Amendment to Financial Services Authority Circular Letter Number 1/SEOJK.03/2017 Regarding Minimum Capital Provision and Minimum Core Capital Fulfillment for Sharia People's Financing Banks

To:
Directors of Sharia People's Financing Banks

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 7 /SEOJK.03/2020

REGARDING
AMENDMENT TO FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER NUMBER 1/SEOJK.03/2017 REGARDING MINIMUM CAPITAL PROVISION AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR SHARIA PEOPLE'S FINANCING BANKS

In light of the establishment of Financial Services Authority Regulation Number 13/POJK.03/2019 regarding Reporting of People's Credit Banks and Sharia People's Financing Banks through the Financial Services Authority Reporting System, and Financial Services Authority Regulation Number 29/POJK.03/2019 regarding Productive Asset Quality and Formation of Provision for Write-off of Productive Assets for Sharia People's Financing Banks, hereinafter abbreviated as POJK KAP and PPAP BPRS, it is necessary to make several amendments to the Financial Services Authority Circular Letter Number 1/SEOJK.03/2017 regarding Minimum Capital Provision and Fulfillment of Minimum Core Capital for Sharia People's Financing Banks as follows:

1. The provision of sub-item II.2.c is amended to read as follows:
   c. Supplementary capital consists of:

1. capital components that meet certain requirements;
2. revaluation surplus of fixed assets; and
3. general reserves from PPAP (General PPAP) at a maximum of 1.25% (one point two five percent)
   of ATMR.

2. The provision of sub-item III.1 is amended to read as follows:

3. The calculation of minimum capital requirements is based on ATMR by taking into account credit risk. The definition of assets in the ATMR calculation includes assets listed in the balance sheet.

4. The provision of sub-item III.2 is amended to read as follows:

5. The asset items referred to in number 1 are the values and/or net claims of assets recorded in the balance sheet, including receivables to be received (if any), after deduction of specific PPAP in accordance with POJK KAP and PPAP BPRS.

6. The provision of sub-item III.3 is amended to read as follows:

7. In calculating ATMR by taking into account credit risk, each asset item in the balance sheet is assigned a risk weight based on the risk contained in the asset itself, the category of customers, the category of guarantors, the nature of collateral, the type of funding source, and the type of profit-sharing financing.

8. The provision of sub-item III.6 is amended to read as follows:

9. The breakdown of risk weights for all assets in the balance sheet is as follows:

0% a. Cash. b. Placements at Bank Indonesia.
c. Financing provided with liquid collateral in the form of securities issued by the Central Government and/or Bank Indonesia, savings and/or deposits blocked at the respective BPRS based on agreements between the BPRS and customers accompanied by withdrawal authorization letters, as well as precious metals, at the lower value between the collateral and the debit balance.

d. Taken Over Collateral (AYDA) that has exceeded 1 (one) year since the date of takeover.

1%
Productive assets with profit-sharing funding sources.

15%
Financing provided with collateral in the form of jewelry gold stored or under the control of the BPRS.

20% a. Placements in other banks in the form of checking accounts, deposits, certificates of deposit, savings, and other claims to other banks. b. Financing to or part of financing guaranteed by other banks or Regional Governments.
c. Part of financing guaranteed by State-Owned Enterprises (BUMN) or Regional-Owned Enterprises (BUMD) that conduct business as financing guarantors, including Sharia guarantee institutions that are subsidiaries of guarantee institutions with BUMN or BUMD status. The BUMN or BUMD conducting business as financing guarantors must meet all of the following criteria:

1. The guarantee scheme meets the requirements:
   a) the duration of financing guarantee is at least equal to the duration of financing; and b) the financing guarantee is unconditional and irrevocable. These requirements must be stated in the agreement between the BPRS and the financing guarantee institution; and

2. The BUMN or BUMD acting as financing guarantors as referred to in number 1 must comply with regulations regarding financing guarantee institutions.

30%
Financing with collateral in the form of land and/or buildings that have certificates encumbered with mortgage rights or fidusia.

