CHANNELING LOANS Other Significant Transactions
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5136 56. RISK MANAGEMENT continued
Credit Risk continued To identify and measure risk of each credit application processed in the transactional level, the Bank
uses Rating and Scoring systems. The Rating and Scoring systems consist of Bank Mandiri Rating System BMRS, Small Medium Enterprise Scoring System SMESS, Micro Banking Scoring System
MBSS and Consumer Scoring System. The Bank has also developed a Rating System for Financial InstitutionsBanks, called Bank Mandiri Financial Institution Rating BMFIR, so that the Bank, in
granting Credit Line facilities, can identify and measure the risk level of Counterparty Bank which can be tolerated.
To support the development of these tools, the Bank has issued Guideline for the Development of Credit Rating and Credit Scoring Models, which serves as a complete reference 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. By reviewing and monitoring the rating models using validation methodology, the Bank can understand the performance of the models from time to time. At the moment, the model validation is
conducted internally by Model Risk Validation unit, which is an independent unit and separated from the model development unit. This is conducted to minimise user’s mistake in measuring credit risk,
particularly in determining the Probability of Default PD value and debtors’ rating. In both measuring economic capital for credit risk and complying to Basel II, the Bank has been developing Long Term PD
and also reviewing Exposure at Default EAD Lost Given Default LGD model internally. In order to monitor rating scoring gathered in the database, the Bank prepares Credit Scoring Review and Rating
Outlook which are issued quarterly and semi-annually. The reports contain information concerning scoring and rating parameters presented by industrial sector. 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 an implementation of prudential banking practice for identifying, measuring and monitoring credit risk in the loan approval process, the Bank uses not only Rating and Scoring tools but also uses other tools
such as financial spread sheet, Comprehensive Credit Note Analysis NAK and Loan Monitoring System which have been integrated to Integrated Loan Processing ILPLoan Origination System
LOS to cover the end-to-end loan process.
To mitigate credit risk per individual debtor, the Credit Committee makes decision in credit structure including determining the appropriate credit covenants relevant to the needs and conditions of the debtor,
so that the loan granted will be effective and profitable for both the debtor and the Bank.
In response to the global economic crisis which has not ended yet, to identify debtors which may experience difficulty in repaying their loan obligation, the Bank conducts early warning analysis called
Watch List analysis for all Corporate and Commercial loans using Loan Monitoring System. Based on the analysis, the Bank should determine account strategy and early actions to prevent NPL.
At the portfolio level, risk management is conducted through an active portfolio management approach in which the Bank proactively maintains portfolio diversification at optimum levels with risk exposure within
the risk appetite level decided by the Bank. In its implementation, the Bank uses several tools called Portfolio Guideline PG. PG consists of three items i.e. Industry Classification, Industry Acceptance
Criteria and Industry Limit.
Industry Classification IC classifies industrial sectors into three categories based on the prospects and risks of the corresponding industry. The Bank uses IC in determining the industry target market. The
second tool is Industry Acceptance Criteria IAC which gives basic criteria quantitative and qualitative which serves as key success factors in certain industrial sector. The Bank uses IAC in determining
targeted customer. The third tool is Industry Limit IL which provides maximum exposure limit which can be given to a particular industrial sector.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2009, 2008 AND 2007
Expressed in millions of Rupiah, unless otherwise stated
Appendix 5137 56. RISK MANAGEMENT continued