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REVIEW
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OVERVIEW OF INDONESIA’S MACRO ECONOMY IN 2014
Although economic growth in Indonesia slowed in 2014, the 5.0% growth rate was amongst the highest rates achieved by major economies in the world.
This growth was realized against a backdrop of continued uncertainty in international markets and the global economy as well as during a period of political transition in Indonesia. Throughout the fluid and unpredictable environment experienced in 2013 and 2014, the government and regulators undertook prudent fiscal and monetary policies designed to maintain economic stability.
During 2014, the Eurozone continued to experience weak economic growth. In the mean time, the US economy has shown signs of recovery, although US monetary policy normalization remained uncertain.
Global economic uncertainties have impacted growth in China’s economy which has had a significant impact on the Asian region. Continued depressed pricing for Indonesia’s main commodity exports and fluctuations in the Rupiah along with the rapid decline in international oil prices contributed to the uncertainty faced by Indonesia and world markets in 2014.
The Indonesian economy in 2014 entered a consolidation phase characterized by a slower growth rate than had been achieved in recent years.
Indonesia’s Gross Domestic Product growth was 5.0% in 2014, continuing a decreasing trend over the past 4 years. The growth rate was negatively impacted by the ongoing slump in the prices of Indonesia’s leading export commodities and sluggish demand from Indonesia’s major trading partners.
The general election and the transition to the new administration predictably influenced the timing of investment and expansion decisions of the business community leading to a delay in new investment planning. However, it is also worth noting that the overall investment flow in 2014 remained resilient, particularly when compared to investment cycles in previous election periods. Investor confidence and steady domestic consumption continue to be the main drivers of economic growth in Indonesia.
Growth in Indonesia Gross Domestic Product (GDP) (%)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Central Bureau of Statistics
3.5
4.4 4.7 5.1
5.6 5.5
6.3 6.0
4.6
6.4 6.2 6.0 5.6
5.0
Weakened export earnings and the negative impact of increasing costs for oil and gas imports in 2014 put significant pressure on Indonesia’s trade balance.
This trade deficit impacted the current account which continued to run at a deficit of USD 26.2 billion, or 2.95% of the GDP in 2014.
Rupiah Exchange Rate against USD (in Rupiah)
7,000 9,000 11,000 13,000
Jul-05 Sep-06 Nov-07 Jan-09 Mar-10 Apr-11 Apr-12 Mar-13 Feb-14 Dec-14 10,775
8,703 8,690 9,450
11,050 12,650
12,100
10,155 9,378
9,125
8,464 9,868
11,649 12,240
11,289 12,725
12,388
Source: Bloomberg
The effects of an increasing current account deficit, increased volatility in the flow of funds from global markets and domestic elections impacted the Rupiah versus US Dollar exchange rate. At year-end 2014, the Rupiah versus US Dollar exchange rate was Rp 12,388 per 1 US Dollar. This represents a depreciation of 1.8% when compared to the exchange rate position at the end of 2013 of Rp 12,171 per 1 US Dollar.
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18.38
8.33 5.27
14.55
12.14
7.92 8.79 8.38 8.36
5.77
2.783.43
BI Rate Inflation
5.80 4.61
3.56 4.30 5.57
3.99 12.75
9.75
8.75
8.50 9.50
8.00 7.75
6.50 6.75 7.50 7.75
Dec-14 Sep-13 Jul-12 May-11 Mar-10 Jan-09 Nov-07 Sep-06 Jul-05 20%
16%
12%
8%
4%
0%
Source: Central Bureau of Statistics and Bank Indonesia
In November 2014, the new Government prudently reduced fuel subsidies in order to reduce the subsidy for fuel imports. This step was followed by Bank Indonesia increasing its benchmark interest rate by 25 bps to 7.75% to anticipate an expected inflationary spike resulting from the rising fuel price. Inflation at the end of 2014, as a result, was restrained at 8.4%.
