accounting for banking sfas no. 31(year 2000 revision)

statement of financial accounting standard no. 31 (2000 revision)

accounting for banking

the paragraphs printed in bold and italic letters are standard paragraphs, which must be read in the context of explanatory paragraphs and the implementation guide. there is no requirement to apply this statement on matters considered to be immaterial.

introduction

background

(a) a bank is an institution which acts as a financial intermediary between parties having funds and parties in need of funds as well as an institution with the function of smoothen the traffic of payments. the philosophy underlying the bank’s business activities is the public trust. this is reflected by the main activity of the bank which receives deposits from the public in the form of current accounts, savings and time deposits and provides credits to parties in need of funds.

(b) banking is a very important and influential sector in the business world. many people and organizations utilize bank services to deposit or borrow funds. therefore, banks play an important role in maintaining public trust on the monetary system through their close relationship with the regulatory bodies and government agencies. within the framework of maintaining the public trust, the government issue many regulations in the banking sector. it is understandable if there is a wide concern on the health of the banks, particularly with respect to the liquidity and solvency of the banks and the relative degree of risk inherent to the types of business performed by the related banks. accordingly the accounting and reporting of banks differ from the other commercial companies. this standard recognizes and accommodates these differences. this standard also encourages the disclosures, in the financial statements, related to matters such as the management and control of liquidity and risks.

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(c) the users of the bank’s financial statements require information, which are understandable, relevant, reliable and comparable in evaluating the financial position and performance of the bank and useful in making economic decision. the users also require better information on the specific characteristics of the bank’s operations. the users, including the regulatory authority, require information which are not available to the public. although the bank represents a subject of supervision, and the bank’s management has a regulatory authority for not providing certain information to the public, an overall and adequate disclosure is required so that the financial statements of the bank are in conformity with the requirements of the users, within a proper limit to be met by management.

(d) the users of the bank’s financial statements are interested with the liquidity, solvency and the risks related to the assets and liabilities recognized on the balance sheet and the components outside the balance sheet. liquidity shows the capability of the bank to fulfill its liabilities to all parties who withdraw or cash their deposits and other commitments at any time. solvency indicates the excess of assets over liabilities, which also shows the adequacy of the bank’s capital. the bank’s business is sensitive to various risks, such as liquidity risk, foreign currency fluctuation risk, interest rates, changes in market prices and failures of parties having commitments with the bank. these risks may have been reflected in the financial statements. however, the users will have a better understanding if management also discloses the management and control of these risks together with the bank’s operations in the financial statements.

objective

(e) the objective of this statement is to regulate the recognition, measurement, presentation and disclosure of the bank’s financial statements.

scope

(f) this statement is applicable to banks operating in indonesia. for people’s credit banks and institutions/other bodies performing one or more banking activities, the accounting treatment of the activities must refer to this statement.

(g) this statement does not regulate the accounting treatment of specific transactions of banks which perform business activities based on the syariah (islamic law) principles. the accounting treatment of specific transactions of a syariah division shall refer to the sfas regulating the accounting for syariah banking.

(h) matters of a general nature which are not regulated in this statement, shall

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be treated by reference to the other statements of financial accounting standard or generally accepted accounting principles.

(i) this statement is not a regulation for the presentation of report for the government, independent supervisory institution and bank indonesia (the central bank).

(j) the provisions of the law and regulations may require a report which is different from the generally accepted accounting principles. the financial statements presented based on this statement are not intended to fulfill such law and regulations.

definitions

(k) following are definitions of terms used in this statement.

productive assets are the investments of the bank’s funds either in rupiah or foreign currencies in the forms of credits, marketable securities, securities purchased with a promise to be resold (reserve repo), derivative receivables, acceptance receivables, placements of funds with other banks, participation, etc.

bank is an enterprise which accumulates funds from the public in the form of deposits and channels them to the public in the form of credits and or other form within the framework of enhancing the living standard of the people.

securities are valuable papers, namely commercial valuable papers, stocks, bonds, debt acknowledgement and units of participation in a collective investment contract, time contract and any derivative of a security.

estimated commitment losses and contingency are estimated losses due to the non-fulfillment of commitments and contingencies by the customers.

cash are currency bills and coins, either rupiah as well as foreign currencies, which are still valid as a valid means of payments.

included in the definition of cash are rupiah and foreign currencies withdrawn from circulation, which are still during the transition period to be exchanged at bank indonesia or the central bank of the related country. not included in the definition of cash are gold bars and commemorative coins.

immediate liabilities are the bank liabilities to other parties which must be paid immediately in accordance with the order of the trustee or a predetermined agreement.

