CHAPTER IV INTERNAL ENVIRONMENT

a. Corporate Structure

b. Corporate Culture

Trust ”To instill confidence in stakeholders through open and sincere

relationships based on trustworthiness”

Integrity ”To think, speak and act truthfully, with dignity and to uphold the

professional code of ethics”

Professionalism ”Committed to completing work accurately, based on a high level of

competence and with a full sense of responsibility”

Customer Focus ”To always position our internal and external customers as the primary

partners in mutually beneficial relationships that sustain growth”

E Excellence ”To always strive to achieve excellence as an expression of our love

and pride as members of Bank Mandiri”

The process of internalizing and disseminating our Corporate Culture at all levels of the

organization

(Board of Commissioners, Board of Directors and Employees) has been carried out using

both formal and informal communication, including in-class training, management discussion

and guidance during visits to the regions, sms / e-mail blasts, articles in the bank’s internal

magazine, teleconferencing, video tapes, and so forth. The communication program was

implemented on an Intensive and continuous basis from 2005 to in 2013, with Culture

Specialist Group acting as the coordinator of the program. in addition to Internal socialization

within Bank Mandiri, the corporate culture has also been socialized in the Bank’s

subsidiaries. Under the Bank Mandiri Long Term Plan, 2010 to 2014, the Bank’s VISION is

“To be Indonesia’s most admired and progressive financial institution.” This reflects the

Bank’s determination to be a financial institution that is always fully committed to building

relationships with all its customers through the provision of innovative financial solutions of

a world-class standard, and to participating in and contributing to the life of the nation

through consistent improvements in financial performance.

Cultural Transformation

Extraordinary targets will never be achieved without extraordinary efforts. Our business and

cultural transformation processes are two sides of the same coin and cannot be separated one

from the other.

Without a strong culture, strategies cannot be implemented or at the very least their impacts

are likely to be insignificant so that the transformation process will end in failure.

To complement the transformation process, Bank Mandiri further refined its Corporate

Culture through a series of discussions involving all levels of senior management at Bank

Mandiri. Themed “The New

Horizon,” the results of the discussions further spelled out our TIPCE values in the form of

11 Key Conduct guidelines, namely:

1. Honesty, sincerity, transparency and frankness

2. Empowering potential, no silos, continuously seeking synergies, and mutual respect

3. Discipline, consistency and fulfillment of commitments

4. Thinking, speaking, and acting in a commendable manner

5. Reliability, resilience, responsibility, willingness to learn, and self--confidence

6. Spirit of intrapreneurship and courage to take decisions based on measurable risk

7. Identifying the needs and desires of customers in a proactive manner and providing

holistic solutions to such needs and desires

8. Providing the best possible service in a fast, precise, straightforward and accurate

manner while always prioritizing customer satisfaction

9. Patriotism, a winning mentality and the courage to make a breakthroughs

10. Innovative in creating opportunities to perform beyond expectations

11. Focus and discipline in implementing Priorities

c. Corporate Resource

1. Marketing

In promotion and marketing, the Bank uses the “360 ° Marketing Strategy” as a

guideline that serves as the basis of a variety of marketing strategies for customer

contact point using both the conventional and digital media, and for assessing the

success of marketing programs. In 2013, we continued the marketing initiatives

we applied in 2012. However, we also increased our budget allocation for

marketing on TV and in the print media to “below the line” level, as well as for

digital marketing, with the focus being on the use of online media, including paid

online media, social media, and microsites. The initiative proved to be effective in

encouraging increased activation of products / programs and in reducing the cost

of promotion. From a marketing aspect, alliances between the Business Units, task

forces and subsidiaries of Bank Mandiri, including as regards the utilization of

media, are important and were further intensified across all segments. In addition,

promotional activities through alliances were also intensified, as was the

development of products and programs tailored to the specific needs of customers.

Looking ahead, communication and marketing alliances with subsidiaries should

be further improved so as to enhance budget productivity and effectiveness, and

increase the market penetration of subsidiaries. Our value chain marketing

strategy has proved effective in sustainably increasing customer deposits and so

should be further intensified. Currently, customer acquisition through a value

chain approach aimed at gas stations, telecommunications providers, and cement,

cigarette, and textile producers has proved to be highly successful. The focus for

the future will be directed at significantly increasing average balances. We also

need to attract more deposits from the public, particularly low-cost funds,

particularly as regards demand and savings deposits. This will be done by

increasing the volume of customer transactions and developing effective

marketing programs. The Export Foreign Exchange (DHE) program will be

intensively implemented by all Business Units so as to directly increase the

collection of foreign currency Low Cost Funds arising from export transactions.

We will also encourage exporters to repatriate export proceeds back to Indonesia.

