STATEMENT OF SFAS No.

FINANCIAL ACCOUNTING STANDARD

31
INDONESIAN INSTITUTE OF ACCOUNTANTS

ACCOUNTING FOR BANKING INDUSTRY

ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

In the framework of developing the Indonesian Accounting Principles (PAI) to become the
Statement of Financial Accounting Standard (SFAS), PAI No. 7, Special Standards for
Bank Accounting in Indonesia, has been amended as necessary to become SFAS No. 31,
Accounting for Banking Industry. This Statement was adopted by a meeting of the
Indonesian Accounting Principles Committee on August 24, 1994, and was ratified by a
meeting of the Executive Committee of the Indonesian Institute of Accountants on
September 7, 1994.

Compliance with the policies in this Statement is not obligatory in the case of immaterial
items.

Jakarta, September 7, 1994

Executive Committee
Indonesian Institute of Accountants

Indonesian Accounting Principles Committee

Hans Kartikahadi Chairman

Jusuf Halim Secretary
Hein G. Surjaatmadja Member
Katjep K. Abdoelkadir Member
Wahjudi Prakarsa Member
Jan Hoesada Member
M. Ashadi Member
Mirza Mochtar Member
IPG. Ary Suta Member
Sobo Sitorus Member
Timoty Marnandus Member
Mirawati Soedjono Member
ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

CONTENTS

paragraphs

MESSAGE FROM THE GOVERNOR OF BANK INDONESIA

MESSAGE FROM THE CHAIRMAN OF THE

INDONESIAN INSTITUTE OF ACCOUNTANTS

PREFACE

INTRODUCTION............................................................................................. 01-07
Characteristics of the Banking Industry................................................................ 01-04
The Need for Special Financial Accounting Standards
for Bank Accounting............................................................................... 05-06
Scope of Application............................................................................... 07

FINANCIAL STATEMENTS OF BANKS...................................................... 08-31

Measurement in Monetary Value............................................................. 08-10
Financial Statements................................................................................ 11-13
Balance Sheet.......................................................................................... 14-16
Statement of Commitments and Contingencies......................................... 17-21
Income Statement.................................................................................... 22-25
Statement of Cash Flows......................................................................... 26
Notes to the Financial Statements............................................................ 27
Combined and Consolidated Financial Statements.................................... 28-30
Interim Financial Statements.................................................................... 31

ACCOUNTING FOR REVENUE AND EXPENSES...................................... 32-44

Recognition of Interest Income and Expense............................................ 32-35
Recognition of Fee Income and Expense.................................................. 36-38
Recognition of Revenue and Expenses Arising from
Foreign Exchange Transactions................................................................ 39-44

ACCOUNTING FOR ASSETS........................................................................ 45-64

Cash........................................................................................................ 45-46
Current Accounts with Bank Indonesia.................................................... 47
Current Accounts with Other Banks......................................................... 48
Placement with Other Banks.................................................................... 49-51
Commercial Paper................................................................................... 52-54
Loans...................................................................................................... 55-58
Equity Participation................................................................................. 59-62
Other Assets............................................................................................ 63-64
ACCOUNTING FOR LIABILITIES AND CAPITAL.................................... 65-93
Current Accounts..................................................................................... 65-67
Other Liabilities Payable Immediately....................................................... 68-69
Savings.................................................................................................... 70-71

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Time Deposits.......................................................................................... 72-74

Certificates of Deposits............................................................................ 75-77
Borrowings.............................................................................................. 78-80
Other Liabilities....................................................................................... 81
Subordinated Loans................................................................................. 82-84
Loan Capital............................................................................................ 85-89
Capital..................................................................................................... 90-93

ACCOUNTING FOR COMMITMENTS AND CONTINGENCIES.......... 94-110

Commitments........................................................................................ 95-102
Contingencies....................................................................................... 103-110

EFFECTIVE DATE....................................................................................... 111

APPENDIX

GLOSSARY

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

MESSAGE FROM THE GOVERNOR OF BANK INDONESIA

The deregulation and decentralization measures adopted by the government,

particularly in finance, monetary affairs and banking, have yielded very encouraging results
as reflected in the growth in the number and expansion of the network of bank offices, the
extent of product diversification, and business volume. This range of government policies
has provided the public, as well as the banking industry, with tremendous flexibility and
opportunity for advancement, encouragement of initiatives, and an augmented role in
national development. Nevertheless, this flexibility and opportunity is not without limits,
but is subject to certain restrictions guided by the prudent principles in undertaking the
wide range of business activities. It is therefore necessary to strive for an appropriate
balance between liberal and prudent policies so that banks do not merely grow, but achieve
growth with quality.

To answer these challenges, banks need to have supporting mechanisms capable of

improving the efficiency and expediency of the banking business and also maintaining
soundness of banks. As we are all aware, maintaining the soundness of banks is the
responsibility of all involved parties, including the owners and managers of banks, the
public using banking services, or the bank supervisory authorities.

One of the necessary supporting mechanisms is accounting standards to facilitate the

proper operation of a management information system. The Special Standards for Bank
Accounting in Indonesia have been prepared to enable bank financial statements to be
presented in a more informative and fair manner, making it possible for the various
interested parties to obtain a more accurate picture of the financial and business conditions
of banks.

Bank financial statements prepared in accordance with accounting standards for

banking activities will certainly be useful in monitoring the implementation of various
policies initiated by the government or Bank Indonesia in both the monetary or banking
sectors. Hence, accounting standards will not only function as a guide for recording
transactions but also as a means for monitoring the implementation of both policies.
Therefore, we are very appreciative of the efforts of the Preparing Team on the Special
Standards for Bank Accounting in Indonesia and the Indonesian Accounting Principles
Committee who have assisted in the issuance of this Special Standard.

Finally, with this opportunity, I would like to express my gratitude and appreciation
to the Steering Team, the Working team, the Indonesian Accounting Principles Committee
and the Executive Committee of the Indonesian Institute of Accountants who have agreed
and approved the Special Standard for Bank Accounting in Indonesia. I sincerely wish that
this joint effort between Bank Indonesia and the Indonesian Institute of Accountants will
continue and increase further in the future.
Jakarta, June 1992
Governor of Bank Indonesia
Adrianus Mooy

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

MESSAGE FROM THE CHAIRMAN OF THE INDONESIAN INSTITUTE OF

ACCOUNTANTS

Developments in the business world have spurred the Indonesian banking system to
make step-by-step adjustments in its strategy and operational schemes to be able to
maintain sound growth and play an active role in the development of the Indonesian
economy.

