THE EFFECT OF GOOD CORPORATE GOVERNANCE (GCG)

IMPLEMENTATION ON PERFORMANCE OF PT BANK XM

(PERSERO) TBK

BUSINESS IMMERSION

By:
Karina Permata Sari
NIM: 29115447

Master of Business Administration Program

School of Business and Management
Institut Teknologi Bandung
2017
COPY OF INTERNSHIP COMPLETION LETTER

ii
 ACKNOWLEDGEMENT

First and foremost, I would like to praise Allah SWT, for his guidance and blessing
until the end of my business immersion at PT. Bank XM (Persero) Tbk and finishing
this report as one of the requirements to finish the MBA program at Bandung Institute
of Technology (ITB).

Secondly, I would to express my gratitude for my beloved family for their endless
support. My dad and mom who always giving advices whenever I feel down and my
brothers who always cheer me up.

Thirdly, my greatest appreciation for Mrs. Sisi Rahmina, Mr. Yonie Prasetiawan, Ms.
Uswatun Hasanah, and Ms. Gabriella Viorena for being the best mentors in PT. Bank
XM (Persero) Tbk who always encourages me to be a better person in the workplace
and patiently taught me new things, which I couldnt get in class.

I am grateful to Mr. Yudo Anggoro as my thesis advisor in SBM ITB Jakarta who
guiding me throughout this last semester.

The last but not least, I thank my GM2-MBA friends who have been the greatest
companion for the whole semesters, JFS who always been there through my ups and
downs, and Yeah Mahasiswa friends for the infinite support.

Without their support and contribution, it is impossible for me to accomplish this

business immersion report. I wish this report could be a good use for both academically
and for business purpose.

Jakarta, 10 July 2017

Karina Permata Sari

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 TABLE OF CONTENT

COPY OF INTERNSHIP LETTER ...................................................................................... ii

ACKNOWLEDGEMENT ..................................................................................................... iii
TABLE OF CONTENTS ....................................................................................................... iv
LIST OF TABLES................................................................................................................... v
LIST OF FIGURES................................................................................................................. v
LIST OF APPENDICES ......................................................................................................... v
EXECUTIVE SUMMARY .................................................................................................... vi
CHAPTER I- INTRODUCTION ........................................................................................... 1
1.1. Company Profile ............................................................................................................. 6
1.1.1. Consolidation and Integration .................................................................................. 6
1.1.2. Transformation Program - Stage 1 (2005 - 2009) ..................................................... 7
1.1.3. Transformation Program - Stage 2 (2010 - 2014) ..................................................... 8
1.1.4. Achievements To Date .............................................................................................. 9
1.1.5. Enhancing Synergies & Values from Subsidiaries ................................................. 10
1.1.6. Organization Structure of Bank XM ....................................................................... 11
1.1.7. Organization Structure of Compiance Group.......................................................... 12
1.2. Scope of Business ........................................................................................................ 12
1.2.1. Wholesale ................................................................................................................ 14
1.2.1. Retail ....................................................................................................................... 14
1.2.1. Integrate the Group ................................................................................................. 14
1.3. Scope of Work .............................................................................................................. 14
1.4. The Objective of The Internship ................................................................................... 16
CHAPTER II- BUSINESS ANALYSIS............................................................................... 18
2.1. Literature Review.......................................................................................................... 18
2.2. Methodology ................................................................................................................ 20
2.2.1. Research Method.................................................................................................... 20
2.2.2. Data Collection...................................................................................................... 21
2.3. Findings and Analysis ................................................................................................... 21
2.3.1. Findings.................................................................................................................. 21
2.3.2. Analysis ................................................................................................................. 22
2.3.2.1. Descriptive Statistics ........................................................................................ 23
2.3.2.2. Pearson Correlation Analysis ........................................................................... 23
2.3.2.3. Regression Analysis ......................................................................................... 25
CHAPTER III - BUSINESS SOLUTION ........................................................................... 29
3.1. Proposed Solution ........................................................................................................ 29
3.1.1. Deepen Client Relationship (Wholesale Segment) ................................................ 29
3.1.2. Accelerate in Growth Segment .............................................................................. 31
3.1.3. Integrate the Group ................................................................................................ 32
3.2. Practical Implication .................................................................................................... 33
3.3. Implementation Plan .................................................................................................... 33
CHAPTER IV - LESSON LEARNED ................................................................................ 35
REFERENCES ...................................................................................................................... 37
APPENDIX ............................................................................................................................ 40

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 LIST OF TABLES
Table 1. Variables Description .................................................................................... 22
Table 2. Descriptive Statistics...................................................................................... 23
Table 3. Correlation Matrix ......................................................................................... 23
Table 4. Model Summary ............................................................................................ 25
Table 5. ANOVA-ROA as a Dependent Variable ....................................................... 26
Table 6. ANOVA-ROE as a Dependent Variable ....................................................... 27
Table 7. Coefficients for Predictors of Performance ................................................... 28
Table 8. Implementation Plan Timeline....................................................................... 34

LIST OF FIGURES
Figure 1 Asean CG Scorecard of Bank XM .................................................................. 4
Figure 2. Results of CGPI Assessment of Bank XM from 2007 - 2015 ........................ 5
Figure 3. Organization Structure of Bank XM ............................................................ 11
Figure 4. Compliance Group Organization Structure .................................................. 12
Figure 5. Conceptual Framework ................................................................................ 21

LIST OF APPENDICES
Appendix 1: Financial Information of Bank XM ........................................................ 40
Appendix 2: The F-Distribution Table ........................................................................ 41
Appendix 3: The t-Distribution Table.......................................................................... 42

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 EXECUTIVE SUMMARY

Bank XM is the largest bank in Indonesia in term of assets, loans and deposits. Bank
XMis the result of the merger made by Indonesian Government from four older
government-owned banks that had failed in 1998. Those four banks were Bank B, Bank
D, Bank E, and Bank P. Bank XM realizes that through the implementation of Good
Corporate Governance (GCG), the company will be able to realize every goal to be
achieved and contribute in building the nation sustainably. Therefore, Bank XM put
GCG as the main foundation in conducting business and to maintain the Company's
existence in facing challenges and business competition.

Thus, the main purpose of the study is to identify the relationship between corporate
governance and company performance of Bank XM from financial year 2007-2016.
The governance variables and performance variables are tested under Pearson
Correlation and Multiple Linear Regression model to identify any relationships. The
three variables related to Corporate Governance are included in this study (Board size,
board composition and Audit Committee) while performance of the firms is measured
by return on assets (ROA) and return on equity (ROE).

The result from the analysis will be used to formulate proposed business solution. The
impact of the proposed solution will lead Bank XM in achieving their goals. The
proposed solution contains three strategies, which are: Deepen Client Relationship
(Wholesale Segment), Accelerate in Growth Segment, and Integrate the Group. Since
those three strategies has aligned with sustainable governance principles, it could help
Bank XM in achieving their vision and mission of becoming the leading financial
institution in ASEAN by 2020. The implementation of those strategies is conducted for
long-term period, which is from 2017 -2020

