PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5139 56. RISK MANAGEMENT continued
Market and Liquidity Risk continued
b. Interest Rate Risk Management continued
The Bank measures NII Net Interest Income and economic value of equity by assuming a gradual parallel shift ramp up and down in the term structure of interest rate amounting to 100 basis points
bps. The sensitivity analysis result shows that a gradual parallel shift in the term structure of interest rate by 100 bps Rupiah and Foreign Currency will potentially decreased the next 12 months
targeted NII amounting to 0.72 unaudited and decreased the EVE by 0.77 unaudited from Equity. In addition to sensitivity analysis, the Bank also uses a statistical approach to assess the
impact of interest rate volatility on earning Earning at Risk, EaR and equity Capital at Risk, CaR. As at 31 December 2009, the Banks records 0.50 unaudited and 2.31 unaudited EaR and
CaR of its equity.
The Bank also regularly conducts sensitivity analyses on extreme scenarios stress testing to see the impact of significant changes in interest rate on the Bank’s NII and equity value.
The Bank applies a set of monitoring tools called Interest Rate Risk Red Flags, to give an early warning indicator of interest rate risk, which consists of Repricing Gap, NII Sensitivity and Economic
Value of Equity Sensitivity, Earning at Risk and Capital at Risk. The Bank monitors and manages its interest rate risk by establishing limits on interest rate risk indicators. Breach of the limits will be
mitigated through assets-liabilities restructuring or hedging strategies. To certain degree, the Bank uses derivative instruments to hedge its exposure to interest rate change, mostly in the form of
interest rate swaps and forward rate agreements.
c. Pricing Management
Pricing Management is one of the performed strategies in order to support the Bank in taking control of the market share revenue by maximising Net Interest Margin NIM especially through third party
fund and loans pricing.
In determining the third party fund pricing, the Bank considers internal and external factors. Internal factors such as: funding cost, structure and funding target. External factors such as: market liquidity,
market interest rate and guarantee interest rate. By considering the internal and external factors, the Bank implemented the aggressive or defensive strategy.
To determine loans pricing, the Bank established the interest rate based on risk risk based pricing. Loan interest rate structured consists of Cost of Funds, Overhead Cost, Cost of Allocated Capital
and Risk Premium. The Bank established Required Yield which is the Bank’s minimum rate of return.
d. Market Risk Management
The Bank performes market risk management by monitoring the trading activities performed by Treasury. As guidelines, the Bank has established trading risk limits in the form of Value at Risk Limit
VaR Limit, dealer nominal limits and dealer loss limit. The monitoring results were stated in the Trading Risk Profile report periodically such as daily, weekly and monthly basis. Different with other
reports, the Monthly Report describes comprehensively the market risk management including Stress TestingScenario Analysis calculation to quantify the abnormal market movement. In addition, the
reports also states back testing result to assess the VaR measurement’s effectiveness and the methodology’s accuracy.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5140 56. RISK MANAGEMENT continued
Market and Liquidity Risk continued
d. Market Risk Management continued
In accordance with Bank Indonesia regulations, the Bank has considered market risk using Standard Model in allocating its capital. The minimum capital adequacy required which has
considered market risk as at 31 December 2009 was Rp127,935, therefore the CAR which has considered market risk and credit risk is 15.43 Note 51.
The Bank continuously reviews and improves the implementation of market risk management with the regulation requirements, up to date condition and best practice.
e. Foreign Exchange Risk Management
