Changes in accounting policies in current year continued iii. Classes of financial instrument
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 521 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued v. Allowance for impairment losses of financial assets continued
a Financial assets carried at amortised cost continued Bank determines loans to be evaluated for impairment through individual evaluation if one
of the following condition is met: 1.
Loans which individually have significant value and objective evidence of impairment; or
2. Restructured loans which individually have significant value.
Bank determines loans to be evaluated for impairment through collective evaluation if one of the following condition is met:
1. Loans which individually have significant value and there are no objective evidence of
impairment; or 2.
Loans which individually have insignificant value; or 3.
Restructured loan which individually have insignificant value. Individual impairment calculation
The amount of the loss is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows excluding future impairment
losses that have not been incurred discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the allowance for
impairment losses account and the amount of the loss is recognised in the consolidated statement of income. If a loan or held-to-maturity financial assets has a variable interest
rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for
obtaining and selling the collateral, whether or not foreclosure is probable.
The Group uses a fair value of collateral method as a basis for future cash flow if, one of the following conditions is met:
1. Loans are collateral dependent, i.e. if source of loans repayment comes only from the
collateral; or 2.
Foreclosure of collateral is most likely to occur and supported with legal binding aspect. Collective impairment calculation
For the purpose of a collective evaluation of impairment, financial asset are grouped on the basis of similar credit risk characteristics such by considering credit segmentation and past-
due status. Those characteristics are relevant to the estimation of future cash flows for groups of such assets which indicate debtors or counterparties’ ability to pay all amounts
due according to the contractual terms of the assets being evaluated.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 522 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued v. Allowance for impairment losses of financial assets continued
a Financial assets carried at amortised cost continued Future cash flows in a group of financial assets that are collectively evaluated for
impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the
basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not currently exist.
The Bank uses statistical model analysis methods, namely roll rates analysis method and migration analysis method for financial assets impairment which collectively assessed,
using three years historical data.
In migration analysis method, management determines 12 months as the estimated and identification period between a loss occuring for each identified portfolio.
When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been
completed and the amount of the loss has been determined. Impairment charges relating to loans, marketable securities and Government Bonds in held-to-maturity and loans and
receivables categories are classified into “allowance for impairment losses”.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised such
as an improvement in the debtor’s credit rating, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the impairment reversal is
recognised in the consolidated statement of income.
Subsequent recoveries of loans written off in the current year are credited to the allowance account. Subsequent recoveries of loans written off in previous year, are recognised as
other non-operating income.
b Financial assets classified as available for sale The Group assesses at each date of the consolidated balance sheet whether there is
objective evidence that a financial asset or a group of financial assets is impaired. Refer to Note 2b.v.a for the criteria of objective evidence of impairment.
In the case of debt instruments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment
resulting in the recognition of an impairment loss. If any such evidence exists for available for sale financial assets, the cumulative loss – measured as the difference between the
acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in consolidated statements of income – is removed from equity and
recognised in the consolidated statement of income.
If, in a subsequent period, the fair value of a financial asset classified as available for sale increases and the increase can be objectively related to an event occurring after the
impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated statement of income.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 523 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued v. Allowance for impairment losses of financial assets continued
c Financial guarantee contracts and commitments Financial guarantee contracts are contracts that require the issuer to make specified
payments to reimburse the holder for a loss incurred because a specified debtor defaulted to make payments when due, in accordance with the terms of a debt instrument. Such
financial guarantees are given to banks, financial institutions and other institutions on behalf of customers to secure loans and other banking facilities.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. The fair value of a financial guarantee at inception is likely to
equal the premium received because all guarantees are agreed on arm’s length terms. Subsequent to initial recognition, the bank’s liabilities under such guarantees are measured
at the higher of the initial amount, less amortisation of fees recognised, and the best estimate of the amount required to settle the guarantee. These estimates are determined
based on experience of similar transactions and history of past losses, supplemented by the judgement of management. The fee income earned is amortised over the period of
guarantees using the straight line method.
