PT BANK MANDIRI PERSERO AND SUBSIDIARIES
Notes to the Consolidated Financial Statements Continued December 31, 2002 and 2001
Expressed in millions of Rupiah, unless otherwise stated
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
e. Allowance for Possible Losses on Earning Assets and Commitments and Contingencies Continued
Commitments and contingencies with credit-related risk consist of outstanding irrevocable letters of credit, outstanding letters of credit under Bank Indonesia’s guarantee program, guarantees
issued in the form of standby letters of credit, bank guarantees and risk sharing. In accordance with Bank Indonesia “BI” regulations, the Bank classifies our earning assets into
one of five categories. Performing assets are categorized as “current” and “special mention”. Non-perfoming assets are divided into three categories: “sub-standard”, “doubtful”, and “loss”.
The classification of earning assets into current, special mention, sub-standard, doubtful and loss is determined based on an evaluation by the Management of Bank Mandiri and its
Subsidiaries of each borrower’s repayment performance, business prospects, financial condition and ability to repay, and consideration of the guidelines prescribed by Bank Indonesia regarding
the quality of earning assets.
In accordance with Bank Indonesia guidelines, the Bank has established allowances for possible losses in the form of a “general reserve” in respect of the overall loan portfolio categorized as
“current”, and in the form of a “specific reserve” in respect of any specifically identified loans categorized as “special mention”, “sub-standard”, “doubtful”, or “loss”.
The determination of the minimum allowance for possible losses on earning assets of Bank Mandiri and Subsidiaries takes into consideration the guidelines prescribed by Bank Indonesia
regarding the Allowances for Possible Losses on Earning Assets, which prescribe minimum rates of allowance for possible losses on earning assets and commitments and contingencies
with credit-related risk. The following table shows Bank Indonesia’s minimum allowance requirements:
Classification Rate Current
1 Special
mention 5
Sub-standard 15
Doubtful 50
Loss 100
excluding Bank Indonesia Certificates of Indebtedness “SBIs” and Government Bonds.
The Bank maintained allowances that in most cases exceed Bank Indonesia’s minimum allowance requirements. Also, for group borrowers, the Bank provides allowances generally
based on the lowest rating within a group. The above rates of allowances for possible losses are applied as a minimum, to the outstanding balances of earning assets and commitments and
contingencies with credit-related risk, net of the value of cash and certain non-cash collateral, except for earning assets classified as current and special mention for which the rate is applied
to the outstanding balance.
The allowance for possible losses for commitments and contingencies with credit-related risk is presented in the liabilities section of the consolidated balance sheet.
The outstanding balances of earning assets are written off against the respective allowance for possible losses when management of Bank Mandiri and its Subsidiaries believe that the earning
assets are uncollectible. Recovery of earning assets previously written off is recorded as an addition to the allowance for possible losses during the period. If the recovery exceeds the
principal amount, the excess will be recognized as interest income.
PT BANK MANDIRI PERSERO AND SUBSIDIARIES
Notes to the Consolidated Financial Statements Continued December 31, 2002 and 2001
Expressed in millions of Rupiah, unless otherwise stated
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14
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
