Amendment to Financial Services Authority Circular Number 8/SEOJK.03/2016 on Minimum Capital Provision and Minimum Core Capital Fulfillment for Rural Banks

To:
Board of Directors of Rural Banks at their place.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 24 /SEOJK.03/2019

ABOUT
AMENDMENT TO THE CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 8/SEOJK.03/2016 CONCERNING THE OBLIGATION TO PROVIDE MINIMUM CAPITAL AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR RURAL BANKS

In connection with the establishment of the Financial Services Authority Regulation Number 33/POJK.03/2018 concerning the Quality of Productive Assets and the Formation of Provisions for Productive Asset Impairment for Rural Banks, hereinafter abbreviated as POJK KAP and PPAP BPR, and the Financial Services Authority Regulation Number 13/POJK.03/2019 concerning the Reporting of Rural Banks and Sharia Rural Financing Banks through the Financial Services Authority Reporting System, it is necessary to make several changes in the Financial Services Authority Circular Letter Number 8/SEOJK.03/2016 concerning the Obligation to Provide Minimum Capital and Fulfillment of Minimum Core Capital for Rural Banks as follows:

1. The provisions of item I.2 are amended to read as follows:

2. The obligation to provide minimum capital for BPR, hereinafter referred to as KPMM, is determined based on the risk contained in the assets of the financial position report. Technically, KPMM is measured based on a certain percentage of Risk-Weighted Assets (ATMR).

3. The provisions of item II.1 are amended to read as follows:

4. Minimum Capital Provision
   In accordance with Article 2 and Article 17 of the POJK KPMM BPR, BPR is required to provide minimum capital of 12% (twelve percent) of ATMR no later than December 31, 2019, which is the position of the December 2019 report submitted in January 2020.

5. The provisions of item II.2.c are amended to read as follows:
   c. Supplementary capital consists of:
   i. capital components that meet certain requirements;
   ii. gains from the revaluation of fixed assets; and
   iii. General Provisions for Productive Asset Impairment (PPAP) at a maximum of 1.25% (one point two five percent) of ATMR.

6. The provisions of item II.3 are amended to read as follows:

7. Minimum Core Capital Obligation
   In accordance with Article 4 and Article 17 of the POJK KPMM BPR, BPR is required to provide minimum core capital of 8% (eight percent) of ATMR no later than December 31, 2019, which is the position of the December 2019 report submitted in January 2020.

8. The provisions of item II.8 are amended to read as follows:

9. In accordance with Article 3 and Article 26 of the POJK KPMM BPR, the provisions on BPR capital components to fulfill the capital ratio as referred to in items II.1 and II.3, shall take effect since the position of the December 2019 report submitted in January 2020.

10. The provisions of item II.9 are amended to read as follows:

11. The calculation of ATMR as referred to in Article 11 of the POJK KPMM BPR, which is part of the capital ratio calculation as referred to in items II.1 and II.3, shall take effect since the position of the December 2019 report submitted in January 2020.

12. The provisions of item III.1 are amended to read as follows:

13. In the calculation of ATMR, asset items recorded in the BPR financial position report are multiplied by risk weights in the form of certain percentages.

14. The provisions of item III.2 are amended to read as follows:

15. Asset items as referred to in number 1 are the net value and/or claims of assets recorded in the financial position report, including interest income to be received (if any), after being reduced by specific PPAP as regulated in POJK KAP and PPAP BPR.

16. The provisions of item III.5 are amended to read as follows:

17. Considering the principles as referred to in number 1, the details of risk weights are as follows:

0% :
a. Cash; b. Bank Indonesia Certificates (SBI);
c. Loans granted with liquid collateral in the form of SBI, debt securities issued by the Central Government of the Republic of Indonesia, savings and/or deposits blocked at the relevant BPR based on an agreement between the BPR and the customer accompanied by a disbursement power of attorney, and/or precious metals accompanied by a pledge power of attorney, at the lowest value between the collateral and the debit balance; and
d. Foreclosed Assets (AYDA) that have exceeded 1 (one) year since the date of takeover.

