SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued l.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008 and 2007 Expressed in millions of Rupiah, unless otherwise stated
26
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n. Investments in Shares of Stock continued
Changes in value of investments in subsidiaries which is caused by changes in the subsidiaries’ equity and is not a transaction between the Bank and the Subsidiaries, is recognized as part of the equity as
“Difference Arising from Transactions Resulting in Changes in the Equity of Subsidiaries”. This account will be calculated in determining the parent companies’ profit and loss at the disposal of the investment
Note 31e. Goodwill is recognized, when there is a difference between the acquisition cost and the Bank’s portion
on the fair value of identified assets and liabilities at the exchange date. Goodwill is presented as other assets and amortised as expense over the period using the straight-line method, unless there is other
method considered more appropriate in certain conditions. Goodwill amortization period is 5 five years, but a longer amortization period may be applied with maximum 20 years period with
appropriate basis.
o. Allowance for Possible Losses on Assets and Estimated Losses on Commitments and Contingencies
Earning assets consist of current accounts with other banks, placements with Bank Indonesia and other banks, securities, Government Bonds, other receivables - trade transactions, securities
purchased with agreements to resell, derivative receivables, loans, acceptances receivable, investments in shares of stock and commitments and contingencies with credit-related risk.
Commitments and contingencies with credit-related risk consist of outstanding irrevocable letters of credit, outstanding letters of credit under Bank Indonesia’s guarantee program, guarantees issued in
the form of standby letters of credit, bank guarantees, risk sharing and unused loan facilities.
Non-earning assets are assets with potential loss and include but is not limited to repossessed assets, abandoned properties, inter-office accounts and suspense accounts.
In accordance with Bank Indonesia BI regulations, Bank Mandiri classifies earning assets into one of five categories and non earning assets into one of four categories. Performing assets are categorized
as “Current” and “Special Mention”, while non-performing assets are categorized into three categories: “Sub-Standard”, “Doubtful” and “Loss”. Non earning assets are divided into “Current”, “Sub-Standard”,
“Doubtful” and “Loss”.
The classification of earning assets is based on Bank Indonesia Regulation No. 72PBI2005 dated January 20, 2005 regarding Asset Quality Rating For Commercial Banks which has been amended by
Bank Indonesia Regulation No. 82PBI2006 dated January 30, 2006, and Bank Indonesia Regulation No. 96PBI2007 dated March 30, 2007. PBI 96PBI2007 contains type of collateral that qualify as
deduction in earning asset provision calculation, such as machinery that is permanently part of the land binded with fiduciary right and warehouse receipt binded with guarantee right on warehouse receipt. In
connection with the implementation of PBI No. 72PBI2005, the Bank determined the classification of earning assets based on the evaluation of the management on each borrower’s repayment
performance, business prospects and ability to repay.
In accordance with PBI No. 72PBI2005 dated January 20, 2005, classification of quality for repossessed assets, abandoned properties, inter-office accounts, suspense accounts and unused loan
facilities granted to customers off balance sheet item, became effective 12 twelve months since the date of the enactment of PBI.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2008 and 2007 Expressed in millions of Rupiah, unless otherwise stated
27
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued o. Allowance for Possible Losses on Assets and Estimated Losses on Commitments and
Contingencies continued
For Syariah Banks, the classification of earning assets is determined based on Bank Indonesia Regulation No. 57PBI2003 dated May 19, 2003 regarding Earning Assets Quality for Syariah Banks.
The amount of the minimum allowance for possible losses on assets and commitments and contingencies with credit-related risk, takes into consideration Bank Indonesia Regulation
No. 72PBI2005 dated January 20, 2005 regarding Asset Quality Rating For Commercial Banks which has been amended with Bank Indonesia Regulation No. 82PBI2006 dated January 30, 2006 and
Bank Indonesia Regulation No. 96PBI2007 dated March 30, 2007, which prescribe minimum rates of allowance for possible losses on assets and commitments and contingencies with credit-related risk.
The amounts of the minimum allowance in accordance with the Bank Indonesia Regulation are as follows:
1 General provision, at minimum amounting to 1 from the earning assets classified as current, except for earning assets in Certificates of Bank Indonesia and Government Bonds and for earning
assets which are guaranteed with cash collateral such as current accounts, time deposits, savings, margin deposits, gold, Certificates of Bank Indonesia or Government Bonds, Government
Guarantees in accordance with the regulations, standby letters of credit from prime bank, which are issued in accordance with Uniform Customs and Practice for Documentary Credit UCP or
International Standard Practices ISP.
2 Special provision, at minimum amounting to: a. 5 from the asset classified as special mention and after deducting the value of collateral.
b. 15 from the asset classified as sub-standard after deducting with the value of collateral. c. 50 from the asset classified as doubtful after deducting the value of collateral.
d. 100 from the asset classified as loss after deducting the value of collateral.
The collateral which can be deducted from the allowance for possible losses calculation is only for earning assets.
The collateral value which can be deducted from the allowance for possible losses on earning assets is that, with appraisal conducted not exceeding 24 months and is done by an independent appraisal for
amounts exceeding Rp5 five billion. Bank Mandiri has not included all collateral in the calculation of allowance for possible losses since the
last appraisal has exceeded 24 months. The estimated loss on commitments and contingencies with credit-related risk is presented in the
liabilities section of the consolidated balance sheets. The outstanding balances of earning assets classified as loss are written off against the respective
allowance for possible losses when the management of Bank Mandiri and Subsidiaries believes that the earning assets are uncollectible. Recoveries of earning assets previously written off are recorded
as an addition to the allowance for possible losses during the year. If the recovery exceeds the principal amount, the excess will be recognized as interest income.