50% a. Financing to or part of financing guaranteed by BUMN or BUMD that conduct business as financing guarantors, including Sharia guarantee institutions that are subsidiaries of guarantee institutions with BUMN or BUMD status, but do not meet the requirements to be given a risk weight of 20% (twenty percent). b. Financing to employees or retirees meeting the following requirements:

1. employees or retirees from Civil Servants (PNS), members of the Indonesian National Armed Forces (TNI) or Indonesian National Police (POLRI), state institution employees, BUMN or BUMD employees;

2. the financing ceiling for each employee or retiree is Rp200,000,000.00 (two hundred million rupiah) or the maximum monthly financing installment is 30% (thirty percent) of the remaining net income (take home pay) after deducting all applicable normal deductions and after deducting loan or financing installments at other banks or institutions;

3. employees or retirees are guaranteed by life insurance from an insurance company meeting the following criteria:
   a) holds a business license from the Financial Services Authority; b) the latest financial statements have been audited by a public accountant and meet the minimum solvency requirements according to regulations; and c) is not a related party to the BPRS;

4. installment payments or financing repayment are sourced from salaries or retirement benefits based on salary deduction authorization letters or retirement benefit authorization letters from employees or retirees to the BPRS.
   BPRS must document photocopies of written proof of salary deduction or retirement benefit authorization letters from debtors to general banks or BUMN that have been authorized to distribute salaries or retirement benefits (standing instruction) to debit the debtor's account or transfer funds in a certain amount to pay financing installments to the BPRS periodically according to the installment schedule until the financing is paid off; and

5. BPRS keeps the original appointment letters for employees or retirement decision letters or Pension Registration Index Cards (KARIP) and the debtor's life insurance policies.

c. Financing with collateral in the form of land and/or buildings that have certificates but are not encumbered with mortgage rights or fidusia.

70% a. Financing provided to micro and small businesses meeting all of the following criteria:

1. meet the criteria for micro and small businesses as referred to in Laws regarding micro, small, and medium enterprises, namely:
   a) micro businesses are businesses with net assets of at most Rp50,000,000.00 (fifty million rupiah) excluding land and buildings for business premises or with annual sales results of at most Rp300,000,000.00 (three hundred million rupiah); and b) small businesses are businesses with net assets greater than Rp50,000,000.00 (fifty million rupiah) up to at most Rp500,000,000.00 (five hundred million rupiah) excluding land and buildings for business premises or with annual sales results greater than Rp300,000,000.00 (three hundred million rupiah) up to at most Rp2,500,000,000.00 (two billion five hundred million rupiah);

2. the financing ceiling to debtors is at most Rp500,000,000.00 (five hundred million rupiah); and

3. do not meet the criteria for financing with collateral in the form of land and/or buildings.
   b. Financing with collateral in the form of motor vehicles, ships or motorized boats, heavy equipment, and/or machinery that are integral with land, accompanied by proof of ownership and have undergone mortgage or fidusia encumbrance in accordance with regulations.

100% a. Claims or other financing that do not meet the risk weight criteria above. b. Claims or financing that have matured or have substandard quality.
c. Fixed assets, inventory, furnishings, and intangible assets.
d. AYDA that has not exceeded 1 (one) year since the date of takeover. e. Other assets other than those mentioned above. f. Profit-sharing financing in the form of:

1. musyarakah mutanaqisah financing;
2. project financing; and
3. profit-sharing financing with subcontracting.

150%
Other profit-sharing financing.
The calculation of ATMR using these risk weights shall take effect on June 1, 2020.

6. The provision of sub-item III.9 is amended to read as follows:

7. Productive assets with special attention, substandard, doubtful, or non-performing quality in the ATMR calculation are valued at book value, i.e., debit balance after deduction of specific PPAP for productive assets with special attention, substandard, doubtful, or non-performing quality. Asset quality assessment and PPAP formation refer to POJK KAP and PPAP BPRS.

8. The provision of sub-item IV.1.a.1) is amended to read as follows:

1. the calculation of ATMR for productive assets in the form of placements or financing with special attention, substandard, doubtful, or non-performing quality is at book value, i.e., debit balance after deduction of specific PPAP multiplied by the risk weight according to the type and characteristics of financing and/or collateral as referred to in sub-item III number 6;

8. The provision of sub-item IV.2 is amended to read as follows:

9. Calculate core capital by summing core primary capital and core supplementary capital, and taking into account deduction factors such as deferred tax calculations, goodwill, disagio, AYDA that has exceeded 1 (one) year since takeover at the value recorded in the BPRS balance sheet, prior year losses, and/or current year losses.

10. Appendix I and Appendix II of the Financial Services Authority Circular Letter Number 1/SEOJK.03/2017 regarding Minimum Capital Provision and Fulfillment of Minimum Core Capital for Sharia People's Financing Banks are amended to become Appendix I and Appendix II which are an integral part of this Financial Services Authority Circular Letter, which shall take effect on June 1, 2020.