The Indonesian Institute of Accountants, in cooperation with Bank Indonesia, has

issued accounting standards specifically for banking enterprises. The Special Standards for
Bank Accounting in Indonesia are to be used as a guide in preparing bank financial
statements to enable these statements to provide valuable information to the various
interested parties.

With this opportunity, allow me to express my appreciation to the Steering Team,

the Working Team and the Indonesian Accounting Principles Committee for all their
efforts in establishing these Standards.

In closing, I would like to express my gratitude to Bank Indonesia for the

cooperation that has been extended throughout this time.

May this cooperation always be sustained in the interest of developing bank

accounting in Indonesia.

Jakarta, June 5, 1992

Indonesian Institute of Accountants

Subekti Ismaun
Chairman

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

PREFACE

The rapid growth of the Indonesian economy, particularly since June 1983 when the
government embarked on a deregulation and decentralization drive in finance, monetary
affairs and banking, has brought about an urgent need for investment funds to be supplied
both directly or through the banking system in its capacity as a financial intermediary.

Consequently, the role of the banking system as a financial intermediary in

mobilizing and redistributing public funds has gained increasing importance, particularly
since the government and the Central Bank introduced the October 1988 Policy Package.

In line with these developments, an urgent need has also arisen for specific
accounting standards which serve as a guide for preparing fair and comparable bank
financial statements, thus providing valuable information to the interested parties.

The Indonesian Accounting Principles at that time did not fully meet the
requirements of the banking industry, as banking activities have specific characteristics in
comparison to other industries. Aware of this, the Indonesian Institute of Accountants and
Bank Indonesia (BI) worked together to prepare the Special Standards for Bank
Accounting in Indonesia with the intention of fulfilling the needs of the banking industry.

A Steering Team and a Working Team was formed to prepare the Special Standards
for Bank Accounting in Indonesia. The members are as follows:

Steering Team:

First Chairman: Binhadi (BI)

Second Chairman: Subekti Ismaun (IAI)
Members: Hendrobudiyanto (BI)
Katjep K. Abdoelkadir (IAI)
Hans Kartikahadi (IAI)
N. Lapoliwa (BI)
Subarjo Joyosumarto (BI)
Soemarso S.R. (IAI)

Working Team:

First Chairman: Mrs. Siti Ch. Fadjrijah (BI)

Second Chairman: Jusuf Halim (IAI)
Members: Theodorus M. Tuanakotta (IAI)
M. Ashadhi (IAI)
Hein G. Surjaatmadja (IAI)
Acil Ridwan (BI)
Sjafril Hitam (BI)
Agus Gumilar (IAI)
Sumantri Supono (BI)
Bambang Heryanto (IAI)
Ramzi A. Zuhdi (BI)

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Bramudija Hadinoto (BI)

The Indonesian Accounting Principles (PAI) laid down the basic accounting concepts,
principles, procedures, methods and techniques, comprising the general norms applied in
the practice of preparing financial statements for outside parties. To supplement the
Indonesian Accounting Principles, a series of "Statements" and "Interpretations of the
Indonesian Accounting Principles" have been published.

To provide guidelines for the preparation of the financial statements for special industries,
including banking, IAI also considered it is necessary to issue "special" accounting
standards. After extensive research from the standpoint of technical knowledge as well as
accounting practice, it was agreed that the use of the term "Special Accounting Standards"
for each Statement of the Indonesian Accounting Principles applicable to a specific
industry, e.g. banking. Thus, PAI No. 7 should be referred to as "Special Standards for
Bank Accounting in Indonesia" which is expected to be used as a guide for accounting
treatment and the presentation of financial statements in the banking industry.

For banks operating solely for profit, special terms and accounting treatments are
necessary. For matters or transactions not covered by this Statement, reference should be
made to the 1984 Indonesian Accounting Principles.

Jakarta, June 5, 1992

Executive Committee
Indonesian Institute of Accountants

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

INTRODUCTION

Characteristics of the Banking Industry

01 A bank is an institution functioning as a financial intermediary between parties with

excess funds (surplus units) and parties with fund deficiencies (deficit units). Banks also
facilitate the flow of payments. The philosophy underlying the banking business is public
trust. This is evident from the principal activities of banks in receiving funds from the
public with surplus funds in the form of demand deposits, savings and time deposits, and
lending to those parties in need of funds. In accepting deposits from the public, a bank
only provides a document confirming that the bank has accepted a deposit in a certain
amount and for a certain period. A bank does not always request collateral for loans to
debtors with good reputations. In addition, as an institution of trust in its operations, a
bank uses a greater amount of public funds for its operations in comparison to the capital
from its owners or shareholders.

02 Banking is an industry whose operations rely on public trust; and therefore

maintaining its soundness is essential. Bank soundness is achieved among others by
maintaining liquidity, so that a bank can meet its obligations to all parties withdrawing or
cashing their deposits at any time. The readiness to meet these obligations at any time has
assumed even greater importance in view of the role of banks as institutions facilitating the
flow of payments. In addition to the liquidity factor, the success of banking operations is
also determined by the commitment of bank management to maintain the financial
confidentiality entrusted by its customers and to safeguard the money or other assets kept
at the bank.

03 In conducting its business, the bank management is required to maintain a constant

balance between maintaining adequate liquidity and achieving commensurate profitability,
as well as fulfilling capital requirements according to type of investment. These
requirements are necessary because banks do not only invest in productive assets, such as
loan portfolios and securities, but also provide commitments and other services
categorized as fee-based operations or off balance sheet activities. Furthermore, in
performing their duties, managers of banks are constantly faced with various probabilities,
which must be carefully taken into account. For example, in maintaining liquidity, not only
is it necessary to calculate total liabilities, but also the spreading of public deposits,
outstanding loan commitments and external conditions affecting these matters must be
taken into account.

04 As an institution of public trust and a part of the monetary system, banks hold a
strategic position as a cornerstone for economic development. Therefore, the government
has enacted various requirements or provisions for the banking industry ranging from
license applications in the early stage of establishment, qualifications for prospective
managers and prudent regulations in conducting banking activities. The purpose of these
provisions is for banks to be able to sustain public trust and support the maintenance of
monetary stability.
The Need for Special Financial Accounting Standards for Bank Accounting

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

05 In view of the characteristics and growth of the banking business following the
deregulation policies, and to ensure that interested parties may be informed of
developments in the business of banking, it is necessary for the financial information of
banks to provide a true picture of the condition of banks. To achieve this objective, it is
necessary to have an accounting standard specifically for banking.

