be a Government focus, aiming for the acceleration of Indonesia’s economy, especially once key infrastructure projects have been completed. Investment flows improved and contributed to a number of business activities. National export performance grew, in line with the improvement of Indonesia’s key commodity prices.
Indonesia’s economic growth was influenced by positive improvement in the global economy, although the recovery is slower than expected. Growth of the US economy, which showed progressive signs, including domestic consumption growth and a declining unemployment rate, was a positive. This influenced the US Federal Reserve (FED) to increase its interest rate several times, and it will likely do so again in the foreseeable future.
The Chinese economy is moving toward a new equilibrium with lower economic growth of 6.7%-6.9%, accompanied by the risk of high Chinese corporate debt. The slowdown in China’s economy has affected the global economy, especially its trading partners, including Indonesia. However, China’s rebalancing and deleveraging processes have been well managed and its economy is heading for a soft landing. The European improved and is now one of the pillars of global economic growth.
Targeted domestic macroeconomic policies successfully supported a number of key macro parameters, despite moderate national economic growth. The Rupiah exchange rate against the US Dollar (USD) was relatively stable in 2017, although it experienced pressure at the second semester, closing 2017 at Rp 13,555 per 1 USD, from Rp 13,473 at the end of 2016. Inflation also remained within the Government’s target range, at 3.6% by the end of the year, compared to 3.0% at the end of 2016.
Indonesia’s economy saw a number of achievements, providing foundations for long-term economic growth in 2017. The tax amnesty program, which began in July 2016 and was applied gradually to the end of March 2017, recorded a redemption payment equivalent to 1.1% of Gross Domestic Product (GDP), and total
Board of Commissioners
Tonny Kusnadi Commissioner Sumantri Slamet
Independent Commissioner
Raden Pardede Independent Commissioner
assets declared equal to 39.3% of GDP. The amnesty was the most successful in the world, with the highest ratio of redemption levy to total GDP compared to other countries that have implemented such a program. Standard & Poor’s upgraded Indonesia’s debt ratings to investment grade in 2017, due to fiscal and monetary conditions, while Fitch Ratings increased Indonesia’s debt rating from BBB- to BBB. The outlook of Indonesia’s investment grade was improved to positive from stable by Moody’s.
Bank Indonesia loosened several monetary policies, including adjusting interest rates, to stimulate economic growth. In second semester 2017, Bank Indonesia lowered its seven-day reverse repo rate in August and September by 25 basis points each, standing at 4.25% at the end of year, in response to stable inflation, Rupiah exchange rates and investment flow. Interest rates in Indonesia were relatively low compared to long-term historical data. However, national banks need to pay attention to the direction of global interest rates, especially the impact of the increased FED rate in the US and the European Central Bank’s (ECB) plan to reduce its stimulus plan in the Eurozone.
The normalization of the FED rate, both in terms of magnitude and implementation schedule, will have an impact on emerging countries, including Indonesia. The rate of reduction of the ECB’s monetary stimulus program will depend on economic recovery in European countries. The prevailing macroeconomic conditions in many countries will affect the monetary policies of the world’s major central banks and impact global capital flow.
The banking sector experienced moderate loan growth of 8.2%
in 2017, in line with the ongoing recovery of the economy. Third party funds grew by 9.3%, and the sector’s Non-Performing Loans (NPL) ratio was relatively stable at 2.6% at the end of 2017, from 2.9% at the end of 2016. Net income grew by 23.1%, consistent with the easing pressure on NPLs. The banking industry saw a drop in its Net Interest Margin (NIM) to 5.3% in 2017 from 5.6%
in 2016, in line with declining domestic interest rates in 2017.
Financial system stability was well maintained, with a solid banking sector capital position (Capital Adequacy Ratio – CAR per December 2017 of 23.2%) and liquidity position (Loan to Deposit Ratio – LDR at the end of December 2017 of 90.0%).
Performance of the Board of Directors and Bases of Assessment
The Board of Commissioners assessed the Board of Directors’
performance in 2017 based on the annual business plan submitted by the Directors and approved by the Commissioners.
In its supervisory capacity, the Board of Commissioners decided that, overall, the Board of Directors successfully managed BCA in 2017 amid Indonesia’s moderate economic conditions.
The Board of Commissioners and the Board of Directors are committed to creating a transparent, accountable, responsible, fair and independent organization. The implementation of good corporate governance, sound risk management and internal auditing serves as foundations for sustainable business performance, and creating added value for the Bank’s stakeholders.