This copy is consistent with the original
Deputy Director of Legal Consultancy and
Banking Regulation Harmonization 1
Legal Directorate 1
Legal Department signed
Wiwit Puspasari

10. CLOSING
    The provisions of this Financial Services Authority Circular Letter shall take effect on the date of establishment.
    Established in Jakarta on May 20, 2020
    EXECUTIVE HEAD OF BANKING SUPERVISOR
    FINANCIAL SERVICES AUTHORITY
    REPUBLIC OF INDONESIA, signed
    HERU KRISTIYANA

APPENDIX I
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
NUMBER 7 /SEOJK.03/2020
REGARDING
AMENDMENT TO FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER NUMBER 1/SEOJK.03/2017 REGARDING MINIMUM CAPITAL PROVISION AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR SHARIA PEOPLE'S FINANCING BANKS

CALCULATION OF MINIMUM CAPITAL REQUIREMENTS

COMPONENT OF CAPITAL | AMOUNT OF EACH COMPONENT | % CALCULATED | TOTAL CAPITAL

I CORE CAPITAL

I.1 Core Primary Capital
1.1.1 Paid-in capital | 100%
1.1.2 Additional capital reserves
1.1.2.1 Agio | 100%
1.1.2.2 Donation capital | 100%
1.1.2.3 Capital installment funds | 100%
1.1.2.4 General reserves | 100%
1.1.2.5 Purpose reserves | 100%
1.1.2.6 Prior year profits | 100%
1.1.2.7 Current year profits after deduction of PPAP shortage and estimated PPh liabilities | At most 50%
1.1.2.7.1 Current year profits
1.1.2.7.2 Shortage of PPAP formation -/-
1.1.2.7.3 Estimated PPh liabilities -/-
1.1.2.8 Deferred taxes -/- 100%
1.1.2.9 Goodwill -/-
1.1.2.10 Disagio -/-
1.1.2.11 AYDA in the form of land and/or buildings 100%
1.1.2.11.1 Exceeding 1 to 3 years since takeover at the value recorded in the BPRS balance sheet -/- 50%
1.1.2.11.2 Exceeding 3 to 5 years since takeover at the value recorded in the BPRS balance sheet -/- 75%

COMPONENT OF CAPITAL | AMOUNT OF EACH COMPONENT | % CALCULATED | TOTAL

1.1.2.11.3 Exceeding 5 years since takeover at the value recorded in the BPRS balance sheet -/- 100%
1.1.2.12 AYDA in the form of motor vehicles, ships, motorized boats, heavy equipment, and/or machinery integral with land
1.1.2.12.1 Exceeding 1 to 2 years since takeover at the value recorded in the BPRS balance sheet -/- 50%
1.1.2.12.2 Exceeding 2 years since takeover at the value recorded in the BPRS balance sheet -/- 100%
1.1.2.13 AYDA other than land and/or buildings and motor vehicles, ships, motorized boats, heavy equipment, and/or machinery integral with land that has exceeded 1 year -/- 100%
1.1.2.14 Prior year losses -/- 100%
1.1.2.15 Current year losses -/- 100%
1.1.2.15.1 Current year losses
1.1.2.15.2 Shortage of PPAP formation -/-
Sub Total Additional Capital Reserves
Total Core Primary Capital
I.2 Core Supplementary Capital 100%
I.3 TOTAL CORE CAPITAL (I.1 + I.2)

II SUPPLEMENTARY CAPITAL

II.1 Capital components meeting certain requirements At most 50% of core capital II.2 Revaluation surplus of fixed assets 100% II.3 General reserves from PPAP (General PPAP) At most 1.25% of ATMR II.4 TOTAL SUPPLEMENTARY CAPITAL (II.1 + II.2 + II.3) At most 100% of core capital

This copy is consistent with the original
Deputy Director of Legal Consultancy and
Banking Regulation Harmonization 1
Legal Directorate 1
Legal Department signed
Wiwit Puspasari

COMPONENT OF CAPITAL | AMOUNT OF EACH COMPONENT | % CALCULATED | TOTAL

III TOTAL CAPITAL (I.3 + II.4)

ATMR before calculation of surplus of general PPAP reserves (General PPAP) Surplus of general PPAP reserves (General PPAP) that must be formed from the limit of general PPAP reserves (General PPAP) that can be counted as supplementary capital (-) ATMR Capital Adequacy Ratio (KPMM) (%) = Total Capital / ATMR Total capital shortage to achieve KPMM ratio of 12% of ATMR (%) Core Capital Ratio (%) = Total Core Capital / ATMR Total capital shortage to achieve core capital ratio of 8% of ATMR (%)