06 The principles established under the current Financial Accounting Standards do not
provide accounting practices for specific industries such as banking. Therefore, in practice
a range of variations do exist in accounting treatments and presentation of financial
statements for banks, and thus the comparability of the financial statements of one bank
with another bank are often inaccurate. In order to establish uniformity in accounting
treatments and presentation of bank financial statements, it was necessary to issue
Financial Accounting Standards for Bank Accounting.

Scope of Application

07 This Statement is applicable to the Indonesian banking industry, including citizen’s

banks (BPRs) and other agencies performing one or more banking activities. For other
institutions or companies engaged in activities covered by the scope of banking, the
accounting treatment for those activities should be based on this Statement.

FINANCIAL STATEMENTS OF BANKS

Measurement in Monetary Value

08 A bank’s financial statement must be presented in Rupiah. If a bank has assets,

liabilities, and commitments and contingencies in foreign currencies, these items must be
translated into the Rupiah based on the middle rate at the report date. Paid-in capital in
foreign currency should be translated using the Bank Indonesia conversion rate at the date
that such capital was paid in (historical rate).

09 The middle rate is the Bank Indonesia selling rate plus the buying rate divided by
two. In the event that an exchange rate for a foreign currency is not available from Bank
Indonesia, the rate used should be the selling rate plus the buying rate at the bank
concerned divided by two.

10 Banks are required to disclose their net open position of assets and liabilities in
foreign currencies.

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Financial Statements

11 For the interest of various parties, bank financial statements must be prepared in
accordance with the 1984 Indonesian Accounting Principles and this Statement. Financial
statements of banks consist of:

(a) Balance Sheet;

(b) Statement of Commitments and Contingencies;

(c) Income Statement;

(d) Statement of Cash Flows; and

(e) Notes to the Financial Statements.

12 An accounting principle which deviates from the 1984 Indonesian Accounting

Principles and this Statement may be applied for a particular fact pattern or a certain
account if it does not have a material effect on the fairness of the bank financial
statements. Conversely, if a particular fact pattern or a certain account has not been
addressed by the 1984 Indonesian Accounting Principles and this Statement but the
amount is material, the accounting treatment should be based on generally accepted
accounting practices and the item should be presented in a separate account.

13 In order to present a clear picture of the characteristics and growth of a bank,

comparative financial statements should be presented for the last two years.

Balance Sheet

14 For presentation purposes, assets and liabilities in a bank’s balance sheet should not
be grouped as current and non-current (unclassified). However, as far as possible, they
should reflect the level of liquidity and maturity.

15 The components of a bank balance sheet should be prepared in accordance with the
Statement of Financial Accounting Standard for general accounts and, in accordance with,
this Statement for accounts related specifically to the banking industry.

16 Each Productive Asset should be presented in the balance sheet at the gross amounts
of the loans, receivables or bank placements less allowance for possible losses from each
productive asset. This allowance should be presented as a contra account (offsetting
account) for each category of the respective productive assets.

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Statement of Commitments and Contingencies

17 The Statement of Commitments and Contingencies must be presented systematically

to reflect the commitments and contingencies positions in both the nature of receivables or
liabilities at the report date.

18 A commitment is an undertaking or contract in the form of a promise which is

irrevocable by one party and must be performed if the agreed conditions are met.
Examples of commitments include loan commitments, commitments to sell or buy bank
assets under repurchase agreements (Repo), and commitments to provide other banking
facilities.

19 Contingencies are bank receivables or liabilities which may arise depending on whether
or not one or more future event takes place.

20 The presentation of a statement of commitments and contingencies should be based

on the degree of probability of an effect on the financial position and operating results of
the bank.

21 Commitments and contingencies, may they be receivables or liabilities, should be

presented separately without a contra account.

Income Statement

22 A bank’s income statement must be presented in such a manner so as to reflect the

operating results of the bank for a certain period.

23 A bank’s income statement must be presented in a multiple-step form depicting

revenue or expenses arising from the bank’s major activities or its other activities.

24 The method for presenting a bank’s income statement is as follows:

(a) revenue and expense items must be presented in detail; and

(b) revenue and expense items must be differentiated into revenue and expenses arising
from operating activities and non-operating activities.

25 The components of a bank income statement must be presented in accordance with

the Framework to the Statement of Financial Accounting Standard and in accordance with
this Statement for accounts related specifically to the banking industry.

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Statement of Cash Flows

26 The Statement of Cash Flows must be presented in accordance with Statement of

Financial Accounting Standard (SFAS) No. 2, Cash Flow Statements, based on the cash
concept for the reporting period. This statement must disclose all important aspects of a
bank’s activities without regard to whether the transactions directly affect cash.

Notes to the Financial Statements

27 In addition to the matters which must be disclosed in the notes to the financial
statements as stated in the 1984 Indonesian Accounting Principles and in this Statement, a
bank is also required to disclose in a separate note its net open position by type of
currency and other activities such as trusteeship, custodianship and the issuance of special
loans.

Combined and Consolidated Financial Statements

28 A bank having branch offices or other operational offices must prepare combined
financial statements at each reporting date covering all its offices both in Indonesia and
overseas. In preparing a combined report, the balances of inter-office accounts (including
revenue and expenses) must be eliminated in such a manner so as to fairly reflect the
financial position and operating results of the bank.

29 A bank having one or more subsidiaries meeting certain requirements must prepare
consolidated statements covering the financial position and operating results of the bank
and all subsidiaries at the end of each reporting period:

(a) a consolidated report must be prepared when a bank owns more than 50 percent of
the shares or ownership rights in another financial institution. However, if a bank
owns 50 percent or less of the shares or ownership rights in another financial
institution, the matter must be disclosed in the financial statements;

(b) in preparing consolidated reports, the balances of inter-company accounts must be

eliminated in such a manner as to fairly reflect the financial position and operating
results of the bank; and

(c) an exception to the requirement to prepare consolidated financial statements may be

allowed if certain criteria set forth in the 1984 Indonesian Accounting Principles are
met.

30 Prior to preparing combined or consolidated financial statements, the financial

statements of the overseas branch offices or subsidiaries must first be translated into
Rupiah as follows:

(a) financial statements in foreign currencies must first be presented in accordance with
the 1984 Indonesian Accounting Principles;

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(b) assets and liabilities, as well as commitments and contingencies, at the balance sheet
date, of an overseas branch office or subsidiary must be translated into Rupiah using
the middle rate at the report date. However, capital accounts must be translated
using the historical rate;

(c) the monthly income statement of an overseas branch office or subsidiary must be
translated into Rupiah using the average middle rate for the month concerned. The
income statement for the fiscal year for an overseas branch office or subsidiary must
comprise the total of the income statements for each month which were translated
into Rupiah;

(d) the statement of cash flows must be translated into Rupiah using the middle rate at
the report date, except for income statement accounts which must be translated
using the average middle rate, and equity accounts which must be translated using
historical rates; and

(e) any difference arising from the translation of these financial statements must be
presented in the category of equity accounts "Translation Adjustments".

