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2007 Annual Report PT Bank Mandiri Tbk.
flexible in pursuit of business opportunities and in anticipating the operational impact
of these and other external factors. National Banks must also focus on consolidation
strategies in line with the implementation of the Indonesian Banking Architecture API in
order to thrive in an increasingly competitive environment.
While the sub-prime mortgage crisis originating in US has had no direct impact
on our national economy, it should be seen as an opportunity to learn and early warning
for the need to manage our domestic portfolios properly and prudentially. Bank
Mandiri’s response, therefore, will be to adopt stricter standards and strengthen our
risk management systems, particularly in loan portfolio guidelines, risk analysis and
mitigation in order to anticipate increased market risk.
COMPLETING OUR CONSOLIDATION PHASE
After experiencing serious difficulties in 2005 and then commencing our consolidation
phase in 2006, Bank Mandiri has just concluded a defining year in our transformation process.
2007 saw the completion of our consolidation activities, as we achieved a number of major
financial milestones, most notably the reduction in our Net NPLs to below 5 as
well as significant gains several measures of profitability. All of the employees of the Bank
have exhibited praiseworthy commitment, cooperation and diligence on behalf of our
stakeholders, applying their best efforts to achieving the Bank’s Back on Track objectives.
Following are the achievements in the back on track phase:
1. Retaining Our Position as the Market Leader Among National Banks
Bank Mandiri’s business growth has accelerated even as we have been
completing our internal consolidation. Our low cost funds current and savings
accounts grew by Rp43.3 trillion during 2007 to reach Rp152.3 trillion at year- end,
driving growth in total deposits of Rp41.6 trillion, from Rp205.7 trillion at te end of
2006 to Rp247.4 trillion by the end of 2007. Our total assets exceeded Rp300 trillion for
the first time, growing by Rp51.6 trillion from Rp267.5 trillion to Rp319.1 trillion.
This asset growth resulted mainly from loan growth of Rp20.8 trillion, as loan balances
rose from Rp117.7 trillion to Rp138.5 trillion. These achievements have clearly
demonstrated the strong position and capability of Bank Mandiri as a leading
financial institution and transaction bank, acknowledged by an increasingly
wide range of customers. In light of this momentum, Bank Mandiri is well prepared
to face increasing domestic competition that is being exacerbated by the escalating
presence of foreign banks. Bank Mandiri’s current position as the
industry leader in terms of assets, loans and deposits remains unchallenged.
This strong position has recently been complemented by the achievement of the
1st rank in the annual survey of Banking Service Excellence conducted by Marketing
Research Indonesia MRI. This attainment has seen the fruition of several years of
focused and sustained effort in improving service quality throughout our branch
network, with Bank Mandiri steadily moving up the ranks from 11th in 2004, to 3rd in
2005, 2nd in 2006 and finally culminating in 1st place in 2007.
2. Net NPL Ratio Declining to Below 2
The resolution of the Bank’s sizeable stock of non-performing loans was an early and
continuing initiative in our consolidation process. By the first quarter of 2007,
Bank Mandiri ‘s NPL ratio had declined precipitously to 4.7, 9 months earlier
than our initial schedule. For the end of 2007, the Net NPL ratio had fallen even
further, to 1.51, while the Gross NPL ratio was reported at 7.2, compared to our
budget and guidance of 5 Net NPLs and 10 Gross NPLs. This progress was partly
due to collections from NPLs of Rp1.29 trillion and upgrades of to performing
loans amounting to Rp2.57 trillion. The Bank has not yet seen any benefits
in collections arising from providing principle forgiveness to borrowers due to
obstacles in implementation related to still- interpretations of the relevant legislation
and regulation.
3. Profitability increased 80
Bank Mandiri reported a net profit of Rp4.3 trillion for 2007, 80 higher than the
previous year. Several factors contributed to this result, including the growth of our
core business as reflected in a 12 increase in interest income as our Cost of Funds
declined from 6.4 to 4.6 and our Net Interest Margins climbed from 4.7 to 5.2.
A 50 decline in provisioning expenses was also an important factor, as were our on-
going cost reduction efforts. Our Cost Efficiency Ratio improved from
48.9 to 47.0 in 2007, as operating income grew by 24.3 while overhead expenses
expanded by only 19.5. This was a strong indication that our Bank-wide efficiency
programs have been effective without constraining the Bank’s capacity to grow.
BUILDING STRONG FOUNDATIONS AND MOMENTUM FOR GROWTH
We completed our primary consolidation initiatives early in 2007, and turned our
Message From
The President Director
2007 Annual Report PT Bank Mandiri Tbk.
21
attention to preparing the Bank for the second phase of our transformation process
in which we intend to Outperform the Market. We believe that our strong foundation will
support us in the Outperform the Market phase, allowing us to realize stronger business
and revenue growth in line with acceptable risks, in order to deliver exceptional value to
our shareholders. We have addressed several strategic areas of concern in order to lay the
groundwork for these foundations:
1. Strengthening the organization and developing a performance-based culture
In order to strengthen the organization and introduce a performance-based culture
as a platform for strong future growth, we have been focusing on efforts to strengthen
our implementation of the SBU-based organization instilling a new corporate
culture and enhancing the capability of our human resources.
Our implementation of the SBU-based organization commenced in early 2007, and
was not simply a change of organization structure, but also a structural change to
the organization’s “DNA”, resulting in more productive and adaptable organization that
has more clearly delineated accountability. This is to ensure that each SBU will be
empowered to address their specific business challenges and targets. The new
SBU-based organization goes hand in hand with improved Key Performance Indicators
KPI, intensive Performance Reviews, performance-based incentive systems
and periodic training to develop human resources capabilities specific to the needs
of each SBU. We believe that the SBU-based organization is an important element for
Bank Mandiri in developing a performance- based culture and strengthening the Bank
to compete in the long term. To reinforce our organizational
transformation, we have also implemented a new corporate culture, identifying
our core values as Trust, Integrity, Professionalism, Customer Focus and
Excellence TIPCE. These values form an “ideology” for Bank Mandiri’s personnel in
guiding appropriate behavior and attitudes toward their working environment. This
corporate culture has been implemented through several avenues, of which one
of the most crucial has been our Change Agents, who currently number 5,492
employees. The role of Change Agent is very important in maintaining the day to
day implementation of corporate culture in our activities and guiding personnel at all
levels about the importance of our values. Our continuous efforts to strengthen
the implementation of Good Corporate Governance are consistent with our
strategic imperative to apply GCG in every unit. This will further necessitate diligent
improvement in our operations with regard to transparency, accountability,
responsibility, independence and fairness in order to implemented GCG as intended.
Our initiatives in GCG implementation have received favorable responses and
recognition from independent observers and GCG Rating Agencies both domestic
and foreign. Bank Mandiri ranked 1st in the Corporate Governance Perception
Index 2007, and was rated as the “Most Trusted” publicly-listed company based
on the Indonesian Institute for Corporate Governance IICG Survey 2006.
These achievements followed Bank Mandiri’s international recognition for Good
Corporate Governance from Asiamoney Magazine, which cited Bank Mandiri as
the “Overall Best Managed Company In Indonesia - Large Capitalization”, “ The Best
Disclosure Transparency” and “ The Best Corporate Governance”. These have marked
a tremendous turn-around in perception since the difficult period in 2005.
2. Improving the Bank’s Value Proposition
