OJK Circular No. 27/SEOJK.03/2025 on Credit Rating Agencies and Recognized Ratings

To the Esteemed:

1. Directors of Conventional Commercial Banks;
2. Directors of Sharia Commercial Banks;
3. Directors of Rural Banks;
4. Directors of Sharia Rural Banks; and
5. Directors of Rating Agencies,
   at their respective places.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY OF THE REPUBLIC OF INDONESIA NUMBER 27/SEOJK.03/2025 CONCERNING RATING AGENCIES AND RECOGNIZED RATINGS BY THE FINANCIAL SERVICES AUTHORITY

In connection with the need for provisions regulating the use of ratings for exposures held by banks in the context of capital calculation, asset quality assessment, calculation of maximum lending/fund disbursement limits, and other prudential provisions, as well as the existence of new international standards in the Basel III: Finalising post-crisis reforms document that adjusts the assessment criteria for rating agencies previously regulated in Financial Services Authority Circular Letter Number 37/SEOJK.03/2016 concerning Rating Agencies and Recognized Ratings by the Financial Services Authority, it is necessary to regulate the implementing provisions concerning rating agencies and recognized ratings by the Financial Services Authority in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

1. The regulation concerning rating agencies and recognized ratings by the Financial Services Authority is carried out, among others, by refining the scope of assessment, including parameters in the assessment criteria, used by the Financial Services Authority in assessing rating agencies.

2. A rating agency is a company that provides ratings for bank exposures originating from a party and/or securities by assessing the ability of said party and/or securities to repay their obligations (creditworthiness).

3. A Bank is a bank that conducts business activities conventionally or based on sharia principles, including conventional commercial banks, branch offices of banks domiciled abroad, sharia business units, sharia commercial banks, rural banks, and sharia rural banks.

4. Rating agencies are one of the important elements that play a role in supporting the operations of a financial system, among others, to help create financial market transparency and encourage efficient investment that can support accelerated economic growth.

5. In banking business activities, the assignment of ratings by rating agencies to exposures held by Banks is one of the tools for Banks in risk management.

6. Rating agencies that can be recognized by the Financial Services Authority are rating agencies that meet the assessment as regulated in this Financial Services Authority Circular Letter.

7. Ratings recognized by the Financial Services Authority are ratings issued by rating agencies recognized by the Financial Services Authority.

8. The Financial Services Authority updates the list of recognized rating agencies and ratings by the Financial Services Authority based on the results of assessment and monitoring of said rating agencies based on international standards.

II. ASSESSMENT OF RATING AGENCIES
A. General Principles
General principles in assessing rating agencies include:

1. the assessment carried out can stimulate healthy competition and encourage market discipline;
2. the assessment is aimed at encouraging rating agencies to produce reliable ratings; and
3. the assessment is carried out by referring to sound international standards and practices to support consistency among other regulators, especially in assessing and recognizing regional and international rating agencies.

B. Recognition Process
The Financial Services Authority grants direct recognition or indirect recognition to rating agencies that apply to become rating agencies recognized by the Financial Services Authority.

1. Direct Recognition
   Direct recognition is a method of recognizing Indonesian legal entity rating agencies where the Financial Services Authority conducts a direct assessment of the rating agency. In this case, the rating agency must be able to demonstrate fulfillment of all criteria set by the Financial Services Authority.
2. Indirect Recognition
   Indirect recognition is granted when a foreign rating agency has obtained recognition from the supervisory authority in the country where the rating agency's head office is located. The Financial Services Authority may recognize the recognition granted by other supervisory authorities to said rating agency if the recognition criteria are at least in accordance with international standards. If necessary, the Financial Services Authority may conduct an additional assessment of said rating agency to meet the assessment criteria and rating agency recognition process set forth in this Financial Services Authority Circular Letter. If the recognition criteria by other supervisory authorities are not in accordance with international standards, then the recognition of such rating agencies is carried out directly as referred to in point 1.

