CHANNELING LOANS continued RISK MANAGEMENT

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 206

61. RISK MANAGEMENT continued

A. Credit Risk continued BMRS that has been developed by the Bank consists of Rating System for Corporate Commercial segment, Rating System for Wholesale SME, Rating System for Project Finance, Rating System for Financial Institution - Bank, Rating System for Financial Institution - Non Bank Multifinance, and Rating System for Bank Perkreditan Rakyat BPR. The Bank has also developed a Rating System for Financial InstitutionsBanks, called Bank Mandiri Financial Institution Rating BMFIR, so that the Bank can identify and measure the risk level of Bank Counterpart which can be tolerated in granting Credit Line facilities To improve the measurement of transactional risk in the overseas branches, the Bank has implemented BMRS overseas. To support the development of model, the Bank has issued Guideline for the development of credit rating and credit scoring models, a complete guidance for the Bank in developing credit rating and credit scoring models. In addition, to monitor the performance of credit rating and credit scoring models, the Bank reviews the scoring and rating results conducted by Business Units. Besides, the Bank already has a guidance to set of probability of default PD to support implementation of internal rating based approach. In order to monitor rating and scoring gathered in the database, the Bank prepares Credit Scoring Review and Rating Outlook which are issued quarterly and semi-annually. The reports contain performance scoring and rating parameters based on limit Rp5,000 – Rp15,000 for middle commercial and above Rp15,000 for large commercial and corporate. The reports are useful for Business Units particularly as a reference in determining targeted customer which are good performing, so that the quality of credit expansion process will improve. As a preparation component for AIRB, the Bank has developed a Rating Model that aligns with PD, LGD and EAD development model for segments according to Basel Asset Class which are Corporate, Corporate SME, Project Finance, and Basel II Risk Parameter for Retail Segment. In both measuring economic capital for credit risk and to comply with Basel II, the Bank has been developing Long Term PD, and also reviewing Exposure at Default EAD and Lost Given Default LGD model internally. In quarter IV of 2015, the Bank has completed model development for PD and LGD in the Retail segment for several products such as consumer loans and credit card and PD model for Corporate, Corporate SME, and Project finance segment. The model developed by the Bank is validated internally by Risk Model Validator, which is an independent and separate unit from the model development unit. This is done to minimize analysis error in calculating credit risk, especially in calculating PD value and assigning debtor rating. Aside from Credit Rating and Scoring, another tool used by the Bank is the loan monitoring system, which identifies debtors that may potentially experience difficulty in repaying their loan obligation. The Bank conducts early warning analysis called Watch List analysis for all Corporate and Commercialloans with collectability 1 and 2 on quarterly basis. Based on the analysis, the Bank determines account strategy and actions plan to prevent Non Performing Loan NPL. The Bank also conducts Watch List analysis for Business Banking segment using individual method for debtors that have facility limit above Rp2,000 and portfolio method for debtor that have facility limit up to Rp2,000, in order to strengthen the monitoring over Business Bankings debtors. The expectation is that it could become an early warning and therefore could improve the management of NPL Non Performing Loan level of business banking debtors. 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 207

61. RISK MANAGEMENT continued