ECONOMIC CONDITIONS Continued 2002 12 Full Audited Financial Statements w Notes

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 - 143 -

62. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES

FOLLOWED BY THE BANK “INDONESIAN GAAP” AND INTERNATIONAL ACCOUNTING STANDARDS “IAS” Continued b. Allowance for Possible Losses on Earning Assets Under Indonesian GAAP, the Bank records allowances for possible losses on earning assets using a general and specific allowance based on management’s estimates and using the guidelines prescribed by Bank Indonesia. Under IAS, the Bank records allowances for possible losses on earning assets that are not considered impaired using general and specific allowances in accordance with the provisions of IAS No. 37 – “Estimated Liabilities, Contingent Liabilities and Contingent Assets” from January 1, 2000. Under IAS No. 39 – “Financial Instruments: Recognition and Measurement”, from January 1, 2001, the Bank calculates allowances for possible losses on earning assets based on the net present value of earning assets that are impaired and based on the expected collection of other earning assets. An earning asset is considered impaired when it becomes probable that the Bank will be unable to collect all amounts due according to contractual terms. c. Derivative instruments Under Indonesian GAAP, the Bank adopted SFAS No. 55 – “Accounting for Derivative Instruments and Hedging Activities” that is effective from January 1, 2001 which requires that derivative instruments be measured and recognized at their fair values. Such values for Indonesian Banks are further defined under the reporting guidelines prescribed by Bank Indonesia and are based on the value of derivative instruments determined based on the Reuters spot rate at reporting date. Under IAS No. 39 – “Financial Instruments: Recognition and Measurement”, from January 1, 2001 the Bank calculates the fair values of derivative instruments based on forward rates of exchange. The Bank classifies Government bonds Note 8 as originated loans under IAS and therefore no separate measurement and recognition is required for indexation derivatives that are embedded in the hedge bonds. Originated loans are characterized by assets for which the Bank provided the original funding and are not determined by the form of the instrument that results from the loan origination. d. Employee Benefits In accordance with the Decree of the Minister of Manpower No.Kep-150Men2000 “KEPMEN 150” dated June 20, 2000, regarding the “Settlement of Labour Dismissal and the Stipulation of Severance Pay, Gratuity and Compensation in Companies”, the Bank recognizes a provision for employee entitlements based on actuarial reports. In accordance with SFAS No. 57 – “Provisions, Contingent Liabilities and Contingent Assets”, no specific actuarial method is mandated. The Bank however applies the projected unit credit valuation method and the simplified actuarial valuation method as of December 31, 2002 and 2001, respectively. Under IAS, KEPMEN 150 is accounted for as a defined benefit plan and as such it requires the actuary to use the projected unit credit method of actuarial valuation as mandated by IAS 19 – “Employee Benefits”. Further, changes in the amount of the actuarially determined provision for KEPMEN 150 does not require recognition, unless the change is more than a 10 corridor range of variation.