Board of Directors Report

Transcription

1 48 Board of Directors Report Asmawi Syam President Director

2 49 Assalammualaikum Wr. Wb. Praise we pray to the Lord Almighty, as for His blessings that s business journey in 2016 has been satisfied with good results. strived for and managed some success to show good performance in 2016, to maintain the trust that is given, to provide the best results to all stakeholders, and to increase value to shareholders. These achievements have strengthened s position in the pursuance of sustainable business growth. At this opportunity, allow me, on behalf of the Board of Directors, to present you a summary of s performance in The government introduced the Tax Amnesty Program in July 2016 to reduce the fiscal deficit in support of infrastructure spending target. At the end of 2016, the government s revenue from the Tax Amnesty Program reached a total of more than Rp100 trillion, while total declared assets reached Rp3.879 trillion, consisting of domestic and overseas declarations, repatriation of assets, as well as redemptions. Declaration of assets on the tax amnesty period reached 23% of Indonesia s GDP, making the program one of the most successful tax amnesty programs in the world. GLOBAL MACRO ECONOMY Global Economic Growth Stagnant The growth of global GDP will reach near 3.1% at the end of 2016, slightly less than the growth in 2015 of 3.2%. The slow growth of economy in China has not been balanced by a stronger growth of the US economy, with results of the UK Brexit referendum and the US Presidential Election were contributory factors to the volatility of global financial markets. Going forward, the growth of economies across the world will be influenced by the policies of the new government in United States of America. DOMESTIC MACRO ECONOMY CONDITION Stable Domestic Consumption and Trend of Increasing GDP Growth The Indonesian economy in 2016 performed slightly better compared to 2015 with an annual GDP growth of 5.02%, higher than the 4.79% in 2015, with household consumption accounting for 56,5% and still the largest contributor to Indonesian GDP. In addition, the GDP growth was also supported by strong government spending in infrastructure, compensating for the weakening of export earnings due to the instability of commodity prices. BANKING INDUSTRY Adapting to Slower Growth Credit growth in 2016 slowed down to 7.87% YoY compared to the previous year of 10.44%. Such slowing of credit growth reflected the weak demand for credit still in evidence during The slow credit growth was moreover accompanied by an increase in gross non-performing loan ratio to 2.93% in 2016, from 2.49% in the previous year. On the other hand, third party funds in the banking sector increased by 9.60% in 2016, higher than the growth in the previous year at 7.26% YoY. The higher growth of third party funds in 2016 was attributable to, in part, the inflows of repatriated funds in the Tax Amnesty program. The slow credit growth in conjunction with higher growth of third party funds have resulted in a relaxation of liquidity in the banking sector by the close of In mid December 2016, the Federal Reserve raised its benchmark rate by 25 bps, and in the same month, Bank Indonesia still maintained its Reverse Repo rate benchmark at 4.75% in consideration of inflation that reached 3.02%. In March 2016, the Financial Services Authority (OJK) applied a cap on bank deposit interest rates for BUKU 3 banks at 100 bps and for BUKU 4 banks at 75 bps above the benchmark rate. Meanwhile, in mid-august 2016, Bank Indonesia changed the benchmark interest instruments from an instrument based on a 12 month to a 7-day Reverse Repo. Currently, the upper limit of deposit rates at is 6.75%, which is calculated based on Bank Indonesia 12-month Bank Indonesia Certificates.