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 CHAPTER I

INTRODUCTION

In todays global economy, the success of the national economy depends

on the crucial role of organizations competitiveness, transparency and governance
structure which operate within her territory, since organizations are the entities that
create economic value (ICAN, 2009). Indeed, the need for trust and transparency in
the governance of corporate organizations (GCG) has been one of concern for
standard setters all over the world. This need has obviously spurred renewed interest
in the corporate governance practices of modern corporations, particularly in
relation to accountability and economic performance.
The position above could not be separated from prior submission where
Nwachukwu (2007) emphasize the growing consensus that good corporate
governance has positive link to national economic growth and development. The
degree of trust accorded to the managers of companies by its owners is strengthened
through corporate governance. Directors without corporate governance mechanism
may paint misleading pictures of financial and economic performance of their
company to lure unsuspecting investors. Such window dressed accounts raised
concern in the U.S.A. with the collapse of the energy corporation ENRON in 2001
which filed for bankruptcy after adjusting its accounts (Demaki, 2011). The
increasing incidence of corporate fraud relating to exaggerated and fleeting reports
have reinforced the renewed global emphasis on the need for effective corporate
governance. CBN (2006) reported that despite the significance of GCG to national
economic development and growth, corporate governance was still at rudimentary
stage as only 40% of publicly quoted companies, including banks had recognized
corporate governance in place.
Corporate governance has become a popular discussion topic in developed
and developing countries. The widely held view that corporate governance
determines firm performance and protects the interests of shareholders has led to
increasing global attention. However, the way in which corporate governance is
organized differs between countries, depending on the economic, political and
social contexts.
 Corporate Governance refers to the way an organization is directed,
administrated or controlled. It includes the set of rules and regulations that affect
the managers decision and contribute to the way company is perceived by the
current and potential stakeholders. The corporate governance structure specifies the
distribution of rights and responsibilities among different participants in the
corporation such as; boards, managers, shareholders and other stakeholders and
spells out the rules and procedures and also decision-making assistance on
corporate affairs. By doing this, it also provides the structure through which the
companys objectives are set and the means of obtaining those objectives and
monitoring performance. Corporate governance may be the ways of bringing the
interests of investors and managers into line and ensuring that firms are run for the
benefit of investors.
According to OECD principles corporate governance is a system by which
business corporations are directed and controlled. The corporate governance
structures specify the distribution of rights and responsibilities among different
participants in the corporation, such as the board, managers, shareholders and other
stakeholders, and spells out the rules and procedures for making decisions on
corporate affairs. By doing this, it provides the structure through which the
company objectives are set, and the means of attaining those objectives and
monitoring performance (OECD 1999).
Indonesia had learned from the experiences during the global financial
crisis in 1998 and 2008 and realized the importance of GCG concept. The weak
implementation of GCG practices was identified as one of the causes of the global
financial crisis (OJK, 2014:1). In these regards, improvement in the implementation
of GCG practices should be priority because it was one of the companys key to
successful growth as well as giving long term benefits for the companies to win the
business competition.
Bank XM realizes that through the implementation of Good Corporate
Governance (GCG), the company will be able to realize every goal to be achieved
and contribute in building the nation sustainably. Therefore, Bank XM put GCG as
the main foundation in conducting business and to maintain the Company's
existence in facing challenges and business competition. The implementation of
GCG of Bank XM refers to the prevailing regulations, namely the regulations on
Capital Market, the Ministry of State Owned Enterprises, the Bank Indonesia

2
Regulation and the Regulation of the Financial Services Authority. In addition, to
keep up with the latest developments from the best practices of various references
such as the GCG General Guidelines by the National Committee on Governance
Policy, the Indonesian Banking GCG Guidelines, the OECD Principles, the
ASEAN Corporate Governance Scorecard and taking into account the best business
ethics and practices.
In accordance with Corporate Plan (2015-2020), Bank XM is committed
to be the leading bank in the implementation of GCG in ASEAN. In addition, Bank
XM has implemented Integrated Governance to create added value for the ongoing
financial conglomeration, which includes the implementation of integrated
compliance function, the implementation of integrated internal audit function, the
implementation of integrated risk management, while taking into account the
business characteristics and regulations which applicable to each subsidiary
company.
In order to continue the process of improving the implementation of
governance and becoming the leading bank in the implementation of GCG, Bank
XM has aligned the practice of governance in line with the standards of ASEAN
Corporate Governance (CG Scorecard). In addition to referring to the best practices
and standards of corporate governance at the national level, Bank XM also aspires
to ASEAN governance standards. Bank XM became one of the ASEAN Corporate
Governance (CG) Scorecard ranking participants organized by the Indonesian
Institute for Corporate Directorship (IICD). The ASEAN CG Scorecard is an
initiative of the ASEAN Capital Market Forum (ACMF) to conduct GCG
implementation assessments referring to the principles of GCG developed by the
Organization for Economic Cooperation and Development (OECD). By following
the ASEAN CG Scorecard, Bank XM will receive valuation and feedback on
governance practices in:
1. Shareholder Rights / Equity of Shareholders
2. Equitable Treatment of Shareholders
3. Role of Stakeholders Roles
4. Disclosure and Transparency
5. Responsibilities of the Board of Commissioners and Board of Directors

3
 Bank XM has been following the ASEAN CG Scorecard ranking
annually. Bank XM is committed to continuously improve the results of the
ASEAN CG Scorecard
assessment to become the
top 50 best companies in
the results of the ASEAN
CG Scorecard assessment.
Since the first time
following the assessment,
the assessment of Bank
XM continues to increase.
Figure 1 ASEAN CG Scorecard of Bank XM
Bank XM has conducted a
self-assessment of the implementation of the implementation of ASEAN CG
Scorecard in 2016, the breakthrough by Bank XM is to compile and upload the
results of the implementation of ASEAN CG Scorecard in the website so that it can
be seen by all stakeholders. The results of the self-assessment Bank XM scored
104.63. The increasing value of ASEAN CG Scorecard shows that Bank XM will
continue to strive to maintain its existence as one of the largest companies in
Indonesia, which runs its business in accordance with applicable business ethics.
Aside from ASEAN CG, Bank XM also consistently follows rating CGPI
survey every year. CGPI is a research and rating program of quality management
of corporate governance followed by public companies (issuers), state-owned
enterprises, trains and other private companies. Bank XM has received CGPI
assessment for 12 (twelve) consecutive years since 2003. The result of the CGPI
Assessment of Bank XM in 2015 got the score of 92.88 with the highest predicate
as "The Most Trusted Company". The result is the highest GCG assessment. CGPI
assessment results for 9 consecutive years are as follows:

4
 Figure 2 Results of CGPI Assessment of Bank XM from 2007-2015

Bank XM's participation in Corporate Governance Perception Index 2014

is also followed by Bank XM subsidiary company namely Bank Syariah XM, XM
Sekuritas, XM Taspen Pos and XM Tunas Finance. For the 2015 CGPI Assessment
conducted in 2016 all Subsidiaries of Bank XM in Indonesia participate in the
implementation of the Corporate Governance Perception Index.
Thus, this research examined the data for the years 2007 to 2016. The
author interested to examine the companys performance during this time period
due to Bank XMs increased score from 2007 to 2016, which imply that their
corporate governance is considered good. The author will examine whether GCG
has positive relationships with companys ROA and ROE or not. the main objective
of this report is to examine the influence of GCG implementation on firm
performance, which particularly in this report the author will examine the influence
of GCG implementation on Bank XMs performance. The other reason author
interested in examining the GCG and its impact to companys performance is
because the Corporate Governance Department is also under the Compliance Group
where the author placed in as an intern, so even though the author was placed in the
different department (Compliance System Service Department), the author could
still obtain the data since those departments under the same group which is
Compliance Group.

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 Apart from the general introduction in Chapter 1, the report presents
business analysis which consist of theoretical framework, methodology, and
Findings and Analysis in Chapter 2. Chapter 3 shows the business solution which
consist of proposed solution, practical implication, and implementation plan.
Chapter 4 presents the conclusion and lesson that author learned from the internship
program.

1.1. Company Profile

Bank XM was established on 2 October 1998, as part of the bank
restructuring program of the Government of Indonesia. In July 1999, four state-
owned banks - Bank B, Bank D, Bank E and Bank P - were amalgamated into
Bank XM. The history of these four banks can be traced back to over 140 years,
and together they had contributed to the beginning of the Indonesian banking
sector.