Taking advantage of the decline in world oil prices, at the end of 2014, the Government of Indonesia further removed fuel subsidies for gasoline, while maintaining a certain amount of subsidy for diesel fuel and kerosene. This timely reduction of subsidies is expected to redress the current account deficit as well as provide opportunity for the Government to develop infrastructure and thereby stimulating the Indonesian economy for sustainable future growth.
Lower world major commodities prices have taken inflationary pressure off into certain extent. Bank Indonesia forecasts that inflation rate will hover around 3%-5% in 2015, lower than 2014’s inflation.
While this consolidation phase of the Indonesian economy is expected to continue to 2015, in the longer run, the Indonesian economy, supported by strong macroeconomic management and a sound banking industry, remains poised to return to higher growth with increased investment in infrastructure and the recovery of global economic growth.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 791
3,525 3,751 3,670 3,531
2,977
2,350 2,245 1,922 1,648 1,321 1,167 944 1,116
Source: Central Bureau of Statistics
In a period of over a decade, GDP per capita has grown significantly. In 2014 GDP per capita stood at USD 3,531 per capita in US Dollar terms. This strong GDP per capita continues to play an important role in attracting capital investment and driving economic growth.
Overall, we expect the regulators and the Government to remain cautious and vigilant in assessing the possible market and economic impact of the Fed rates normalization and the continued negative impact of depressed pricing in commodity markets.
OVERVIEW OF INDONESIAN BANKING SECTOR PERFORMANCE IN 2014
Bank Indonesia and the Financial Services Authority proactively directed the growth of the banking industry towards a realistic and sustainable level by implementing prudent policies that addressed the economic challenges of 2014.
The total assets of the Indonesian banking sector grew by 13.3% to Rp 5,615 trillion with a sector Return on Assets (ROA) of 2.9% in 2014. The industry loan portfolio grew by 11.6% or Rp 381 trillion to Rp 3,674 trillion, of which 47.8% was working capital loans, while total consumer and investment loans contributed 27.6% and 24.6% to the total loan portfolio, respectively. Working capital loans amounted to Rp 1,757 trillion, an increase of 10.8%
from the previous year, while consumer loans amounted to Rp 1,014 trillion, an increase of 11.6%, and investment loans amounted to Rp 903 trillion, an increase of 13.2% by the end of 2014.
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increase in Non Performing Loans (NPL) amounting to 40 bps from 1.8% in 2013 to 2.2% by the end of 2014.
This decline in credit quality was expected given the slower economic growth. The overall capital position of Indonesian banks remains strong with a Capital Adequacy Ratio (CAR) of 19.6% at the end of 2014, increasing by 150 bps compared to 18.1% at the end of 2013.
In terms of deposit taking, third party funds grew 12.3% and reached Rp 4,114 trillion per December 31, 2014 from Rp 3,664 trillion per December 31, 2013. The increase in third party funds was mainly supported by growth in time deposits with total time deposit funds growing by 20.9% to Rp 1,940 trillion by the end of 2014. Current Account and Savings Account (CASA) funds posted an increase of 5.1% and 5.9% and reached Rp 890 trillion and Rp 1,284 trillion, respectively.
Over the past several years with the exception of 2014, lending growth frequently exceeded third party funds growth, thereby leading to tighter overall liquidity in the Indonesian banking sector. In addition, third party funds posted a relatively lower 2014 growth, compared to several previous years.
Ratio (LDR) in the national banking sector in the last few years.
Particularly in the first half of 2014, the tightening of liquidity in the Indonesian banking sector was reflected in increased competition in time deposits interest rates offered by banks. In response, on 30 September 2014, Indonesia Financial Services Authority took the initiative to set a maximum interest rate on time deposits to mitigate unhealthy competition. The regulators also actively managed lending growth to stabilize liquidity positions and prevent an overheating of the national economy.
Overall liquidity showed some improvements towards the end of 2014 with the LDR easing to 89.4%
as of December 2014, lower than the peak at 92.2% in July 2014.
Tight liquidity and increased deposit interest rates encouraged higher lending interest rates in the banking sector. Data from Bank Indonesia shows an increase in the weighted average interest rates on working capital loans of 70 bps to reach 12.8%, and increases in interest rates for investment loans of 60 bps, reaching 12.4% during 2014.