Established in Jakarta on May 20, 2020
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
HERU KRISTIYANA

APPENDIX II
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
NUMBER 7 /SEOJK.03/2020
REGARDING
AMENDMENT TO FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER NUMBER 1/SEOJK.03/2017 REGARDING MINIMUM CAPITAL PROVISION AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR SHARIA PEOPLE'S FINANCING BANKS

RISK-WEIGHTED ASSET (ATMR) CALCULATION

NO. | COMPONENT | NOMINAL | SPECIFIC PPAM | NOMINAL AFTER DEDUCTING SPECIFIC PPAM | RISK WEIGHT (%) | ATMR

1. | Cash. | | | | 0%
2. | Placements at Bank Indonesia. | | | | 0%
3. | Financing provided with liquid collateral in the form of securities issued by the Central Government and/or Bank Indonesia, savings and/or deposits blocked at the respective BPRS based on agreements between the BPRS and customers accompanied by withdrawal authorization letters, as well as precious metals, at the lower value between the collateral and the debit balance. | *) | | | 0%
4. | Taken Over Collateral (AYDA) that has exceeded 1 (one) year since the date of takeover. | | | | 0%
5. | Productive assets with profit-sharing funding sources. | | | | 1%
6. | Financing provided with collateral in the form of jewelry gold stored or under the control of the BPRS. | *) | | | 15%
7. | Placements in other banks in the form of checking accounts, deposits, certificates of deposit, savings, and other claims to other banks. | *) | | | 20%
8. | Financing to or part of financing guaranteed by other banks or Regional Governments. | *) | | | 20%
   a. | Financing to other banks. b. | Financing to Regional Governments.
   c. | Part of financing guaranteed by other banks.
   d. | Part of financing guaranteed by Regional Governments.
9. | Part of financing guaranteed by State-Owned Enterprises (BUMN) or Regional-Owned Enterprises (BUMD) that conduct business as financing guarantors, including Sharia guarantee institutions that are subsidiaries of guarantee institutions with BUMN or BUMD status. | *) | | | 20%
10. | Financing with collateral in the form of land and/or buildings that have certificates encumbered with mortgage rights or fidusia. | *) | | | 30%
11. | Financing to or part of financing guaranteed by BUMN or BUMD that conduct business as financing guarantors, including Sharia guarantee institutions that are subsidiaries of guarantee institutions with BUMN or BUMD status, but do not meet the requirements to be given a risk weight of 20% (twenty percent). | *) | | | 50%
    a. | Financing to BUMN or BUMD. b. | Part of financing to BUMN or BUMD that conduct business as financing guarantors, including Sharia guarantee institutions that are subsidiaries of guarantee institutions with BUMN or BUMD status but do not meet the requirements to be given a risk weight of 20% (twenty percent).
12. | Financing to employees or retirees meeting requirements. | *) | | | 50%
13. | Financing with collateral in the form of land and/or buildings that have certificates but are not encumbered with mortgage rights or fidusia. | *) | | | 50%
14. | Financing provided to micro and small businesses meeting all criteria. | *) | | | 70%
15. | Financing with collateral in the form of motor vehicles, ships or motorized boats, heavy equipment, and/or machinery that are integral with land, accompanied by proof of ownership and have undergone mortgage or fidusia encumbrance in accordance with regulations. | *) | | | 70%
16. | Claims or other financing that do not meet the risk weight criteria above. | *) | | | 100%
17. | Claims or financing that have matured or have substandard quality. | ) | | | 100%
    a. | Claims or financing that have matured. b. | Claims or financing with substandard quality.
18. | Fixed assets, inventory, furnishings, and intangible assets. | | | | 100%
19. | AYDA that has not exceeded 1 (one) year since the date of takeover. | | | | 100%
20. | Other assets, other than numbers 1 to 19. | | | | 100%
21. | Profit-sharing financing in the form of: | | | | 100%
    a. | Musyarakah mutanaqisah financing. b. | Project financing.
    c. | Profit-sharing financing with subcontracting.
22. | Other profit-sharing financing. | | | | 150%
    Total ATMR Before Calculation of Surplus of General PPAP Reserves (General PPAP)

This copy is consistent with the original
Deputy Director of Legal Consultancy and
Banking Regulation Harmonization 1
Legal Directorate 1
Legal Department signed
Wiwit Puspasari

Notes:
*) Filled with the debit balance of financing or claims that have quality other than substandard and have not yet matured.
) Filled with the debit balance of financing or claims.

Established in Jakarta on May 20, 2020
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
HERU KRISTIYANA