PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
135
58. ECONOMIC CONDITIONS
The operations of the Bank have been affected, and may continue to be affected for the foreseeable future by the economic conditions in Indonesia. Despite the recent improvement in the key economic indicators,
Indonesian banks have engaged in limited lending activities. Any worsening of the economic conditions, including a significant depreciation of the Rupiah or increase in interest rates, could adversely affect the
ability of the Bank’s customers including borrowers and other contractual counterparties to fulfill their obligations when they mature, and consequently negatively impact the Bank’s profitability and its capital
adequacy. Economic improvements and sustained recovery are dependent upon several factors such as the fiscal and monetary actions being undertaken by the Government and others, actions that are beyond the
control of the Bank.
The accompanying consolidated financial statements include the effects of the adverse economic conditions to the extent they can be determined and estimated. Economic improvements and sustained
recovery are dependent upon the fiscal and monetary action being undertaken by the Government to achieve the economic recovery, actions that are beyond the control of the Bank and Subsidiaries. It is not
possible to determine the future effects a continuation of the adverse economic conditions may have on Bank Mandiri’s and its Subsidiaries’ liquidity, earnings and realization of their earning assets, including the
effects from their customers, creditors, shareholders and other stakeholders. The ultimate effect of these uncertainties on the stated amounts of assets and liabilities at the balance sheet date cannot presently be
determined. Related effects will be reported in the consolidated financial statements as they become known and can be estimated.
59. GOVERNMENT GUARANTEE OF OBLIGATIONS OF LOCALLY INCORPORATED BANKS
Based on the Decree of the Minister of Finance of Republic Indonesia No. 26KMK.0171998 dated January 28, 1998, which was replaced by the Decree of the Minister of Finance No. 179KMK.0172000
dated May 26, 2000, the Government of the Republic of Indonesia is guaranteeing certain obligations of locally incorporated banks namely demand deposits, savings, time deposits and deposits on call, bonds,
marketable securities, inter-bank placements, fund borrowings, currency swaps and contingent liabilities such as bank guarantees, standby letters of credit and other liabilities, excluding subordinated loans and
amounts due to directors, commissioners and related parties. Based on Joint Decrees of the Directors of Bank Indonesia and Head of IBRA No. 3246KEPDIR and
No. 181BPPN0599 dated May 14, 1999, the guarantee period is automatically extended, unless otherwise i.e. that within six months from the maturity of this guarantee, IBRA decides not to extend its maturity. In
2001, the Joint Decrees of the Directors of Bank Indonesia and the Head of IBRA were replaced by BI regulation No. 37PBI2001 and the Decree of the Head of IBRA No. 1035BPPN0401.
The Head of IBRA issued Decree No. SK-1036BPPN0401 in 2001 that provides for specific operational guidance in respect of the Government of the Republic of Indonesia’s Guarantee of obligations of locally
incorporated banks. The Government charges a premium in respect of its guarantee program in accordance with prevailing
regulations Note 44.
PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2005 and 2004 Expressed in millions of Rupiah, unless otherwise stated
136
59. GOVERNMENT GUARANTEE OF OBLIGATIONS OF LOCALLY INCORPORATED BANKS continued
Based on Presidential Decree No. 152004 dated February 27, 2004 in relation to the termination of IBRA’s duties and its dissolution, and Decree of the Minister of Finance No. 84KMK.062004 dated
February 27, 2004, the Government of the Republic of Indonesia established Unit Pelaksana Penjaminan Pemerintah, a new institution replacing IBRA, to continue the Government guarantee program for obligations
of locally incorporated banks. Based on Ministry of Finance Decree No. 17PMK.052005 dated March 3, 2005, effective as of
April 18, 2005, the Government guarantee program covers the demand deposits, savings, time deposits and deposits from other banks from money market interbank transactions.
Government guarantee program through Unit Pelaksana Penjamin Pemerintah UP3 was ended on September 22, 2005, as stated in Ministry of Finance Decree No. 68PMK.052005 dated August 10, 2005
regarding Calculation and Payment of Bank Liability on Government Guarantee Program Premium For Period July 1 until September 21, 2005. The Government replaced UP3 with an independent institution,
Lembaga Penjamin Simpanan LPS based on Republic of Indonesia Decree No. 242004 dated September 22, 2004 regarding Lembaga Penjamin Simpanan LPS, which LPS guarantee third party
fund including placement from other bank in the form of current account, time deposit, certificate of deposit, savings and other form that is equivalent to them.
60. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE BANK “INDONESIAN GAAP” AND INTERNATIONAL FINANCIAL REPORTING STANDARDS
“IFRS” The accompanying consolidated financial statements have been prepared in accordance with Indonesian
GAAP, which varies in certain significant respects from IFRS. The significant differences relate to the items in the following paragraphs:
a. Allowance for Possible Losses on Earning Assets Under Indonesian GAAP, the Bank records allowances for possible losses on earning assets using
general and specific allowances based on management’s estimates and using the guidelines prescribed by Bank Indonesia BI.
Under IAS No. 39 - “Financial Instruments: Recognition and Measurement”, the Bank calculates allowances for possible losses on earning assets based on the difference between the carrying amount
of the impaired earning asset and the net present value of expected future cash flows discounted at the earning assets original effective interest rate. An earning asset is considered impaired when it
becomes probable that the Bank will be unable to collect all amounts due according to contractual terms. In addition, the Bank also recognizes allowances for possible losses on unimpaired loans in
accordance with BI minimum provision.
b. Allowance for Possible Losses on Commitments and Contingencies Under Indonesian GAAP, the Bank records allowances for possible losses on commitments and
contingencies using general and specific allowances based on management’s estimates and using the guidelines prescribed by Bank Indonesia.
Under IFRS, the Bank does not recognize certain of the allowances for possible losses on commitments and contingencies in accordance with the provisions of IAS No. 37 - “Estimated
Liabilities, Contingent Liabilities and Contingent Assets”.
c. Derivative instruments The Bank classifies Government Bonds Note 10 as originated loans under IFRS and therefore no
