Second Amendment to Financial Services Authority Regulation Number 11/POJK.03/2016 Concerning Minimum Capital Provision Requirements for Commercial Banks

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 27 OF 2022
CONCERNING
THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 11/POJK.03/2016 CONCERNING MINIMUM CAPITAL PROVISION REQUIREMENTS FOR COMMERCIAL BANKS BY THE GRACE OF GOD THE ALMIGHTY, THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that in order to create a healthy banking system capable of developing and competing nationally and internationally, as well as in line with international standard developments, it is necessary to refine the provisions regarding minimum capital provision requirements for commercial banks; b. that in order to support financial market deepening through the optimization of the function of central counterparty institutions, it is necessary to establish regulatory standards for instruments traded both through and without the use of central counterparty institutions;
c. that in order to accommodate international standard developments and financial market deepening, it is necessary to adjust the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks as amended by the Financial Services Authority Regulation Number 34/POJK.03/2016 concerning Amendments to the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks;
d. that based on the considerations as referred to in letters a, b, and c, it is necessary to establish a Financial Services Authority Regulation concerning the Second Amendment to the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks; Recalling:

1. Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended by Law Number 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to the State Gazette of the Republic of Indonesia Number 3790);
2. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
3. Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 25, Supplement to the State Gazette of the Republic of Indonesia Number 5848) as amended by the Financial Services Authority Regulation Number 34/POJK.03/2016 concerning Amendments to the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 188, Supplement to the State Gazette of the Republic of Indonesia Number 5929);
   DECIDING:
   To establish:
   FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 11/POJK.03/2016 CONCERNING MINIMUM CAPITAL PROVISION REQUIREMENTS FOR COMMERCIAL BANKS.

Article I
Several provisions in the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 25, Supplement to the State Gazette of the Republic of Indonesia Number 5848) as amended by the Financial Services Authority Regulation Number 34/POJK.03/2016 concerning Amendments to the Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Provision Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2016 Number 188, Supplement to the State Gazette of the Republic of Indonesia Number 5929) are amended as follows:

1. The provision of paragraph (1) of Article 4 is amended, so that it reads as follows:
   Article 4
   (1) Banks classified as bank groups based on Core Capital 2, bank groups based on Core Capital 3, and bank groups based on Core Capital 4 are required to form a Capital Conservation Buffer as referred to in Article 3 paragraph (3) letter a. (2) All Banks are required to form a Countercyclical Buffer as referred to in Article 3 paragraph (3) letter b. (3) Banks designated as Systemic Banks are required to form a Capital Surcharge for Systemic Banks as referred to in Article 3 paragraph (3) letter c.

2. The provision of paragraph (1) letter a number 1 letter b) and letter b number 1 letter b) of Article 14 is amended, and the explanation of Article 14 is amended as set out in the article-by-article explanation, so that it reads as follows:
   Article 14
   (1) Additional capital reserves (disclosed reserve) as referred to in Article 11 paragraph (1) letter a number 2 consist of:
   a. adding factors, namely:

3. Other Comprehensive Income consisting of:
   a) translation differences of financial statements; b) potential gains arising from increases in the fair value of financial assets categorized as available-for-sale, which is understood as financial assets measured at fair value through other comprehensive income in accordance with financial accounting standards regarding financial instruments; and c) balance of surplus from revaluation of fixed assets;

4. other additional capital reserves consisting of:
   a) premium arising from the issuance of instruments classified as Core Capital 1 (Common Equity Tier 1); b) general reserves; c) prior years' profits; d) current year profits; e) paid-in capital funds, which meet the requirements:

1. have been fully paid for the purpose of capital increase but have not yet been supported by complete requirement documents to be classified as paid-in capital such as holding a General Meeting of Shareholders or approval of the Articles of Association from the competent authority;
2. are placed in a special account (escrow account) that does not yield interest;
3. cannot be withdrawn by shareholders or prospective shareholders and are available to absorb losses; and
4. the use of funds must have the approval of the Financial Services Authority; and
   f) others based on the approval of the Financial Services Authority; b. subtracting factors, namely:

1. Other Comprehensive Income consisting of:
   a) translation deficits of financial statements; and b) potential losses arising from decreases in the fair value of financial assets categorized as available-for-sale, which is understood as financial assets measured at fair value through other comprehensive income in accordance with financial accounting standards regarding financial instruments;

2. other additional capital reserves consisting of:
   a) discount arising from the issuance of instruments classified as Core Capital 1 (Common Equity Tier 1); b) prior years' losses; c) current year losses; d) deficit between the Provision for Impairment of Assets (PPA) on productive assets and the Provision for Impairment of Financial Assets (CKPN) on productive assets; e) deficit between the amount of adjustments to valuation results of financial instruments in the Trading Book and the amount of adjustments based on financial accounting standards; f) non-productive PPA; and g) others based on the approval of the Financial Services Authority. (2) In the calculation of prior years' profits and/or current year profits as referred to in paragraph (1) letter a number 2 letter c) and letter d), the influence of the following factors must be excluded:
   a. increases or decreases in the fair value of financial liabilities; and/or b. gains on the sale of assets in securitization transactions (gain on sale).

3. The provision of Article 27 is amended so that it reads as follows:
   Article 27
   (1) Risk-weighted assets used in the calculation of minimum capital as referred to in Article 2 paragraph (3) and the calculation of additional capital formation as a buffer as referred to in Article 3 paragraph (3) consist of:
   a. risk-weighted assets for Credit Risk; b. risk-weighted assets for Operational Risk; and
   c. risk-weighted assets for Market Risk.
   (2) The method for calculating risk-weighted assets as referred to in paragraph (1) is determined by the Financial Services Authority.

4. Article 30 is deleted.

5. Article 31 is deleted.

6. Between Article 33 and Article 34, 1 (one) article is inserted, namely Article 33A so that it reads as follows:
   Article 33A
   (1) Fulfillment of certain criteria as the basis for the obligation to calculate risk-weighted assets for Market Risk as referred to in Article 28 paragraph (2), Article 29, Article 32, and Article 33 applies until December 31, 2023. (2) Starting from January 1, 2024, all Banks are required to calculate risk-weighted assets for Market Risk.

7. Article 34 is deleted.

8. Article 35 is deleted.

9. Article 36 is deleted.

10. Article 42 is deleted.

11. Between CHAPTER III and CHAPTER IV, 1 (one) chapter is inserted, namely CHAPTER IIIA so that it reads as follows:
    CHAPTER IIIA
    CAPITAL CALCULATION FOR TRANSACTIONS RELATED TO CENTRAL COUNTERPARTY INSTITUTIONS AND MARGIN REQUIREMENTS

12. Between Article 42 and Article 43, 2 (two) articles are inserted, namely Article 42A and Article 42B so that they read as follows:
    Article 42A
    (1) Banks are required to calculate exposures to central counterparty institutions in capital calculations.
    (2) The method for calculating capital for Bank exposures to central counterparty institutions as referred to in paragraph (1) is determined by the Financial Services Authority.

Article 42B
(1) Banks are required to meet margin requirements for derivative transactions that are not cleared through a central counterparty institution.
(2) The method for calculating margin requirements as referred to in paragraph (1) is determined by the Financial Services Authority.

13. The provision of Article 47 is amended so that it reads as follows:
    Article 47
    (1) Banks are required to submit Minimum Capital Provision (KPMM) calculation reports individually.
    (2) Banks that fulfill the obligation to perform KPMM calculations on a consolidated basis as referred to in Article 7 are also required to submit KPMM calculation reports on a consolidated basis. (3) The reports as referred to in paragraph (1) and paragraph (2) are submitted online through the Financial Services Authority reporting system. (4) The format and procedures for submitting reports as referred to in paragraph (3) are in accordance with the Financial Services Authority regulation regarding commercial bank reporting through the Financial Services Authority reporting system.

14. The provision of Article 52 is amended so that it reads as follows:
    Article 52
    The procedures for submitting reports as referred to in Article 48 paragraph (1) and Article 49 paragraph (1) are carried out in accordance with the Financial Services Authority regulation regarding commercial bank reporting through the Financial Services Authority reporting system.

