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2018 Annual Report PT Bank Central Asia Tbk 133 the portfolio. Treasury managed its investment portfolio
by monitoring interest rates and making placements within the Bank’s risk appetite.
By the end of 2018, investments managed by BCA Treasury (consolidated) reached Rp147.1 trillion, lower than Rp162.5 trillion the previous year, due to higher loan growth. The majority of investments were placed in short to medium term instruments to support a STRONGLIQUIDITYPOSITIONANDGIVEmEXIBILITYFORASHIFTIN portfolio composition.
Placement of funds focused on risk-free instruments ISSUED BY THE 'OVERNMENT AND "ANK )NDONESIA TO minimize risk and maintain liquidity. For placements shorter than one year, BCA allocated the majority of its funds with Bank Indonesia term deposits, Bank Indonesia deposit certificates, and securities purchased under agreements to resell (reverse repo). For longer- term placements, we primarily invested in government bonds, quality mutual funds and other instruments with a tenor of one to three years. In the beginning of 2018, a large number of our investments in government bonds were mature. Throughout the dynamic market in 2018, we managed the timing for repurchase of government bonds. BCA placed the funds in short-term instruments in early 2018 and gradually re-invested in government bonds as the bond market showed an increasing yield.
Our liquidity position is mainly supported by current accounts and savings accounts. Transaction banking as our core business provided us low cost funds from current accounts and savings accounts. We lowered
saving interest rates to manage the overall cost of funds.
Time deposits funds became a balancing component for our third party funds position. We adjusted the time deposit rates in line with increasing benchmark rates.
Since April 2018, BCA gradually increased time deposit rates by a total of 175 basis points.
The size of the current accounts and savings accounts to total third party funds supports our efforts to manage cost of funds. At the end of 2018, interest expense decreased 3.9% to Rp11.5 trillion, while third party funds increased 8.4%. Cost of funds was 1.8% compared to 2.0% the previous year.
We recorded a Net Interest Margin (NIM) of 6.1% in 2018, supported by the optimization of returns on earning assets and managed cost of funds. NIM improved since the third quarter, but average NIM in 2018 was lower than the previous year.
In line with the Bank’s solid liquidity position and increasing demand on foreign exchange hedging, Treasury placed foreign exchange funds in Bank Indonesia and hedged the funds through swap market. These swap transactions brought returns, which increased treasury income, as the spread of swap premiums became wider.
The return was recorded in the trading income account including the realized gains on spot and derivatives, and unrealized gains from the fair value of financial assets held from trading. In 2018, combined revenue from those accounts rose 97.4% to Rp2.1 trillion.
BCA Treasury proactively manages its liquidity position,
while also optimizing return. International Banking
focuses on the development of remittance and trade
finance services.
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BCA Treasury implements the prudence principle in its management of foreign currency exposures, and maintains its foreign currency liquidity position by CONSIDERINGCASHmOWANDBEINGWITHINTHERISKAPPETITE The Net Open Position (NOP) was a healthy 0.5% of capital, far below the maximum limit of 20% as set by Bank Indonesia, in order to minimize exchange rate risk.
Facilitating Customer Needs
We continue to provide solutions to customer needs for foreign currency transactions, capital markets and custodian services. In meeting demands across all segments, BCA Treasury maintains synergy with Corporate Banking and Commercial and SME Banking, as well as working closely with the frontliners in all BCA branches.
To facilitate individual customer demands on foreign currency transactions, BCA leverages digital services, such as internet and mobile banking facilities, as well as branch banking services. Through electronic platforms, BCA offers an e-rate, which is more competitive than the rate offered at the branches, to facilitate customers in online foreign currency transactions. For corporate customers, BCA offers special facilities for foreign
CURRENCY TRANSACTIONS THROUGH THE +LIK"#! "ISNIS internet banking platform, as well as providing channels for customers to communicate and negotiate rates directly with the BCA Treasury team. For e-commerce and fintech customers, BCA provides access to exchange rate information through the Application Programming Interface (API).
In fulfilling customer investment needs and to support THE 'OVERNMENTS FUND RAISING "#! FACILITATES THE sale of government securities, such as Indonesia retail bonds (Obligasi Ritel Indonesia – ORI), retail savings bonds (SBR), Islamic retail bonds (Sukuk Ritel – SR), and Islamic saving bonds (Sukuk Tabungan – ST). BCA is a trusted sales agent for government securities, and in 2018 facilitated sales of Rp3.8 trillion in ORI, Rp3.6 trillion in SBR, Rp1.4 trillion in SR, and Rp1.9 trillion in ST on primary markets. For the first time, we offered a facility for purchasing SBR through internet banking to improve ease of transaction for customers. The Bank’s efforts in the sale of government securities also contributes to fee-based income. In appreciation of the Bank’s commitment to selling government securities, we consistently receive awards from the Ministry of Finance, INCLUDING 4OP 'OVERNMENT 3ECURITIES !GENT OF
2018 Annual Report PT Bank Central Asia Tbk 135 'OVERNMENT 3ECURITIES !GENT WITH "EST 0ERFORMANCE
on the Secondary Markets of 2017, Best Sales Agent of 2ETAIL3TATE3UKUKAND"EST0ARTICIPANTOF'OVERNMENT Sharia Securities (SBSN) Auction 2018.
