MANAGEMENT
REPORT
We are pleased to report that BCA and its subsidiaries booked a solid performance through disciplined execution of the Bank’s policies and business plan.
BCA continues to strengthen its ability to provide exceptional banking services in response to the digitally evolving business environment, and navigate challenges into new opportunities to support future business performance.
Indonesia’s Economy and Banking Industry
2019 has been a year of challenges and change, marked by global issues such as the prolonged US-China trade war which BECAMETHEMAJORCAUSEOFAGLOBALECONOMICSLOWDOWN4HE US experienced a similar slowdown in its economy, which only grew by 2.3%, a decrease from the previous year of 4HE &ED GRADUALLY LOWERED ITS &ED &UNDS 2ATE &&2 by 75 basis point (bps) to 1.75% by year end, and actively intervened in the interbank market through Permanent Open Market Operations (POMO) to improve liquidity.
7E EXPECT &&2 ADJUSTMENTS WILL CONTINUE DEPENDING ON US economic developments.
REPORT OF THE BOARD OF DIRECTORS
Jahja Setiaatmadja President Director
Dear Valued Shareholders,
BCA takes into account both
internal and external factors
to determine its strategic
initiatives, while preserving
strong liquidity and capital
positions, and promoting
a balance between loan
growth and asset quality.
Indonesia managed well its biggest election ever for president and legislative seats. We wish to express our appreciation to all parties who contributed to the successful elections.
The Indonesian economy remained defensive, achieving economic growth of 5.0%. It maintained the pace of GDP growth with large domestic consumption and government spending. We appreciate the government continuing taking appropriate measures to keep domestic macroeconomic stability in check.
The current account deficit narrowed to USD30.4 billion in 2019, accounting for 2.7% of GDP, an improvement from USD30.6 billion (2.9% of GDP) the previous year. This was due to government efforts amongst others to manage imports, as well as declining global oil prices, which eventually led to a relatively stable Rupiah. At year end, the Rupiah exchange rate strengthened and stood at below Rp14,000 per USD. In 2019, Indonesia received a sovereign rating upgrade from international rating agency of BBB/Outlook Stable from BBB-/Outlook Stable. This has boosted the confidence level in the country’s economic growth prospects.
The Indonesian monetary authority adopted accommodative policies to sustain economic growth. Bank Indonesia lowered its policy rate (seven-day reverse repo rate) four times or 100 bps to 5.0% at year end. This was consistent with emerging countries such as Malaysia, Philippines and India, and the GLOBAL DECLINE IN INTEREST RATES )NmATION WAS CONTAINED AT THROUGHOUTTHEYEAR4HE&INANCIAL3ERVICES!UTHORITY /*+ ALSO CARRIED OUT ITS SUPERVISORY ROLE AND PROACTIVELY discussed future risks with financial players.
The banking sector reported a moderate performance, with loan and third party funds growth of 6.1% and 6.5%
respectively. Liquidity in the sector remained tight with LDR at 94.4%, with banks continuing to compete for third party funds. Competition was intensified by the issuance
of government marketable debt securities with a more attractive return than bank deposits.
Banking sector loan growth was mainly derived from the construction, household, manufacturing industries and wholesale & retail trade sector. These four industries recorded nominal loan growth of Rp190.4 trillion, accounting for 59.1% of overall sector loan growth. Credit demand came in below our expectations despite declining interest rates.
Businesses remained cautious about expansion considering the recent macroeconomic outlook. The new cabinet is expected to foster stronger business confidence, and may lead to higher loan growth in the long run. The banking sector managed credit quality with a tolerable NPL ratio of 2.5%, compared to 2.4% the previous year. Capital remained solid with a CAR of 23.4%, relatively stable from 23.0%
in 2018.
Indonesian banks experience a more competitive environment due to shifting of customer behavior as well as from the entrance of fintech and e-commerce players which gained a prominent presence in the financial service industry.
These new players’ “time to market” is faster, while banks have to adhere to stringent regulations. Notwithstanding the challenges, banks also see many opportunities for collaboration with marketplace and startup players to create synergy in offering financial services, particularly to millennial or tech-savvy customers.
BCA believes the government will continue implementing necessary macroprudential measures to ensure the country’s macroeconomic stability.
Implementation of BCA Strategic Policy
BCA takes into account both internal and external factors to determine its strategic initiatives, while preserving strong liquidity and capital positions, and promoting a balance between loan growth and asset quality.
BCA focused on growing its CASA through the provision of reliable, secure and convenient banking transaction services, to maintain its strong liquidity. It carried out initiatives to improve facilities, products and services using digital technology, expand network coverage in the payment ecosystem, and enlarge the customer base, which translates into a higher number of accounts and transactions. In 2019, the Bank registered a remarkable increase in the number of accounts by 14.2% to more than 21 million accounts., while the number of transactions also grew strongly by 34.5%. This led to a sustainable growth of CASA, which is the Bank’s core funds, growing 9.8% to Rp530.6 trillion, contributing 75.9%
of total third party funds.
Loans outgrew the banking industry amid the modest pace of economic recovery. Loan quality was intact through the implementation of prudent banking principles and disciplined risk management. Loan disbursement focused on potential sectors and customers with sound track records. We took part in government programs through loan syndication to prospective infrastructure developments, including ELECTRICITY TOLL ROAD AND TELECOMMUNICATION PROJECTS ,OAN diversification in various economic sectors was carried out to reduce concentration risk.