1.1.1. Consolidation and Integration

Following the merger, Bank XM immediately embarked on a
comprehensive consolidation process - beginning with the closure of 194
overlapping branches and a reduction of redundant staff, bringing the combined
workforce of 26,600 down to 17,620. A single brand - Bank XM was rolled out
throughout the national network and across all of advertising and promotional
activities. One of Bank XM's most significant early achievements were the
complete overhaul of its technology platform. The Bank inherited a total of nine
different core banking systems from its four legacy banks. After an initial
investment to consolidate the systems around the strongest inherited platform, the
Bank undertook a 3-year USD 200 million program to replace the core banking
platform with one that was specifically geared towards retail banking. Today, Bank
XM's IT infrastructure provides straight through processing and a unified interface
for their customers. In line with the bank's vision, Bank XM tapped into profitable
business segments with growth potential so as to enable us to offer a
comprehensive range of banking services. Bank XM chose to focus on key
segments including corporate, commercial, micro, retail and consumer finance -
with distinctive strategies for each business while leveraging on synergies across
these different market segments. Bank XM emerged as a Domestic Multispecialist

6
Bank in Indonesia, and embarked on specific initiatives that enable us to grow and
achieve dominant market share of revenue in their focus segments. In addition,
Bank XM aims to be a Regional Champion Bank - a public-listed bank that would
be measured by market capitalization and ranked high amongst other blue-chip
public-listed banks in South East Asia.

1.1.2. Transformation Program Stage 1 (2005 2009)

The ambitious goals that Bank XM set for themselves over the years could
only be achieved by transforming their organization to adapt to the changing
dynamics of their market. In 2005, Bank XM committed to a 5-year transformation
program that resulted in Bank XM becoming a dominant Multispecialist Bank.
Bank XM identified four key areas for transformation: culture, sales, alliances, and
NPL controls. The Transformation Program was conducted in three phases:
Phase One (2006-2007)
Back on Track: During this phase, the focus was placed on restructuring and
laying the foundation for Bank XM's future growth.
Phase Two (2008-2009)

Outperform the Market: During this period, the emphasis was on expanding
the Bank's business to ensure significant growth in all segments and a level of
profitability that exceeded the market average.

Phase Three (2010)

Shaping the End Game: During this phase, Bank XM focused on becoming a
Regional Champion Bank, through the consolidation of financial services
businesses and emphasis on strategic non-organic growth opportunities. This
included the strengthening of the performance of subsidiaries and the
acquisition of a bank or other financial company that could create added-value
to Bank XM.
The changes brought about by the Transformation Program between 2005 and
2010 have resulted in the bank's consistently growing performance, as
evidenced by the following financial highlights:
Non-performing loans fell significantly, with the net consolidated NPL
declining from 15.34% in 2005 to 0.62% in 2010

7
 Net profit soared from Rp 0.6 trillion (equivalent to USD 61. 3 million) in
2005 to Rp 9.2 trillion (equivalent to USD 1.02 billion) in 2010
In line with the transformation of their business, Bank XM also went through a
cultural transformation based on a reformulation and reinvigoration of our key
values. Bank XM significantly improved their customer service quality levels.
For 5 consecutive years (2007, 2008, 2009, 2010 and 2011), Bank XM has been
named as a service leader amongst domestic banks based on a Marketing
Research Indonesia (MRI) survey. In addition, the Bank's achievements in
instituting good corporate governance have also been widely recognized. Bank
XM's consistently improving performance has elicited a positive response from
investors, as shown by a significant increase in the Bank's share price from Rp
1,110 on November 16, 2005 to Rp 6,300 as at September 30, 2011 - which
constitutes a rise of 33.6% a year on average (CAGR). Within a period of less
than six years, Bank XM's market capitalization soared seven-fold from only
Rp 21.8 trillion (equivalent to USD 2.16 billion) to Rp 146.9 trillion (equivalent
to USD 16.6 billion).

1.1.3. Transformation Program Stage 2 (2010 2014)

Bank XM is now embarking on the second stage of their transformation
process for the 2010-2014 period by revitalizing our vision "To be Indonesia's
Most Admired and Progressive Financial Institution". By 2014, Bank XM intends
to achieve a market capitalization of Rp 225 trillion, a market revenue share of
16%, an ROA of around 2.5%, and an ROE of around 25%, while at the same time
maintaining an asset quality in a gross NPL ratio of under 4%. And by end 2014,
we are determined to reach the ranks of the Top 5 Banks in ASEAN.
The Bank has set its sights to be among the Top 3 in ASEAN by 2020, in
terms of market capitalization, and to be a major regional player. In order to realize
this vision, Bank XM's business transformation during the 2010-2014 period will
focus on the following three business areas:
Wholesale Transactions
Bank XM is consolidating their leadership position by offering comprehensive
financial transaction solutions and developing a holistic relationship approach
in serving their corporate and commercial customers in Indonesia.

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 Retail Deposits & Payments
Bank XM is determined to become the bank of choice for consumers in the retail
deposit market by providing a unique and superior banking experience.

Retail Financing
Bank XMs goal is to become the No. 1 or 2 bank in the retail financing segment
by leading in the mortgage, personal loan, and credit card markets, and by
becoming a major player in the micro banking segment. Besides focusing on
these three strategic areas, they are also strengthening our organizational
structure and infrastructure (branch, IT, operations, risk management) to
provide more integrated service solutions. To successfully achieve our goals,
we will leverage on the critical support of our human resources, technology,
prudential risk management, and good corporate governance.

1.1.4. Achievements To Date

As of December 2011, Bank XM's total assets have reached Rp 551.9
trillion (equivalent to USD 60.86 billion), more than double of that in 2006 (Rp
267 trillion) - which is a growth of 15.6% (CAGR); making us the largest bank in
Indonesia. Their loans also grew by 22% (CAGR) to Rp 314.4 trillion (equivalent
to USD 34.67 billion) from Rp 118 trillion in 2006 while their net profit grew by
38.3% (CAGR) to Rp 12.2 trillion (equivalent to USD 1.35 billion) from Rp 2.4
trillion in 2006. Besides being the nation's largest lender (on a consolidated basis),
Bank XM is also the largest depository in the country with Rp 422.3 trillion
(equivalent to USD 46.57 billion) in third party funds. In terms of asset quality,
their gross and net NPL ratios stand at 2.21% and 0.52% respectively.
One of the key milestones towards realizing Bank XM's vision during the
second stage of the transformation process was the successful completion of a
rights issue in February 2011 that strengthened their capital base. With this, Bank
XM's capital has reached Rp 62.7 trillion (equivalent to USD 6.9 billion),
representing an increase of 48.9% year-on-year. Hence, Bank XM became the first
bank in Indonesia to achieve the status of an international bank according to the
Indonesian Banking Architecture (Arsitektur Perbankan Indonesia/API).

9
 Bank XM is also supported by their subsidiaries which contribute
significant income of approximately 12% to the total consolidated net profit of the
Bank. Today, Bank XM has the largest ATM network with 10,000 units
throughout Indonesia. Bank XM has earned the distinction of being a most trusted
company in Indonesia for corporate governance for 5 consecutive years. They are
ready to become an anchor bank in Indonesia as Bank XM has fulfilled the criteria
set by Bank Indonesia, and propelled ahead by their vision to be Indonesia's Most
Admired and Progressive Financial Institution.

1.1.5. Enhancing Synergies & Values from Subsidiaries

To support their various business segments and their strong performance-driven
culture across the organization, Bank XM has implemented a Strategic Business
Unit (SBU) based organization - consisting of Strategic Business Units as the profit
generators and future growth engine, corporate center functions and shared
services functions. Their SBUs which serve Corporate Banking, Commercial &
Business Banking, Micro & Retail Banking, Treasury & International Banking and
Consumer Finance, are backed by their subsidiaries. Bank XM are continuously
seeking mutually beneficial business opportunities that create synergies, building
alliances and strengthening their supporting businesses with and through their
subsidiaries, notably XM Sekuritas in investment banking, AXA XM Financial
Services in insurance, Bank Syariah XM in Sharia banking, Bank Sinar Harapan
Bali in micro banking, and XM Tunas Finance in multi-finance. In 2011, Bank
XM acquired XM AXA General Insurance, a joint-venture between Bank XM and
AXA Societe Anonyme, to strengthen Bank XM's penetration into the general
insurance business. With various subsidiaries that support their businesses, Bank
XM have further strengthened their position as a prominent financial holdings
institution in Indonesia.