Indonesian Banking Sector Performance Highlights (in trillion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Total Assets 5,615 4,954 661 13.3%
Loans 3,674 3,293 381 11.6%
Working Capital 1,757 1,586 171 10.8%
Investment 903 798 105 13.2%
Consumer 1,014 909 105 11.6%
Third Party Funds 4,114 3,664 450 12.3%
Current Accounts 890 847 43 5.1%
Savings Accounts 1,284 1,213 71 5.9%
Time Deposits 1,940 1,604 336 20.9%
Net Interest Income 274 243 31 12.8%
Other Operating Income 148 140 8 5.7%
Operating Expense (279) (251) (28) 11.2%
Income Before Tax 144 137 7 5.1%
Net Income 112 107 5 4.7%
Net Interest Margin (NIM) 4.2% 4.9% N.A N.A
Return on Assets (ROA) 2.9% 3.1% N.A N.A
Operating Expenses to Operating Revenues (BOPO) 76.3% 74.1% N.A N.A
Loan to Deposit Ratio (LDR) 89.4% 89.7% N.A N.A
Non Performing Loans (NPL) 2.2% 1.8% N.A N.A
Capital Adequacy Ratio (CAR) 19.6% 18.1% N.A N.A
Number of Banks (Unit) 119 120 N.A N.A
Source: Bank Indonesia / Indonesia Financial Services Authority
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increased 10.2% to Rp 422 trillion in 2014 from Rp 383 trillion in 2013. Net Interest Income and Other Operating Income in 2014 grew by 12.8% and 5.7%
to Rp 274 trillion and Rp 148 trillion, respectively.
With a higher cost of funds and Operating Expenses, industry-wide Net Income increased by 4.7% to Rp 112 trillion in 2014.
BCA is optimistic that regulators and the government will continue to promote a healthy banking industry as a solid platform for long-term economic growth. BCA will continue to be a major pillar of the Indonesian banking industry and will improve and expand its network in the years ahead to meet the needs of customers in accordance with BCA’s commitment to always be by the customers’ side.
OVERVIEW OF BCA FINANCIAL PERFORMANCE IN 2014
BCA recorded a positive business performance in the midst of economic uncertainty and the political transition period that took place in 2014. As a response to the challenges of the economic slowdown, BCA focused on the implementation of a prudent risk management posture in order to maintain quality loan growth as well as to assure a healthy capital and liquidity position.
BCA succeeded in maintaining a solid liquidity position with the support of the growth of third party funds of Rp 38.4 trillion, a 9.4% growth, to Rp 447.9 trillion as of year-end 2014. Supported by the strength of its transaction banking capability, BCA was able to generate stable, low cost funding resulting from the Bank’s core strength in Current Accounts and Savings Accounts (CASA) transactions.
The Bank also continued to promote transactions through low-cost electronic delivery channels. In 2014, CASA funds grew by 4.2% to Rp 336.4 trillion in an environment marked by unfavorable economic conditions and a slowdown in business activities. It is worth noting that such growth was achieved without any adjustment to CASA rates throughout the year.
CASA funds represent a majority of third party funds accounting for some 75.1% of the total funding pool.
proactively increased funding from time deposits products by selectively increasing time deposits rates for selected deposit sizes and tenors. As a result of this proactive policy, time deposits grew significantly by 28.8% to Rp 111.5 trillion by the end of 2014.
As of December 31, 2014 the loan portfolio stood at Rp 346.6 trillion, growing Rp 34.3 trillion, or 11.0%, primarily driven by the growth of productive loans from the corporate and commercial lending segments. Prudent lending standards enabled the Bank to maintain a Non Performing Loans (NPL) ratio below 1% of the total loan portfolio of BCA. At the end of 2014, BCA’s NPL ratio reached 0.6%, with the reserves to total NPL ratio amounting to 324.2%.