BCA and its corporate governance systems have been properly managed by the Board of Directors.
We report that in 2017, BCA maintained a healthy business performance, posting a 13.1% increase in net income to Rp 23.3 trillion. The loan portfolio grew 12.4% to Rp 467.5 trillion, and third party funds grew 9.6% to Rp 581.1 trillion. Return on Assets (ROA) and Return on Equity (ROE) exceeded pre-defined targets.
BCA also maintained strong capital and liquidity positions, reflected in the CAR, Loan to Funding Ratio (LFR) and Liquidity Coverage Ratio (LCR). BCA’s solid performance was partly due to prudent risk management, particularly in the management of credit, market and operational risk. The Bank’s loan quality was well maintained, with an NPL ratio of 1.5% in 2017, lower than the Indonesian banking sector average. Other risks, including operational, were adequately managed, supported by an integrated risk management framework covering strategies, organizational structure, policies and guidelines, and the infrastructure of the Bank’s risk management, allowing BCA to identify, measure, control and report risks. Operational losses were well below the standard capital charge stipulated by the regulator.
The Board of Commissioners supports the Board of Directors’
strategies in adapting to changes in customer needs and the latest banking trends. The Board of Directors successfully steered the Bank to take advantage of technology and enhance its digital services, despite the rapid growth in digital technology. BCA responded to growing customer preference for digital services and increased automation for operational efficiency. This resulted in improved business, in particular transaction banking, as the key driver for Current Accounts and Savings Accounts (CASA). BCA established PT Central Capital Ventura, a venture capital company as a subsidiary in response to the advancement of fintech and e-commerce start-up companies in 2017, enabling the Bank to invest in fintech companies. The subsidiary will collaborate with fintech companies and support BCA’s business ecosystem and its subsidiaries, and enable it to adapt to the changing needs and demands of customers.
Supervision of BCA’s Strategy
The Board of Commissioners, in its supervisory role, concludes that the Board of Directors successfully managed the Bank in accordance with its annual business plan, BCA’s vision, mission, and strategic direction. We see that the Board of Directors applied appropriate measures to adapt to increasingly tight competition in the banking sector and changing business trends, improving its capability for continuous growth.
BCA continued to strengthen its core transaction banking business in 2017. A solid source of CASA funding was secured by the Bank’s preeminence in transaction banking and its continuous efforts to maintain interconnection between customers and its payment system.
BCA leverages on digital technology to expand its products and services in accommodating customer needs, and improve operational efficiency. Investments are continuously made to develop internet and mobile banking, and application-based services. BCA maintains its investment in efficiency-oriented programs, including the development of Cash Recycling Machines (CRM). These efforts have shown positive results. In line with the shift of customer preferences toward digital-based services, the number of transactions conducted through internet, mobile and ATMs accounts for 97% of total customer transactions processed by BCA. The Bank still expanded its branch offices, considering the significant value of the transactions they process. BCA also implemented various automation initiatives across its branch network and developing a more compact format.
CASA funds continue to grow, despite Indonesia’s ongoing economic recovery, due to the Bank’s focus on the development of its transaction banking franchise. CASA funds grew 8.7% to Rp 443.7 trillion in 2017. CASA accounted for 76.3% of total third party funds of Rp 581.1 trillion at the end of 2017. The tax amnesty also contributed to the Bank’s CASA turnover. In 2017, BCA supported the tax amnesty program by facilitating customers in making tax amnesty redemptions and investing repatriated funds. The Bank also provided tax amnesty education to its customers.
The Board of Commissioners assesses that the Directors appropriately lowered deposit rates gradually, helping the Bank to maintain low cost of funds, in line with the national banking
The Board of Commissioners appreciates the Board of Director’s prudent and disciplined lending risk management principles. The Bank’s loan portfolio was diversified into a number of potential sectors, and continued to grow with a relatively low NPL and loan restructuring rate compared to the industry average. BCA consistently monitors debtor business conditions to proactively provide solutions for debtors experiencing financial difficulties.
The Bank’s loan portfolio was Rp 467.5 trillion in 2017, growth of 12.4% compare to the previous years. BCA captured the opportunity of increasing corporate loan demand by providing lending to major debtors with proven track records. BCA implemented the consumer loan strategy of offering attractive products with low interest rates, especially on mortgages. This successfully increased mortgage growth. BCA sought to increase penetration for the commercial and SME segments, which experienced more fierce competition compared to other segments.
