risk management consolidation with subsidiary

resource requirements for the next 5 years. This will ensure infrastructure readiness to support business requirements in the years to come. In addition to infrastructure and technology development, Bank Mandiri also strives to enhance its Human Resource HR competency. This development is achieved through utilizing local and international training standards. The Bank has conducted certiication trainings during 2012 as follows; 75 international iT certiications, 48 local certiications, 8 employees with cDcs certiied Documentary credit specialist, and 83 with iso 9001:2008 certiied. iT capabilities improvement was also implemented in 2012 resulted in iT organization changes; new governance process; and an iT HR development plan to optimize iT resources to fulill business needs. infrastructure and HR development in 2012 was advanced to accelerate trade services inance transaction processes. continuous technology advances on Portal Document examination on screen Deos and HR trainings successfully propelled end-to-end transaction, to an average of 30 minutes on export transaction compared to 46 minutes in 2011, and an average of 48 minutes of import transaction compared with 75 minutes in 2011. Bank Mandiri received the following international awards for this achievement; The Best indonesian Trade Bank Award 2012 from Trade Finance Magazine, and indonesia’s Best Trade Finance House from cT Magazine, Hong Kong. eforts in providing best service to customers are being continuously enhanced so as to fulill or even exceed the customers’ expectations. As the result, Bank Mandiri successfully maintained its position for 5 ive consecutive years, since 2007, as The Best Bank service excellence cooperation of Marketing Research indonesia-MRi with infobank Magazine. Moreover, the commitment to maintain service excellence quality was appreciated with award of The Most consistent Bank in service excellence for 3 three consecutive years. Through this achievement, Bank Mandiri received a golden Trophy for Banking service excellence and attained a certiication as “the living service legend”. 2013 Strategy and Work Plan The Technology operations Directorate supports Bank Mandiri’s vision and mission in order to meet the businesses needs in 2013. This strategy will be advanced through the transformation of technology, operations and service to contribute by enhancing utility based processing, eiciency, and by economies of scale. The iT transformation is implemented in accordance with isP 2011-2014, prioritized to fulill customer needs to increase transaction volumes, to meet required regulatory, and internal business process improvement through 4 main strategies: 1. To implement iT solutions through infrastructure with capacity enhancement programs for system availability and to support growth in business needs. 2. To implement infrastructure and applications to support e-channel development by service standard reinements to customers at all contact points. suPPoRTing uniTs RevieW TECHNOLOGY OPERATIONS PT Bank Mandiri Persero Tbk. 3. To improve security through system modernization and completion of perimeter system including ATM security so as to provide safety and comfort to customers. 4. To improve work system and risk management reinement of the Bank through Business continuity Management BcM. An eicient, better and faster operational enhancement is implemented in line with technology development with the following main objectives: 1. To improve retail inancing growth through loan Factory location expansion and reorganization, new openings and status upgrading of the credit operations unit oices network. 2. Work process reinements and automation to improve productivity and service through the integrated central liability system; cash development and clearing Processing center. 3. To maintain service excellence by service quality measurement of branch oices, e-channel, consumer card, consumer loan, Micro Banking, and measurement of Jiwa service at Bank Mandiri group work units. The Technology operations Directorate will carry out productivity improvements and human resources development with the following: • strategy capability improvement through competency and value Model enhancement; • Reinement of Talent Management and succession Plan; • capability improvement and career Path for specialist; and • To develop and implement resource fulillment strategies. SUPPORTINg UNITS REvIEw The Compliance and Human Capital CHC Directorate continues its transformation through strategies of acceleration of human capital value creation and by its development of a road map that will help Bank Mandiri evolve from a good Company to a great Company. The Compliance and Human Capital Directorate initiatives are focused on quality engagement and execution governance quality improvement; factors that will help to boost the Bank performance. Towards this end a theme for the work unit was established; “Excellence in Engagement, Execution governance”. Human Capital strategy and policy development is implemented with reference the to existing Human Capital Framework Employee Lifecycle and efective Best Practices, which are: PoLiCY and ProCEdurE Policy architecture in Human capital consists of Human