BCA co-operated with its subsidiaries to develop new products and services. We are committed to supporting the performance of our subsidiaries, to deliver the highest possible customer satisfaction with the group’s products and services.
The Board of Directors is dedicated to implementing strategic initiatives that take into account sound risk management and THEPRINCIPLESOFGOODCORPORATEGOVERNANCE4HISISREmECTED in strong stakeholder confidence, as acknowledged by the appreciation received from regulators, investors and leading independent agencies.
Development of transaction banking and digital banking services
"#!PRIORITIZEDSTRENGTHENINGTRANSACTIONBANKINGREmECTED in its annual business plan and strategic work programs.
Reliable payment settlement services are the driving force behind customer trust in our services, leading to sticky and solid CASA growth.
The Bank’s initiatives to strengthen transaction banking capabilities were heavily focused on the development of digital platform services, such as online account opening through BCA Mobile. Since its launch early in the year, this facility has received positive feedback and contributed to customer growth.
/THERNOTABLEINNOVATIONSLAUNCHEDINCLUDE"#!+EYBOARD which allows customers to transact without having to close chatting apps, cardless cash ATM withdrawal using a one- time pin via BCA Mobile, and the Welma application to meet customer demand for investment products such as mutual funds, bonds and insurance.
The Bank continued to strengthen collaboration with e-commerce and fintech companies to expand the coverage of its payment ecosystem. It utilized Application Programming Interface (API) technology for integration of co-partner systems with its system. More than 1,600 co-partners, consisting of e-commerce and fintech players, have now connected with our system.
These initiatives were supported by a robust information technology infrastructure and a reliable security system.
Information technology was modernized to support the reliability of banking transaction services. Machine learning, big data and artificial intelligence technology were adopted to enhance data analytics capability, enriching user experience and improving the security and operational systems.
BOARD OF DIRECTORS
Suwignyo Budiman Deputy President Director Subur Tan
Director Vera Eve Lim
Director
*AHJA3ETIAATMADJA President Director
Lianawaty Suwono Director
Rudy Susanto Director
)NAWATY(ANDOJO Director
Santoso Director Henry Koenaifi
Director
Armand Wahyudi Hartono Deputy President Director
%RWAN9URIS!NG Independent Director
%NHANCEMENT OF THE "#! -OBILE BANKING AND +LIK "#!
internet banking platforms saw the number of transactions performed through these two digital channels grow by 99.2% and 10.8% from previous year.. These two digital channels are the driving force of BCA’s integrated e-channels.
Some 98.2% of customer transactions were performed via electronic channels outside the branch network. We welcome this achievement and are committed to offering high quality digital banking solutions to our customers.
The Bank selectively expanded its conventional branch network (bricks and mortar) to complement its digital banking network. We believe the branches remain important to building relationships with customers and serving those with sizable transactions. Even though they only made up 1.8% of the total transaction volume, branch transactions represented 49.1% of our total transaction value during the year. Expansion of the branch network will focus on simplicity and efficiency, including cash offices or non- permanent branch networks that use digital equipment - BCA Express. We utilized digital technology to improve branch service quality and operational efficiency, and continued to install self-service machines. To complement the branch network’s cash deposit and withdrawal services, we increased the composition of cash recycling machines to total ATM machines. A number of transaction banking service initiatives fostered our CASA growth at a CAGR of 11.4% over the past 10 years.
Quality Growth of Loan Portfolio
BCA posted solid loan growth, higher than the banking industry average, thanks to consistent execution of its work plan and programs. This growth did not come at the expense of loan quality as we continue to implement disciplined and prudent credit risk management.
The less favorable macroeconomic environment and general elections forced many business players to postpone expansion. Nevertheless, we recorded loan growth of 9.1%,
higher than the industry average of 6.1%. We focused on disbursing loans to customers with positive track records and maintained loan diversification to mitigate concentration risk. Loan growth was supported by the corporate segment, which grew by 11.8% compare to previous year. We also participated in loan syndication for prospective infrastructure PROJECTSRELATEDTOTOLLROADSELECTRICITYTELECOMMUNICATIONS and airports.
Loan growth was also driven by the commercial and SME segments at 12.2% and 13.6% respectively, supported by the optimization of the role of the commercial business centers at the regional offices, and the development of SME centers at branches. The consumer segment saw loan growth of 0.7%, largely supported by mortgage growth. Vehicle loan growth was under pressure due to the slowdown in auto sales. The Bank remained proactive by offering products at competitive interest rates and holding various promotional activities and special events, such as BCA Expoversary, to optimize its performance in the consumer segment.
In 2019, NPL was 1.3%, a slight decrease from 1.4% in 2018, supported by write-offs of older non-performing loans. The NPL level remained in line with the Bank’s risk appetite. To maintain loan quality, the business units and risk management team monitored debtor payment capacity and conducted stress tests to measure the impact of any significant changes in the macroeconomy against debtor performance.
BCA improved its loan infrastructure, leveraging technology to accelerate the approval process, while implementing prudent banking principles. We also focused on improving the competency of our credit employees (account and relationship officers) through training programs, both on-site and e-learning through a digital application.
Information technology was utilized to manage data and debtor information, which complemented credit analysis and captured potential new debtors in various customer segments.
