MACROECONOMY 2017
Global economic activities have shown positive growth in 2017 fueled by recovery of world commodity prices. The United States of America has recorded a strong rebound from 1.5% in 2016 to 2.6%
in 2017; The Euro-Zone posted 2.5%, its best growth rate in the last 10 years, and China has grew 6.9%, well above the official target of 6.5%. On commodity pricing, the average monthly crude oil and coal has gone up 25% and 34%, respectively to USD54.3 per barrel and USD88.4 per tonne from 2016. These recoveries have generated positive impact on the domestic economy. The economy grew by 5.1%, or slightly better than 2016 but lower than initial Bank Indonesia’s target of 5.2%.
In recognition of the improving economy, global rating agencies such as Standard & Poor’s, Moody’s, and Fitch have upgraded Indonesia’s sovereign rating to Investment Grade Status, potentially bolstering foreign investment and capital market activities.
Though the economy is improving, the banking industry continues to show moderate performance.
The industry recorded an 8.2% increase in credit growth, less than OJK’s projection of 10%-13%
growth. This is partly due to political uncertainty as the market awaits the outcome of the 2018 regional elections in 171 districts/provinces. In addition the slower credit growth, and the fact that Industry’s NPL ratio remained at 2.6%, suggests that industry’s sentiment still prioritizes strict underwriting standard over ease of credit disbursement.
CIMB NIAGA PERFORMANCE IN 2017
Implementation of Strategic Policies
In order to navigate the challenging economic environment, the bank continues to implement 5 core pillars : 1) Playing to our strengths, 2) Expanding our CASA (Current Account and Savings Account) franchise, 3) Maintaining our cost discipline, 4) Focusing on risk management culture, and 5) Leveraging technology and digital platforms.
Playing to Our Strengths
The bank continues to expand its franchise in the area where we have established competitive advantages and strong value prepositions. In Corporate Banking segment, we continued to focus on expanding Tier-1 customers and improve infrastructure to satisfy the need of our customers. Syndicated loans recorded 38.9% growth to Rp20.7 trillion. Working capital loans contributed of 53.2% to total Corporate Banking loans in 2017, meanwhile the remaining 46.8% contributed from investment loan.
Commercial Banking continued its recalibration process to improve asset quality and customer selections. Through the implementation of this strategy, commercial loans increased by Rp2.1 trillion or 6.9% to Rp31.9 trillion in 2017 from Rp29.8 trillion the previous year by targeting selective industries in selected regions.
With these repositioning in Corporate and Commercial businesses, we can see the rebalancing of our wholesale portfolio in favor of higher credit quality loans. This would improve the risk profile of the bank, with expected lower credit charges for the future.
After a through deliberation of strategy and execution alignment, we have exited Micro segment business and remained focus to grow on SME (Small and Medium Enterprises) segment. The SME segment gained traction by recorded loan growth of 4.3%. As this segment represents an integral part of Indonesia economy landscape, we are committed and focus to support the growth of this segment through internal collaboration, referral system cross-selling activities and digital preposition. In December 2017, we have soft-launched an internet banking solution for SME customers, offering a secure and convenient way to conduct banking transactions for business customers.
Our continued efforts in recalibrating our auto-loan portfolio and focusing on premium segment have yielded good result, bringing down the portfolio gross NPL ratio from 3.2% to 1.3%. We have seen the average ticket size of our auto-loan has increased by 40% compared to last year. However, this strategy also resulted in reduction of auto-loan portfolio from Rp14.81 Trillion in 2016 to Rp8.72 Trillion, bringing the overall Consumer portfolio to Rp48.64 trillion, a 6.7% reduction compare to last year.
On the other hand, our mortgage business is gaining momentum in acquiring market shares to 6.6% from 6.4% a year earlier. We managed to record growth of the mortgage loan portfolio with a 12.0% increase to Rp27.0 trillion. In addition, we also demonstrated an excellent achievement in demand for sharia mortgages, where the Sharia mortgage portfolio grew by 103.1% to Rp5.4 trillion, from Rp2.7 trillion in 2016.
Overall, Sharia Banking recorded an outstanding achievement, where the volume of financing increased by 63.5% in 2017 compared to 2016. This growth was mainly driven by the corporate segment, which increased by 77.1% in financing. Meanwhile, customer deposits in Sharia Banking in 2017 recorded an 87.3% growth compared to 2016. The Sharia business segment continues to gain positive momentum – now making up 8.7% of the Bank’s total loans from 5.6% in the previous year. This achievement pointed out our success in developing the Dual Banking Leverage Model, the first of its kind in the country. We are proud to be recognized as the Best Performance and Innovation Sharia Bank by Republika in 2017.