Resources Policies KsDM, Human Resources standard guidelines sPsDM and Human Resources Technical instructions PTsDM. The Policies and standard guidelines are continuously reviewed and reined on a regular basis in accordance with the Bank’s needs and best practices standards. worKForCE FuLFiLLMEnT A precise enrollment strategy for human resources is required to support rapid business growth. This strategy is focused on; “right people with potential right it”. This strategy is adjusted with business needs from time to time and has improved the level of engagement towards the company. employees’ enrollment is done both through internal and external resources. Bank Mandiri studies executive management requirement in work units throughout indonesia. in order to open opportunity for the best candidates from the regions, Bank Mandiri has conducted recruitment on a regular basis in cooperation with several prominent universities in indonesia through participation in job fairswork exchanges as well as campus hiring. internal employees’ recruitment was carried out through several employee development programs; staf Development Program sDP, local staf Development Program lsDP, the executive oicer Authority Program P3K, Micro Junior Management education Program PPMM, and the repositioning of executive oicers from Front oice to Back oice. employee recruitment from external resources is conducted with fresh graduates and those with similar experience as both are hired for executive management and oicer positions. external resources recruitment is organized speciically to satisfy the needs arising from a lack of managerial resources in certain regions, work types or expertise, as follows: a. Recruitment of executive Management candidates in certain Regions By noting the lack of executive management candidate’s in certain regions, the Directorate has developed Papua Region special Management’s candidate cPKP in 2012. These candidates were taken from local areas and selected from immigrants who have lived for long periods in Papua. b. Recruitment of employee with speciic expertiseskills Bank Mandiri has cooperated with executive search irms to propel business target achievements and growth. The e search, led by human resource experts, is tasked to assist in staf recruitment to ill in executive management and middle management levels in information technology. c. outsourcing Management To be more aligned with rapid business growth the outsourcing of employees for support jobs is increasing. To comply with Bank indonesia regulations on outsourcing the Directorate reviews policies and improved the bank wide system monitoring function of outsourcing experts by the use of outsourcing database systems. in the year 2012 a review was conducted on the policy of the use of outsourcing services to ensure COMPLIANCE HUMAN CAPITAL PT Bank Mandiri Persero Tbk. Identifying and monitoring compliance and operational risk. ANNUAL COMPLIANCE PROgRAM compliance and harmony with the provisions of Bank Indonesia and thereby improve the function of monitoring the use of outsourced manpower by optimizing the use of the bank wide database system on outsourced resources. d. Kriya Mandiri Program Kriya Mandiri Program or apprentice program is an alternative method in employee recruitment especially to ill-in certain positions at branch work units. Kriya Mandiri is an integrated work-study program with the objective to provide opportunities to studentsgraduates of universities, to work and learn at Bank Mandiri. Through the oicer Development Program oDP Bank Mandiri reines and implements employee recruitment policies and training in order to prepare talented candidates for executive management positions. After recruitment the development process of the selected candidates is carefully structured to ensure the oDP program delivers high quality executives. EMPLoYEE rELaTions EnGaGEMEnT The spirit to ofer the best to all parties is the base of industrial relations of company Bank Mandiri and employees. employees are expected to provide optimum eforts while the company provides for the employees’ right as mandated by the laws; along with other additional beneits. A spirit of mutual respect, a good attitude and the right principles has helped to improve and maintain the quality of industrial relations between Management and unions from year to year. Bank Mandiri successfully implemented strategic initiatives in human resources in 2012 that refer to Best in class practices, and it has resulted in harmonious industrial relations in Bank Mandiri. engagement activity through Mandiri i-care program in 2012 individual commitment actions raises engagement was focused towards monitoring the Development and impact plan following up with each work unit as ascertained from the results of the 2011 engagement survey. orGaniZaTion dEVELoPMEnT eicient and efective organizations as well as being competitive in the market are the major requirements to propel business growth. Towards that end, organization development is measured with regular organization reviews on productivity and efectiveness of the organization structure. TaLEnT suCCEssion ProGraM Talent Management is an important part in Human capital management. in this respect, Bank Mandiri continues to