Commercial and SME Banking

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01 Financial Highlights 02 Management Report Business Review 04 122 PT Bank

Corporate Governance 06 Corporate Social Responsibility Business Support

1 01 Financial Highlights 02 Management Report Business Review PT Bank Central Asia Tbk 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility Business Support Commercial and SME Banking 2016 Annual Report Financial Review 07 Consolidated Financial Statements

2 In an environment of relatively weak business loan demand in 2016, BCA worked to optimize business lending opportunities by meeting seasonal spikes in loan demand and offering competitive interest rates to the Bank s borrowing customers. BCA continued to strengthen its loan infrastructure and simplify the lending process while adhering to the principles of prudent risk management. Commercial and SME Loan Portfolio (in billion Rupiah) 97,052 91,209 52,760 52, BCA s commercial and Small & Medium Enterprise (SME) lending business is supported by the Bank s extensive branch network strategically located in large and regional cities and towns throughout the country. In 2016 BCA witnessed relatively weak loan demand and a declining interest rate environment. In response, the Bank lowered interest rates on business loans in order to remain competitive and took advantage of the increased demand for business loans during the Idul Fitri celebrations and towards the end of the year. The Bank s commercial and SME loan portfolio stood at Rp trillion at the end of 2016, a 3.7% increase compared to the previous year. Small and Medium Enterprise (SME) Commercial To complement commercial and SME lending, BCA promoted the importance of cash management to the Bank s small and medium business clients as a primary tool in managing their cash positions while also strengthening the Bank s core transaction banking business. Improvements made to the cash management service were not only based on advancements in cash management technology but also on service level improvements, leveraging off the Bank s extensive network and products. PT Bank Central Asia Tbk 2016 Annual Report 123

billion managing their businesses including in regard to working to approximately Rp 350 billion. In 2016, BCA commercial capital and investment planning.

0% of the Bank s total commercial and SME loan portfolio.

3 01 Financial Highlights 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements 04 Commercial and SME Loan Commercial loans are disbursed to medium-sized corporations In 2016, business owners tended to be more cautious in and business owners with a nominal value of from Rp 10 billion managing their businesses including in regard to working to approximately Rp 350 billion. In 2016, BCA commercial capital and investment planning. This resulted in relatively loans reached Rp 97.1 trillion, an increase of 6.4%, constituting flat loan demand throughout the year, with the exception of 65.0% of the Bank s total commercial and SME loan portfolio. the weeks leading up to Idul Fitri and at the end of the year The increase in commercial lending in 2016 was mainly due to as customers adjusted their business activities in accordance Distributor, Wholesaler and Retailer; Property & Construction; with seasonal economic conditions. as well as Textile and Garment financings. Even with the relative slowdown in demand, BCA s wide lending BCA enhanced its internal lending procedures to improve network across the country enabled the Bank to grow the service quality. The loan application process was simplified commercial & SME loan portfolios. In 2016, the Bank registered with due consideration to risk management principles growth in the portfolio of 3.7%, reaching Rp trillion. saw further improvements to the Bank s loan infrastructure, including the Commercial Business Centers which manage To maximize lending, BCA offered competitive interest rates in the regional commercial loan portfolio. At the end of 2016, line with market demand and the measured decline in Bank there were 14 Commercial Business Centers located in major Indonesia s benchmark interest rates. As a financial intermediary, business and commerce hubs in Indonesia, including Jakarta, the Bank focused its lending on industry sectors with growth Semarang, Bandung, and Surabaya as well as cities outside potential and solid business prospects in an environment Java including, Medan, Palembang, Makassar and Denpasar. In characterized by a still weak but recovering economy. order to improve relationships with commercial borrowers, BCA routinely hosts gatherings which are coordinated through the Commercial Business Centers. 124 PT Bank Central Asia Tbk 2016 Annual Report

The SME business segment is defined as small business lending with a maximum loan value of Rp 10 billion. At the end of 2016, BCA recorded SME loans of Rp 52.

The majority of the Bank s SME customer base consists of family-owned small businesses, shopkeepers, restaurant owners, and small-scale factory owners.

4 The SME business segment is defined as small business lending with a maximum loan value of Rp 10 billion. At the end of 2016, BCA recorded SME loans of Rp 52.2 trillion, relatively stable compared to last year s Rp 52.8 trillion in loans outstanding. The majority of the Bank s SME customer base consists of family-owned small businesses, shopkeepers, restaurant owners, and small-scale factory owners. SME lending is centered on branches in strategic locations in major trade centers and towns throughout Indonesia, and is supported by an online centralized loan application scoring and risk management system. To expand the SME lending reach beyond the Bank s network, BCA cooperates with several partner institutions, such as rural banks and cooperatives, to provide direct lending through channeling programs. BCA also works closely with its subsidiary, BCA Syariah, in the development of products and services for micro, small and medium enterprise customers. The Bank s solid capital and liquidity position enabled BCA to expand its loan portfolio through various lending programs and across several borrowing segments. In 2016, the Bank improved the synergy of corporate commercial and SME financing through value chain financing, both for distributor and supplier financing, with a focus on growth industries, such as the trade sector. BCA established a special loan scheme for selected trade areas which allowed customers to use stores and retail outlets as primary collateral for borrowing at competitive interest rates. The Bank routinely reviews the number of account officers placed in branches throughout the country to ensure that there are enough account officers to effectively manage the overall loan portfolio. In order to provide high quality service, BCA provides its account officers with training to improve their knowledge base in credit, business evaluation and their ability to enhance customer relationships. Excellence in transaction banking has sustained the Bank s lending performance in the commercial and SME segments. BCA serves the majority of its customers financial transactions, making it possible for the Bank to better understand the needs of the commercial and SME customers and their business cash flows. The management of customer information was further improved to support account officers in providing loan facilities to quality customers and in monitoring the borrowers financial conditions to maintain loan quality. The Bank has developed computer-based and mobile-friendly analytical tools to assist account officers in gathering and analyzing customer information. PT Bank Central Asia Tbk 2016 Annual Report 125

