Amendment to OJK Circular No. 34/SEOJK.03/2015 on Risk-Weighted Asset Calculation for Credit Risk Using the Standard Approach for Islamic Commercial Banks

To:
Directors of Islamic Commercial Banks,
At your place.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 13 /SEOJK.03/2018 CONCERNING AMENDMENT TO CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 34/SEOJK.03/2015 CONCERNING THE CALCULATION OF RISK-WEIGHTED ASSETS FOR CREDIT RISK USING THE STANDARD APPROACH FOR ISLAMIC COMMERCIAL BANKS

To increase Indonesia's economic growth and national competitiveness, efforts are needed to promote the intermediary function of Islamic banking through adjustments to regulations regarding risk-weighted assets for credit risk. The aforementioned adjustments are expected to increase the potential for measurable expansion of Bank financing while still paying attention to prudential principles.

The aforementioned regulations focus on encouraging the growth of priority sectors, namely the housing sector, and increasing foreign exchange earnings through the provision of export-oriented funds.

In light of these considerations, it is necessary to make several changes in the Circular Letter of the Financial Services Authority Number 34/SEOJK.03/2015 dated December 21, 2015 concerning the Calculation of Risk-Weighted Assets for Credit Risk Using the Standard Approach for Islamic Commercial Banks as follows:

1. The provision of sub-paragraph II.E.1 is amended to read as follows:
2. Claims on Government
   a. Claims on Government consist of:

1. Claims on the Government of the Republic of Indonesia covering claims on:
   a) central government; b) Bank Indonesia; c) government bodies and institutions of the Republic of Indonesia whose entire operational funding comes from the State Budget (APBN) of the Republic of Indonesia; and d) financial institutions meeting certain requirements, namely:
   i. owned by the central government;
   ii. their business activities provide national export financing; and
   iii. established by Law with sovereign status.
2. Claims on Foreign Governments, covering claims on the central government and central banks of other countries.
   b. The risk weight of Claims on the Government of the Republic of Indonesia as referred to in sub-paragraph a.1), both in Rupiah and foreign currency, is 0% (zero percent).
   c. The risk weight of Claims on Foreign Governments as referred to in sub-paragraph a.2), both in the currency of that country and foreign currency, is determined according to the international rating of that country referring to Table 3 below.

Table 3. Determination of Risk Weights for Claims on Government
Type of Claim | Equivalent Rating | No Rating
AAA | AAA+ | BBB+ | BBB+ | BBB+ | BBB+ | Less than B Claims on the Government of the Republic of Indonesia | 0% | Claims on Foreign Governments | 0% | 20% | 50% | 100% | 150% | 100%

2. The provision of letter a number 3) in sub-paragraph II.E.4 is deleted, and the provisions of letter a through letter c in sub-paragraph II.E.4 are amended so that sub-paragraph II.E.4 reads as follows:
3. Claims on Banks
   a. Claims on Banks include claims on:

1. banks operating in Indonesia, consisting of Islamic commercial banks, conventional commercial banks, Islamic microfinance banks, and rural credit banks, including branch offices of banks located outside the country; and
2. banks operating outside Indonesia, consisting of foreign legal entity banks and branch offices of banks headquartered in Indonesia.
   b. Claims on Banks are distinguished into:
3. Short-Term Claims, namely claims with an agreement term of up to 3 (three) months, including claims that do not have a maturity date but can be withdrawn at any time; or
4. Long-Term Claims, namely claims with an agreement term of more than 3 (three) months. Claims on Banks with an agreement term of up to 3 (three) months but can be assured to be extended (roll-over) so that the total term becomes more than 3 (three) months, must be classified as Long-Term Claims.
   c. The risk weight of Claims on Banks, both Short-Term and Long-Term Claims, is determined according to ratings referring to Table 6, Table 7, or Table 8 below.