In the Corporate and Commercial segment, our marketing approach is based on

customer intensification and extensification strategies focused on the potential

funding capacity of SOEs and Government Agencies, which continue to play a

very dominant every year and where the bank enjoys a quite large market share.

The potential flow of funds from government budgets in regions around the

country is also highly prospective. In addition, we also plan to increase the

number of customers outside of the SOE sector, especially customers that are not

specifically related to the state budget. Intensifying the collection of Low Cost

Funds is also carried out by increasing the number of transactions by existing

clients so as reduce dependence on SOE funds, which are characterized by quite

high levels of volatility. Our growth will focus will also be directed at increasing

the number of new customer accounts, especially by corporate business

customers, whose transaction and deposit levels continue to grow sustainably.

Bank Mandiri always encourages client borrowers to use checking accounts. As

regards consumer cards, we plan to expand our focus in the future so as to

encompass not only revolving clients but also transactor clients through the use of

new, tailor-made marketing programs. Our consumer card initiative will also be

supported by the development of innovative marketing programs, improved the

quality of service, new customer acquisition, expansion of focus to second -tier

cities, increasing the number of active accounts, stabilizing the approval rate, and

selecting programs and merchants that have the potential to increase the

transaction and revolver rate. Meanwhile, to increase the volume of consumer

loan sales, our monthly incoming application improvement initiative needs to

applied sustainability, accompanied by increasing the number of developer PKS

and the disbursement level, and stabilizing the approval rate.

In the retail business segment, the focus will be directed at improving the growth

in savings and demand deposits through an intensification strategy aimed at

existing customers. Our focus will also be directed at increasing the number of

new customer accounts, in particular by business customers that actively engage

in transactions and are characterized by sustainable growth in deposits. Another

aspect of marketing that is equally important is to encourage each Business Unit

to conduct better customer targeting, to get to know their customers well and to

familiarize themselves with the competition situation in each region so that their

marketing strategies can work effectively and efficiently. These capabilities are

highly strategic in enhancing the responsiveness of the organization to the market,

thereby allowing the organization to avoid being marginalized due to an inability

to deal with increasingly tight competition.

2. Finance

Capital Structure

Assets increased by 16.63% to Rp855.040 trillion over the previous year

amounting to Rp733.100 trillion

Lending increased by 12.18% to Rp529.973 trillion over the previous year

amounting to Rp472.435 trillion

Net Pro fi t increased by 9.16% to Rp19.872 trillion over the previous year

amounting to Rp18.204 trillion

Revenue rose 11.66% to Rp56.882 trillion compared to the previous year with the

contribution of Net Interest Income 73.51% and 26.49% Fee-based Income

3. Human Resource

Developing world-class human capital imbued with the spirit of national

prosperity

Bank Mandiri continues to transform itself in the area of human capital through

accelerated human capital value creation and the development of strategies and

policies that support Bank Mandiri’s progression from a Good Company to a

Great Company. In 2013, human capital management at Bank Mandiri focused

on improving the quality of human capital so as to encourage continuous

improvement in Bank’s performance. To that end, a Human Capital Program has

been formulated based on the theme “Aligning the Human Capital

Management System toward Best in Class Practices based on Employee

Value Proposition.” Bank Mandiri has adopted an Employee Value Proposition

(EVP) that serves as a “noble purpose” for staff working at Bank Mandiri. The

Mandiri EVP was developed based on the aspirations of our employees,

combining the aspirations of our employees with what can be given by the

company. The Mandiri EVP describes “What it means to be a Mandirian”. The

Mandiri Spirit of National Prosperity is summarized as follows: “At Mandiri, we

are imbued with the Spirit of National Prosperity, which allows us to grow in an

open, positive and progressive environment so as to promote the prosperity of our

partners, families, customers, communities and Indonesia as a whole.” The

Mandiri EVP provides added value to the company through increased levels of

engagement on the part of both employees and customers of Bank Mandiri. It also

offers a high level of competitiveness in attracting the top talent in the market and

to retain such top talent in Bank Mandiri, thereby reducing the rate of employee

turnover, improving the image and reputation of the Bank as an employer of

choice and ultimately improving the company’s intangible assets.

From the employee perspective, the Mandiri EVP makes employees feel they are

an important part of the organization, and that every role or duty they perform

contributes to the advancement of the organization, clients, families, communities

and Indonesia as a whole. The EVP also provides employees with the opportunity

to optimally apply their skills, to develop themselves individually and

professionally, and to be rewarded in accordance with their competencies and

performance.

