Allowance for Possible Losses on Non-Earning Assets

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2014 AND 2013 Expressed in millions of Rupiah, unless otherwise stated Appendix 540 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

x. Deposits from Customers continued

Included in demand deposits are wadiah demand and saving deposits. Wadiah demand deposits can be used as payment instruments and can be withdrawn any time using cheque and bilyet giro. Wadiah demand and saving deposits earn bonus based on Bank’s policy. Wadiah saving and demand deposits are stated at the Bank’s liability amount. Deposits from customers are classified as financial liabilities at amortised cost. Incremental costs directly attributable to acquistion of deposits from customers are included in the amount of deposits and amortised over the expected life of the deposits. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost.

y. Deposits from Other Banks

Deposits from other banks represent liabilities to local and overseas banks, in the form of demand deposits, saving deposits, inter-bank call money with original maturities of 90 days or less and time deposits. Deposits from other banks are recorded as liability to other banks. Included in the deposits from other banks are sharia deposits in form of wadiah deposits, and Certificates Mudharabah Investment Bank SIMA. Deposits from other banks are classified as financial liabilities at amortised cost. Incremental costs directly attributable to acquistion of deposits from other banks are included in the amount of deposits and amortised over the expected life of the deposits. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost.

z. Insurance Contract

Insurance contracts is a contract under which the insurer accepts significant insurance risk from the policyholders. Significant insurance risk is defined as the possibility of paying significantly more benefit to the policyholder upon the occurrence of insured event compared to the minimum benefit payable in a scenario where the insured event does not occur. Scenarios considered are those with commercial substance. The Subsidiaries issue insurance contracts that accepted siginificant insurance risk from the policyholders. The Subsidiary defines significant insurance risk as the possibility of having to pay benefits on the occurence of an insured event of at least 10 more than the benefits payable if the insured event did not occur. When an insurance contract does not have significant insurance risk, it is classified as Investment contracts. Once a contract has been classified as an insurance contract, no reclassification is subsequently performed unless the terms of the agreement are later amended. All insurance products issued by the subsidiary has significant insurance risk. The Subsidiary unbundles the deposit component of unit-linked contract as required by SFAS 62 when both the following conditions are met: - The Subsidiary can measure separately the “deposit” component including any embedded surrender option, i.e. without taking into account the “insurance” component; - The Subsidiary’s accounting policies do not otherwise require to recognise all obligations and rights arising from the “deposit” component. - The Subsidiary does not separate the deposit component because only one of the above condition is met.