Table 6. Determination of Risk Weights for Claims on Banks in the Form of Financing
Type of Claim | Equivalent Rating | No Rating
AAA | AAA+ | BBB+ | BBB+ | BBB+ | BBB+ | Less than B Long-Term Claims | 20% | 50% | 50% | 100% | 150% | 50% Short-Term Claims | 20% | 20% | 20% | 50% | 150% | 20%

Table 7. Determination of Risk Weights for Claims on Banks in the Form of Sharia Securities with Short-Term Ratings
Equivalent Rating | A-1 | A-2 | A-3 | Less than A-3 Risk Weight | 20% | 50% | 100% | 150%

Table 8. Determination of Risk Weights for Claims on Banks in the Form of Sharia Securities without Short-Term Ratings
Type of Claim | Equivalent Rating | No Rating
AAA | AAA+ | BBB+ | BBB+ | BBB+ | BBB+ | Less than B Risk Weight | 20% | 50% | 50% | 100% | 150% | 50%

3. The provision of sub-paragraph II.E.5 is amended to read as follows:
4. Residential Mortgage Financing
   a. Residential Mortgage Financing includes:

1. consumption financing for ownership of land-based houses or apartment houses, or consumption financing secured by collateral in the form of land-based houses or apartment houses (excluding shop houses and office houses), and meeting the following criteria:
   a) granted to individual debtors; b) collateral is bound with a mortgage right or fiduciary right so as to give priority status to the Bank; c) the Bank has adequate systems and procedures to assess and monitor the value of collateral periodically; and d) the financing-to-value (FTV) ratio or FTV ratio is at most 100% (one hundred percent); and
2. consumption financing for ownership of residential houses as part of central government programs in accordance with applicable laws and regulations with an FTV ratio of at most 100% (one hundred percent).
   b. The FTV ratio as referred to in sub-paragraph a.1).d) and sub-paragraph a.2) uses the ratio at the time of the RWA calculation. The FTV ratio calculation is as follows:
3. the financing value is determined based on the recorded financing value in the balance sheet of the financing-providing Bank; and
4. the collateral value is determined based on the lower value between the collateral binding value and the market value of the collateral assessed periodically at least every 30 (thirty) months.
   In the event that the re-evaluation of the market value of the collateral is conducted more than 30 (thirty) months ago, the collateral is determined to have no value.
   c. Collateral assessment is conducted by:
5. independent appraisers for Residential Mortgage Financing with outstanding financing balances exceeding Rp10,000,000,000.00 (ten billion Rupiah); or
6. independent appraisers or the Bank's internal appraisers for Residential Mortgage Financing with outstanding financing balances up to Rp10,000,000,000.00 (ten billion Rupiah).
   d. The risk weight for Residential Mortgage Financing is determined as follows:
7. 20% (twenty percent) in the event that the FTV ratio is at most 50% (fifty percent);
8. 25% (twenty-five percent) in the event that the FTV ratio is more than 50% (fifty percent) up to 70% (seventy percent); and
9. 35% (thirty-five percent) in the event that the FTV ratio is more than 70% (seventy percent) up to 100% (one hundred percent).

4. The provision in Roman numeral VI is added with 1 (one) number, namely number 7, so that it reads as follows:
5. Specifically for the reporting of RWA for Credit Risk-Standard Approach for the portfolio category of Residential Mortgage Financing, refer to the format and filling guidelines in the Appendix which is an integral part of this Circular Letter of the Financial Services Authority.
6. Adding an Appendix regarding the format and guidelines for reporting the calculation of RWA for Credit Risk-Standard Approach for the portfolio category of Residential Mortgage Financing, which is an integral part of this Circular Letter of the Financial Services Authority.

This copy is consistent with the original
Director of Law 1
Legal Department signed
Yuliana
6. At the time this Circular Letter of the Financial Services Authority takes effect, the provisions in the Circular Letter of the Financial Services Authority Number 34/SEOJK.03/2015 concerning the Calculation of Risk-Weighted Assets for Credit Risk Using the Standard Approach for Islamic Commercial Banks remain valid insofar as they do not conflict with the provisions in this Circular Letter of the Financial Services Authority.
The provisions of this Circular Letter of the Financial Services Authority take effect on the date of establishment.
Established in Jakarta on September 20, 2018
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY signed
HERU KRISTIYANA

APPENDIX
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 13 /SEOJK.03/2018 CONCERNING AMENDMENT TO CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 34/SEOJK.03/2015 CONCERNING THE CALCULATION OF RISK-WEIGHTED ASSETS FOR CREDIT RISK USING THE STANDARD APPROACH FOR ISLAMIC COMMERCIAL BANKS

