Financial Statements. English

Transcription

1 Financial Statements English

2 Contents PT ANZ PANIN BANK FINANCIAL STATEMENTS YEARS ENDED 31 DECEMBER 2008 AND 2007 Page INDEPENDENT AUDITOR'S REPORT 49 BALANCE SHEETS DECEMBER 2008 AND 2007 STATEMENTS OF INCOME 52 YEARS ENDED 31 DECEMBER 2008 AND 2007 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 53 YEARS ENDED 31 DECEMBER 2008 AND 2007 STATEMENTS OF CASH FLOWS 54 YEARS ENDED 31 DECEMBER 2008 AND 2007 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED 31 DECEMBER 2008 AND

3 Independent Auditor,s Report 49

4 Balance Sheets PT ANZ PANIN BANK BALANCE SHEETS 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) ASSETS Notes Cash on hand 2a 21,609 15,838 Demand deposits with Bank Indonesia 2a 268, ,411 Demand deposits with other banks 2a,2c,3,22 612, ,032 Allowance for uncollectible accounts 2k,3 (6,130) (1,990) Placements with other banks 2c,2f,4,22 618,781 1,545,461 Allowance for uncollectible accounts 2k,4 (6,188) (15,455) Marketable securities, net 2g,5 291,583 1,044,906 Derivative receivables 2c,2h,6,22 740,969 34,980 Allowance for uncollectible accounts 2k,6 (7,382) (327) Loans receivable 2i,2j,7 6,525,631 3,077,810 Allowance for uncollectible accounts 2k,7 (196,204) (151,988) Acceptance receivables 2l,8 652,963 68,815 Allowance for uncollectible accounts 2k,8 (4,469) (872) Bills receivable 2c,9,22 408,146 82,869 Allowance for uncollectible accounts 2k,9 (4,081) (829) Interest receivable 2c,2d,22 80,332 35,405 Fixed assets, acquisition cost 2m 110,622 69,076 Accumulated depreciation 2m (53,267) (49,079) Deferred tax assets, net 2n,12 30,830 21,686 Other assets 2c,22 101,036 60,882 TOTAL ASSETS 10,185,975 6,297,631 See Notes to the Financial Statements, which form an integral part of these financial statements. 50

5 Balance Sheets PT ANZ PANIN BANK BALANCE SHEETS (continued) 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) LIABILITIES AND SHAREHOLDERS' EQUITY Notes LIABILITIES Deposits from non-bank customers 10 7,452,379 4,648,620 Deposits from other banks 2c,10,22 159, ,312 Derivative payables 2c,2h,6,22 596,454 25,428 Acceptance payables 2c,2l,11,22 250,514 68,815 Taxes payable 2n,12 69,037 28,969 Interest payable 2c,2d,22 44,580 25,626 Other payables 2c,22 192, ,113 Obligation for post-employment benefits 2o 20,233 14,427 Estimated loss from off-balance sheet transactions 2k,13 40,019 13,899 TOTAL LIABILITIES 8,825,502 5,194,209 SHAREHOLDERS' EQUITY Share capital at par value of Rp 1,000,000, in whole amount, per share: Authorized, fully issued and paid-up capital of 50,000 shares 14 50,000 50,000 Retained earnings: Appropriated for general reserve 10,000 10,000 Unappropriated 1,300,473 1,043,422 TOTAL SHAREHOLDERS' EQUITY 1,360,473 1,103,422 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 10,185,975 6,297,631 See Notes to the Financial Statements, which form an integral part of these financial statements. 51

6 Statements of Income PT ANZ PANIN BANK STATEMENTS OF INCOME YEARS ENDED 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) Notes OPERATIONAL REVENUE AND EXPENSES: INTEREST INCOME: Interest 2c,2d,15,22 1,003, ,751 Commissions 2e 379, ,601 1,383,247 1,002,352 INTEREST EXPENSES 2c,2d,16,22 (400,937) (232,605) Net interest income 982, ,747 OTHER OPERATIONAL REVENUE: Foreign exchange gain, net 2b 178,213 43,503 OTHER OPERATIONAL EXPENSES: Uncollectible accounts expense (including estimated loss from off-balance sheet transactions) 2k (263,277) (233,339) General and administrative expenses 2c,17,22 (371,343) (257,768) Personnel expenses (96,515) (63,292) Other expenses (54,339) (11,507) (785,474) (565,906) Net other operational expenses (607,261) (522,403) NET OPERATING INCOME 375, ,344 NON-OPERATIONAL REVENUE INCOME BEFORE TAX 375, ,586 INCOME TAX EXPENSE 2n,12 (118,467) (75,966) NET INCOME 257, ,620 See Notes to the Financial Statements, which form an integral part of these financial statements. 52

7 Statements of Changes in Shareholders, Equity PT ANZ PANIN BANK STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) Share Capital Appropriated Retained Earnings Unappropriated Total Shareholders Equity Balance as of 31 December ,000 10, , ,802 Net income for the year , ,620 Balance as of 31 December ,000 10,000 1,043,422 1,103,422 Net income for the year , ,051 Balance as of 31 December ,000 10,000 1,300,473 1,360,473 See Notes to the Financial Statements, which form an integral part of these financial statements. 53

8 Statements of Cash Flows PT ANZ PANIN BANK STATEMENTS OF CASH FLOWS YEARS ENDED 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) CASH FLOWS FROM OPERATING ACTIVITIES: Income before tax 375, ,586 Adjustments to reconcile income before tax to net cash provided by operating activities: Foreign exchange gain, net 286,610 (99,709) Uncollectible accounts expense (including estimated loss from off-balance sheet transactions) 263, ,339 Loans written-off (196,718) (206,020) Recovery of loans previously written-off 12,554 9,954 Depreciation of fixed assets 15,255 12,368 Gain on sale of fixed assets 955 (242) Post-employment benefit expenses 5,863 2,638 Interest expenses 400, ,605 Interest income (1,003,451) (723,751) Changes in operating assets and liabilities: Placements with other banks 926,680 (182,403) Marketable securities 753,323 (739,922) Derivative receivables (705,989) (23,014) Loans receivable (3,348,235) (261,386) Acceptance receivables (584,147) (47,903) Bills receivable (325,278) 92,333 Other assets (40,154) (1,336) Deposits from non-bank customers 2,393, ,029 Deposits from other banks (105,253) 150,157 Derivative payables 571,026 14,108 Acceptance payables 181,698 47,903 Taxes payable 6, Other payables 88,685 19,560 Interest expenses paid (381,981) (228,225) Interest income received 958, ,928 Payment of post-employment benefits (57) (528) Income tax paid (94,153) (75,260) Net cash provided by operating activities 455, ,632 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of fixed assets (54,639) (6,403) Proceeds from sale of fixed assets 1, Net cash used in investing activities (53,568) (5,867) Effect of exchange rate fluctuations on cash and cash equivalents 24,150 10,518 Net increase in cash and cash equivalents 426, ,283 Cash and cash equivalents, beginning of year 476, ,998 Cash and cash equivalents, end of year 902, ,281 Cash and cash equivalents consists of: Cash on hand 21,609 15,838 Demand deposits at Bank Indonesia 268, ,411 Demand deposits with other banks 612, , , ,281 See Notes to the Financial Statements, which form an integral part of these financial statements. 54