3 50 Board of Directors Report PERFORMANCE IN 2016 Strategic Policy Defensive Strategy: Growth in Micro Sector by Monitoring CASA Level Amid the dynamic macro-economic conditions, in 2016, we implemented a defensive strategy to maintain sustainable performance. With a high LDR in the Bank, we sought to maximize productivity on assets by prioritizing growth in the Micro Business and Consumer Business segments, while for liabilities, we are still trying to maintain a minimum level of CASA of 55%. Building the Foundation to Prepare a Transformation Phase This year, we prepared a transformation project to be undertaken in the period , by reviewing the Company s long-term strategy. In view of changes in the demographic as well as advances in technology, we believe that excellence in managing savings using the benefits of technology will be key s success in the future. To overcome challenges, at the end of the 2015, we formed the Transaction Banking Division, with an emphasis on individual and retail payment services. In 2016, we continued the development of such business to the Corporation and State-Owned Enterprise segments by forming the Commercial Transaction Banking division under the coordination of the Transaction Banking division. Utilizing Technology to Boost Efficiency 2016 was also an important year for us in terms of adopting new technologies to support banking services. In June 2016, we successfully launched a communication satellite, the sat, followed by forming a new division dedicated to operate the satellite. Currently, we are in the process of integration between the new satellite system and the existing network, and in 2018, we expect that the integration process will have covered a number of our regional areas. sat can support the operational performance of all the distribution networks of, especially those based on e-channels. In addition to strategies in network infrastructure, we also restructured the IT Division by separating the strategic function from operational function in order to have a speedier execution in IT development. Digitalizing Banking Services operates the widest and largest network of banking offices in Indonesia with 10,643 offices. also has four overseas branches, namely in Singapore, Hong Kong, New York and Cayman Islands. In addition, the Bank also operates 3 units of Teras Kapal as floating branch offices to serve people living on islands and in isolated coastal communities with little or no access to banking services. In 2016, the number of branches increased by only 31 offices. This is part of our strategy to maximize s digital technology in reaching the public and expanding our business in the future. provides an e-channel network that records more than 283,453 e-channel points dispersed all across the territory of Indonesia. To anticipate the increasing needs of the community for banking transactions that are quicker, easier and more efficient, in 2016 expanded the e-channel network by adding some 1,500 ATMs, 500 Cash Recycle Machines (CRM), 69,954 EDCs, and 100 units of Self Service Banking (SSB) machines. Leading in Developing the Nation s Economy continues to maintain its position as a bank that focuses on empowering the backbone of the national economy, namely the Micro sector and the Small and Medium Enterprises (SMEs), with the Micro, Small & Medium Enterprises (MSME) segment contributing around 72.53% to s total loan portfolio. was also the largest disbursing bank for small business loans under the Kredit Usaha Rakyat (KUR) program, accounting for some 70% of the national quota in 2016 for KUR disbursement. disbursed Rp65.06 trillion of loans to more than 3.7 million borrowers, consisting of Micro KUR of Rp57.24 trillion and Retail KUR of Rp7.82 trillion. expanded its services using the concept of Link where customers of cooperate as Agents serving the community for banking transactions in real time using the features of EDC mini ATM equipment with a fee sharing arrangement. The performance of Link in 2016 showed good business growth compared to 2015 with the Link Agents increasing to number 84,550 agents in 2016 from 50,259 agents in 2015, spread out from Sabang to Merauke. This increase was accompanied by an increase in the number of transactions to million from million and the value of transactions reached Rp trillion from Rp35.90 trillion in the previous year.

