BANK GUARANTEES RECEIVED AND ISSUED AND STANDBY LETTERS OF CREDIT continued

PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, April 30, 2003 and December 31, 2002 Expressed in millions of Rupiah, unless otherwise stated 140

48. BANK GUARANTEES RECEIVED AND ISSUED AND STANDBY LETTERS OF CREDIT continued

Standby Letters of Credit SBLC continued December 31, April 30, December 31, 2003 2003 2002 PT Kaltim Methanol 176,925 182,186 150,450 PT Bisma Narendra 53,078 17,749 27,465 PT Citra Jimbaran Indah Hotel 30,000 30,000 30,000 PT Pupuk Kaltim - 60,937 - Others 4,525 2,676 21,467 2,763,672 2,364,538 3,235,189 Based on the Issuance Agreement of Standby Letters of Credit SBLC dated September 14, 2001 which was legalized by Imas Fatimah S.H., notary in Jakarta, Bank Mandiri agreed to issue a SBLC of US100,000,000 full amount on behalf of PT Garuda Indonesia Persero for three years commencing November 1, 2001 through to November 1, 2004 with annual extensions. The issuance of the SBLC is in connection with the agreed loan restructuring schemes between Bank Mandiri and PT Garuda Indonesia Persero on September 14, 2001. The restructuring agreement also provides for the conversion of loans equivalent to Rp1,018,809 into 5-year Mandatory Convertible Bonds “MCBs” Note 7d. The issuance of the SBLC and conversion of loans into MCBs were approved and guaranteed by the Committee on Financial Sector Policy KKSK through Decision Letter No. Kep.02K.KKSK112000 dated November 3, 2000 and the Minister of Finance through Decision Letter No. SR-653MK.052001 dated July 20, 2001. The Bank issued an Irrevocable Transferrable Letter of Credit on behalf of PT Perusahaan Gas Negara PGN for a maximum amount of US93,917,500 full amount to support PGN’s obligation under the Sales and Purchase Agreement between Pertamina and PGN for gas purchased by PGN at Muara Karang and Surabaya. As of December 31, 2003, the total limit has been utilized. The Bank issued an Irrevocable Standby Letter of Credit on behalf of Pertamina Divisi Perbendaharaan for a maximum amount of US55,717,200 full amount to support Pertamina’s obligation under the Crude Oil Sales and Purchase Agreement between Pertamina and the Saudi Arabian Oil Company Saudi Aramco for crude oil purchases by Pertamina. As of December 31, 2003, the total limit has been fully utilized. Based on the Risk Sharing Agreement No. 11 dated February 16, 1993 which was legalized by Mr. Soedarno S.H., notary in Jakarta, Bank Mandiri, together with PT BNI Persero and PT BRI Persero agreed to issue Standby Letters of Credit on behalf of PT Perusahaan Listrik Negara Persero for twenty years starting April 1, 1993 until March 31, 2013. The maximum SBLC facility amounts to US300,943,500 full amount, of which 60.476 represents Bank Mandiri’s portion. The amount utilized as of December 31, 2003, April 30, 2003 and December 31, 2002 were US74,078,400 full amount, US74,078,400 full amount, and US223,399,000 full amount, respectively, of which Bank Mandiri’s portion amounts to US44,799,653 full amount, US44,799,653 full amount, and US135,102,815 full amount, respectively. The Bank issued an Irrevocable Transferrable Letter of Credit on behalf of PT Kaltim Methanol Industry for a maximum amount of US21,000,000 full amount to support PT Kaltim Methanol’s obligation under the Sales and Purchase Agreement No. SPB-1195C00096-SI between PT Kaltim Methanol and Pertamina for natural gas purchases by PT Kaltim Methanol. As of December 31, 2003, the total limit has been fully utilized. PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, April 30, 2003 and December 31, 2002 Expressed in millions of Rupiah, unless otherwise stated 141

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 identifies, measures, monitors, manages and reports risks in accordance with the policies and procedures which are established to address these risks. The Bank has implemented new risk management procedures and developed its risk management manual. The Bank also continues to improve the policies and procedures to meet international best practices. The Bank has established a risk management organizational structure which is centralized and independent through 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 both the Risk Management Committee and the Assets-Liabilities Committee ALCO. 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 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, 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 business units within the Bank, which is led by the President Director. The Risk and Capital Committee reports directly to the Board of Directors and the Board of Commissioners. The Risk and Capital Committee, together with the Risk Management Directorate, is responsible for establishing bank-wide risk management policies, such as reviewing internal limits segment limit, group limit and industry limit, 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. To improve the quality and integrity of risk management, the Bank has engaged in the past, and continued to engage, the services of international consultants to assist in this process. Credit Risk Credit risk is potential for loss arising from failure of debtor or counterparty to meet their contractual obligations. Exposure to credit risk arises primarily from lending activities and to a lesser extent, from sales and trading activities, derivaties activities and from participation in payment transaction and securities settlements. As disciplined credit risk management, the Bank has written credit policies and guidelines on loan administration, which include Bank Mandiri Loan Policies, Loan Administration Guidelines and various circular letters that constitute a more detailed administration manual. The purpose of those three guidelines is to provide a complete formal loan management manual; from application, approval, recording, monitoring and the restructuring process, including risk analysis and assessment. Therefore, Bank Mandiri expects to optimize the quality of loan management through appropriate processes, competitive risk-based price determination, portfolio diversification, collateral adequacy and risk-based determination of performance measurement. Corporate governance is applied through the application of the “four eyes principle”, which ensures that decisions on loan administration are made by a minimum of two independent parties, namely the associated business unit and a risk unit. This application is expected to result in better credit decisions.