Bank Mandiri Credit Risk

A. Application of Bank Mandiri Credit Risk Management

In implementing credit risk management, Bank Mandiri applies the precautionary principle in
granting credit by applying the four eye principal. In assessing and monitoring credit quality, Bank
Mandiri refers to applicable regulations. The credit and management process is carried out by:

• Business Unit

• Credit Risk Management

• Credit Operation Unit

The process of granting credit and credit risk management is supported by an integrated and
end-to-end system of criteria for credit acceptance, approval and determination of credit limits,
determination of loan interest rates, monitoring of credit quality, collateral management and handling
of non-performing loans.

As a guideline for end to end credit management, Bank Mandiri has a Bank Mandiri Credit
Policy (KPBM), including Credit Culture and Credit Doctrine. The operational description of credit
policies is outlined in the form of Credit Procedure Standards (SPK) and Product Manuals. The credit
management process begins with setting the target market, conducting risk assessment and monitoring
credit. Bank Mandiri applies the precautionary principle in lending, where the function of credit analysis
is carried out by independent business units and credit risk units, the function of credit approval is
carried out in the four eyes principle and the credit administration function is carried out by a credit
operating unit that is independent of the business unit and risk unit credit.

Bank Mandiri also monitors credit on the credit process and the system and its supporting tools
through a forum called a credit session that is routinely held for each credit segment. From this forum,
problems and weaknesses in business processes, credit policies and credit methodologies and tools can
be identified so that repairs can be made immediately.

As an anticipatory step (early warning signal), a simulation and stress testing process is carried
out on the bank's portfolio periodically to determine changes in the quality of bank portfolios per
segment, due to changes in some parameters of extreme economic conditions that may occur. The
simulation results provide guidance for banks to monitor more closely the sectors or debtors who have
the potential to experience a decline in quality.

B. Real Case

Here We take a sample of Bank Mandiri bad credit cases from the Liputan6.com news portal
published on May 2, 2005.

Bank Mandiri's bad credit case has been going on for a long time. More than Rp 1 T of credit
is then recapitulated and refinanced, but it is stuck again. Strangely this biggest government bank then
took over the credit, even though Bank Mandiri's management knew that the company receiving the
credit was not worthy of assistance.
 The BPK as the audit party revealed that there were 36 modes of irregularities in the distribution
of non-performing loans at this BUMN bank. From the results of the investigative audit BPK found
irregularities and irregularities in lending, especially the management's compliance with the
precautionary nature of lending.

The loans were disbursed to 28 companies, including PT Lativi Media Karya valued at Rp. 300
billion, PT Siak Zamrud Pusaka Rp. 24.8 billion and PT Cipta Graha Nusantara Rp. 161 M. The
Professional Professional Society suspected that there were still other bad loans at Bank Mandiri of Rp.
5 -12 T.

The Bank Mandiri bad credit case received special attention from the president who served at
that time, namely, President Susilo Bambang Yudhoyono. According to the President, there is nothing
wrong with the domestic banking system. The case of bad credit arises because of the mistakes of the
individuals who distorted Bank Mandiri's credit.

C. Group Analysis

According to our group, Bank Mandiri has not fully applied the prudential principle in
providing credit as we have seen in the case above.

Therefore, in our opinion there are a number of things that might need to be underlined and
corrected, so that in the future it can minimize the occurrence of bad credit in Bank Mandiri and in other
banks.

The first, is the section / Banking Management party to be more careful in distributing credit,
if the credit recipient company is not feasible to finance, it should not be taken, because if it is stuck as
described above, it will definitely have an impact on banking itself. Therefore, in our opinion, it is better
for Banking Management to be more selective and must consider more in distributing loans and other
financing.

The next is, Bank Indonesia (BI) to be able to move more quickly in handling cases like this.
So that it does not affect BI's credibility. Because the function of Bank Indonesia (BI) is as a banking
supervisor in Indonesia, therefore BI must further improve its supervision and anticipation for cases
that might occur in the banking world. If BI is slow in responding to existing cases, it will greatly affect
the world of national banking. And resulting in a decrease in public confidence in the banking sector.