FORMAT AND GUIDELINES FOR REPORTING THE CALCULATION OF RWA FOR CREDIT RISK-STANDARD APPROACH FOR THE PORTFOLIO CATEGORY OF RESIDENTIAL MORTGAGE FINANCING

I. Reporting Format
Bank Name :
Report Month :
Report Type : Individual/Consolidated *)choose one (in Rp million) (1) Net Claims 0 Risk Weight Category Net Claims Unsecured Portion Secured Portion (Recognition of Credit Risk Mitigation Techniques) RWA before CRM RWA after 0% 20% 50% 100% CRM (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) FTV ≤ 50% 20% 0 0 50% < FTV ≤ 70% 25% 70% < FTV ≤ 100% 35% 0 0 Total RWA before CRM recognition (A) 0 Total RWA after CRM recognition (B) 0

II. Filling Guidelines
A. General Instructions

1. The reporting format for the calculation of RWA for Credit Risk-Standard Approach for the portfolio category of Residential Mortgage Financing is the form as referred to in the Appendix of this Circular Letter of the Financial Services Authority.
2. Banks only fill in data in the provided cells and are not permitted to change the format (adding and/or reducing rows and/or columns in the form) unless otherwise determined by the Financial Services Authority.
3. Banks fill in the aforementioned form, which is a report regarding Net Claims and RWA for Credit Risk-Standard Approach for the portfolio category of Residential Mortgage Financing, individually and consolidated.
4. For Banks with Indonesian legal entity status, the calculation of RWA for Credit Risk-Standard Approach also includes exposures from the Bank's branch offices outside the country.
5. For Banks that have Subsidiary Companies, Banks also report calculations on a consolidated basis.
6. In the event that additional disclosures and explanations are deemed necessary to complete the form filling, Banks may add the aforementioned information when reporting calculation results to the Financial Services Authority.
7. The form filling is stated in millions of Rupiah. In the event that a Bank does not have positions or exposures that must be reported, the data in the provided cells is filled with the number 0 (zero).
   B. Specific Instructions
   Filling of columns is done as follows:
8. Column (1) is filled with the Net Claims value for the Portfolio Category of Residential Mortgage Financing.
9. Banks must further detail the data in column (1) in column (4), according to the risk weight of each exposure.
10. In the event that exposures have CRM instruments in the form of collateral, guarantees, assurances, or financing insurance that meet the criteria as Credit Risk Mitigation Techniques as referred to in Roman numeral IV of the Circular Letter of the Financial Services Authority Number 34/SEOJK.03/2015 concerning the Calculation of Risk-Weighted Assets for Credit Risk Using the Standard Approach for Islamic Commercial Banks, then:
    a) the portion of the Net Claims value that does not receive protection from CRM instruments (referred to as Unsecured Portion), is reported in column (5); b) the portion of the Net Claims value that receives protection from CRM instruments (referred to as Secured Portion), is reported in columns (6) through (9) according to the risk weight of each CRM instrument; and c) for each risk weight row in column (3), the total value reported by the Bank in columns (5) through (9) must be equal to the value reported in column (4).
11. Column (10) is the result of multiplying the value in column (4) and the value in column (3). Column (10) reflects the calculation of RWA for Credit Risk-Standard Approach before considering Credit Risk Mitigation Techniques.
12. Column (11) is the result of the summation of:
    a) the result of multiplying column (5) and column (3); b) the result of multiplying column (6) and a risk weight of 0% (zero percent); c) the result of multiplying column (7) and a risk weight of 20% (twenty percent); d) the result of multiplying column (8) and a risk weight of 50% (fifty percent); and e) the result of multiplying column (9) and a risk weight of 100% (one hundred percent). This copy is consistent with the original Director of Law 1 Legal Department signed Yuliana
13. Column (11) reflects the calculation of RWA for Credit Risk-Standard Approach after considering Credit Risk Mitigation Techniques.
14. Row (A) is the result of the summation of all columns (10).
15. Row (B) is the result of the summation of all columns (11). Total Row (B) is considered in RWA for Credit Risk-Standard Approach.
    Established in Jakarta on September 20, 2018
    EXECUTIVE HEAD OF BANKING SUPERVISOR
    FINANCIAL SERVICES AUTHORITY, signed
    HERU KRISTIYANA