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examples of immediate liabilities are among others: transfers, receipt of tax through the bank which must be deposited, deposits matured but not yet taken by customer and interest payable.

commitment is an agreement or contract in the form of an irrevocable promise which cannot be cancelled unilaterally and which must be performed if a mutually agreed upon requirement is fulfilled.

contingency is a condition or situation with the end result in the form of a gain or loss that can only be confirmed after the occurrence of one or more events.

credit is the loan of money or similar receivable based on a borrow and loan agreement between the bank and another party which obligates the borrower to settle his debt after a certain period of time with an amount of interest, compensation or profit share. included in the definition of credit is credit provided under a joint financing, credit for the safeguarding and purchase of the customer’s securities under the note purchase agreement (npa).

placement with other banks is an investment of bank’s funds with other banks, either domestically as well as abroad, in the form of inter-bank call money, savings, and time deposits and other of the same type intended to generate income.

share participation is an investment of bank funds in the form of shares of another company for purposes of long term investment, either in the framework of the foundation or participation in the operation of another financial institution, including temporary participation within the framework of credit restructuring or others.

provision for losses of productive assets is a provision established to cover possible losses arising in respect of the investment of funds in productive assets, either in rupiah or in foreign currencies.

loans received are funds received from the bank, bank indonesia or other parties with a requirement for repayment in accordance with the terms stipulated in the agreement. subordinated loans and public deposits are not included in this definition.

subordinated loan is a loan which based on an agreement can only be settled if the bank has fulfilled certain liability and in case of liquidation its collection right is the last of all deposits and loans received.

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net foreign exchange position is:

(l) the net difference of monetary assets and liabilities in foreign currencies and,

(m) the net difference of commitment and contingent receivables and liabilities in foreign currencies.

deposits are funds entrusted by the public (excluding banks) to the bank based on a fund deposit agreement.

the forms of deposits are:

(n) current account, namely a deposit of other parties with the bank, the withdrawal of which can be made at any time using a check, a giro bilyet, an atm card, other means of payment order or through book transfer.

(o) savings are deposits of other parties with the bank, the withdrawal of which can only be made according to certain agreed upon conditions, but cannot be withdrawn by check, giro bilyet or other means equivalent thereto.

(p) deposits are deposits of other parties with the bank, the withdrawal of which can only be made at a certain time according to the agreement between the depositor and the related bank.

(q) certificate of deposit is a time deposit, the evidence of deposit of which can be transferred to another party.

(r) other forms equivalent to a form of deposit (a-d).

recognition and measurement

credits

(s) a credit shall be recognized at the time of cashing in the amount of the principal of the credit. credit under a joint financing shall be recognized in the amount of the principal of the credit which represents the portion of receivable of the related bank.

(t) under the definition of the principal of the credit interest and other expenses paid in advance are not included. the funds for a joint financing for a customer are provided by more than one bank. therefore, the principal of the credit recognized is only in the amount of the portion of the receivable of the related bank.

(u) credit granted with a credit channeling agreement shall be recognized in the amount of the portion of credit, the risk on which is borne by the bank.

(v) the risk on credit granted to a customer with a channeling agreement probably

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is not fully guaranteed by the government/other funds provider. the risk on credit which is not guaranteed by the government/other funds provider becomes the risk which must be borne by the bank. accordingly, the bank must recognize the credit in the amount of the portion of credit, the risk of which is borne by the bank. examples of types of credit with credit channeling agreement are a.o. : partnership credit, credit for the elimination of poverty, credit for development of small businesses, credit originating from foreign countries and government investment funds. similarly, in a syndicated credit of several banks, each bank shall only recognizes the credit in the amount of the risk it bears.

(w) the provision for losses on credit shall be established in the amount of the estimated losses from non-collectible credits in accordance with the denominated currency.

(x) generally, a provision consists of a general provision and a specific provision. a general provision for all credit portfolio shall be made based on experience and industry prospect. a specific provision shall be determined by considering factors affecting the quality of credits, such as business prospect, financial condition with emphasis on cash flow, the debtor’s ability to repay and the collateral under control. the provision for losses on credits shall be established in the denominated currency of credits given. if a credit is granted in rupiah, the provision for credit losses shall also be established in rupiah. if the credit is granted in foreign currency, the provision for credit losses shall also be established in that foreign currency.

(y) the amount of credit that can be written off is the portion which cannot be collected. a collateral taken over in respect of the settlement of the loan shall be valued at the realizable net value.

recognition of income and interest expense

(z) the recognition of income and interest expense is very fundamental and become the main base for the determination of the bank’s profitability. the main activity of the bank is the accumulation of funds which is generally interest bearing and invest them in productive assets. as in other industries, in banking there is also a probability of timing difference between the receipt of income and the occurrence of expenses on the use of resources to produce such income. therefore, matching of income and bank expenses is not easy; so that in recognizing income and expenses the characteristics of the bank’s business shall be considered.

(aa) interest income shall be recognized on an accrual basis, except interest income from credits and other productive assets that are non-performing. income from credits and other productive assets which are non-performing shall be recognized at the time such income is received.

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(bb) interest income from credit activities is made up of interest income and other income, such as provision and commission. income from non-performing productive assets that has not been received yet cannot be recognized during the reporting period.

(cc) at the time a credit is classified as non-performing, interest which has been recognized but not collected yet must be cancelled.

