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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118
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49. RISK MANAGEMENT
The Bank is exposed to specific risks in connection with the deposit-taking and lending businesses, the management of the investment portfolio, and the environment within which the Bank operates.
The Bank’s goal in risk management is to ensure that the Bank understands, measures and monitors the various risks that arise, and that the Bank’s organization adheres, as far as reasonably
and practically possible, to the policies and procedures which are established to address these risks. The Bank has only recently implemented new risk management procedures and produced its
risk management manual. The Bank is also in the process of improving the policies and procedures to meet international best practices.
The Bank is primarily exposed to credit risk, market risk including liquidity risk, interest rate risk, trading risk, foreign exchange risk and derivative instrument risk, and operational and legal risks.
Historically, the Bank focused on credit risk through the Risk Management Committee, while the management of market risk was undertaken by the Assets and Liabilities Committee, the Treasury
and Global Markets Division and the Market Operations and Legal Risk Division. However, the Bank instituted a major internal reorganization to establish a centralized and independent risk
management structure, which is able to focus on strengthening the internal risk management policies and procedures.
Accordingly, on August 1, 2001 the Bank established a central Risk Management Directorate to identify, assess, monitor and manage all principal risks in accordance with defined policies and
procedures. The Risk Management Directorate is divided into a number of groups relating to credit risk, market risk, portfolio and operating risk and credit recovery. This Directorate is managed by a
director of the Board in charge of risk management, and supports the Risk and Capital Committee. The Risk and Capital Committee reports directly to the Board of Directors and the Board of
Commissioners. The committee is comprised of members of the Board of Directors and group heads of various business units within the Bank, including the Risk Management Directorate, and is
chaired by the director in charge of risk management. The Risk and Capital Committee, together with the Risk Management Directorate, is responsible for establishing bank-wide risk management
policies, reviewing internal limits, establishing the credit policies and interest rates, monitoring the implementation of credit policies and procedures and establishing the criteria for risk identification,
measurement and mitigation. The Bank has engaged in the past, and continue to engage, the services of international consultants to assist in this process.
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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119
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49. RISK MANAGEMENT Continued
Credit Risk The Bank has written credit policies and guidelines which specify the procedures for credit analysis,
credit approval, monitoring and supervision, and credit restructuring. Through the credit policies the Bank attempts to maintain the asset quality. The policies involve credit analysis and periodic review
of credit status, portfolio diversification, and sufficient collateral and internal controls.
No credit decision can be made unless it is approved by a minimum of two persons: a duly authorized officer within the relevant business unit, whether at branch, regional or headquarters
level; and a duly authorized officer of one of the Credit Approval Groups, depending on the size and type of the proposed credit product.
Since the most credit risk in its loan portfolio is taken during the loan origination and still exists until the loan closing, the Bank realizes the importance of monitoring and supervision. All loans are
monitored on a regular basis by the responsible business unit. Consumer and commercial loans are monitored by the relevant branch and regional offices, depending on the credit approval level of the
office, while corporate loans and Government-related loans with gross annual sales above Rp300,000 are monitored by the head office.
The Bank pursues diversification in the credit portfolio among a variety of industry or economic sectors, loan types and debtors to minimize credit risk. Industry limits are based on the Bank’s
strategic plan, target sectors, current economic conditions, government policy, funding sources and growth projections. Exceptions to the certain industry or borrower’s exposure limits are reported to
the Board of Directors and an action plan is devised to reduce the concentration.
Bank Mandiri’s credit policy also satisfactorily establishes the authority standards and framework for managing, operating, monitoring and administering the loan portfolio. The policy is reviewed and
approved by the Board of Directors on an annual basis, and it is amended as needed to incorporate changes in the Bank’s policy and new banking regulations.
In order to be Basel compliant, the Bank is currently developing an initial model to measure customer risk. For corporate and commercial loans, the Bank has developed a customer rating and
consumer scorecard models for consumer loan products. The customer rating model incorporates customer financial variables, payment history variables and industry rating variables. In addition, the
Bank is developing a method to calculate transaction loss based on customer’s probability of default PD, loss given default LGD and its facility for corporate and commercial borrowers. The
scorecard model incorporates demographic data, customer-bank relationship data and customer characteristics data. In developing the customer rating and consumer scorecard models, the Bank
has engaged a well-known international consulting firm.
