Government Bonds Mandiri - Investor Relations - Audited Financials 2009 12English

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 517 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued m. Loans continued Loans Purchased from IBRA Bank Indonesia issued Regulation No. 47PBI2002 regarding “Prudential Principles for Credits Purchased by Banks from IBRA” dated 27 September 2002, which applies for all loans purchased from IBRA starting 1 January 2002. The difference between the outstanding loan principal and purchase price is booked as deferred income if the Bank enters into a new agreement with the borrower, and as an allowance for possible losses if the Bank does not enter into a new credit agreement with the borrower. The allowance for loan losses or deferred income can only be adjusted once the Bank has recovered the original purchase price. Income arising from the loans purchased from IBRA is recognised on a cash basis. If the Bank enters into a new credit agreement with the borrower, any receipts from a borrower are recognised as a deduction of the outstanding principal andor as interest income following the terms or conditions as set out in the new credit agreement. If the Bank does not enter into a new credit agreement with the borrower, any receipts from a borrower must be recognised firstly as a deduction of outstanding principal. The excess of receipts over the outstanding principal balance shall be recognised as interest income. Bank Indonesia allows the Bank to classify all the loans purchased from IBRA as Current for a period of one year from the date of loan booking. Thereafter, the loans are classified based on the normal loan rating guidelines from Bank Indonesia. Bank Indonesia requires banks to fully recover the purchase price of the loans within five years from the date of loan booking. Any unpaid amount after five years should be written off by the banks. Based on the letter from Bank Indonesia No. 958DPNPIDPnP dated 16 February 2007, Bank Mandiri can continue to manage ex-IBRA loans which have passed a period of 5 years after purchase, if the loans at the time reach 5-years period, are classified as current based on factors of business prospects, performance and the ability of debtors to pay as stipulated in the relevant BI regulation regarding Asset Quality. Loan Restructuring Loan restructuring may involve a modification of the terms of the loans, conversion of loans into equity or other financial instruments andor a combination of both. Losses on loan restructurings in respect of modification of the terms of the loans are recognised only if the present value of total future cash receipts specified by the new terms of the loans, including both receipts designated as interest and those designated as loan principal, are less than the carrying amount of loans before restructuring. For loan restructurings which involve a conversion of loans into equity or other financial instruments, a loss on loan restructuring is recognised only if the fair value of the equity or financial instruments received, deducted by estimated expenses to sell the equity or other financial instruments, is less than the carrying amount of loans. Overdue interest, which is capitalised to loans under new restructuring agreements, is recorded as deferred interest income and is amortised proportionately based on the amount of capitalised interest relative to the loan principal upon collection. Losses on loan restructuring are presented as part of allowance for possible losses. 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 518 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n. Consumer Financing Receivables Consumer financing receivables are stated at their outstanding balance less the portion of joint financings where the credit risk is assumed by joint financing providers in accordance with the financings portion without recourse, unearned consumer financing income and the allowance for possible losses. Unearned consumer financing income, which is the difference between the total installment payments to be received from consumers and the principal amount of consumer financing, and is recognised as earned income over the term of the contract based on a constant rate of return on the net consumer financing receivables. Administration income from consumers is recognised in the consolidated statement of income upon signing the financing contract. Early termination of a contract is treated as a cancellation of an existing contract and the resulting gain or loss is credited or charged to the current year’s consolidated statement of income at the date of transaction.

o. Joint Financing

Joint financing consists of with and without recourse joint financing to end-user consumers. The consumer financing receivables under joint financing where each party assumes the credit risk according to the risk portion without recourse are stated at net amount in the consolidated balance sheet. Consumer financing income and interest expense related to without recourse joint financing are stated at net amount in the consolidated statement of income. Consumer financing receivables under joint financing where the Subsidiary assume the credit risk with recourse are stated at gross amount in the consolidated balance sheet. The consumer financing income and interest expense related to with recourse joint financing are stated at gross amount in the consolidated statement of income. For joint financing without recourse, Subsidiary has the right to set higher interest rates to customers than those as stated in the joint financing agreements with joint financing providers which is the Bank. The difference is recognised as revenue and disclosed as “Consumer Financing Revenue”.

p. Acceptance Receivables and Payables

Acceptance receivables and payables are stated at the value of the letters of credit or realisable value of the letters of credit accepted by the accepting bank. Acceptance receivables are presented net of allowance for possible losses.

q. Investments in Shares

Investments in shares represent long-term investments in non-publicly-listed companies an d temporary investments in debtor companies arising from conversion of loans to equity. Investments in shares representing ownership interests of 20.00 to 50.00 are accounted for under the equity method. Under this method, investments are stated at cost and adjusted for the Bank’s proportionate share in the net equity of the investees and reduced by dividends earned since the acquisition date net of by allowance for possible losses.