PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008 and 2007 Expressed in millions of Rupiah, unless otherwise stated
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued l.
Loans continued
Loans Purchased from IBRA continued Bank Indonesia allows the Bank to classify all the loans purchased from IBRA as Category 1 Current
for a period of one year from the date of booking. Thereafter, the loans are classified based on the normal loan rating guidelines of Bank Indonesia.
Bank Indonesia requires banks to fully recover the purchase price of the loans within five years from the date of booking. Any unpaid amount after five years should be written off by the banks.
Loan Restructuring Loan restructuring may involve a modification of the terms of the loans, conversion of loans into equity
or other financial instruments andor a combination of both. Losses on loan restructurings in respect of modification of the terms of the loans are recognized only if
the present value of total future cash receipts specified by the new terms of the loans, including both receipts designated as interest and those designated as loan principal, are less than the recorded
loans before restructuring. For loan restructurings which involve a conversion of loans into equity or other financial instruments in
partial satisfaction of loans, a loss on loan restructuring is recognized only if the fair value of the equity or financial instruments received, reduced by estimated expenses to sell the equity or other financial
instruments, is less than the designated loan’s value. Deferred interest, which is capitalized to receivables under new restructuring agreements, is recorded
as deferred interest income and is amortized proportionately based on the amount of capitalized interest relative to the loan principal upon loan collections. Losses on loan restructuring are presented
as part of allowance for possible losses.
m. Acceptances Receivable and Payable
Acceptances receivable and payable are stated at the value of the letters of credit or realizable value of the letters of credit accepted by the Bank. Acceptances receivable are presented net of allowance
for possible losses.
n. Investments in Shares of Stock
Investments in shares of stock represent long-term investments in non-publicly-listed companies and temporary investments in debtor companies arising from conversion of loans to equity.
Investments in shares of stock representing ownership interests of 20 to 50 and above 50, except for investments in companies arising from conversion of loans to equity, are accounted for
under the equity method. Under this method, investments are stated at cost and adjusted for the Bank’s proportionate share in the net equity of the investees and reduced by dividends earned since
the acquisition date reduced by allowance for possible losses.
Temporary investments in debtor companies arising from the conversion of loans to equity are accounted for under the cost method regardless of the percentage of ownership, less an allowance for
possible losses.
All other investments are carried at cost reduced by an allowance for possible losses.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008 and 2007 Expressed in millions of Rupiah, unless otherwise stated
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n. Investments in Shares of Stock continued
Changes in value of investments in subsidiaries which is caused by changes in the subsidiaries’ equity and is not a transaction between the Bank and the Subsidiaries, is recognized as part of the equity as
“Difference Arising from Transactions Resulting in Changes in the Equity of Subsidiaries”. This account will be calculated in determining the parent companies’ profit and loss at the disposal of the investment
Note 31e. Goodwill is recognized, when there is a difference between the acquisition cost and the Bank’s portion
on the fair value of identified assets and liabilities at the exchange date. Goodwill is presented as other assets and amortised as expense over the period using the straight-line method, unless there is other
method considered more appropriate in certain conditions. Goodwill amortization period is 5 five years, but a longer amortization period may be applied with maximum 20 years period with
appropriate basis.
o. Allowance for Possible Losses on Assets and Estimated Losses on Commitments and Contingencies
Earning assets consist of current accounts with other banks, placements with Bank Indonesia and other banks, securities, Government Bonds, other receivables - trade transactions, securities
purchased with agreements to resell, derivative receivables, loans, acceptances receivable, investments in shares of stock and commitments and contingencies with credit-related risk.
Commitments and contingencies with credit-related risk consist of outstanding irrevocable letters of credit, outstanding letters of credit under Bank Indonesia’s guarantee program, guarantees issued in
the form of standby letters of credit, bank guarantees, risk sharing and unused loan facilities.
Non-earning assets are assets with potential loss and include but is not limited to repossessed assets, abandoned properties, inter-office accounts and suspense accounts.
In accordance with Bank Indonesia BI regulations, Bank Mandiri classifies earning assets into one of five categories and non earning assets into one of four categories. Performing assets are categorized
as “Current” and “Special Mention”, while non-performing assets are categorized into three categories: “Sub-Standard”, “Doubtful” and “Loss”. Non earning assets are divided into “Current”, “Sub-Standard”,
“Doubtful” and “Loss”.
The classification of earning assets is based on Bank Indonesia Regulation No. 72PBI2005 dated January 20, 2005 regarding Asset Quality Rating For Commercial Banks which has been amended by
Bank Indonesia Regulation No. 82PBI2006 dated January 30, 2006, and Bank Indonesia Regulation No. 96PBI2007 dated March 30, 2007. PBI 96PBI2007 contains type of collateral that qualify as
deduction in earning asset provision calculation, such as machinery that is permanently part of the land binded with fiduciary right and warehouse receipt binded with guarantee right on warehouse receipt. In
connection with the implementation of PBI No. 72PBI2005, the Bank determined the classification of earning assets based on the evaluation of the management on each borrower’s repayment
performance, business prospects and ability to repay.
In accordance with PBI No. 72PBI2005 dated January 20, 2005, classification of quality for repossessed assets, abandoned properties, inter-office accounts, suspense accounts and unused loan
facilities granted to customers off balance sheet item, became effective 12 twelve months since the date of the enactment of PBI.