C. Assessment Criteria

1. The Financial Services Authority's assessment of rating agencies is carried out based on the following criteria:
   a. Objectivity
   Rating agencies must have a reliable, systematic, and validated rating methodology based on historical experience. The rating methodology for each market segment, including testing (backtesting), must have been available for at least the last 1 (one) year, but preferably for the last 3 (three) years. Rating agencies must continuously review issued ratings and ensure that these ratings are responsive to factors affecting rating results, including changes in financial conditions. In addition, rating agencies are responsible for mapping issued rating categories with credit risk weights. b. Independence Rating agencies must be independent and free from all forms of interest, such as economic, social, and/or political interests, whether direct or indirect, that may affect the rating results issued. Rating agencies are not allowed to delay ratings based on anticipated economic, political, or other conditions and potential impacts. The rating process must be free from potential problems that may arise from the composition of the board of directors or the shareholding structure of the rating agency that causes conflicts of interest. Rating agencies must separate rating business and analysts from other businesses and analysts, operationally, legally, and where possible, physically.
   c. Transparency
   Rating agencies must have public information disclosure related to rating results, including procedures, methodologies, assumptions, and the background of rating issuance, as well as the participation of securities issuers in the rating process. Specifically for private ratings, such information must at least be available to domestic and global parties with legitimate interest. d. Public Disclosure Rating agencies must disclose general information about the rating agency, which includes:

1. code of ethics;

2. provisions regarding rating agency compensation and compensation from parties related to ratings;

3. conflicts of interest;

4. methodologies used in rating, including the definition of default, time horizon, and an explanation of each rating;

5. the default rate occurring for each rating category; and

6. rating transitions, for example, a rating change from AA to A or from A to AA.
   In addition, rating results must be announced as soon as possible. The disclosure of such ratings must be in easily understandable language, indicate the nature and limitations of credit ratings, as well as the risks if a party relies solely on such ratings in decision-making. e. Resources Rating agencies must have adequate resources to produce high-quality ratings and be able to conduct regular and substantial coordination and communication with senior officials and technical or operational staff of the rated party to provide added value in the credit assessment process. In conducting assessments, rating agencies must assign analysts with appropriate knowledge and experience to assess the creditworthiness of the rated party or product, basing the assessment on methodologies that combine qualitative and quantitative approaches. In addition to human resources, rating agencies must have adequate financial capability and performance, including business continuity and the ability to invest in infrastructure and technology that support rating activities. f. Credibility The credibility of rating agencies as rating service providers is assessed based on the previously mentioned criteria, as well as public acceptability of the issued ratings. The public includes, among others, Banks, investors, insurance companies, issuers, trading partners, securities dealers, and media. In addition, the credibility of rating agencies is also strengthened by the existence of internal procedures to prevent misuse of confidential information. For the purpose of credibility assessment, rating agencies are not required to have rated parties in more than 1 (one) country. Fulfillment of assessment criteria and minimum requirements for rating agencies refers to the Appendix which is an inseparable part of this Financial Services Authority Circular Letter.

2. In mapping rating categories as referred to in point 1 letter a, rating agencies must consider the following:
   a. Rating agencies are responsible for mapping rating categories based on international standards. b. The rating mapping must be carried out objectively and consistently with the credit risk weights in the Financial Services Authority's provisions concerning the calculation of risk-weighted assets for credit risk with the standardized approach for commercial banks.

c. The mapping process must consider quantitative and qualitative factors, including the size and scope of the rated party, the range of ratings given, the definition of ratings given, and the definition of default used in the rating process.
d. The process and method of rating mapping use a comparison between the cumulative default rate (CDR) of ratings that have been given within the same rating range and measured over a certain period with the benchmark CDR used in international standards.
3. For rating agencies that will submit an application through direct recognition, they must meet the parameters and minimum requirements for the criteria as referred to in point 1 in the Appendix which is an inseparable part of this Financial Services Authority Circular Letter.
4. In conducting direct recognition or indirect recognition, the Financial Services Authority may:
a. request additional information; and/or b. conduct confirmation, clarification, and/or visits, to the rating agency and/or other supervisory authorities related to the accuracy and completeness of data and/or information.
5. Rating agencies must have a publicly accessible website that contains all information that must be disclosed or published as referred to in point 1 letters c and d. If the rating agency is part of a parent company, the rating agency must have its own website or region site.

