61
Credit Policy Credit risk management on a transactional level is regulated
though the Bank’s credit policy and strengthened by the Four Eye principle, and has laid the foundation for a
healthy credit culture with greater objectivity and quality in decision-making. In addition, Bank Mandiri sees the
importance of monitoring and controlling credit risks after the loan has been disbursed until its final payment.
D. Market Risk Interest Rate Risk
Interest rate risk management is applied to both the banking book and trading book portfolios. The portion of the banking
book portfolio which is interest rate sensitive includes loans, government bonds, third party funding demand deposits,
savings deposits, and time deposits, and fund borrowings. Interest rate gaps between assets and liabilities in this
portfolio can impact the profits and equity of the Bank. The trading book portfolio is interest rate sensitive due to
changes in mark-to-market value and includes assets held as ‘available for sale’.
A re-pricing gap analysis is used to measure the impact of interest rate changes on the Bank’s profitability. We use
duration gap analysis to measure the impact of interest rate changes on the Bank’s equity value economic value of
equity or EVE. In addition, to measure trading activity risk, the Bank adopts Bank Indonesia’s standard procedures and
internal approach simultaneously.
Interest rate risk is managed and mitigated through credit limits that are reviewed by the market risk management unit
and approved by the Risk Capital Committee. Limits for the banking book portfolio include a re-pricing gap limit and
an equity value sensitivity to interest rate change limit i.e. 100 bps. For the trading portfolio, including derivatives,
Sector Dec, 2003
Dec,
2004
Growth YoY
Rp billion Rp billion
Rp billion
Agriculture 8,992
12.27 8,317
9.39 675
7.51 Mining
2,499 3.41
3,743 4.23
1,245 49.82
Food, Beverage Tobacco 5,331
7.27 7,800
8.81 2,469
46.31 Textile Leather Manufacturing
5,203 7.10
5,243 5.92
41 0.78
Wood Manufacturing 2,748
3.75 3,304
3.73 556
20.23 Pulp Paper Industry
3,761 5.13
4,047 4.57
286 7.60
Chemical, Oil Refinery, Coal, Rubber Plastic 7,636
10.42 7,680
8.67 44
0.58 Non-metal Manufacturing
2,916 3.98
2,468 2.79
447 15.34
Other Manufacturing 4,521
6.17 6,622
7.48 2,101
46.47 Electricity, Oil Water
1,428 1.95
1,657 1.87
229 16.00
Construction 3,864
5.27 6,030
6.81 2,166
56.06 Trading, Restaurants Hotels
9,791 13.35
11,567 13.06
1,776 18.14
Transportation, Warehousing Communication 4,323
5.90 3,923
4.43 400
9.25 Services
4,896 6.68
6,141 6.94
1,245 25.43
Others 5,403
7.37 10,002
11.30 4,598
85.10
Total 73,311
100.00 88,545
100.00 15,234
20.78
we use VaR as the limit, which will be reflected in trading limits such as maximum open position for each dealer,
maximum loss limits and counter-party limits.
In order to comply with risk-based minimum capital requirements, we have begun calculating capital reserves
to cover the interest rate risk on the trading book Tier 1 and banking book Tier 2.
Foreign Exchange Risk Management Foreign exchange transaction activities are centralized and
managed on a daily basis by the fund management unit. The market risk management unit monitors foreign exchange
risk and uses an integrated system of front office fund management unit, back office operational management
unit, and middle office market risk management unit.
Bank Indonesia sets the daily net reserves at a maximum of 20 of total capital. The Bank, however, prudently sets a
lower internal limit of 5 of total capital.
E. Liquidity Risk