The development of comprehensive solutions and services BCA strives to provide comprehensive products and services, improving coordination among business units and synergy with subsidiaries, to meet growing customer needs.
The Bank strengthened its business in foreign exchange, cross border remittance, trade finance, wealth management and bancassurance, and in the business lines of its subsidiaries. We collaborated with subsidiaries engaged in vehicle financing, sharia bank, securities, remittance, general insurance, life insurance and venture capital investment in startup company.
The provision of comprehensive financial products and services complemented our core transaction banking and generated cross selling opportunities to support overall performance. We are confident our subsidiaries have room for growth by leveraging our wide customer base.
Comprehensive financial services delivered in cooperation with subsidiaries will reinforce the relationship with our customers.
We recently completed the acquisition of Bank Royal, part of our business plan for the year, and are in the process of formulating its business model, which will focus on the provision of digital services in collaboration with BCA. We also signed a conditional sale and purchase agreement to acquire Rabobank Indonesia. This acquisition is expected to be completed in 2020.
Financial Performance, Targets and Challenges
BCA and its subsidiaries recorded a solid financial performance in 2019 with a net profit of Rp28.6 trillion, a 10.5% increase from 2018. Operating income grew by 13.6%
to Rp71.6 trillion.
Overall performance in 2019 exceeded the set targets, with loans growing 9.1% to Rp586.9 trillion, compared to the target of 6%-8%. Third party funds grew by 11.0% to Rp699.0 trillion, higher than the target of 8%-10%.
BCA recorded strong Return on Assets (ROA) and Return on Equity (ROE) of 4.0% and 18.0%, respectively, with the capital and liquidity positions remaining solid. The Capital Adequacy Ratio (CAR) was at 23.8%, and the Loan to Deposit Ratio (LDR) at 80.5%.
Target vs Achievement 2019
Achievement 2019 Target 2019
Loan growth 9.1% 6.0% - 8.0%
Third party funds growth 11.0% 8.0% - 10.0%
Return on Assets (ROA) 4.0% > 3.5%
Return on Equity (ROE) 18.0% > 17.0%
Capital Adequacy Ratio (CAR) 23.8% > 23.0%
Loan to Deposit Ratio (LDR) 80.5% < 83.0%
The Indonesia banking sector encountered many challenges, including maintaining adequate liquidity in the high LDR environment. As for BCA, maintaining a solid liquidity position is always a priority.
BCA continued to focus on improving transaction banking through the development of payment settlement features and services to support solid CASA growth. As loan demand WAS LOWER THAN ANTICIPATED WE MADE RATE ADJUSTMENTS ON the time deposit side, lowering the one-month time deposit by 125 bps in July-December 2019.
The Indonesian banking sector also faced challenges in keeping loan growth at sound quality. BCA embraced these challenges by seeking lending opportunities while adopting disciplined risk management. Loan disbursement focused on high quality debtors with strong track records, and extended to various economic sectors to minimize concentration risk.
Stress testing was also carried out to measure the impact of the deterioration of macroeconomic conditions on loan quality and overall performance.
Analysis of Business Prospects and Strategy in 2020
The Indonesian economy will continue to face external and internal challenges in 2020. It is estimated to grow at a modest pace in line with a gradual economic recovery. The corona-virus outbreak added challenges to the global and domestic economy, particularly in the first semester of 2020.
Given such a backdrop, as a proxy to the economy banks are now even more cautious on the asset quality rather than on growth. In response to macroeconomic developments, banks expect to grow moderately both in the lending and funding.
"#!S THIRD PARTY FUNDS AND LOANS ARE PROJECTED TO GROW moderately. Given the high LDR, banking sector liquidity is estimated to remain tight, which may lead to more competition for third party funds. We will remain focused on maintaining adequate liquidity and prioritizing CASA growth. We will continue to develop the numerous features and facilities of digital banking products and services, expand the network and payment acceptance system for customers, and pursue customer base growth.
Indonesian banks also face competition from fintech companies that leverage technology advancements to provide financial services. While this is a threat to transaction banks, it also provides opportunities for collaboration with the companies in a fast growing payment ecosystem.
We collaborate with numerous fintech and e-commerce companies leveraging on the API technology. The collaborations provide convenient services and encourage customers to perform banking transactions through digital channels, providing the Bank with strong grounds to widen the customer base and grow the number of transactions.
Indonesia’s business environment is expected to be more favorable after the successful general elections, the inauguration of the president and the formation of a new cabinet, serving as an investment catalyst for business expansion and supporting loan growth in 2020 and beyond.
BCA will seek market opportunities to expand its lending services in various segments, while remaining cautious in regard to changes in loan quality. The implementation of disciplined risk management is key to maintaining sound asset quality, and sound asset quality.
BCA is committed to growing with its subsidiaries, and supporting capital needs in line with business development.
We are optimistic our subsidiaries will increase their contribution to our overall performance, either in interest or fee-based income.
Implementation of Corporate Governance
BCA implements good corporate governance at all levels, from the Board of Commissioners and the Board of Directors to middle management and employees. The application of GCG plays a role in business sustainability and minimizing risks.
This GCG is based on the principles of transparency, accountability, responsibility, independence and fairness.