III. ESTABLISHMENT AND PUBLICATION OF RATING AGENCIES AND RECOGNIZED RATINGS BY THE FINANCIAL SERVICES AUTHORITY

1. Based on the assessment of the fulfillment of the criteria as referred to in Roman II, the Financial Services Authority establishes recognized rating agencies and ratings by the Financial Services Authority and issues a letter of recognition to the rating agencies recognized by the Financial Services Authority.
2. The rating agencies and ratings that have been established by the Financial Services Authority as referred to in point 1 are published in the list of recognized rating agencies and ratings by the Financial Services Authority through the Financial Services Authority's website.
3. The list of rating agencies and ratings as referred to in point 2 is used in the implementation of Financial Services Authority provisions related to the use of exposure ratings by banks.

IV. UPDATE OF THE LIST OF RECOGNIZED RATING AGENCIES AND RATINGS

1. The Financial Services Authority periodically updates the list of recognized rating agencies and ratings by the Financial Services Authority, based on the results of assessment and monitoring of the fulfillment of assessment criteria as referred to in Roman II letter C or the results of assessment and monitoring by the competent supervisory authority in other countries.
2. For the purpose of updating as referred to in point 1, rating agencies must submit at any time:
   a. information regarding any significant changes, among others, concerning organizational or management structure, composition of rating analysts, procedures, and rating methodology; and/or b. other information that may affect the rating agency's ability to produce reliable ratings.
3. Rating agencies may be removed from the list of recognized rating agencies and ratings by the Financial Services Authority based on:
   a. the results of the Financial Services Authority's assessment; and/or b. a request from the rating agency.
4. Rating agencies are removed from the list of recognized rating agencies and ratings by the Financial Services Authority based on the results of the Financial Services Authority's assessment as referred to in point 3 letter a, in the event that:
   a. the competent supervisory authority in another country revokes the license or recognition of the rating agency; b. the rating agency is found to provide misleading information;
   c. the rating agency is proven to misuse unsolicited ratings, among others, by using such ratings to pressure entities to use the rating agency's services;
   d. the rating agency is found to fail to inform and/or provide access to the Financial Services Authority to information as referred to in point 2; e. the rating agency is subject to sanctions that may disrupt the rating agency's business continuity by the competent authority; f. the rating agency violates related laws and regulations, among others, by creating a false market or insider trading and/or manipulating to produce a higher rating than it should be; and/or g. the rating agency does not meet the assessment criteria as referred to in Roman II letter C.
5. The Financial Services Authority may conduct clarification on issues as referred to in point 4 letters b to g, before removing the rating agency from the list of recognized rating agencies and ratings by the Financial Services Authority. The rating agency is given the opportunity to respond to such clarification requests within the timeframe set by the Financial Services Authority.
6. Rating agencies that submit a request to be removed from the list of recognized rating agencies and ratings by the Financial Services Authority as referred to in point 3 letter b, must meet the following requirements:
   a. ensure the validity period of issued ratings has expired or ensure there is a replacement rating agency to issue new ratings if the rated exposures have not yet matured;

b. have settled all obligations to the rated party before operational activities are ceased; and
c. submit the request in writing to the Financial Services Authority at least 12 (twelve) months before the planned cessation of operational activities.
7. Foreign rating agencies that decide to cease their operations in Indonesia must meet the requirements as referred to in point 6.
8. Based on the results of the Financial Services Authority's assessment and/or the request from the rating agency as referred to in point 3, the Financial Services Authority establishes the list of recognized rating agencies and ratings by the Financial Services Authority and issues a letter of termination of recognition to the rating agency removed from the list of recognized rating agencies and ratings by the Financial Services Authority.
9. Based on the establishment as referred to in point 8, the Financial Services Authority updates the list of recognized rating agencies and ratings by the Financial Services Authority which is published through the Financial Services Authority's website.