4 51 s support for the development of the nation s economy includes increasing the financial literacy of society through cooperation with the Government and OJK, as well as through various Corporate Social Responsibility programs that aim to develop the quality of human development and the living standards of local communities. Target Realization Comparison between achieved results and targeted results (bank only): Performance Loan Growth (Rp billion) Target 2016 Realization 2016 Achievement 653, , % LDR 90.92% 87.77% % Net Interest Margin 8.09% 8.27% % NPL 2.16% 2.03% % CER 46.78% 42.77% % Net Profit After Tax (Rp billion) 25,442 25, % Overall, has successfully achieved and even exceeded its business targets set out for the year of 2016, except for credit growth and CER targets. In 2016, managed to realize a Net Profit After Tax (NPAT) of % above the stated target, while its Net Interest Margin reached 8.27% above the target for the year. The growth in net profit was supported the growth in net interest income of 15.37%, growth in fee income of 25.38%, and an increase of 18.02% in income from settlement of written-off loans (recovery income), during The CER ratio in 2016 was maintained at 42.77%, still within range of the target set for In terms of operating expenses, recorded an increase primarily due to higher labor costs as an impact of long-term incentive reserves in preparation for executing the Management and Employee Stock Ownership Program (MESOP). Total loans disbursed by in 2016 reached Rp trillion, growing 13.76% compared to This growth increase was slightly below the target set out in 2016 in the amount of Rp trillion, due to the weak demand for loans. The allocation of loans is prioritized for the MSME, Consumer and the Corporate SOE segments. Micro Business is still a major contributor to the growth of loans whereby Micro loans comprised 32.43% of s total loans in 2015 and 33.43% in In 2016, managed to control its NPL at 2.03%, better than the target set out in 2016 which was at 2.1% - 2.4%. s NPL ratio level was also better than the average banking industry which was at 2.93%. Such improvement was achieved by undertaking various efforts including improving lending procedures in the Medium segment, developing overall credit portfolio analysis, intensifying the restructuring of small loans and corporate loans, as well as improving collection efforts to minimize NPLs and increase recovery revenues. s Third Party Funds (DPK) increased 12.61% (yoy) to Rp trillion, driven by the growth in savings accounts at 11.23% (yoy), time deposit accounts at 8.87% (yoy), and demand deposit accounts at 24.58% (yoy). The growth of s DPK was better than the average growth of 3.15% within the banking industry. The composition of s DPK in 2016 was also better than 2015 with the increase in low-cost funds (CASA) to 60.57% in 2016 compared to 59.21% in has made various efforts to reduce the cost of funds with regard to the management of interest rate and liquidity risks, and successfully reduced the cost of funds from 4.24% at the end of 2015 to 3.83% by the end of The lower cost of funds is not independent from the government imposition of a limit on interest rates for bank deposits for BUKU 4 banks at 75bps above the Bank Indonesia benchmark rate, as well as internal efforts to increase efficiency in the management of assets and liabilities. has the largest customer base with over 50 million deposit accounts. maintains its market share of deposit accounts by offering its flagship products, Simpedes and Britama. These two products rank above 95% in brand awareness and are well-differentiated in the eyes of customers. To maintain customer loyalty, consistently performs promotional programs, among others, the Pesta Rakyat Simpedes and Untung Beliung TAMA. s CAR level was recorded at 22.69% at the end of 2016, increasing from 20.39% at the end of 2015, and well above the minimum capital adequacy provisions set out by BI at a rate of 9%. This achievement was supported by an asset revaluation carried out in the second quarter of 2016 resulting in an increase of equity by Rp13.82 trillion. has ably performed its intermediary function as an institution in the effective and efficient collection and distribution of public funds, as evident from the level of Loan to Deposit Ratio (LDR) of 87.93% at year-end 2016.