GCG is conducted with reference to national and INTERNATIONALPRACTICESINCLUDINGREGULATIONSOFTHE&INANCIAL
Services Authority, Bank Indonesia, and the ASEAN Corporate Governance Scorecard. GCG is also based on banking industry best practices.
The Bank engages in active communication with its customers, regulators and the capital market community, and promotes transparency to stakeholders. We ensure the clear segregation of duties and responsibilities among business units and apply checks and balances when carrying out internal controls.
In 2019, Board of Directors held 36 of Board of Directors -EETINGS AND OF JOINT MEETINGS WITH THE "OARD OF Commissioners. BCA achieved ‘Good’ rating in a corporate governance self-assessment, and for its commitment to GCG, was awarded the Best Rights of Shareholders award by the Indonesian Institute for Corporate Directorship (IICD).
Performance of Committees
The Board of Directors is assisted by a number of committees.
We wish to express our gratitude to the executive committees under the Board, which have performed their duties and responsibilities and offered valuable input to support our role. Each committee held regular meetings to discuss business programs, taking into account macroeconomic conditions, the Bank’s internal dynamics, and the prevailing regulations.
Development of Human Resources
Employees play an important role in maintaining our sustainable business and financial performance. Anticipating the increasing complexity of customer needs and rapid changes in technology, we are committed to enhancing the competencies and capabilities of employees, while building an agile culture to respond to the dynamic business environment.
To instill a culture of employee innovation in the digital era and prepare for succession, BCA set up training development and recruitment programs. We believe human resources who match our needs, and are adaptive to any changes in the business environment, are essential to our success. To achieve higher productivity, we promote human resource governance while providing a positive work environment.
The focus on regeneration and succession is part of a strategy to ensure a sustainable organizational structure. The Bank promotes coaching programs for senior staff to share their KNOWLEDGE VALUES AND EXPERIENCES WITH JUNIOR STAFF AND encourages community groups such as BCA Open Source (BOS), a knowledge sharing forum for broadening strategic perspective at managerial level.
BCA is determined to maintain its position as an employer of choice by promoting a conducive work environment, providing a continuous learning culture, and encouraging a work life balance for employees. This commitment to creating a positive working environment has gained the appreciation of several leading institutions, including: Best Companies to Work for in Asia from HR Asia, and Indonesia’s -OST !DMIRED #OMPANIES FROM THE &RONTIER #ONSULTING Group and Marketing Magazine.
Corporate Social Responsibility
The Bank is continuously involved in numerous corporate social responsibility (CSR) activities that focus on making a difference in the lives of Indonesian society. The CSR program COOPERATESWITHHIGHLYREPUTABLEINSTITUTIONSSUCHAS77&
5.)#%& AND )NDONESIAN 2ED #ROSS 0-) AS WELL AS LEADING Indonesian universities. Social activities focus on community empowerment, education and culture, as well as healthcare and sports.
We cooperate with local communities to empower tourist villages, creating business opportunities and local employment for 12 villages across the country. This focus on empowering communities has been fruitful and gained recognition, with Desa Pentingsari tourist village in Yogyakarta receiving a 'REEN &OUNDATION AWARD FOR BEING ONE OF )NDONESIAS 4OP 100 Sustainable Destinations. We also received an Indonesia Sustainable Tourism Award – Green Gold for Bukit Peramun village empowerment in Belitung island.
To promote quality education in Indonesia, the Bank runs accounting and computer engineering education programs, offering scholarships to students enrolled in the accounting scholarship program (PPA) and information technology scholarship program (PPTI). Some 392 students were enrolled INTHE00!FOR004)ANDINTELLERAND#3/ONTHEJOB training. We also offer education facilities aid, scholarships in banking education, financial literacy support, and support 17 schools in the Lampung, Banten and Yogyakarta provinces.
To preserve and develop local culture, BCA cooperated with institutions to introduce Indonesian culture to the younger generation through events such as the Wayang Day and the Wayang Seminar. We encourage employees to participate in blood donor activities and facilitate healthcare services for the disadvantaged, including the provision of free cataract surgery for more than 5,000 people.
Sustainable Finance Implementation at BCA
BCA is inspired to go beyond making profit and to create value in a sustainable way. The Bank has adopted and implemented a broad range of sustainability practices in promoting sustainable finance in the areas of environment, social and governance. BCA was one of the first movers in implementing sustainable banking, fully backed by management board commitments to increase our sustainable finance contribution, which is in line with the agenda of our regulators.
One of the key milestones in 2019 was the establishment of the Environment Sustainability Governance (ESG) unit as part of the corporate secretary and communication division.
Our sustainability finance vision is “to be the bank of choice AND A MAJOR PILLAR OF THE )NDONESIAN ECONOMY THAT ALIGNS with Indonesia’s sustainable development”. This vision is supported by the mission statement of “to align its business activities with the principles of sustainable finance”.
As a part of the commitment to implement sustainable finance, the Bank extended financing to the environmentally- friendly energy conservation and organic agriculture sectors.
The financing portfolio for sustainable business activities CATEGORY ++5" GREW BY TO 2P TRILLION of which was made up of SMEs and 30% from non-SME environmentally-friendly businesses. Growth in this portfolio exceeded the earlier target of 8%.
BCA has also carried out a number of initiatives to support responsible banking, such as promoting energy savings activities, embracing diversity and gender equality, and creating social and environmental impact. Achievement highlights include a MSCI ESG Rating of “A”, the highest in the country, and a score of 4.67 out of 5.00 for the Gallup Customer Engagement index.