V. MISCELLANEOUS PROVISIONS

1. Banks must still assess exposures rated by rating agencies.
2. Banks are fully responsible for the use of ratings issued by rating agencies recognized by the Financial Services Authority.
3. Applications from rating agencies to be included in the list of recognized rating agencies and ratings by the Financial Services Authority as referred to in Roman II letter B, information updates as referred to in Roman IV point 2, and requests for removal from the list of rating agencies as referred to in Roman IV point 3 letter b, are submitted offline to the work unit handling licensing in the banking sector at the Financial Services Authority.
4. The process of assessing and updating recognized rating agencies and ratings by the Financial Services Authority, in addition to this Financial Services Authority Circular Letter, must also consider other related provisions concerning securities rating.

This copy conforms to the original
Head of Legal Development Directorate
Legal Department signed.
Aat Windradi

VI. CLOSING PROVISIONS

1. With the enactment of this Financial Services Authority Circular Letter, Financial Services Authority Circular Letter Number 37/SEOJK.03/2016 concerning Rating Agencies and Recognized Ratings by the Financial Services Authority, is revoked and declared invalid.
2. The provisions in this Financial Services Authority Circular Letter become effective on the date of establishment.

Established in Jakarta on November 19, 2025
CHIEF EXECUTIVE OF BANKING SUPERVISION
FINANCIAL SERVICES AUTHORITY OF THE REPUBLIC OF INDONESIA, DIAN EDIANA RAE signed.

APPENDIX
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY OF THE REPUBLIC OF INDONESIA NUMBER 27/SEOJK.03/2025 CONCERNING RATING AGENCIES AND RECOGNIZED RATINGS BY THE FINANCIAL SERVICES AUTHORITY

Criteria for Rating Agencies Recognized by the Financial Services Authority

Criteria & Parameters
Objectivity
Objectivity of rating procedures, in this case, the rating agency has rating procedures to produce reliable ratings

Minimum Requirements
1. Has systematic rating procedures that refer to international standards/best practices, considering the total amount of credit risk exposure for all outstanding payments, including principal and interest.

2. Has procedures and review results for rating procedures.
3. Has procedures related to rating category mapping. |

Example Documents
1. Documents explaining the rating procedures*.

2. Documents explaining the rating category mapping procedures*.
3. Documents showing the results of the review of rating procedures. |

| Objectivity of rating methodology, in this case, the rating agency has a reliable, systematic rating methodology for each market segment, accounts for all risk exposures of the rated party, and undergoes testing (backtesting) and validation based on historical experience for at least the last 1 (one) year, but preferably covering the last 3 (three) years |

| 1. Has rating methodology and criteria for each market segment and rated instrument.
2. Rating methodology and criteria have undergone periodic testing and review processes.
3. Has testing/validation procedures and review of rating methodology and criteria.
4. Testing/validation and review of rating methodology are performed by a function separate from the function that develops the rating methodology and the rating analysis function.
5. Has documentation of rating methodology review results (through default study).
6. Has information technology (IT) and information systems (IS) that support the rating process.
7. Has a rating scale comparable to international rating agency scales mapped based on credit risk levels. |

| 1. Documents explaining the rating methodology and criteria.
2. Documents showing evidence of testing and review of rating methodology and criteria.
3. Documents explaining the testing/validation procedures* and review of rating methodology and criteria.
4. Documents in the form of organizational charts and job descriptions showing that the testing function is separate from the function that develops rating technology and rating analysis.
5. Documents showing the review results.
6. IT-related documents, including:
a. Systematic IT and IS security procedures*. b. Adequate data storage media.
c. Official website that is easily accessible to users.
d. Well-protected hardware.
7. Documents concerning the rating scale mapped based on credit risk levels.
8. Comparison table between the CDR of the rating scale produced by the rating agency and the benchmark CDR rating scale used in international standards. |

Criteria for Rating Agencies Recognized by the Financial Services Authority

Criteria & Parameters
Objectivity of the rating assignment process, in this case, the rating agency ensures objectivity, fairness, and comprehensive analysis in the rating assignment process

Minimum Requirements
1. There is a rating committee with supporting expertise, evidenced by curriculum vitae (CV) or other documents.

2. The structure, membership, authority, responsibilities, and decision-making procedures of the rating committee are clearly defined. |

Example Documents

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