Allowance for possible losses on non-earning assets

These consolidated financial statements are originally issued in Bahasa. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 58

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

y. Deposits from other banks

Deposits from other banks represent liabilities to local and overseas banks, in the form of demand deposits, saving deposits, inter-bank call money with original maturities of 90 days or less, time deposits and negotiable certificate of deposits. Deposits from other banks are recorded as liability to other banks. Included in the deposits from other banks are sharia deposits in form of wadiah deposits, and Certificates Mudharabah Investment Bank SIMA. Deposits from other banks are classified as financial liabilities at amortised cost. Incremental costs directly attributable to acquisition of deposits from other banks are included in the amount of deposits and amortised over the expected life of the deposits. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost.

z. Insurance contract

Insurance contracts is a contract under which the insurer accepts significant insurance risk from the policyholders. Significant insurance risk is defined as the possibility of paying significantly more benefit to the policyholder upon the occurrence of insured event compared to the minimum benefit payable in a scenario where the insured event does not occur. Scenarios considered are those with commercial substance. The Subsidiaries issue insurance contracts that accepted siginificant insurance risk from the policyholders. The Subsidiary defines significant insurance risk as the possibility of having to pay benefits on the occurence of an insured event of at least 10 more than the benefits payable if the insured event did not occur. When an insurance contract does not have significant insurance risk, it is classified as investment contracts. The Subsidiaries issues insurance contracts for traditional insurance product and investment- linked insurance product. Both of these products have significant insurance risk. The Subsidiaries’s products are divided into the following main categories: • Traditional nonparticipating life insurance, provide protection to cover the risk of death, accident, critical illness, and health of the insured. The basic sum assured will be paid upon the occurrence of the risks covered. • Unit-linked, is the insurance product with single and regular premium payment which linked to investment products, which provide a combined benefit of the protection and investment. Once a contract has been classified as an insurance contract, no reclassification is subsequently performed unless the terms of the agreement are later amended. All insurance products issued by the subsidiary has significant insurance risk. The Subsidiary unbundles the deposit component of unit-linked contract as required by SFAS No. 62 when both the following conditions are met: - The Subsidiary can measure separately the “deposit” component including any embedded surrender option, i.e. without taking into account the “insurance” component; - The Subsidiary’s accounting policies do not otherwise require to recognise all obligations and rights arising from the “deposit” component. The Subsidiary does not separate the deposit component because only one of the above condition is met.