Based on the Spirit of National Prosperity, Bank Mandiri has formulated its vision

and aspiration of becoming the best bank in ASEAN by 2020. This vision and

aspiration will be set out in the 2015-2020 Corporate Plan, with the key

to its successful achievement being top quality, competent, productive and

engaged employees, and a strong and resilient work culture.

Human Capital Strategy

It is recognized that in order to realize Bank Mandiri’s 2010-2014 vision of

become Indonesia’s most admired and progressive financial institution, it is not

enough to simply focus on the financial aspects. Rather, the non-financial aspects

also need to be improved through good human capital management (people are the

power behind our purpose).

The Bank Mandiri Human Capital Management Strategy is applied having regard

to prudential principles, risk management, good corporate governance, effective

best in class and the Mandiri Employee Value Proposition and the Spirit of

National Prosperity. Our strategies in the Human Capital field have been aligned

with Bank Mandiri’s strategies, namely, focusing on entire employee lifecycle

value chain management. The stages in the employee lifecycle consist of

organization development, capacity fulfillment, learning & development,

employee relations, rewards and performance management and talent &

succession management. During every stage of the employee lifecycle, 2 (two)

things are developed so as to ensure continuous application, namely:

1. Developing a culture and leadership that supports the transformation, including

changes in mindset and behavior, and increasing the role of culture & leadership

in the human capital management process.

2. Developing strategies and implementation tactics, including policies, processes,

and employee and technological support capabilities support (Strategic & Tactical

HC Practices)The scope of the employee lifecycle or human capital management

framework may be described as follows:

1. Organization Development - development of an organization that is efficient, effective

and competitive

2. Capacity Fulfillment – Obtaining reliable Human Capital both from internal and external

sources.

3. Learning & Development - the development and training of Human Capital to support

business needs

4. Employee Relations--building engagement and harmonious industrial relations

5. Rewards & Performance Management – top-quality performance management and

competitive rewards system

6. Talent and Succession Management--the establishment of a leadership pipeline and

succession management.

Bank Mandiri employee staff in units throughout Indonesia. In order to ensure

equal opportunities for people from the regions--from Sabang to Merauke--to

work at Bank Mandiri, recruitment is conducted in collaboration with various

leading universities in Indonesia through job fair / campus hiring. In addition, we

also pos employment vacancies on the Bank Mandiri website

(www.bankmandiri.co.id). On average each year, Bank Mandiri hires some 4,000

new employees to anticipate business growth and to replace employees who retire.

Bank Mandiri’s Capacity Fulfillment Strategy consists of 2 (two) focuses, namely:

1. Bank Mandiri’s internal resources through the following employee

development programs: Staff Development Programme (SDP), Local Staff

Development Program (LSDP), Employee Authority Holder Program (P3K),

Micro Young Leadership Training Program (PPMM), and the transfer of

personnel from Front Office to Back Office.

2. External resources, through the hiring of fresh graduates and experienced

bankers at the senior management level. Capacity fulfillment through external

resources is conducted having regard to specific issues and conditions, including a

scarcity of senior management resources in particular areas, and the type of work

and expertise involved, as described below:

a. Leadership Capacity Fulfillment in Particular Areas

Taking into account the limited number of senior management candidates

available in particular areas, 2012 saw the introduction of the Papua Region

Special Leadership Candidates Program (CPKP), whose participants consist of

native Papuans or migrants who have long been resident in the Papua region.

Bank Mandiri has also developed a the Regional Officer Development Program

(ODP Pegawai) for areas such as Kalimantan, Sulawesi, and Sumatra.

b. Capacity Fulfillment in respect of special expertise / skills

To support the growth of Bank Mandiri and the achievement of its targets, we

collaborate with executive search agencies to as to assist in the recruitment of

persons who are expert in certain areas, such as information technology, so as to

fill positions in executive management and middle management.

c. Outsourcing

To meet the need for manpower, especially in the case of work that is auxiliary in

nature, the use of outsourcing has increased in line with our rapid growth. In 2013,

we conducted a review of our outsourcing policy in order to ensure that it

complies with Bank Indonesia regulations and labor regulations. The review was

conducted in collaboration with banking associations PERBANAS and

HIMBARA and was intended to improve the monitoring of outsourcing.

d. Mandiri Development Program

The Mandiri Development Program is an integrated work and learning program

for high school students and university students / graduates that provides an

opportunity to learn what it is like to work at Bank Mandiri.

e. Expatriate Manpower

The hiring of expatriate manpower is based on organizational needs, the

availability of suitable candidates in Indonesia and other matters, having regard to

the law and regulations governing the use of expatriate manpower. In accordance

with Bank Mandiri policies, the use of expatriate manpower is permitted in those

areas that require specific qualifications that are not currently available to the

Bank. Bank Mandiri assigns local staff to partner with expatriate employees so as

to ensure that transfer of knowledge takes place.

