PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
205
61. RISK MANAGEMENT continued
A. Credit Risk continued In principle, credit risk management is implemented to transactional and portfolio levels. At the
transactional level, the Bank has implemented the four-eye principles concept, whereby each loan approval involves Business Unit and Credit Risk Management Unit which work independently to
make an objective credit decision. The four-eye principles is executed by Credit Committee according to the authority limit and the loan approval process is conducted through Credit
Committee Meeting mechanism. Executive Credit Officer as Credit Committee members, must be highly competent as well as having strong capacity and integrity so that the loan granting process
can be conducted objectively, comprehensively and prudently. To monitor the performance of the credit authority holders in approving and maintaining loans, the Bank has developed a database
for authority-holder monitoring. By using this system, the Bank can monitor the amount and quality of the loans approved by the credit authority holders, so that the performance of the Executive
Credit Officer can be monitored from time to time.
To mitigate credit risk, Credit Committee sets loan structure for every debtor through appropriate covenants that aligns with debtor needs and condition. This is to ensure the debtor uses the loan
according to original purpose so that bank and debtors interest are fulfilled.
The policies regarding to collateral in order to mitigate credit risk has been embedded in each segments Credit Procedure Standard. The collateral that can be accepted by the Bank includes
Movable Assets among others cash, receivables, inventory, and marketable securities, Non- Movable Assets among others property, land, and equipment, and personalcorporate guarantee.
The collateral coverage criteria for each segment is divided as follows:
Segment Collateral
Minimum Coverage Amount
Wholesale Funded project
100 - 150 of credit limit Inventory
Receivable Fixed Asset
Land or land and property Other collateral accepted by the Bank
Retail Fixed asset
100 - 200 of credit limit Inventory
Receivable Land or land and property
Other collateral accepted by the Bank
Collateral coverage amount is determined by type and limit of credit facility, type and value of collateral and evaluation of debtor
As credit collateral, fixed asset such as land and building are preferable than other types of collateral. The fair value of collateral is assessed by internal assessors Credit Operation Unit and
an external assessors who have already been appointed by the Business Unit Credit Recovery Unit.
Collateral can be exchanged as long as the new collateral fulfils marketability and collateral value adequacy criteria. If debtors failed to pay off their loan, the collateral will be liquidated as a second
way out to ensure credit recovery. To identify and measure risk of each credit application processed in the transactional level, as part
of implementation of prudential banking, the Bank utilises Credit Risk Tools, which among other include Credit Rating and Credit Scoring Tools, financial spread sheet, comprehensive Credit
Analysis Memorandum. The Rating and Scoring systems consist of Bank Mandiri Rating System BMRS, Small Medium
Enterprise Scoring System SMESS, Micro Banking Scoring System MBSS and Consumer Scoring System application, behaviour, collection and anti-attrition.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
206
61. RISK MANAGEMENT continued
A. Credit Risk continued BMRS that has been developed by the Bank consists of Rating System for Corporate
Commercial segment, Rating System for Wholesale SME, Rating System for Project Finance, Rating System for Financial Institution - Bank, Rating System for Financial Institution - Non Bank
Multifinance, and Rating System for Bank Perkreditan Rakyat BPR. The Bank has also developed a Rating System for Financial InstitutionsBanks, called Bank
Mandiri Financial Institution Rating BMFIR, so that the Bank can identify and measure the risk level of Bank Counterpart which can be tolerated in granting Credit Line facilities
To improve the measurement of transactional risk in the overseas branches, the Bank has implemented BMRS overseas.
To support the development of model, the Bank has issued Guideline for the development of credit rating and credit scoring models, a complete guidance for the Bank in developing credit rating and
credit scoring models. In addition, to monitor the performance of credit rating and credit scoring models, the Bank reviews the scoring and rating results conducted by Business Units. Besides, the
Bank already has a guidance to set of probability of default PD to support implementation of internal rating based approach.
In order to monitor rating and scoring gathered in the database, the Bank prepares Credit Scoring Review and Rating Outlook which are issued quarterly and semi-annually. The reports contain
performance scoring and rating parameters based on limit Rp5,000 – Rp15,000 for middle commercial and above Rp15,000 for large commercial and corporate. The reports are useful for
Business Units particularly as a reference in determining targeted customer which are good performing, so that the quality of credit expansion process will improve.
As a preparation component for AIRB, the Bank has developed a Rating Model that aligns with PD, LGD and EAD development model for segments according to Basel Asset Class which are
Corporate, Corporate SME, Project Finance, and Basel II Risk Parameter for Retail Segment. In both measuring economic capital for credit risk and to comply with Basel II, the Bank has been
developing Long Term PD, and also reviewing Exposure at Default EAD and Lost Given Default LGD model internally.
In quarter IV of 2015, the Bank has completed model development for PD and LGD in the Retail segment for several products such as consumer loans and credit card and PD model for
Corporate, Corporate SME, and Project finance segment. The model developed by the Bank is validated internally by Risk Model Validator, which is an
independent and separate unit from the model development unit. This is done to minimize analysis error in calculating credit risk, especially in calculating PD value and assigning debtor rating.
Aside from Credit Rating and Scoring, another tool used by the Bank is the loan monitoring system, which identifies debtors that may potentially experience difficulty in repaying their loan
obligation. The Bank conducts early warning analysis called Watch List analysis for all Corporate and Commercialloans with collectability 1 and 2 on quarterly basis. Based on the analysis, the
Bank determines account strategy and actions plan to prevent Non Performing Loan NPL. The Bank also conducts Watch List analysis for Business Banking segment using individual
method for debtors that have facility limit above Rp2,000 and portfolio method for debtor that have facility limit up to Rp2,000, in order to strengthen the monitoring over Business Bankings debtors.
The expectation is that it could become an early warning and therefore could improve the management of NPL Non Performing Loan level of business banking debtors.