Expanding Our CASA Franchise
Our successful full-court press strategy on expanding our CASA franchise has raised our CASA to 52.6%
bringing bankwide cost of fund to 4.1%. This is very important as this strategy allows us to improve our customer selections and increase our credit quality.
Massive efforts have been directed to entice more transactions, increase stickiness and share-of-wallet;
We launched the New Go Mobile, a mobile banking service that gives retail customers easy access --any time and any place-- to their portfolios at CIMB Niaga through their smart phones. The improved and upgraded version of Go Mobile is expected to meet the needs of customers who are increasingly embracing digital banking. We are excited to continue innovating Go Mobile with a list of new features and enhancements available that we have planned for 2018. For non-retail consumers we have offered an internet banking platform for all segments covering SME to large corporate. Additionally, to penetrate growing demand, we launched a youth savings product, called the Indie Account, which targeted the growing segments of teenagers that like to express themselves.
Maintaining Our Cost Discipline
We also successfully managed operating costs, which increased by only 2.1%, lower than the inflation rate of 3.6%. This was achieved by applying efficiency measurement, simplifying working processes, maximizing effective use of proprietary premises for office space, reviewing branch office operations and re-aligning budgets for promotional and advertising campaigns, while also strongly encouraging development of our more efficient digital banking network and improving our alternative channels.
Focusing on Risk Management Culture
We continue to put emphasis on building “Risk and Compliance” culture as we are putting significant KPI weightings for all units. The Bank has implemented Enterprise Wide Risk Management framework that guide our business activities and decision making processes. Conscious efforts have been taken to strengthen RCU (Risk Control Unit) and Quality Assurance roles in each function within the organization. The bank is committed to enhance and implement credit rating framework for all corporate and commercial clients. While focusing on improving our processes and strengthening our model within our credit factory, we do so in keeping the customer experience in mind through increasing turn-around- time.
Leveraging Technology and Digital Platforms
We believe our sophisticated customers demand seamless and secure transactions. The ‘1Platform Kita Satu’ program provides better customer experience across the branch and digital touchpoints and networks for all stakeholders and is expected to catapult us to the forefront of digital banking service.
The New Go Mobile offers various innovations, starting with the modern look of new user interface, finger-print login feature for a quick and easier access into the apps, 1 device 1 phone number feature for more secure access, share transaction receipt directly to the beneficiary via chat messenger apps such as WhatsApp, LINE, SMS, and e-mail, download account statements, promo codes to participate in Go Mobile marketing programs and many other innovations that make it easier to transact via their smartphones.
In keeping with our commitment to improving our customer experience, CIMB Niaga officially launched its latest addition to our Phone Banking 14041 facility in Yogyakarta, which offers numerous digital-based features -- from telephone to email, from social media and live chat to video banking.
Performance in 2017
Through the implementation of these strategic thrusts, we were able to seize numerous opportunities and address challenges throughout the year of 2017.
In terms of the profit and loss accounts, we recorded a total operating income of Rp15.7 trillion in 2017, up by 5.9%, or Rp872 billion, compared to 2016 at Rp14.9 trillion. This is mainly due to strong performance in Net Interest Income and in Non-Interest Income. Net Interest Income rose by 2.6% to Rp12.4 trillion from Rp12.1 trillion in previous year. Non-Interest Income meanwhile recorded a growth of 18.8% to Rp3.3 trillion, compared with Rp2.8 trillion in the previous year.
REPORT OF THE BOARD OF DIRECTORS
We did various cross-selling initiatives involving relationship managers, telemarketing and digital channels, to increase the number of product holding per customer. As a result, at year-end 2017, average product holding was recorded at 1.7x. For customers in the mass market and preferred segment record a product holding of 3.2x and 4.6x, respectively.
As a result, we successfully recorded a consolidated net income of Rp3.0 trillion in 2017, an increase of 43.0% or amounted to Rp896 billion, compared to the net income in the previous year of Rp2.1 trillion. This achievement translated to Rp118.5 in earnings per share, an increase by 43.0% or amounted to Rp35.7 from Rp82.8 booked in the previous year.
In terms of balance sheet accounts, the Bank recorded a loan growth of 2.8% to Rp185.1 trillion with a non-performing loan (NPL) ratio of 3.7%, a 14bps improvement from last year. In line with developments in domestic economic conditions, the Bank will continue to control NPL levels by maintaining prudent credit distribution principles, exploring recovery activities and keeping considerations of asset quality as a top priority. We are optimistic that the implementation of our policies and strategies will further improve our asset quality in the future.
Meanwhile, in terms of third party funds, the Bank recorded a growth of 4.8% to Rp189.3 trillion compared to the previous year at Rp180.6 trillion.
CIMB Niaga continues to improve its CASA ratio and recorded a growth of 8.4% to Rp99.5 trillion.