review its existing Talent succession Management programs. Talent Strategy is directed to make time to market business needs through the development of competent, productive and engaged talents. Leadership pipeline recruitment is continued through leadership programs for the BOD and through existing middle management staf. Bank Mandiri has also conducted assessment programs on leader candidates to obtain success Proiles that will be used to evaluate suitability with the intended positions. PErForManCE ManaGEMEnT rEward Performance Management and Reward is an important aspect in Human capital Management to support sustainable performance of Bank Mandiri. in the move to support the transformation strategy of Bank Mandiri, Human capital continuously strives for improvement, with implementation of programs such as e-Mandiri eAsy implementation, electronic Mandiri employee Appreciation system. e-Mandiri eAsy is a holistic appreciation system for all Bank Mandiri employees. e-Mandiri eAsy is comprehensive system to monitor the successor development process, which will ill critical positions, thereby helping to guarantee Bank Mandiri future business growth. e-Mandiri eAsy is an internet-based system with the integration of human capital functions. Rewards continue to innovate and to be reined, such as healthcare program improvement for staf, provision of staf welfare credit facility, and other programs to improve staf welfare. EMPLoYEE VaLuE ProPosiTion The Bank introduced Mandiri employee value Proposition evP in 2012, in an efort to increase competitiveness in line with Bank Mandiri vision to be the most admired and progressive inancial institution in indonesia. This program will be an internal “anchor” brand and diferentiate Bank Mandiri from other companies. Furthermore, evP will improve Bank Mandiri brand awareness and image as the employer of choice. Herewith the Mandiri employee value Proposition: Prosperous Spirit At Mandiri, we have the Prosperous Spirit, through which we can lourish in an open, positive, progressive environment and be inspired create prosperity for our colleagues, family, customers, community and country efective evP implementation will provide added value for Bank Mandiri such as increased employee and customer levels of engagement, be highly competitive to attract and obtain top talent candidates from the market, ability to keep top talents working at Bank Mandiri, reduce employee turnover, enhance the image and the reputation of the Bank as employer of choice, and lastly to create a happy, healthy wealthy environment, and improve the company’s intangible assets from time to time. suPPoRTing uniTs RevieW COMPLIANCE HUMAN CAPITAL PT Bank Mandiri Persero Tbk. CuLTurE TransForMaTion The Compliance Human Capital Directorate and the Board of Directors committed to continue Advanced Culture Transformation in 2012 supporting Bank Mandiri Business Transformation by sustainably improving behavior aspects, symbols, and existing systems in Bank Mandiri. This commitment was conducted through the Programmatic Program of 2012. Programmatic program implementation at all work units were carried out through the following: 1. Training for Change Agent; participated by 532 executive managers of Department Head level, Team Leaders, and Section Heads. 2. Other activities conducted were; Culture Day, Culture Fair, and Change Agent Sharing Forum. 3. On site and on-desk monitoring of culture implementation on a regular basis. Appreciationreward programs were developed to support employees’ level of engagement to implement Corporate values, as follows: 1. Culture Excellence Award; an appreciation program for work units that successfully attained best performance and implemented the company culture. 2. Mandiri Best Employee Awards; an appreciation program for best employee, assessed by performance, achievement, and behavior. 3. Mandiri Innovation Awards MIA; an appreciation program to employees with the most innovative contribution towards several aspects of improvement. 472 employees participated in MIA in 2012. 4. Mandiri Employee Involvement in Community Development; an appreciation program to work units concerned with the environment and actively participated in corporate social responsibility programs; speciically those on community development. There were 222-community development programs conducted in 2012. Bank Mandiri subsidiaries also participated in all cultural activities in 2012, such as culture Fair, change Agent sharing Forum and culture excellence Award. The objective of the culture and one Mandiri initiatives programs were to create synergy and alliance between Bank Mandiri and subsidiaries and between subsidiaries themselves. The program is intended to create an integrated business culture among the subsidiaries. LEarninG dEVELoPMEnT a. 4 Disciplines of execution 4Dx The objective of this program is to improve employees’ execution capabilities. coaching and monitoring programs were conducted in 2012 for work units of head oice and regional oices. This program is a continuation of 4Dx program of 2011. b. great leader Program leadership capability development program is carried out through great leader Program for potential managers of work units. The objective of this program is to enhance