PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2007 and 2006 Expressed in millions of Rupiah, unless otherwise stated
123
55. RISK MANAGEMENT continued
Credit Risk continued Non-performing loans were managed by special unit Credit Recovery Group so that the settlements
were managed comprehensively and Business Units could focus on managing the current debtors and loan expansion.
At the portfolio level the Bank has Portfolio Guideline PG directing the loan expansion to maintain optimum portfolio composition based on economic, industry, business segment and product sectors. Optimum
portfolio allocation prevents the Bank from taking risk over the Bank’s risk appetite. PG including various variables lagging, coincidence leading that basically assess three major items such as attractiveness of
an economicindustrybusiness segment sector supply demand, industry structure, profitability and regulation, the Bank’s expertise in the related sector and diversification factor.
In order to test the accuracy level of PG, the Bank performed back testing periodically so that the predictive value of PG stays at the acceptable level. Besides back testing, PG also equip with Risk Acceptance Criteria
RAC by industry currently developed. RAC provides financial and non-financial description at the industry level, that become benchmark for Business Unit in determining the target customer in each industry sectors
in order to get better credit decision. Portfolio analysis is performed periodically monthly and semi annually in order to monitor the changes in
economic and sector industrial variables which influence the optimum allocation and to make the anticipative actions both tactical and strategic portfolio rebalancing.
At the portfolio level, stress testing is performed routine and ad hoc in order to test the portfolio quality elasticity NPL and profit and loss over economic variable changes both individually by debtors or portfolio.
With stress testing, the Bank could anticipate early portfolio management actions and optimal solution determination. Stress testing also provides description regarding long term strategy most suitable for the
Bank’s portfolio condition and the economic environment. In accordance with the implementation of risk assessment tools and as supporting analysis in business risk
management, the Bank uses risk based Customer Profitability Analysis, which shows the economical value added to the shareholders on loans activities performed by the Bank. The Bank will continue to increase the
credit risk assessment tools in order to obtain lower economic capital allocation incentive when the New Basel II Capital Accord is implemented in the future.
The Bank has also implemented risk based interest rate pricing and required yield as minimum rate of return in determining loans interest rate.
Market and Liquidity Risk
a. Liquidity Risk Management Liquidity represents the Bank ability to meet all financial liabilities as they come due in normal
condition. Bank’s liquidity is influenced by the funding structure, asset liquidity, liabilities to the counterparty and loans commitment to the debtors. Liquidity risk is caused by the inability of the Bank
to provide liquidity at normal price that effects the profitability and Bank’s capital. To mitigate potential liquidity risk, the Bank manages its liquidity risk in order to be able to meet any financial obligation as
it comes due, and to maintain an optimum level of liquidity. These objectives are achieved by setting and implementing a liquidity risk management policy that designates an optimum liquidity reserve,
measures and sets limits for liquidity risk, outlines scenario analyses and contingency plan, and designs a funding strategy as well as preserves access to the market. The liquidity risk management
policy is aligned with the business activities performed by business unit.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2007 and 2006 Expressed in millions of Rupiah, unless otherwise stated
124
55. RISK MANAGEMENT continued
