Accounting Standards

In general, banks and institutional investors are required to mark to market the securities held for trading and available for sale. Securities classified as “held-to-maturity” are presented on balance sheets at initial cost less amortization. Unrealized gains and losses on the fair value changes are reflected in the financial statements.

Securities that are actively traded on the exchanges, fair value (or mark-to-market value) are generally determined by closing prices on securities exchanges. Fair value that cannot be estimated is presented at initial cost.

Investment Funds

Investment funds use mark-to-market in calculating their Net Asset Values (NAV), as stipulated by the Capital Market and Financial Institution Supervisory Board (BAPEPAM-LK). Specifically, the closing prices from the securities exchange are used to indicate the fair market value for securities. Other critical provisions, including determination of fair market value to asset-backed securities, are included in BAPEPAM-LK Rule No.IV.C.2.

Capital Adequacy Regulations

Financial institutions are subject to a minimum capital requirement to comply with Bank Indonesia Regulation No. 5/12/PBI/2003, where, banks must satisfy risk-based capital requirements that involve mark-to-market practices to measure market risk. Capital adequacy regulations issued in Indonesia are moving towards compliance with Basel II standards.