9 PT ANZ PANIN BANK NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED 31 DECEMBER 2008 AND 2007 (In millions of rupiah, unless otherwise specified) 1. GENERAL a. b. c. ANZ Panin Bank ( the Bank ), an Indonesian domiciled company, was established by deed of notary public Mudofir Hadi, SH dated 5 September 1990 No. 31; this deed was approved by the Minister of Justice under No. C HT Th.90 dated 18 September 1990, registered at the Jakarta Court of Justice under No. 1990/1990 dated 21 September 1990 and published in Supplement No to State Gazette No. 86 dated 26 October The Bank's Articles of Association have been amended for several times, the latest amendment to comply with the Company Law No. 40/2007 was effected by deed of notary public Sri Hasmiyati, SH, dated 3 November 2008 No. 03; this deed was approved by the Minister of Law and Human Rights under No. AHU AH Tahun 2008 dated 28 November The Bank's head office is located at ANZ Tower, Jalan Jenderal Sudirman Kav. 33A, Jakarta. As at 31 December 2008, the Bank had 4 branches, 1 supporting branch and 3 credit card representative offices. In accordance with article 3 of its Articles of Association, the objective of the Bank is to engage in banking activities. As of 31 December 2008 and 2007, the composition of the Bank's Board of Commissioners and Directors was as follows: Commissioners Enrique V. Bernardo Enrique V. Bernardo Bill Foo Say Mui Bill Foo Say Mui Jusuf Arbianto Tjondrolukito*) Fadjar Gunawan Ending Fadjar*) Don Bacon Hall President Director Joseph Abraham John M. Collins V. Vice President Director Mark Joseph Dawson - Directors Muhamadian Rostian Muhamadian Rostian Wiling Solaiman Bolung Wiling Solaiman Bolung Riko Agus Surya Abdurrahman Budiman Poedjirahardjo *) Subject to fit and proper test by Bank Indonesia. d. e. f. As of 31 December 2008 and 2007, the Bank employed 290 and 185 permanent employees, respectively. The Bank's majority shareholder, the Australia and New Zealand Banking Group Limited, has subsidiaries and affiliates throughout the world. The financial statements were authorized for issue by the Board of Directors on 28 April

10 2. SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies adopted by the Bank conform to accounting principles generally accepted in Indonesia. The significant accounting policies, consistently applied in the preparation of the financial statements for the years ended 31December 2008 and 2007, were as follows: a. Basis for preparation of the financial statements The Bank's financial statements, presented in millions of rupiah, are prepared on the accrual basis, except for interest on nonperforming loans and other productive assets which are recognized on a cash basis. In addition, the Bank uses the historical cost concept in preparing its financial statements, except otherwise specified. The financial statements are prepared in accordance with the Statement of Financial Accounting Standard ( SFAS ) No. 31 (2000 Revision), Accounting for Banking Industry and Pedoman Akuntansi Perbankan Indonesia 2001 (accounting guidelines for banking industry) prescribed by Bank Indonesia and Indonesian Institute of Accountants. The statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents consist of cash on hand, demand deposits with Bank Indonesia and demand deposits with other banks. The statements of cash flows are prepared using the indirect method. b. Foreign currency transaction and balances The Bank maintains its accounting records in Rupiah. Transactions in foreign currencies are translated into Rupiah at the rates prevailing at the transaction date. Year-end balances of monetary assets and monetary liabilities denominated in foreign currencies are translated into Rupiah using Reuters' middle rates on the balance sheet date at Western Indonesian Time. The principal rates of exchange used as of 31 December 2008 and 2007 were as follows: Rp Rp USD 1 10,900 9,393 AUD 1 7,554 8,266 SGD 1 7,588 6,533 GBP 1 15,755 18,761 JPY ,065 8,384 NZD 1 6,319 7,292 EUR 1 15,356 13,822 HKD 1 1,406 1,204 CHF 1 10,319 8,342 Foreign exchange gains (losses), realized and unrealized, are credited (charged) to the statement of income for the year. 56

11 c. Related party transactions f. Placements with other banks In these financial statements, the term related parties is used in Placements with other banks are stated at their outstanding accordance with the definition of SFAS No. 7, Related Party balance, less unearned interest income and net of allowance for Disclosures. uncollectible placements, which is determined based on All transactions with related parties, which were made under management's review of the collectibility of each individual the same as well as different terms and conditions with non- placement at year end. related parties, are disclosed in the financial statements. g. Marketable securities d. Interest income and expenses Marketable securities consist of Bank Indonesia certificates. Interest income and expenses are recognized on the accrual Investment in marketable securities is classified as one of these basis. Discounts and premiums are amortized on a straight-line categories: held-to-maturity, trading and available-for-sale. basis and are reflected as an adjustment to interest. Marketable securities which are classified as held-to-maturity The recognition of interest income on loans and other productive are presented on the balance sheets at acquisition cost after assets is discontinued when they are classified as non-performing amortization of premiums or discounts. The decline in fair value (substandard, doubtful and loss). Interest income from non- below the cost (including amortization of premiums or discounts), performing loans and other productive assets is reported as which is determined to be other than temporary, is recorded as contingent receivables and to be recognized as income when a permanent decline in the value of investment and charged to the cash is received (cash basis). the statement of income for the year. Loans which their principal or interest have been past due for Marketable securities which are classified as trading and available- 90 days or more, or where reasonable doubt exists as to the for-sale are stated at fair value at the balance sheet date. timely collection, are generally classified as non-performing Unrealized or realized gains or losses from the difference between loans. Non-performing loans include loans classified as fair value and the acquisition cost of trading marketable securities, substandard, doubtful and loss. Interest accrued but not yet are recognized or charged to the statement of income for the collected is reversed when a loan is classified as non-performing. year. The difference between the fair value and the acquisition All cash receipts related to non-performing loans which are cost of available-for-sale marketable securities, which are classified as doubtful and loss are applied as a reduction to the unrealized, is presented as an equity component, net of the principal. The excess of cash receipts over the outstanding related tax effect, and will be recognized in the statement of principal is recognized as interest income in the statement of income for the year when the securities are sold. Fair value is income for the year. determined based on quoted market price. e. Fees and commission income Realized gains or losses on the sale of marketable securities are Fees and commission income which are directly related to recognized or charged to the statement of income for the year lending activities and/or cover specific periods and the amount based on the specific identification basis. is significant, are deferred and amortized based on the straightline method over the terms of the related loans. The outstanding balance of deferred fees and commission income on loans terminated or settled prior to maturity are recognized as income at settlement. Fees and commissions which are not directly related to the specific period are recognized when the transactions occur. 57