Last year we rolled out a sustainable banking e-learning to educate and increase awareness of sustainable finance to our employees. We promote the green office concept through the use of motion sensor LEDs in some offices, switching off lights during the lunch hour, and pursuing other sustainable activities such as limiting plastic bottle use. We believe that long term value creation has to begin with being more responsible to our environment, society and governance.
Changes in the Composition of the Board of Directors In 2019, the annual general meeting of shareholders appointed Suwignyo Budiman as Deputy President Director, REPLACING %UGENE +EITH 'ALBRAITH WHO HAS COMPLETED HIS service. BCA wishes to express its gratitude and appreciation to Eugene for his commitment, dedication and hard work.
His long service contributed to BCA’s strategic business development and sustainable performance. Eugene served as President Commissioner from 2002 to 2011, and Deputy President Director from 2011 to 2019.
There were changes in the composition of the Board of
$IRECTORSWITH)NAWATY(ANDOJOREPLACING3UBUR4ANASTHE new compliance director. Subur Tan took a new role as the new Director in charge of the credit and legal department.
With these changes, BCA is confident that it will sustain its solid performance well into the future.
Appreciation for all Stakeholders
We wish to express our appreciation to our customers for their trust and loyalty, and all employees for their hard work to achieve the set targets despite a challenging year. BCA’s motto: One Goal, One Soul, One Joy has been our continual motivation and a reminder to look for a common direction to achieve the vision of becoming the bank of choice for the community.
We appreciate the support and guidance of the members of the Board of Commissioners who have helped us to carry out our duties, enabling BCA to record a solid performance.
4HE "OARD OF $IRECTORS IS GRATEFUL TO THE &INANCIAL 3ERVICES
!UTHORITY /*+ AND "ANK )NDONESIA FOR THEIR PRUDENT supervision, advice, and maintaining a stable financial system in Indonesia.
Last but certainly not least, on behalf of the Board of Directors and management, we would like to express our gratitude to all stakeholders for their trust and support throughout 2019.
Jakarta, March 2020 On behalf of the Board of Directors,
*AHJA3ETIAATMADJA
President Director
Against the backdrop of prolonged global uncertainties and moderate domestic GDP growth, BCA delivered a positive performance with 10.5% growth in net profit to Rp28.6 trillion. This stellar achievement is accompanied by an ample capital and liquidity position, while asset quality remained intact. In addition to robust financial strengths, BCA continues to pursue a sound strategy in navigating change and ensuring good corporate governance practices for sustainable value creation and growth.
We respectfully thank the Board of Directors for addressing the challenges and changes of business dynamics, while maintaining business sustainability. The Board of Directors have formulated a business plan that adopts prudential banking principles and ensures the execution of BCA’s strategic initiatives.
Djohan Emir Setijoso President Commissioner
Dear Valued Shareholders,
BOARD OF COMMISSIONER’S SUPERVISORY REPORT
The Board of Commissioners recognizes the consistent execution of the business plan with the Bank’s
stated vision, mission and
strategic directions. The
Bank successfully adapted
its business strategy in
responding to the dynamic
economic environment,
growing competition, and
rapid technological changes.
BOARD OF COMMISSIONERS
Left to right :
Sumantri Slamet
Independent Commissioner
$JOHAN%MIR3ETIJOSO President Commissioner
Raden Pardede
Independent Commissioner
Cyrillus Harinowo Independent Commissioner
Tonny Kusnadi Commissioner
Review of the Indonesian Economy and Banking Sector The 2019 economy experienced a slowdown across the globe, centered around the uncertainties of the US-China trade war ANDTHEANXIETYOVER"REXITINTHE%UROZONE-AJORDEVELOPED countries saw lower growth relative to the previous year.
Global policymakers have implemented an accommodative approach by lowering their policy rates to boost economic GROWTH4HISWASLEDBY4HE53&EDERAL2ESERVE&ED WHICH CUTITS&ED&UND2ATE&&2 BYBPSTOWHILEOTHER countries followed suit.
The Indonesian economy has been resilient, with a moderate 5.0% GDP growth in 2019, supported by large private consumption, government spending, and prompt monetary and fiscal measures. Bank Indonesia cautiously eased its monetary policy by gradually lowering its 7-day reverse repo rate by 100 bps in total to 5.0%.
The government focused on managing the current account deficit and maintaining the attractiveness of the domestic financial market. The current account deficit was curbed at USD30.4 billion, or 2.7% of GDP, as the government placed necessary actions to control imports, particularly for oil and CONSUMERPRODUCTS)NmATIONWASCONTAINEDATTHELOWRATE OF &OREIGN lNANCIAL MARKET INmOW REMAINED STRONG resulting in a capital account surplus for the country and a relatively stable local currency. By the end of the year, the Rupiah closed at Rp13,866 per USD.
While the Indonesian banking sector posted modest growth in both loans and third party funds, banks were cautious to safeguard loan quality after the economic slowdown and to address liquidity challenges. The sector LDR has been above 93% since 2018, triggering intensified competition for third party funds. The race for funding was also heightened by government initiatives to raise funds through a series of government bonds issuance offering more attractive returns compared to conventional savings products. Overall, banking sector liquidity remained adequate as loan demand was softer than expected.
