Bank Indonesia Regulation No. 6/25/PBI/2004 Commercial Bank's Business Plan

Unofficial translation
BANK INDONESIA REGULATION
NUMBER: 6/25/PBI/2004
CONCERNING
COMMERCIAL BANK’S BUSINESS PLAN
GOVERNOR BANK INDONESIA,
Considering : a. whereas in order to improve good corporate governance, each bank must determine its strategic objectives and corporate values to direct its operational activities; b. whereas in order to ensure that a bank consistently base its operations on a well thought plan which observes prudential and healthy banking principles, the bank shall formulate a realistic business plan;
c. whereas in formulating a well thought business plan a bank must
consider the external and internal factors in order to have a tool to control risks - especially strategic risks - which may occur in the implementation phase of the plan ; d. whereas based on the aforementioned considerations it is considered necessary to improve the regulation on commercial bank’s business plan in a Bank Indonesia Regulation; In view of : 1. Act Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to State Gazette of the Republic of Indonesia Number 3472) as

amended by Act Number 10 of 1998 (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to State Gazette of the Republic of Indonesia Number 3790);
2. Act Number 23 of 1999 concerning Bank Indonesia (State Gazette
of the Republic of Indonesia Year 1999 Number 66, Supplement to the State Gazette of the Republic of Indonesia Number 3843) as amended by Act Number 3 of 2004 (State Gazette of the Republic of Indonesia Year 2004 Number 7, Supplement to the State Gazette of the Republic of Indonesia Number 4357); HAS DECREED:
To enact: BANK INDONESIA REGULATION CONCERNING COMMERCIAL BANK’S BUSINESS PLAN.
CHAPTER I
GENERAL PROVISIONS
Article 1
The terminologies used in this Regulation shall have the following meanings :

1. Bank is a Commercial bank as referred to in Act Number 7 of 1992 concerning
   Banking as amended by Act Number 10 of 1998 and shall include branch offices of foreign banks.

2. Business Plan is a written document detailing short (1 year) term and medium (3 year)
   term operational activities of the bank including strategies to realize the plan, a plan to improve performance, and a plan to comply with prudential regulations in line with predetermined target and schedule.

3. Report on Business Plan Realization is a report from the Bank’s Board of Directors
   concerning the realization of Business Plan up to a certain period.

4. Report on Oversight of Business Plan is a report from the Bank’s Board of
   Commissioners concerning the result of oversight of the Business Plan implementation up to a certain period.

5. Board of Directors:
   a. for a Bank legally incorporated as a Limited Liability Company is the Board of Directors referred to in Article 1 number 4 of Act Number 1 Year 1995 concerning Limited Liability Companies; b. for a Bank legally incorporated as a Regional Government Enterprise is the Board of directors referred to in Article 11 of Act Number 5 Year 1962 concerning Regional Government Enterprise;
   c. for a Bank legally incorporated as a Cooperatives is the Supervisory Board
   referred to in Article 29 of Act Number 25 Year 1992 concerning Cooperatives, and shall include the head of branch offices of foreign banks.

6. The Board of Commissioners:
   a. for a Bank legally incorporated as a Limited Liability Company is the Board of Commissioners referred to in Article 1 number 5 of Act Number 1 Year 1995 concerning Limited Liability Company; b. for a Bank legally incorporated as a Regional Government Enterprise is the Supervisory Board as referred to in Article 19 of Act Number 5 Year 1962 concerning Regional Government Enterprise ;
   c. for a Bank legally incorporated as a Cooperatives is the Supervisory Board as

referred to in Article 38 Act Number 25 Year 1992 concerning Cooperatives, including officials appointed by the head office of a foreign bank to conduct an oversight function of Business Plan Implementation.
Article 2
(1) Bank must formulate a realistic Business Plan addressing external and internal factors affecting the continuity of the Bank’s operation with consistent regard to prudential and healthy banking principles. (2) The Business Plan referred to in paragraph (1) shall be formulated by the Board of Directors and approved by the Board of Commissioners.
Article 3
(1) In managing the Bank’s operations, the Board of Directors must implement the Business Plan referred to in Article 2 effectively. (2) The Board of Directors must communicate the Business Plan referred to in Article 2 to:
a. shareholders of the Bank; b. all organizational levels within the Bank.
Article 4
The Board of Commissioners must oversee the implementation of the Business Plan referred to in Article 3.
CHAPTER II
COVERAGE OF BUSINESS PLAN

