Kang Iman cari. Treasury and International Banking. Business Review. 06 Corporate Social Responsibility. 04 Management Discussion and Analysis

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1 01 Financial Highlights 02 Management Report 03 Corporate Profile Business Review Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility Business Support PT Bank Central Asia Tbk Financial Review Treasury and International Banking Kang Iman cari Consolidated Financial Statements 2016 Annual Report

2 BCA Treasury proactively manages Bank liquidity, optimizes returns on financial assets and maintains a solid balance sheet position. BCA International Banking works to expand the range of the Bank s remittance and trade finance services. Close collaboration with other business units is key to capturing new opportunities as well as to better providing products and services required by the Bank s customers. Treasury Portfolio 105,691 15,061 30,143 (in billion Rupiah) 147,329 29,303 66,585 TREASURY During 2016 BCA guarded its liquidity position by carefully managing the investment portfolio and maintaining a healthy balance between investment risk and return through managed short-term and medium-term placement of funds. In close collaboration with other business units, BCA Treasury Banking actively supports customers financial needs by providing a variety of foreign exchange products and services, securities and other financial market products. 60,487 51, Bank Indonesia Instruments Government Bonds Other Marketable Securities Responding to the Market, Capturing Opportunities Macroeconomic conditions in Indonesia improved in 2016 with strong capital flows into the Indonesian financial markets and positive incoming direct investment trends. In 2016, the value of the Rupiah against the U.S. Dollar (USD) stabilized, closing the year at Rp 13,473 per 1 USD, appreciating by 2.3% from Rp 13,785 at year end Inflation was well maintained and trended downwards throughout 2016, ending the year with a 3.0% inflation rate compared to 3.4% in PT Bank Central Asia Tbk 2016 Annual Report 135

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 Business Review Treasury and International Banking With a steady and relatively low inflation rate, stable currency, and a well maintained liquidity position, interest rates in the market declined throughout the year in line with the reductions in the Bank Indonesia benchmark interest rate. Over the past year, Bank Indonesia has eased monetary policy through a number of macroprudential policies, including the reduction of minimum reserve requirements at the end of 2015 and early 2016 which were then followed by a series of interest rate cuts. In August 2016, Bank Indonesia changed its benchmark interest rate from the BI Rate to the Bank Indonesia 7-day Reverse Repo Rate to better reflect market conditions. Throughout 2016, the benchmark rate was gradually reduced by a total of 150 bps with the BI 7-day Reverse Repo Rate ending the year 2016 at 4.75%. In response to these conditions, and in consideration of stable liquidity in the banking sector, from August 2014 through the first semester of 2016 BCA gradually reduced the maximum interest rates paid on time deposits in order to reflect the market and lower the overall cost of funds. In 2016, the Bank s cost of funds was recorded at 2.0%, compared with 2.3% in 2015 and 2.6% in In anticipation of the decreasing interest rates in 2016, BCA moved funds from short-term Bank Indonesia Deposit Facilities and Bank Indonesia Term Deposits towards longer-tenor investment portfolio. BCA increased its ownership of Government Bonds significantly by 120.9% to Rp 66.6 trillion and the longer-tenor Certificates of Bank Indonesia portfolio by 115.9% to Rp 24.2 trillion at the end of Due to proactive management of the portfolio, the yield on earning assets of 8.5% was relatively maintained in 2016 compared to the previous year. The stable yield and lower cost of funds allowed the Bank to record a healthy Net Interest Margin (NIM) of 6.8%, compared to the 6.7% NIM posted in As a transaction bank and a major lender in Indonesia, BCA prioritizes maintaining a solid liquidity position for the Bank to stand ready to accommodate the needs of its customers. BCA Treasury carefully manages the Bank s liquidity, monitoring closely the balance between tenor, yield and risk level for each investment opportunity. Although we increased size of investment portfolio in longer-tenor Government Bonds, BCA maintains a significant short-term investments, the bulk of which are mostly placed in short term Bank Indonesia s instruments with maturity of less than one year. Overall, the BCA Treasury manages Rp trillion in investments, up 39.4% from Rp trillion in The treasury s investments constitute 27.8% of the Bank s total third party funds. Since 2015, BCA has made active use of its ample liquidity to actively participate in the swap market. BCA placed foreign currency funds with Bank Indonesia and correspondent banks while simultaneously undertaking hedging transactions through the swap market (sell-forward USD) to mitigate foreign exchange risk. From these transactions, BCA received higher returns than from other short-term placements. Income from these swap premiums contributed significantly to the overall increase in the treasury s income, recorded in the trading income account, which includes gain on spot and derivatives, and unrealized gains from fair value of financial assets held from trading. In 2016, the total income from these accounts recorded at Rp 1.7 trillion, a 72.1% of total net trading income. 136 PT Bank Central Asia Tbk 2016 Annual Report

