Change to Financial Services Authority Circular Number 42/SEOJK.03/2016 on Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach

To:
Directors of Commercial Banks,
In your office.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 11 /SEOJK.03/2018

ABOUT

AMENDMENT TO THE CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 42/SEOJK.03/2016 CONCERNING GUIDELINES FOR CALCULATING RISK-WEIGHTED ASSETS FOR CREDIT RISK USING THE STANDARDIZED APPROACH

To increase Indonesia's economic growth and national competitiveness, efforts are needed to encourage the intermediary function of banking through adjustments to regulations regarding risk-weighted assets for credit risk. The aforementioned adjustments are expected to increase the potential for measured credit expansion by Banks while still paying attention to prudential principles. The aforementioned regulations focus on encouraging credit growth in priority sectors, namely the housing sector, and increasing foreign exchange reserves through the provision of export-oriented funds. In light of these considerations, it is necessary to make several changes in the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 dated 28 September 2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach as follows:

1. The provisions of item II.E.1 are amended to read as follows:
2. Claims on Government
   a. Claims on Government consist of:

1. Claims on the Government of the Republic of Indonesia,
   covering claims to:
   a) central government; b) Bank Indonesia; c) bodies and institutions of the Government of the Republic of Indonesia whose entire operational funding comes from the State Budget of the Republic of Indonesia (APBN); and d) financial institutions that meet specific requirements, namely:
   i. owned by the central government;
   ii. their business activities provide national export financing; and
   iii. established by Law with sovereign status;
2. Claims on the Government of Other Countries, covering claims to the central government and central bank of other countries.
   b. The risk weight of Claims on the Government of the Republic of Indonesia as referred to in item a.1), both in Rupiah and foreign currency, is 0% (zero percent).
   c. The risk weight of Claims on the Government of Other Countries as referred to in item a.2), both in the currency of that country and foreign currency, is determined according to the international rating of that country with reference to Table 1 Determination of Risk Weights for Claims on Government in Appendix I of the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach.

2. The provisions of letter a number 3) in item II.E.2 are deleted and the provisions of letter b in item II.E.2 are amended so that item II.E.2 reads as follows:
3. Claims on Public Sector Entities
   a. Claims on Public Sector Entities cover claims to:

1. State-Owned Enterprises (BUMN) as referred to in the Law concerning BUMN, except BUMN in the form of Banks;
2. local governments (provinces, regencies, and/or cities) in Indonesia as referred to in the Law concerning local government; and
3. central government bodies or institutions that do not meet the criteria as Claims on the Government of the Republic of Indonesia.
   b. The risk weight of Claims on Public Sector Entities is determined according to the rating with reference to Table 2 Determination of Risk Weights for Claims on Public Sector Entities in Appendix I of the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach.

3. The provisions in item II.E.5 are amended to read as follows:
4. Residential Mortgage Loans
   a. Residential Mortgage Loans cover:

1. consumer loans for the ownership of detached houses/apartments or consumer loans secured by collateral in the form of detached houses/apartments (excluding shophouses and office-houses), and meet the criteria:
   a) granted to individual debtors; b) collateral is bound with a mortgage right or fiduciary right so as to give priority status to the Bank; c) the Bank has adequate systems and procedures to assess and monitor the value of collateral periodically; and d) loan-to-value (LTV) ratio or LTV ratio is at most 100% (one hundred percent); and
2. consumer loans for the ownership of residential houses in the context of central government programs in accordance with legislation with an LTV ratio of at most 100% (one hundred percent).
   b. The LTV ratio as referred to in item a.1).d) and item a.2) uses the ratio at the position when the RWA calculation is performed. The LTV ratio calculation is performed as follows:
3. the loan value is determined based on the recorded value of the loan on the balance sheet of the lending Bank; and
4. the collateral value is determined based on the lower value between the collateral binding value and the market value of the collateral which is re-evaluated periodically at most once every 30 (thirty) months.
   In the event that the re-evaluation of the market value of the collateral is carried out more than 30 (thirty) months ago, the collateral is determined to have no value.
   c. Collateral assessment is carried out by:
5. independent appraisers for Residential Mortgage Loans with a financing debit balance of more than Rp10,000,000,000.00 (ten billion Rupiah); or
6. independent appraisers or the Bank's internal appraisers for Residential Mortgage Loans with a financing debit balance of up to Rp10,000,000,000.00 (ten billion Rupiah).
   d. The risk weight for Residential Mortgage Loans is determined as follows:
7. 20% (twenty percent) in the event that the LTV ratio is at most 50% (fifty percent);
8. 25% (twenty-five percent) in the event that the LTV ratio is more than 50% (fifty percent) up to 70% (seventy percent); and
9. 35% (thirty-five percent) in the event that the LTV ratio is more than 70% (seventy percent) up to 100% (one hundred percent).

