risK ManaGEMEnT iMPLEMEnTaTion PrinCiPLEs

PT Bank Mandiri Persero Tbk.

C. risK oVErViEw

Bank Mandiri conducted an integrated and bankwide evaluation of its risks. Uncertainties Description Mitigation global crisis and economic growth slowdown The European sovereign debt crisis has afected in economic growth slowdown and money market volatility. The weakening economic in china and india has threathened commodity demand. • Conducted a comprehensive and periodical stress testing, and developed contingency plan. • Operated Business Command Center as an integrated crisis management center. • Closely monitoring of industry sectors with potential impact from crisis and recession, for example mining, commodity and textile. loan concentration over exposure on individual or entity, related group of entity, geographical region, industry sectors, speciic products and others, with similar systematic criteria, will create huge loss potential. • Application of Portfolio Guideline PG tools on every stage of credit risk management. • Application of exposure limitation through limit policy industry limit and debtor limit. Amendment on government and regulators regulations Regulations amendment from regulators that may increase the Bank’s exposure level. Adjustment on the Bank portfolio and risk exposure, thereby to reduce the impact from policy amendment by the governmentregulator, among others through Bank portfolio diversiication, increase capital, and other. Business process complexity and wider network coverage in line with aggressive and non- organic business growth, Bank Mandiri has a variety and complex business range as well as wider network encompassing overseas oices and subsidiary. • Application of Enterprise Risk Management in risk management implementation. • Implementation of consolidated risk management with subsidiaries that engaged in inance, in stages and sustainably increased competition in banking industry improving economy in the country give impact to banking industry competition, with one example of interest rate pricing. • Strategy implementation as market leader in funding pricing. • Implementation of risk based pricing, which is a various loan interest rates to the customers based on its credit risk. internal external fraud A deliberate action of violation or breach done to deceive, cheat, or manipulate the bank, customers, or other party that occurred in the bank andor the use of bank facilities that causing the bank, customers, or other party sufers losses and or perpetrators of fraud to obtain inancial gain, either directly or indirectly. • Risk awarenenss improvement at work units was conducted among others through “letter to ceo”, “no surprise” program socialization to Work units, the ceo direction presentation through video to all work units, culture program, applicationsystem to detectprevent fraud ATM, credit card, operational risk identiication and detect a possible fraud with Risk control Assessment oRM Tools, other tools and information as well as tough sanctions to the perpetrators. • ORM implementation that monitored periodically in the Operational Risk Management Forum conducted in Regional oice and Head oice. • Due diligence process implementation and risk management toward customers refers to Bank indonesia regulation and based on the risk-based approach principles. The following are risk uncertainties and mitigation activities carried out by Bank Mandiri in 2012:

d. EnTErPrisE risK ManaGEMEnT ErM

ERM is integrated risk management connecting strategic planning, risk appetite, business execution, risk assessment and performance evaluation; to optimize business growth based on risk-adjusted return as well as to maximize shareholder value. Bank Mandiri implements ERM and at the same time applies the Basel II Accord in stages based on Bank Indonesia’s regulations. To comply with Bank Indonesia’s regulations, in Circular Letter No.136DPNP dated 18 February 2011 concerning The Calculation of Credit Risk weighted Assets ATMR with the Standardized Approach, Bank Mandiri completed the calculation of capital adequacy utilizing the Standardized Approach. ERM implementation coverage is done with a two-prong approach, namely capital risk management and operational activity risk management; thereby expecting to achieve risk management that is embedded within business management. SUPPORTINg UNITS REvIEw ERM also provides a common language to all work units, thereby minimizing silo’s between work units and increasing relationships and synergies between risk management functions with internal controls; including all subsidiaries. Further, ERM has the role to increase transparancy and accountability in the management of business and risk. CAPITAL RISK MANAgEMENT Bank Mandiri implements Capital Risk Management covering the Capital Resource Diversiication policy that is in line with the long-term strategic plan, and an eicient capital allocation policy on business segments with optimum risk-return proile includes placement on subsidiaries. The objective is to meet stakeholders’ expectations including that of investors and regulators. Bank Mandiri ensures it maintains adequate capital to cover credit risk, market risk and operational risk, based on applicable regulations regulatory capital as well as internal needs economic capital. on calculating capital adequacy on credit risk, market risk and operational risk, the Bank refers to Bank indonesia’s regulations Basel ii. The Bank uses Basel ii’s standardized Approach for credit risk, and has begun a simulation approach in stages based on internal Ratings. The Basel ii standardized Approach of credit risk refers to Bi circular letter no. 136DPnP and this does not unclude calculating external debtor ratings; however the Bank has done the simulation on the use of concerned external ratings. The Bank applies the standardized Model for market risk; meanwhile the Bank has used value at Risk internally as an internal model. For operational risk, the Bank uses Basel ii Basic indicator Approach and has done the simulation of the standardized Approach. The Weighted Assets ATMR calculation and capital adequacy as of December 2012 is stated on the right table: RISK MANAGEMENT PT Bank Mandiri Persero Tbk. Rp.billion 2012 Core Capital Paid-in Capital 11,667 Disclosed Reserves 44,369 Deduction Factor of Tier 1 Capital 1,597 Total Core Capital 54,439 Tier 2 Capital 7,509 Total Capital 61,948 Weighted Assets ATMR Credit Risk Standardized Approach 350,761 Market Risk Standardized Model 1,044 Operational Risk α 15 Basic Indicator Approach 48,385 Total ATMR 400,190 CAR Core Capital 13.60 CAR Total Capital 15.48 Based on BI regulations, a minimum 5 Core Capital from ATMR and a minimum 8 Total Capital from ATMR. Based on the calculation simulation of capital expense on operational risk with the Standardized Approach, the ATMR was posted at Rp47.3 trillion compared with Basel II Basic Indicator Approach amounting to Rp48.4 trillion. Capital expense for credit risk with Standardized Approach as of December 2012 has provided assets composition based on risk weight as stated on the right pie chart: The Bank applies Advance IRBA Internal Rating Based Approach in calculating the credit capital expense simulation. The Bank’s simulation with the Advanced IRBA approach could lead to a higher capital adequacy of around 1 compared with the current approach. Composition Asset Base On Risk weight Credit Risk SA - December 2012 1 1 1 14 11 41 27 4 Risk weight 0 Risk weight 20 Risk weight 35 Risk weight 40 Risk weight 50 Risk weight 75 Risk weight 100 Risk weight 150