(dd) if a cancellation is made on interest already recognized but not collected yet, the cancellation will reduce interest income already recognized.

(ee) non-performing credits are generally credits, the payments of principal and interest on which have been overdue for 90 days or more after the due date or credit with a significant doubt of the timely receipts of payments. non-performing credits consist of credits classified as less than current credits, doubtful and stagnant.

(ff) all receipts related to stagnant credits must be recognized first as a deduction of the credit principals. the excess of receipts over the credit principals shall be recognized as interest income.

(gg) receipts from non-performing credits shall be recognized as settlement of the interest first. however, for non-performing credits classified as doubtful and stagnant, the receipt shall first be used to reduce the credit principal as the probability of collectibility is very remote.

(hh) interest expense shall be recognized on an accrual basis.

(ii) interest expenses in credit activities consist of interest expense and other expenses incurred within the framework of funds accumulation such as gifts, premium or discounts on time contract for financing and expenses/premium for a guarantee program.

recognition of income and expenses other than interest.

(jj) income and expenses other than interest which are related to a time period shall be recognized during such period.

(kk) income and expenses other than interest which are related to a time period are a.o, commission and provision from activities related to credits.

(ll) if such credit or commitment is settled before its time period, the balance of income and expenses shall be recognized at the time of the settlement of the credit or commitment.

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credit restructuring

(mm) a restructured credit may cover interest and other expenses converted into the credit principal.

(nn) the recognition of income on interest receivable converted into the credit principal within the frame work of restructuring shall be made in conformity with sfas 54 regarding restructuring of problematic debts.

(oo) non-performing credits which have been restructured by means of giving concession to the borrower who is in a financial difficulty, shall be classified as non-performing until the credits become performing namely at the time payments of principal/interest are made regularly during a certain period of time.

(pp) a conversion of a credit into a participation shall be recognized at the fair value of shares received.

(qq) a participation originating from a credit restructuring represents a temporary participation so that is shall be valued based on the cost method disregarding the amount of ownership. if there is a permanent reduction the carrying value of the participation must be adjusted by the amount of the permanent reduction. the participation shall be presented separately from other participation and a consolidated financial report is not required as the participation is temporary in nature.

(rr) a credit collateral taken over shall be recognized the net realizable value.

(ss) the net realizable value is the fair value of the collateral after deducting estimated cost of disposal.

(tt) the difference between the value of the collateral taken over and the sale proceed thereof shall be recognized as profit or loss at the time of the sale of the collateral.

(uu) a recovery of credit which has been written off shall be recognized as an adjustment to the provision for credit losses at the amount of the principal. if the recovery exceeds the principal amount, the excess shall be recognized as interest income.

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(vv) a recovery of a credit which has been written off may consist of a recovery of principal and credit interest which have been written off. in accordance with the rules in paragraph 25 a recovery of credits classified as doubtful and stagnant, which have been written off, shall the recognized as an adjustment to the provision for credit losses in the amount of the principal. any excess of the recovery over the principal shall be recognized as interest income.

(ww) the bank shall classify securities(debt securities and equity securities) at the time of acquisition into one of the following three groups:

(xx) held to maturity;(yy) trading; or(zz) available for sale

further, the recognition and measurement related to security transactions shall be made in conformity with sfas no. 50 regarding accounting of certain security investment.

(aaa) generally a bank does not have stock securities for trading as it is not allowed by prevailing regulations. stock securities are only held by banks for long term investment, so that stock securities shall still be valued in accordance with sfas 13 paragraph 39 and sfas 15 paragraph 20.

(bbb) securities purchased with a promise to be resold (reverse repo) represent a guarantee of the credit transaction and shall be recognized as a repo receivable in the amount of the resale price of the related securities less unrealized interest income. the difference between the purchase price and the selling price shall be treated as unrealized interest income and shall be recognized as income in accordance with the period since the securities were purchased until they are resold.

(ccc) in a transaction of purchasing a security with a promise to be resold, the bank purchases the security at a certain price and promises to resell it at the same price plus a certain interest rate or at a certain higher price. under this transaction the ownership of the security remains with the seller and continues to be presented as inventory of security portfolio.

(ddd) a security sold with a promise to be repurchased (repo) shall be recognized as a liability in the amount of the purchase price agreed by the bank and the customer less interest expense (difference between the selling price and the repurchase price) which has not been realized. the difference between the selling and the repurchase price shall be treated as prepaid expenses and shall be recognized as expenses in accordance with the period since the securities were sold until they are repurchased.

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(eee) in a sale transaction of a security with a promise to repurchase, the bank sells the security to a third party at a certain price and promises to repurchase it within a certain period at a certain higher price. under this transaction the ownership of the security remains with the seller bank and shall continue to be presented as inventory of the bank’s security portfolio.

(fff) a security owned and delivered as a collateral of a loan which is received without a repo agreement is not included in the securities sold with a promise to be repurchased.