4. The provisions in Roman VI are amended to read as follows:
   VI. REPORTING

5. For the calculation of RWA Credit Risk-Standardized Approach, Banks submit:
   a. RWA Credit Risk calculation reports for Banks individually submitted every month for the end-of-month position; and b. RWA Credit Risk calculation reports for Banks consolidated for those having Subsidiary Companies submitted every quarter for the end-of-month position in March, end of month in June, end of month in September, and end of month in December, with reference to the format and filling guidelines in Appendix III and Appendix IV of the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach.

6. The RWA Credit Risk-Standardized Approach calculation reports as referred to in number 1 are submitted to the Financial Services Authority online through the Financial Services Authority reporting system. In the event that the online reporting system to the Financial Services Authority is not yet available, then the reports are submitted online through the Periodic Reports of Commercial Banks. The procedure for submission and imposition of sanctions refers to legislation concerning periodic reports of commercial banks.

7. Specifically for the reporting of RWA Credit Risk-Standardized Approach for the Residential Mortgage Loan portfolio category, reference is made to the format and filling guidelines in the Appendix which is an integral part of this Financial Services Authority Circular Letter.

8. The RWA Credit Risk-Standardized Approach calculation reports for the Residential Mortgage Loan portfolio category as referred to in number 4 are submitted to the Financial Services Authority online through the Financial Services Authority reporting system.

9. In the event that online reporting to the Financial Services Authority as referred to in number 4 cannot be carried out, then the reports are submitted offline to:
   a. The Department of Supervision of the relevant Bank, for Banks whose headquarters or branch offices of banks located abroad are in the Special Capital Region of Jakarta Province; or b. The Regional Office of the Financial Services Authority or the Local Office of the Financial Services Authority, according to the area where the Bank's headquarters is located.

10. The deadline for submission of RWA Credit Risk-Standardized Approach calculation reports for the Residential Mortgage Loan portfolio category as referred to in number 3 through the Financial Services Authority online reporting system or offline is determined as follows:
    a. RWA Credit Risk-Standardized Approach calculation reports for the Residential Mortgage Loan portfolio category for Banks individually submitted at the latest on the 6th of the following month; and b. RWA Credit Risk-Standardized Approach calculation reports for the Residential Mortgage Loan portfolio category for Banks consolidated submitted at the latest on the 21st of the following month.

11. If the deadline for submission of reports as referred to in number 6 falls on a Saturday, Sunday, national holiday, or shared holiday, then the reports are submitted on the next working day.

12. Specifically for the results of CVA risk weighted assets calculation, submission is made via letter to the Department of Supervision of the relevant Bank or the Local Office of the Financial Services Authority. Submission of CVA risk weighted assets calculation results and imposition of sanctions refers to legislation concerning periodic reports of commercial banks.

13. Imposition of sanctions for late submission of RWA Credit Risk-Standardized Approach calculation reports for the Residential Mortgage Loan portfolio category through the Financial Services Authority online reporting system or offline refers to Financial Services Authority Regulation Number 11/POJK.03/2016 concerning Minimum Capital Adequacy Requirements for Commercial Banks.

14. Adding an Appendix regarding the format and guidelines for reporting RWA Credit Risk-Standardized Approach calculation for the Residential Mortgage Loan portfolio category which is an integral part of this Financial Services Authority Circular Letter.