4 BCA managed its liquidity and foreign exchange positions through careful consideration of cash flow needs and exchange rate risk. The Bank s balance sheet ended the year in a solid position, with the Net Open Position recorded at 0.2% of total capital, far below the maximum limit of 20% imposed by Bank Indonesia. Serving the Needs of Customers In addition to managing internal liquidity, BCA Treasury also offers a range of services to fulfill customer s financial needs, among others foreign exchange and capital markets products. These products and services are made available to customers in the corporate, commercial and Small & Medium Enterprise (SME), as well as consumer segments through collaboration with frontliners located throughout the Bank s branch network. In 2016, BCA Treasury continued to proactively market foreign exchange and bonds products to customers. The Bank promoted BCA s e-rate feature to individual customers and Small & Medium Enterprises, by highlighting the many benefits of the service in facilitating transactions in foreign currencies, including remittance. The e-rate feature offers a more attractive rate for online foreign exchange transactions of specified amounts than over-the-counter rates. BCA is optimistic that foreign exchange transactions will continue to increase in line with improvements on the ease of transactions. BCA is one of the official selling agents for Indonesian Retail (ORI) and Sukuk Retail (SR) Bonds. In 2016, BCA Treasury sold Rp 2.4 trillion worth of SR008, Rp billion of Savings Sukuk ST001, Rp 1.4 trillion of Retail Savings Bond SBR002, and Rp 2.4 trillion of ORI013 in the primary market. BCA was entrusted to facilitate sales of the Savings Sukuk ST001 that was only recently introduced to the Indonesian community. As a part of promoting the sales of ORI Bonds, BCA also joined in the collection of donations for social events by collaborating with the Indonesia Mengajar Foundation and KEHATI Foundation. In 2016 BCA received an award from the Ministry of Finance as the best-selling agents for ST001, SR008 and ORI012. The Bank has consistently received recognition for its bonds sales effort. BCA also earned international awards for Best Domestic Provider of FX Services and Best Domestic Provider of FX Research and Market Coverage in Indonesia from Asiamoney. In addition to bonds and foreign exchange products and services, BCA also offers custodian services. BCA Custodian ensures that assets administered are well-managed and that all rights of asset holders are fulfilled including distribution of dividends and bond coupons. The total assets under custody of BCA Custodian as of December 31, 2016 amounted to equivalent Rp 68.1 trillion across more than 37 thousands securities accounts. Types of securities managed by BCA Custodian include Time Deposits, Deposits on Call, Negotiable Certificate Deposit (NCD), Medium-Term Note (MTN), Corporate Bonds, Certificates of Bank Indonesia, Sharia Certificates of Bank Indonesia, Stocks and derivatives, Mutual Funds and Asset Backed Securities. BCA Custodian also offers a safekeeping service for foreign currency securities. PT Bank Central Asia Tbk 2016 Annual Report 137

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 Treasury and International Banking INTERNATIONAL BANKING BCA International Banking focuses on providing the right solutions for customers in their international trade transaction activities or in making payments overseas. Though the global economy remained weak in 2016, BCA continued to refine and develop trade products in anticipation of the evolving needs of the Bank s customers and in line with opportunities arising from increased trade volumes in Asia, especially in the era of the ASEAN Economic Community. BCA works to strengthen its ties with banks throughout Asia, such as in Thailand, Japan, South Korea, China and the Philippines, in order to facilitate cross-border transactions and to broaden the Bank s customer base from foreign investors seeking to enter the Indonesian market. Through its wide range of services, BCA is confident that it will be able to serve the banking needs of these potential customers. Trade Finance Services The continuing slowdowns of the major export commodities (including Coal and Palm Oil CPO), and the economic growth of Indonesia s main trading partners (e.g. China, Japan and several Eurozone countries), had an impact on the demand for Indonesian exports in Admist these conditions, the demand for BCA s international trade services saw an increase. In addition, the Bank saw growth in domestic trade activities which supported BCA s total trade finance services. Within a less than conducive business environment, BCA focused on internal enhancement and consolidation by developing international trade products and improving the quality of human resources to accommodate the increasingly complex financial needs of the Bank s customers. Remittance Services BCA continued to improve remittance products and services to better serve the Bank s customers, while exploring transaction opportunities. In an innovative effort, in 2016, the Bank launched the BCA multicurrency service which allows customers to transfer money overseas in over 130 different currencies throughout the world. BCA will benefit from this innovation as it enables the Bank to capture opportunities brought by the increase in remittance activities. For inward remittance, BCA provides a web-based Financial Institution Remittance service, or known as Fire Cash BCA, to facilitate the transfer of funds from overseas into Indonesia. Fire Cash BCA is available in more than 100 countries, primarily in the main destination countries for Indonesian migrant workers (TKI). The Bank worked to further broaden this customer base by increasing its collaboration with partners in those countries and, domestically, by working with the Post Office and convenience stores. 138 PT Bank Central Asia Tbk 2016 Annual Report

6 Weak global economic activity put pressure on the performance of several industries that normally would have driven international banking transactions. Nevertheless, BCA remains optimistic that Indonesia s economy along with international trade business shows better prospects in 2017 as commodity prices in the international market begin to recover. LOOKING AHEAD BCA Treasury and International Banking will continue to enhance the synergy established with Corporate, Commercial and SME Banking as well as with the Wealth Management Unit to best accommodate the financial needs of the Bank s increasingly broad customer base. BCA will seek to support its customers by offering foreign exchange products & services, bonds, custodian services, trade finance and remittance services. In line with long-term economic prospects, the Bank is poised to capture opportunities as they arise from treasury activities and international trade transactions. In the year ahead, BCA is committed to developing stronger relationships and collaboration with correspondent banks. PT Bank Central Asia Tbk 2016 Annual Report 139