NET OPEN POSITION Continued

PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 150

54. CUSTODIAL AND TRUST OPERATIONS continued

Trust Operations Bank Mandiri had been rendering trustee services since 1983 legacy banks: Bank Exim, BDN, BBD and Bapindo. The operating license for trustee services was renewed and re-registered with Bapepam as stipulated in Decision Letter No. 17STTD-WAPM1999 dated October 27, 1999. The Trustee Services Business TSB, which is part of the Securities Services Department SSD of Bank Mandiri, provides a full range of the following services: a. Preparing documentation support to bond issuers in complying with required documents for issuance. b. Signing trustee agreements and other relevant documents together with bond issuers and other related institutions. c. Monitoring performance of issuers and compliance against required documentation as stipulated in trustee agreements on behalf of bondholders. d. Facilitating bondholder meetings and following up and executing the results of bondholder meetings, as required. e. Providing information on issuers’ performance as requested by Bapepam or bondholders. f. Managing the sinking fund and other collateral as required by a bond’s issuance and terms and conditions. g. Paying agent for bonds issue, shares, MTN and others. h. Escrow agent and security agent. Bank Mandiri had 34, 27 and 22 trustee customers as of December 31, 2004 and 2003, and April 30, 2003, respectively. The total value of bonds issued amounted to Rp9,703,487 and US100,000,000 full amount, while the sinking funds managed on behalf of bond issuers as of December 31, 2004 amounted to Rp19,000 and the escrow account amounted to Rp1,363,225 on behalf of seven customers.

55. CHANNELING LOANS

Channeling loans based on sources of funds and economic sectors are as follows: December 31, December 31, April 30, 2004 2003 2003 Government: Electricity, gas and water 9,414,882 9,722,709 9,564,015 Transportation and communications 5,335,880 6,604,057 7,089,813 Agriculture 1,737,072 1,694,085 1,692,122 Manufacturing 839,980 854,454 630,553 Mining 99,738 101,812 118,731 Construction 17,015 18,489 20,307 Others 122,847 128,342 138,378 17,567,414 19,123,948 19,253,919 Bank Mandiri has been appointed to administer channeling loans in various foreign currencies received by the Government of Indonesia from various bilateral and multilateral financing institutions, such as, The Export Import Bank of Japan, ASEAN Japan Development Fund, Overseas Economic Cooperation Fund, International Bank for Reconstruction and Development, Nordiska Investeringbanken, Kreditanstalt Fur Wiederaufbau, Sumitomo, US AID, Barclays Bank, Bank of China, CN Lyonnais, Unibank, Bank of Austria, Ryobhin Hong Kong, Export Finance and Insurance Cooperation - Australia, Mitsubishi Corporation, Chartered West LB, Banque Indosuez, Hitachi Zosen, NEC Corporation, Banque Francais du Comm, US Exim Bank, and Banque Paribas, for financing projects in Indonesia. PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 151

