SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES

PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 156

57. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES continued

As at December 31, 2004, the various ratios under the additional prudential supervision requirements were as follows: Bank Indonesia’s Ratios Actual Minimum Requirement a. Secondary reserve 9.95 ≥ 12 b. Cost of funds to total assets ratio 4.00 ≤ 7.5 c. Core earnings to total assets ratio 2.26 ≥ 1.5 d. Corporate credit to total credit ratio 47.82 50 by 2004 i. Legal Matters In the ordinary course of business, the Bank is a defendant in various litigation actions and claims with respect to matters such as contractual compliance, government regulations and taxes. Although there can be no assurances, Bank Mandiri believes that based on information currently available, the ultimate resolution of current legal proceedings will not likely have a material adverse effect on the results of its operations, financial position or liquidity. The Bank’s total potential exposure arising from outstanding lawsuits as of December 31, 2004 and 2003, and April 30, 2003 amounts to Rp2,822,761, Rp2,014,659 and Rp2,185,124, respectively. As of December 31, 2004 and 2003, and April 30, 2003, Bank Mandiri has provided a provision included in “Other Liabilities” for a number of lawsuits involving Bank Mandiri amounting to Rp751,707, Rp936,473 and Rp1,428,756, respectively Note 28. Management believes that the provision is adequate to cover possible losses arising from pending litigation, or litigation cases currently in progress. j. Contingent Liability to Repurchase Government Recapitalization Bonds Sold to Deutsche Bank In October 2004, the Bank has sold outright Government Recapitalization Bonds Series FR0019 with a nominal value of Rp1,000,000. Following this outright sale, Bank Mandiri entered into a callable zero coupon deposit agreement the “Agreement” with Deutsche Bank AG, Jakarta Branch whereby the Bank placed a portion of the proceeds as a zero coupon deposit with Deutsche Bank AG, Jakarta Branch with the following terms and conditions: Deposit amount : Rp359,666 Effective date : July 29, 2004 Termination date : June 15, 2013 Repayment amount at termination date : Rp1,000,000 Early termination option : Deutsche Bank AG, Jakarta Branch has an early termination option which could be exercised annually at various dates as specified in the Agreement. Trigger events : The Government of the Republic of Indonesia, as an issuer of Government Recapitalization Bonds Series FR0019, taking action under the following conditions: • Default or late payment of interest • Reduction of interest payment • Reduction of principal payment • Changes of payment priority such as becoming a subordinated debt • Changes in payment currency Upon occurrence of a trigger event, Deutsche Bank AG, Jakarta Branch may opt to deliver to Bank Mandiri, Government Recapitalization Bonds Series FR0019 with an outstanding principal balance equal to the value of the deposit at the delivery date. PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 157

58. ECONOMIC CONDITIONS

The operations of the Bank have been affected, and may continue to be affected for the foreseeable future by the economic conditions in Indonesia. Despite the recent improvement in the key economic indicators, Indonesian banks have engaged in limited lending activities. Any worsening of the economic conditions, including a significant depreciation of the Rupiah or increase in interest rates, could adversely affect the ability of the Bank’s customers including borrowers and other contractual counterparties to fulfill their obligations when they mature, and consequently negatively impact the Bank’s profitability and its capital adequacy. Economic improvements and sustained recovery are dependent upon several factors such as the fiscal and monetary action being undertaken by the Government and others, actions that are beyond the control of the Bank. The accompanying consolidated financial statements include the effects of the adverse economic conditions to the extent they can be determined and estimated. It is not possible to determine the future effects a continuation of the adverse economic conditions may have on Bank Mandiri’s and its Subsidiaries’ liquidity, earnings and realization of their earning assets, including the effects from their customers, creditors, shareholders and other stakeholders. The ultimate effect of these uncertainties on the stated amounts of assets and liabilities at the balance sheet date cannot presently be determined. Related effects will be reported in the consolidated financial statements as they become known and can be estimated. 59. GOVERNMENT GUARANTEE OF OBLIGATIONS OF LOCALLY INCORPORATED BANKS Based on the Decree of the Minister of Finance of Republic Indonesia No. 26KMK.0171998 dated January 28, 1998, which was replaced by the Decree of the Minister of Finance No. 179KMK.0172000 dated May 26, 2000, the Government of the Republic of Indonesia is guaranteeing certain obligations of locally incorporated banks namely demand deposits, savings, time deposits and deposits on call, bonds, marketable securities, inter-bank placements, fund borrowings, currency swaps and contingent liabilities such as bank guarantees, standby letters of credit and other liabilities, excluding subordinated loans and amounts due to directors, commissioners and related parties. Based on Joint Decrees of the Directors of Bank Indonesia and Head of IBRA No. 3246KEPDIR and No. 181BPPN0599 dated May 14, 1999, the guarantee period is automatically extended, unless otherwise i.e. that within six months from the maturity of this guarantee, IBRA decides not to extend its maturity. In 2001, the Joint Decrees of the Directors of Bank Indonesia and the Head of IBRA were replaced by BI regulation No. 37PBI2001 and the Decree of the Head of IBRA No. 1035BPPN0401. The Head of IBRA issued Decree No. SK-1036BPPN0401 in 2001 that provides for specific operational guidance in respect of the Government of the Republic of Indonesia’s Guarantee of obligations of locally incorporated banks. The Government charges a premium in respect of its guarantee program in accordance with prevailing regulations Note 44. Based on Presidential Decree No. 152004 dated February 27, 2004 in relation to the termination of IBRA’s duties and its dissolution, and Decree of the Minister of Finance No. 84KMK.062004 dated February 27, 2004, the Government of the Republic of Indonesia established Unit Pelaksana Penjaminan Pemerintah, a new institution replacing IBRA, to continue the Government guarantee program for obligations of locally incorporated banks.