Annual Report
2013
PT Bank Mandiri Persero Tbk.
Externally, the evaluation of risk management implementation is conducted by external auditor or auditor of Bank Indonesia. Particularly in 2013, Bank Mandiri assigned an international external consultant to review the
implementation of Basel II and Enterprise Risk Management ERM in Bank Mandiri. As a recognition for the implementation of ERM in Bank Mandiri, Bank Mandiri earned an award from The Asian Banker for the category of
Enterprise Risk Management Project in 2013.
TYPES OF RISK AND THEIR MANAGEMENT DURING 2013
Bank Mandiri focuses its risk management on eight categories of risk as stipulated by Bank Indonesia, namely credit risk, market risk, liquidity risk, operations risk, strategic risk, reputational risk, legal risk, and compliance risk.
Furthermore, the Bank also conducts management for other risks, such as information technology risk.
The risk management in daily business is conducted in order to make the risk not exceed the speciied risk tolerance, including credit risk management through front end, middle end and back end, market and liquidity risk
management through limit systems and operational risk management.
Aside from primary risks, the Bank understands and managed other risks, such as compliance, legal, reputation, strategic, information technology, and competitors risk. Other risks are measured using top down and bottom up
assessment. Every year, the management carries out a top-down assessment using the voting system of Enterprise Risk Assessment ERA, while a bottom-up process is also measured through the Risk Proile at every quarter.
The risk management in functional activities of Bank Mandiri covers 8 eight types of risk as described below:
1. Credit Risk
With reference to Bank Indonesia regulation, credit risk is deined as follows: “Credit Risk is the Risk arising from default by a debtor andor counterparty in meeting its obligations to the
Bank” 1125PBI2009. Bank Mandiri maintains an integrated credit process and credit risk management by Business Unit, Credit
Operation Unit, and Credit Risk Management Unit. The process is supported by an integrated system and applied in an end-to-end manner.
2. Market Risk
With reference to Bank Indonesia regulation, market risk is deined as follows: “Market Risk is the Risk on the balance sheet and of balance sheet position including the derivative
transactions due to the overall changes of the market condition, including the option price Risk changes” 1125PBI2009.
The market risk management of Bank Mandiri includes trading book, banking book, exchange rate, and pricing management as described below:
a. Market Risk – Trading Book
The trading book’s market risk was attributable to changes in market factors interest rate and exchange rate on the trading portfolio of the Bank in the form of treasury trading activity including cash
instruments and derivative instruments. In the implementation of trading market risk management with consideration of GCG, Bank
Mandiri applies principle of segregation of duties by separating front oice units executing trading transactions, middle-oice units implementing risk management processes, developing policies and
procedures and back oice unit executing the transaction settlement process. The level of risk exposure of trading activities of the Bank is measured using Value at Risk VaR method.
The market risk control is conducted by specifying the VaR Limit and sensitivity limit daily monitored by market risk management line unit.
risk management
Annual Report
2013
PT Bank Mandiri Persero Tbk.
b. Market Risk – Banking Book
The banking book’s market risk is attributable to, interest rate and exchange rate luctuations on banking book activity which could afect the Bank’s proitability as well as the economic value of the
Bank’s capital.
Bank Mandiri performs controls over the Banking book’s market risk by setting a limit which refers to the regulator’s requirements and the internal policies, and utilizing the repricing gap and performing
sensitivity analysis to obtain the projected Net Interest Income NII and Economic Value of Equity EVE.
As the implementation of prudential principles, the calculation is monitored on a weekly and monthly basis by the market risk management unit and measures should be taken if the limits are exceeded due
to the occurrence of the following risk sources:
Sources of Banking Book Interest Risks
Repricing risk repricing mismatch between assets and liabilities
Basis risk use of diferent reference rates
Yield curve risk changes in shape and slope of yield curve
Option risk repayment of loans redemption of deposits before maturity
c. Market Risk – Exchange Rate
Exchange rate risk is attributable to unfavorable exchange rate movements in the market when the Bank has an open position.
The Bank applies a proper exchange rate risk identiication on assets, derivative transactions and other inancial instruments with exchange rate risk in certain functional activities or Bank activities as a whole.
The Bank conducts the exchange rate risk measurement using Gap Analysis method. In gap analysis, the Net Open Position NOP namely net diference between foreign exchange assets or receivables and
foreign exchange liabilities or payables, plus net diference between receivables and payables which are the of balance sheet commitment or contingency for each foreign exchange rate in Rupiah.
d. Pricing Management
As part of the interest rate risk management, the Bank applies a pricing policy for loans and deposit products as one of the Bank’s strategies to maximize Net Interest Margin NIM and simultaneously
support the Bank to achieve revenue and market share in the competitive market.
In the pricing management, the Bank implements risk-based pricing to customers, which varies according to the level of credit risk. In order to minimize interest rate risk, the lending interest rate is
adjusted with the interest rate from the cost of funds.
Other than cost of funds, lending interest rates are determined by considering overhead costs, credit risk premiums and proit margins as well as taking into account the Bank’s competitiveness with its
major competitors. Lending rates can be either be loating or ixed rates.
risk management
Annual Report
2013
PT Bank Mandiri Persero Tbk.
3. Liquidity Risk