15% : Loans granted with collateral in the form of gold jewelry.

20% :
a. Placements in other banks in the form of checking accounts, deposits, deposit certificates, savings, and other claims to other banks. b. Loans to or part of loans guaranteed by other banks or Regional Governments.
c. Part of loans guaranteed by State-Owned Enterprises (BUMN)/Regional-Owned Enterprises (BUMD) that conduct business as loan guarantors. The BUMN/BUMD conducting business as a loan guarantor must meet all the following criteria:

1. The guarantee scheme meets the requirements:
   a) the guarantee period for the loan is at shortest equal to the loan period; and b) the loan guarantee is unconditional and irrevocable. These requirements must be stated in the agreement between the BPR and the credit guarantee institution; and
2. The BUMN/BUMD credit guarantor as referred to in number 1) must comply with regulations concerning credit guarantee institutions.

30% : Loans with collateral in the form of land and/or buildings that have certificates encumbered by mortgage rights or fiduciary rights.

50% :
a. Loans to BUMN/BUMD or part of loans guaranteed by BUMN/BUMD that conduct credit guarantee business but do not meet the requirements to be given a risk weight of 20% (twenty percent). b. Loans to employees or retirees meeting the following requirements:

1. employees or retirees from Civil Servants (PNS), members of the Indonesian National Armed Forces/Indonesian National Police (TNI/POLRI), state institution employees, or BUMN/BUMD employees;
2. the total financing ceiling for each employee or retiree is Rp200,000,000.00 (two hundred million rupiah) or the maximum monthly loan installment is 30% (thirty percent) of the remaining monthly wage or salary after deducting all applicable normal deductions (take home pay) and after deducting loan installments at banks or other institutions;
3. employees or retirees are insured with life insurance from an insurance company that meets the following criteria:
   a) has a business license from the Financial Services Authority; b) the latest financial report has been audited by a public accountant and meets the minimum solvency level requirements according to regulations; and c) is not a related party to the BPR;
4. loan installment payments or loan repayment originate from wages or pension benefits based on a salary deduction power of attorney or pension benefit from the employee or retiree to the BPR.
   BPR documents a photocopy of the written proof of salary or pension deduction power of attorney from the debtor to a commercial bank or business entity that manages the position (standing instruction) to debit the debtor's account or transfer funds in a certain amount to pay loan installments to the BPR periodically according to the installment schedule until the loan is paid off; and
5. BPR keeps the original letter of appointment of employees or retirement decision letters or Pension Registration Master Card (KARIP) and the life insurance policy of the debtor.
   c. Loans with collateral in the form of land and/or buildings that have certificates but are not encumbered by mortgage rights or fiduciary rights.

70% :
a. Loans granted to micro and small businesses meeting all the following criteria:

1. meet the criteria for micro and small businesses as referred to in the Law concerning 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 of the business premises or having annual sales results of at most Rp300,000,000.00 (three hundred million rupiah); 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 of the business premises or having 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 the debtor is at most Rp500,000,000.00 (five hundred million rupiah); and
3. do not meet the criteria for loans with collateral in the form of land and/or buildings.
   b. Loans with collateral in the form of motor vehicles, ships or motorized boats, heavy equipment, and/or machinery that are part of the land accompanied by proof of ownership and have been subject to mortgage or fiduciary registration according to regulations.

100% :
a. Claims or other loans that do not meet the risk weight criteria above. b. Claims or loans that have matured or are of bad quality.
c. Fixed assets, inventory, and intangible assets.
d. AYDA that has not exceeded 1 (one) year since the date of takeover. e. Other assets not mentioned above.

10. The provisions of item III.8 are amended to read as follows:

11. Productive assets with quality in special attention, less active, doubtful, or bad in the ATMR calculation are valued at book value, i.e., debit balance after being reduced by specific PPAP for productive assets with quality in special attention, less active, doubtful, and bad. Productive Asset Quality Assessment (KAP) and the formation of PPAP refer to POJK KAP and PPAP BPR.

