PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, April 30, 2003 and December 31, 2002 Expressed in millions of Rupiah, unless otherwise stated
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49. RISK MANAGEMENT continued
Market Risk continued b. Interest Rate Risk
Interest rate risk is the risk of declining net interest income or reduction in the Bank’s capital due to interest rate fluctuations.
The primary means of measuring the exposure to fluctuations in interest rates is static repricing gap analysis, which provides a static view of the balance sheet positions on certain dates based
on repricing time characteristics and remaining maturities. An interest rate gap report is prepared by scheduling all assets and liabilities according to stated or anticipated re-pricing dates, or
maturity dates determined through the agreements contracts, or assumption of a date when changes are anticipated to occur. To the extent that there is a difference in the amount of assets
and liabilities in that schedule, for one particular period and cumulatively through the whole rescheduling period, the Bank is exposed to the risk of change in profit margins on the difference
of assets and liabilities values due to possibility of fluctuation of interest rates.
In addition to the static gap analyis, the Bank also prepares a dynamic repricing gap analysis which represents a similar analysis of future balance sheet projections by taking into account
changes in balance sheet positions based on the related business unit’s budget projections.
To measure the impact of changing interest rates on the market value of bank’s capital, the Bank uses duration gap analysis.
Through gap analysis and prediction of interest rate fluctuations, the Bank is able forecast the effects of changes in market interest rates on its future interest income, and proactively manage its
assets and liabilities position.The repricing gap position will be adjusted in accordance with the Bank’s prediction on the movements of interest rates, using the repricing gap limits that have been
determined by the Risk and Capital Committee.
c. Trading Risk In monitoring the Treasury trading activities, the Bank produces daily, weekly and monthly value at
risk VaR reports for all the financial products traded by the Bank. The VaR reports are intended to provide measures of the risk of losses arising from potential adverse movements in interest
rates, foreign exchange rates and other volatilities which could affect values of financial instruments. To manage abnormal market behavior, the Bank has implemented stress testing
methodologies to quantify financial risk arising from low probability and abnormal market movements on a quarterly basis.
d. Foreign Exchange Risk The Bank has centralized the operational management of the foreign exchange position within the
Treasury Group, which is required to follow the policies and procedures approved by the Risk and Capital Committee, and subject to the overall net open position limit set by Bank Indonesia
regulations. The Bank complies with the Bank Indonesia requirement that the consolidated domestic and overseas net open position in all foreign currencies be no more than 20 of the
Tier I and Tier II capital. The Bank has also set an internal Net Open Position NOP limit of 15 of such capital. As of December 31, 2003, April 30, 2003 and December 31, 2002 the net open
position ratio was 2.85, 2.67 and 5.64, respectively, of the total Tier I and II capital. The internal policy on NOP limit has been determined by Risk and Capital Committee RCC taking into
account the volatility of foreign exchange movements.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, April 30, 2003 and December 31, 2002 Expressed in millions of Rupiah, unless otherwise stated
145
49. RISK MANAGEMENT continued