Time deposits also increased by 1.2% to Rp89.8 trillion. The Bank also recorded total assets in 2017 at Rp266.3 trillion, increased by 10.2% or Rp24.7 trillion, compared to the previous year at Rp241.6 trillion.
Overall, the achievements of CIMB Niaga throughout 2017 are the combined results of the hard work of all personnel and our steadfast commitment to serve customers from the heart.
Comparison of Targets and Achievements
In 2017, I am pleased to report that CIMB Niaga recorded a commendable performance. We have exceeded our profitability target and achieved a stronger capital position. Our PBT (Profit Before Taxes) grew 45.7% to Rp4.2 trillion; while Net Profit grew 43.0% exceeded the target of 30%. The Bank ended the 2017 with a much stronger capital position:
a 64bps improvement on CAR (Capital Adequacy Ratio) to 18.60%. This achievement will put us on a stronger platform for 2018.
Challenges and Resolutions
The bank recorded a slower loan growth compare to the industry is a function of the softness of the industry and a reflection of bank’s strategies. The decision to exit Micro segment business and auto- loan recalibration strategy put a downward pressure against bank’s credit expansion plans; excluding the auto-loan segment, the bank would have recorded 4.3% loan growth in 2017.
We have focused our efforts in improving our NPL ratio, and this has recorded early results of an improvement of 14bps; bringing our NPL ratio down to 3.75% in 2017. The bank is committed to improve the NPL ratio through taking an integrated plan to increase asset quality, continuous monitoring of NPL accounts, deploying early-warning system, restructuring, optimizing collection effort and focusing on collateral sales. We expect this hard work will yield further improvements for our NPL ratio in 2018.
Recent fintech disruptions that have swept Indonesia represent challenges as well as opportunities for the bank. We have witness the high level adoptions of innovations that change the way we do businesses and daily activities, affecting banking transaction at its core. Innovation is not a new mantra in CIMB Niaga. Being considered as a digital forerunner within the banking industry command us to stay innovative in our product offering and transform the internal processes to align banking capabilities with customer expectation. We continue to explore opportunities together with new emerging fintech player to reach and deepen banking relationships with our customers.
Analysis of Business Prospects
In 2018, global economic growth is expected to be slightly better than in 2017, with stable commodity prices and improve trading volumes. However, a number of global economic uncertainties remain amid in the backdrop of the positive prospect of a continuing global economic recovery. The risk stems from the normalization of monetary policies in a number of developed economies as well as geopolitical factors in some parts of the world. On the domestic side, domestic economic growth will
be supported by increasing economic activities, continuing government infrastructure development programs, and recovery in public consumption.
Indonesia’s economic growth in 2018 is expected to hit the 5.2% GDP growth rate. In Indonesia, the 2018 regional elections and preparation of the 2019 presidential election will offer both challenges and growth opportunities.
CIMB Niaga estimates that bank loans will grow by a modest growth rate. Ultimately, the growth of e-Commerce and the growth of MSME business are expected to open up more opportunities for banks to provide financing facilities.
As a response, we continue to implement our 5 pillars strategies: 1) Playing to our strengths, 2) Expanding our CASA (Current Account and Savings Account) franchise, 3) Maintaining our cost discipline, 4) Focusing on risk management culture, and 5) Leveraging technology and digital platforms.
AT THE FOREFRONT OF DIGITAL BANKING SERVICES
We continue to develop our information technology systems in order to support the Bank’s business activities. This strategic movement is taken by CIMB Niaga as we foresee future economic direction on banking industry will be centered on digital technology services. The Bank has taken various IT initiatives which focus on digital banking services expansion with emphasis on branchless banking, heightened customer experience and digital sales proficiency, and enhancement of mobile banking system capability.
REPORT OF THE BOARD OF DIRECTORS
In 2017, we complemented our digital channel offerings foremost through launch of BizChannel@
CIMB for Business, an internet banking solution offering a secure and convenient way to conduct banking transactions for business customers. This service added on the BizChannel@CIMB product- line, namely the BizChannel@CIMB for Enterprise dedicated to the corporate customers.
Meanwhile for individual customers, We have launched the new improved Go Mobile, a mobile banking service that gives retail customers easy access with a heightened security feature against social engineering. The upgrading and revitalization of these digital channels is expected to address the needs of customers who increasingly turn to digital banking, in line with our aspiration to become Indonesia’s leading digital banking company.
HUMAN CAPITAL DEVELOPMENT
The Bank put employees as the key element as well as a strategic partner in achieving competitive advantage. Proper management of human capital is therefore one of the key pillars towards sustainable positive performance.