5 52 Board of Directors Report Challenges A number of obstacles faced by in carrying out its primary function as a financial intermediary included a fairly tight liquidity condition due to the declining government tax revenues and slow industry-wide growth of saving accounts, the weakening of credit demand, and also the weakening of international trade volumes due to global economic conditions. Internally, continues to strive to improve the quality of its service, particularly through the use of technology. Therefore, in the long-term plan, will be more focused on investments in the development of information technology and the quality of its human capital. Performance of Subsidiaries foresees that in the future, the Consumer Business will be more attractive in line with the increase in per-capita income in Indonesia and the stable growth in household consumption. In 2016, added a new subsidiary in the field of multi-finance with the increase of its share ownership in Bank of Tokyo Mitsubishi Finance from 45% to 99%, making the controlling shareholder in BTMU Finance. With the completion of this acquisition, BTMU Finance was renamed Finance. Finance will be focused on developing the Consumer Business, hence, the ongoing business restructuring is aimed to optimize the synergy with the Consumer Business. Additionally, Life, acquired in 2015, has started to show positive results with a net profit of Rp billion in 2016, with its Risk Based Capital increased to 280%. As part of the ongoing restructuring process, has promoted a new board of directors and commissioners for Life. Life s new management was chosen from professionals and former bankers of to maximize synergy with the Consumer Business. subsidiaries which are engaged in banking industry, Syariah and Agro, both showed positive performance with net incomes of Rp billion and Rp billion, respectively, and ROE of 7.42% and 7.34%, respectively. However, on a consolidated basis, the net profit contribution to net income is not yet significant. Both banks are still experiencing pressure on credit quality, so for the time being, the Bank is opting in for a defensive strategy with a focus on selective growth and improved credit quality. IMPLEMENTATION OF S CORPORATE GOVERNANCE 2016 The Board of Directors realizes that the good implementation of Good Corporate Governance will strengthen the growth and quality of s business, resulting in sustainable added value for all stakeholders. The implementation of corporate governance refers to Bank Indonesia Circular Letter No. 15/15/DPNP dated April 29, 2013, concerning Implementation of Good Corporate Governance for Commercial Banks. According to the results of evaluation by the Financial Services Authority (OJK) in 2016 on GCG implementation, received a rating of 2, showing that has implemented well its GCG and has complied with all the principles of corporate governance. Moreover, in the same year, the Bank managed to get an award in the field of Sustainable Finance from the OJK with honors Best of the Best which shows the commitment of in maintaining sustainable business growth. Implementation of GCG at includes a declaration of commitment to not accept and / or ask for gifts in any form and for any reasons from customers, debtors, business partners, or other third parties; statement of compliance with the code of ethics, as well as disclosure of all activities that have elements of conflict of interest every year, where each working unit is obliged to report on a quarterly basis any transaction/decision-making having elements of conflict of interest. Further, all partners associated with the supply of goods and services must establish an Integrity Pact. implements a zero tolerance anti-fraud strategy demonstrating s commitment to be on guard against fraud, with zero tolerance for any form of fraud originating inside or outside. implements risk management in an integrated manner by implementing a four-pillar risk management strategy where pillar 1 is the active supervision of the Boards of Commissioners and Directors; Pillar 2 is the adequacy of policies, procedures and limits; pillar 3 is the risk management processes and risk management information systems; and pillar 4 is internal control system. has also had a whistle-blower system since 2009 to create a conducive organizational climate and encourage a culture of reporting matters detrimental to both financial and nonfinancial standing, including potential detriment to corporate image.

6 53 Implementation of Information Technology Governance has also been done by dividing IT into two domains, namely strategic control and operational control. This division allows the Bank to conduct regular evaluation processes on planning and governance, development and implementation, delivery and support, and monitoring and evaluation. The application is based on Minister of State Owned Enterprises Regulation No. PER-02/ MBU/2013 on Guidelines for Developing Management of Information Technology in SOEs and Bank Indonesia Regulation No. 9/15/ PBI/2007 regarding Implementation of Risk Management in the Use of Information Technology by Commercial Banks. Integrated Governance has the Integrated Governance Committee at the level of the Board of Commissioners consisting of the Board of Commissioners of, Board of Commissioners of Agro, and the Board of Commissioners and Sharia Supervisory Board of Syariah. Under this Committee, the implementation of integrated governance is monitored directly by the Director of Compliance through quarterly Risk Management Committee meetings. Evaluation of Performance of Committees Under the Board of Directors There are 10 (ten) executive committees assisting the Board of Directors in implementing its duties and responsibilities: Risk Management Committee, Credit Policy Committee, Credit Committee, Asset-Liability Committee, Information Technology Steering Committee, Capital and Investment Committee, and Project Management Office (PMO) Steering Committee, Product Committee, HR Policy Committee, and Position Evaluation Committee. In the evaluation of the Board of Directors, all of these committees have performed their duties and responsibilities in 2016 in helping the BOD. The Risk Management Committee (RMC) oversees and supervises s risk profile; undertakes capital analysis and stress tests (liquidity, capital and enterprise); and evaluates s risk issues, as well as RMC recommendations and RMC recommendation implementation. The