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bank, and insurance company. In the credit risk mitigation techniques, the guarantees that are
accepted are only guarantees that are issued by the party within the scope of the category
of Receivables on the Indonesian Government, Receivables from the Government of Other
States, Receivables of Banks and guarantee institutionsinsurance with respect to the
fulfilment of the warranty and warranty publishers.
c. Credit insurance, is issued by an insurance company with respect to compliance with
the requirements of the insurance policy, the insurance issuer and recipient of the insurance
portfolio category.
BNI establish the policies, procedures and processes to assess and manage the collateral by
type of exposure and financing schemes given. Currently, the maximum loan ceiling for productive
loans in the small business segment is determined at 110 of the assessed value of fixed asset
collateral given. Meanwhile, for productive loans in the medium business and corporate segments,
the adequacy assessment of collateral accepted is calculated by the existence of cash equivalent
value. The collateral appraisal should be done at least every 24 months.
Issuer of guaranteeswarranties recognized in the calculation of credit risk mitigation techniques are
generally the correspondent banks that qualify as prime bank or the acknowledged as State-Owned
Enterprises. The use of guarantee as a form of risk mitigation technique is limited at present to trade
services transactions.
Disclosure of net receivables - bank only and consolidated - based on risk weighing after
calculation of credit risk mitigation impact is presented in Table 4.1.a and 4.1.b.
Disclosure of net receivables and credit risk mitigation techniques - bank only and consolidated
- is presented in Table 4.2.a and 4.2.b.
Securitization Exposures
BNI securitization activities are limited to ownership of credit-linked notes, however, as
of December 31, 2013, we have no securitized assets exposure.
Calculation of RWA for Credit Risk using the Standardized Method
Calculation of RWA for credit risk using the standardized method - bank only - is presented
in Table 6.1.1, Table 6.1.2, Table 6.1.3 and Table 6.1.7.
Calculation of RWA for credit risk using the standardized method - consolidated - is presented
in Table 6.2.1, Table 6.2.2, Table 6.2.3, Table 6.2.6 and Table 6.2.7.
2. Market Risk
Most of the Market Risk exposure on the Trading Book comes from Treasury business activities,
while the Market Risk in the Banking Book, in particular Interest Rate Risk in the Banking
Book IRRBB and Net Open Position NOP, are sourced from all the company’s activities. The
Bank closely monitors and tightly manages its market risk exposures in line with the dynamic
developments in the domestic and global markets.
Governance and Organization
In order to develop an independent and objective organization, the Treasury organization is divided
into 3 three parts, namely the front office, middle office and back office.
Front office conducts business activities related to the client. In conducting its activities, the Treasury
business is limited by the risk appetite, risk tolerance and risk limits set by independent units,
namely the Enterprise Risk Management Division, Governance Policy Unit and the Business Risk
Division.
The Enterprise Risk Management Division monitors market risk exposures. This function,
along with monitoring compliance to risk limits, has become more independent with the transfer
of the Middle Office functions from the business units to the Enterprise Risk Management Division.
The accounting and settlement activities are conducted by the Banking Operation Division as a
back office function.
Policies and Procedures
In order to support business goals while adhering to the prudent principles, BNI already has Policies
and Procedures in Treasury and International Business Guidelines. In addition, for effective
management of market risk, BNI also have guidelines for the implementation of Market Risk
Management as well as procedures for Market Risk Management in the Trading Book and Interest
Rate Risk in the Banking Book.
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Process
The identification, measurement, monitoring, and control of market risk are performed
independently from the business units. Market Risk identification is particularly done for new
product or activity.
BNI measures Market Risk using the Standardized Method and the Internal Model. The Standardized
Method is used to calculate the Capital Adequacy Ratio for Market Risk, while the management of
Market Risk mainly uses the Internal Model Value at Risk.
Coverage of portfolios calculated in CAR using the standardized method for the trading book portfolio
for interest rate risk and the trading book and banking book portfolios for exchange rate risk.
Disclosure of market risk - bank only and consolidated - using the standardized method is
presented in Table 7.1.
Exposure to market risk Value at Risk is monitored daily and reported to the management
on a weekly and monthly basis. Price valuation policies currently in use for actively traded
instruments are the mark-to-market valuation methods, while the less actively traded
instruments use the mark-to-model from independent sources.
Disclosure of market risk bank only using the internal model Value at Risk is presented in Table
7.2.a.
11 Exchange Rate Risk
89 Interest Rate Risk
VaR Composition by Risk Type 31 December 2013
To complement the VaR model, BNI conducts market risk stress testing to assess the resilience
of the Bank to face extreme changes in exchange rates and interest rates, with scenarios referring to
Bank Indonesia and the Bank’s internal scenarios. The results of stress testing are used to prepare a
contingency plan if the extreme conditions occur. The accuracy rate of Value at Risk measurement
model was checked using periodic back testing.
The movement of interest rate risk and exchange rate risk in the banking book is monitored
closely on a regular basis in accordance with the measurement methods established by the
regulator, and delivered to management through the Risk and Capital Committee on Asset
Liability.
In addition to achieving business targets, the front office or business units, as part of the internal
control system, also serves as the first line of defense by paying attention and anticipate market
risk due to changes in exchange rates and interest rates according to the limits set. Meanwhile,
as a second line of defense, the Enterprise Risk Management Division also monitors the
use of and compliance to risk limits, determine fixing price, assesses the fair price of treasury
transactions, and investigates the occurrence of off market transactions.
Tools and Methods
To support the business processes in line with market risk management, BNI has market risk
management tools. Additionally, market data is obtained from independent, best practice sources
of prices.
To manage the potential loss of market risk, limits have been set as follows:
a. Value at Risk VaR limit, which is the maximum potential loss that may occur at
a specific time in the future with a certain confidence level.
b. Budget Loss limit, which is used to limit the realization of the loss of business activity.
c. Limit on the purchase of securities that is used to control the concentration of corporate
securities according to bond rating and currency denomination of securities.
d. Asset and liability repricing gap limit to control the interest rate risk in the banking book..
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3. Operational Risk