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1.1.6. Organization Structure of Bank XM
The organization chart of Bank XM can be seen on the Figure 1 below:

Figure 3 Organization Structure of Bank XM

1.1.7. Organization Structure of Compliance Group
During the internship, the author was placed in Compliance Group and working
directly with Regulatory Management Team which is the part of Compliance
Service System Department. The organizations structure for Compliance Group
can be seen on Figure 2 below:

Figure 4 Compliance Group Organization Structure

1.2. Scope of Business

The aim and objective of Bank XM is to conduct business in the banking industry
pursuant to the provisions of the applicable laws and regulations. In accordance
with the last Articles, currently, Bank XM engages in the following activities:
1. Collecting funds from the public in the form of deposits, including demand
deposits, time deposits, certificates, deposits, savings and/or other similar
forms.
2. Extending loans.
3. Issuing promissory notes.
4. Purchasing, selling and providing guarantees at its own risk, and for the benefit
of and under the customers instructions:
a. Negotiable instruments, including negotiable instruments that are accepted
by the bank and whose periods of terms are no longer than normal practice
in the trading of such negotiable instruments.
b. Acknowledgments of indebtedness and other trade papers whose terms are
no longer than normal practice in the trading of such papers.
c. State treasury certificates and government guarantees.
d. Bank Indonesia Certificates.
e. Bonds.
f. Fixed term trade papers in accordance with the provisions of the laws and
regulations in effect.
g. Other commercial papers for terms that are in accordance with the
provisions of the laws and regulations in effect.
5. Transferring funds in the Banks own interests and in the interests of customers.
6. Placing funds with, borrowing funds from and lending funds to other banks
using paper, telecommunications facilities and bearer negotiable instruments,
checks and other means.
7. Receiving payments of claims in respect of commercial papers and conducting
calculations with or in respect of third parties.
8. Providing places for the storage of valuable items and papers.
9. Providing custodian services to third parties on a contractual basis.
10. Investing customer funds in other customers through the purchase of securities
listed on the stock exchange.
11. Providing factoring, credit card and trusteeship services.
12. Providing financing and/or engaging in other activities in accordance with
sharia principles and the relevant regulations.
13. Engaging in such other activities as customarily conducted by a bank provided
that they do not violate the provisions of the laws and regulations in effect.
In addition, Bank XM may:
Engage in foreign exchange operations pursuant to the laws and regulations.
Engage in capital investment activities in other banks or financial services
companies, such as leasing companies, venture capital companies, stock

13
 brokerages, insurance companies and clearing as well as custodian agencies,
subject to the applicable laws and regulations.
Make temporary investments so as to overcome financing or credit failures based
on sharia principles, subject to such investments being subsequently withdrawn
and to the applicable laws and regulations.
Act as the founder and manager of pension funds in accordance with the
prevailing regulations governing pension fund industry.
Purchase collateral, either all or in part, through auctions or by other means in
the case the debtor did not meet its to Bank XM, with provision of collateral
purchased the obligatory cashing as soon as possible.

1.2.1. Wholesale
In this area, the Company is constantly working to build business relationships that
are mutually beneficial with customers, to strengthen the company's position as the
best Corporate Bank in Indonesia, the core competence of the company since the
beginning.

1.2.2. Retail
Accelerated growth in this area are focused on segment and products that the level
of risk and their penetration is relatively low. In this segment of consumer and micro
banking, would be developed as a new core competency of the company in the
future.

1.2.3. Integrate the Group

In order to provide financial products and services that are comprehensive to the
customers, the Company is continuously working to enhance synergies as a group
effort, by integrating business in the segment and region, including within the
subsidiaries.

1.3. Scope of Work

In Bank XM, author worked under Compliance Service System Department of
Compliance Group, which particularly placed in Regulatory Management Team.
Compliance Group is a Compliance Unit at the Head Office of Bank XM that

14
directly reports to the Director in charge of Compliance functions. Compliance Unit
at Head Office does not take over the responsibility of each Head of Work Unit at
the Bank for the implementation of compliance in each unit. Compliance Unit at
Head Office have to fulfill several criteria in implementing compliance function, as
follows:
a. Independent.
b. Mastering in Bank Indonesia and other regulations.
c. Do not carry other function in addition to Compliance Function.
d. High level of commitment to implement and develop compliance culture

Duties and responsibilities of the Compliance Unit at the Central Office in relation
to the implementation of the compliance function are as follows:
1) Making the steps in order to support the creation of a Culture of Compliance in
all bank business activities at every level of the organization.
2) Performing the identification, measurement, monitoring, and control of the
Compliance Risk with reference to Bank Indonesia regulation concerning Risk
Management Implementation for Commercial Banks.
3) Assessing and evaluating the effectiveness, adequacy and suitability of policies,
regulations, system and procedures that are owned by the Bank with the
legislation in force.
4) Conducting a review and/or recommend updating and refinement of policies,
regulations, systems and procedures that are owned by the Bank to comply with
Bank Indonesia regulations and legislation in force.
5) Taking measures to ensure that policies, regulations, systems and procedures, as
well as the business activities of the Bank in accordance with Bank Indonesia
and the legislation in force.

During the internship period, the author performed several tasks under Regulatory
Management Team, which are related to banking regulations in Indonesia. Those
tasks are:
1. Creating RISMA of Banking Regulations
Basically, RISMA stands for Regulatory Information Services and Monitoring
Activity. This activity require author to make a comparison between the new
banking regulations and the old one. This is in order to giving the updates to the

15
 related banking regulation. By creating RISMA, this would help Compliance
Group to ensure other Groups/Divisions/Subsidiaries of Bank XM stay under
banking regulations while conducting their activity when theres a change in
related banking regulations. Bank XM have their own portal system where the
RISMA of the banking regulations will be uploaded in order to make other
Groups/Divisions/Subsidiaries could access it easily.
2. Making Resume of Banking Regulations
Besides creating the RISMA, author also making resume of banking regulations.
By making the summary of the related new banking regulations, this would help
other Groups/Divisions/Subsidiaries of Bank XM easy to understand core of
related banking regulations without actually read the whole regulation. Bank XM
have their own portal system where the resume of the banking regulations will
be uploaded in order to make other Groups/Divisions/Subsidiaries could access
it easily.
3. Research analysis of Banking Regulations
Another task that the author performed also conducting the research analysis of
banking regulations. The research analysis related to the foreign bank,
operational banking regulations and banking industry in related country since
Bank XM planned to open the representative branch office there and they have
to understand banking regulations of the related country and their industry in
foreign bank perspective.

1.4. The Objective of Internship

a) For Academic Learning

As one of the requirements that must be met to complete and graduate from
Masters in Business Administration program from Bandung Institute of
Technology.
To provide an overview to the author in applying knowledge and theory that
have been obtained during the college in the field of work.
b) Career development
Students can prepare themselves mentally and physically in building quality
in order to face competition and be competitive in the field of work.

16
 To give a briefing on student to be a potential, competent, and professional in
entering the field of work.
c) Skills development
To improve the authors skill regarding with analytical thinking and soft skill
when facing the real business case
To enhance the authors skill regarding with communication skill and learn
how to deal with the real business challenge
d) For Personal Development
To develop authors characteristics especially her strong points and overcome
the weaknesses.
To be a more responsible person, reliable, and honest with the real situation.
e) For Bank XM
To establish a mutual beneficial cooperation with higher education
institutions, which in this case is Bandung Institute of Technology.
To provide opportunities for students to gain practical experience in the field
of Compliance Group.
As a means to give consideration in determining the criteria of the labor
required by the related party, which is in terms of human resources produced
by higher education institutions.

