Financial instruments continued G. Allowance for impairment losses of financial assets

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2011 AND 2010 Expressed in millions of Rupiah, unless otherwise stated Appendix 527 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

c. Financial instruments continued G. Allowance for impairment losses of financial assets continued

b Financial assets classified as available for sale continued 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. 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 consolidated 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. Increase in the liability relating to guarantees is reported as other operating expense in consolidated statement of income. Refer to Note 2b.iv. for changes in accounting policies in 2011. d Impairment of earning assets prior to implementation of SFAS 55 Revised 2006 on 1 January 2010 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 31 DECEMBER 2011 AND 2010 Expressed in millions of Rupiah, unless otherwise stated Appendix 528 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

c. Financial instruments continued G. Allowance for impairment losses of financial assets continued