(ggg) derivative instruments shall be recognized on the balance sheet as assets and liabilities based on the right or obligation according to the agreement. all derivative instruments must be presented at the fair values.

(hhh) the fair value shall be estimated based on market price, pricing models or the market price of another instrument having similar characteristics.

(iii) profit or loss from a foreign currency transaction due to a change in the market price of a derivative shall be recognized as income or expense during the period of occurrence.

(jjj) further treatment of a derivative instrument, shall refer to sfas no. 55 regarding accounting of derivative instruments and hedging activities.

export and import transactions

(kkk) the bank activities in the export and import transactions mainly relate to the issuance, receiving and administering letters of credits (l/c). an l/c instrument is issued by the issuing bank at the request of its customer who authorized the receiving individual or company to request payment from the issuing bank through one of its correspondent banks based on the terms and conditions contained in the l/c. based on the method of payment settlements, there are four types of l/c, namely:

• sight payment l/c• deferred payment l/c• acceptance l/c, and• negotiation l/c.

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l/c export financing

(lll) at the time of receiving an l/c from the bank, the bank administers the l/c received and such transaction does not yet represent a commitment or contingency.

sight payment l/c

55. at the time the l/c is paid by the paying bank to the beneficiary at the l/c value or realization value, the paying bank shall recognize it as a receivable from the issuing bank at the same value.

deferred payment l/c

(mmm) at the time the l/c payment is due, the paying bank pays the l/c beneficiary the l/c value or the realization value and the paying bank shall recognize it as a receivable from the issuing bank at the same value.

(nnn) if an l/c receivable is discounted before its maturity date to a discounting bank, then the discounting bank shall pay the l/c beneficiary the l/c value or the realization value after deducting a discount and at the same time shall recognize it as a receivable in the l/c value or realization value from the issuing bank.

acceptance l/c

(ooo) a the time the l/c payment is due, the paying bank pays the l/c beneficiary the l/c value or the realization value and the paying bank shall recognize it as a receivable from the issuing bank at the same value.

(ppp) if an l/c receivable is discounted before maturity date to a discounting bank, then the discounting bank shall pay the l./c beneficiary the l/c value or the realization value after deducting a discount and at the same time shall recognize a receivable from the issuing bank at the l/c value or realization value.

negotiation l/c

(qqq) the negotiating bank pays the l/c beneficiary using its own funds (as advance payment to the l/c beneficiary) the amount of the l/c value or realization value after a discount and shall recognize it as a receivable from the issuing bank at the same value.

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(rrr) the negotiating bank makes payment to the l/c beneficiary with a right of recourse, unless the status of the negotiating bank is also a confirming bank. in case the negotiating bank negotiates a time draft, then after the negotiation is made (payment) an acceptance of the time draft is requested from the accepting bank.

financing of import l/c’s

(sss) at the opening of the l/c, the issuing bank shall recognize the transaction as a commitment liability for an irrevocable l/c and as a contingent liability for a revocable l/c at the nominal value of the agreed contract.

sight payment l/c

(ttt) in case the l/c issued by the issuing bank is realized by the l/c beneficiary, the issuing bank has a liability to the paying bank in the amount of the l/c value or the realization value and at the same time shall be recognized as a receivable from the applicant at the same amount.

deferred payment l/c

(uuu) the case the l/c issued by the issuing bank is realized by the l/c beneficiary, the issuing bank has a liability to the paying bank at the amount of the l/c value or the realization value and at the same time shall be recognized as a receivable from the applicant at the same amount.

(vvv) in case the l/c applicant provides a promissory note, the applicant has a liability to the l/c beneficiary in the amount of the value of the promissory note at the time the l/c payment becomes due.

(www) in case the promissory note is guaranteed by an aval by the issuing bank, then the issuing bank as the avalis has a liability to the l/c beneficiary at the amount of the value of the promissory note.

(xxx) in case the promissory note is guaranteed by an aval not by the issuing bank, then the aval guaranteeing bank shall recognize a liability to the l/c beneficiary a the amount of the value of the promissory note and at the same time shall recognize a receivable from the aval applicant at the same amount.

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acceptance l/c

(yyy) in case the l/c issued by the issuing bank is realized by the l/c beneficiary, the issuing bank has a liability to the paying bank at the amount of the value of the l/c or the realization value and at the same time shall be recognized as a receivable from the applicant at the same amount.

(zzz) in case the accepting bank (the issuing or the non-issuing bank) accepts a time draft issued by the l/c beneficiary, the accepting bank shall recognize a liability to the l/c beneficiary (issuer of the draft) at the value of the draft accepted and shall recognize a receivable from the applicant for the acceptance at the same amount.

(aaaa) in case the accepting bank (the issuing or the non-issuing bank) accepts a time draft issued by the l/c beneficiary and the draft has been discounted with a discounting bank, then the accepting bank shall recognize a liability to the discounting bank in the amount of the value of the accepted draft and at the same time shall recognize a receivable from the applicant for the acceptance at the same amount.

negotiation l/c

(bbbb) in case an l/c issued by the issuing bank is realized by the l/c beneficiary, then the issuing bank has a liability to the negotiating bank at the amount of the l/c value or the realization value and at the same time shall be recognized as a receivable from the applicant at the same amount.