17
 CHAPTER II

BUSINESS ANALYSIS

2.1. Literature Review

Several studies have been conducted so far and still going on to examine the
relationship between firm performance and corporate governance mechanisms, but
the results are mixed. It is widely acclaimed that good corporate governance
enhances a firms performance (Brickley et al, 1994; Brickley and James, 1987;
Byrd and Hickman, 1992; Chung et al, 2003; Hossain et al, 2000; Rosenstein and
Wyatt, 1990; Weisbach, 1988). In spite of the generally accepted notion that
effective corporate governance enhances firm performance, other studies have
reported negative relationship between corporate governance and firm performance
(Bathala and Rao, 1995; Hutchinson, 2002) or have not found any relationship
(Prevost et al. 2002; Young, 2003).
Yarmack (1996) examines the relation between board size and firm
performance, concluding that the smaller the board sizes the better the performance,
and proposing an optimal board size of ten or fewer. John and Senbet (1998)
maintain that the findings of Yarmack have important implications, not least
because they may call for the need to depend on forces outside the market system
in order to determine the size of the board. Hence, as board size increases board
activity is expected to increase to compensate for increasing process losses (Vafeas,
1999). The argument is that large boards are less effective and are easier for a CEO
to control. The cost of coordination and processing problems is also high in large
boards and this makes decision-taking difficult. On the other hand, smaller boards
reduce the possibility of free-riding and therefore have the tendency of enhancing
firm performance.
Keeping boards small can help improve their performance. When board gets
beyond seven or eight people they are less likely to function effectively and are
easier for the CEO to control (Jensen 1993). In contrast, research in the area
suggests that as groups increase in size, they become less effective because of
coordination and process problems outweighing the advantages gained from having
people of diverse background (Steiner, 1972). Empirical evidence regarding the

18
relationship between firm performance and board composition is mixed. Baysinger
and Butler (1985) found that firms with higher numbers of outside directors on the
board had a greater return on equity than the board with inside directors. Ezzamel
and Watson (1993) also found that outside directors were positively associated with
profitability among a sample of UK firms. Hermalin and Weisbach (1991) and
Bhagat and Black (2002) find no correlation between the degree of board
independence and four measures of firm performance, 20 European Journal of
Economics, Finance and Administrative Sciences - Issue 14 (2008) controlling for
a variety of other governance variables, including ownership characteristics, firm
and board size and industry. They find that poorly performing firms were more
likely to increase the independence of their board.
The outside directors are in a position to exert an intensive influence on the
management because they are independent financially and is of different self-
interest than the inside directors hence are in a position to protect the interest of the
shareholders than the inside directors (Fama, 1980). On the other hand, studies by
Klein (1998), Bhagat et al (1997), and Hermalin et al (1991) experienced a high
proportion of independent directors does not predict a better future accounting
performance.
The Cadbury committee (Cadbury 1992) also recommends that the ideal size
of the board should be between eight and ten members and that there had to be one
executive director for every non-executive director. Hermalin and Weisbach (1991)
find no association between the proportion of outside directors and Tobins Q and
Bhagat and Black (2002) find no linkage between the proportion of outside directors
and Tobins Q, return on assets, asset turnover and stock returns.
Velnampy (2013), analyzing publicly traded Sri Lanka manufacturing
companies find that determinants of corporate governance are not correlated to the
performance measures of the organization. Regression model showed that corporate
governance doesnt affect companies ROE and ROA. This result was supported by
Achchuthan (2013) that, there is no significant mean different between the firm
performance among corporate governance as board leadership structure, board
committees practices, board meetings and proportion of non-executive directors.
Zhaoyang Guo and Udaya Kumara Kgab (2012), state that, (i) board size and
proportion of non- executive directors in the board shows a marginal negative
relationship with firm value, (ii) proportion of non-executive directors in a board

19
and financial performance of firm shows negative relation contrary to the findings
of previous studies. The firm size and director shareholdings have a significant
impact on firm performance of listed firms in Sri Lanka.
Kumi Heenetigala and Anona Fern Armstrong (2011), Suggest a positive
relationship between governance practices (separate leadership, board composition,
board committee and firm performance) based on return on equity, and board
composition, board committees and performance measured by Tobins Q. These
relationships indicate that firms have implemented corporate governance strategies,
which have resulted in higher profitability and share price performance.
Thus, this report aims to improve the literature on the corporate governance -
company performance linkage by providing an analysis of Bank XM financial
reports for 10 years (2007-2016) and analyzing board of directors attributes.

2.2. Methodology
2.2.1. Research Method
This report will be using the quantitative descriptive research approach. There are
tons of difference definitions that try to define the quantitative research, but below
is some of the descriptions for quantitative research from several academic
professionals:
Cohen (1980) describe the quantitative research as defining a descriptive
statement about what "is" the case in the "real world" rather than "ought" to be
the case. The empirical statements usually expressed in the numerical terms.
Maki (2004) says that Quantitative is a research method that uses numbers for
interpreting data (Maki, 2004) and is distinguished by the emphasis on numbers,
measurement, experimental design, and statistical analysis" (Palomba & Banta
1999).
AECT (2002) Describe descriptive research can be utilizing for two types of
research, qualitative, and quantitative. The term descriptive research refers to the
type of research question, design, and data analysis that will be applied to a given
topic. Descriptive statistics tell what is, while inferential statistics try to
determine cause and effect.

20
2.2.2. Data Collection
The data and information required for this research were collected from Bank XM
websites, annual reports, and the GCG Reports from internal data from CGB
(Corporate Governance and Business Ethics) Department in Compliance Group.
Evidence required to test the hypotheses in this study is based on annual reports and
published statistics. Therefore, data derived for this study is from secondary
resources. The summary of financial information could be seen on Appendix 1.

2.3. Findings and Analysis

2.3.1. Findings
Based on theoretical framework and literature review above, this report will
investigate GCG implementation and company performance in a particular business
environment. A conceptual framework developed in this section provides a
framework to understand the effects of the variables on firm performance, and
identifies the hypotheses regarding the relationship of GCG variables to company
performance of Bank XM.

ROE
Board Size
Corporate Company
Board Independence
Governance Performance
Audit Committee Size
ROA

Figure 5 Conceptual Framework

The objectives of this report are to investigate the extent to which the company has
adopted corporate governance practice and determine the relationships between
corporate governance practices on company performance. Thus, the hypotheses for
this report are:
H0: There is no positive relationship between corporate governance and
company performance of Bank XM
H1: There is a positive relationship between corporate governance and company
performance of Bank XM
The analysis below in the next section will explain and prove those hypotheses.

