Financial instruments continued E. Classes of financial instrument continued

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2012 AND 2011 Expressed in millions of Rupiah, unless otherwise stated Appendix 525 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

c. Financial instruments continued G. Allowance for impairment losses of financial assets continued

a Financial assets carried at amortised cost continued Individual impairment calculation continued The Bank uses a fair value of collateral method as a basis for future cash flow if, one of the following conditions is met: 1. Loans are collateral dependent, i.e. if source of loans repayment comes only from the collateral; or 2. Foreclosure of collateral is most likely to occur and supported with legal binding aspect. Collective impairment calculation For the purpose of a collective evaluation of impairment, financial asset are grouped on the basis of similar credit risk characteristics such by considering credit segmentation and past- due status. Those characteristics are relevant to the estimation of future cash flows for groups of such assets which indicate debtors or counterparties’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. The Group uses statistical model analysis methods, namely roll rates analysis method and migration analysis method for financial assets impairment which collectively assessed, using at the minimum of 3 three years historical data. In migration analysis method, management determines 12 months as the estimated and identification period between a loss occuring for each identified portfolio, except for Micro banking segment in which the loss identification period used 9 months. When a loan is uncollectible, it is written off against the related allowance for loan impairment losses. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and marketable securities in held-to-maturity and loans and receivables categories are classified into “Allowance for impairment losses”. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised such as an improvement in the debtor’s credit rating, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the impairment reversal is recognised in the consolidated statement of comprehensive income. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2012 AND 2011 Expressed in millions of Rupiah, unless otherwise stated Appendix 526 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

c. Financial instruments continued G. Allowance for impairment losses of financial assets continued