(cccc) in case the negotiating bank negotiates a time draft, then the accepting bank (the issuing or non-issuing bank) shall accept the time draft based on the request from the negotiating bank.

fee based activities

73. income and expenses related to a time period shall be recognized during the time period. income and expenses that are not related to a time period shall be recognized at the time of occurrence of the transaction during the related period.

74. bank’s activities that are not related to credits consist of activities related to a time period and activities not related to a time period. income and expenses related to a time period are, a.o. commission and provision from activities not related to credits. while, income and expenses not related to a time period are a.o money transfer transaction, opening of l/c, sale of traveler checks, automatic teller machine and issuance of bank draft.

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transactions of public fund accumulation

75. in the activities for accumulation of public fund, the bank sells its deposit products to the customers a.o in the form of current accounts, deposits and certificates of deposits with difference periods of maturity dates.

(dddd) deposit products shall be valued as follows:(eeee) current accounts at the amounts of the bank liabilities to the account

holders.(ffff) savings shall be valued in accordance with the amounts of the bank

liabilities to the holders of the savings.(gggg) deposits shall be valued in the amount of the principals of the deposits

indicated in the agreement between the bank and holders of the time deposits, and

(hhhh) certificates of deposits shall be valued at the nominal value less interest paid in advance. the difference between the present value received and the nominal value (discount) shall be valued as interest paid in advance and shall be amortized over the time period of the certificate of deposit.

commitments and contingencies

(iiii) the estimates of commitments and contingency losses shall be established in the amount of the estimated loss and shall be recognized separately as expense and liability.

(jjjj) the bank shall establish the estimated loss which shall be established based on the quality of the commitments and contingencies after deducting the estimated net realization of the collateral. the quality of commitments and contingencies shall be valued by considering the business prospect, financial conditions and payment capabilities of the customers.

(kkkk) commitments and contingencies in the bank activities include, a.o: the issuance of guarantee, the granting of credit facilities, irrevocable l/c’s, draft issuance facilities, standby l/c’s, and interest income from non-performing productive assets which have not been recognized as income during the current period.

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presentation and disclosure

bank’s financial statements

(llll) the financial statements of a bank consist of:(mmmm) balance sheet(nnnn) profit and loss statement(oooo) cash flow report(pppp) report on changes in equity, and(qqqq) notes to the financial statements

balance sheet

(rrrr) the bank shall present assets and liabilities on the balance sheet based on their characteristics and list them in the order of liquidity.

(ssss) by considering the provisions regulated in other sfas’s. the presentation on the balance sheet or disclosures in the notes to the financial statements cover, but are not limited, to the following components of assets, liabilities and equity.

assets

cash

current account with bank indonesia current accounts with other banks placements with other bankssecurities securities purchased with a promise to be resoldderivative receivablescreditsacceptance receivablesshare participationfixed assetsother assets

liabilities

immediate liabilitiessavingssavings of other bankssecurities sold with a promise to be repurchasedderivative liabilitiesacceptance liabilitiessecurities issued

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loans receivedestimated losses of commitments

and contingenciesother liabilitiessubordinated loanss

equity

paid in capitaladditional paid in capitalretained earnings

(tttt) items with a material value which cannot be classified into the above groups of assets and liabilities shall be presented separately.

(uuuu) a most useful approach in classifying assets and liabilities is through the grouping of assets and liabilities based on their characteristics and present the assets and liabilities in the order which more or less reflects their liquidities. the order of liquidity shall broadly be the same as the order of maturities. current and non current accounts are not presented separately as most of the assets and liabilities of a bank can be realized or settled in the near future.

(vvvv) the users of the financial statements require information which can describe the relation and dependency of the bank to various parties, such as other banks, other money market players and depositors. accordingly, the bank shall disclose separately:

(a). the balance of its account with bank indonesia(wwww) placements with other banks(xxxx) placements with the money market(yyyy) deposits with other banks, and(zzzz) other deposits

(aaaaa) generally a bank does not know the holders of its certificates of deposits, as the certificates are traded in the free market. accordingly, the bank shall disclose separately deposits obtained through the issuance of certificate of deposits or other valuable papers which can be negotiated.

(bbbbb) the amounts of assets and liabilities presented in the balance sheet should not be mutually offset with other liabilities or assets, unless legally allowed and such offset reflects the estimated realization or settlement of the assets or liabilities.

(ccccc) the provision for losses of productive assets established shall be presented as offsetting account of each type of the related productive asset.

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(ddddd) in case of a credit restructuring, the gross amount of credit includes the credit principal, interest and other expenses converted into the credit principal.

profit and loss statement

(eeeee) the bank shall present its profit and loss statement by grouping income and expenses according to their characteristics and prepared in a multiple step form which reflects income and expenses from the main activity of the bank and from other activities.

