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
152
56. RISK MANAGEMENT continued
Market Risk Market risk consists of interest rate risk, trading risk, foreign currency exchange risk, derivative
instrument risk and liquidity risk. In managing liquidity risk, the Bank uses an indicator which is known as liquidity red flags that consist
of several liquidity ratios such as primary reserves, secondary reserves, loans to deposits ratio, concentration of fund sources, inter-bank call money, diversification of fund sources and primary
reserves consists of minimum reserves and cash. Bank Indonesia requires banks to maintain a minimum reserve of 8 of third party funds excluding loans from other banks, and a minimum
reserve of 3 out of foreign currency third party funds including loans from other banks. The primary method in managing interest rate risk is repricing gap analysis and duration gap. In
addition, Bank Mandiri also monitors other indicators to measure interest rate risk based on statistical conditions referred to as Interest Rate Risk Red Flags.
In monitoring treasury trading activities, the Bank has established trading risk limits in the form of Value at Risk VaR and dealer limits, and supported by performing Stress Testing, and Back Testing
periodically. The Bank has centralized the operational management of the foreign exchange position within the
Treasury Group, which is required to comply with the policies and procedures approved by the Risk and Capital Committee, and also the overall net open position limit set by Bank Indonesia
regulations. The Bank has also set an internal Net Open Position NOP limit of 5 of core and supplemental capital. The internal policy on NOP limit is determined by the Risk and Capital
Committee RCC taking into account the volatility of foreign exchange movements. The Bank also calculates the minimum capital requirement to cover market risk by using the
prescribed standard method of Bank Indonesia. In addition, for internal use purposes the Bank also calculates the capital requirement by using an internal model.
Operational Risk The main principle in operational risk management is that risk management is the responsibility of all
levels of management, as reflected in their daily activities through risk culture, risk awareness and management style.
Operational Risk Management ORM goals are to effectively improve the quality of the activities of the working units in supporting the Bank’s goals and targets, in order for the Bank to achieve long
term targets and be able to allocate economic capital to each business activity. The operational risk management initiative in Bank Mandiri consists of three major components:
• ORM policies,
• ORM tools, and
• Implementation, including ORM training for all Bank Mandiri employees.
Management of other risks such as legal risk, reputation risk, strategic risk and compliance risk, are coordinated by a risk management unit through the development of policies and risk mitigation
procedures. However, operational activities are still under the responsibility of the unit which managedthe legal, reputation, strategic and compliance activities.
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
153
56. RISK MANAGEMENT continued
Operational Risk continued Consistent with the above measures, Bank Mandiri is continuing to enhance its risk management by
using the Enterprise Wide-Risk Management concept which consists of 7 seven main components: corporate governance, line management, portfolio management, risk transfer, risk analytics,
integrated data source and technology and stakeholders management. These enhancements are in line with the efforts of the Bank to comply with the 3 Pillars - capital requirements, supervisory review
process and market discipline of the Basel II New Accord, as well as Bank Indonesia regulations on risk management.
57. SIGNIFICANT AGREEMENTS, COMMITMENTS AND CONTINGENCIES
a. Management Contract On April 8, 2000, a Management Contract was signed between the Government and Bank Mandiri
in connection with the recapitalization of Bank Mandiri as described in Note 1c. The Management Contract provides several requirements and milestones to be fulfilled by Bank Mandiri in
accordance with its Business Plan through the end of 2001. The Management Contract LOI was ended in 2001 or upon the completion of the Bank’s IPO. The Bank’s IPO was effective on June
27, 2003. As of December 31, 2004, Bank Mandiri and the Monitoring Team on the Recapitalization of the
Finance Department are in process of amending the LOI.
b. Integrated Banking System Agreement with PT Silverlake Informatikama and Silverlake Corporation
On July 20, 2001, Bank Mandiri entered into an agreement with PT Silverlake Informatikama for the procurement of software and installation services for a total integrated banking system which
is called e-MAS, for a total contract value of US43,213,657 full amount. Additional projects have been contracted involving a value of US18,606,562 full amount on April 23, 2002, of
US420,000 full amount on August 28, 2003 and US922,131 full amount on April 12, 2004; these projects will be completed in 2005. As of December 31, 2004, the implementation of e-MAS
had been completed as planned and US59,503,476 full amount had been recognized as premises and equipment.
c. Agreements on Procurement and Installation of Automatic Teller Machines ATMs From May 2003 to December 2004, Bank Mandiri has entered into various agreements with
PT Multipolar Corporation Tbk., PT NCR Indonesia, PT Mitra Integrasi Komputido, PT Diebold Indonesia and PT Wincor Nixdorf for the procurement and installation of 1,080 ATM units for a
total contract value of US17,409,839 full amount and Rp6,864. As of December 31, 2004, 95 ATM units are still in the process of installation.