The Board of Commissioners endorses the strategic steps implemented by the Board of Directors in strengthening the capabilities of the Bank’s subsidiaries. The role of the subsidiaries is to complement BCA’s banking business in meeting the increasingly diverse needs of its customers. BCA increased its ownership and control of the BCA Life, BCA Sekuritas and CS Finance subsidiaries in 2017. We believe there is high business potential for the subsidiaries to grow in their respective fields.
BCA will continue to support the growth of its subsidiaries in the coming years and enhance synergy between subsidiaries and the Bank’s core business.
Implementing Good Corporate Governance
BCA believes the implementation of good corporate governance (GCG) plays an important role in maintaining stakeholder trust and the sustainability of the Bank’s business. The Board of Commissioners continuously monitors the implementation of GCG principles and practices at all levels of the organization. BCA’s application of GCG principles is in line with prevailing regulations, including Financial Services Authority (OJK) regulations, the Roadmap of Indonesian Corporate Governance issued by the OJK, the provisions of the ASEAN Corporate Governance Scorecard and in accordance with the Articles of Association of BCA, as well as international best practices.
BCA periodically conducts self-assessments of its GCG practices,
BCA strengthens the implementation of integrated corporate governance. BCA appointed BCA Sekuritas Independent Commissioner as a member of the Integrated Corporate Governance Committee in 2017 to improve its effectiveness.
We view that BCA’s Board of Directors has regularly conducted a number of meetings and sustains active communication with stakeholders to ensure GCG implementation.
Board of Commissioners’ Whistleblowing Role
The Board of Commissioners believes whistleblowing plays an important role in improving the implementation of good corporate governance. The Commissioners provide guidance in the development of the whistleblowing system and supervise its implementation in BCA.
The system is part of the Bank’s efforts to preserve its culture and anti-fraud awareness. BCA has a work unit that manages the effectiveness of the whistleblowing system, and is responsible to the President Director and directly communicates with and reports to the Board of Commissioners. There have been mandatory e-learning modules related to whistleblowing for all employees since 2016.
Supervisory and Advisory Role to Board of Directors
The Board of Commissioners maintained constructive communication with and actively offered advice to the Board of Directors on the Bank’s policy and strategies throughout 2017.
The Commissioners delivered advice and recommendations to the Directors through meetings, including the joint meetings of the Board of Commissioners and the Board of Directors. The Board of Commissioners held 49 board meetings in 2017 and 18 joint meetings with the Board of Directors. The Commissioners also held special or ad-hoc meetings as required.
The Board of Commissioners’ advice and recommendations to the Board of Directors are as follows.
Topic Summary
Business Strategy and Management • Reviewed the authority limits of the Board of Directors on credit approval, considering the BCA’s growing capital position.
• Provided advice and guidance on strategic partnerships, including the renewal of the bancassurance agreement with PT AIA Financial (AIA Indonesia).
• Provided recommendations on capital investment in subsidiaries.
• Provided advice regarding adaptation to business environment changes, including adjustment of human resource policies.
• Advised on the formation of a work unit for managing and supporting government programs related to financial inclusion.
Risk Management • Assessed credit exposure in sectors or segments with high concentration risk.
• Provided a review and assessment of infrastructure loans.
• Advised careful monitoring the adverse effects of high non-performing loans in other banks on the quality of BCA debtors.
• Provided guidelines on the development of a recovery plan, the scope of the business continuity plan and examined crisis-handling protocols.
• Supported strengthening the security and reliability of operational systems, including early detection of system errors.
• Advised the Company on identifying possible risks that could impact its conglomeration.
Audit and Compliance • Ensure internal control standards fulfilled in the organization of operational policies and procedures.
• Exercised careful monitoring of information technology systems.
• Conducted an in-depth review regarding regulator support programs.
• Prepared the selection process for the appointment of the public accounting firm to conduct the 2017 audit process.
Assessment of Committees Under the Board of Commissioners
The Board of Commissioners is assisted by the Audit Committee, the Risk Oversight Committee, the Remuneration and Nomination Committee, and the Integrated Corporate Governance Committee, to enhance the effectiveness of its duties and its supervisory functions. The Board of Commissioners observes that these committees upheld good standards of competence and quality in 2017.
