “Reassessment of embedded derivatives”.
PSAK 65
Consolidated Financial Statements
PSAK 4 (2013) Separate Financial Statements
PSAK 66 Joint Arrangements
PSAK 15 (Revisi 2013) Investments in Associates and
Joint Ventures PSAK 4 (2009)
Consolidated and Separate Financial Statements Reports
ISAK 7
Consolidation - Special Purpose Entities
PSAK 12 (2009) Interests in Joint Ventures
ISAK 12
Jointly Controlled Entities: Non-monetary Contributions by Venturers
ISAK 12
Jointly Controlled Entities: Non-monetary Contributions by Venturers
PSAK 67 Disclosure of Interests in
Other Entities
The revised and new standards above will be effective January 1, 2015. Early adoption of the revised and new standards before the effective date is not permitted.
The accounting standards effective January 1, 2015 are equivalent of the International Financial Reporting Standards (IFRS) which became effective January 1, 2014, meaning that there was a gap of 1 year.
The management believes that the above adjustments and the application of PSAK dan ISAK above will have impacts on the Company’s financial statements reporting and presentation and therefore will make the necessary adjustments, and will conduct a thorough assessment of assets and financial liabilities affected by the PSAK.
Accounting Standard Reason of Changes Explanation of Significant Changes The impact on the Bank and Subsidiaries PSAK 1 (revised 2013)
“Presentation of financial statements”
The adoption of PSAK 1
“Presentation of financial statements”
• The separation of other comprehensive income group reclassified (recycled) as profit and loss from those that are not
• Change in name from “statement of comprehensive income” to
“ statement of profit or loss and other comprehensive income
Changes in disclosure and the Company has a plan to apply the new accounting standards PSAK 4 (revised 2013)
“Separate financial
statements” - • Specification to apply PSAK 65 for consolidated financial
statements
Has no significant impact on the Company and Subsidiaries
PSAK 15 (revised 2013)
“Investments in entities and
joint ventures” -
• Mutual funds, representatives unit and similar entities including investment-linked insurance fund, the investment in the entity of associates and joint ventures at an venture capital entity can be measured at fair value through profit or loss (FVTPL) in accordance with PSAK 55
Has no significant impact on the Company and Subsidiaries
PSAK 24 (revised 2013)
“Employee benefits” The adoption of PSAK 19
“Employee benefits”
• Actuarial Profit and losses are recognized immediately through other comprehensive income
• Limit the recognition of income only for the cost of services and net interest expense
• Remeasurement of actuarial profits and losses, return on assets and changes in asset ceiling
• Past service costs both vested or unvested will be recognized when the amendment or curtailment occurs (or when linked to a broader restructuring, whichever comes first)
• Employee benefits (apart from severance) expected to be completed entirely before 12 months after the end of the annual reporting period in which the employees provide the services
Change in the calculation of actuarial related to the measurement of actuarial profits and losses, return on assets for program and changes in the impact of asset upper limit.