21
2.3.2. Analysis
SPSS (Statistical Package for Social Science) was used to analyze the data to test
the hypothesis. The suitable tools were used to test the hypothesis and find the
reliability. Following techniques are used to validate the findings and to get best
solution. Correlation analysis is used to identify the strength or weakness of
relationship between corporate governance practices on firm performance.
Regression analysis is used to identify how corporate governance practices effect
on firm performance and as well as other factors extends. Described below are the
variables used to operationalize the constructs. They include the corporate
governance variables (board size, board composition, and audit committees) and
company performance based on ROE and ROA.
Table 1 Variables Description

Concept Variable Measurement

Dependent Variable
Return on Equity
Company
(ROE)
Performance
Return on Assets
(ROA)

Independent Variable
Board Size (8) Number of directors on the board
Corporate
Board Composition Proportion of outside directors sitting
Governance
(10) on the board
Characteristics
Size of Audit Number of members of audit
Committee (4) committee
The following conceptual model was formulated through the extensive literature.
The equation will be estimated in the form of:
= 0 + 1 1 + 2 2 + 3 3 +
Where:
= Intercept and ut = error term
Yt = Return on Equity (ROE) and Return on Assets (ROA)
X1t = Board Size for Bank XM at time t = 2007 - 2016
X2t = Board Composition for Bank XM at time t = 2007 - 2016
X3t = Size of audit committee for Bank XM at time t = 2007 2016

22
 2.3.2.1. Descriptive Statistics
Table 2 Descriptive Statistics

N Range Minimum Maximum Mean Std. Deviation

BOD 10 2.00 10.00 12.00 11.0000 .47140
BCOM 10 2.00 6.00 8.00 7.2000 .78881
Audit 10 2.00 4.00 6.00 4.8000 .91894
ROA 10 1.71 1.95 3.66 3.0480 .59861
ROE 10 16.19 11.12 27.31 21.6700 5.23780
Valid N (listwise) 10

Table 2 above shows the descriptive statistics of all the variables used in this study.
Descriptive statistics were carried out to obtain sample characteristics. The above
descriptive statistics shows the number of directors in the board have a small range
from 10 to 12. The mean of the size of the board is 11, with a standard deviation of
0.47140. This is in par with many studies undertaken previously. The Cadbury
Committee report (1992) also recommends the size of the board to be between 8
and 10 members. It can be noted from Table 2 that the proportion of the number of
non-executive directors sitting on the board is about 7.2. This indicates that from
the board size approximately 70% of them are non-executive directors. Considering
the composition of the audit committee, the number of members floats from 4 to 6
directors.

2.3.2.2. Pearson Correlation Analysis

Table 3 presents the Pearson correlation coefficients between dependent variables
and independent variables to find out the relationship between determinants of
corporate governance and the measures of firm performance. The significance level
used in this report is 0.05.
Table 3 Correlation Matrix

BOD BCOM Audit ROA ROE

BOD Pearson Correlation 1 -.299 .256 .138 .211
Sig. (2-tailed) .402 .474 .704 .559
N 10 10 10 10 10
BCOM Pearson Correlation -.299 1 .521 .173 .100
Sig. (2-tailed) .402 .122 .633 .783
N 10 10 10 10 10
Audit Pearson Correlation .256 .521 1 .530 .604

23
 Sig. (2-tailed) .474 .122 .115 .064
N 10 10 10 10 10
ROA Pearson Correlation .138 .173 .530 1 .973**
Sig. (2-tailed) .704 .633 .115 .000
N 10 10 10 10 10
ROE Pearson Correlation .211 .100 .604 .973** 1
Sig. (2-tailed) .559 .783 .064 .000
N 10 10 10 10 10
**. Correlation is significant at the 0.01 level (2-tailed).

The results of the correlation analysis in table 3 showed that the strength
relationship between ROA and the determinants of corporate governance (board
size and board composition) is considered very low. This is due to the very low
correlation score between ROA and Board Size and Board Composition which are
0.138 and 0.173. But the strength relationship between ROA and the Audit
Committee is in moderate level since the correlation itself is 0.53. Although the
strength correlation between ROA and the corporate governance is most likely
considered low, but since the correlation score is positive which means that theres
positive relationship between corporate governance and ROA. The p values
between ROA and corporate governance determinants (Board Size, Board
Composition, and Audit Size) are higher than 0.05. This showed that theres a
significant relationship between ROA with those determinants of corporate
governance. Since the correlation coefficient of ROA and corporate governance is
positive and significant, we can say that the ROA have the significantly positive
relationship with corporate governance even though its considered weak.

Next in ROE, the strength relationship between ROE and Board Composition also
considered very low since the correlation score is 0.1. Theres a slight increase of
the strength relationship between ROE and Board Size, even though it still
considered low due to the low correlation score which is 0.211. But the strength
relationship between ROE and Audit Committee is considered high since the score
is 0.604. Even though the strength correlation between ROE and the corporate
governance is most likely considered moderate, due to the positive score of
correlation, we can say that there is positive relationship between corporate
governance and ROE. Same like ROA, the p values between ROE and the corporate
governance determinants (Board Size, Board Composition, and Audit Committee)

24
are higher than 0.05. This showed that theres a significant relationship between
ROE with those determinants of corporate governance. Since the correlation
coefficient of ROE and corporate governance is positive and significant, we can say
that the ROE has the significantly positive relationship with corporate governance
even though its considered moderate. So, H1 is accepted since both ROA and ROE
have the positive relationship with corporate governance.

2.3.2.3. Regression Analysis

A multiple linear regression was carried out to recognize the impact of corporate
governance on firm performance, which the analysis showed below:
Multiple Correlation and Determination Analysis
Table 4 Model Summary

Adjusted R Std. Error of the

Model R R Square Square Estimate
1 .549 (a) .301 -.048 .61277
2 .660 (b) .436 .154 4.81869
a & b Predictors: (Constant), Audit, BOD, BCOM
a. Dependent Variable: ROA
b. Dependent Variable: ROE

From Table 4 above we can determine the multiple correlation analysis result. This
analysis is used to determine the relationship between two or more independent
variables (X1, X2, ... Xn) to the dependent variable (Y) simultaneously. This
coefficient shows the relationship between independent variables (X1, X2, ...... Xn)
to the dependent variable (Y). R value ranges from 0 to 1, the value is closer to 1
means the relationship is going stronger, otherwise the value is nearing 0 then the
relationship is getting weaker. Based on the table 4 above, its obtained the value
of R which is 0.549. This indicates that theres a moderate relationship between
ROA towards Corporate Governance. For ROE, its obtained the value of R which
is 0.66. This means that theres a strong relationship between ROE and Corporate
Governance. So, we can say that the relationship between ROA and ROE towards
the corporate governance tends to be moderate and strong.

Besides Multiple correlation result, we can also determine the determination

analysis result. Determination analysis in multiple linear regression is used to know

25
the percentage of contribution of independent variables (X1, X2, ...... Xn)
simultaneously to the dependent variable (Y). This coefficient shows how much
variation percentage of independent variable used in model which able to explain
variation of dependent variable. If R2 = 0, it indicates that theres no percentage of
contribution which given b independent variable to dependent variable. Or it also
indicates that the variation of independent variable used in the model does not
explain any variation of dependent variable. On the other hand, if R2 = 1, then the
percentage of contribution given by the independent variable to the dependent
variable is perfect, or the variation of the independent variable used in the model
explains 100% variation of the dependent variable. Based on table 4 above, its
obtained the R2 of ROA is 0.301 and the R2 of ROE is 0.436. This shows that the
percentage of contribution of independent variable (Board Size, Board
Composition, and Audit Committee) to dependent variables (ROA and ROE) equal
to 30.1% and 43.6%. Or variations of the independent variables used in the model
are able to explain 30.1% and 43.6% of the variation of the dependent variables.
While the rest of 69.9% and 56.4% influenced or explained by other variables that
are not included in this research model.

The F-test Analysis

This test is used to determine whether the independent variables (X1, X2 ... .Xn)
together significantly influence the dependent variable (Y). Or to find out if the
regression model can be used to predict the dependent variable or not. Significant
means the relationships that occur can apply to the sample. The significance level
used in this report is 0.05. In determining the F table, the F Distribution table could
be seen in appendix 2. From the table 5 below we can see the result of F-test for
ROA.

Table 5 ANOVA-ROA as a Dependent Variable

Model Sum of Squares Df Mean Square F Sig.

1 Regression .972 3 .324 .863 .510b
Residual 2.253 6 .375
Total 3.225 9
a. Dependent Variable: ROA
b. Predictors: (Constant), Audit, BOD, BCOM

26
 The F-value of ROA is 0.863. With the significance level of 0.05, the critical value
for F table with 3 and 6 degrees of freedom is 4.7571. Since the F-value is less than
the F table (0.863 < 4.7571), we can say that theres no significant relationship
between ROA and Corporate Governance.

Table 6 ANOVA-ROE as a Dependent Variable

Model Sum of Squares df Mean Square F Sig.