The Audit Committee effectively assisted the Board of Commissioners in overseeing the implementation of internal and external auditing, the implementation of corporate governance, and compliance with prevailing laws and regulations. The Audit Committee held 21 meetings in 2017, conducted 8 meetings with the Internal Audit Division and reviewed more than 150 internal audit reports.
The Board of Commissioners was effectively assisted by the Risk Oversight Committee to ensure the risk management system provided adequate protection against all risks faced by BCA. The Risk Oversight Committee organized 12 meetings in 2017 to review credit, liquidity, reputational and operational risk; crisis management and the business continuity plan; and a review of the preparation of the recovery plan.
The Remuneration and Nomination Committee provides recommendations to the Board of Commissioners on the remuneration policies of the Board of Commissioners, Board of Directors, senior officers and all of the Bank’s employees. The Integrated Corporate Governance Committee assists the Board of Commissioners in exercising supervision over the integrated implementation of good corporate governance in BCA and its subsidiaries. The Remuneration and Nomination Committee and the Integrated Governance Committee each held 5 meetings in 2017.
Changes to the Board of Commissioners
There was no change to the composition of members of the Board of Commissioners in 2017. The profile of the Board of Commissioners can be seen in the Company Profile section on pages 66–69 of this Annual Report. Each Commissioner has the required competence and experience to perform their supervisory functions and provide advice to the Board of Directors in
Business Prospects and Assessments of the Board of Commissioners
The Board of Commissioners, with the Board of Directors, foresee that the Indonesian economy and banking industry has a long- term positive outlook. Although achieving a 6% growth rate is not an instant process, the economy continues to recover in line with the implementation of economic growth stimuli and the positive progress of infrastructure programs that are expected to accelerate Indonesia’s economic cycle.
The Board of Commissioners appreciates the Board of Director’s moderate growth targets, considering the ongoing recovery of Indonesia’s economy and the global economy, which still needs careful monitoring, based on the annual business plan submitted by the Board of Directors. The Board of Directors has established appropriate business plans focusing on the strengthening of payment settlement services as the key driver to CASA funds growth. This was achieved by developing various payment settlement products and features in all channels, and utilizing advance technological developments. BCA also continuously develops its intermediary function, promoting quality loan growth by exploring business opportunities and utilizing capacities.
The Board of Commissioners considers the adaptation strategies implemented by the Board of Directors in line with advancements in information technology and changes in customer behavior and preferences. BCA will make measured investments to further develop its digital products and services and information technology infrastructure, and strengthen its multi-channel networks. The provision of reliable, secure and convenient transaction services will support BCA in sustaining CASA growth.
The Board of Commissioners supports the strategic steps implemented by the Board of Directors in improving the infrastructure of BCA’s lending, enabling the Bank to enhance customer services. The credit process will continuously be simplified. The Board of Directors aims to constantly capture opportunities in mortgage, vehicle, credit card, and business loans in both corporate and commercial and SME segments. BCA operates commercial and SME business centers in potential areas to improve its commercial and SME portfolio.
The Board of Commissioners is in line with the Board of Directors’
efforts in strengthening the synergy between the Bank and its subsidiaries to provide comprehensive financial products and services to customers, as the needs of our customers continue to grow. The Board of Commissioners assesses that BCA’s work plan has captured and considered both business opportunities and risks. The Board of Commissioners’ view is well aligned with the Board of Directors in continuously prioritizing a healthy balance sheet position, solid capital and liquidity conditions, and a healthy loan quality to achieve business continuity and maintain a sustainable positive financial performance.
Appreciation of All Stakeholders
On behalf of the Board of Commissioners, we would like to express my gratitude to all shareholders, customers, business partners, employees and stakeholders of BCA. The successes and achievements in 2017 would not have been possible without continuous support from all stakeholders.
The Board of Commissioners acknowledges the hard work and the effectiveness of BCA’s management, enabling the Bank to maintain stability and strong financial performance throughout 2017. The Board of Commissioners also thanks all subsidiaries for their important contribution to BCA’s overall development.
We are grateful to the regulators, particularly the Financial Services Authority and Bank Indonesia, for their guidance and support to BCA and the Indonesian banking industry.
We are confident that with the continued commitment of all stakeholders, BCA will improve its performance and continue to provide value added and benefits to our customers and shareholders, and the Indonesian community.