Integrated RMC also convenes forums to conduct surveillance and supervision of integrated risks with subsidiaries Syariah, Agro, Finance, and Life as part of the Financial Conglomerate. This supervision covers s integrated risk profile, analysis of capital and stress tests (liquidity, capital and enterprise), discussion on risk issues in each subsidiary and recommendations as well as decisions of the Integrated RMC. The Credit Policy Committee (KKP) works in formulating policy, overseeing the implementation of policies, monitoring progress and conditions of credit portfolios, and providing suggestions for improvements. The Credit Committee assists the Board of Directors in evaluating and deciding on applications to obtain credit in certain amounts and for certain credit types of credit as set out by the Board of Directors. The duties of the Credit Committee include to provide an approval or rejection of credit according to applicable regulations and to coordinate with ALCO in allocating funding for credit at amounts set out by ALCO. ALCO (Asset-Liability Committee) assists the Board of Directors in the management of assets and liabilities of the Company in order to obtain optimal yields, including setting out strategy and policy of asset and liability management by considering risks. The Information Technology Steering Committee (ITSC) assists the Board of Directors in providing direction and recommendations on IT policy, development and operational implementation. In its implementation, ITSC has two main roles, namely to provide policy direction and management of s IT in the long term (five years) and short term (yearly) with reference to the IT strategic plan; and to control the development and implementation of s IT, both for ongoing and future projects, with reference to the IT strategy. The Capital & Investment Committee assists the Board of Directors in taking decisions for corporate actions based on the results of studies and comprehensive analysis. In addition to that, the committee also plays an active role in the management of s subsidiaries. The PMO Steering Committee has the duty to provide direction and create strategic decisions in project management, including setting project prioritization, providing projectspecific strategic decisions, and providing direction on the results of post-implementation project evaluations. Changes on Directors Composition Following decision of the General Meeting of Shareholders (AGM) dated March 23, 2016, there were changes in the composition of the Board of Directors by promoting Sis Apik Wijayanto and Priyastomo as new Directors to replace Directors who had completed their terms, namely A. Toni Sutirto and Gatot Mardiwasisto. provides the highest appreciation to the departing Directors for their contributions, both for their energy and ideas towards s development.

7 54 Board of Directors Report MANAGING HUMAN RESOURCES Human resources are the primary capital to drive s businesses and to realize quality business growth and sustainability. On an individual basis, implements a performance management system using a Balanced Scorecard (BSC) as a tool to measure employee performance, including a strategy map setting out the objectives and Key Performance Indicator (KPI) targets. In 2016, is supported by a total of 99,333 employees (excluding outsourced workers), consisting of permanent employees (including those in probation period), contract employees, and trainees. The number is an increase from 92,574 employees in is also improving human resources quality by providing in-house learning programs to 86,649 participants. In the commitment for increased efficiency and worker productivity, provide e-learning with 57 modules that were attended by 1,107,879 participants in In addition, the Bank sent 36 of its best employees to pursue post-graduate studies in Europe and the USA. CORPORATE SOCIAL RESPONSIBILITY Responsibilities towards Workers, Worker Health and Safety (People) Some of s commitments to fair employment practices are the appreciation for gender equality through recruitment policies at the level of Management Trainee, employee development through access to education and training on a need-basis, competency-based performance evaluation, and career development based on performance. For employee health, all permanent and contract employees receive health insurance benefits. In terms of work safety, has a Business Continuity Management protocol to be executed at a time of crisis, for example in the event of natural disasters. In addition to various forms of responsibility, also provides retirement benefits to every permanent employee. Responsibilities to Customers constantly strives to maintain the quality of services to customers. To that end, a service culture has become part of the tag-line of namely Serving Wholeheartedly and the service culture CAKRAM. In addition, the Bank is committed to protecting customer information and data and provides a variety of communication access for customer complaints. Responsibilities to Communities Social and Economic Welfare s responsibility to the surrounding communities is realized through distributing loans in the Partnership Program, KUR Micro, and Kupedes, as well as through philanthropist programs that aim to support the development of productive business sector using s CSR funds. Responsibilities to Environment has applied the principles of Green Banking on lending, especially in the Corporate segment dealing with the agricultural sector. In addition, a variety of efforts to improve efficiency include saving paper through the use of automation with the e-office application and in the loan application process, as well as practical suggestions to save natural resources built into the work culture. Beyond these efforts, various philanthropist programs in nature conservation continue to be made through CSR funds distribution. This amounted to Rp2.84 billion in 2016, which, among other programs, was distributed for the planting of 231,735 trees as well as for various animal conservation programs. Distribution of CSR Funds During 2016, the Peduli program disbursed Rp billion of CSR funds, an increase of 5.01% compared to Rp billion in The implementation of the CSR philanthropist programs addressed the needs in areas of education, health, environmental protection, improvement of public facilities, improvement of worship facilities and activities, natural disaster, and social assistance to reduce poverty.