Article 5
The Business Plan referred to in Article 2 shall at least cover the following:
a. executive summary; b. current performance ;
c. risk management implementation;
d. management policies and strategies; e. financial projection; f. funds collection plan; g. funds disbursement plan; h. capital plan;
i. projected ratios and certain items;
j. organization and human resources development plan; k. new product and activity development plan;
l. change in office network plan;
m. other information.
Article 6
Executive Summary referred to in Article 5 letter a shall at least cover:
a. major financial indicators; b. short term target;
c. medium term target;
d. macro and micro assumptions.

Article 7
Current performance as referred to in Article 5 letter b shall at least include:
a. capital; b. asset quality;
c. management;
d. rentability; e. liquidity; f. sensitivity to market risk; g. realization of loans to micro, small, and medium enterprises
Article 8
Risk management implementation referred to in Article 5 letter c shall at least cover the following :
a. risk factors; b. risk management process;
c. risk profile.

Article 9
Management Policies and Strategies referred to in Article 5 letter d shall at least cover the following :
a. policy statements; b. business strategy;
c. remuneration policies.

Article 10
Financial projection referred to in Article 5 letter e shall at least cover:
a. balance sheet; b. commitments, contingencies, and derivative transactions;
c. income statement;
d. minimum capital requirement
Article 11
Funds collection plan referred to in Article 5 letter f shall at least cover:
a. third party funds collection plan; b. commercial paper issuance plan.
Article 12
Fund disbursement plan referred to in Article 5 letter g shall at least cover:
a. funds disbursements to related parties; b. core debtors loan;
c. loans disbursements by main activity;
d. loans disbursements and assignment by economic sector ; e. loans disbursement and assignment by usage; f. loans disbursement and assignment by province; g. commercial papers issuance; h. equity invesment.

Article 13
Capital Plan referred to in Article 5 letter h shall at least cover a plan to increase capital.
Article 14
Projected ratios and certain items referred to in Article 5 letter i shall at least cover:
a. capital; b. asset quality;
c. management;
d. rentability; e. liquidity; f. others.
Article 15
Organization and human resources development plan referred to in Article 5 letter j shall at least cover:
a. organization development plan; b. human resources development plan.
Article 16
New product and activity development plan referred to in Article 5 letter k shall at least cover:
a. new product and activity plan; b. service development plan.

Article 17
Change in office network plan referred to in Article 5 letter l shall at least cover a plan on the opening of branch offices, sub branch offices, out of office cash activities, and off￾shore offices.
Article 18
Other information referred to in Article 5 letter m shall at least cover steps for the settlement of collaterals taken over and fixed assets not used for the Bank’s operation.
CHAPTER III
SUBMISSION, MODIFICATION, AND REPORTING OF BUSINESS PLAN
Article 19
(1) Bank must submit a Business Plan referred to in Article 2 to Bank Indonesia no later than 1 (one) month after the beginning of a calendar year. (2) Bank Indonesia may request that the Bank make an Adjustment on the Business Plan referred to in paragraph (1) if the submitted Business Plan is considered not fully compliant with the provisons of this Bank Indonesia Regulation. (3) Bank must submit the Adjustment on the Business Plan referred to in paragraph (2) to Bank Indonesia no later than 15 (fifteen) working days after the date of the notice letter received from Bank Indonesia.
Article 20
(1) A Bank may only modify the Business Plan referred to in Article 2 in the event of

external and internal factors which affect the Bank’s financial condition significantly by submitting in writing the reasons for modification. (2) The modification of the Business Plan referred to in paragraph (1) shall be made no later than the end of the first semester of the ongoing year and may only be done 1 (one) time. (3) Bank Indonesia may consider the modification of the Business Plan other than as stipulated in paragraph (2) in the event of factor(s) affecting the Bank’s financial condition significantly. (4) Modification of the Business Plan referred to in paragraph (1) must be submitted no later than 30 (thirty) working days before implementing the modification. (5) Bank Indonesia may request the Bank to make adjustments in the modification of the Business Plan referred to in paragraph (1).
Article 21
(1) Bank must submit a quarterly Report on Business Plan Realization. (2) The Report referred to in paragraph (1) shall be submitted to Bank Indonesia as follows :
a. no later than 45 (forty five) days after the end of the quarter; b. no later than 2 (two) months after the end of the quarter for Banks with more than 100 (one hundred) branch offices and without an online inter office system. (3) The Report referred to in paragraph (1) shall at least cover:
a. a comparison between the Business Plan and the Business Plan realization; b. explanation on the deviation in the Business Plan realization;
c. follow up actions on the Business Plan realization.