12 h. i. j. Derivative instruments Derivative transactions are accounted for in accordance with SFAS No. 55, Accounting for Derivative Instruments and Hedging Activities, which requires that all derivative instruments be recognized in the financial statements at their fair value. To qualify for hedge accounting, SFAS No. 55 requires certain criteria to be met, including documentation required to have been in place at the inception of the hedge. Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognized in the statement of income of the year. If derivative instruments are designated and qualify for hedge accounting, changes in fair value of derivative instruments are recorded as adjustments to the assets or liabilities being hedged in the statement of income of the current year or in the shareholders' equity, depending on the type of hedge transaction and the effectiveness of the hedge. Loans receivable Credit card receivables are stated at the principal amount outstanding (including capitalized interest), net of allowance for uncollectible credit card receivables. Loans receivables are stated at the principal amount outstanding, net of allowance for uncollectible loans. For restructured loans, the gross amount of loans consists of loan principal, interest and other charges which are capitalized into loan principal amount. The capitalized interest is recognized as unearned interest income. Syndicated loans are stated at the principal amount in accordance with the risk borne by the Bank. Troubled debt restructuring The Bank accounts for troubled debt restructuring in accordance with the type of restructuring. In troubled debt restructuring which involves a receipt of assets (including an equity interest of the debtor), the Bank records those assets (including an equity interest) at their fair value at the time of restructuring. The excess of the carrying amount of the receivables over the fair value of assets received less estimated costs to sell, is recognized as loss from troubled debt restructuring in the statement of income for the year. In troubled debt restructuring which involves only a modification of terms, the Bank accounts for the effect of the restructuring k. prospectively and does not change the carrying value of receivables at the time of restructuring unless the amount exceeds the present value of the total future cash receipts specified in the new terms. If the present value of the total future cash receipts specified under the new terms is lower than the recorded receivables balance prior to restructuring, the Bank reduces the receivables balance to the amount equal to the present value of the total future cash receipts. The amount of the reduction is charged to the statement of income for the year. Investments in shares resulting from troubled debt restructuring are recorded as temporary investments and accounted for under the cost method regardless the percentage of ownership. If there is a permanent diminution in the value of investments, the carrying value of such investments is adjusted for the amount of permanent diminution. Allowance for uncollectible accounts of assets and estimated loss from off-balance sheet transactions The Bank provides allowance for uncollectible accounts of productive assets (consist of demand deposits with other banks, placements with other banks, marketable securities except for Bank Indonesia certificates and government bonds, derivative receivables, loans receivable, acceptance receivables and bills receivable), allowance for uncollectible accounts of nonproductive assets (consist of foreclosed assets, abandoned property, inter-branch accounts and suspense account), and for estimated loss from off-balance sheet transactions. The allowance for uncollectible accounts of assets and estimated loss from off-balance sheet transactions are established through estimation for such losses. The allowance amount and estimated loss, which management believes to be adequate to absorb possible losses from uncollectible assets and off-balance sheet transactions, are determined based on an evaluation of the collectibility of each individual asset and off-balance sheet transaction with credit risk. Management's evaluation on the collectibility of each individual asset and off-balance sheet transaction is based on a number of subjective factors, including current and anticipated economic conditions/business prospects, financial conditions, payment ability and other relevant factors. 58

13 The Bank follows the regulation from Bank Indonesia concerning the assets quality of a bank as a guidance in determining the allowance for uncollectible assets and estimated losses from off-balance sheet transactions, with general guidelines as follows: 1. General allowance of minimum 1% of productive assets and off balance sheet transactions that are classified as current. 2. Specific allowance for productive and non-productive assets and off-balance sheet transactions that are classified as: Classification Minimum percentage l. m. Fixed assets Special mention 5% Substandard 15% Doubtful 50% Loss 100% Specific allowance for productive assets and off-balance sheet transactions classified as special mention, substandard, doubtful and loss is calculated after deducting the value of allowable collateral. For restructured loans receivable, the Bank management's evaluation of the collectibility of the loans receivable in accordance with the prevailing Bank Indonesia Regulation. Adjustments to the allowance for uncollectible accounts of assets and the estimated loss from off-balance sheet transactions are reported in the period such adjustments become known or can be reasonably estimated. These adjustments include additional allowance and recoveries of previously written-off assets and off-balance sheet transactions. Productive and non-productive assets as well as off-balance sheet transactions are written off against the respective allowance for uncollectible accounts and estimated loss from off-balance sheet transactions when management believes that the collectibility of the principal or recoverability of non-productive assets are unlikely. Acceptance receivables and payables Acceptance receivables and payables are stated at nominal value of the letters of credit (L/C) or net realizeable value of the L/C accepted by the accepting banks. Fixed assets are presented at acquisition cost (initial measurement) less accumulated depreciation. Subsequent to initial measurement, fixed assets are measured using the cost model. Depreciation is applied from the month such assets were placed into service, on the straight-line method, based on estimated useful lives as follows: Leasehold improvements Furniture and fixtures Office equipments Motor vehicles 3-5 years 3-5 years 3-8 years 5 years n. Income tax The Bank adopts the asset and liability method in determining its income tax expense. Under this method, deferred tax assets and liabilities are recognized at each reporting date for temporary differences between the financial and tax bases of assets and liabilities. This method also requires the recognition of future tax benefits, such as tax loss carryforwards, to the extent that realization of such benefits is probable. 59