Stagnant domestic growth over the last few years has caused a deterioration of loan quality in many sectors.
Nominal non-performing and special mentioned loans showed an increasing trend throughout 2019. Restructured loans as a percentage of total loans also showed no signs of improvement. Despite declining asset quality, the overall banking sector NPL ratio remained at a manageable level, standing at 2.5% compared to 2.4% in the previous year. The capital position remained robust to absorb potential loan losses. CAR stood at 23.4% compared to 23.0% a year ago.
We believe the regulator will continue to focus on protecting macroeconomic and banking industry stability through policies tailored in accordance to the global and domestic market developments.
Assessment of Performance of Board of Directors
The Board of Commissioners acknowledges the Board of Director’s strong performance in delivering positive business growth and maintaining sound asset quality with full support from employees. BCA’s overall performance was above the banking industry average, on the grounds of good corporate governance and prudent risk management practices.
Execution of appropriate strategies and initiatives played a pivotal role to respond the macroeconomic developments and business dynamics.
In 2019, BCA achieved its strategic targets both in financial and non-financial aspects. On the financial side, net profit grew by 10.5% to Rp28.6 trillion, on the back of a 13.6% increase in operating income to Rp71.6 trillion. Balance sheets grew healthily with loans expanding 9.1% to Rp586.9 and third party funds rose 11.0% to Rp699.0 trillion. CASA, being the bank’s core funding, grew by 9.8% to Rp530.6 trillion, higher than the industry average of 8.6%, thanks to customer trust in the Bank’s transaction banking franchise. The growth was in sync with the Bank’s aspiration to consistently provide convenient, secure and reliable transaction banking services in reaching customers across all segments. Return on Assets (ROA) and Return on Equity (ROE) also achieved the set
targets. The Bank maintained its sound capital and liquidity position, with a Capital Adequacy Ratio (CAR) of 23.8%, a Loan to Deposit Ratio (LDR) of 80.5% and a Liquidity Coverage Ratio (LCR) of 276.3%. The Board of Commissioners appreciates the steps taken by the management team to maintain the Bank’s solid performance.
On the non-financial front, we are excited to see the Bank has well embraced the era of digitalization which has changed the banking industry landscape. The bank’s various digital initiatives and innovations are the key differentiators to strengthen the transaction banking franchise. BCA has developed a host of attractive features and facilities using state-of-the-art technology to meet evolving customer needs and to facilitate convenient transactions. Management has built an agile organization promoting an innovative culture, automation and digitalization of business processes and operations, and developing staff competencies. We believe agility is one of the key features for the organization to grow sustainably in these ever-changing business dynamics.
The Board of Commissioners appreciates the efforts carried out by the Board of Directors in registering solid performance of CASA growth, stronger transaction banking franchise and quality loans. With customer satisfaction as our top priority, the Board of Directors has our full support throughout THE JOURNEY OF BECOMING THE BANK OF CHOICE OFFERING comprehensive financial solutions across the country. We are also supportive of BCA in strengthening the synergies with its subsidiaries and in providing full support to subsidiary business performance.
Supervision of Strategy Implementation
The Board of Commissioners recognizes the consistent execution of the business plan with the Bank’s stated vision, mission and strategic directions. The Bank successfully adapted its business strategy in responding to the dynamic economic environment, growing competition, and rapid technological changes.
The Bank established strategic steps to continuously enhance its capabilities as a provider of reliable transaction banking services while maintaining customer trust. Its competitive advantages are sustained by the adoption of technology- based products and services, and expansion of the payment ecosystem through collaboration with fintech and e-commerce companies. Development initiatives always take into account security, convenience and good governance, both from the perspective of customers and the Bank itself.
E-channel capabilities, particularly the Bank’s internet and mobile banking and application-based services, are constantly upgraded to cater to the shift in customer behavior and the need for convenience. These efforts have garnered encouraging results as 98.2% of transactions were conducted through the internet, mobile banking and ATMs, while the remaining 1.8% came from branches. In terms of value, some 49.1% of the total transaction amount originated from branch banking. This strongly indicates the important role of branches for serving large banking transactions and maintaining close customer relationships.
We are pleased to see that BCA’s robust transaction franchise supported CASA growth of 9.8% to reach Rp530.6 trillion, accounting for 75.9% of total third party funds, its main source of funding. Time deposits grew by 14.7%, even though the interest rates were relatively lower than competitors, REmECTINGSTRONGCUSTOMERTRUSTOFTHE"ANK4OTALTHIRDPARTY funds grew by 11.0% to Rp699.0 trillion, outperforming the average industry growth.
On the loan side, apart from improving its products and services, BCA also focused on strengthening its credit process infrastructure by leveraging technology. BCA aims to improve the turnaround time from the loan application cycle up to loan disbursement, while still adhering to prudential banking principles. The bank emphasizes disbursing loans to sectors with growth potential and to customers with strong track records.
BCA’s loan growth was seen across segments, especially from corporate, commercial and SME. Disbursement was well diversified in various economic sectors to manage concentration risk, while regular stress testing was carried out to measure the adverse impact of macroeconomic changes on loan quality. The Bank consistently outperforms its competitors and the industry average when managing ASSETQUALITYASREmECTEDINTHELOWEST.0,RATIOWITHINTHE industry.