Interim Financial Statements

31 Interim financial statements covering monthly or quarterly periods constitute an

integral part of the annual financial statements. Therefore, the interim financial statements
must be presented on the basis of the same accounting principles as the annual financial
statements.

ACCOUNTING FOR REVENUE AND EXPENSES

Recognition of Interest Income and Expense

32 The basis used for recognition of bank income and expenses is fundamental to the
measurement of profitability. The main activity of a bank is the accumulation of funds,
which are usually interest bearing, and the placement of these funds in productive assets
(earning assets). As with other industries, there is always the possibility of a lag between
the time that revenue is earned and the expense is incurred with regard to the use of
resources to earn the revenue. Therefore, the matching of bank revenue and expenses is
not an easy task, and the unique nature of the banking business needs to be considered.

33 Interest income and expense must be recognized under the accrual basis, except for
interest income from non-performing assets which it may only be recognized if such
income has actually been received. Income from non-performing assets which has not been
received may not be recognized as revenue for the reporting period and must be reported
in the Statement of Commitments and Contingencies.

34 Interest income consists of interest and other income directly related to lending such
as fees (including commissions).

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35 Interest expense consists of interest and other expenses incurred directly in

connection with the accumulation of funds such as prizes, premiums or discounts on
contracts for funding purposes.

Recognition of Fee Income and Expense

36 Fees directly related to lending activities must be treated as deferred revenue and
expenses and systematically amortized over the term of the loan commitment. If the
commitment is settled before maturity, the remainder of the fee must be recognized as
revenue or expense at the time of settlement of the commitment.

37 Fees not directly related to lending activities but related to a period of time must be
treated as deferred revenue and expenses and systematically amortized over the time
period benefited.

38 Fees not related to either lending activities or a period of time must be recognized as
revenue or expense at the time of the transaction.

Recognition of Revenue and Expenses Arising from Foreign Exchange Transactions

39 Gains or losses arising from foreign exchange transactions must be recognized as

revenue or expense in the income statement for the current period.

40 Differences arising from the translation of assets and liabilities from a foreign
currency into Rupiah must be recognized as revenue or expense in the income statement
for the current period.

41 Forward exchange transactions for funding purposes:

(a) the difference between a contracted forward rate and the spot rate at the transaction
date must be recognized as a premium or discount and must be amortized
proportionally over the term of the contract. Such premium or discount must be
presented as an addition or deduction to interest expense; and

(b) the difference between the spot rate at the report date and the spot rate at the
transaction date for forward exchange contract receivables or payables in foreign
currency must be treated as revenue or expense for the current period.

42 In forward exchange transactions for trading purposes, the difference between the
contracted forward rate and the spot rate upon maturity must be recognized as a foreign
exchange gain or loss at the end of the contract period.

43 In interest rate swap transactions for funding purposes, the difference between the
original interest rate and the contracted interest rate must be presented as an addition or
deduction to the cost of funds, and must be amortized proportionally over the period of
the contract.

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In interest rate swap transactions for trading purposes, the difference between the
original interest rate and the contracted interest rate must be recognized as gain or loss at
the end of the contract period.

44 In a situation where a bank acts as an issuer of options, a loss resulting from the
difference between the contracted option rate and the spot market rate at the report date
must be recognized as expense for the current period. A gain resulting from the difference
between the contracted option rate and the spot market rate at the report date must not be
recognized as revenue for the current period.

ACCOUNTING FOR ASSETS

Cash

45 Cash represents currency bills and coins, both in Rupiah and foreign currencies,
which are valid as legal instruments of payment. Cash also includes Rupiah withdrawn
from circulation and still within the grace period for exchange with Bank Indonesia. This
definition of cash does not include commemorative coins, gold bullion and foreign
currencies which are no longer valid as legal tender.

46 Foreign currency bills and coins withdrawn from circulation must be presented in the
other assets account at their nominal value reduced for estimated repatriation costs, and
must be translated into Rupiah using the middle rate.

Current Accounts with Bank Indonesia

47 Current Accounts with Bank Indonesia consist of the balance of the current
accounts of the bank in both Rupiah and foreign currencies with Bank Indonesia.

Current Accounts with Other Banks

48 Current Accounts with other banks consist of the balance of the current accounts of
the bank in both Rupiah and foreign currencies with other banks.

Placement with Other Banks

49 Placement with other banks consist of the placement of bank funds with other banks,
both in Indonesia and overseas, in the form of inter-bank call money, savings, time
deposits and other similar placements intended, with the intention of earning income.

50 Placement with other banks must be presented in the balance sheet at the gross
amount of bank receivables. Allowance for possible losses arising from these placements
must be presented as contra accounts to the related placement accounts.

51 The following information must be disclosed in the notes to the financial statements:

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(a) type and amount of placement;

(b) type of currency;

(c) term; and

(d) average interest rate.

Commercial Paper

52 Commercial paper are promissory notes, drafts, shares, bonds, credit commercial
paper, or any derivative of commercial paper or other interest or any obligations of an
issuer, in a form commonly traded in the money markets and capital markets.

53 Money market commercial paper purchased at a discount must be presented in the

balance sheet at the nominal value less unamortized interest.

Capital market commercial paper must be stated in the balance sheet at the lower of
acquisition or market price. The difference between the acquisition price and market price
is recognized as a loss and must be charged to a valuation account.

The allowance for possible losses arising from these investments must be presented
as a contra account for the related investments.

54 The following information must be disclosed in the notes to the financial statements:

(a) type and total nominal value of commercial paper; and

(b) market price (if any).

Loans

55 Loans are the provision of money or equivalent receivables based on a loan

agreement between the bank and another party requiring the borrowing party to repay the
debt after a certain time period together with an amount of interest, fee or share of profits.
The definition of a loan includes loans under syndicated financing and restructured loans.

56 Loans under syndicated financing must be recorded at the amount of the receivable
of the bank concerned.

Conversion of loans to equity participations must be recorded at the fair market

value of the shares or equity interest received.

Principal and interest on loans which have been written off must be charged to
Allowance for Possible Loan Losses after a reduction for the fair market value of assets
received or the collateral held.