14 o. Post-employment benefits The Bank's obligation for post-employment benefits is calculated at present value of estimated future benefits that the employees have earned in return for their service in the current and prior periods, deducted by the fair value any plan assets. The calculation is performed by an independent actuary using the projected-unit-credit method. When the benefits of a plan change, the portion of the increase or decreased benefits relating to past service by employees is charged or credited the statement of income on a straight-line basis over the estimated average remaining service period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the statement of income. Actuarial gains and losses are recognized as income or expense when the cumulative unrecognized actuarial gains or losses p. at the end of the previous reporting year exceeds 10 percent of the greater of the present value of the defined benefit obligation (before being deducted by a plan assets) and the fair value of the plan assets at the date. These gains or losses are recognized on a straight-line basis over the estimated average remaining service period until the benefit become vested. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. DEMAND DEPOSITS WITH OTHER BANKS Represent demand deposits at correspondent banks: Rupiah 33,026 18,060 Foreign currencies 579, ,972 Total demand deposits at other banks, before allowance for uncollectible accounts 612, ,032 Allowance for uncollectible accounts: Rupiah (330) (180) Foreign currencies (5,800) (1,810) (6,130) (1,990) Total demand deposits at other banks, net 606, , % % Average interest rate per annum: Rupiah Foreign currencies As of 31 December 2008 and 2007, all outstanding balances of demand deposits at other banks were classified as current. 60

15 4. PLACEMENTS WITH OTHER BANKS Represent short-term placements with other banks in the form of call money, with maturity period up to one month since the placement date. Weighted average interest rate per annum (%) Rupiah ,000 - Foreign currencies ,781 1,545,461 Total placements with other banks, before allowance for uncollectible accounts 618,781 1,545,461 Allowance for uncollectible accounts: Rupiah (900) - Foreign currencies (5,288) (15,455) (6,188) (15,455) Total placements with other banks, net 612,593 1,530,006 As of 31 December 2008 and 2007, all placements with other banks were classified as current. 5. MARKETABLE SECURITIES Represent Bank Indonesia certificates that are classified as available-for-sale, with maturity period of less than two months. The weighted average interest rate per annum of Bank Indonesia certificates during 2008 and 2007 were 8.84% and 8.57%, respectively. As of 31 December 2008 and 2007, all marketable securities were classified as current. 6. DERIVATIVE INSTRUMENTS Derivative Derivative Derivative Derivative receivables payables receivables payables Currency forward contracts: Banks 199, ,224 7,850 7,997 Non-banks 117,984 32,410 4,372 1, , ,634 12,222 9,328 Foreign currency options: Banks - 5,643 4,872 4,807 Non-banks 76,275 46,416 4,935 5,013 76,275 52,059 9,807 9,820 Cross currency swap contracts: Banks 309,426 40,561 12,308 - Non-banks - 271, , , ,073 12,951 6,280 Interest rate swap contracts: Banks - 31, Non-banks 37, ,361 31, Total, before allowance for uncollectible accounts 740, ,454 34,980 25,428 Allowance for uncollectible accounts (7,382) - (327) - Total, net 733, ,454 34,653 25,428 61

16 As of 31 December 2008 and 2007, the notional amount and average contract period of currency forward contracts and currency option contracts were as follows: Contract amount (in original currency) Average contract period (days) Currency Currency forward purchase contracts USD 252,127, ,028, AUD 4,100,000 29,261, EUR - 5,442, JPY 611,434, ,500, SGD - 100, IDR 2,707,379,039, ,072,960, Currency forward selling contracts USD 238,267, ,476, AUD 5,000,000 29,061, EUR - 5,442, JPY 611,429, ,500, SGD - 100, IDR 2,742,513,924,335 1,121,672,515, Currency option purchase contracts USD 76,241, ,712, Currency option selling contracts USD 35,280, ,700, The notional amount, average interest rate and average contract period of cross currency swap contracts were as follows: Notional amount (in original currency) Average interest rate per annum (%) Average contract period (days) Currency Cross currency swap purchase contracts USD 110,674,985 78,000, , JPY 1,809, IDR 1,230,966,470, , Cross currency swap selling contracts USD 115,674,986 78,000, , JPY 1,809, IDR 1,183,022,395, , The notional amount, average interest rate and average contract period of interest rate swap contracts were as follows: Notional amount (in original currency) Average interest rate per annum (%) Average contract period (days) Currency To be received USD 330,435, ,028 - To be paid USD 330,435, ,028 - The interest rate of the above cross currency swap and interest rate swap contracts are exercised on a monthly, quarterly, and semi-annual basis. The Bank entered into derivative contracts for trading as well as for hedging the Bank's net open position, interest rate gap risk, maturity gap risk, and other risks in the Bank's daily operations, which did not qualify for hedge accounting. As such, changes in fair values of these derivative contracts are changed (credited) to the statement of income for the year. As of 31 December 2008 and 2007, all outstanding balances of derivative receivables were classified as current. 62

17 7. LOANS RECEIVABLE Loans receivable by types of loan: Rupiah: Working capital 1,342, ,397 Investment 86,256 90,000 Credit cards 2,219,198 1,663,174 Employee loans 39,943 18,617 3,687,469 2,114,188 Allowance for uncollectible accounts (170,319) (135,830) 3,517,150 1,978,358 Foreign currencies: Working capital 2,031, ,935 Investment 806, ,687 2,838, ,622 Allowance for uncollectible accounts (25,885) (16,158) 2,812, ,464 Total loans receivable, net 6,329,427 2,925,822 Loans receivable by types of industry: In millions of rupiah 2008 Pass Special Substandard Doubtful Loss Total mention Rupiah: Manufacturing 890,160 18,220 4, ,380 Allowance for uncollectible accounts (4,132) (911) (5,043) 886,028 17,309 4, ,337 Business services 434, ,200 Allowance for uncollectible accounts (3,080) (3,080) 431, ,120 Trading Allowance for uncollectible accounts Others 1,962, ,246 35,969 60,087 60,556 2,340,889 Allowance for uncollectible accounts (55,088) (11,112) (5,396) (30,044) (60,556) (162,196) 1,906, ,134 30,573 30,043-2,178,693 Sub-total rupiah, net 3,224, ,443 34,573 30,043-3,517,150 63