With a balance between the growth of the loan portfolio and third party funds, BCA managed the Loan to Deposit (LDR) ratio to a conservative 76.8%
in a tightening liquidity environment. Short-term placements, excluding primary reserves, were recorded at Rp 63.9 trillion or 14.3% of the total third party funds at the end of December 2014. In addition, BCA’s Capital Adequacy Ratio (CAR) stood at 16.9%
at December 31, 2014, reinforcing BCA’s solid capital position.
Overall, Net Interest Income increased by 21.2%
to Rp 32.0 trillion, supported by the growth in the loan portfolio and favorable funding mix as well as a stronger Net Interest Margin (NIM). Operating Income other than Interest grew by 13.6% to Rp 9.0 trillion, supported by an increase in Fee and Commission Income of 15.5%. A solid increase in Operating Income supported growth in Net Income by 15.7% to Rp 16.5 trillion in 2014. BCA earnings outperformed the banking sector average in 2014.
With this profitability, the Bank’s Return on Assets (ROA) stood at 3.9% and Return on Equity (ROE) was recorded at 25.5%.
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Solid increase in Operating Income managed to support Net Income growth in 2014.
Net Interest Income (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Interest Income 43,771 34,277 9,494 27.7%
Loans 33,431 26,150 7,281 27.8%
Placements with Bank Indonesia and Other Banks 947 1,053 (106) -10.1%
Securities (including Securities Purchased Under
Agreements to Resell) 5,900 4,870 1,030 21.1%
Consumer Financing and Investment in Finance Leases 2,821 1,674 1,147 68.5%
Others 672 530 142 26.8%
Interest Expense 11,744 7,852 3,892 49.6%
Current Accounts 1,058 1,063 (5) -0.5%
Savings Accounts 2,539 2,480 59 2.4%
Time Deposits 6,697 3,224 3,473 107.7%
Others 1,450 1,085 365 33.6%
Net Interest Income 32,027 26,425 5,602 21.2%
Interest Income from Investment Securities by Instrument Type (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Investment Securities 3,425 3,201 224 7.0%
Bank Indonesia Certificates 667 186 481 258.6%
Government Bonds 2,136 2,389 (253) -10.6%
Others Securities 622 626 (4) -0.6%
Securities Purchased Under Agreements to Resell 2,475 1,669 806 48.3%
Total Interest Income from Securities 5,900 4,870 1,030 21.1%
Interest Income
Interest Income grew by 27.7% or Rp 9.5 trillion to Rp 43.8 trillion in 2014. This growth came mainly from an increase in Interest Income from the loan portfolio which contributed 76.4% of the total growth of the Bank’s Interest Income in 2014. Interest Income from the loan portfolio increased by 27.8% to Rp 33.4 trillion in 2014, driven by the growth of outstanding loans and interest rate increases. Since 2013, BCA’s loan interest rates have increased in line with the interest movements in the market and tighter liquidity conditions.
Interest Income from Placements with Bank Indonesia and Other Banks decreased by 10.1% to Rp 947 billion in 2014 from Rp 1.1 trillion in 2013.
This decrease was mainly due to a 24.6% decrease in the average outstanding balance of Placements with Bank Indonesia and Other Banks to Rp 19.2 trillion in 2014 from Rp 25.5 trillion in 2013. The decrease in the average outstanding balance resulted from a reallocation of funds placements to higher yielding
instruments, from Bank Indonesia Term Deposits and Bank Indonesia Deposit Facilities to Bank Indonesia Certificates booked in Investment Securities.
Supported by higher average outstanding and an increase in yield, Interest Income from Securities (including Securities Purchased Under Agreements to Resell) increased by 21.1% to Rp 5.9 trillion at year end 2014.
Interest Income from Consumer Financing and Investment in Finance Leases grew by 68.5% to Rp 2.8 trillion by the end of 2014. This was due to the consolidation of Central Santosa Finance, a subsidiary of BCA and BCA Finance engaged in motorcycle financing, beginning January 2014. Excluding new contribution from Central Santosa Finance, Interest Income from Consumer Financing and Investment in Finance Leases increased by 11.9% to Rp 1.9 trillion by the end of 2014.