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57 Loans must be presented in the balance sheet at the gross amount receivable from
customers. The amount of allowance for possible loan losses estimated to cover the
possibility of losses arising from uncollectible loans, in part or in total, must be presented
as a contra account to the loans.

In the case of loan restructuring, the gross amount includes interest and other costs
converted to loan principal.

58 The following information must be disclosed in the notes to the financial statements:

(a) type of loan, economic sector and amount of loans for each category;

(b) amount of loans extended to certain parties, such as subsidiaries, shareholders and
management, as well as to their company groups;

(c) position of the bank within a syndicated financing arrangement and the amount of its
share;

(d) amount of loans in the process of restructuring;

(e) classification of loans by time period and weighted average interest rate; and

(f) summary of changes in the allowance for possible loan losses for the year concerned,
reflecting the beginning balance, provision for the current year, write off for the
current year, recovery of written-off loans and year-end balance.

Equity Participation

59 Equity participation is the investment of bank funds in the stock of other companies
for long-term investment purposes, either through the establishment of a new company,
participation in another financial institution, loan restructuring or other means.

60 Equity participation by the bank with a share of up to 20 percent in another financial

institution must be recorded under the cost method.

61 Equity participation by the bank with a share of more than 20 percent in another
financial institution and equity participation arising from conversion of debt must be
recorded under the equity method.

62 The following information must be disclosed in the notes to the financial statements:

(a) accounting policy for the equity participation;

(b) names of subsidiaries, line of business, amount and percentage of equity

participation; and

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(c) gains or losses for the current period and the accumulation of such gains or losses
for participation recorded under the cost method.

Other Assets

63 Other assets consist of accounts for the purpose of recording assets which cannot be
categorized into any of the accounts referred to above and are not material enough to be
presented in a separate account. Examples of other assets are gold bullion,
commemorative coins, notes to be collected, deferred costs, prepaid taxes and collateral
repossessed by the bank.

64 Gold bullion must be presented at the market value deducted by the estimated cost
of selling (net realizable value), while commemorative coins must be presented in the
balance sheet at acquisition cost.

Repossessed collateral must be presented at lower of market value or a mutually

agreed value.

ACCOUNTING FOR LIABILITIES AND CAPITAL

Current Accounts

65 Current Accounts are deposits of other parties with a bank which may be used as
instruments of payment, and which may be withdrawn at any time by check, ATM card or
other orders of payment or transfers.

66 Current Accounts must be presented in the balance sheet at the amount due to current
account holders.

67 The following information must be disclosed in the notes to the financial statements:

(a) amount of frozen current accounts; and

(b) special facilities provided to holders of current accounts.

Other Liabilities Payable Immediately

68 Other liabilities payable immediately are liabilities of the bank to another party which
must be paid immediately in accordance with instructions by the authorizing parties or a
previously stipulated agreement. Examples of liabilities which are payable immediately are
transfers, tax receipts via the bank due and payable to the state treasury, and interest due
and payable.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

69 Other liabilities payable immediately must be presented in the balance sheet at the
amount due to other parties at the report date.

Savings

70 Savings are deposits of other parties with the bank which may only be withdrawn in
accordance with certain agreed conditions, but may not be withdrawn by check or other
equivalent instrument.

71 Savings must be presented in the balance sheet at the amount due to holders of
savings accounts.

Time Deposits

72 Time Deposits are deposits of other parties with the bank which may only be
withdrawn after a certain time in accordance with the agreement between the depositor
and the bank.

73 Time Deposits must be presented in balance sheet at the nominal amount set forth in
the agreement between the bank and holders of time deposits.

74 The following information must be disclosed in the notes to the financial statements:

(a) amount of frozen time deposits or time deposits put up as loan collateral;

(b) composition of ownership of time deposits by category of Rupiah and foreign

currency;

(c) classification by tenor, e.g. 1 month, 3 months, 6 months, 12 months, and more than
12 months; and

(d) interest rate calculated according to weighted average.

Certificates of Deposit

75 Certificates of Deposits are time deposits which are negotiable.

76 Certificates of Deposit must be presented at their nominal value. The discount (the
difference between the cash amount received and the nominal value) must be recorded as
prepaid interest and must be amortized over the term of the certificate of deposit. The
prepaid interest balance must be presented as a contra account to the nominal amount of
the certificates of deposit.

77 The following information must be disclosed in the notes to the financial statements:

(a) classification by tenure, and average interest rate; and

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(b) composition of the total amount of certificates of deposit by type of currency.

Borrowings

78 Borrowings are credit facilities received from other banks or parties, including Bank
Indonesia, both in Rupiah or foreign currencies, and are payable upon maturity.
Subordinated loans are not included within the definition of borrowings.

79 Borrowings must be presented at the amount of total borrowings at the report date.

80 The following information must be disclosed in the notes to the financial statements:

(a) types of borrowings:

- Bank Indonesia liquidity credits (kredit likuiditas);

- borrowings from the money markets; and

- others.

(b) average interest rate;

(c) term and date of maturity;

(d) type of currency (Rupiah and foreign currency);

(e) attached conditions; and

(f) amount of bank assets pledged as collateral.

Other Liabilities

81 Other liabilities consist of accounts for the purpose of recording bank liabilities
which cannot be categorized into any of the accounts referred to above and are not
material enough to be presented in a separate account, such as guarantee deposits.

Subordinated Loans

82 Subordinated loans are obtained based on an agreement between the bank and
another party, and may only be repaid if the bank meets certain conditions. In the event of
liquidation, subordinated loans have the last priority after all deposits and borrowings.

83 Subordinated loans must be presented at the amount of the unpaid balance of

subordinated loans at the report date.

84 The following information must be disclosed in the notes to the financial statements:

(a) interest rate;

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(b) term and date of maturity;

(c) type of currency (Rupiah and foreign currency); and

(d) attached conditions.

Loan Capital

85 Loan capital are borrowings supported by an instrument referred to as capital notes,

loan stock or other equivalent instruments, and have characteristics similar to capital.

86 Loan capital has the following characteristics:

(a) not guaranteed by the issuing bank and similar to paid-up equity/capital
(subordinated);

(b) may not be repaid or withdrawn upon the initiative of the owners (holders of capital
notes);

(c) has the same position as capital in the case bank losses exceed retained earnings and
other equity accounts included in core capital, even though the bank has not been
liquidated; and

(d) interest payments may be deferred if the bank is sustaining losses or the bank's
earnings are insufficient to pay such interest.