To support overall performance and provide comprehensive financial services, BCA strengthened the coordination between transaction banking, loans and other business units, and established synergy with its subsidiaries. During the year, BCA accommodated the needs of its subsidiaries through the provision of capital, with cooperation in various ventures SUCH AS JOINT lNANCING AND MARKETING WHICH WILL GENERATE mutual benefits for all parties. The subsidiaries showed positive business growth and made a positive contribution to overall group profitability.
BCA completed the acquisition of Bank Royal as part of our commitment to support Indonesian banking consolidation.
The Bank also signed a conditional sale and purchase agreement to acquire all stakes in Rabobank Indonesia, which is expected to reach completion in 2020.
The Board of Commissioners and the Board of Directors are committed to maintain public trust while setting appropriate strategic initiatives to deliver value added to stakeholders.
The executions must be within the framework of good governance principles, prudent risk management and effective internal control.
Board of Commissioners View on Board of Directors Assessment in relation to the Bank’s Business Prospect The Board of Directors is of the view that global economic challenges will remain in 2020. After the first stage of the trade agreement between the US and China, the next trade arrangement will be one of the main factors affecting future global economic growth. The corona-virus outbreak toward the end of 2019 is likely to add pressure to business players across industries, and may lead to an imbalance of supply and demand.
&URTHERINTERESTRATECUTSAREEXPECTEDINTOSTIMULATE economic growth, while banks may face tight liquidity, presenting more funding competition. The success story of the presidential and legislative elections and the formation of the new cabinet are expected to be the catalysts for domestic reform and boosting investor confidence to support long term economic growth. As for 2020, Indonesia’s '$0GROWTHISPROJECTEDATAMODESTnLEADINGTOA moderate pace of growth in loans and third party funds in the banking sector.
The Board of Commissioners shares the same view as the Board of Directors on the above outlook, and remains cautiously optimistic. We agree with the Bank’s strategic directions, particularly in keeping a balance between the aspects of liquidity and capital positions, as well as loan growth and asset quality. All of these have been accommodated in the Bank’s 2020 business plan as the base to tap opportunities and manage risks.
The Bank will continue focusing on strategic initiatives in strengthening transaction banking capabilities, applying a prudent intermediary role and promoting collaboration with subsidiaries. We are confident that BCA will maintain robust growth in the long run and offer added value to stakeholders.
Implementation of Good Corporate Governance
BCA implements the principles and practices of good corporate governance (GCG) at all levels. GCG implementation is based on transparency, accountability, responsibility, independence and fairness, and conforms with the prevailing regulations.
The corporate governance manual is regularly reviewed to ensure it is in line with the latest regulatory updates, and has become more consistent with the ASEAN Corporate Governance Scorecard.
BCA is committed to preserve the trust of stakeholders and sustain long-term corporate performance. This goal is inseparable from constant implementation of GCG. In recognition of this, and for transparency and information disclosure while keeping a sound sustainable business, the
"ANKRECEIVEDANAWARDINTHE"EST&INANCIAL3ECTORCATEGORY from the Indonesian Institute for Corporate Directorship ))#$ &URTHERMORE'#'SELFASSESSMENTSONASTANDALONE and consolidated basis with its subsidiaries, were rated
“Good”.
Sustainable Finance Initiatives
BCA is devoted to implementing economic, social and environmental sustainability programs under the supervision of the Board of Commissioners. Sustainability programs were set through the formulation of the sustainable finance action plan, and are implemented and monitored on a regular basis.
The Board of Commissioners fully supports BCA’s sustainable finance vision which is “to become the bank of choice and A MAJOR PILLAR OF THE )NDONESIAN ECONOMY THAT ALIGNS WITH Indonesia’s sustainable development” The Bank is committed to supporting Indonesia’s sustainable development, which is in line with the Bank’s mission statement of “to align corporate activities with the principles of sustainable finance”.
BCA is inspired to go beyond making profit and to create VALUE IN A SUSTAINABLE WAY REmECTED BY A INCREASE in its financing portfolio for sustainable business activities CATEGORY ++5" TO 2P TRILLION WITH THE 3-% SECTOR PROVIDINGOFTOTAL++5"lNANCING4HEREMAINING comprised of non-SME environmentally-friendly businesses.
The Banks’s ESG program was also carried out through a number of initiatives, such as promoting energy savings activities, embracing diversity and gender equality, and creating social and environmental impact. Achievement highlights include a MSCI ESG Rating of “A”, the highest in the country and a score of 4.67 out of 5.00 for the Gallup Customer Engagement index.
Board of Commissioners Role and Opinion on Whistleblowing System
The Board of Commissioners has directed and supervised the formulation and implementation of a whistleblowing system.
The whistleblowing policy aims to improve the effectiveness of the system in detecting internal fraudulent activities and violations. A special working unit has been set up for the system’s implementation, which is responsible to the President Director and reports directly to the Board of Commissioners.
To promote the whistleblowing system to employees as part of anti-fraud awareness, socialization is conducted through compulsory e-learning, e-posters and visual advertisements WITHIN "#! PREMISES &RAUD AND OTHER VIOLATIONS CAN BE reported by internal and external parties through the company website. The whistleblowing system is expected to detect and provide early warning signs of fraudulent activities and violations, supporting the implementation of good corporate governance.