(fffff) the profit and loss of a bank shall present in details the components of income and expenses and shall differentiate the components of income and expenses originating from operating and non-operating activities.

(ggggg) with due regard to the provisions dealt with in other sfas’s, the presentation in the profit and loss statement or the disclosures in the notes to the financial statements, shall cover, but are not limited to the following components of income and expenses:

interest incomeinterest expensescommission incomecommission and provision expensesprofit or loss from the sale of securitiesprofit or loss from investment in securitiesprofit or loss from foreign currency transactionsdividend incomeother operating incomeprovision expenses for losses of credits and other productive assetsgeneral administrative expenses, and other operating expenses

(hhhhh) the major types of income from the operations of a bank are a.o interest income, commission and provision income, and other services income. each type of income shall be disclosed separately so that the users can assess the bank performance. such disclosure represents additional disclosure, in addition to those required by sfas no. 5 financial information reporting by segments.

(iiiii) the major types of expenses from the operations of a bank are a.o. interest expense, commission expense, provision expense of losses of productive assets, expenses related to the reduction of the carrying value of investments and general administrative expenses. each type of expense shall be disclosed separately so that users can assess the bank’s performance.

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(jjjjj) income and expense accounts should not be mutually offset, except those related to hedging transaction and assets and liabilities which are mutually offset as regulated in paragraph 87.

(kkkkk) mutual offset shall be performed carefully. not all accounts can be mutually offset. an inappropriate mutual offset may cause difficulties to the users of the financial statements in understanding the performance of various bank activities and the degree of recovery obtained from certain types of assets.

(lllll) profits and losses arising from the followings may be reported on a net basis:(a). a sale and a change in the carrying value of a security,(b). a sale of a participation in securities investment, and(c). transactions in foreign currencies.

(mmmmm)interest income and interest expenses shall be disclosed separately to provide a better understanding of the composition and reason for changes in the net value of interest.

(nnnnn) the net value of interest represents the difference between interest income and interest expense. management is recommended to disclose the average interest rate, the average value of assets generating interest and the average value of interest bearing liabilities during the related period. if the government provides assistance to the bank in the form of funds or credit facilities with an interest rate which is lower than the market interest rate, management is recommended to disclose such assistance and its effect on net profit.

report on changes in equity

(ooooo) the report on changes in equity shall be presented accordance with sfas no. 1 presentation of the financial statements.

(ppppp) the report on changes in equity shall present the increase or decrease of net assets or the wealth of the bank during the related period based on certain principles of measurement adopted and must be disclosed in the financial statements.

cash flow report

(qqqqq) the cash flow report shall be presented in conformity with sfas no. 2 regarding the cash flow report and must be prepared on a cash basis during the reporting period.

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(rrrrr) cash and cash equivalents consist of:(a). cash(b). current account with bank indonesia, and(c). current accounts with other banks

(sssss) considering that a bank has a very tight liquidity compared to other companies in general, placements which will mature within a period of 3 months or less from the date of acquisition are not included in this calculation

notes to the financial statements

(ttttt) the notes to the financial statements must be presented in a systematic basis. each item on the balance sheet, profit and loss statement and cash flow report which needs to be explained must be supported by information contained in the notes to the financial statements. with due regard to the provisions in other sfas’s, the notes to the financial statements shall disclose, but not limited to, the matters contained in paragraphs 94 to 121 inclusive.

maturity date analysis of assets and liabilities

(uuuuu) the bank must disclose an analysis of assets and liabilities by groups of maturity dates based on the periods remaining after the balance sheet date until the maturity dates.

(vvvvv) one of the basic things in the management of the bank’s risk is the management of the balance/conformity of assets and liabilities, including the management of maturity gap and the interest risk spread. generally, it is not customary for a bank to achieve a perfect balance/conformity since its transactions often contain different requirements. an imbalance position has the potential to increase profit, but can also raise the risk of losses.

(wwwww) the maturity of assets and liabilities and the capability to replace, at a fair expense, an interest bearing liability on its maturity date represent important factors in evaluating the bank liquidity and its exposure to changes in interest rate and exchange value. to provide relevant information for the evaluation of the bank’s liquidity, a bank must at a minimum disclose an analysis of assets and liabilities by groups of maturity dates.

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(xxxxx) the grouping of the maturity dates of each asset and liability for each bank differs and the application will also differ for certain types of assets and liabilities. examples of the time period used as a base for grouping are:

(a). up to 1 month(b). more than 1month up to 3 months(c). more than 3 months up to 1 year(d). more than 1 year up to 5 years, and(e). more than 5 years

the periods are often combined. for example, loan and advances are grouped between those maturing less than 1 year and 1 year or more. if the loan or advance repayments are made gradually over a time period, each installment shall be allocated to the agreed period or to the period, during which payment is expected to be made or received.