15. Article 53 is deleted.

16. The provision of Article 55 is amended so that it reads as follows:
    Article 55
    (1) Banks that violate the provisions as referred to in Article 2 paragraph (1), Article 3 paragraph (1), Article 4, Article 6 paragraph (1), paragraph (2), paragraph (3), paragraph (4), Article 7, Article 8 paragraph (1), paragraph (3), Article 9 paragraph (2), Article 10 paragraph (2), Article 11 paragraph (2), paragraph (3), Article 12, Article 13, Article 15, Article 16 paragraph (1), Article 18, Article 19 paragraph (1), paragraph (2), Article 23, Article 24 paragraph (1), Article 25 paragraph (1), paragraph (4), Article 26 paragraph (1), paragraph (2), Article 28, Article 32, Article 33, Article 33A paragraph (2), Article 37, Article 38 paragraph (1), Article 39, Article 40, Article 41, Article 42A paragraph (1), Article 42B paragraph (1), Article 43 paragraph (1), paragraph (3), Article 48 paragraph (1), Article 49 paragraph (1), Article 50 paragraph (1), and/or Article 51 paragraph (3) shall be subject to administrative sanctions in the form of a written reprimand. (2) In the event that a Bank has been subject to administrative sanctions as referred to in paragraph (1) and continues to violate the provisions as referred to in Article 2 paragraph (1), Article 3 paragraph (1), Article 4, Article 6 paragraph (1), paragraph (2), paragraph (3), paragraph (4), Article 7, Article 8 paragraph (1), paragraph (3), Article 9 paragraph (2), Article 10 paragraph (2), Article 11 paragraph (2), paragraph (3), Article 12, Article 13, Article 15, Article 16 paragraph (1), Article 18, Article 19 paragraph (1), paragraph (2), Article 23, Article 24 paragraph (1), Article 25 paragraph (1), paragraph (4), Article 26 paragraph (1), paragraph (2), Article 28, Article 32, Article 33, Article 33A paragraph (2), Article 37, Article 38 paragraph (1), Article 39, Article 40, Article 41, Article 42A paragraph (1), Article 42B paragraph (1), Article 43 paragraph (1), paragraph (3), Article 48 paragraph (1), Article 49 paragraph (1), Article 50 paragraph (1), and/or Article 51 paragraph (3), the Bank may be subject to administrative sanctions in the form of:

17. prohibition on profit transfers for branches of banks located outside the country;

18. prohibition on expanding business activities;

19. suspension of certain business activities; and/or

20. downgrade of the Bank's health level.
    (3) In the event that a Bank has been subject to administrative sanctions as referred to in paragraph (1) and paragraph (2) and continues to violate the provisions as referred to in Article 2 paragraph (1), Article 3 paragraph (1), Article 4, Article 6 paragraph (1), paragraph (2), paragraph (3), paragraph (4), Article 7, Article 8 paragraph (1), paragraph (3), Article 9 paragraph (2), Article 10 paragraph (2), Article 11 paragraph (2), paragraph (3), Article 12, Article 13, Article 15, Article 16 paragraph (1), Article 18, Article 19 paragraph (1), paragraph (2), Article 23, Article 24 paragraph (1), Article 25 paragraph (1), paragraph (4), Article 26 paragraph (1), paragraph (2), Article 28, Article 32, Article 33, Article 33A paragraph (2), Article 37, Article 38 paragraph (1), Article 39, Article 40, Article 41, Article 42A paragraph (1), Article 42B paragraph (1), Article 43 paragraph (1), paragraph (3), Article 48 paragraph (1), Article 49 paragraph (1), Article 50 paragraph (1), and/or Article 51 paragraph (3), controlling shareholders, members of the Board of Directors, members of the Board of Commissioners, and/or executive officials of the Bank may be subject to administrative sanctions in the form of prohibition from acting as a principal party in accordance with the Financial Services Authority regulation regarding the re-evaluation of principal parties of financial service institutions.