Allowance for impairment on financial guarantee contracts with credit risk and undisbursed credit facilities committed are calculated based on Bank Indonesia Regulation
No. 72PBI2005 dated 20 January 2005 regarding Asset Quality Rating for Commercial Bank, as last amended by PBI No. 112PBI2009 dated 29 January 2009 and in
accordance with Letter from Bank Indonesia No. 12516DPNPIDPnP dated 21 September 2010.
Increase in the liability relating to guarantees is reported as other operating expense in consolidated statement of income.
d Impairment of earning assets prior to implementation of SFAS 55 Revised 2006 Prior to 1 January 2010, all earning assets and non earning assets should be covered by
allowance for impairment losses on earning assets, which were known as “Allowance for possible losses of earning assets and non earning assets” based on the minimum
requirement from Bank Indonesia.
Earning assets consist of current accounts with Bank Indonesia and other banks, placements with Bank Indonesia and other banks, marketable securities, Government
Bonds, other receivables - trade transactions, securities purchased under resale agreements, derivative receivables, loans, consumer financing receivables, acceptance
receivables, investments in shares and commitments and contingencies with credit risk and earning assets from sharia activities.
Commitments and contingencies with credit 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, committed unused loan facilities and risk sharing.
In accordance with Bank Indonesia BI regulations, the Group classifies earning assets into one of five categories and non earning assets into one of four categories. Performing
assets are categorised as “Current” and “Special Mention”, while non-performing assets are categorised into three categories: “Sub-Standard”, “Doubtful” and “Loss”. Marketable
securities classified as “Current”, “Substandard” and “Loss”.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 524 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued v. Allowance for impairment losses of financial assets continued
d Impairment of financial assetsearning assets prior to implementation of SFAS 55 Revised 2006 continued
Mandiri Tunas Finance, a Subsidiary, provides an allowance for impairment losses based on an assessment of the collectibility of outstanding receivables with reference to historical
loss experience or when there is objective evidence that the outstanding receivables will probably not be collected. Doubtful accounts are written off when they are overdue for more
than 180 days or determined to be not collectible. Recoveries from written off receivables are recognised as other operational income other than interests.
The classification of earning assets and the minimum amount of allowance for impairment losses on earning assets and commitments and contingencies with credit risk is calculated
based on Bank Indonesia Regulation PBI No. 72PBI2005 dated 20 January 2005 regarding Asset Quality Rating for Commercial Banks, as last amended by PBI No.
112PBI2009 dated 29 January 2009. 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 financial performance, business prospects and ability to repay.
For Bank Syariah Mandiri, the classification of earning assets is determined based on PBI No. 821PBI2006 dated 5 October 2006 regarding Earning Assets Quality of Commercial
Banks Conducting Business Based on Sharia Principles as several articles has been amended by PBI No. 99PBI2007 dated 18 June 2007 and the latest amendment with PBI
No. 1024PBI2008 dated 16 October 2008.
The minimum allowance amounts in accordance with the Bank Indonesia Regulation are as follows:
Percentage of minimum allowance Current
1 Special Mention
5 Substandard
15 Doubtful
50 Loss
100 The above percentages are applied to earning assets and commitments and contingencies
less the collateral value, except for earning assets and commitments and contingencies categories as Current, where the rates are applied directly to the outstanding balances.
No provision should be provided for earning assets in Certificates of Bank Indonesia and Government Bonds and for earning assets which are guaranteed with cash collateral such
as current accounts, time deposits, savings, guarantee deposits, gold, Certificates of Bank Indonesia or Government Debenture Debt, Indonesia Government Guarantees in
accordance with the applicable regulations, standby letters of credit from prime bank which are issued in accordance with Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce Publication No. 600 UCP 600 and International Standard Banking Practices ISBP.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 525 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued v. Allowance for impairment losses of financial assets continued
d Impairment of financial assetsearning assets prior to implementation of SFAS 55 Revised 2006 continued
For marketable securities, in accordance with Bank Indonesia Regulation No. 72PBI2005 dated 20 January 2005 on “Asset Quality Ratings for Commercial Banks”, the minimum
allowance are as follows: Percentage of minimum allowance
Current 1
Substandard 15
Loss 100
The estimated loss on commitments and contingencies with credit risk is presented in the liabilities section of the consolidated balance sheets.
