PT BANK MANDIRI PERSERO AND SUBSIDIARIES
Notes to the Consolidated Financial Statements Continued December 31, 2002 and 2001
Expressed in millions of Rupiah, unless otherwise stated
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121
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49. RISK MANAGEMENT Continued
Market Risk Continued b. Interest Rate Risk Continued
The Bank seeks to maintain interest rates paid on deposits at or below the maximum rate set for which the Government Guarantee Program is applicable. This Government Guarantee Program
rate is announced monthly by Bank Indonesia and is the maximum rate that may be paid on deposits guaranteed by Bank Indonesia under the Government Guarantee Program. Otherwise,
the rates the Bank offers generally vary according to market and competitive conditions, the maturity, size and currency of the deposit.
The Bank determines interest rates for the lending products using a base lending rate plus a risk premium. The base lending rate is reviewed at least monthly by the Risk and Capital Committee.
The base lending rate consists of the cost of funds including reserve requirements and fees for the Government Guarantee Program and overhead costs. The risk premium applied to a
particular loan is dependent on a number of factors including the creditworthiness of the borrower, the collateral provided to secure the loan and the proposed use of the loan.
As the interest rates on the Government recapitalization bonds, which currently comprise the majority of the assets, are beyond its control, the Bank is limited in its ability to adjust weighted
average interest rates on its assets. In order to gain more control over the return rates on assets, the Bank is seeking to diversify its fixed rate Government recapitalization bonds portfolio
to other higher yielding assets. The primary means of measuring the exposure to fluctuations in interest rates is gap analysis,
which provides a static view of the maturity and re-pricing characteristics of balance sheet positions. An interest rate gap report is prepared by scheduling all assets and liabilities
according to stated or anticipated re-pricing dates, or maturity dates. To the extent that there is a difference in the amount of assets and liabilities maturing or being re-priced at a particular date,
the Bank is exposed to the risk that the margins on new or re-priced assets and liabilities may change.
Beside the static gap analyis, the Bank also prepares dynamic gap analysis which takes into account various workplans that could influence future balance sheet position. By considering
repricing gap position the net total assets and liabilities which are re-priced on certain dates and predicting interest rate fluctuations, the Bank may estimate the effects of the future changes
in net interest income.
c. Trading Risk In monitoring the Treasury trading activities, the Bank produces daily, weekly and monthly value
at risk reports for all the financial products traded by the Bank. The value at risk 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.
PT BANK MANDIRI PERSERO AND SUBSIDIARIES
Notes to the Consolidated Financial Statements Continued December 31, 2002 and 2001
Expressed in millions of Rupiah, unless otherwise stated
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122
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49. RISK MANAGEMENT Continued
