PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5138 56. RISK MANAGEMENT continued
Market and Liquidity Risk continued
a. Liquidity Risk Management continued
The liquidity level of the Bank is measured through the Minimum Reserve Requirement as regulated by Bank Indonesia in Bank Indonesia regulation No. 1025PBI2008 dated 23 October 2008
concerning amendment of PBI No. 1019PBI2008 regarding Statutory Reserves at Bank Indonesia for commercial Banks in Rupiah and foreign currencies. In accordance with the regulation, the
minimum ratio of statutory reserves which Bank shall maintain is 7.50 from Third Party Funds TPF in Rupiah which consists of Primary Statutory Reserve and Secondary Statutory Reserves
and 1.00 from TPF in foreign currency. Primary statutory reserves is 5.00 of TPF in Rupiah was effective as at 24 October 2008 and Secondary Statutory reserves is 2.50 of TPF in Rupiah was
effective as at 24 October 2009.
As at 31 December 2009, the Bank’s primary and secondary reserve for Rupiah is 5.00 and 42.29, respectively and 1.32 for secondary reserve for foreign currency.
The Bank’s potential liquidity risk is assessed and monitored through a liquidity gap analysis, which is a projection of the future. Based on the Bank’s 2009 plan Rencana Kerja dan Anggaran
Perusahaan, or RKAP, the Bank’s liquidity is projected to be in a surplus position over the next 12 months. Each funding deficit projection is monitored through Maximum Cumulative Outflow MCO
limit.
The Bank’s ability to handle differing liquidity pressures is assessed by running a range of liquidity scenarios that covers both normal and unusual situations. These also include scenarios for extreme
or crisis conditions stress testing, which then generates contingency plans.
According to the contingency funding plan, the Bank may source its funding needs in bank specific crisis by borrowing ex: repurchase agreement, bilateral funding, collateralised facility agreement,
foreign exchange swap, selling and marketable securities such as Government Debenture Debt and through pricing strategy for third party funding. In general market crisis, bank may source its
funding needs from its secondary reserve which has been build previously or through the liquidity facility from Bank Indonesia.
b. Interest Rate Risk Management
Interest Rate Risk represents a risk that influences the increasedecrease of financial value of the Bank’s assets and liabilities Banking Book due to changes in interest rate that will effect on Bank’s
profit and capital. Interest rate risk is mostly due to the difference in time repricing between Rate Sensitive Assets RSA and Rate Sensitive Liabilities RSL. RSA are dominated with government
bond and loans, and RSL are dominated with Third Party Fund demand deposits, savings deposits and time deposits.
The Bank manages its interest rate risk through the use of repricing gap analysis, duration gap analysis and simulation. To describe the amount of the interest rate risk exposure, the Bank uses
re-pricing gap approach, whilst to measure the revenue sensitivity NII Sensitivity and Economic Value of Equity EVE in effect of interest rate change, the Bank performs simulation with interest
rate shock increasedecrease scenario.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5139 56. RISK MANAGEMENT continued
Market and Liquidity Risk continued
b. Interest Rate Risk Management continued
The Bank measures NII Net Interest Income and economic value of equity by assuming a gradual parallel shift ramp up and down in the term structure of interest rate amounting to 100 basis points
bps. The sensitivity analysis result shows that a gradual parallel shift in the term structure of interest rate by 100 bps Rupiah and Foreign Currency will potentially decreased the next 12 months
targeted NII amounting to 0.72 unaudited and decreased the EVE by 0.77 unaudited from Equity. In addition to sensitivity analysis, the Bank also uses a statistical approach to assess the
impact of interest rate volatility on earning Earning at Risk, EaR and equity Capital at Risk, CaR. As at 31 December 2009, the Banks records 0.50 unaudited and 2.31 unaudited EaR and
CaR of its equity.
The Bank also regularly conducts sensitivity analyses on extreme scenarios stress testing to see the impact of significant changes in interest rate on the Bank’s NII and equity value.
The Bank applies a set of monitoring tools called Interest Rate Risk Red Flags, to give an early warning indicator of interest rate risk, which consists of Repricing Gap, NII Sensitivity and Economic
Value of Equity Sensitivity, Earning at Risk and Capital at Risk. The Bank monitors and manages its interest rate risk by establishing limits on interest rate risk indicators. Breach of the limits will be
mitigated through assets-liabilities restructuring or hedging strategies. To certain degree, the Bank uses derivative instruments to hedge its exposure to interest rate change, mostly in the form of
interest rate swaps and forward rate agreements.
c. Pricing Management
