Board of Commissioners Supervisory Report

01 Financial 02 Management Report 03 Corporate Profile Djohan Emir Setijoso President Commissioner PT Bank Central Asia Tbk 05 Corporate Governance Board of Commissioners Supervisory Report 02 34 04 Management Discussion and Analysis 2016 Annual Report 06 Corporate Social Responsibility 07 Consolidated Financial Statements

BCA strengthened its foundation for future growth and capitalized on the opportunities that arose across all business lines throughout 2016 while adhering to the principles of prudent risk management. Good corporate governance is a prerequisite to delivering added value to the stakeholders. Valued Shareholders, We are pleased to report that BCA recorded solid performance in 2016. The Bank closed the year with an increase in net profit of 14.4%, reaching Rp 20.6 trillion, equivalent to Rp 836 per share. Return on Assets (ROA) and Return on Equity (ROE) were better than the targets set at the beginning of the year. BCA s solid financial performance reflects a balance between the efforts undertaken to capture business opportunities; increase operational efficiency; and the investments made in strengthening capabilities for enhanced competitiveness. In its supervisory role, the Board of Commissioners believes that the Board of Directors has carefully responded to the recovery phase in the national economy to ensure that the Bank is moving in the right direction. The Directors were able to guide BCA in capturing various business opportunities, while prioritizing stable liquidity, a solid capital base, and healthy loan quality. Review of the Economy and the Banking Sector in 2016 In 2016 Indonesia experienced economic growth of 5.0%, compared to 4.9% in 2015. After going through a period of relatively flat growth since 2014, key macroeconomic indicators started showing signs of improvement and increased stability throughout 2016. These results were consistent with the efforts of the Government and regulators in stimulating the recovery of the domestic economy while also maintaining the stability of the macroeconomy and the financial system amidst ongoing global economic uncertainty. High-GDP countries, such as the United States of America, Eurozone countries, China, and Japan, faced difficult macroeconomic challenges in 2016. Many countries experienced slight deflation, or at best near-zero inflation rates, reflecting reduced PT Bank Central Asia Tbk 2016 Annual Report 35

01 Financial 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements consumption, weak buying power and over production capacity. Various stimulus programs in place for several years, including low interest rate policy, have had little significant impact on the economies of these countries. The prolonged low interest rate environment generated concerns about the performance and stability of the global financial industry, including the banking sector. The economic slowdown in China was a major factor in the weak export performance of most Asian countries. Following two decades of rapid growth, the Chinese economy overheated, marked by excess production capacity, highly leveraged loans and concerns over loan quality. Aside from this, political conditions in developed countries, such as the recent Presidential election in the United States and the UK s exit from the European Union, further contributed to unstable liquidity flows in the global financial markets during the second half of 2016. To a certain extent, the weak economic growth in major developed countries has affected Indonesian export figures. However, in overall terms, the domestic macroeconomy remained under control. The national trade balance was maintained at a surplus in 2016, even with exports facing downward pressure, contributing to the improvement of the current account deficit which has been negative since the fourth quarter of 2011 from a high of 4.26% in the second quarter of 2014 to 1.75% in 2016. The country s slight recovery, along with the increase in capital inflows, has promoted a stronger Rupiah. Bank Indonesia s cautious monetary policy that factored in various external elements, particularly the movements of the Fed Funds Rate in the U.S. had a positive effect on the stability of capital flows into Indonesia. At the same time, inflation indicators trended downwards, declining to a 3.0% inflation rate in 2016. The relatively low commodity prices, the stable Rupiah exchange rate, and well-balanced supply and demand patterns of staple goods contributed to keeping inflation at a relatively low level when compared to the recent past. In an attempt to accelerate the pace of economic development, while taking into consideration various macroprudential factors, Bank Indonesia has eased monetary policies, amongst others, by Board of Commissioners left to right standing : Sumantri Slamet Independent Commissioner Tonny Kusnadi Commissioner Raden Pardede Independent Commissioner seated : Cyrillus Harinowo Independent Commissioner Djohan Emir Setijoso President Commissioner reducing the minimum reserves requirements in 2015 and early 2016 and later cutting the benchmark interest rates. From the beginning of the year through October 2016, Bank Indonesia reduced benchmark interest rates by a total of 150 basis points. Following the conclusion of the Presidential election in the U.S. and the increase in the Fed Funds Rate in December 2016, Bank Indonesia held the benchmark interest rate steady in the final months of the year in order to sustain stable liquidity and maintain overall macroprudential policies. 36 PT Bank Central Asia Tbk 2016 Annual Report