21. The provision of Article 56 is amended so that it reads as follows:
    Article 56
    Banks that violate reporting provisions as referred to in Article 47 paragraph (1) and/or paragraph (2) shall be subject to sanctions as regulated in the Financial Services Authority regulation regarding commercial bank reporting through the Financial Services Authority reporting system.

22. Article 59 is deleted.

Article II

1. Starting from January 1, 2023, the Financial Services Authority Regulation Number 44/POJK.03/2017 concerning Restrictions on Providing Credit or Financing by Commercial Banks for Land Acquisition and/or Land Processing (State Gazette of the Republic of Indonesia Year 2017 Number 150, Supplement to the State Gazette of the Republic of Indonesia Number 6093) as amended by the Financial Services Authority Regulation Number 16/POJK.03/2018 concerning Amendments to the Financial Services Authority Regulation Number 44/POJK.03/2017 concerning Restrictions on Providing Credit or Financing by Commercial Banks for Land Acquisition and/or Land Processing (State Gazette of the Republic of Indonesia Year 2018 Number 138, Supplement to the State Gazette of the Republic of Indonesia Number 6241) is revoked and declared invalid for Banks.
2. This Financial Services Authority Regulation takes effect on the date of its promulgation.

This copy is in accordance with the original
Director of Law 1
Legal Department signed
Mufli Asmawidjaja

In order that everyone may know it, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.
Determined in Jakarta on December 26, 2022

CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
MAHENDRA SIREGAR
Promulgated in Jakarta on December 28, 2022
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY
STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2022 NUMBER 35/OJK

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 27 OF 2022
CONCERNING
THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 11/POJK.03/2016 CONCERNING MINIMUM CAPITAL PROVISION REQUIREMENTS FOR COMMERCIAL BANKS

I. GENERAL
In line with the international standard "Basel III: Finalising post-crisis reforms", better known as Basel III reforms, Banks are required to make adjustments in their capital calculation framework that is more risk-sensitive with strengthened risk management. These adjustments are reflected in changes to the technical calculation of risk-weighted assets, which are further regulated in Financial Services Authority provisions. Meanwhile, the components of Core Capital and Supplementary Capital of Banks, which have been regulated in this Financial Services Authority Regulation, have not undergone changes. Furthermore, to support financial market deepening by optimizing the function and role of central counterparty institutions, Banks are required to apply international standards "Capital requirements for bank exposures to central counterparties" and "Margin requirements for non-centrally cleared derivatives". These standards aim to reduce systemic risks arising in the financial market, thereby encouraging Banks to conduct transactions through central counterparty institutions. In relation to this, it is necessary to adjust the Financial Services Authority regulations regarding minimum capital provision requirements for commercial banks, including alignment of risk-weighted asset calculation regulations and the provision of capital for exposures to central counterparty institutions and margin requirements for derivative transactions.

II. ARTICLE-BY-ARTICLE EXPLANATION
Article I
Number 1
Article 4
Paragraph (1)
Bank grouping based on Core Capital is in accordance with Financial Services Authority regulations regarding commercial banks.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Number 2
Article 14
Paragraph (1)
Letter a
Number 1
Letter a)
What is meant by "translation differences of financial statements" is the exchange rate differences arising from the translation of financial statements of Bank branches and/or foreign Subsidiary Companies as regulated in financial accounting standards regarding the influence of foreign exchange rate changes. Letter b) Sufficiently clear. Letter c) What is meant by "balance of surplus from revaluation of fixed assets" is the difference in the revaluation of fixed assets owned by the Bank. The recognition of the balance of surplus from revaluation of fixed assets follows financial accounting standards regarding fixed assets. Number 2 Letter a) What is meant by "premium" is the excess of paid-in capital received by the Bank at the time of share issuance because the market price of shares is higher than the nominal value. Letter b) What is meant by "general reserves" is a reserve formed from the allocation of profit balances after tax deductions, and receives approval from the General Meeting of Shareholders or General Meeting of Members as general reserves. Letter c) Prior years' profits after tax include:

