Competitive forces will pressure margins Competition in the consumer and commercial segments in Yield management optimization During the past year, Bank Mandiri has successfully brought Growth in total deposits In 2004, Bank Mandiri’s deposits declined si

11 Financial Performance I would also like to briefly highlight our encouraging 2004 financial performance: • A 14.6 increase in profit after tax to Rp5,256 billion from Rp4,586 billion in 2003. • Return on Assets ROA improved to 3.1 compared to 2.8 in 2003, largely due to the higher average growth rate of profit before tax compared to growth in total assets. • Return on Equity ROE declined to 22.8 compared to 23.6 in 2003 as a result of a lower average growth rate in profit after tax compared to equity. • Capital Adequacy Ratio CAR declined to 25.3 compared to 27.7 in 2003, as the significant expansion in Risk-Weighted Assets out-stripped capital growth. CAR still far exceeded the minimum BI requirement of 8. • Earnings per Share EPS increased to Rp262 compared to Rp229 in 2003, while Book Value Per Share BVPS increased to Rp1,244 compared to Rp1,020 in 2003. Tragic End to 2004 In the final weeks of 2004, Indonesia and its neighboring countries were confronted with a massive natural disaster. On December 26 2004, Indonesia suffered a massive earthquake centered on the west coast of the province of Nanggroe Aceh Darussalam NAD, followed by a tsunami. The damage caused by this natural disaster exceeded anything the world has seen for the past 40 years: more than 250,000 people were killed in Indonesia, India, Sri Lanka, Thailand, Malaysia, the Maldives, and as far away as Somalia. Indonesia suffered the highest casualty rate, and saw the total destruction of the west coast of NAD province along with significant damage to the capital city of Banda Aceh. Bank Mandiri employees in Banda Aceh were tragically affected by the tsunami: two of our employees were killed and 7 were missing as the result of this tragedy. We at Bank Mandiri express our sincerest condolences to the families of our affected staff and to all victims of this terrible tragedy. Bank Mandiri has undertaken and will continue to support emergency and reconstruction relief efforts in coordination with the government of Indonesia and local and international relief agencies. Just as important, we intend to work with the people of Aceh and North Sumatra to rebuild the affected areas, with particular attention to the reconstruction of facilities focused on the provision of health, education, infrastructure, and small and micro business development services. Future Challenges Following the improved financial performance and achievements in several transformation programs over the past few years, Bank Mandiri is ready to enter Phase II. The future challenges for Bank Mandiri are many:

a. Competitive forces will pressure margins Competition in the consumer and commercial segments in

the years ahead is likely to be intense, largely due to the entry of foreign banks into the local market targeting the attractive Indonesian consumer segment. The foreign banks’ loan market share between 1999 and 2004 increased from 22 to 27. Intense competition could put pressure on margins, especially if the trend of increasing interest rates continues. This decline in margins must be anticipated by increasing business volume and developing new businesses-primarily from micro banking and consumer banking, creating additional product features, diversifying transaction services, improving service quality, and developing strategic alliances.

b. Yield management optimization During the past year, Bank Mandiri has successfully brought

down its cost of funds to a more competitive level primarily through a decline in high-cost corporate funds. In terms of asset productivity, however, Bank Mandiri still lagged behind its competitors. Following the significant decrease of the recap bond portfolio in 2004, Bank Mandiri needs to develop a higher-yielding asset portfolio in 2005, with a focus on increasing loans to micro banking and consumer segments. In addition, the Bank needs to move from a strategy of price-based competition toward a strategy focused on excellent service as measured by speed and service quality, accessibility, full-featured products and convenience.

c. Growth in total deposits In 2004, Bank Mandiri’s deposits declined significantly,

primarily due to a strategy to release high-cost corporate funds. In 2005, driven by the Bank’s more competitive technology, distribution network, and products and services arising from our consumer banking initiatives, the decline of high-cost funds should be compensated by aggressive growth in transactional deposits. Successful deposit growth will determine Bank Mandiri’s loan growth in 2005, and should allow the Bank to recapture the market share in deposits that was lost in 2004.

d. Strengthen income structure Optimizing fee-based income is necessary in order to