The Indonesian Government made efforts to drive economic In addition to the interest rate adjustment, the Indonesian growth amidst difficult challenges. A number of economic reform financial regulators proactively implemented a series of policies policies were implemented, including the tax amnesty program to sustain economic growth and support the banking sector while that was carried out in the second half of 2016. The public remaining cautious at all times. Such policies include the easing responded positively to the tax amnesty, providing a catalyst to of Loan to Value (LTV) for consumer lending, reduction of the strengthen the State Budget and the financial market s liquidity banking sector s minimum reserves requirements, and easing of position. In addition, the Indonesian Government continued to loan restructuring protocols. deliver on a number of infrastructure projects while enhancing investment regulations and services in the hopes of stimulating Though not as high as the average growth over the last decade, the economy. Direct investments, both foreign and domestic, saw the banking sector s loans outstanding reached Rp 4,377 trillion, improvements in 2016. growing by 7.9%, in the midst of the Indonesian economic recovery. Third party funds across the banking sector increased PT Bank Central Asia Tbk 2016 Annual Report 37

01 Financial 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements 9.6% at the end of 2016. The tax amnesty policy contributed to holding up the sector liquidity position in the second half of 2016. In recent years, aside from facing slower growth of loans and third party funds, the national banking sector has also seen an increase in delinquent loans. In the final quarter of 2016, pressure from Non-Performing Loans (NPL) began to decline, with NPL ratio reaching a relatively manageable level of 2.9% by the end of the year. In the last two years, major banks in Indonesia formed significant reserves to cover the expected losses from deteriorating loan quality, ensuring a solid balance sheet as a foundation for loan portfolio growth. The banking industry s Capital Adequacy Ratio (CAR) stood at a solid 22.9% as of the end of 2016. Performance Assessment of the Board of Directors Observation and assessment of the performance of the Board of Directors was conducted with reference to the annual business plan compiled by the Board of Directors and approved by the Board of Commissioners. The Board of Commissioners ensured that the results achieved by BCA have been in line with the Bank s vision and mission, as well as the Bank s established strategic direction and work programs. Based on our supervisory activities, the Board of Commissioners view that throughout 2016 the Board of Directors has fulfilled their functions and implemented policies that we consider appropriate for achieving the Bank s strategic targets. The Board of Commissioners assesses that the Directors managed the company in accordance with the business plan of the Bank and achieved the targets that had previously been agreed upon. In 2016, BCA successfully captured business opportunities that arose during the course of the year and recorded positive results amidst the various challenges faced by the banking industry. The Bank also continued to develop long-term capabilities throughout the year. The Board of Commissioners appreciates the steps taken by the Board of Directors in managing the various elements affecting the Bank s rentability in 2016. BCA was able to maintain the balance between Net Interest Income, Operating Income other than Interest, Operational Expenses, and Allowances for Impairment Losses on Loans. The Bank recorded an increase in Net Income of 14.4%, amounting to Rp 20.6 trillion or Rp 836 per share. These figures are reported after a fairly significant Allowance for Impairment Losses on Financial Assets taken during 2016. Return on Assets (ROA) and Return on Equity (ROE) stood at 4.0% and 20.5% respectively. The Capital Adequacy Ratio (CAR) remained solid at 21.9%, with a healthy Loan to Funding Ratio (LFR) of 77.1%. Throughout 2016, the Board of Commissioners notes that the Directors placed due importance on strengthening transaction banking capabilities, improving lending processes and infrastructure, and developing the Bank s subsidiaries businesses. A number of strategic work programs were designed to further strengthen relationships with customers, nurturing and upholding their trust on the Bank. BCA is committed to offering comprehensive financial services aimed to fulfill the increased demand from the Bank s customers. Supervision of BCA Strategic Actions The Board of Commissioners notes that BCA s strategic actions were in line with the circumstances of the market, macroeconomic conditions and national monetary policies. The increasingly tight competition in the banking sector and evolving customer behavior encouraged BCA to continue the Bank s focus on increasing capabilities and taking advantage of all business opportunities. Throughout the year, BCA maintained prudent lending by prioritizing customers with solid track records and long relationships with the Bank. While faced with weak loan demand in 2016, BCA strived to continue providing loans to all segments, covering corporate, commercial and Small & Medium Enterprises (SME), as well as the consumer segment. The corporate and consumer segments were the pillars of the Bank s overall loan growth in 2016, while efforts were also made to capture lending opportunities in the commercial and SME segments. BCA offered competitive interest rates in all loan segments to optimize lending opportunities. In 2016, BCA lowered lending rates, following the reduction of time deposit rates the year before. The Bank s loan portfolio grew moderately by 7.3%, reaching Rp 415.9 trillion, in line with growth across the banking sector. 38 PT Bank Central Asia Tbk 2016 Annual Report