(yyyyy) it should be noted that the maturity periods used by the bank are the same for purposes of the grouping of assets and liabilities. this will assist the analysis of maturity gap as well as the bank’s dependency on other sources of liquidity.

(zzzzz) the maturity period can be defined as:(a). the remaining period until the date of settlement, or(b). the period as agreed until the date of settlement, or(c). the period remaining until the date of an anticipated change of the interest

rate.

the best method to determine the liquidity of a bank is through the performance of an analysis of the maturity of assets and liabilities based on the periods remaining until the date of settlement. in providing information regarding business strategy and funding, the bank also discloses the maturity analysis based on the period as agreed until the date of settlement. in addition, to show the exposure to the interest rate risk, the bank can also make a grouping based on the period remaining until an anticipate date of change in interest rate. in the notes to the financial statements management can also disclose information on the interest rate risk and steps taken to manage and control the risk.

(aaaaaa) a deposit with a bank can be withdrawn at any time and advances provided by the bank can be settled any time. however, in practice, the deposits and advances are often managed until a long period of time without any withdrawal or settlement, so that the date of settlement is effectively longer than the date according to the contract. a bank performs its analysis based on the maturity period according to the contract, although the settlement period based on the contract is often not the effective period, since the date according to the contract reflects the liquidity risk inherent to the assets and liabilities of the bank.

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(bbbbbb) several assets of the bank have no maturity dates agreed. therefore, it is usually assumed that they will be mature on the anticipated date the assets will be realized.

(cccccc) in evaluating the liquidity of a bank, in addition to considering the maturity date analysis, users of the financial statements will also consider other factors, such as the facilities available to the bank to secure funds.

(dddddd) to assist users of the financial statements in obtaining a complete understanding of the maturities of assets and liabilities, the bank may need to supplement its disclosure in the financial statements with information regarding the probability of settlement within the remaining period. accordingly, the management can disclose in the notes to the financial statements information regarding the effective period and steps to be taken in managing and controlling the related risk under various combinations of maturity dates and interest.

commitments, contingencies and off balance sheet items

116. with respect to commitments, contingent liabilities and off balance sheet items, the bank must disclose the followings:

(a). the characteristics and amounts of commitments to receive or provide credits which cannot be revoked by the bank without causing significant sanction or expenses to the bank. the amount of the commitment for loan facilities received shall be disclosed at the amount of the remaining facilities which have not been utilized yet by the bank. the amount of commitment for credit facilities given shall be disclosed at the amount of the balance of commitments which has not been withdrawn yet by the customers.

(b). the characteristics and amounts of commitments for:(i). issuance of ongoing irrevocable l/c’s for imports at the amount of

the balance of l/c’s not realized yet, and(ii). the facility for the issuance of securities or other similar

commitments, and

(c). the characteristics and amounts of contingencies related to:(i). direct credit substitutions, such as bank guarantee, stand by l/c and

risk sharing in providing credits.(ii). certain transactions (constructions and trade) such as bid bonds,

performance bonds, advance payment bonds, shipping guarantee, missing b/l guarantees and standby l/c’s for certain transactions.

(iii). guarantees received or issued in the framework of providing or receiving domestic and foreign credits, counter guarantees from

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other banks, corporate guarantees received by the bank and ongoing revocable l/c’s.

(iv). bank guarantee or collateral issued on a syndicated basis in the amount of the market share of the guarantee by the related bank.

(v). self-liquidating and short term trade arising from the movements of goods, such as documentary credit arising when the goods shipped are used as collateral.

(vi). interest income in a settlement which represents calculated interest from non-performing productive assets which can not be recognized yet as interest income during the current period.

117. sometimes a bank perform a transaction which does not result in a recognition of assets and liabilities on the balance sheet, but results in commitments and contingencies. such balance sheet items often constitute an important part of the business of a bank and can have a significant effect on the degree of risk faced by the bank. these items may increase or decrease other risks, for example when the bank performs a hedging activity on assets and liabilities on the balance sheet. off balance sheet items may arise from transactions performed by the bank for its customers or from the trade position of the bank itself.

118. the users of the financial statements need to know the irrevocable commitments and contingencies of a bank, since such commitments and contingencies may affect the liquidity and solvency of the bank and may cause a probability of loss to the bank. the users also require sufficient information regarding the description and amounts of off-balance sheet transactions performed by the bank.

concentration of assets, liabilities and off-balance sheet items

119. the bank must disclose significant concentration of assets, liabilities and off-balance sheet items. the disclosure may be made based on geographical areas, groups of customers or industries or other concentrations of risks. the bank must also disclose significant foreign currency risks.

120. the bank shall disclose the concentration of the distribution of assets and the significant sources of its liabilities, since these represent a useful indication of the potential risk contained in the realization of assets and funds available to the bank. the disclosure of the concentration shall be made based on geography, customer groups or industry group or other concentration of risks which is in conformity with the condition of the bank. the bank also needs to present similar analysis and explanation for off-balance sheet items. a geographical area may cover a country, a group of countries, or an area within a country (for example provinces or cities), groups of customers can be divided by sectors such as: government or private. the provision on the disclosure is implemented as a supplement to the provisions regulated in sfas no. 5 regarding reporting of financial information by segments.