CIMB Niaga continuously and continually adjusted its human resource management and development strategy that enable the Bank to respond to any challenges and quickly adapt to market changes, particularly within the banking industry. In developing quality human resources in 2017, the Bank focus on four (4) key areas, comprising automation of HR services, building of internal talents, improving processes and organizational effectiveness across HR lines, and internalizing Core Values and a risk- conscious culture. Uplifting these 4 key elements is expected to make positive impacts on business growth and development as a whole.
Going forward, we will continuously strive to build professional, agile, high integrity human resources that are able to realize the Bank’s Vision and Mission.
This is being accomplished through the long-term HR development strategy, with detailed HR development on stages, priorities, and focuses.
CORPORATE GOVERNANCE
We believe that achieving good performance can be sustained over the long term and those targets in the Bank Business Plan can be achieved by the consistent implementation of Good Corporate Governance (GCG) practices. For more than 60 years, we have applied GCG principles in order to maintain harmonization and balance between the aspirations of the Bank and those of its stakeholders.
At CIMB Niaga, GCG provides direction and control for the Bank to stay aligned with the expectations of stakeholders, the requirements of law and regulations, the practice of business ethics, and the actualization of the Bank’s core values. Best- practice GCG at CIMB Niaga refers to the four pillars of Corporate Governance, namely governance commitment, governance structure, governance process and governance outcome, representing the manifestation of CIMB Niaga’s responsibility to its stakeholders, notably comprising customers, employees, shareholders, regulators and the general public. In addition, we are also guided by GCG principles as required by the OJK as generally applied in Indonesia, as well as the best practice according to the ASEAN Corporate Governance Score Card.
We always adhere to GCG principles in harmony with best practices that not only provide adequate protection and fair treatment to shareholders and other stakeholders, but more than that, encourage the Bank to create shareholder value to the maximum
level. The Board of Commissioners, the Board of Directors and all employees are fully committed to implementing high standards in the application of GCG principles. These principles serve as a reference for decision making, performance optimization, prevention of conflict of interest, and increased accountability.
In recognition of the implementation of best practice corporate governance in CIMB Niaga in 2017, the Bank received a number of prestigious awards in the field of Corporate Governance including as 1st Winner of Private Finance Listed Category in Annual Report Award 2016, Best Overall on the 9th IICD Corporate Governance Award 2017, and Top 5 GCG Issues on Banking Sector at Indonesian Corporate Secretary Award 2017.
CORPORATE SOCIAL RESPONSIBILITY PROGRAMS The successes of CIMB Niaga in conducting its business activities is not only determined by operational and financial performance, but is also supported by non- financial performance as can be seen on harmonious relationships with the community through the implementation of Corporate Social Responsibility programs. CIMB Niaga’s CSR programs are focused on activities that have a significant impact on the welfare of the respective recipients.
In 2017, CIMB Niaga continued its CSR programs and activities through the four activity pillars of education, community development and empowerment, philanthropy, and the environment. In the field of education, we distributed scholarships to 905 students ranging from high school to the graduate level. We also encouraged the implementation of the Banking Finance Education and Literacy Program through the ‘Ayo Menabung dan Berbagi’ Program, Tour de Bank, Mini Banking Laboratory and Bourse Game Laboratory. In addition, we continued with the
One Million Book program, Training for Kindergarten/
Early Childhood Education Teachers program, and the provision of supporting educational facilities to schools throughout 2017.
On the pillar of community development and empowerment, one on-going activity is the Disabled Person Empowerment Program, which provides an opportunity for physically-challenged people to work in CIMB Niaga. In 2017, CIMB Niaga recruited 48 visually impaired individuals to work in Telesales Funding as well as 10 hearing impaired individuals to work in Phone Banking Social Media. In addition, we also included 20 people with disabilities in Information Technology Training.
In an effort to improve the welfare of the community as a reflection of the philanthropic pillar, CIMB Niaga contributed through various activities: a project in cooperation with the Embassy of the Republic of Indonesia in Kuala Lumpur for the provision and management of Rumah Kita Shelter, a temporary shelter for Indonesian Migrant Workers in Malaysia, donation for religious and social activities, organization of blood donor drives, and emergency relief aid in the handling of natural disasters.
In the environmental field, we consistently strived in efforts to preserve the environment by planting 10,000 Betung bamboo trees in Ngada, East Nusa Tenggara, and through the implementation of Smart Spending Policy.
Throughout 2017, we channelled a total of Rp30.9 billion in CSR funds. In our commitment to the implementation of CSR programs, CIMB Niaga will gradually allocate funds for CSR at 1% of our Profit Before Tax (PBT). We are optimistic that CIMB Niaga’s CSR activities will continue to generate added value for shareholders and other stakeholders, while at the same time supporting CIMB Niaga’s business growth through the synergy between CSR Programs and the Bank’s business strategies.