The cautious steps taken by the Bank over the past several years have borne positive results. Though higher than in 2015, the Bank s Non-Performing Loans (NPL) ratio remained lower than the industry average. Whilst the Indonesian economy continued to exhibit slower growth in the first half of the year, BCA s NPL ratio increased to 1.3% at the end of December 2016, compared with 0.7% at the end of 2015. During the year, BCA formed additional reserves of Rp 4.5 trillion in order to ensure sufficient reserves against possible impairment losses on loans, bringing the ratio of reserves to NPL to 229.4% at the end of 2016. The Board of Commissioners feels that the Directors must remain vigilant in the coming months and years to mitigate the potential increase in delinquent loans until the national economy fully recovers. The provision of quality products and services to customers, whether in lending or funding, constitutes the primary factor in maintaining the customers trust in the Bank. BCA consistently enhanced its banking infrastructure and system capabilities, while further developing products and services, both short term and long term in nature. In recent years, digital-based services have undergone constant developments and have become one of the Bank s main priorities. On the funding side, the Bank s preeminence in providing reliable, secure and convenient transaction services has supported BCA in maintaining healthy third party funds growth, particularly from Current Accounts and Savings Accounts (CASA). In 2016, the use of electronic transaction channels by the Bank s customers continued to grow consistent with dynamic trends and developments in technology. In response, BCA consistently invests in internet banking, mobile banking and app-based services, while also continuing to make measured expansions to the branch network. The Bank has also implemented programs directed at increasing efficiency, including the development of the Cash Recycling Machine (CRM) as an improved ATM; increasing automation at branches; and regular promotion of the various e-channel services. The Board of Commissioners endorses the strategic steps taken by the Board of Directors in investing in information technology to develop the Bank s digital banking platforms to the higher level. BCA is also in the process of establishing a venture capital company through which it will invest in, and collaborate with, financial technology (fin-tech) companies in order to enhance BCA s businesses ecosystem. We further appreciate the Directors efforts to take advantage of funding opportunities afforded by the Government s tax amnesty program. The attempts to educate the Bank s customers on this program were particularly fruitful. BCA was recorded as the largest agent in facilitating the redemption payments resulting from the tax amnesty program and paid to the Government, further supporting growth in third party funds of 11.9% to Rp 530.1 trillion in 2016. Through its seven subsidiaries, BCA continued to develop products and services to offer comprehensive financial solutions as a complement to the Bank s business and in order to better serve the customers dynamic and varied needs. BCA Finance, a subsidiary engaged in four-wheeler financing, significantly contributed to the Bank s consumer loan portfolio. BCA Finance Ltd., a Hong Kong-based subsidiary, has offered cross-border remittance services for more than 15 years. The Bank also continued to strengthen the synergy with its other subsidiaries, BCA Syariah (Sharia banking), BCA Sekuritas (securities brokerage and underwriting), BCA Insurance (general insurance), BCA Life (life insurance) and Central Santosa Finance (two-wheeler financing). Implementing Good Corporate Governance One of the main duties of the Board of Commissioners is to ensure that the principles of Good Corporate Governance (GCG) are implemented across all of the Bank s activities and at all levels of the organization. Recognizing that success in the banking industry is predicated on customer trust, implementing GCG principles is an essential endeavor to secure the trust of our customers, shareholders and other stakeholders. GCG implementation is intended to generate a solid and leading corporate culture as a foundation for ongoing business growth and to prepare the Bank to face increasing competition and offset business risk. The exercise of GCG practices throughout the organization is guided by the values of transparency, accountability, responsibility, independence and fairness. The Bank s approach to GCG remains in line with prevailing regulations and international best practices. PT Bank Central Asia Tbk 2016 Annual Report 39