leadership capability of Bank Mandiri employees. great leader Program was implemented in four phases Department level in 2012 with a total of 17 batches. c. Sharing Knowledge and Coaching The culture of development of sharing knowledge through coaching was also conducted within the Leadership and Executive Education Series Program. International standard speakers were invited to this program. d. Mandiri University One of the Bank signiicant strategic initiatives in 2012 was the construction of Mandiri university. Mandiri university is intended to be a corporate university - a transformation from existing learning center group. The learning center policy was changed from tactical learning into strategic learning with Mandiri university being a strategic partner for business units dedicated towards the achievement of Bank Mandiri vision. The following were implemented in 2012; enterprise learning Management system elMs and enterprise Knowledge Management system eKMs. Faculty building construction was carried out in several cities. There were also training adjustments made with Blended learning solutions. Trainer competency improvement was also organized by conducting certiication for learning Facilitator. duTiEs and FunCTions iMPLEMEnTaTion on CoMPLianCE This involved collaboration and implementation of duties and responsibilities of the Director in charge of compliance as stipulated in Bi Regulation no. 132PBi2011 dated 12 January 2011 concerning compliance Function implementation of commercial Banks. Bank indonesia regulation was efective since 1 september 2011, and has been successfully implemented through the following: 1. Prudent Principles implementation 2. good corporate governance 3. compliance Risk in the efort to manage compliance risk, several steps were taken, as follows: 1. Develop compliance standard guidelines sPKp and review it on a regular basis 2. Develop compliance Technical instructions PTKp of compliance Risk Assessment cRA 3. implementation of Anti-Money laundering and Terrorism Funding Prevention APu-PPT initiatives to strengthen the APu-PPT program were carried out to prevent the use of the Bank for crimes such as money laundering and terrorism funding. The initiatives were among others implemented for certiication programs of Anti Money laundering oicer AMlo, reinement of policy and standard procedure in line with required regulatory guidelines Bank indonesia, as well as sustainable training for frontliners. LEGaL To be further aligned with its business growth, Bank Mandiri took measures to guard the legal risk levels. Thereby, preventive actions on the possibility of risk events were taken. These include; 1. Preventive actions: a. legal Awareness The Bank conducted sustainable legal forums for all employees. The employees are expected to ensure that every activity is legal and thereby minimize legal risk. b. legal Review on site Juridical review on loan documents by research, ensure conformity and juridical suiciency on loan facility distribution, assess suPPoRTing uniTs RevieW COMPLIANCE HUMAN CAPITAL PT Bank Mandiri Persero Tbk. any juridical excess in the regulation development in loan documents, including collateral documents and its mitigation. c. Legal Advice On Site Interactive discussions with participants to provide direct advice and legal assistance on legal matters, in the ield or on business units operations presented by the participants based on review on site results. The mitigation then may be immediately activated, thereby to accelerate business process as well as provide better legal understanding as part of preventive action. d. legal oicer competency enhancement The Bank carried out the following program: - legal competency certiication, a cooperation of Bank Mandiri with legal academics and practitioners; - legal Profession certiication, namely Advocate Profession education held by indonesia Advocate Association; - capital Market legal consultant Profession education held by capital Market legal consultant Association; - curatorBankruptcy education held by indonesia organizer and Association. e. Mandiri legal clinic A provision of legal information service, legal advise, and legal solutions that can be accessed through telephone no. 500140 ext. 3 or by one on one at the counter of Mandiri legal clinic, 9th Floor, Plaza Mandiri building. 2. Repressive Action a. Decreasing outstanding legal cases b. out of court settlement c. Fostering good relations with customers to create a win-win solution 2013 Strategy and Work Plan The following principal matters are the main focus of the compliance Human capital Directorate in 2013: 1. To maintain and strengthen good corporate governance. 2. To review and build organization structure appropriateness to organization needs in managing business. 3. level of engagement improvement 4. solidifying the role of compliance unit as a second line of defense to keep Bank’s compliance on required the regulatory guidelines. SUPPORTINg UNITS REvIEw By considering the focus of empowerment as the irst line in the defense, DiA emphasized its program in 2012 on the improvement of risk maturity at the work units, infrastructure enhancement, staf competency, synergy between work units, as well as subsidiaries, to cover the following:

1. Internal Control and Risk Maturity Enhancement

DiA in collaboration with Risk Management, risk owner especially retail areas Branch Micro and iT, has reined the risk assessment process through development and determination of top risk or high risk areas and key controls to carried out by risk control owner as the irst line of defense; based on risk proile and risk assessment. identiied top risk or high risk areas will become a guideline for work units in prioritizing its focus and resources, following which, audit control or mitigation will be done by DiA.

2. Anti Fraud Strategy Program

internal and external stakeholders placed fraud prevention as one of main priorities, as stipulated in the Bank Risk Management, in line with Bi circular letter no. 1328DPnP dated 9 December 2011, concerning Anti Fraud strategy sAF implementation for Public. in this respect, DiA implements the empowerment spirit in developing sAF, both for short-term programs focusing on employees’ awareness and capability in preventing fraud at all work units, and sustainably in long-term programs.

3. Internal Audit Consolidation with Subsidiary

DiA and subsidiaries have cooperated to the beneit of the method, mechanism, and system developed by DiA, speciically on Risk Based Audit. The collaboration with subsidiaries also adopted the empowerment spirit to ensure an efective third line of defense, by internal audit unit and subsidiaries, and thus follow-up consolidation on assurance function with the holding company. DiA has done consolidation initiatives with Bank syariah Mandiri BsM in 2012, which cover the development of BsM Annual Audit Plan and Risk- Based Audit. in addition to empowerment implementation to the irst line of defense units, other initiatives done by DiA is to enhance work efectiveness of its auditors in the move to add value to if the meaning of empowerment is “to give ability” or “to enable”, then empowering in general can be described as a delegation process of providing greater authority to an individual or work unit to create a condition as to provide optimum capability and functionality to reach the company’s goal. The internal Audit DiA Directorate forwarded a theme of “empowering client” as the soul and spirit of audit implementation during 2012. DiA implements empowerment principles to remind individuals and work units of their powers that are not yet used optimally. every work unit is expected to function efectively with the empowering client concept, both as irst line and second line of defense towards signiicant risk during its business management process. in 2012, internal Audit was advanced with the theme of empowering client. DiA Works Program and all strategic initiatives are focused on risk awareness improvement at work units speciically related to work risks. To this end, each work unit is able to manage signiicant risk on its business management process with adequate and accurate internal control. The focus of empowering client in 2012 was placed at the irst line of defense, which is the risk owner. INTERNAL AUDIT PT Bank Mandiri Persero Tbk. the company, speciically in its three main areas; wholesale transaction, retail payment and retail inancing. The following are strategic eforts by DiA in 2012, among others:

1. Thematic audit program focused on wholesale fee-based income,

micro operational risk, Promotion and e-Channel. The selection of thematic audit on 4 four subjects was directed to support the Bank target and business focus in 2012. For example, fee-based income on thematic audit was taken to guard Bank business strategy in improving the growth of its wholesale fee-based income at 30.

2. Risk-Based Audit Methodology Enhancement and Continuous

Auditing Risk-Based Audit RBA methodology and continuous Auditing is implemented since 2007 and continuously reined through evaluation and calibration process on a regular basis. The reinement was intended to develop excellent and efective methodology to identify fraud risk and operational risk as well as to ensure control efectiveness on risk mitigation.