18 In millions of rupiah 2008 Pass Special Substandard Doubtful Loss Total mention Foreign Currencies: Manufacturing 672,304 34, ,553 Allowance for uncollectible accounts (6,723) (1,712) (8,435) 665,581 32, ,118 Business services 685,163 36, ,846 Allowance for uncollectible accounts (4,387) (1,834) (6,221) 680,776 34, ,625 Trading 19, ,620 Allowance for uncollectible accounts , ,620 Others 1,309,435 80, ,390,143 Allowance for uncollectible accounts (7,194) (4,035) (11,229) 1,302,241 76, ,378,914 Sub-total foreign currencies, net 2,668, , ,812,277 Total loans receivable, net 5,892, ,502 34,573 30,043-6,329,427 In millions of rupiah 2007 Pass Special Substandard Doubtful Loss Total mention Rupiah: Manufacturing 260,451 39,000 20, ,101 Allowance for uncollectible accounts (2,605) (1,950) (3,097) - - (7,652) 257,846 37,050 17, ,449 Business services 108, ,796 Allowance for uncollectible accounts , ,796 Trading Allowance for uncollectible accounts Others 1,405, ,187 25,868 49,334 52,297 1,685,291 Allowance for uncollectible accounts (39,725) (7,609) (3,880) (24,667) (52,297) (128,178) 1,365, ,578 21,988 24,667-1,557,113 Sub-total rupiah, net 1,732, ,628 39,541 24,667-1,978,358 64

19 In millions of rupiah 2007 Pass Special Substandard Doubtful Loss Total mention Foreign currencies: Manufacturing 379, , ,608 Allowance for uncollectible accounts (3,793) (5,166) (8,959) 375,492 98, ,649 Business services 161,090 63, ,032 Allowance for uncollectible accounts (1,611) (3,197) (4,808) 159,479 60, ,224 Trading 16, ,907 Allowance for uncollectible accounts , ,907 Others 239, ,075 Allowance for uncollectible accounts (2,391) (2,391) 236, ,684 Sub-total foreign currencies, net 788, , ,464 Total loans receivable, net 2,521, ,530 39,541 24,667-2,925,822 Loans receivable by maturity period based on loan agreement: Rupiah: Up to 1 year 3,068,309 2,095,571 More than 1 year up to 5 years 595,472 5,146 More than 5 years 23,688 13,471 3,687,469 2,114,188 Allowance for uncollectible accounts (170,319) (135,830) 3,517,150 1,978,358 Foreign currencies: Up to 1 year 998, ,622 More than 1 year up to 5 years 1,839,777-2,838, ,622 Allowance for uncollectible accounts (25,885) (16,158) 2,812, ,464 Total loans receivable, net 6,329,427 2,925,822 65

20 Loans receivable by maturity period based on the remaining period until maturity date: Rupiah: Up to 1 year 3,647,785 2,095,712 More than 1 year up to 5 years 15,996 7,714 More than 5 years 23,688 10,762 3,687,469 2,114,188 Allowance for uncollectible accounts (170,319) (135,830) 3,517,150 1,978,358 Foreign currencies: Up to 1 year 2,838, ,622 Allowance for uncollectible accounts (25,885) (16,158) 2,812, ,464 Total loans receivable, net 6,329,427 2,925,822 Weighted average interest rates per annum: % % Rupiah Foreign currencies The above loans receivable represent loans in rupiah and foreign currencies with various types of collaterals including demand deposits, time deposits, standby letters of credit, land, buildings and corporate guarantees. Time deposits pledged as collateral for credit cards were Rp 3,211 million and Rp 2,406 million in total as of 31 December 2008 and 2007, respectively (Note 10). Loans receivable from the Bank's employees consist of car loans, housing loans and loans for other purposes with various loan terms and the repayment of which will be effected by monthly salary deductions. Gross non-performing loans (classified as substandard, doubtful and loss) as of 31 December 2008 and 2007 amounted to equivalent Rp 160,612 million (2.46% of total loans receivable of the Bank) and Rp 148,149 million (4.81% of total loans receivable of the Bank) respectively, or equivalent Rp 64,616 million (0.99 % of total loans receivable of the Bank) and Rp 64,208 million (2.09% of total loans receivable of the Bank), respectively, if calculated after the allowance for uncollectible accounts (net). During the years ended 31 December 2008 and 2007, the interest income on non-performing loans (excluding credit card) which are recognized on the cash basis amounted to equivalent Rp 4,090 million and equivalent Rp 2,396 million, respectively. The Bank did not restructure any loans during the years ended 31 December 2008 and The Bank's report to Bank Indonesia stated that its Legal Lending Limit (LLL) as of 31 December 2008 and 2007 was in compliance with LLL requirements, both for the related and non-related party borrowers. 66

21 Syndicated loans, with risk sharing proportional to the Bank's funding amount are as follows: As participant, the Bank's participation ranges between 6.67% - 35% and 20.83% % in 2008 and 2007, respectively, outstanding balance at year end 2008: USD 148,238,217; 2007: USD 14,138,889 1,615, ,809 The movement of allowance for uncollectible loans receivable during the years ended 31 December 2008 and 2007 was as follows: In millions of rupiah 2008 Foreign Rupiah currencies Total Balance, beginning of year (135,830) (16,158) (151,988) Addition of allowance for uncollectible accounts (218,653) (9,727) (228,380) Loans written-off 196, ,718 Recoveries of loans previously written-off (12,554) - (12,554) Balance, end of year (170,319) (25,885) (196,204) In millions of rupiah 2007 Foreign Rupiah currencies Total Balance, beginning of year (112,188) (13,477) (125,665) Addition of allowance for uncollectible accounts (219,708) (2,681) (222,389) Loans written-off 206, ,020 Recoveries of loans previously written-off (9,954) - (9,954) Balance, end of year (135,830) (16,158) (151,988) 8. ACCEPTANCE RECEIVABLES Non-banks: Rupiah Current 207,396 17,515 Allowance for uncollectible accounts (1,542) (175) 205,854 17,340 Foreign currencies Current 445,567 46,695 Allowance for uncollectible accounts (2,927) (467) 442,640 46,228 Special mention - 4,605 Allowance for uncollectible accounts - (230) - 4,375 Total acceptance receivable, net 648,494 67,943 67

