SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 39

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G. Allowance for impairment losses of financial assets

a Financial assets carried at amortised cost The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset a “loss event” and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Group uses to determine that there is objective evidence of impairment loss include: 1. Significant financial difficulty of the issuer or obligor; 2. A breach of contract, such as a default or delinquency in interest or principal payments; 3. The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; 4. There is a probability that the borrower will enter bankruptcy or other financial reorganisation; 5. The disappearance of an active market for that financial asset because of financial difficulties; or 6. Observable data indicating that there is a measurable decrease in the estimation. The Group has determined specific objective evidence of an impairment loss for loans including: 1. Loans classified as Sub-standard, Doubtful and Loss non-performing loans in accordance with Bank Indonesia Regulation No. 72PBI2005 dated January 20, 2005 regarding Asset Quality Rating for Commercial Banks, as amended by Bank Indonesia Regulation No. 112PBI2009 dated January 29, 2009. Since October 24, 2012, Group follows Bank Indonesia Regulation No. 1415PBI2012 regarding Asset Quality Rating for Commercial Banks and Circular Letter of Bank Indonesia No. 1528DPNP dated July 31, 2013 regarding Asset Quality Rating for Commercial Banks. 2. All restructured loans. The Group initially assesses whether objective evidence of impairment for financial asset exists as described above. The individual assessment is performed on the individually significant impaired financial asset, using discounted cash flows method. The insignificant impaired financial assets and non-impaired financial assets are included in group of financial asset with similar credit risk characteristics and collectively assessed. If the Group assesses that there is no objective evidence of impairment for financial asset assessed individually, both for significant and insignificant amount, hence the account of financial asset will be included in a group of financial asset with similar credit risk characteristics and collectively assesses them for impairment. Financial assets that are individually assessed but non-impaired, those financial assets are still classified as financial assets that are assessed individually. Tough the Group provides allowance for impairment losses based on probability of default for each segment that are generated by evaluating impairment of loans collectively. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 40

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