PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
128
56. RISK MANAGEMENT continued
The Risk Management Committee in Bank Mandiri is called Risk and Capital Committee RCC which was established on October 10, 2001. RCC is responsible for establishing Bank-wide risk management
policies, such as reviewing internal limits, establishing funding and loan related interest rate policies, loan policies, new product launching and monitoring the implementation of established policies and procedures
for risk identification, measurement and mitigation. The Risk and Capital Committee is also responsible for establishing the capital charge to cover existing
risks, especially credit risk, market risk and operational risk. The scope of responsibility and function of the committee has experienced several changes. The latest changes which started to be implemented in the
second half year of 2005 is the development of RCC into 4 four committees, which are: Asset Liability Committee, Credit Policy Committee, Credit Approval Committee and Capital Investment Approval
Committee. The scope of control and responsibility over risks has become more focused and effective with this development. Each committee is supported by working group whose members are consist of groups
directly related to the risk problems included in the committees scope. The Bank has established an organizational structure which is able to support risk management in a more
comprehensive, centralized, measurable and controllable way, by establishing the Risk Management Task Force which is also referred to as the Risk Management Directorate. The Risk Management Directorate is
responsible in managingcoordinating all risks encountered by the Bank, such as credit risk, market risk, operational risk, liquidity risk, legal risk, reputation risk, strategic risk and compliance risk, and defining risk
management guidance and policies. The Risk Management Directorate is managed by a DirectorCoordinator whom is responsible to the
Board of Director and also a voting member of the Risk and Capital Committee. The Risk Management Directorate is divided into 2 two main functions: 1 Credit approval as a part of the four-eye principle, and
2 Independent Risk Management which is divided into several groups in relation with credit and portfolio risk, operational risk and market risk.
Besides the Risk Management Directorate, the Bank also established the Risk and Capital Committee on October 10, 2001. The Risk and Capital Committee is a committee that is made up of members of the
Board of Directors and Group Heads from various units. The Risk and Capital Committee is led by the President Director and supported by permanent and contributing members who are responsible for
establishing Bank-wide risk management policies, such as reviewing internal limits, establishing new product launching interest rate policies and monitoring the implementation of established policies and
procedures for risk identification, measurement and mitigation. The scope of responsibility and function of the committee has experienced several changes. The latest
changes which was implemented on June 16, 2005 is the development of RCC into 4 four committees, which are: Asset Liability Committee, Credit Policy Committee, Credit Approval Committee and Capital
Investment Approval Committee. The scope of control and responsibility over risks has become more focused and effective with this development. Each committee is supported by working group whose
members are consist of groups directly related to the risk problems included in the committees’ scope.
In response to the Bank Indonesia Regulation No. 725PBI2005 regarding Certification of Risk Management for the Management of the Bank, the Bank have enrolled their employees from Risk Management and
related Business Units into the Risk Management Training and Risk Management Certification which is conducted by Badan Sertifikasi Manajemen Risiko BSMR in cooperation with Global Association of Risk
Professionals GARP. Through intensive internal certification training, the Bank will be prepared with human resources with risk management certification in accordance with BI regulation and Basel II.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
129
56. RISK MANAGEMENT continued
Credit Risk The Bank has written credit policies and guidelines on loan administration, which includes the Bank
Mandiri Loan Policy Manual KPBM, Loan Implementation Guidelines PPK, and various circular letters that constitute a more detailed administration manual. The purpose of the guidelines is to provide a
comprehensive formal loan management manual relating to application, analyzing process, approval, recording, monitoring and restructuring processes, including risk analysis and assessment. In order to
make the loan process to be more prudent, the Bank has improved the KPBM and PPK with current business periodically.
In general the credit risk management is implemented on both transactional and portfolio level. In the transactional level, the Bank implements four-eye principal which is every loan approval will involve
business unit and risk unit independently to obtain an objective decision. Since establishment of Credit Approval Committee on June 16, 2005, the loan approval process is conducted through Credit Committee
meeting. Therefore, the loan disbursement process becomes more comprehensive and more prudent.
In this loan approval process, the decision makers are equipped with Tools Rating and Scoring System which enable a more accurate risk quantification and enable a more accurate risk based pricing. To
ensure the availability of Credit Risk model which is proven and reliable, the Bank has guidance in designing and developing the Credit Rating and Credit Scoring model, which is a comprehensive guidance
for the Bank in preparing the capital that will be implemented into the Credit Risk Tools as one of the tools to make credit decision. Periodically they issued review on the scoring and rating result performed by the
business units in Credit Scoring Review and Rating Outlook.
Non-performing loans are managed by special unit Credit Recovery Group in order to obtain a comprehensive resolution and the Business Unit can stay focus on the performing debtors and loan
expansion. In accordance with the organization need, Credit Recovery Group was developed from 1 one group into 2 two groups in order to have a faster and more effective non-performing loans resolution.
At the portfolio level the Bank has Portfolio Guideline which is utilized to guide the loan expansion for maintaining optimum portfolio, both on economy, geographical, segment and product sectors. Optimum
portfolio allocation enables to prevent taking the risk over the Bank’s risk appetite and to obtain optimum return. Portfolio analysis is performed periodically monthly and semi annually in order to monitor the
changes in economic and sectoral industrial variables which influence the optimum allocation and to make the anticipation actions both tactical and strategic portfolio rebalancing.
In accordance with the implementation of the risk measurement tools and as supporting analysis in credit risk management, the Bank uses Customer Profitability Analysis based on risk, which can show the economical
value added to the shareholders on loans activities performed by the Bank. The Bank will continue to increase the credit risk measurement tools in order to obtain the lower economic capital allocation incentive
when the New Basel II Capital Accord is implemented in the future.
Market and Liquidity Risk a. Liquidity Risk Management
Liquidity Risk is measured by knowing the existing liquidity condition liquidity provision, interbank borrowing position and funding structure and projecting the cashflow in the future. Methodology used
in measurement of liquidity risk are liquidity risk indicatorratio and liquidity gap.