1 Regression 107.593 3 35.864 1.545 .297b
Residual 139.319 6 23.220
Total 246.911 9
a. Dependent Variable: ROE
b. Predictors: (Constant), Audit, BOD, BCOM

Meanwhile, from the table 6 above, we can see the F-test result with ROE as a
dependent variable towards corporate governance determinants. The F-value of
ROE is 1.545. The critical value of F table with 3 and 6 degrees of freedom is
4.7571. With the F table higher than F-value (1.545 < 4.7571), it indicates that
theres no significant relationship between ROE. Since the result from F-test for
both ROA and ROE are less than the F table, we can say that the relationship
between corporate governance and company performance is not statistically
significant.

The t-test Analysis

This test is used to determine whether in the regression model independent variables
(X1, X2, ... .. Xn) partially significant effect on the dependent variable (Y). T-test
is known as partial test, that is to test how the influence of each independent variable
individually to the dependent variable. This test can be done by comparing t-value
with t table or by looking at the column significance. The significance level used in
this report is 0.025. To determine t table, the t distribution table could be seen in
Appendix 3. Table 7 below showed the t-test result for both ROA and ROE. The t-
value for both ROA and ROE are 0.494 and 0.559. From the t distribution table,
with the significance level of 0.025 and 6 degrees of freedom, the critical value for
t table is 2.44691.

27
 Table 7 Coefficients for Predictors of Performance

Standardized
Unstandardized Coefficients
Model Coefficients t Sig.
B Std. Error Beta
Dependent
ROA ROE ROA ROE ROA ROE ROA ROE ROA ROE
Variable
(Constant) 3.299 29.333 6.672 52.467 .494 .559 .639 .596

BOD -.112 -1.177 .526 4.140 -.088 -.106 -.213 -.284 .838 .786
1
BCOM -.148 -2.373 .356 2.802 -.195 -.357 -.415 -.847 .693 .429

Audit .426 4.660 .302 2.375 .655 .818 1.412 1.962 .208 .097

From the table 7 above, we can see from the t-test result that the t-value of Board
Size (BOD) is -0.213 which is less than the t table for both ROA (-0.213 < 2.44691)
and (-0.284 < 2.44691). The same result goes for Board Composition (BCOM) for
both ROA (-0.415 < 2.44691) and ROE (-0.847 < 2.44691). And the result goes the
same for Audit Committees for both ROA (1.412 < 2.44691) and ROE (1.962 <
2.44691). This indicates that the independent variables partially have no significant
effect on the dependent variables, which means that the corporate governance
partially have insignificant relationship with company performance. This also
supported by the result of the output result of significant value. for ROA as
dependent variable, both BOD and BCOM significant value are 0.639 and 0.838
which are higher than 0.05. The same output result of ROE as dependent variable
also goes for the BOD (0.596) and BCOM (0.786) which both are higher than 0.05.
But both significant value of audit committees for both ROA (0.208) and ROE
(0.097) are less than 0.05. This indicates that the audit committees have partially
significant relationship with company performance.

28
 CHAPTER III

BUSINESS SOLUTION

3.1. Proposed Solution

From the analysis above we can see that the GCG has positive relationship
with both ROA and ROE even though it is not significant, so we can that H1 is
accepted. This showed that with the implementation of GCG in Bank XM, it gives
boost to increase the companys performance. It implies that the GCG
implementation has the effect with companys performance. Thus, with the
implementation of GCG, the company will be able to achieve the goals and
contribute in building the nation sustainably. Therefore, Bank XM put GCG as the
main foundation in conducting business and to maintain the Company's existence
in facing challenges and business competition.

In proposing solution, the strategic review has been formulated in applying

the principles of sustainable governance so as to support the achievement of the
vision and mission set. Strategy is arranged based on corporate plan by looking at
external environment changes and paying attention to alignment among strategies
which then spelled out into policies, work programs, and procedures. Strategy
evaluation is conducted every year to identify the success rate of strategy
implementation that is adjusted with Bank XM performance so as to produce the
right strategy. Implementation of appropriate strategies is expected to boost
business growth and enhance Bank XM's competitiveness in the future. To achieve
that future business growth, the proposed solution will be focused on 3 (three) main
strategies, which is Deepen Client Relationship (Wholesale Segment), Accelerate
in Growth Segment, and Integrate the Group.

3.1.1. Deepen Client Relationship (Wholesale Segment)

This strategy consists of three aspiration which arranged to strengthen the
development of wholesale segments, which are:
Integrated Wholesale Transaction Bank (IWTB)
In achieving the aspiration of being an Integrated Wholesale Transaction Bank,
Bank XM always offers holistic and integrated products and services which are
able to serve the needs of end to end customers. The increasing of customer needs

29
 is not only limited to credit products, but also other financial products that can
support an increasingly complex customer business. Some strategic initiatives to
be implemented include:
a) Integration of financial products which includes products that focus on
liquidity or credit, payment & cash management solutions, treasury
solutions, capital markets, and products related to retail banking;
b) Platform improvements ranging from back end to front end to improve the
quality of Bank XM's financial products in customers perspective.

Sector-Led Solutions
The development of wholesale business could be conducted by strengthening
Relationship Manager (RM) who has expertise in priority sectors. The initiatives
which needs to be developed regarding with the Sector-Led Solutions are:
a) Developing RM who has expertise or specialist in each priority sector, so that
the RM could provide an optimal added value to customers of Bank XM
b) RM can be a neutral product with a major focus of RM as a client-related
party, which not only interested in selling a particular product, but also cross-
selling and providing end-to-end solutions of value chain and customer
ecosystem.

Cross Border Coverage

The current development of inter-state trade encourages large corporations in
Indonesia to continue expanding its business abroad. Bank XM as a leading
wholesale bank in Indonesia with a strong corporate customer base in providing
services following the principle of follow the customer, follow the trade. Some
of the strategic initiatives that need to be implemented are:
a) Utilizing the benefits of corporate customer base by providing maximum
support to meet financial needs through cross border (international) products
and services for overseas customers.
b) Developing products and services to capture more opportunities due to the
high numbers of Foreign Direct Investment (FDI) in Indonesia which is the
developing country with high economic growth.

30
 c) Expanding business network in overseas market and developing cross-border
products.

3.1.2. Accelerate in Growth Segment

This strategy consists of three segments, which are:
Micro Segment
X's 2020 aspiration in the Micro segment is to be a competitive bank in the micro
segment with a prime indicator of having a microcredit market share of at least
20%, having the lowest micro NPL in the industry, and being recognized as a
financial institution that enhances micro-entrepreneur's life. Bank XM's policy
in the micro segment is to provide easy access in the form of network opening
which is focused in semi urban and access of simple banking products. There are
four pillars of strategic initiatives which need to be implemented to achieve these
aspirations, which are:
a) Expanding distribution network and partnership through target market
selection, partnership development, cluster & organic network;
b) Increasing micro savings funds through product savings bundling program,
and cover unbanked segments;
c) Increasing branch productivity through structural adjustments in branches and
micro units and increasing the span of control of Senior Managers and
improve productivity of MKS 3 in1 digital mobile;
d) Strengthening risk management through portfolio management, credit risk &
operation management, operation management, and reputation management

Individual Segment
X's 2020 aspiration in the individual segment is to become a leader in the retail
individual segment with key indicators such as individual retail market share, e-
payment transaction growth, Credit Card positioning, KPR, Vehicle Financing
and payroll loan. Some of the strategic initiatives undertaken among others are:
a) Increasing market share particularly in priority customer segments and
Generation Y.
b) Conducting the establishment of motor vehicle-focused subsidiaries (2W),
innovation & optimization of credit card portfolio, enhancement of synergy

31
 of X Group to take new segment in KPR, and personal loan product
development;
c) Having retail payment ecosystem by strengthening merchant business and
business model innovation with multi-platform business;
d) Developing Bank at Work solution through bundling of retail product
packages to wholesale and retail customers, as well as developing social
media elements and personal finance manager tools.