55. CHANNELING LOANS continued

Channeling loans are not recognized in the consolidated balance sheets as the credit risk is not borne by the Bank or its Subsidiaries. Bank Mandiri’s responsibilities under the above arrangements include, among others, collections from borrowers and payments to the Government of principal, interest and other charges and the maintenance of loan documentation. As compensation, Bank Mandiri receives an annual administration fee which varies from 0.15 - 0.4 of the loan balances. 56. RISK MANAGEMENT The Bank has implemented new risk management procedures and has issued risk management guidance and policies. These policies are in process of revision to comply with Bank Indonesia’s Regulations regarding the Implementation of Risk Management for Commercial Banking No. 58PBI2003 dated May 19, 2003 as well as Circular Letter No. 521DPNP dated September 29, 2003 regarding Implementation of Risk Management for Banks. Implementation of risk management is not only required for credit risk, market risk and operational risk, but also liquidity risk, legal risk, reputation risk, strategic risk and compliance risk. The Bank has a risk management organizational structure which is centralized and independent with the establishment of the Risk Management Directorate on August 1, 2001, and the Risk and Capital Committee on October 10, 2001. The Risk and Capital Committee performs the functions of the Risk Management Committee and the Asset Liability Committee ALCO. Based on Board of Directors’ decision letter dated December 12, 2003, the Bank has re-organized the structure of the organization, duties, responsibilities and regulations and membership of the Risk and Capital Committee. The Risk Management Directorate performs the functions of identifying, assessing, monitoring and managing all principal risks in accordance with defined policies and procedures. The Risk Management Directorate is divided into 2 main functions: 1 Credit approval as a part of the four-eye principle, and 2 Independent Risk Management as an independent function of credit and portfolio risk, operational risk and market risk management. This directorate is managed by a director of the Bank in charge for risk management, who is also a voting member of the Risk and Capital Committee. The Risk and Capital Committee is a committee that is made up of members of the Board of Directors and Group Heads from various units. The Risk and Capital Committee is led by the President Director and supported by permanent and contributing members who are responsible for establishing Bank-wide risk management policies, such as reviewing internal limits, establishing credit policies and policies related to the determination of interest rates for funding and credit, monitoring the implementation of credit policies and procedures and establishing the criteria for risk identification, measurement and mitigation. Credit Risk The Bank has written credit policies and guidelines on loan administration, which includes the Bank Mandiri Loan Policy Manual, Loan Administration Guidelines, and various circular letters that constitute a more detailed administration manual. The purpose of the guidelines is to provide a comprehensive formal loan management manual relating to application, approval, recording, monitoring and restructuring processes, including risk analysis and assessment. Bank Mandiri expects to optimize the quality of loan management through appropriate processes that comply with the Basel II New Accord, competitive risk-based price determination, portfolio diversification, collateral adequacy and risk-based determination of performance measurement. PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 152

56. RISK MANAGEMENT continued

Market Risk Market risk consists of interest rate risk, trading risk, foreign currency exchange risk, derivative instrument risk and liquidity risk. In managing liquidity risk, the Bank uses an indicator which is known as liquidity red flags that consist of several liquidity ratios such as primary reserves, secondary reserves, loans to deposits ratio, concentration of fund sources, inter-bank call money, diversification of fund sources and primary reserves consists of minimum reserves and cash. Bank Indonesia requires banks to maintain a minimum reserve of 8 of third party funds excluding loans from other banks, and a minimum reserve of 3 out of foreign currency third party funds including loans from other banks. The primary method in managing interest rate risk is repricing gap analysis and duration gap. In addition, Bank Mandiri also monitors other indicators to measure interest rate risk based on statistical conditions referred to as Interest Rate Risk Red Flags. In monitoring treasury trading activities, the Bank has established trading risk limits in the form of Value at Risk VaR and dealer limits, and supported by performing Stress Testing, and Back Testing periodically. The Bank has centralized the operational management of the foreign exchange position within the Treasury Group, which is required to comply with the policies and procedures approved by the Risk and Capital Committee, and also the overall net open position limit set by Bank Indonesia regulations. The Bank has also set an internal Net Open Position NOP limit of 5 of core and supplemental capital. The internal policy on NOP limit is determined by the Risk and Capital Committee RCC taking into account the volatility of foreign exchange movements. The Bank also calculates the minimum capital requirement to cover market risk by using the prescribed standard method of Bank Indonesia. In addition, for internal use purposes the Bank also calculates the capital requirement by using an internal model. Operational Risk The main principle in operational risk management is that risk management is the responsibility of all levels of management, as reflected in their daily activities through risk culture, risk awareness and management style. Operational Risk Management ORM goals are to effectively improve the quality of the activities of the working units in supporting the Bank’s goals and targets, in order for the Bank to achieve long term targets and be able to allocate economic capital to each business activity. The operational risk management initiative in Bank Mandiri consists of three major components: • ORM policies, • ORM tools, and • Implementation, including ORM training for all Bank Mandiri employees. Management of other risks such as legal risk, reputation risk, strategic risk and compliance risk, are coordinated by a risk management unit through the development of policies and risk mitigation procedures. However, operational activities are still under the responsibility of the unit which managedthe legal, reputation, strategic and compliance activities.