Article 22
(1) Bank must submit a six-monthly (semester) Report on Oversight of Business Plan. (2) The Report referred to in paragraph (1) must be submitted to Bank Indonesia no later than 2 (two) months after the relevant semester ends. (3) The Report referred to in paragraph (1) shall at least cover:
a. The Board of Commissioners’ opinion on the implementation of the Business Plan; b. an assessment on factors affecting the Bank’s performance;
c. The Board of Commissioners’ opinion on the efforts to improve the Bank’s
performance.
Article 23
(1) A Bank shall be declared late in submitting a Business Plan referred to in Article 19 paragraph (1) if in a period of no later than 30 (thirty) working days after the submission deadline, the Bank has not yet submitted the Business Plan. (2) A Bank shall be declared late in submitting an Adjustment of Business Plan referred to in Article 19 paragraph (3) if in a period of no later than 15 (fifteen) working days after the submission deadline, the Bank had not yet submitted the Adjustment on the Business Plan. (3) A Bank shall be declared not submitting the Business Plan referred to in Article 19 paragraph (1) or the Adjustment on the Business Plan referred to in Article 19 paragraph (3) if until the deadlines of late submission referred to in paragraph (1) or paragraph (2), the Bank still had not submitted the Business Plan or its adjustment.

(4) A Bank which had been declared not submitting the Business Plan or its adjustment referred to in paragraph (3) must still submit the Business Plan or its adjustment to Bank Indonesia.
Article 24
(1) A Bank shall be declared late in submitting a Report on Business Plan Realization referred to in Article 21 paragraph (1) if in a period of no later than 30 (thirty) working days after the submission deadline, the Bank still had not submitted the report. (2) A Bank shall be declared late in submitting a Report on Oversight of Business Plan referred to in Article 22 paragraph (1) if in a period of no later than 30 (thirty) working days after the submission deadline, the Bank still had not submitted the report. (3) A Bank shall be declared not submitting the Report on Business Plan Realization referred to in Article 21 paragraph (1) or the Report on Oversight of Business Plan referred to in Article 22 paragraph (1) if up to the deadlines of late submission referred to in paragraph (1) or paragraph (2), the Bank still had not submitted the report(s). (4) A Bank which had been declared not submitting the Report on Business Plan Realization or the Report on Oversight of Business Plan referred to in paragraph (3) must still submit the report(s) to Bank Indonesia.
Article 25
In the event that a deadline of Business Plan submission referred to in Article 19

paragraph (1) and report submission referred to in Article 21 paragraph (2) and Article 22 paragraph (2) falls on a Saturday, Sunday, and a holiday, the Business Plan and Report(s) must be submitted on the next working day.
Article 26
The Business Plan and its adjustment referred to in Article 19 paragraph (1) and paragraph (3) and the Report(s) referred to in Article 21 paragraph (2) and Article 22 paragraph (2) shall be addressed to Bank Indonesia as follows :
a. a relevant Directorate of Bank Supervision, Jl. MH. Thamrin No. 2, Jakarta 10110, for Banks having a head office in the work area of Bank Indonesia’s Head Office; b. a relevant Local Bank Indonesia Office, for Banks having a head office outside the work area of Bank Indonesia’s Head Office.
CHAPTER IV
OTHER PROVISIONS
Article 27
Each Bank whose operational activities is based on Sharia principles must implement the provisions in this Bank Indonesia Regulation in accordance with the operational characteristics of the Bank as well as the Sharia principles.
CHAPTER V
SANCTIONS
Article 28
(1) A Bank that had been declared late in submitting the Business Plan or its adjustment