4. Information System

The risk management system has been developed to support greater efficiency in

business processes so as to speed up the decision-making process while at the

same time adhering to prudential principles. In order to maintain the integrity and

quality of data, Bank Mandiri has established an Integrated Processing System and

Loan Origination System which is designed to improve the efficiency of the

lending process and maintain data quality in the corporate, commercial and retail

segments. The system also includes an Integrated Collection System to improve

collection productivity, particularly in the consumer and retail segments. For

treasury and asset & liability management, Bank Mandiri uses the Summit System

and the Sendero System to manage its trading book and banking book risks. So as

to provide an an accurate overview of the Bank’s risk profile as parent company

and Ita risk profile as consolidated and integrated with its subsidiaries, Bank

Mandiri has established the Bank Mandiri Risk Profile System (RPX), which is a

web-based system that is designed to accelerate access and simplify control. To

integrate risk management on a bankwide basis, Bank Mandiri has adopted the

ERM system so as to facilitate the holistic monitoring of risk management,

including calculating the capital needed to cover all types of risk. The ERM

system has the capacity to calculate capital charges (using the Standardized

Approach and Advanced Approach), and to apply operational risk management

tools, active portfolio management, stress testing and value-based management.

“Improving Shared Service Capacity to Enable the Best Transaction Bank” was

the theme of the transformatif process in the Directorate of Technology &

Operations in 2013, reflecting our work ethic in supporting Bank Mandiri’s goal

of “becoming Indonesia’s transaction bank” through the development of

innovative solutions, better products and fast, accountable and reliable services.

The transformation in the Directorate of Technology & Operations applies to the

technology, operational, and service aspects. Technological support is reflected

through the application of IT initiatives so as to generate innovative products and

services in the Banks’s three business focus areas: Retail Deposit & Payment,

Wholesale Transaction and Retail Financing. In addition, various initiatives have

been taken to anticipate significant transaction growth, including the consolidation

of operational and business units, and the development of operasional networks to

support business growth. The Technology & Operations Directorate ensures that

Bank Mandiri is always ahead of its kompetitor by maintaining the quality of

services in all Bank Mandiri units, as showing by the fact that 2012-2013 saw

Bank Mandiri receive the Best Bank Service Excellence award for the sixth

consecutive time.

Information Technology Support and Innovation

The process of implementing information technology transformation (IT) is

described in the IT Strategic Plan (ISP) for 2011-2014, which is derived from the

Corporate Plan’s IT development strategy. The Strategic Plan requires the

Technology & Operations Directorate’s IT Unit to work closely with the business

units to ensure synergies with the needs of business lines and to support the work

programs of the business units. In the Retail Deposit & Payment focus area, the

Bank has developed a Mass Prepaid System to support the prepaid card business

and the modernization of Internet Banking. In addition, customers can also access

Bank Mandiri services at various contact points, such as 11,514 ATMs, 230,352

EDCs, and 2,050 regular and micro branch Office throughout Indonesia. Bank

Mandiri is also strengthening the Wholesale sector by way of stabilization and

enhancement of Payment and Cash Management Sistems. As for Retail Financing,

Bank Mandiri has improved the processing capacity of the “Loan Factory” in

order to enhance the effectiveness and efficiency of the leding process. The Bank

has also developed a Micro Loan Originating System to meet the needs of

business processes and micro business models.

To meet the needs of all our customers in Indonesia, Bank Mandiri is always

committed to providing the Best products and services. One of the innovations

that is being continuously developed is e-money. In 2013 Bank Mandiri developed

“e-money Info”, which is an NFC (Near Field Communication)-based application

which allows users to check the remaining balances in Bank Mandiri prepaid

products by simply attaching their prepaid cards to the back of their smartphones.

Furthermore, e-money info can help users find the nearest merchant locations that

support transactions using Bank Mandiri prepaid products. This year, Bank

Mandiri also started the Development of a non-card form factors as a market

differentiation and segmentation strategy, namely, an e-money wristband

developed in collaboration with Wonders Water World Medan.

Another innovation that came on-stream in 2013 was Mandiri e-Cash, a mobile

application that gives users “the sensation of having cash in your mobile phone.”

With Mandiri e-Cash, customers conduct transfers and payment transactions using

their phone instead of an account number, as would be needed in the case of the

conventional payment system. The ease that this provides to customers is expected

to drive the growth of the cashless society. It affords a practical, safe and

comfortable way of making such transactions, and also saves taxpayer funds that

would otherwise have to be used for the printing and destruction of banknotes.

Bank Mandiri’s focus on innovation is a further proof of our spirit of national

prosperity.