87 The issuance of loan stock or capital notes must be presented at nominal value. The
costs of issuing the loan stock or capital notes may be deferred and amortized
systematically over the estimated term.

88 Loan capital must be presented in the balance sheet between subordinated loans and
paid-up capital.

89 The following information must be disclosed in the notes to the financial statements:

(a) terms and conditions of loan capital;

(b) amount of notes;

(c) names of holders or owners of loan capital notes; and

(d) rights and obligations of the bank and holders of loan capital notes.

Capital

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

90 Capital stock may consist of common stock, preferred stock and additional paid-up
capital.

91 Retained earnings must be grouped into:

(a) retained earnings for specific appropriations, are appropriations from net earnings
after tax for a specific use;

(b) retained earnings for general appropriations, are appropriations from net earnings
after tax that are intended to increase the bank’s capital; and

(c) unappropriated retained earnings consist of:

- previous year's earnings which have not been appropriated; and

- current year’s earnings.

92 Capital must be presented as follows:

Paid-up capital:

(a) common stock; and

(b) preferred stock.

Additional paid-up capital:

(a) premiums (paid-in capital in excess of par value) or discount;

(b) donated capital;

(c) translation adjustments; and

(d) other

Increment from revaluation of fixed assets.

Retained earnings:

(a) specific appropriation;

(b) general appropriation; and

(c) unappropriated.

93 The following information must be disclosed in the notes to the financial statements:

(a) total capital in accordance with the provisions of the supervisory authorities; and

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(b) limitations on distribution of earnings.

ACCOUNTING FOR COMMITMENTS AND CONTINGENCIES

94 Commitments and contingencies (off balance sheet items) must be presented in such
a manner as to fairly present the financial position of the bank as they relate to asset and
liability accounts. Commitments and contingencies are transactions which do not change
the asset and liability positions of the bank at the report date, but which must be carried
out by the bank if the mutually agreed terms with customers are met. Commitments and
contingencies may consist of commitments and contingencies in the form of receivables or
payables. These commitments and contingencies may be denominated in Rupiah or in
foreign currencies.

Commitments

95 A commitment is an undertaking or a contract in the form of an irrevocable promise

by one party which must be carried out if the mutually agreed conditions are met. The
usual types of financial commitments include the following:

96 Loan Facility Received are facilities received by a bank from other banks or other
parties which have not been used at the report date. This loan facility received must be
presented in the amount of the residual balance of the facility not yet drawn by the bank.

97 Loan Facility Given are credit facilities approved by a bank for loans to customers
and are currently effective for use by the customers. Loan facility given must be presented
in the amount of the residual balance of commitments not yet drawn.

98 Commitments to repurchase bank assets sold under Repo terms are bank
commitments to repurchase bank assets at a specific agreed upon time. These
commitments must be presented in the amount of the agreed purchase price between the
bank and its customers.

99 Outstanding irrevocable L/Cs are guarantees in the form of the issuance of

irrevocable L/Cs for imports and exports or trading. These L/Cs must be presented at the
unrealized residual value of the L/Cs.

100 Acceptance of import drafts on the basis of issuance of L/Cs is the provision of
guarantees in the form of the accepting import drafts that are tied to L/Cs. Acceptance of
these drafts must be presented at the nominal value of the accepted drafts.

101 Unsettled foreign exchange spot transactions are total foreign exchange spot
transactions which have not been settled at the report date. These transactions must be
reported in the Statement of Commitments and Contingencies and translated into Rupiah
using the middle rate at the report date.

102 Forward/future forward exchange transactions:

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(a) the balance of receivables or payables arising from forward/future foreign exchange
transactions must be reported in the Statement of Commitments and Contingencies
and translated into Rupiah using the middle rate at the report date; and

(b) the following information must be disclosed in the notes to the financial statements:

- contract value of forward buying and selling transactions by type of foreign

currency;

- average term of contract; and.

- amount of estimated losses incurred on forward foreign exchange transactions

for trading purposes. These estimated losses represent the difference between
the contracted forward rate and the spot rate at the balance sheet date.

Contingencies

103 Contingencies are bank receivables or payables which may arise depending on
whether or not one or more future event occurs. The usual types of contingent receivables
or payables include the following:

104 Bank guarantees are all forms of guarantee accepted or issued by a bank which
result in payment to the party receiving the guarantee in case of default of the guarantor.

Bank guarantees can be as follows:

(a) receipts or issuance of guarantees in the form of bank guarantees in connection with
loan processing, risk sharing and standby L/Cs, or in connection with performance of
projects, such as bid bonds, performance bonds and advance payment bonds; and

(b) acceptance or endorsement of commercial paper, such as the issuance of guarantees

in the form of the second and subsequent signatory on drafts and promissory notes.

105 Outstanding bank guarantees at the report date, whether received or issued by the
bank, must be presented under commitments and contingencies at the nominal guarantee
value.

106 Bank guarantees, or guarantees issued in a syndicated arrangement, must be

presented under commitments and contingencies at the amount of the bank’s share of the
guarantee involved.

107 The following information must be disclosed in the notes to the financial statements:

(a) total bank guarantees received and issued in connection with acceptance of foreign
and domestic loans;

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

(b) total guarantees for which contra guarantees have been obtained from other banks;
and

(c) total corporate guarantees issued.

108 Outstanding revocable L/Cs are guarantees in the form of the issuance of revocable
L/Cs for imports and exports or trading. These L/Cs must be presented in the amount of
the unrealized residual value of the L/Cs.

109 Foreign exchange options outstanding at the report date must be reported in the
Statement of Commitments and Contingencies and translated into Rupiah using the middle
rate at the report date.

110 Past due interest is the accrued interest on non-performing assets which may not be
recognized as interest income in the current period.

