The Bank Mandiri Story

Bank Mandiri is Indonesia’s largest bank, representing 23% of the assets in the banking system. It is also the most profitable and well-capitalized. Its establishment as a trusted and preferred provider of financial services in Indonesia is a remarkable success story that has only just begun.

Part I - Bank Mandiri Today

Recapitalization and Indonesia's Largest Bank

Bank Mandiri is a product of the wholesale restructuring of Indonesia's banking system in the aftermath of the Asian financial crisis of 1997 and 1998. The sudden exodus of billions of dollars of investment capital and the withdrawal of credit, dealt a decisive blow to the economies of Asia, including Indonesia, resulting in a steep devaluation of regional currencies and asset values. The adverse impact of the financial crisis resulted in economic collapse, dragging with it the entire banking sector.

To restore bank balance sheets and public confidence, the Government implemented a restructuring and recapitalization program, directed by the Indonesian Bank Restructuring Agency (IBRA), a body established in 1998. Sixty-seven banks were closed, merged or acquired by other institutions. This reduced overlap in the sector as the first stage in a process designed to create much larger, stronger entities that could serve the needs of a modernizing economy.

Loans were subjected to rigorous scrutiny by IBRA and Rp 547 trillion was transferred to the agency, in its capacity as an asset management corporation for the distressed debt.

Eleven banks were recapitalized. To replace the loan assets and losses of Bank Mandiri, the Ministry of Finance issued a series of recapitalization bonds, amounting in total to Rp 175.3 trillion. The first batch of bonds was issued in October 1999 and the final batch in December 1999. These bonds are now assets of Bank Mandiri and, at the same time, obligations of the Government of the Republic of Indonesia.

The bonds fall into three categories: fixed-rate Rupiah-denominated bonds, bearing interest rates of between 10% and 16.5 % a year, floating-rate Rupiah-denominated bonds bearing interest rates of SBI-3month and floating-rate 'hedge bonds' bearing interest rates of Sibor + 2 %. The bonds range in maturity between three and 10 years.

The result of these efforts was to restore the banking system to a situation of positive equity and bring stability to the economy.

Bank Mandiri was the largest such restructuring operation and as such represents the cornerstone of Indonesia's economic restoration. It was formed through the merger of four state banks, Bank Bumi Daya, Bank Dagang Negara, Bank Ekspor Impor and Bank Pembanguman Indonesia. It was incorporated in October 1998 and began operations in August 1999, after the legal merger of the four banks. In establishing the bank, the Ministry of Finance tapped some of the best talent available domestically and internationally, including advisors from Deutsche Bank, Andersen Consulting, McKinsey & Co., Arthur Anderson, KPMG Consulting and Hay Management.