22 Acceptance receivables based on the remaining period until maturity date: Up to 1 month 23,770 26,039 More than 1 month up to 3 months 198,655 38,047 More than 3 months up to 6 months 430,538 4, ,963 68, BILLS RECEIVABLE Represents bills receivable received by the Bank for export transactions. Bills receivables which are classified as held-to-maturity based on the remaining period until maturity date: Up to 1 month 243,096 33,471 More than 1 month up to 3 months 150,490 35,261 More than 3 months up to 6 months 14,560 14, ,146 82,869 Allowance for uncollectible accounts (4,081) (829) Total bills receivable, net 404,065 82,040 Weighted average interest rate per annum for bills receivables during 2008 and 2007 were 5.90% and 9.33%, respectively. As of 31 December 2008 and 2007, all outstanding balances of bills receivable were classified as current. 10. DEPOSITS FROM NON-BANK CUSTOMERS AND OTHER BANKS Non-bank customers: Demand deposits Rupiah 187, ,284 Foreign currencies 864, ,969 1,052, ,253 Call deposits Rupiah 73, Foreign currencies 160, , , ,397 Time deposits Due within 1 month since placement date: Rupiah 1,774,358 1,131,407 Foreign currencies 1,884, ,990 3,659,046 1,577,397 Due more than 1 month up to 3 months since placement date: Rupiah 701, ,693 Foreign currencies 1,231,318 1,590,690 1,932,850 1,830,383 68

23 Due more than 3 months up to 6 months since placement date: Rupiah 77,469 10,695 Foreign currencies 41,284 20, ,753 31,245 Due more than 6 months up to 12 months since placement date: Rupiah 254, ,715 Foreign currencies 60, , , ,182 Due more than 1 year since placement date: Rupiah 142,200 40,149 Foreign currencies - 10, ,200 50,763 Total deposits from non-bank customers 7,452,379 4,648,620 Other banks: Demand deposits Rupiah 140 1,165 Foreign currencies ,201 Interbank call money Due within 1 month since placement date: Rupiah 80, ,000 Foreign currencies 79,317 88, , ,111 Total deposits from other banks 159, ,312 Time deposits based on the remaining period until maturity date: Foreign Foreign Rupiah currencies Total Rupiah currencies Total Up to 1 month 1,960,256 2,264,127 4,224,383 1,263,574 1,667,124 2,930,698 More than 1 month up to 3 months 867, ,239 1,775, , , ,845 More than 3 months up to 6 months 83,402 37, , ,660 20,381 More than 6 months up to 12 months 38,575 7,031 45,606 21,110 68,936 90,046 2,949,763 3,217,364 6,167,127 1,560,659 2,177,311 3,737,970 69

24 Weighted average interest rate per annum: % % Demand deposits Rupiah Foreign currencies Call deposits Rupiah Foreign currencies Time deposits Rupiah Foreign currencies Interbank call money Rupiah Foreign currencies As of 31 December 2008 and 2007, total time deposits pledged as collateral to credit cards were Rp 3,211 million and Rp 2,406 million, respectively, while time deposits pledged as collateral to bank guarantee and other facilities were Rp 289,329 million and Rp 150,082 million, respectively. 11. ACCEPTANCE PAYABLES Non-banks: Rupiah 57,988 17,514 Foreign currencies 192,526 51,301 Total acceptance payables 250,514 68,815 Acceptance payables based on the remaining period until maturity date: Up to 1 month 23,770 26,039 More than 1 month up to 3 months 96,631 38,047 More than 3 months up to 6 months 130,113 4, ,514 68, INCOME TAXES a. Taxes payable consist of: Income tax article 21 2,400 1,182 Income tax articles 23/ Income tax articles 25/29 58,106 24,648 Others 8,326 2,991 69,037 28,969 70

25 b. The components of income tax expense (benefit) were as follows: Current tax 127,611 88,454 Deferred tax (9,144) (12,488) 118,467 75,966 c. The reconciliation between income before tax multiplied by the maximum marginal tax rate and income tax expense was as follows: Income before tax 375, ,585 Enacted maximum marginal tax rate 30% 30% 112,655 74,276 Permanent differences at 30% tax rate 2,979 1,708 Effect of graduated tax rates (18) (18) Effect of changes in tax rate 2,851 - Income tax expense 118,467 75,966 d. The items that give rise to significant portions of the deferred tax assets and liability as of 31 December 2008 and 2007 were as follows: Deferred tax assets: Allowance for uncollectible accounts 23,817 17,050 Obligation for post-employment benefits 5,060 4,328 Bonus 1, Relocation expense ,276 21,923 Deferred tax liability: Depreciation of fixed assets (446) (237) Deferred tax assets, net 30,830 21,686 e. f. Under the taxation laws of Indonesia, the Bank submits tax returns on the basis of self-assessment. The tax authorities may assess or/amend taxes within the statute of limitations, under prevailing regulations. In September 2008, Law No. 36 year 2008 which is the fourth amendment of Law No. 7 year 1983 regarding income tax has been approved. The law is effective starting 1 January The significant change stipulated in the law is a change of corporate income tax rate to a single rate, which is 28% for the year 2009 and 25% for the year 2010 onwards. Bank has recorded the impact of this change to the calculation of deferred tax assets in the financial statements as of and for the year ended 31 December 2008 of Rp 2,851 million. g. The Bank's 2004 taxes have been audited by the tax authorities, resulting in an underpayment of a total of Rp 6,971 million. As of 31 December 2007, the Bank paid the assessed additional taxes and filed an objection letter against this tax assessment; the payment was recorded as other assets. The Bank is now in the process of tax appeal; the Bank believes that the underpayment should only be Rp 285 million. The result of the appeal is not yet known. 71

26 13. ESTIMATED LOSS FROM OFF-BALANCE SHEET TRANSACTIONS Represents the estimated loss on letters of credit, bank guarantees issued and other off-balance sheet transactions. The movement of estimated loss from off-balance sheet transactions during the years ended 31 December 2008 and 2007 was as follows: Balance, beginning of year 13,899 6,830 Addition of estimated loss from off-balance sheet transactions 26,120 7,069 Balance, end of year 40,019 13, SHARE CAPITAL As of 31 December 2008 and 2007, the Bank's authorized capital amounted to Rp 50 billion (50,000 shares at par value of Rp 1,000,000, in whole amount, per share), which have been issued and fully paid-up by the following shareholders: Number of shares Par value (Rp Million) Ownership Percentage (%) Australia and New Zealand Banking Group Limited 42,500 42, PT Bank Pan Indonesia Tbk 7,500 7, ,000 50, INTEREST INCOME Interest income consisted of interest generated from the following: Loans receivable 815, ,358 Placements with other banks 36,915 72,843 Bills receivable 53,273 10,604 Marketable securities 71,412 61,936 Demand deposits with other banks 4,451 5,608 Others 22,275 5,402 1,003, , INTEREST EXPENSES Interest expenses consisted of interest on the followings: Time deposits 333, ,923 Placements from other banks 28,413 13,906 Demand deposits 8,957 12,432 Others 30,126 12, , ,605 72

