Allowance for impairment losses of financial assets

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 44

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued

G. Allowance for impairment losses of financial assets continued

a Financial assets carried at amortised cost continued Allowance for possible losses on earning assets of Subsidiary based on sharia 1. Earning assets consist of current account and placements with Bank Indonesia in the form of Bank Indonesia Sharia Certificate SBIS, Bank Indonesia Sharia Deposit Facility FASBIS, Reverse Repo Receivables SBSN BI, Term Deposit Foreign Currency Sharia BI, current accounts with other sharia banks, placement with other sharia banks, investment in marketable securities, istishna receivables, ijarah receivables, funds of qardh, musyarakah financing, mudharabah financing, ijarah assets, and commitments and contingencies with credit risk, such as bank guarantees, irrevocable letters of credit LC and standby letters of credit. Allowance for impairment losses of earning assets and non-earning assets for commercial bank conducting business based on sharia principles based on FSA Regulation No. 16POJK.032014 dated November 18, 2014, and FSA Regulation No. 12POJK.032015 dated August 21, 2015. The guidelines for establishment of the allowance for impairment losses on earning assets based on the aforementioned Bank Indonesia Regulation are as follows: a General reserve, shall be no less than 1 of total earning assets classified as current, excluding Bank Indonesia Sharia Certificates and securities issued by the Government based on sharia principles, and part of earning assets guaranteed by government and cash collateral in the form of demand deposits, saving deposits, time deposits, guarantee deposits, andor gold which are pledged accompanied with the power of attorney to liquidate. b Special reserve shall be at least: - 5 of earning assets classified as Special Mention after deducted by collateral value; - 15 of earning assets classified as Substandard after deducted by collateral value; - 50 of earning assets classified as Doubtful after deducted by collateral value; - 100 of earning assets classified as Loss after deducted by collateral value. c The requirement to establish allowance for impairment losses shall not be applicable for earning assets under leasing transactions in the form of ijarah or leasing transaction with transfer of ownership of leasing object in the form of ijarah muntahiyah bittamlik. The Bank is required to depreciateamortize for the assets of ijarah muntahiyah bittamlik. For marketable securities and placements to the bank, the quality rating is classified into 3 three classifications: current, substandard, and loss. Quality rating of equity investment is determined into 4 four categories: current, substandard, doubtful and loss. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 45

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued