Financial instruments A. Financial assets

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 37

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued

B. Financial liabilities continued

a Financial liabilities at fair value through profit or loss continued Gains and losses arising from changes in fair value of financial liabilities classified held for trading are included in the consolidated statement of profit or loss and other comprehensive income and are reported as “Unrealised gainslosses from increasedecrease in fair value of financial instruments”. Interest expenses on financial liabilities held for trading are included in “Interest expenses”. If the Group designated certain debt securities upon initial recognition as of fair value through profit or loss fair value option, then this designation cannot be changed subsequently. According to SFAS No. 55, the fair value option is applied on the debt securities consists of debt host and embedded derivatives that must otherwise be separated. Fair value changes relating to financial liabilities designated at fair value through profit or loss are recognised in “Gainslosses from changes in fair value of financial instruments”. b Financial liabilities at amortised cost Financial liabilities at amortised cost are initially recognised at fair value less transaction costs. After initial recognition, Group measures all financial liabilities at amortised cost using effective interest rates method. Effective interest rate amortisation is recognised as “Interest expense”.

C. Derecognition

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred that is, if substantially all the risks and rewards have not been transferred, the Group tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished. Collateral that is submitted by the Group under the agreement of securities sold under repurchase agreements and securities lending and borrowing transactions is not derecognised because the Group substantially has all the risks and benefits of the collateral, based on the requirement that the repurchase price has been determined at the beginning, so that the criteria for derecognition are not met. Write-offs In the case of financial assets’ write-off is a continuation of the financial assets’ settlement by taking over collaterals, the amount written off is approximately equal to the difference between the fair value of repossessed assets after taking into account the financial assets’ cost of sales and carrying amount. Financial assets can be written off when the allowance for impairment losses have been established 100. Write-off done overall to the financial assets’ carrying amount by debiting the allowance for impairment losses. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 38

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued