Government Bonds SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2010, 2009 AND 2008 Expressed in millions of Rupiah, unless otherwise stated Appendix 533 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

n. Loans continued

Loans are classified as financial assets in loans and receivables. Refer to Note 2b for the accounting policy of loans and receivables. Prior to 1 January 2010, loans are stated at their outstanding balance, net of allowance for possible losses. 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 impairment 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. Prior to 1 January 2010, for Bank Indonesia reporting purposes, 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. Loans purchased from IBRA are classified as financial assets in loans and receivables. Refer to Note 2b for the accounting policy of loans and receivables. 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. Prior to 1 January 2010, 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. The losses on loan restructurings was recorded as a deduction to loan and charge to consolidated statement of income. Since 1 January 2010, the potential loss arising from credit restructuring is accounted for in the allowance for impairment losses.