referred to in Article 23 paragraph (1) or paragraph (2), or the Report(s) referred to in
Article 24 paragraph (1) or paragraph (2) shall be imposed with a payment obligation
sanction of Rp1,000,000.00 (one million rupiahs) for each working day of the delay. (2) A Bank that had been declared not submitting the Business Plan or the Report(s) referred to in Article 23 paragraph (3) or Article 24 paragraph (3) shall be imposed with a payment obligation sanction of Rp50,000,000.00 (fifty million rupiahs). (3) A Bank that has submitted an adjustment of Business Plan referred to in Article 19 paragraph (3) but is considered significantly incomplete or not enclosed with material documents and information in line with the scope as stipulated in this Bank Indonesia Regulation and other related implementing provisions shall be imposed with a payment obligation sanction of Rp50,000,000.00 (fifty million rupiahs) after the Bank had received 2 (two) warning letters from Bank Indonesia separated by 7 (seven) working days from one another and the Bank had not revised the adjustment of Business Plan in 7 (seven) working days after the latter warning letter.
Article 29
(1) A Bank which does not comply with the provisions stipulated in Article 2, Article 3,
Article 4, and or Article 24 paragraph (4) may be imposed with an administrative
sanction , among others, in the following forms:
a. written warning; b. freezing of certain operational activities;
c. stating of the names of management members and or shareholders of the Banks
in the list of “Disqualified” people in the fit and proper test. (2) A Bank which does not comply with the provisions stipulated in Article 23 paragraph

(4) may be imposed with an administrative sanction in the following forms:
a. freezing of certain operational activities; b. stating of the names of management members and or shareholders of the Banks in the list of “Disqualified” people in the fit and proper test.
CHAPTER VI
CLOSING PROVISONS
Article 30
Further provisions of this Bank Indonesia Regulation will be stipulated in a Bank Indonesia Circular Letter.
Article 31
With the issuance of this Bank Indonesia Regulation, the Decree of the Board of Directors of Bank Indonesia Number 27/117/KEP/DIR dated 25 January 1995 concerning Submission of Commercial Bank’s Business Plan and its Implementation Reports is hereby declared no longer valid, except for Article 6, Article 7, and Article 8 which remain valid until the end of the reporting period for the realization and implementation of Annual Work Plan for the year 2004.
Article 32
(1) Provisions in this Bank Indonesia Regulation start to take effect for 2005 Business Plans. (2) This Bank Indonesia Regulation shall come into force on the day of its enactment.

Enacted in Jakarta
On October 22, 2004
GOVERNOR BANK INDONESIA,
BURHANUDDIN ABDULLAH
STATE GAZETTE REPUBLIK INDONESIA YEAR 2004 NUMBER 157 DPNP

Unofficial translation
ELUCIDATION
TO
BANK INDONESIA REGULATION
NUMBER: 6/25/PBI/2004
CONCERNING
COMMERCIAL BANK’S BUSINESS PLAN
GENERAL
Whereas in order to maintain the robustness of a sound banking system, Bank is required to take steps to improve good corporate governance. In order to implement the good corporate governance principles, Bank shall formulate and determine its strategic objectives and corporate values to direct the vision and mission of the Bank’s operations. In order to realize the Bank’s operational objectives which are based on its vision and mission, each Bank shall formulate a well thought plan which observes prudential and sound banking principles and is responsive to external changes. To come up with such a plan, the Bank must formulate a realistic and compherensive Business Plan with expanded coverage in order to better reflect the increasing complexity of the Bank’s operations. In formulating a Business Plan, a Bank must consider external and internal factors which could directly or indirectly affect the continuity of the Bank’s operations. With a well thought Business Plan, the Bank would hopefully be able to effectively impelement risk management especially the one related to strategic risks which may

occur during the implementation phase of the Business Plan.
A Business Plan is a written document detailing the Bank’s short and medium term operational activities, including strategies to realize such plan, a plan to improve operational performance, and a plan to comply with prudential regulations in line with predetermined target and schedule. In order to implement the Business Plan effectively, the Board of Directors must communicate such plan to the shareholders and people from all levels within the Bank’s organization. For the Bank, the Business Plan may be used as a tool for realizing the Bank’s vision and mission. Meanwhile for Bank Indonesia, the submitted Business Plan may be used as a tool to determine and implement the strategy of banking supervision. In order to enable Bank Indonesia to effectively monitor the effectiveness and the consistent impementation of the Business Plan, Bank must submit a periodic report on the implementation of the plan, including correctional steps to be taken in the event of a significant deviation affecting the Bank’s financial condition.
ARTICLE BY ARTICLE
Article 1
Self explanatory.
Article 2
Paragraph (1)
External factors, among others, refer to the economic, social and political development, and technological factors. Internal factors, among others, refer to the financial condition,