EFFECTIVE DATE

111 This Statement becomes effective for financial statements covering the periods
ending on or after December 31, 1993.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

APPENDIXES

This appendix illustrates the method to present the bank’s financial statements and is
solely intended as an example. The form or level of detail may differ from the examples
as long as the presentation is more appropriate for a particular situation.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

APPENDIX 1

PT BANK “XYZ”
BALANCE SHEET
31 DECEMBER 199X

1. Assets
1. 1. Cash
1. 2. Current Accounts with Bank Indonesia
1. 3. Current Accounts with other banks
1. 4. Placements at other banks /
Allowance for possible losses
1. 5. Securities
Allowance for possible losses and decline in value of securities
1. 6. Loans
Allowance for possible loan losses
1. 7. Investments
1. 8. Income receivable
1. 9. Prepaid expenses
1.10. Fixed Assets
Accumulated depreciation for fixed assets
1.11. Other Assets

2. Liabilities
2. 1. Current Accounts
2. 2. Other payables to be settled within a short period of time
2. 3. Savings
2. 4. Time Deposits
2. 5. Certificates of Deposits
2. 6. Securities issued:
a. Money market securities
b. Bonds
2. 7 Loans received
2. 8. Accrued expenses
2. 9. Other payables
2.10. Subordinated loans
2.11. Loan capital

3. Equity Capital
3. 1. Paid-up capital
a. Common stock
b. Preferred stock
3. 2. Additional paid-up capital
a. Premium or discount
b. Donated capital
c. Translation adjustments
d. Other
3. 3. Increment from revaluation of fixed assets

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

3. 4. Retained earning
a. Specific appropriation
b. General appropriation
c. Unappropriated

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

APPENDIX 2

PT BANK “XYZ”
STATEMENT OF COMMITMENTS AND CONTINGENCIES
31 DECEMBER 199X

COMMITMENTS

1. COMMITMENT RECEIVABLES
1. 1. Unused loan facilities received
1. 2. Forward foreign exchange purchased
1. 3. Unsettled spot foreign exchange purchased

2. COMMITMENT PAYABLES
2. 1. Unused loan facilities given to customers
2. 2. Obligation to repurchase bank assets sold with a Repo condition
2. 3. Outstanding irrevocable L/C in connection with imports and exports
2. 4. Acceptance of import notes based on issuance of L/C
2. 5. Forward foreign exchange sold
2. 6. Unsettled spot foreign exchange sales

CONTINGENCIES

1. CONTINGENT RECEIVABLES
1. 1. Guarantees from other banks
a. Risk sharing bank guarantee
b. Other
1. 2. Foreign exchange option purchased
1. 3. Past due interest

2. CONTINGENT PAYABLES
2. 1. Guarantees given
a. Guarantees in the form of:
- Bank guarantee
- Risk sharing
- Standby L/C
- Bid bonds
- Performance bonds
- Advance payment bonds
b. Acceptance or endorsement of securities
c. Other
2. 2. Outstanding revocable L/C in connection with imports and exports
2. 3. Sales of foreign exchange options

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

APPENDIX 3

PT BANK “XYZ”
STATEMENT OF INCOME AND RETAINED EARNINGS
PERIOD FROM JANUARY THROUGH DECEMBER 199X

I. Operating Revenue and Expenses

1. Interest income
1.1. Interest received xxxx
1.2. Loan fees and commissions xxxx
xxxx
2. Interest expense
2.1. Interest paid xxxx
2.2. Gifts xxxx
2.3. Fees and commission paid to obtain funds xxxx
( xxxx )

3. Net interest income

4. Other revenue and expenses

4.1. Fees and commissions received other than from loans xxxx
4.2. Fees and commissions paid other than to obtain funds ( xxxx )
4.3 Income/expense from fees/commissions, net xxxx
4.4. Other revenue xxxx
4.5. Overhead expenses
a. General and administrative expenses ( xxxx )
b. Personnel expenses (
xxxx )
c. Other expenses (
xxxx )
(
xxxx )
4.6. Net other revenue/ expenses xxxx

5. Net operating income xxxx

II. Non-Operating Revenue and Expenses

1. Non-operating revenue:
1.1. Gain from sales of fixed assets xxxx
1.2. Other xxxx
xxxx

2. Non-operating expenses
2.1. Losses from sales of fixed assets (xxxx)

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

2.2. Fines/penalties (xxxx)

2.3. Other (xxxx)
(xxxx)

3. Non-operating revenue/expenses xxxx

III. Profit (Loss)

1. Profit or loss xxxx

2. Extraordinary gain (loss) xxxx
3. Cumulative effect of a change in accounting policy xxxx
4. Profit (loss) before income tax xxxx
5. Income tax
(xxxx)
6. Net profit (loss) for current year xxxx

IV. Retained Earnings:

1. Retained earnings of previous year xxxx

2. Total retained earnings xxxx
3. Dividends paid
(xxxx)
4. Retained earnings at end of the year xxxx

Summarized as follows:
- Special purpose appropriation xxxx
- General purpose appropriation xxxx
- Unappropriated xxxx
xxxx

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

APPENDIX 4
PT BANK “XYZ”
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY THROUGH DECEMBER 199X

Cash Flows from Operating Activities

Interest and commissions received xxxx
Interest paid xxxx
Recovery of written-off loans xxxx
Cash payment to employees and suppliers xxxx
Operating profit before changes in operating assets xxxx

(Increase) Decrease in Operating Assets:

Short term funds xxxx
Deposits for monetary control purposes xxxx
Customer advance funds xxxx
Net increase in credit card receivables xxxx
Short term marketable securities transactions xxxx
Increase (Decrease) in Operating Liabilities:
Customer deposits xxxx
Certificate of deposits transactions xxxx
Net cash from operating activities before income tax xxxx
Income tax xxxx
Net cash flows from operating activities xxxx

Cash Flows from Investing Activities

Sale of subsidiary xxxx
Dividends received xxxx
Interest received xxxx
Sales of non-marketable securities xxxx
Purchase of non-marketable securities xxxx
Purchase of land, building and equipment xxxx
Net cash flows used in investing activities xxxx

Cash Flows from Financing Activities

Issuance of loan capital xxxx
Issuance of priority shares by subsidiaries xxxx
Repayment of long-term obligation xxxx
Net decrease of other liabilities xxxx
Payment of dividends xxxx
Net cash flows from financing activities xxxx
Effect of change in foreign exchange rate for cash and cash equivalents xxxx
Net increase in cash and cash equivalents xxxx
Cash and cash equivalents at beginning of the period xxxx
Cash and cash equivalents at end of the period xxxx
GLOSSARY

Accrual Basis: basis for accrual, anticipated basis

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Advance Payment Bonds: guarantees for project which are given to the employer

Earning Assets: bank investment in the form of loans, securities and other investment
which is intended to earn income.

Amortization: decrease of assets or liabilities in a systematic manner.

Multiple Step: method of income statement presentation illustrated in Appendix 3.

BI: Bank Indonesia is the central bank as regulated by Law No. 13/1968 regarding
Central Bank.

Bid Bonds: guarantees given by a bank in connection with a tender.

Capital Notes: instruments issued by a bank to obtain long-term loans which has the
characteristics of equity.

Commemorative Coin: metal coin issued to commemorate important national events.

Corporate Guarantee: guarantee given by a company or legal entity.