27 17. GENERAL AND ADMINISTRATIVE EXPENSES Marketing 108,577 91,295 Management fee 40,437 22,960 IT system 29,509 11,391 Rental 19,899 13,200 Card collection 32,210 26,887 Communication and postage 32,145 28,259 Depreciation of fixed assets 15,255 12,368 Membership 16,433 13,973 Electronic data processing 5,220 2,981 Subscriptions 4,806 3,478 Office supplies 5,091 4,741 Cash advance fee of credit cards 3,648 3,315 Others 58,113 22, , , COMMITMENTS AND CONTINGENCIES In millions of rupiah Currency Commitments Amount in original currency Committed liabilities: Unused customer loan facilities IDR 78, ,798 USD 55,268,170 31,733, , ,070 Others, equivalent USD 2,079,015-22, , ,868 Outstanding irrevocable L/C facilities given to customers IDR 56,983 3,977 USD 23,328,045 11,711, , ,002 Others, equivalent USD 1,303,959 1,274,094 14,214 11, , ,946 1,029, ,814 Contingencies Contingent receivables: Bank guarantees received IDR 520, ,322 USD 198,532,158 22,914,331 2,164, ,234 Others, equivalent USD 6,996,031 8,268,773 76,259 77,669 2,761, ,225 Interest on non-performing loans IDR ,761, ,287 Contingent liabilities: Bank guarantees given to customers IDR

28 Amount in Original Currency In millions of rupiah Currency Bid bonds, performance bonds, advance payment bonds, retention bonds, down payment bonds, progress payment bonds, refund bonds, stand-by letters of credit and security bonds IDR 286, ,249 USD 99,174,599 42,124,095 1,081, ,672 Others, equivalent USD 4,192,653 7,112,143 45,701 66,804 1,413, ,725 1,413, , UNSETTLED SPOT FOREIGN CURRENCY TRANSACTIONS The outstanding unsettled spot foreign currency purchase and selling contracts as of 31 December 2008 and 2007 were as follows: Amount in Amount in In millions of rupiah Currency foreign currencies Rp foreign currencies Rp Unsettled spot foreign currency purchase contracts USD 16,555, ,459 61,038, ,345 AUD 2,400,000 18,130 1,500, ,399 EUR - - 8,000, ,574 NZD - - 4,000,000 29,167 JPY 60,976,328 7, , ,485 Unsettled spot foreign currency selling contracts USD 19,056, ,720 36,488, ,740 AUD 17, ,821,223 56,383 EUR - - 8,000, ,574 NZD 3,001,750 18, ,051 2,203 GBP SGD 4, JPY 60,952,500 7, , , NET FOREIGN EXCHANGE POSITION The Bank's net foreign exchange position ( NOP ) as of 31 December 2008 and 2007 was calculated based on Bank Indonesia's prevailing regulation. In accordance with the regulations, banks are required to maintain their overall and balance sheet net foreign exchange position at a maximum of 20% of its capital. Overall net foreign exchange position is defined as the absolute amount of the sum of (i) the net differences between asset and liability balances for each foreign currency and (ii) the net differences between receivables and liabilities in the form of both commitments and contingencies in administrative accounts (off-balance sheet accounts) for each foreign currency, which are all stated in rupiah. Balance sheet net foreign exchange position is defined as the sum of the net differences between assets and liabilities on balance sheet for each foreign currency, which are all stated in rupiah. 74

29 The net foreign exchange position of the Bank as of 31 December 2008 and 2007 was as follows: In millions of rupiah 2008 Balance sheet net Net differences Overall foreign exchange between net foreign position (net receivables and exchange differences and liabilities position between assets in off-balance (absolute and liabilities) sheet account amount) USD 111,600 47, ,933 JPY 2, ,536 GBP 190 (1) 189 AUD (22,080) 11,202 10,878 CHF EUR HKD NZD 18,193 (18,968) 775 SGD 522 (35) , ,845 Total capital (Note 21) 1,302,502 1,302,502 Percentage of NOP to capital 8.60% 13.42% In millions of rupiah 2007 Balance sheet net Net differences Overall foreign exchange between net foreign position (net receivables and exchange differences and liabilities position between assets in off-balance (absolute and liabilities) sheet account amount) USD (218,139) 207,716 10,423 JPY GBP AUD 28,876 (42,333) 13,457 CHF EUR (1,150) - 1,150 HKD NZD (26,695) 26, SGD 1,099-1,099 (214,883) 27,525 Total capital (Note 21) 1,076,218 1,076,218 Percentage of NOP to capital % 2.56% 75

30 21. CAPITAL ADEQUACY RATIO The capital adequacy ratio was calculated in accordance with Bank Indonesia's prevailing regulations.the computation of the Bank's capital adequacy ratio with inclusion of market risk as of 31 December 2008 and 2007 was as follows: In millions of rupiah 2008 Composition of capital: A. Core capital Paid-up capital 50,000 Disclosed reserves: Previous years retained earnings 1,031,736 Current year retained earnings (50%) 123,953 1,205,689 Carried forward 1,205,689 B. Supplementary capital General reserve for allowance for productive assets 96,813 Total capital 1,302,502 Risk weighted assets 8,017,829 Capital adequacy ratio 16.25% The Bank's capital adequacy ratio as of 31 December 2008 and 2007 without the inclusion of market risk was 16.82% and 18.17%, respectively. In accordance with the above mentioned prevailing Bank Indonesia regulations, the capital adequacy ratio should be calculated without including the tax effect of deferred income tax. 22. RELATED PARTY TRANSACTIONS The Bank has financial transactions with related parties which were made under the normal terms and conditions as those with third parties. The details of significant balances and transaction (including commitmentand contingencies and unsettled spot foreign currency transactions) with related parties at year end 2008 and 2007 were as follows: Demand deposits with other banks 97,251 64,115 Placements with other banks 528, ,231 Derivative receivables 6,221 1,629 Bills receivables 16,716 23,083 Interest receivables 58 2,358 Other asset Deposits from other banks 50,096 1,089 Derivative payables 34,965 3,214 Acceptance payables 83,587 42,698 Interest payables Other payables 31,540 4,729 Interest income 18,576 33,628 Interest expense 1, General and administrative expenses 70,971 35,233 76