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Contribution (in billion Rupiah)
2014 2013 Increase / (decrease)
Remark Nominal Percentage
Interest Income 1,874 1,674 200 11.9%
2014 figure excluded interest income contribution from Central Santosa Finance of Rp 947 billion.
Central Santosa Finance was consolidated in January 2014.
The overall loan portfolio yield stood at 10.3% in 2014, an increase of 100 bps compared to 9.3% in 2013. Aside from the rising interest rates, the increase in loan yields was also supported by loan growth in the corporate and commercial segments. Overall yields on earning assets increased to 8.7% in 2014 from 7.8% in 2013 in line with the rising interest rates throughout 2014.
Earning Assets Yield
2014 2013
Loans 10.3% 9.3%
Placement with Bank Indonesia and Other Banks 4.9% 4.1%
Securities (Including Securities Purchased Under Agreements to Resell) 6.3% 6.1%
Earning Assets 8.7% 7.8%
Composition of Interest Income
Loans Consumer Financing and Investment in Finance Leases Others
Securities Placements with Bank Indonesia and Other Banks 76.3%
2013
14.2%
4.9%
3.1%
1.5%
2014
76.4%
13.5%
6.4%
2.2%
1.5%
Rp 43,771 billion Rp 34,277 billion
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In 2014, BCA’s Interest Expense increased by 49.6%
to Rp 11.7 trillion in 2014. To balance BCA’s solid liquidity position, in 2014 BCA proactively raised time deposits products by increasing interest rates for time deposits over Rp 2 billion. The Bank’s maximum time deposits interest rates reached its highest level in April 2014 at 9.25% p.a. Toward the end of 2014, in line with the improving banking sector liquidity, BCA lowered the maximum time deposits interest rates to 7.75% p.a. Throughout the year 2014, the Bank was able to maintain a relatively lower time deposits rate than market rates while keeping interest rates in accordance with the guidelines set by the Indonesia Deposit Insurance Corporation and the Indonesia Financial Services Authority.
In line with the growth of funds as well as the increase in time deposits rates, Time Deposits Interest Expense increased by 107.7% to Rp 6.7 trillion while Interest Expense on Current Accounts and Savings Accounts in 2014 were relatively stable at Rp 1.1 trillion and Rp 2.5 trillion, respectively. Other Interest Expenses increased by 33.6% to Rp 1.5 trillion mainly derived
by subsidiary entities and on government guarantee premium.
Cost of funds for time deposits increased by 260 bps to 6.90% in 2014 while cost of funds for current accounts and savings accounts remained stable at 0.99% and 1.16%, respectively. The overall cost of third party funds came to 2.61% in 2014, an increase of 66 bps from 1.95% in 2013.
Interest Rates Adjustment*
* Maximum interest rate offered 0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 6.25%
6.00%
1 Month Rupiah Time Deposits
Rupiah Current Accounts 5.50%
4.50%
3.50%
5.00%
5.75%
6.25%
7.25%
7.50%
9.25%
9.00%
8.50%
7.75%
2.15%
2.20%
2.10%2.00% 1.90% Rupiah
Savings Accounts
Composition of Interest Expense
31.6%
13.8%
2013
13.5%
41.1%
Rp 7,852 billion
57.0%
2014
Rp 11,744 billion
12.4% 9.0%
21.6%
Current Accounts Savings Accounts Time Deposits Others
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The significant increase in Interest Income boosted the Bank’s Net Interest Income by 21.2% or Rp 5.6 trillion, to reach Rp 32.0 trillion in 2014 compared to Rp 26.4 trillion in 2013. Accordingly, Net Interest Margin (NIM) increased by 30 bps to 6.5% in 2014 from 6.2% in the previous year supported by the various factors mentioned above.
