PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated
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51. RISK MANAGEMENT continued
Credit Risk continued Corporate governance is applied through the application of the “four eyes principle”, which ensures that
decisions on loan administration are made by a minimum of two independent parties, namely the associated business unit and a risk unit. This application is expected to result in better credit decisions.
As the credit risk is raised from the initiation of loans disbursement until the loans repayment, the Bank realizes the importance of supervision and the risk control function. Control over the bank-wide risk is
through the Risk and Capital Committee.
The Bank pursues diversification in its credit portfolio among a variety of industry or economic sectors, loan types and debtors to minimize credit risk. Industry limits are determined based on the Bank’s
strategic plan, by considering the Bank’s profit optimization, regulator enforcement and risk spreading. The variance over the industry and debtors’ limit will be discussed in the Risk and Capital Committee
which will be attended by the Board of Directors and senior management to find a solution.
In accordance with the regulation established by the Bank for International Settlements in its Basel Agreement, the Bank has developed and implemented a customer risk rating model. The Bank has
currently completed the development of the model for corporate and consumer loan segments, such as corporate customer rating and consumer scoring, while it is still in the process of developing for the
commercial segment. These models were developed with the assistance of international consultants, and then improved and calibrated internally and have become one of the banking industry’s best risk
measurement methodologies. The consumer scorecard model has been implemented in the consumer loans at the appointed branches in Indonesia on an online basis in the Loan Origination
System LOS. The rating model has not been implemented on line still being operated on a stand alone basis. Further development of the models is still in progress so as to obtain more accurate
results, and better calculations of capital adequacy, price determination and performance measurement and comply with the Basel Committee on Banking Supervision of the Bank for
International Settements.
Market Risk Market risk is the risk of losses of future income on the future fair value of assets and cash flow
resulting from overall changes in market conditions, such as interest rate, foreign currency exchange, commodity prices, equity prices and other changes in market factors which affect the instruments,
especially those market risk sensitive instruments. These instruments include securities, loans, deposits, fund borrowings and derivative instruments.
Market risk consists of liquidity risk, interest rate risk, trading risk, foreign currency exchange risk and derivative instrument risk. Monitoring of the Bank’s exposure to market risk is performed by the asset
and liability management unit and the trading activities unit for the Bank’s own account and for its customers. The objective of market risk management is to avoid excessive exposure from the open
positions that potentially impact earnings and equity in excess of the limits already established by the Bank, and to manage the market value volatility inherent in financial instruments.
The exposure risk of Bank Mandiri represents a function of management of assets and liabilities activities, trading activities on the Bank’s and customer’s account, and the role of Bank Mandiri as an
agent of customers’ financial transactions. With the enactment of Bank Indonesia regulation concerning the inclusion of market risk in calculation
of the capital adequacy requirement, Bank Mandiri is now regularly calculating the minimum capital requirements to include market risk.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated
136
51. RISK MANAGEMENT continued