8 55 OVERVIEW OF BUSINESS PROSPECTS AND STRATEGY 2017 Overall, the economic situation in 2017 is expected to remain similar to that in The US economy is expected to grow stronger and the Federal Reserve rate is predicted to rise during Meanwhile, China s economic growth is expected to be steady at 6.00%. Indonesia s economic growth in 2017 is estimated to be in the range 5.00% -5.40%, having a better potential than had been expected for Inflation is expected to be in the 4% range, in line with the forecasts of an increase in the tariffs for electricity, gas and oil prices. The current account deficit is expected to increase but remain below 3% of GDP. Meanwhile further increases in commodity prices will be a positive overall influence on the domestic economy along with the increasing performance of exports. The government s plan to accelerate the disbursement of state spending in the first half of 2017 is also expected to spur the growth of the real sector. In 2017, loans in the banking sector is expected to grow in the range of 9%-12% with deposits increasing in the range of 8%-11%. Banking liquidity will thus be fairly tight with expectations of an increased ratio of government debt to GDP. As we expect an increase in inflation, we also expect that Bank Indonesia will change the BI 7-day Rate to anticipate any change in Federal Funds Rate in Growth of the banking industry will be supported primarily from the domestic sector in response to overall economic growth in Indonesia in Therefore, in 2017, will prioritize the strategy of developing Micro and Consumer sectors. From the perspective of assets, will increase penetration of Micro market with KUR and Kupedes products as well as manage the market share of the Consumer business primarily in the salaried workers segment through optimization of cross sell programs with Corporate and SOE segments. Meanwhile for liabilities, the Bank will implement a strategy to maintain deposit growth through an effective marketing strategy for both Micro and Retail offered through Simpedes and Britama products, increase the penetration of Link to increase the Bank s profile in the retail payment business, as well as develop business opportunities in wholesale transaction banking in the Corporate segment. Loan quality will be managed by continuing the loan restructuring strategy for Micro and Medium Enterprises. For the Corporate and SOE segments, efforts to maintain credit quality will be realized by focusing on the potential growth of businesses related to government projects and sectors that are driven by the domestic economy. APPRECIATION TO ALL STAKEHOLDERS On behalf of the Board of Directors, I offer my high appreciation to all employees who have worked hard, were able to maintain customer trust, had a strong commitment, and showed harmonious cooperation that helped achieve an outstanding performance in I would like to thank the Board of Commissioners wholeheartedly for the their advice and guidance. The highest thanks go also to the shareholders, customers and business partners of as well as all other stakeholders on their cooperation. Going forward, we believe that will be able to demonstrate a better performance, by prioritizing prudential principles and continuing to provide added value to all stakeholders. will continue to serve the banking needs of the people of Indonesia and synergize with all stakeholders to drive the economic growth of Indonesia. Wassalamu alaikum Wr. Wb Jakarta, February 16, 2017 Asmawi Syam President Director