5 01 Financial Highlights 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements Business Review Commercial and SME Banking BCA applies prudent lending principles by prioritizing borrowers with promising business prospects and those who have established good relationships with the Bank. In 2016, commercial and SME loan quality was maintained at a healthy level. There was an increase in the Non-Performing Loans (NPL) ratio of the commercial portfolio to 2.8% in 2016 compared to 1.2% in 2015, which was spread across various industry sectors but primarily in the sea transportation, property and construction sectors. The increase in the NPL was foreseen and remained within the limits of the Bank s risk appetite. In the fourth quarter of 2016, the rate of increase in the NPL ratio began to slow. The NPL ratio in the SME segment was relatively stable at a ratio of 1.1% at the end of 2016 compared to 1.0% at the end of Thus, the overall NPL for the commercial and SME segments closed 2016 at 2.2% compared to 1.1% at year-end companies work together with BCA in opening Customer Funds Accounts, with the Bank s market share on these accounts reaching almost 50%. In 2016 the Bank supported the Indonesia Stock Exchange in educating the public about investing in the capitals market by delivering educational materials at the Capital Market School. In the Oil and Gas Community, as much as 75% of public gas stations in Jakarta are now BCA merchants, with the majority making payments to principals through the Bank s payments and transaction networks. In the public services industry, BCA provides solutions for business customers seeking means of payment for their employees BPJS social security insurance premiums. In addition, the Bank facilitates payments for the BPJS health insurance membership fees for individual customers through BCA credit cards auto debit feature. Cash Management BCA offers cash management services for businesses in various sectors serving both Business-to-Business (B2B) and Businessto-Consumer (B2C) transactions. This service is primarily targeted at the corporate and commercial segments, as well as those companies who are within the customers business chains. In 2016, more than a hundred thousand companies were using BCA cash management solutions, including those connected within the business chains of large corporations and across the business community. The number of users of BCA virtual accounts, one of the cash management feature products, continued to increase significantly. The Bank provides virtual accounts with real-time notification on fund movements to enable quicker access to payment information and to facilitate transaction reconciliation. BCA expanded its cash management services in a community format, whereby groups of customers are connected to one another within a business chain from supplier to distributor. These communities include the Oil and Gas, Capital Markets, Futures Markets and Telecommunications Communities. In the Capital Markets Community, around 70% of securities To develop integrated cash management services that cover payments, collections, and account & liquidity management transactions, particularly for high intensity and large-scale transactions, BCA provides system-to-system and host-tohost cash management services. These integrated services are marketed under the KlikBCA Bisnis Integrated Solution branding, which is a refinement of the KlikBCA Bisnis program and includes various features such as cash management for supply chain financing. For comprehensive cash management solutions, BCA customizes its systems, products and services to fulfill the needs of the Bank s customers and communities. In 2016, the Bank enhanced the management of the Digital Business Community as a potential new business in an era of the rapid growth of e-commerce and technology startups in Indonesia. Technological advancements in Indonesia have expanded the market for BCA s cash management system, particularly for e-commerce companies. The Bank facilitates convenient, secure and reliable payment transactions for online merchants. In addition, BCA is running a pilot project to develop an Application Programming Interface (API) platform that enables fin-tech and e-commerce companies to use the Bank s network for their financial transactions. 126 PT Bank Central Asia Tbk 2016 Annual Report

6 Looking Ahead In 2017, BCA will monitor developments in the Indonesian economy and focus on those sectors showing business potential and identify areas in need of special attention. The Bank will strengthen customer relationships in order to continue supporting their lending needs and expand business opportunities with quality customers. BCA will continue to refine lending procedures and infrastructure, including by improving the quality and adding new account officers where needed, exploring new products, and further streamlining the loan process for sustainable commercial & SME lending growth. Value chain financing will continue to be developed through the synergy between corporate and commercial & SME segments. The Bank will continue to work to enhance cash management services in efforts to promote fee-based income growth and strengthen BCA s transaction banking business. In providing cash management services, the Bank will continue to assess priority business sectors and communities to understand and identify their business potential and the risks faced in those different business sectors. In 2017, the Bank will focus its cash management marketing efforts on the transportation industry, which represents a growing market in line with the Government s infrastructure development initiatives; as well as industries related to logistics which are expected to grow together with the e-commerce market and with the courier business. PT Bank Central Asia Tbk 2016 Annual Report 127

Individual banking. Business Review. 03 Corporate Profile. 02 Management Report. 04 Management Discussion and Analysis. 01 Financial Highlights

Individual banking. Business Review. 03 Corporate Profile. 02 Management Report. 04 Management Discussion and Analysis. 01 Financial Highlights 01 Financial Highlights 02 Management Report Business Review 04 128 PT Bank Central Asia Tbk 03 Corporate Profile 04 Management Discussion and Analysis Business Support Individual banking 2016 Annual Report