management, and other infrastructural capabilities.
Paragraph (2)
The formulation of the Business Plan is solely the responsibility of the Bank.
Article 3
Paragraph (1)
The implementation and oversight of the Business Plan are solely the responsibilities of the Bank. The Board of Directors shall be considered failed from effectively implementing the Business Plan if there is a fairly significant deviation between the Business Plan and its realization without maximum efforts made and adequate explanation given. Paragraph (2) Letter a Communication with shareholders may, among others, be made through the General Meeting of Shareholders. Letter b Communicating the Business Plan to all organizational levels within the Bank is aimed to ensure that the policies and implementation by all involved parties in the operations of the Business Plan are aligned with the Bank’s vision and mission.
Article 4
Self explanatory.

Article 5
Self explanatory.
Article 6
Letter a
Major financial indicators shall, among others, include the Bank’s performance at the end of the ongoing year and projections of its capital, productive assets, third party funds, rentability, liquidity, and other financial ratios. Letter b Short term target refers to the Bank’s operational target for the next 1 (one) year. Letter c Medium term target refers to the Bank’s operational target for the next 3 (three) years. Letter d Macro assumptions shall include, among others, the economic growth and inflation rates. Micro assumptions shall include, among others, the level of competition among banks and the rate of loan growth used in the formulation of the Bank’s Business Plan.
Article 7
Letters a to f
Description of current performance referred to in this Article shall include

results of action plans implemented to improve performance as referred to in Bank Indonesia Regulation concerning Commercial Banks’ Rating System. Letter g Loans realization reflects the Bank’s role in promoting micro, small, and medium enterprises sector.
Article 8
Letter a
Description of Risk factors shall include risks affecting operational strategy of the Bank including those which directly affect the rentability as well as the current and upcoming legal problems of the Bank. Letter b Description of Risk management process shall include the result of risk management implementation from the beginning to the end of the year. Letter c Description of Risk profile shall include information produced in accordance with the Bank’s assessment on the level and trend of all risk exposures. The procedures in preparing a risk profile shall be based on Bank Indonesia Regulation concerning Implementation of Risk Management by Commercial Banks.

Article 9
Letter a
Description of Policy Statements shall include general information on the Bank’s policies in implementing its business strategy. Included in it are risk management policies based on an evaluation on risk management implementation referred to in Article 8. Letter b Description of business strategy shall include, among others, information on strategic steps in order to achieve the predetermined operational objectives of the Bank, strategies to anticipate for changes in the external condition, and strategies to develop information technology. Included in it are risk management strategies based on the assessment on risk management implementation referred to in Article 8. Letter c Description of remuneration policies shall include general policies on salaries, bonuses (benefits), and other facilities for the Bank’s Board of Commissioners and Board of Directors.
Article 10
Self explanatory.
Article 11
Letter a
Third party funds collection plan shall include current accounts, savings, time deposits, and other similar forms and information about the shares of

core depositors.
Letter b
Commercial papers issuance plan shall include a plan to issue commercial papers such as convertible bonds, medium term notes, and bonds.
Article 12
Letter a
Related parties are those referred to in Bank Indonesia Regulation concerning the Legal Lending Limit. Letter b Core debtor is a core debtor/group (one obligor concept) other than related parties. The number of core debtors included in the Business Plan shall be adjusted to the Bank’s total asset. Letter c Self explanatory. Letter d Self explanatory. Letter e Self explanatory. Letter f Self explanatory. Letter g Commercial papers issuance shall be categorized according to its purchase purpose, i.e. for trading, sale, or owned until maturity.