31 COMMITMENT AND CONTINGENCIES Bank guarantees received 2,714, ,781 Bank guarantees given to customers 202, ,184 UNSETTLED FOREIGN EXCHANGE TRANSACTION Unsettled spot foreign currency purchase contracts 22, ,912 Unsettled spot foreign currency selling contracts 22, , MATURITY OF ASSETS AND LIABILITIES The maturity of assets and liabilities as of 31 December 2008 was summarized as follows: In millions of rupiah IDR Less than > 3 to Non-interest 1 month 1 to 3 months 12 months > 1 to 5 years > 5 years bearing Total Assets: Cash on hand ,018 15,018 Demand deposits with Bank Indonesia 55, , ,582 Demand deposits with other banks, net 30, ,007 32,696 Placement with other bank, net 89, ,100 Marketable securities, net 291, ,583 Derivative receivables, net Loans receivable, net 2,796, ,551 69,071 15,836 23,451-3,517,150 Acceptance receivables, net - 103, , ,854 Bills receivable, net 114, , ,839 Interest receivable ,042 58,042 Fixed assets, net ,355 57,355 Deferred tax assets, net ,830 30,830 Other assets ,579 86,579 3,377, , ,281 15,836 23, ,125 4,859,628 Liabilities: Deposits from non-bank customers 2,105, , , ,788 3,210,628 Deposits from other banks 80, ,140 Derivative payables Acceptance payables - 2,560 55, ,988 Taxes payable ,037 69,037 Interest payable ,698 36,698 Other payables , ,193 Obligation for post-employment benefits ,233 20,233 Estimated loss from off-balance sheet transactions ,243 2,243 2,185, , , ,332 3,611,160 Net position 1,192,482 (9,970) 6,124 15,836 23,451 32,793 1,248,468 77

32 In millions of rupiah USD Less than > 3 to Non-interest 1 month 1 to 3 months 12 months > 1 to 5 years > 5 years bearing Total Assets: Cash on hand ,829 1,829 Demand deposits with Bank Indonesia 51, ,613 Demand deposits with other banks, net 481, ,941 Placements with other banks, net Derivative receivables 85, , , , ,292 Loans receivable, net 1,558,802 1,171,591 81, ,812,277 Acceptance receivables, net 23,532 93, , ,640 Bills receivable, net 125,752 5,060 14, ,226 Interest receivable ,232 22,232 Other assets ,503 13,503 2,327,004 1,397, , ,489-37,564 4,632,553 Liabilities: Deposits from non-bank customers 2,102, ,976 41, ,893 3,741,934 Deposits from other banks Derivative payables 81,480 53, , , ,128 Acceptances payables 23,770 94,071 74, ,526 Interest payable ,187 6,187 Other payables ,743 15,743 Estimated loss from off-balance sheet transactions ,435 37,435 2,208,081 1,019, , , ,258 4,520,953 Net position 118, , ,635 (796) - (748,694) 111,600 Other Foreign Currencies Less than > 3 to Non-interest 1 month 1 to 3 months 12 months > 1 to 5 years > 5 years bearing Total Assets: Cash on hand ,762 4,762 Demand deposits with other banks, net 24, ,443 92,232 Placements with other banks, net 523, ,493 Derivative receivables 4,818 2,246 65, ,295 Bills receivable, net Interest receivable Other asset ,100 2,246 65, , ,794 Liabilities: Deposits from non-bank customers 454,485 37,263 3, , ,817 Deposits from other banks 79, ,351 Derivative payable 4,438 1,543 63, ,326 Interest payable ,695 1,695 Other payables ,859 42,859 Estimated loss from off balances sheet transactions ,240 38,806 67, , ,389 Net position 14,860 (36,560) (1,878) , Total, all currencies 1,326, , ,633 15,040 23,451 (691,918) 1,360,473 78

33 24. RISK MANAGEMENT The Bank has ultimate responsibility in managing the various risks faced by the Bank based on prudent principles and continuously monitoring the effectiveness and relevance of its framework for managing risk. The Bank has also established certain policies in managing and monitoring risks to ensure key decisions within the Bank will be informed by balance risk and reward as shown below: CREDIT RISK The Bank takes credit risk within a well-defined framework that lays out the fundamental principles and guidelines for management of credit risk. The core objective is to make risk management a core competency of the organization and ensure that the risks are accurately identified, assessed and managed. There is a series of Corporate Credit Manuals and Tools that are in place to assist with risk management. MARKET AND LIQUIDITY RISK The Bank defines, quantifies, measures and limits treasury risk into market risk, interest rate risk non-trading, and liquidity risk. MARKET RISK The Bank has Group-wide Market Risk Trading Policy that is applied to the Bank's trading activities in Indonesia. Limits on trading activities are established by the Bank and approved annually by the Head Office. Actual day-to-day management of market risk is performed by the Bank, with daily oversight by Group Treasury in Australia. All trading positions are marked-to-market daily as part of the revaluation process. There is clear and distinct segregation between front and back office, with different reporting lines, ensures the validity and transparency of this process is in line with current world best practice. Open position and stop loss limits are documented for both spot and forward foreign exchange trading activities. In line with current world best practice, the Bank uses the Value at Risk (VaR) modeling technique to measure trading risk on a daily basis. INTEREST RATE RISK NON-TRADING The ANZ group has a formal policy that is applied globally to measure and manage interest rate risk that arises from non-trading activities. The policy addresses the volatility of future income mismatches arising from changes in market interest rates. While several factors combine to generate this volatility, the policy is primarily concerned with the level of mismatching between the rescheduling dates of loans and deposits. The policy guidelines apply to each geographic entity and are reported on a regional and global basis. LIQUIDITY RISK The primary goal of liquidity management at the Bank is to ensure that it can meet its financial commitments to its customers as they fall due. This is assessed by using two models of future cash flows, which are Normal Business Conditions (NBC) and Short Term Crisis (STC). OPERATIONAL RISK In line with Basel 2 that features the inclusion of operational risk in the first pillar, the Bank also views operational risk as a primary risk within the Bank and has a governance structure responsible for maintaining oversight. The Bank will create a culture that recognizes operational risk as everyone's roles and responsibility with responsibilities clearly articulated at all levels in the organization. The Bank uses operational risk capital scorecard report as a mean to measure operational risk level. There are 12 (twelve) types of scorecards quantified, i.e. actions by government and regulators, regulatory and statutory compliance, premises and environment, failure of financial infrastructure, information technology, supplier/ outsourcing risks, fraud theft and crime, legal disputes, modeling failures, personnel, process and policy and project risks. The quantification based on this scorecard is performed semiannually and the result will be used to determine the amount of capital required to accommodate operational risk. 79

34