Small Medium Enterprise (SME) Segment

X's 2020 aspiration in the SME segment is to become the SME Customer
Preferred Main Bank, as measured by CASA's market share and SME credits.
Some strategic initiatives that need to be implemented are:
a) Expanding market access to the priority sub-sectors which established for
SMEs, developing value chain business, focusing on potential customers
which have not yet covered and individual customers of business owners.
b) Developing branch ownership and build branches that are ready to handle
SME customers.
c) Increasing the value added of products and services offered to customers

3.1.3. Integrate the Group

Integrate the Group's strategy aims to increase the synergy of each unit by
optimizing all existing resources in Bank XM and Subsidiaries in order to support
cross-selling activities. Some of the strategic initiatives undertaken include:
Integrate Branch-Led Distribution
This strategy aims to optimize the role of the region through the integration of
both retail and wholesale distribution networks to distribute multi-segment
financing products or not limited to certain segments of Bank XM to customers.

Customer-Centric Operations
The purpose of this strategy is to provide services and products that can meet
customer needs and satisfaction (customer-centric operation), so that it could
provide an optimal value-added to customers. Bank XM will differentiate
customers specifically in the retail segment (SME, Individual and Micro) and

32
 focus on the priority sector of the economy for the wholesale segment as well as
prioritize customers to provide services and coverage that satisfy customers.

Product-Neutral, Sales-Focused Performance Management System

To encourage integration, Bank XM's performance management will be directed
to encourage product-neutral distribution and focus on selling multi-segment
products which not only from certain segments.

Integrated Platforms and Systems

Integrate from platform side from back-end to front-end to produce single
customer view and improve product quality of Bank XMin customer's
perspective.

3.2. Practical Implication

The proposed solutions above are realistic to be implemented at PT Bank XM
(Persero) Tbk and have several worthy results in the future. Since the strategies
mentioned above (Deepen Client Relationship (Wholesale Segment), Accelerate in
Growth Segment, and Integrate the Group) has been aligned with GCG principles,
it could help Bank XM in achieving their vision and mission. As the main milestone
of the vision of Becoming Indonesia's Most Admired and Always Progressive
Financial Institution, Bank XM wants to become the leading financial institution in
ASEAN by 2020. In implementing those proposed solutions also Bank XM will
increase their company performance which will lead to the enhancement of their
business growth and competitiveness in the future.

3.3. Implementation Plan

Based on the proposed solution, the implementation plan will be discussed in this
sub-chapter. This implementation plan created to help the improvement that needed
to be done by Bank XM. The plans that developed here can be adjust by the Bank
XM while keeping the original timeline as the base for achieving milestones.
Setting deadlines for achieving milestones is critical. When doing that, Bank XM
should be flexible, because they will need to make adjustments to the original
timeline along the way. The implementation plan showed on table 8 below.

33
 Table 8 Implementation Plan Timeline

Strategy Year
Priorities Remarks
Aspects 2017 2018 2019 2020
Integrated
Continuous
Wholesale
monitoring
Transaction
Deepen required
Bank (IWTB)
Client
Continuous
Relationship Sector-Led
monitoring
(Wholesale Solutions
required
Segment)
Continuous
Cross Border
monitoring
Coverage
required
Continuous
Micro Segment monitoring
required
Accelerate in Continuous
Individual
Growth monitoring
Segment
Segment required
Continuous
SME Segment monitoring
required
Integrate Continuous
Branch-Led monitoring
Distribution required
Customer- Continuous
centric monitoring
Operations required
Integrate the Product-Neutral,
Group Sales-Focused Continuous
Performance monitoring
Management required
System
Integrated Continuous
Platforms and monitoring
System required

34
 CHAPTER IV

LESSON LEARNED

Every company has different approach when conducting a project to achieve the desired
objectives. The approach used has benefits as well as disadvantages for the company
itself that affect the task outcomes at the end. As a compliance intern, during the
completion of the tasks, there are many valuable lessons that can be taken.

Compliance Principles
The author learned that generally the Bank Compliance Policy contains guidelines for
all employees in the running of Culture of Compliance include: Public Policy,
Organization, Authority and Responsibility, Compliance Risk Management, Reporting,
Monitoring and principles of compliance. The principles of compliance of the Bank are
as follows:
The Bank always obey the laws and regulations and apply the precautionary
principle in implementing all the activities (mandatory).
The Board of Commissioners and Board of Directors to be an example (role model)
that is based on honesty and integrity so that the implementation of a culture of
compliance Bank (starts from the top).
The whole range of the Bank shall be fully responsible for implementing compliance
within each activity respectively.
Particularly, the author learned that compliance function implementation not limited to
prevention of violation on regulations, but also to the spirit as the base of mind. It is
important to put the Bank reputation as financial services institution.

Compliance Risk Management

The complexity of the business and the aggressive growth in the coming year should
be balanced with compliance risk management more forward looking and more
sensitive to the dynamic changes. The author learned the bank has set the level of
compliance risk to be taken (risk appetite) as one of the strategies of compliance. Risk
appetite is poured in the form of the Risk Appetite Statement (RAS), which is a
reference for all levels of banks in running the bank so that the business targets can be

35
achieved by taking into account the limits of risk that may occur. RAS compliance risk
is determined by the Risk Management Committee (RMC) through the process of
alignment between the two perspectives, namely top-down perspective of
Commissioners and the Board of Directors and the bottom-up based on the input and
synchronization with the business units and work units. In the future, RAS will be
regularly reviewed in accordance with the needs of banks and business developments
as well as regulatory changes.

Regulatory Management System in Compliance

As a highly regulated industry in which some major advances in the regulation
mechanism of various financial services, the author learned that Bank XM has the
innovative approach through the creation of monitoring reporting system to cope with
the volume of reporting that must be fulfilled. Innovation system is designed to provide
end-to-end regulatory management system ranging from resume preparing new
regulations, assess their impact on the bank's activities, preparation of the reporting
obligation, compliance reporting reminder to the submission of evidence reporting to
regulators. With this system is expected to breach some critical areas, such as delays in
reporting of Commercial Bank Daily Report, late reporting of Commercial Bank
Monthly Report, and the delay in transfer of tax transactions can be mitigated.

GCG Implementation in Compliance

Bank XM has committed to implement GCG which has the following main purposes:
Encouraging earnestness of the management in implementing the principles of
transparency, accountability, responsibility, independence, fairness and prudence in
managing the Bank; Improving the Banks performance, efficiency and service to the
stakeholders; Attracting interest and securing trust from the investors; Serving the
shareholders interests on the improvement of shareholder values; and Protecting the
Bank from political intervention and legal claim. As a part of Good Corporate
Governance process and in relation with implementing compliance function as
stipulated in Bank Indonesia Regulation No. 13/2/PBI/2011 regarding Implementation
of Compliance Function for Public Bank, the author learned that Bank XM already have
the policy and compliance standard guideline that emphasize role and responsibilities
of Compliance Unit in implementing compliance function.

36
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2016. Annual Report Bank XM. PT Bank XM (Persero) Tbk

2015. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2014. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2013. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2012. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2011. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2010. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2009. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2008. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2007. Annual Report Bank XM. PT Bank XM (Persero) Tbk
2016. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2015. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2014. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2013. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2012. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2011. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2010. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2009. GCG Report Bank XM. PT Bank XM (Persero) Tbk
2008. GCG Report Bank XM. PT Bank XM(Persero) Tbk
2007. GCG Report Bank XM. PT Bank XM (Persero) Tbk

39
 APPENDIX

Appendix 1: Financial Information of Bank XM

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Appendix 2: The F-Distribution Table

41
Appendix 3: The t-Distribution Table

42
Appendix 4. Co-Workers at PT Bank XM (Persero) Tbk

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