Letter h
In formulating the plan, a Bank must consider the requirement and procedures of equity investment as referred to Bank Indonesia Regulation on Prudential Principles in Equity Activities.
Article 13
A plan to increase capital shall include a plan to increase capital from existing share holders, initial public offering (IPO), rights issues, and other capital increasing plans.
Article 14
Self explanatory.
Article 15
Letter a
Organization development plan shall include a plan to form/change work units and or committees which shall be adjusted to the size and complexity of the Bank’s operations. Letter b Human resources development plan shall include plans on human resources requirement, education, and training as well as costs/budget for education and training as stipulated in prevailing Bank Indonesia regulations.
Article 16

Letter a
Items included in the new product and activity plan shall be based on Bank Indonesia Regulation concerning Risk Management Implementation for Commercial Banks. Letter b Service development plan shall include a plan to develop instruments or information media for clients, development of electronic instruments to fulfil clients’ needs, existing product development, standarization of client queuing system, and customer complaint service.
Article 17
Self explanatory.
Article 18
The meaning of collaterals taken over is assets given voluntarily by its owner(s) or based on a power of attorney to sell without an auction process if a debtor does not fulfill his/her obligations to the Bank.
Article 19
Paragraph (1)
The Business Plan shall be submitted in hard copy and soft copy. Paragraph (2) The reasons for noncompliance of Business Plan submission requirement

referred to in this paragraph are, among others :

1. The Business Plan has not completely been realistically formulated;
2. The Business Plan has not adequately addressed external and internal
   factors affecting the Bank’s operational continuity;
3. The Business Plan does not consider prudential and sound banking
   principles, as referred to in Article 2 and or incompleteness of the Business Plan’s coverage as referred to in Article 5. If necessary, Bank Indonesia may request the Bank to deliver an overall presentation or explanation regarding the adjustments on the Business Plan. Paragraph (3) Self explanatory.
   Article 20
   Paragraph (1)
   If necessary, Bank Indonesia may request the Bank to deliver an overall presentation or explanation regarding the modification of the Business Plan. Significant factors hereunder include, among others, the solvability and liquidity factors which directly affect the financial condition and thus the continuity of the Bank’s operations. Paragraph (2) The deadline and frequency requirement under this letter is intended to

encourage each Bank to formulate a Business Plan more accurately. Paragraph (3) Self explanatory. Paragraph (4) Self explanatory. Paragraph (5) If necessary, Bank Indonesia may ask the Bank to deliver an overall presentation or explanation regarding adjustments made in relation to the modification of the Business Plan.
Article 21
Paragraph (1)
Quarterly refers to March, June, September, and December positions. Paragraph (2) Letter a Day refers to calendar day. Letter b Self explanatory. Paragraph (3) Letter a Self explanatory. Letter b Explanation under this letter shall include explanations on obstacles faced,

focus, and priorities of the Business Plan realization.
Letter c
Follow up actions under this letter shall include efforts to improve the realization of the Business Plan.
Article 22
Paragraph (1)
Semester refers to June and December positions.
Paragraph (2)
Self explanatory.
Paragraph (3)
Letter a
The Board of Commissioners’s opinion shall include an assessment on the implementation of Business Plan including the quantitative and qualitative aspects of the Bank’s performance. Letter b Factors affecting a Bank’s performance include, among others, capital, asset quality, management, rentability, liquidity, and sensitivity to market risks. Letter c Performance improvement efforts refer to improvement for factors referred to in letter b.

Article 23
Paragraph (1)
Self explanatory.
Paragraph (2)
Self explanatory.
Paragraph (3)
Self explanatory.
Paragraph (4)
Self explanatory.
Article 24
Paragraph (1)
Self explanatory.
Paragraph (2)
Self explanatory.
Paragraph (3)
Self explanatory.
Paragraph (4)
Self explanatory.
Article 25
A holiday refers to a national holiday and or a local holiday as determined by the local government.

Article 26
Self explanatory.
Article 27
Self explanatory.
Article 28
Paragraph (1)
Self explanatory.
Paragraph (2)
A Bank which had already been imposed with a payment obligation sanction under this paragraph shall not be imposed with a sanction for being late referred to in paragraph (1). Paragraph (4) Self explanatory.
Article 29
Self explanatory.
Article 30
Self explanatory.

Article 31
Self explanatory.
Article 32
Self explanatory.
SUPPLEMENT TO STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 4457