12. The provisions of item IV.1.a.1) are amended to read as follows:

1. calculation of ATMR for productive assets in the form of:
   a) SBI, is the recording value as regulated in the accounting guidelines applicable to BPR; b) placements in other banks with less active and bad quality or loans with quality in special attention, less active, doubtful, or bad at book value, i.e., debit balance after being reduced by specific PPAP multiplied by the risk weight according to the type and characteristics of the loan and/or collateral as referred to in item III.5;

12. The provisions of item IV.2 are amended to read as follows:

13. Conduct core capital calculation by summing core main capital with additional core capital and considering deduction factors in the form of deferred tax calculation, goodwill, disagio, AYDA that has exceeded the period of 1 (one) year since takeover at the value recorded in the BPR financial position report, prior years' losses, and/or current year losses.

14. Appendix I and Appendix II of the Financial Services Authority Circular Letter Number 8/SEOJK.03/2016 concerning the Obligation to Provide Minimum Capital and Fulfillment of Minimum Core Capital for Rural Banks are amended to become Appendix I and Appendix II which are an inseparable part of this Financial Services Authority Circular Letter.

15. CLOSING
    a. The provisions in this Financial Services Authority Circular Letter shall take effect on the date of determination.

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

b. At the time this Financial Services Authority Circular Letter takes effect, Bank Indonesia Circular Letter Number 8/28/DPBPR concerning the Minimum Capital Provision Obligation for Rural Banks is repealed and declared not effective as of December 31, 2019.

Determined in Jakarta on November 13, 2019
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
HERU KRISTIYANA

APPENDIX I
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
NUMBER 24 /SEOJK.03/2019
ABOUT
AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER NUMBER 8/SEOJK.03/2016 CONCERNING THE OBLIGATION TO PROVIDE MINIMUM CAPITAL AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR RURAL BANKS

CALCULATION OF MINIMUM CAPITAL REQUIREMENT
CAPITAL COMPONENTS
TOTAL
OF EACH
COMPONENT
% CALCULATED
TOTAL CAPITAL
I CORE CAPITAL
I.1 Main Core Capital
1.1.1 Paid-in capital 100%
1.1.2 Additional capital reserves
1.1.2.1 Agio (Disagio) 100%
1.1.2.2 Donated capital 100%
1.1.2.3 Capital Payment Funds - Equity 100%
1.1.2.4 General reserves 100%
1.1.2.5 Purpose reserves 100%
1.1.2.6 Prior years' profit (loss) 100%
1.1.2.7 Current year profit after deducting PPAP deficiency and estimated PPh liability or Current year loss after deducting PPAP deficiency
At most 50% if Profit or
100% if Loss
1.1.2.7.1 Current year profit (loss)
1.1.2.7.2 Deficiency in PPAP formation -/-
1.1.2.7.3 Estimated PPh liability -/-
1.1.2.8 Deferred tax -/- 100%
1.1.2.9 Goodwill -/- 100%
1.1.2.10 AYDA in the form of land and/or buildings
1.1.2.10.1 Exceeding time period 1 to 3 years since takeover at recorded value in BPR financial position report -/-
50%
1.1.2.10.2 Exceeding time period 3 to 5 years since takeover at recorded value in BPR financial position report -/-
75%

CAPITAL COMPONENTS
TOTAL
OF EACH
COMPONENT
% CALCULATED
TOTAL
1.1.2.10.3 Exceeding time period 5 years since takeover at recorded value in BPR financial position report -/-
100%
1.1.2.11 AYDA in the form of motor vehicles and similar
1.1.2.11.1 Exceeding time period 1 to 2 years since takeover at recorded value in BPR financial position report -/-
50%
1.1.2.11.2 Exceeding time period 2 years since takeover at recorded value in BPR financial position report -/-
100%
Sub Total Additional Capital Reserves
Total Main Core Capital
I.2 Additional Core 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 Gains from revaluation of fixed assets 100% II.3 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 in accordance with the original
Director of Law 1
Legal Department signed
Yuliana