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

6. At the time this Financial Services Authority Circular Letter takes effect, the provisions in the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach are declared to remain in force as long as they do not conflict with the provisions in this Financial Services Authority Circular Letter.
   The provisions in this Financial Services Authority Circular Letter take effect on the date of determination.
   Determined in Jakarta on 15 August 2018

HEAD OF EXECUTIVE SUPERVISOR OF BANKING
FINANCIAL SERVICES AUTHORITY, signed
HERU KRISTIYANA

APPENDIX
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 11 /SEOJK.03/2018 ABOUT AMENDMENT TO THE CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 42/SEOJK.03/2016 CONCERNING GUIDELINES FOR CALCULATING RISK-WEIGHTED ASSETS FOR CREDIT RISK USING THE STANDARDIZED APPROACH

FORMAT AND GUIDELINES FOR REPORTING RWA CREDIT RISK CALCULATION STANDARDIZED APPROACH FOR RESIDENTIAL MORTGAGE LOAN PORTFOLIO CATEGORY

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

II. Filling Guidelines
A. General Instructions

1. Banks only fill in data in the cells provided and are not allowed to change the format (adding and/or reducing rows and/or columns in the form) unless otherwise determined by the Financial Services Authority.
2. Banks fill in the aforementioned form which is a report regarding Net Claims and RWA for the Residential Mortgage Loan portfolio category individually and consolidated.
3. For Banks with Indonesian legal entity status, the calculation also covers exposures from the Bank's branch offices abroad and Sharia Business Units, while for branch offices of Banks located abroad, the calculation covers exposures from all offices in Indonesia.
4. For Banks having Subsidiary Companies, Banks also report consolidated calculations.
5. In the event that additional disclosure and explanation is deemed necessary to complete the form filling, Banks can add the aforementioned information when reporting calculation results to the Financial Services Authority.
6. Filling in all forms is stated in millions of Rupiah. In the event that the Bank does not have positions or exposures that must be reported, then data in the cells provided is filled with the number 0 (zero).

B. Specific Instructions
Filling of columns is performed as follows:

1. Column (1) is filled with the total Net Claims value for the Residential Mortgage Loan Portfolio Category.
2. Banks must further detail the data in column (1) in column (4), according to the risk weight of each exposure.
3. In the event that the exposure has credit risk mitigation instruments in the form of collateral, guarantees, credit insurance, or credit guarantees that meet the criteria as CRM Techniques as referred to in Roman IV of the Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standardized Approach, then:
   a) the portion of the Net Claims value that does not receive protection from credit risk mitigation instruments (called the Unsecured Portion), is reported in column (5); b) the portion of the Net Claims value that receives protection from credit risk mitigation instruments (called the Secured Portion), is reported in columns (6) to (9) according to the risk weight of each credit risk mitigation instrument; and c) for each risk weight row in column (3), the total value reported by the Bank in columns (5) to (9) must be equal to the value reported in column (4).
4. Column (10) is the result of the multiplication between the value in column (4) and the value in column (3). Column (10) reflects the RWA Credit Risk calculation before considering CRM Techniques.
5. Column (11) is the result of the summation of:
   a) the result of the multiplication between column (5) and column (3); b) the result of the multiplication between column (6) and the risk weight of 0% (zero percent); c) the result of the multiplication between column (7) and the risk weight of 20% (twenty percent); d) the result of the multiplication between column (8) and the risk weight of 50% (fifty percent); and e) the result of the multiplication between column (9) and the risk weight of 100% (one hundred percent).

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

6. Column (11) reflects the RWA Credit Risk calculation after considering CRM Techniques.
7. Row (A) is the result of the summation of all columns (10).
8. Row (B) is the result of the summation of all columns (11). Total Row (B) is considered in RWA Credit Risk-Standardized Approach.

Determined in Jakarta on 15 August 2018
HEAD OF EXECUTIVE SUPERVISOR OF BANKING
FINANCIAL SERVICES AUTHORITY, signed
HERU KRISTIYANA