Prior to 1 January 2010, the outstanding balances of earning assets classified as loss are written off against the respective allowance for impairment losses when the Group’s
management believes that the earning assets are uncollectible. Recoveries of earning assets previously written off are recorded as an addition to the allowance for impairment
losses during the year. If the recovery exceeds the principal amount, the excess will be recognised as interest income.
Based on PAPI Revised 2008, Subsidiary that engaged in Sharia Banking uses the Accounting Guidelines for Indonesian Sharia Banking “PAPSI”. Therefore, as at and for
the years ended 31 December 2010, 2009 and 2008, the collectibility and allowance for impairment losses of earning assets with Sharia is still determined by those PBI.
vi.Determination of fair value
The fair value of financial instruments traded in active markets, such as marketable securities and Government Bonds, is determined based on quoted market prices at the balance sheet
date from credible sources such quoted market prices from Bloomberg, Reuters or broker’s quoted price. Investments in mutual fund units are stated at market value, in accordance with
the net value of assets of the mutual funds at the balance sheet date.
A financial instrument is regarded as quoted in an active market, if quoted prices are readily and regularly available from an exchange, dealer, broker and those prices represent actual and
regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when
there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.
For marketable securities with no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market value of another instrument which substantially
have the same characteristic or calculated based on the expected cash flows of the underlying net asset base of the marketable securities.
For Government Bonds with no quoted market prices, a reasonable estimate of the fair value is calculated based on the expected cash flows using next-repricing method approach with
deflator adjustment.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT 31 DECEMBER 2010, 2009 AND 2008
Expressed in millions of Rupiah, unless otherwise stated
Appendix 526 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b. Changes in accounting policies in current year continued vii.Transition rules of implementation SFAS 50 Revised 2006 and SFAS 55 Revised 2006
Transitional Provisions Upon First Time Implementation of SFAS 50 Revised 2006 and SFAS 55 Revised 2006 is performed based on “Buletin Teknis” No. 4 issued by the Indonesian
Institute of Accountant, provides additional guidances below:
Effective Interest Rate The effective interest rate for financial instruments measured at amortised cost that were
acquired prior to and still have a balance remaining as at 1 January 2010 is calculated by referring to the future cash flows that will be generated from the time SFAS 55 Revised 2006
is first implemented up to the maturity of the financial instruments.
Derecognition Financial instruments that have been derecognised prior to 1 January 2010 should not be
reassessed subsequently to determine whether they would meet the derecognition criteria under SFAS 55 Revised 2006.
Compound Financial Instruments Compound financial instruments that have existed as at 1 January 2010 should be bifurcated
into debt and equity components in accordance with paragraph 11 of SFAS 50 Revised 2006 requirements. The bifurcation should be based on the nature, condition and requirements
relating to those financial instruments as at 1 January 2010.
Classification of Financial Instruments as Debt or Equity As at 1 January 2010, Bank Mandiri classified its financial instruments as a debt or equity
instrument in accordance with the requirements in paragraph 11 of SFAS 50 Revised 2006.
Impairment of Financial Instruments As at 1 January 2010, Bank Mandiri determined any possible impairment of financial
instruments based on conditions existing at that date. Any difference between this impairment and the impairment calculated based on previous applicable accounting principles is
recognised in retained earnings as at 1 January 2010.
The impact of the initial implementation of SFAS 50 Revised 2006 and SFAS 55 Revised 2006 is disclosed in Note 49.