PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
130
56. RISK MANAGEMENT continued Market and Liquidity Risk continued
a. Liquidity Risk Management continued Liquidity risk is also measured by using several indicatorsratios of liquidity risk which is known as
liquidity red flags. Liquidity red flags consist of primary reserves, secondary reserves, loans to deposits ratio, concentration of fund sources, overnight inter-bank borrowings, and Maximum
Cumulative Outflow MCO. In order to project the Bank’s excessunder liquidity by including business development and external factors, the Bank uses Liquidity Gap methodology.
Liquidity projection measurement is performed both in normal condition and in unusual and crisis condition, which is implemented in scenario analysis and stress testing.
Monitoring and controlling over liquidity risk is performed by establishing liquidity risk limits, which are liquidity risk limits and MCO limits on liquidity gap. Breach over the liquidity risk limit is managed with
mitigation and risk strategic control through funding strategy and asset restructuring strategy. In extreme and unusual condition, the Bank establish the contingency plan.
Primary reserve consists of the Minimum Reserve Requirement GWM and Cash. Bank Indonesia’s Regulations require that the Bank maintains a daily reserve requirement in the form of a minimum
reserve requirement to Bank Indonesia in a minimum of 11 of third party funds excluding loans from other banks, and a minimum reserve of 3 out of foreign currency third party funds including
loans from other banks. The Bank maintains a liquidity position by keeping the liquid assets which can cover the withdrawal of
customer’s deposits or disbursement of loans. Liquidity assets owned by the Bank consist of Certificates of Bank Indonesia, placement with other banks and available for sale marketable
securities. As of December 31, 2005, the Bank had a secondary reserve requirement in the form of SBIFASBI, and placement with other banks and marketable securities AFS and Trading amounting
to Rp30,381,678, or equivalent to 11.95 of the total assets of Rp254,289,279.
b. Interest Rate Risk Management Bank Mandiri’s assets which are sensitive to interest rates are dominated by Government
recapitalization bonds and loans, and the liabilities which are sensitive to interest rates are dominated by third party funds current accounts, time deposits and savings.
The primary method in managing interest rate risk is repricing gap analysis and duration gap. The Bank has performed simulation to measure the sensitivity of revenue and equity from the interest rate
movements. With a parallel shift assumption decrease amounting to 100 basis points, looking 12 months ahead it shows a NII increase amounting to 1.15 and equity amounting to 2.41. Whilst to
measure the effect of interest rate volatility on the Bank’s revenue and equity, the Bank uses Earning at Risk EaR and Capital at Risk CaR. As of December 31, 2005, EaR and CaR were 3.20 and
0.59, respectively. For the early warning of interest rate risk events, the Bank has monitoring tools called Interest Rate
Risk Red Flags consisting of interest risk indicators, such as: Repricing Gap, Duration Gap, NII Sensivitity and Economic Value of Equity Sensitivity, EaR and CaR.
For the interest rate risk management, the Bank established limits on interest rate risk indicators. If there is a limits breach, the risk will be mitigated through Assets and Liabilities restructuring strategies
or hedging strategies.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
131
56. RISK MANAGEMENT continued