1. prior years' profits, namely all net profits of past years after tax deductions and whose use has not yet been determined by the General Meeting of Shareholders or General Meeting of Members; and
2. retained earnings, namely the balance of net profits after tax deductions which, by decision of the General Meeting of Shareholders or General Meeting of Members, are decided not to be distributed.
   Letter d)
   What is meant by "current year profits" is the profit obtained in the current fiscal year after deducting estimated taxes and dividend payments.
   Letter e)
   The deposit of funds for the purpose of capital increase is placed in the Bank concerned. Furthermore, if based on investigation by the Financial Services Authority, the prospective shareholder of the Bank or paid-in capital funds are found not to meet the requirements as a shareholder or as capital, such funds cannot be recognized as a capital component. Letter f) Sufficiently clear. Letter b Number 1 Letter a) What is meant by "translation deficits of financial statements" is the exchange rate differences arising from the translation of financial statements of Bank branches and/or foreign Subsidiary Companies as regulated in financial accounting standards regarding the influence of foreign exchange rate changes. Letter b) Sufficiently clear. Number 2 Letter a) What is meant by "discount" is the deficit of paid-in capital received by the Bank at the time of share issuance because the market price of shares is lower than the nominal value. Letter b) What is meant by "prior years' losses" is all losses booked by the Bank in past years. Letter c) What is meant by "current year losses" is all losses booked by the Bank in the current fiscal year. Letter d) What is meant by "deficit between the Provision for Impairment of Assets (PPA) on productive assets and the Provision for Impairment of Financial Assets (CKPN) on productive assets" is the deficit between the total PPA (general provision and special provision on all productive assets) that must be formed in accordance with Financial Services Authority regulations regarding the assessment of the quality of commercial bank assets with the total Provision for Impairment of Financial Assets (impairment) on all productive assets (individually and collectively) in accordance with financial accounting standards. Letter e) This deficit arises because the amount of adjustments to valuation results (mark to market) of financial instruments in the Trading Book, which considers various specific factors such as less liquid positions, exceeds the amount of adjustments required in accordance with financial accounting standards regarding financial instruments, particularly financial instruments measured at fair value. In accordance with the banking accounting manual for conventional commercial banks, adjustments to the valuation results of financial instruments will directly reduce or increase the recorded value of the financial instruments. Letter f) What is meant by "non-productive PPA" is the provision that must be formed for non-productive assets in accordance with the Financial Services Authority regulation regarding the assessment of the quality of commercial bank assets. Letter g) Sufficiently clear. Paragraph (2) Letter a Increases or decreases in the fair value of financial liabilities occur when the Bank elects to measure financial liabilities at fair value through profit or loss (fair value option) in accordance with financial accounting standards regarding financial instruments. Letter b What is meant
   by "gains on the sale of assets in securitization transactions (gain on sale)" is the profit obtained by the Bank as the originator from the sale of assets in securitization transactions, which is sourced from the capitalization of expected future margins or capitalization of servicing income. Number 3
   Article 27
   Sufficiently clear.
   Number 4
   Article 30
   Deleted.
   Number 5
   Article 31
   Deleted.
   Number 6
   Article 33A
   Sufficiently clear.
   Number 7
   Article 34
   Deleted.
   Number 8
   Article 35
   Deleted.
   Number 9
   Article 36
   Deleted.
   Number 10
   Article 42
   Deleted.
   Number 11
   Sufficiently clear.
   Number 12
   Article 42A
   Central counterparty institutions in the country are in accordance with legislation regarding the organization of central counterparty institutions for interest rate and over-the-counter exchange rate derivative transactions.
   Article 42B
   Sufficiently clear.
   Number 13
   Article 47
   Sufficiently clear.
   Number 14
   Article 52
   Sufficiently clear.
   Number 15
   Article 53
   Deleted.
   Number 16
   Article 55
   Sufficiently clear.
   Number 17
   Article 56
   Sufficiently clear.
   Number 18
   Article 59
   Deleted.
   Article II
   Sufficiently clear.
   SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 26/OJK