3. Auditor Competency Improvement

The focus of auditor competency improvement is on business aspect, risk management, technology and governance. The Bank oicially launched Audit, compliance governance Academy AcgA in 2010 and has developed internal competency standard referring to internal Audit capability Model iAcM that further used as the guideline to design internal certiication, including intervention program. Moreover, AcgA also acted as competency improvement coordinator to auditors through enrollment into both national and international scale certiication profession. The total DiA’s employee with international certiication is 43 35, 107 88 national certiied, and 55 45 internal certiied. in line with the aspiration to embed the culture of concern toward internal control into all employees, the Audit’s theme of empowering client in 2012 will be enhanced in 2013. empowering client concept will be expanded in 2013 by the implementation of second line of defense and third line of defense functions in the form of assurance function alliances. The consolidation of assurance functions is expected to provide the following beneits: • To increase trust toward compliance, Risk Management and internal Audit units. • To increase cost eiciency in assurance. • To prevent key risk on un-assurance as well as overlap on assurance. • easy understanding and implementation on risk management by all units, and risk owner may be able to focus on risk mitigation under hisher responsibilities. SUPPORTINg UNITS REvIEw Entering third year of Bank Mandiri transformation continuation process, Change Management Oice CMO Directorate continued to actively monitor and safeguard this process. Several achievements in 2012 include acceleration of ATM EDC implementation, alliance development support through Account Plan, organization positioning and business process reinement, as well as synergy optimization with subsidiaries. Bank Mandiri is in its third year of the second stage of transformation process in 2012 and continues to focus bankwide strategic initiatives on three main areas. These are: wholesale transaction banking, retail deposit payment, and retail inancing. These initiatives are supported with the acceleration of infrastructure development, in technology enhancements, human resources development, service networks, and continuing product and service development. These strategic initiatives were carried out to be able to immediately address business needs and challenges that will make a signiicant impact on Bank Mandiri’s transformation process. The change Management oice cMo Directorate holds the role of guardian in the continuation of Bank Mandiri transformation process. in this process, cMo was involved in four strategic tasks including: 1. supporting current business improvement; 2. leading new business development; 3. supporting the Board of Directors on other strategic projects; and 4. Acting as catalyst in the development of cross-directorate initiatives. 1. To suPPoRT cuRRenT Business iMPRoveMenT To support Bank Mandiri vision “To become indonesia’s Most Admired and Progressive Financial institutions”, the Bank continues to carry out business development initiatives speciically with Business units that hold spearheading positions in the company’s achievements in 2012. These initiatives are implemented in accordance with the Work Plan and corporate Budget RKAP 2012 as well as the Bank Mandiri corporate Plan 2010-2014. cMo’s involvement in business development initiatives by business units is conducted to sharpen the strategy or improve unit productivity in line with Management’s direction’s. in this context, cMo supports business advances and productivity by identifying improvements in business- as- usual through business process acceleration as well as business model reinement To provide added value to the company and in line with established strategies, mission and vision, cMo coordinated strategic implementation on iT or non iT initiatives on Bank Mandiri RKAP in the move to increase efectiveness and eiciency. CHANGE MANAGEMENT OFFICE PT Bank Mandiri Persero Tbk. To ensure the achievement of strategic initiatives implementation in 2012, CMO intensively continues to facilitate coordination and problem solving between Project Owner and related work units through ‘one-one-one meetings’ so as to establish good monitoring. In this way problem solving may be settled comprehensively, timely executed, in an efective and eicient manner. The growth level of problem solving on iT and non iT strategic initiatives increased by 43 compared to the settlements in the last ive years. in addition, Post implementation Review PiR is implemented to ensure focused and oriented project objectivity as well as its implications toward the Bank’s revenue and business development. PiR evaluation reported settlements in 2012 increased to almost two times compared with 2011. Bank Mandiri succeeded in expanding its ATM network in 2012 to 2,060 ATMs, to make a total of 10,985 active ATM units. The achievement is attributable to efectiveness in improvement of ATM command center functions to accelerate implementation processes. Bank Mandiri also expanded eDcs network in 2012, to 94,568 units. This is due to efectiveness of eDc command center function that is able to enhance eDc installment capacity from 250 units per day previously to 750 units per day. To ensure the implementation of the initiatives of corporate Plan 2010-2014 are on target and meet their expected results; cMo continues its coordination with all related work units. cMo is ready for consultation and be a mediator for any solution required should problems arise during implementation. cMo also functions to analyze project achievement, provide recommendations on projects that tend out of course, and conduct issues escalations that require directions and decisions from the Management. The following are the achievements of the corporate Plan initiative implementation in 2012: 1 implementation of selected 5 Main initiatives 5u and 5 Additional initiatives 5T, covering Micro Development and culture one Bank; 2 strengthening Bank Mandiri retail through sharpening the function of three pillars: Business unit, Risk Management, and credit operations in loan process, 3 synergy optimization between Bank Mandiri and subsidiaries; Bank syariah Mandiri, Mandiri Tunas Finance, and Mandiri AxA general insurance. entering 2013, cMo continues to review, facilitate and serve as the catalyst on organization alignment as well as business process reinement to ensure related units’ efectiveness. cMo will also boost the Bank’s six Key Priorities in achievement through business process positioning on the retail segment and solidifying the synergy with subsidiaries. cMo will further coordinate strategic initiative implementation to provide overall optimum added value to the company. 2. To leAD neW Business DeveloPMenT Besides the organic method of sharpening the business strategy and improving strategic initiative efectiveness to support Bank Mandiri’s business growth, cMo is also responsible forh non-organic processes. in this role, cMo carries out acquisitions, promotes joint ventures as well as strategic cooperation with other institutions.