Elimination: means not presented in the combined statements.

Endorsement: transfer of rights over order notes by signing the back of the notes. This
signature binds the parties responsible for the payment of the notes.

Special Facility of an Account Holder: banks give several privileges to certain current
account holders, such as higher current account interest compared to normal rates.

Fee Based Operation: providing bank services for fees as remuneration for the banks.

Forward Receivable: commitment to purchase forward foreign exchange.

Forward Payable: commitment to sell forward foreign exchange.

Future: contracts to purchase or sell foreign exchange which do not involve the transfer
of funds and performed at a certain location, for a certain period and a certain amount at
the rate at the end of the contract.

Gifts: gifts related to deposits. In this case, we have to differentiate between gifts which
are related to or unrelated to efforts to obtain deposit funds, such as Idul Fitri gifts to
personnel and donations to an orphanage.

Market Value: the value resulting from purchase and sale process and which is announced
by a formal institution such as the capital market securities exchange.

IAI: Indonesian Institute of Accountants.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

IPAI: Interpretation of Indonesian Accounting Principles.

Interbank Call Money: interbank loans with a maximum period of 90 days.

Interest Bearing: with interest.

Interest Rate Swap: swap on interest rates, which is the effort to reduce the effect of
interest rate fluctuation as a result of possessing a different funding structure.

Irrevocable: promise which cannot be canceled.

Tenure: payment period.

Branch Office: an operating unit of a bank which is directly responsible to its head office
and is allowed to operate all types of bank operations and conduct its own administration
and bookkeeping. In managing its business, the branch must follow all regulations
applicable to the related bank.

Credit Card: card used for payment purposes.

Surplus Unit: institution, legal entity or general public who has surplus funds which can be
deposited with the banks.

Contingent Liabilities: liabilities which realization depends on the occurrence or non-

occurrence of future events.

Managed Loan: loans extended by a bank acting as loan distributor bank without
exposure to risk.

Loan in Settlement Process: non-performing loan, which is in the process of renegotiation

through rescheduling, restructuring or reconditioning.

Contracted Forward Rate: forward rate agreed to.

Middle Rate: selling rate plus buying rate divided by two.

Bank Indonesia Middle Rate: middle rate for foreign exchange as formally announced by
Bank Indonesia.

Spot Rate: rate used to buy or sell foreign exchange which is delivered within two
working days.

Interim Financial Statements: monthly statements or quarterly statements or statements

for other periods.

Comparative Financial Statements: comparative presentation of every balance sheet and

income statement component.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Liquidity: the bank’s ability to fulfill obligations or loans which must be paid as soon as
possible.

Loan Stock: loan stock.

Matching: matching revenue and expenses.

Capital in Accordance with Supervisory Authorities: primary capital consists of paid-up

capital and appropriations from earnings after taxes, which include paid-up capital,
premium on share capital, general purpose appropriated retained earnings, specific
purpose appropriated retained earnings, retained earnings balance, previous year’s
earnings and earnings for the current year each at 50 percent. Complimentary Equity
consists of other appropriations which are established not from earnings after tax and
loans with similar characteristics as equity.

Fair Value of Assets or Collateral: fair value determined by professional appraisers.

Non-Performing: a condition which indicates that productive assets are being classified as
less than favorable.

Off Balance Sheet Activities: transactions that result in the receipt of or extension of
commitments or other bank services which do not change the asset and liability position of
a bank at the date of the bank’s financial statements; however, the transaction must be
fulfilled by the bank if the mutually-agreed terms become effective.

Option: agreement which extends option rights to the option buyer to realize the contract
for buying or selling foreign exchange which does not involve the transfer of funds and
performed on or before the date stated in the contract based on the rate during the
realization.

Original Forward Rate: forward rate when the commitment was made.

Supervising Authorities: in this case Bank Indonesia or the Ministry of Finance.

Recovery: receipt of loan previously written-off.

Pension Plan Management: a type of service performed by the bank to earn a fee.

Write-off of Productive Assets: charging to income statement the value of the bank’s
productive assets because it cannot be collected.

Translation of Foreign Exchange to Rupiah: to report assets and liabilities of a bank

which are denominated in foreign currencies into Rupiah without altering the assets and
liabilities.

Investments: long-term share ownership which is intended to receive dividends or to

control the company.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Custodianship: acting as custodian for the customer’s assets for a fee.

Allowance for Possible Productive Assets Losses: allowance for write-off of income-
producing assets.

Financial Intermediary: financial institution which collects funds from public with excess
funds and channels these funds to the public who need the funds.

Performance Bonds: a guarantee to perform a task.

Money Changer Company: a company engaged in foreign exchange trading.

Loan Principal: total loan proceeds received by the debtor.

Indonesian Accounting Principles (PAI): the 1984 Indonesian Accounting Principles and
its amendments, interpretations, statements and other regulations related to Indonesian
accounting principles.

Profitability: the bank’s ability to earn a profit.

Repurchase Agreement (Repo): an agreement between bank and other parties or other
banks to repurchase an asset which was previously sold.

Retained Earnings: retained earnings.

Risk Sharing: the assumption of a part of the risk of loss by the bank.

Preferred Shares: preferred shares which can be divided into cumulative preferred shares
and non-cumulative preferred shares. Cumulative preferred shares are shares which give
priority to its holder to obtain dividends before the dividends are distributed to common
stock holders taking into consideration the cumulative unpaid dividends of previous years.

Secondary Reserve: investment of bank funds to fulfill its obligation to its deposit
customers at any time.

Syndication: common funding or loan extension by a group.

Money Market Securities (SBPU): short-term securities which can be traded at a discount
in the interbank money market.

Standby L/C: letter of credit which represents the commitment of an issuing bank to pay
an amount of money if the customer defaults.

Contingent Receivables: receivable which arises depending on the occurrence or non-

occurrence of one or more future events.

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ACCOUNTING FOR BANKING INDUSTRY SFAS No. 31

Balance Sheet Date: for annual balance sheet it is usually December 31 of the related year,
for quarterly balance sheet or monthly balance sheet in accordance with the last day of the
quarter or the related month.

Weighted Average Interest Rate: interest rate which is computed using the weighted-
average method.

Intercompany Accounts: transactions between affiliated companies or accounts which are

counterparts of one another.

Unclassified: not classified according to usual groupings for current assets or non-current
assets.

Reporting Form: see Appendix 3 as an example.

Import Drafts on Issuance of L/C: payment orders to importer which are withdrawn by
the exporter based on issuance of L/C.

36