Supervising and Advising the Board of Directors
The Board of Commissioners and the Board of Directors work together to ensure the Bank’s sustainable growth. The Board of Commissioners supervises the activities of the Board of Directors, and provides guidance and advice to the Board of Directors regarding policy and strategic plans, through meetings and memorandums. There were 37 meetings of the Board OF #OMMISSIONERS AND JOINT MEETINGS OF THE "OARDS OF #OMMISSIONERS AND $IRECTORS 4HE "OARD OF #OMMISSIONERS ALSO conducted ad-hoc meetings as required.
Below is a summary of the input and advice provided by the Board of Commissioners to the Board of Directors from January to December 2019.
Topic Summary
Business Strategy and Management
s 4HE"OARDOF#OMMISSIONERSALONGWITHTHE"OARDOF$IRECTORSREGULARLYREVIEWED and assessed the Bank’s performance and the competition landscape in banking industry.
s 4HE"OARDOF#OMMISSIONERSGAVEGUIDANCEASWELLASAPPROVALONTHE"ANKS corporate actions, including among others the decision on dividend payouts, plan and follow up on the acquisitions process.
Risk Management s 4HE"OARDOF#OMMISSIONERSEMPHASIZEDTOMAINTAINTHESOLIDLIQUIDITYPOSITIONSAS one of the Banks priority.
s $IRECTIONTOPERFORMEDREVIEWSONCERTAININDUSTRIESCONSISTENTWITHTHELATEST development of macroeconomic.
s 4HE"OARDOF#OMMISSIONERSPUTHIGHATTENTIONONPOTENTIAL"ANKSSTRATEGICRISKS and ask for an assessment and mitigation plans on those risks.
s )NRELATIONTOTHEIMPLEMENTATIONOFINTEGRATEDRISKMANAGEMENTTHE"OARDOF Commissioners always focus on the importance of monitoring the interdependence risks among entities within BCA’s financial conglomeration.
Audit and Compliance s 4HEIMPLEMENTATIONOFTHEDUTIESANDRESPONSIBILITIESOFTHE"OARDOF#OMMISSIONERS are aligned with the latest laws/regulations.
s 4HE"OARDOF#OMMISSIONERSPUTATTENTIONTOTHERESCHEDULINGOFAUDITRESULTSFOLLOW ups that requires its consent, while ask to submit the proposal before the deadline.
s %MPHASIZETHEIMPORTANCEOFTHEQUALITYOFAUDITPROCESSANDINSTITUTIONINEACH subsidiary regarding the implementation of integrated internal audit.
Assessment of Performance of Committees Under Board of Commissioners
The audit, risk oversight, remuneration and nomination and the integrated corporate governance committees showed good performances and upheld high standards of competency. These committees supported the performance of the Board of Commissioners throughout the year.
The audit committee ensures the appropriate implementation of internal controls, and assists the Board of Commissioners in overseeing the implementation of internal and external audit functions, corporate governance, and compliance with prevailing laws and regulations. The committee held 21 meetings, met with the internal audit division 6 times, and reviewed more than 114 internal audit reports.
The risk oversight committee supports, and provides recommendations to the Board of Commissioners to improve the effectiveness of its risk management duties and responsibilities. The committee held 14 meetings that covered credit risk, operational risk, cyber security and the business continuity plan, as well as evaluating the performance of the
risk management committee, the risk management working unit and the IT Steering Committee.
The remuneration and nomination committee provides recommendations to the Board of Commissioners on BCA’s overall remuneration policy. It held five meetings, including those related to the tantiem policy, remuneration and talent mapping.
The integrated corporate governance committee supports the Board of Commissioners in supervising the implementation of the integrated corporate governance of BCA and its subsidiaries. It held four meetings and reported on the implementation of integrated corporate governance to the Board of Commissioners.
Changes to Composition of Board of Commissioners
There were no changes to the membership of the Board of Commissioners. Commissioner profiles are elaborated in the company profile section of this report on pages 75-79. Each member of the Board carries out their supervisory function and provides advice to the Board of Directors in accordance with their respective competencies and experience.
Members of the Board of Commissioners are:
Name Position
$JOHAN%MIR3ETIJOSO President Commissioner
4ONNY+USNADI Commissioner
Cyrillus Harinowo Independent Commissioner and the Head of the Audit Committee
Raden Pardede Independent Commissioner and the Head of the Remuneration and Nomination Committee
Sumantri Slamet Independent Commissioner and the Head of the Risk Oversight Committee and the Integrated Corporate Governance Committee
Appreciation of Stakeholders
We understand the Bank’s achievements are inseparable from the support given by all stakeholders. The Board of Commissioners wishes to express our gratitude to all shareholders, business partners, staff and other stakeholders for their trust and supports. We applaud the Board of Directors, who managed business growth and steered toward a solid financial position, and to the subsidiaries who contributed to the overall performance of the BCA group.
Jakarta, March 2019
On behalf of the Board of Commissioners,
$JOHAN%MIR3ETIJOSO
President Commissioner
7E WOULD LIKE TO EXTEND OUR APPRECIATION TO THE &INANCIAL 3ERVICES !UTHORITY /*+ AND "ANK )NDONESIA FOR CARRYING out their supervision and providing support this year, and in the years to come. BCA is committed to making a positive contribution to the Indonesian economy and providing the best possible value for customers, stakeholders and the Indonesian community.