CAPITAL COMPONENTS
TOTAL
OF EACH
COMPONENT
% CALCULATED
TOTAL
III TOTAL CAPITAL (I.3+II.4)
Total ATMR before calculation of General PPAP surplus General PPAP surplus that must be calculated from the limit of General PPAP that can be calculated as supplementary capital (-) ATMR KPMM Ratio (%) = Total Capital ATMR Total capital deficiency to achieve KPMM ratio of 12% of ATMR (%) Core Capital Ratio (%) = Total core capital ATMR Total capital deficiency to achieve core capital ratio of 8% of ATMR (%)

Determined in Jakarta on November 13, 2019
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
HERU KRISTIYANA

APPENDIX II
FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER
NUMBER 24 /SEOJK.03/2019
ABOUT
AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY CIRCULAR LETTER NUMBER 8/SEOJK.03/2016 CONCERNING THE OBLIGATION TO PROVIDE MINIMUM CAPITAL AND FULFILLMENT OF MINIMUM CORE CAPITAL FOR RURAL BANKS

CALCULATION OF RISK-WEIGHTED ASSETS (ATMR)
NO. COMPONENTS NOMINAL SPECIFIC PPAP NOMINAL AFTER DEDUCTING SPECIFIC PPAP RISK WEIGHT (%) ATMR

1. Cash 0%
2. Bank Indonesia Certificates (SBI) 0%
3. Loans granted with liquid collateral
   in the form of SBI, debt securities issued by the Central Government of the Republic of Indonesia, savings and/or deposits blocked at the relevant BPR based on an agreement between the BPR and the customer accompanied by a disbursement power of attorney, and/or precious metals accompanied by a pledge power of attorney, at the lowest value between the collateral and the debit balance *) 0%
4. Foreclosed Assets (AYDA) that have
   exceeded 1 (one) year since the date of takeover 0%
5. Loans granted with collateral in the form of gold
   jewelry
   *) 15%
6. Placements in other banks in the form of checking
   accounts, deposits, deposit certificates, savings, and claims other to other banks *) 20%
7. Loans to or part of loans guaranteed by
   other banks or Regional Governments
   *) 20% a. Loans to other banks b. Loans to regional governments
   c. Part of loans guaranteed by other banks
   d. Part of loans guaranteed by regional governments

NO. COMPONENTS NOMINAL SPECIFIC PPAP NOMINAL AFTER DEDUCTING SPECIFIC PPAP RISK WEIGHT (%) ATMR
8. Part of loans guaranteed by State-Owned Enterprises (BUMN)/Regional-Owned Enterprises
(BUMD) that conduct business as loan guarantors *) 20%
9. Loans with collateral in the form of land and/or
buildings that have certificates encumbered with mortgage rights or fiduciary rights *) 30%
10. Loans to BUMN/BUMD *) 50%
11. Part of loans guaranteed by BUMN/BUMD that
conduct credit guarantee business but do not meet the requirements to be given a risk weight of 20% (twenty percent) *) 50%
12. Loans to employees or retirees that
meet requirements
*) 50%
13. Loans with collateral in the form of land and/or
buildings that have certificates but are not encumbered with mortgage rights or fiduciary rights *) 50%
14. Loans granted to micro and small businesses
that meet all criteria
*) 70%
15. Loans with collateral in the form of motor vehicles,
ships or motorized boats, heavy equipment, and/or machinery that are part of the land accompanied by proof of ownership and have been subject to mortgage or fiduciary registration according to regulations *) 70%
16. Claims or other loans that do not meet the criteria
risk weights above
*) 100%
17. Claims or loans that have matured or
with bad quality
) 100% a. Claims or loans that have matured

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

NO. COMPONENTS NOMINAL SPECIFIC PPAP NOMINAL AFTER DEDUCTING SPECIFIC PPAP RISK WEIGHT (%) ATMR b. Claims or loans with bad quality
18. Fixed assets, inventory, and intangible assets 100%
19. AYDA that has not exceeded 1 (one) year since
takeover date
100%
20. Other assets, besides numbers 1 to 19 100%
Total ATMR Before General PPAP Surplus Calculation

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

Determined in Jakarta on November 13, 2019
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY,
REPUBLIC OF INDONESIA signed
HERU KRISTIYANA