We also offer custodian services, including the safekeeping of securities and the administration of mutual funds for both individual and institutional customers. Through these services, BCA Custodian guarantees that assets administered by the Bank are managed properly and the rights of the asset holders, such as the distribution of dividends or the receipt of bond coupons, are fulfilled. BCA Custodian recorded total managed assets equivalent to Rp110.2 trillion and over 75,000 securities accounts in 2018. Securities managed by BCA Custodian include time deposits, Bank Indonesia instruments, corporate bonds, shares and others. BCA Custodian also offers safekeeping services for foreign currency instruments.
INTERNATIONAL BANKING
BCA International Banking continues to develop the trade finance and international remittance business in line with customer business growth. Through these services, BCA supports customers’ business operations while also contributing to the Bank’s fee-based income collection.
)N LINE WITH !SIAN TRADE mOW DEVELOPMENT "#!
International Banking is active in establishing and maintaining strategic partnerships with Asian banks. To SUPPORT FOREIGN DIRECT INVESTMENT mOW WE EXPANDED our partnerships with banks in the Philippines and Japan in providing banking solutions to foreign investors entering Indonesia.
Trade Finance Services
2018 saw ongoing challenges caused by global economic uncertainty, including the increasing tension between China and America and the slowing growth among Indonesia’s trade partners. These conditions affected Indonesia’s trade leading to more moderate growth in its exports, while imports saw relatively high growth consistent with large domestic consumption and rising demand for capital goods. BCA continued to explore customer needs to offer quality trade finance services, leading to positive growth in trade finance transactions in 2018. Domestic trade also made a significant contribution to BCA International Banking, primarily from the steel, coal, forestry, pharmaceutical, paper and chemical industries. Overall, domestic transactions experienced a 32.9% increase from the previous year.
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In 2018, BCA supported a Bank Indonesia initiative along with Bank Negara Malaysia and Bank of Thailand in implementing Local Currency Settlement. BCA is a trusted member and Appointed Cross Currency Dealer (ACCD). As a part of the ACCD program, BCA facilitates international trade transactions using local currencies with Malaysia and Thailand. To promote this new service to customers, BCA engaged in socialization activities in major cities across the nation.
With its broad customer base and synergy with other business units, the trade finance business saw solid performance, which in turn generated fee-based income. BCA continues to improve the quality of its trade finance services and develop its human resources in line with the developing needs of customers and the changing business landscape.
Remittance
BCA continues to build close relationships with correspondent banks in order to fulfill customer remittance needs. A wide network of correspondence BANKS GIVES "#! mEXIBILITY IN FACILITATING REMITTANCE transactions in a range of currencies. Supported by its wide network of correspondence banks, BCA offers multi-currency services that allow customers to remit money in 124 foreign currencies throughout the world.
BCA offers a service for same-day transfer of funds to China in US dollars, and regular remittance to China in Yuan. BCA also offers a same-day service for transfers in Australian dollars and a service that ensures transfers made in Euros will be received in the full amount.
In 2018, in collaboration with Bank Indonesia, BCA held a remittance seminar for customers under the theme Local Currency Settlement to educate customers with regard to bilateral transactions using Rupiah and Ringgit or Baht. Local Currency Settlement is a direct exchange without having to settle through US dollars.
In order to receive incoming foreign currency transfers, BCA offers inward remittance to customer accounts at BCA, other banks or in cash. The Bank continues to develop its web-based service, Fire Cash BCA, which also benefits from the BCA correspondence bank network.
Since 2007, Fire Cash BCA has been rolled out in countries which are popular for the Indonesia overseas workforce. Funds received through inward remittance on the Fire Cash BCA platform can be received at various outlets throughout Indonesia, namely branch offices and a number of local partners, including the post office network and selected convenience stores. BCA also receives remittance funds from overseas partners, INCLUDING-ONEY'RAM8PRESS-ONEYAND4RANS&AST
2018 Annual Report PT Bank Central Asia Tbk 137 Looking Ahead
BCA consistently monitors developments in the overall business landscape and the developments of customer businesses to offer solutions best suited to customer needs. The Bank will continue to explore these needs and develop products and services offered by the treasury and international banking.
The large customer base and business growth of those customers will provide ongoing opportunities in foreign currency transactions, trade finance, remittance and custodian services. BCA will continue to improve the quality of services and maintain business relations with banks overseas. The business communities affiliated with BCA, along with its partner banks throughout Asia, provide the basis for BCA to develop its referral and business matching schemes, introducing local customers to partner banks and opening up new mutual opportunities.
In line with technological developments and the high adoption rates among the Indonesian people, BCA will continue to enhance the Bank’s e-channels to support treasury and international banking services. Product and service improvements along with system enhancement will be the priorities in the provision of safe, convenient and reliable banking solutions.
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We implement risk management that strikes a balance between business opportunities and potential risks. Faced with the risks inherent in its overall banking business and operations, BCA has implemented an Integrated