Net Interest Income (in billion Rupiah)
2013 2014
Ƌ21.2%
32,027
26,425
Operating Income other than Interest
Operating Income other than Interest in 2014 grew by 13.6%, or Rp 1.1 trillion, to Rp 9.0 trillion, mainly supported by an increase in Fee and Commission Income. In 2014, Net Fee and Commission represented 80.7% of the Total Operating Income other than Interest while Net Trading Income accounted for 9.2% and Other Operating Income contributed 10.1% to the total Operating Income other than Interest.
Operating Income other than Interest (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Net Fee and Commission Income 7,285 6,310 975 15.5%
Net Trading Income 833 1,166 (333) -28.6%
Other Operating Income 906 471 435 92.4%
Operating Income other than Interest 9,024 7,947 1,077 13.6%
Net Fee and Commission Income (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Deposits from customers* 2,367 2,116 251 11.9%
Loans receivable 1,094 926 168 18.1%
Payment settlement 1,339 1,173 166 14.2%
Credit cards 1,658 1,349 309 22.9%
Remittances, clearings, and collections 405 367 38 10.4%
Others 426 379 47 12.4%
Total 7,289 6,310 979 15.5%
Fee and commission expense (4) (0) (4) N.A
Net Fee and Commission Income 7,285 6,310 975 15.5%
* Mostly derived from monthly administration income from savings accounts
Net Interest Margin - NIM (%, non consolidated)
2013 2014
Cost of Funds Earning Assets Yield
Net Interest Margin (NIM)
6.53%
6.18%
7.79%
8.71%
1.95% 2.61%
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to Rp 7.3 trillion in 2014, which mainly came from the increase in the monthly administration fee, fee and commission from loans and credit cards, and commissions on transaction banking services.
Net Trading Income decreased by Rp 333 billion or 28.6% to Rp 833 billion due to the lower increase in the Gain on Spot and Derivative Transactions and Unrealized Gain from Fair Value of Financial Assets Held for Trading compared to the previous year.
than Interest increased significantly by 92.4% to Rp 906 billion, particularly from credit card penalties and the consolidation of income from BCA Insurance beginning in September 2013. Accordingly, Operating Income other than Interest increased 13.6% in 2014. Excluding contribution from BCA Insurance, Operating Income other than Interest increased 10.2% in 2014.
Operating Income other than Interest excluding contribution from BCA Insurance (in billion Rupiah)
2014 2013 Increase / (decrease)
Remark Nominal Percentage
Operating Income other than Interest 8,638 7,841 797 10.2%
Excluding income contribution from BCA Insurance of Rp 386 billion in 2014 and Rp 106 billion in 2013.
BCA Insurance was consolidated in September 2013.
Operating Expenses
BCA’s Operating Expenses (non consolidated) were recorded at Rp 16.7 trillion in 2014, an increase of 19.7%
compared to the previous year. The Cost Efficiency Ratio was recorded at 44.2% in 2014, slightly higher than 2013’s 42.9%. On a consolidated basis, Operating Expenses increased by 25.1% to Rp 18.3 trillion in 2014.
This difference was mainly due to the consolidation of the Operating Expenses of BCA Insurance and Central Santosa Finance.
Operational Expenses (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
General and Administrative Expenses 8,932 7,386 1,546 20.9%
Personnel Expenses 8,671 6,865 1,806 26.3%
Others 704 380 324 85.3%
Total 18,307 14,631 3,676 25.1%
General and Administrative Expenses (in billion Rupiah)
2014 2013 Increase / (decrease)
Nominal Percentage
Office supplies 2,925 2,240 685 30.6%
Rental 1,248 1,116 132 11.8%
Depreciation and amortization 1,215 1,075 140 13.0%
Promotion 1,000 788 212 26.9%
Repair and maintenance 980 771 209 27.1%
Communication 512 394 118 29.9%
Professional fees 339 216 123 56.9%
Water, electricity and fuel 271 229 42 18.3%
Computer and software 109 138 (29) -21.0%
Transportation 60 53 7 13.2%
Research and development 36 32 4 12.5%
Tax 41 29 12 41.4%
Insurance 21 22 (1) -4.5%
Security 18 160 (142) -88.8%
Others 157 123 34 27.6%
Total 8,932 7,386 1,546 20.9%