Marketable Securities Mandiri - Investor Relations - Audited Financials 2009 12English

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 516 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued m. Loans Loans represent provision of cash or cash equivalent based on agreements with borrowers, where borrowers are required to repay their debts with interest after a specified period, and matured trade finance facilities which have not been settled within 15 days. Loans are stated at their outstanding balance less an allowance for possible losses. Syndicated loans, direct financing and joint financing, and channeling loans are stated at their outstanding balances in proportion to the risks borne by the Bank and its Subsidiaries. Included in loans are financing by Bank Syariah Mandiri, a Subsidiary, in the form of sharia financing which provides funds or cash equivalents, such as: a profit sharing transactions in the form of mudharabah and musyarakah b lease transactions in the form of ijarah or lease purchase based on ijarah muntahiyah bittamlik c sale and purchase transactions in the form of murabahah and istishna d loanborrowing in the form of receivables qardh and e lease transactions in the form of ijarah for multiservice transaction based on agreement or approval between Bank Syariah Mandiri and other parties who have the responsibility to return the funds over a period of time with reward of ujroh, without reward, or profit sharing. Brief explanation for each type of sharia financing is as follows: Mudharabah is a placement of funds from lenders shahibul maal to fund managers mudharib to undertake certain business activity by using profit sharing or net revenue sharing arrangement between both parties based on the ratio nisbah which has been agreed upfront. Musyarakah is a placement of funds by fund owners to jointly place these funds in certain business activity with profit sharing scheme based on previously agreed nisbah. Loss is borne by the fund owners according to proportion in the funds. Ijarah is a leasing arrangement of goods andor services between the owner of a leased object lessor and leasee including the right to use the leased object, for the purpose of obtaining return on the leased object. Ijarah muntahiyah bittamlik is a leasing arrangement between the lessor and the lessee to obtain profit on the leased object being leased with option to transfer ownership of the leased object through purchasesale or giving hibah at certain time according to the lease agreement akad. Murabahah is a financing in the form of salepurchase transaction at cost of the goods plus agreed profit margin. Murabahah receivables are stated at amount of receivables less realisable deferred margin. Murabahah receivables are presented net of allowance for losses. Istishna is a financing in the form of salepurchase of ordered goods with certain agreed criteria and conditions with payment terms in accordance with the agreement. Qardh is a loanborrowing funds without profit wherein the borrower return the principal of the loan at lump sum or on installment over certain period. 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 517 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued m. Loans continued Loans Purchased from IBRA Bank Indonesia issued Regulation No. 47PBI2002 regarding “Prudential Principles for Credits Purchased by Banks from IBRA” dated 27 September 2002, which applies for all loans purchased from IBRA starting 1 January 2002. The difference between the outstanding loan principal and purchase price is booked as deferred income if the Bank enters into a new agreement with the borrower, and as an allowance for possible losses if the Bank does not enter into a new credit agreement with the borrower. The allowance for loan losses or deferred income can only be adjusted once the Bank has recovered the original purchase price. Income arising from the loans purchased from IBRA is recognised on a cash basis. If the Bank enters into a new credit agreement with the borrower, any receipts from a borrower are recognised as a deduction of the outstanding principal andor as interest income following the terms or conditions as set out in the new credit agreement. If the Bank does not enter into a new credit agreement with the borrower, any receipts from a borrower must be recognised firstly as a deduction of outstanding principal. The excess of receipts over the outstanding principal balance shall be recognised as interest income. Bank Indonesia allows the Bank to classify all the loans purchased from IBRA as Current for a period of one year from the date of loan booking. Thereafter, the loans are classified based on the normal loan rating guidelines from Bank Indonesia. Bank Indonesia requires banks to fully recover the purchase price of the loans within five years from the date of loan booking. Any unpaid amount after five years should be written off by the banks. Based on the letter from Bank Indonesia No. 958DPNPIDPnP dated 16 February 2007, Bank Mandiri can continue to manage ex-IBRA loans which have passed a period of 5 years after purchase, if the loans at the time reach 5-years period, are classified as current based on factors of business prospects, performance and the ability of debtors to pay as stipulated in the relevant BI regulation regarding Asset Quality. Loan Restructuring Loan restructuring may involve a modification of the terms of the loans, conversion of loans into equity or other financial instruments andor a combination of both. Losses on loan restructurings in respect of modification of the terms of the loans are recognised only if the present value of total future cash receipts specified by the new terms of the loans, including both receipts designated as interest and those designated as loan principal, are less than the carrying amount of loans before restructuring. For loan restructurings which involve a conversion of loans into equity or other financial instruments, a loss on loan restructuring is recognised only if the fair value of the equity or financial instruments received, deducted by estimated expenses to sell the equity or other financial instruments, is less than the carrying amount of loans. Overdue interest, which is capitalised to loans under new restructuring agreements, is recorded as deferred interest income and is amortised proportionately based on the amount of capitalised interest relative to the loan principal upon collection. Losses on loan restructuring are presented as part of allowance for possible losses.