01 Financial 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements In 2015 BCA established the Integrated Governance Committee to assist the Board of Commissioners in evaluating corporate governance at BCA and its subsidiaries, primarily with regard to assessing the adequacy of internal control mechanisms and to assure the implementation of the compliance function. The integrated corporate governance structure is intended to improve the quality of governance in line with the growing business of the subsidiaries. In 2016, the Integrated Governance Committee conducted a series of meetings to discuss and evaluate the implementation of integrated governance across the BCA conglomeration Group, review the integrated corporate governance guidelines, develop work mechanisms and information channels amongst the members of the committee, and report on the results of integrated internal audits. The products of these meetings are recommendations delivered to the Board of Commissioners on how to improve the GCG culture within the BCA Group. In order to engender transparency in corporate governance, the Board of Directors holds regular meetings and actively communicates with the stakeholders, including customers, regulators and investors. Through these communications, BCA is able to better assess the operating conditions facing the Bank from various perspectives and thus allowing the Bank to develop a balanced and appropriate response to a changing environment. Changes to the Composition of the Board of Commissioners As resolved in the 2016 Annual General Meeting of Shareholders, there were changes to the composition of the Board of Commissioners. Mr. Sumantri Slamet was appointed as Independent Commissioner replacing Mr. Sigit Pramono. The appointment was approved by the Indonesia s Financial Services Authority (OJK) on July 11, 2016. The Board of Commissioners wishes to thank Mr. Sigit Pramono for his dedication and contribution to the Bank during his seven years as a member of the Board. His broad experience in the banking industry as well as his time spent as Chairman of the Indonesian Bank Association (Perbanas) was evident in his approach to his role at BCA and the initiatives he raised both as a member of the Board of Commissioners and as the head of various committees, namely the Audit Committee, the Risk Oversight Committee, and the Integrated Corporate Governance Committee. We also wish to welcome Mr. Sumantri Slamet to the Board as an Independent Commissioner. Sumantri Slamet s experience in the field of information technology and business operations at a number of companies, both Government-owned and privately held, will be a valuable addition to the expertise of the Board of Commissioners and will offer new points of reference in the decision making process. In an effort to improve the quality of GCG implementation, BCA regularly conducts self-assessments both on the Bank as a standalone entity and on integrated basis along with the Bank s subsidiaries. We are delighted to report that the results of selfassessments conducted in 2016 generated results of Very Good both in individual and integrated assessments. Due to the Bank s GCG commitment, BCA has received numerous awards and acknowledgements, including Most Committed to Corporate Governance in Indonesia from FinanceAsia, and recognition from the Indonesian Banking Award 2016 hosted by the Economic Review Magazine and the Perbanas Institute. Supervisory and Advisory Role to the Board of Directors Throughout the year, the Board of Commissioners maintained constructive communication with and actively offered advice to the Board of Directors regarding policy and determining Bank strategies. Recommendations and advice from the Board of Commissioners are delivered to the Board of Directors by inviting the Directors to the Board of Commissioners Meetings and also through the Joint Board of Commissioners and Board of Directors Meetings. In 2016, the Board of Commissioners held 41 Board of Commissioners Meetings and 17 joint meetings with the Board of Directors. Aside from these routine meetings, the Board of Commissioners also calls special ad-hoc meetings as required. 40 PT Bank Central Asia Tbk 2016 Annual Report

Following is the highlighted recommendations and advice given by the Board of Commissioners to the Board of Directors: Topic Business Strategy and Management Risk Management Audit and Compliance To strengthen synergy and deliver insightful analysis to promote loan growth, particularly in the Small and Medium Enterprises sectors. To develop funding products in consideration of the product life cycle stage. To enhance human resource capabilities through various training programs and assignments in order to improve service quality and to better equip employees in understanding the needs of customers. To perform deeper credit risk analysis in various under-performing industries, so that preventive measures can be taken against risks that may arise. To review and monitor systems currently in place in an effort to manage operational risks, ensuring the sustainability of the Bank s business operations. To regularly review the Bank s business model in line with developments in telecommunications and information technology. To examine and ensure that, in facilitating redemption payments and accommodating repatriated funds related to the Government s tax amnesty program, BCA has complied with the provisions put in place by the regulators in supporting the success of the program. Performance Assessment of the Committees under the Board of Commissioners In conducting its duties and functions in supervising the management of the Bank, the Board of Commissioners is assisted by the Audit Committee, Risk Oversight Committee, Remuneration and Nomination Committee, and the Integrated Corporate Governance Committee. These committees work to assist the Board of Commissioners in upholding standards of competence and quality of the Bank. The Board of Commissioners observes that all of these committees demonstrated good performance through 2016, though areas for improvement do remain. The Audit Committee functions to ensure effective internal control and to assist the Board of Commissioners in monitoring the implementation of internal and external audits, as well as effective and sustainable Good Corporate Governance. The Audit Committee also conducts studies into the Bank s compliance with prevailing regulations. In 2016, the Audit Committee held 19 meetings, met with the Internal Audit Division 8 times, and reviewed more than 155 internal audit reports. The Board is also supported by the Risk Oversight Committee which is focused on enhancing the effectiveness of the Board s supervisory duties and risk management responsibilities, and ensuring that the risk management system has provided adequate protection against the risks faced by the Bank. The Risk Oversight Committee conducted 7 meetings in 2016, including to review risk appetite, market risk stress tests, International Financial Reporting Standards (IFRS) and Application Programming Interface (API), as well as to discuss risk management related reports. In 2016, the Remuneration and Nomination Committee conducted 9 meetings in its capacity to evaluate the remuneration policies of the Board of Directors, the Board of Commissioners, Senior Officers, and all of the Bank s employees. The Integrated Corporate Governance Committee was established to support the Board of Commissioners in supervising integrated corporate governance implementation and has held 4 times in the year. Corporate Social Responsibility The Board of Commissioners believes that business activities cannot be separated from the surrounding communities where the Bank operates. As such, the Board of Commissioners supports the positive actions of the Board of Directors in conducting various Corporate Social Responsibility (CSR) programs. Through these programs, the Bank contributes actively to identified areas of need for the long-term development of Indonesia, particularly PT Bank Central Asia Tbk 2016 Annual Report 41