121. a disclosure of the risk related to foreign currencies also represent a useful

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indication of the risk of loss due to changes in the exchange value.

credits

122. the bank must disclose the followings:(a). types of credits, economic sectors and the amount of each credit.(b). the amounts of credits granted to related parties.(c). the bank’s position in a joint financing and the amount of the financial

market share.(d). the amounts of credits which have been restructured and other

information on the restructured credits during the current period.(e). classification of credits by periods, collectibility, currencies and credit

interest rate calculated as an average.(f). a summary of changes in the provision for losses and write off of credits

during the related year showing the beginning balance, provisions during the current year, write off during the current year, settlements of credits which have already been written off and the balance of the provision at the end of the year.

(g). policies and accounting methods for the provision, write off and handling of problematic debts.

(h). methods used to determine specific and general provisions.(i). policies, management and implementation of control on the credit

portfolio risk.(j). the amounts of problematic debts and the provisions for each economic

sector and(k). the balances of credits, the calculation of interest on which has been

discontinued.

assets placed as collateral

123. the bank must disclose the total amount of guaranteed liabilities, the characteristics and the carrying values of assets placed as collateral.

derivative instruments

124. matters which must be disclosed related to derivative instruments either derivative receivables or derivative liabilities are:(a). accounting policies, company name, business line, the amount and

percentage between derivatives for investment purposes and for credit restructuring.

(b). qualitative characteristics of the trade activities and the types of derivatives, a.o. covering:(i). management control and risk in the form of a description of the

risk, method of measurement and management,

(ii). valuation method and accounting covering accounting policy in the

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treatment of various derivative instruments and recognition of income as well as the valuation method and adjustment market prices.

(c) quantitative characteristics of the trade activities and the types of derivative, a.o. covering:

(i). market activities, credit risk and market liquidity in the form of information regarding the composition of the portfolio being traded, categories by risks (interest rate, exchange value, commodities and equity) and instruments (futures, forwards, swaps and options) and the contract period;

(ii). market risk in the form of information on the profit and loss obtained from the result of trade activities in the market, and

(eeeeee) income from trade activities by risk categories (interest rate, exchange value), security income from non trading derivative transactions and deferred or unrealized losses.

trustee activities

125. under a trustee activity or an activity with a similar legal base, the asset placed under the trusteeship or entrusted is not the asset of the bank, so that it is not recorded on the balance sheet.

126. a bank sometimes act as a trustee or perform other trust activities by controlling or managing an asset on behalf of an individual, foundations, pension fund or other institutions. if the bank acts as a trustee, the bank must disclose a description of such activity due to the risk of liability which may arise if the bank fails in its trustee activities. it should be noted that a safe custody function is not included in the scope of the trustee’s activities.

additional disclosures of certain items

127. the bank must disclose types of transactions, the amounts of placements and types of currency of inter bank placements.

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(ffffff) matters related to securities shall be disclosed in the notes to the financial statements in accordance with sfas no. 50 regarding accounting for investments in certain securities with the following additional disclosures:

(gggggg) types and amounts of the nominal values of the securities(hhhhhh) market price(iiiiii) types of currency(jjjjjj) group of issuer (government, bank and other companies)(kkkkkk) rating of the securities, and(llllll) collectibility

129. the bank must disclose details of deposits regarding:(mmmmmm)the amounts of current accounts and time deposits blocked and

placed as collateral of credits and other bank transactions/facilities.(nnnnnn) the granting of special facilities to holder of current accounts.(oooooo) the composition of the amounts of deposits and certificate of deposit

ownership by types of currencies rupiah and foreign currencies.

130. in addition to the disclosures required in sfas no. 1 (1998 revision) the bank must disclose details of loans received regarding:

(pppppp) types of loans received(qqqqqq) types of currencies (rupiah and foreign currencies).(rrrrrr) accompanying commitments, and (ssssss) the value of bank assets placed as collateral

131. the bank must disclose the types of currency (rupiah and foreign currencies) and the accompanying commitments of subordinated loans received.

disclosures of other important matters

132. the bank must disclose the net foreign currency position by types of currencies.

133. the bank must disclose the information in the notes to the financial statements as explained in this statement and other sfas’s, the bank is also obligated to disclose in a separate note other activities and information, a.o. covering:

(tttttt) the trustee activities,(uuuuuu) custodianship,(vvvvvv) channeling of management credits; and(wwwwww)capital adequacy ratio(xxxxxx) ratio of classified productive assets to total productive assets(yyyyyy) general risks faced(zzzzzz) transactions with related parties, and(aaaaaaa) losses on loans and advances

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effective date

134. this statement of financial accounting standard becomes effective for the preparation and presentation of financial statements covering the reporting period beginning on or after 1 january, 2000. early implementation is encouraged.

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