01 Financial 02 Management Report 03 Corporate Profile 04 Management Discussion and Analysis 05 Corporate Governance 06 Corporate Social Responsibility 07 Consolidated Financial Statements in regard to supporting small businesses, cultural preservation, sports, education and health. BCA cooperates with leading institutions, such as WWF, UNICEF and Indonesian Red Cross, to support selected social activities. By initiating ongoing CSR programs, the Board of Commissioners expects that BCA can effectively contribute to Indonesian society and support the long-term development of the Indonesian people. In the future, the Bank commits to increase its involvement in various social activities in the hope that the Bank s presence and influence can be meaningful to the people of Indonesia. These efforts are made to show appreciation for the support and trust that the Bank has received during its years of operation in Indonesia. Business Prospects as Viewed by the Board of Commissioners We foresee that the Indonesian economy will continue to recover in 2017. Economic growth will be driven by Government programs, particularly with the realization of infrastructure projects that will have a positive impact on the overall economy. BCA predicts that loan growth will improve in 2017 compared to 2016. Nevertheless, global risks must still be monitored carefully, especially in relation to geopolitical conditions with the uncertainty over the fiscal and international trade policies to be issued by the United States, as well as the health of China s financial sector. Following the increase in the Fed Funds Rate in December 2016, the US Central Bank has indicated that it will increase interest rates throughout 2017. Seeing a shift in global interest rates, BCA must anticipate the potential instability risk of global capital flows and the impacts this can have on the domestic financial markets. BCA shall also sustain its solid liquidity position. As one of the leading transaction banks in Indonesia, BCA understands the importance of maintaining reliability, security, and convenience for customers in their transactions. The Board of Commissioners values the plans laid out by the Board of Directors to continuing investments in the enhancement of transaction banking capabilities by developing various products and features, as well as expanding the transaction banking network. Excellence in transaction banking gives BCA a competitive advantage in generating funds through transactional CASA accounts. Supported by solid funding and capital base, BCA remains committed to carrying out its intermediary functions consistently and prudently. The Board of Commissioners supports the work programs in place to improve loan systems, processes and channels, while developing and enhancing loan products. The Board focuses on prudent intermediation in order to maintain a quality portfolio and minimize delinquent loans. Capabilities will continue to be increased across all business lines, whether in relation to transaction banking or lending, in addition to enhancing the business lines of the subsidiaries. The BCA Group intends to continuously enhance its competitive value in anticipation of the tightening competition in the industry as the ASEAN Economic Community comes into action and as technological advances continue to progress. BCA will carefully monitor economic developments, market conditions, and changes in policies and regulations to capture growth opportunities and mitigate arising risks. The Bank will manage its assets and liabilities prudently, develop its human resources, and prioritize operational efficiency to ensure ongoing positive performance. 42 PT Bank Central Asia Tbk 2016 Annual Report

Appreciation for All Stakeholders On behalf of the Board of Commissioners, I wish to thank all shareholders, customers, business partners, staff and other stakeholders of BCA. 2016 saw numerous achievements and developments that would not have been possible without the collective commitment of all the stakeholders as well as the unfaltering efforts of the Board of Directors, whose management and consistent hard work were instrumental in the Bank s strong financial performance. The Board of Commissioners is further grateful for the contribution of the subsidiaries which played a strategic role in the successes of BCA this year. We also thank the Indonesia s Financial Services Authority (OJK) and Bank Indonesia for their efforts in supervising and supporting BCA as well as the banking industry throughout 2016. We are confident that with the continued commitment of all stakeholders, BCA will continue to offer sustained incremental value and benefits to its customers, stakeholders and the people of Indonesia. Jakarta, March 2017 On behalf of the Board of Commissioners, Djohan Emir Setijoso President Commissioner PT Bank Central Asia Tbk 2016 Annual Report 43