Financial Health of Guarantee Institutions

To:

Board of Directors of Guarantee Companies;
Board of Directors of Sharia Guarantee Companies;
Board of Directors of Reinsurance Companies;
Board of Directors of Sharia Reinsurance Companies; and
Board of Directors of Guarantee Companies that have Sharia Business Units,

at their respective locations.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 18 /SEOJK.05/2018

CONCERNING

FINANCIAL HEALTH OF GUARANTEE INSTITUTIONS

In accordance with the mandate of Article 42 paragraph (4) of Financial Services Authority Regulation Number 2/POJK.05/2017 concerning the Conduct of Business by Guarantee Institutions (State Gazette of the Republic of Indonesia Year 2017 Number 7, Addition to the State Gazette of the Republic of Indonesia Number 6014), it is necessary to regulate implementation provisions regarding the method of measuring financial health for guarantee institutions in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

In this Financial Services Authority Circular Letter, the following terms are meant:

Guarantee is the activity of providing guarantees by the Guarantor for the fulfillment of the financial obligations of the Guaranteed to the Guarantee Recipient as referred to in Law Number 1 of 2016 concerning Guarantees.
Sharia Guarantee is the activity of providing guarantees by the Guarantor for the fulfillment of the financial obligations of the Guaranteed to the Guarantee Recipient based on Sharia Principles as referred to in Law Number 1 of 2016 concerning Guarantees.
Reinsurance is the activity of providing guarantees for the fulfillment of the financial obligations of the Guarantee Company as referred to in Law Number 1 of 2016 concerning Guarantees.
Sharia Reinsurance is the activity of providing guarantees for the fulfillment of the financial obligations of the Sharia Guarantee Company and Sharia Business Units as referred to in Law Number 1 of 2016 concerning Guarantees.
Guarantee Institution is a Guarantee Company, Sharia Guarantee Company, Reinsurance Company, and Sharia Reinsurance Company that conducts guarantee activities as referred to in Law Number 1 of 2016 concerning Guarantees.
Guarantee Company is a legal entity engaged in the financial sector with the main business activity of conducting Guarantees as referred to in Law Number 1 of 2016 concerning Guarantees.
Sharia Guarantee Company is a legal entity engaged in the financial sector with the main business activity of conducting Sharia Guarantees as referred to in Law Number 1 of 2016 concerning Guarantees.
Reinsurance Company is a legal entity engaged in the financial sector with the business activity of conducting Reinsurance as referred to in Law Number 1 of 2016 concerning Guarantees.
Sharia Reinsurance Company is a legal entity engaged in the financial sector with the business activity of conducting Sharia Reinsurance as referred to in Law Number 1 of 2016 concerning Guarantees.
Sharia Business Unit (hereinafter referred to as UUS) is a working unit of the Guarantee Company that functions as the head office of offices or units that conduct business activities based on Sharia Principles as referred to in Law Number 1 of 2016 concerning Guarantees.
Financial Health:
a. for Guarantee Institutions is the result of assessing the condition of the Guarantee Institution through the fulfillment of liquidity ratios, gearing ratio, profitability, and self-assessment of good corporate governance for the Guarantee Institution; or b. for UUS is the result of assessing the condition of the UUS through the fulfillment of liquidity ratios, profitability, and the Financial Services Authority's assessment of the implementation of good corporate governance for the UUS.
Gearing Ratio is the ratio between the total value of guarantees borne by the institution itself and the equity of the Guarantee Institution at a certain time.
Liquidity Ratio is a ratio that describes the ability of the Guarantee Institution to meet short-term obligations, calculated using the current ratio which is the comparison between current assets and current liabilities.
Profitability is a measure to determine the ability of the Guarantee Institution to generate profit during a certain period.
Service Fee is Guarantee Service Fee, Kafalah Service Fee, Reinsurance Service Fee, and Reinsurance Kafalah Service Fee.

II. MEASUREMENT OF FINANCIAL HEALTH

Guarantee Institutions must maintain their Financial Health conditions.
The measurement of Financial Health for Guarantee Institutions as referred to in item 1 includes:
a. Liquidity Ratio; b. Gearing Ratio;
c. Profitability; and
d. self-assessment of good corporate governance for the Guarantee Institution.
The obligation to fulfill Financial Health conditions as referred to in item 1 for UUS is conducted separately with components including:
a. Liquidity Ratio; b. Profitability; and
c. the Financial Services Authority's assessment of the implementation of good corporate governance for the UUS.

III. LIQUIDITY RATIO

Guarantee Institutions must maintain their liquidity levels.
Guarantee Institutions must maintain a Liquidity Ratio of at least 120% (one hundred twenty percent).
The Liquidity Ratio as referred to in item 2 is calculated using the current ratio.
The Current Ratio as referred to in item 3 is calculated by comparing current assets with current liabilities.
The account details in the calculation of current assets and current liabilities as referred to in item 4 in the current ratio calculation refer to the Financial Services Authority Circular Letter regarding monthly reports of guarantee institutions.

IV. GEARING RATIO

Guarantee Institutions must maintain the Gearing Ratio for productive business guarantees at a maximum of 20 (twenty) times.
Guarantee Institutions must maintain the total Gearing Ratio at a maximum of 40 (forty) times.

V. PROFITABILITY

Assessment of the Profitability component as referred to in Roman numeral II item 2 letter c and Roman numeral II item 3 letter b is conducted on the following ratios:
a. Return on Asset Ratio
The return on asset ratio is a ratio used to measure the ability of the Guarantee Institution to generate profit from assets used to support the operations and capital of the Guarantee Institution or UUS. b. Operating Expense to Operating Income Ratio The operating expense to operating income ratio is a ratio used to measure the efficiency level and ability of the Guarantee Institution in conducting its operational activities.
c. Claim to Service Fee Ratio
The claim to service fee ratio is a ratio used to measure the performance level of guarantees.
The calculation of profitability ratios is established as follows:
a. Return on Asset Ratio:
1) The return on asset ratio is calculated from the comparison between profit or loss before tax and total assets.
2) For the calculation of profit or loss before tax, an annualized calculation is used. As an example, for a March report position, the calculation method is as follows:
(profit or loss before tax as of March/3) x 12.
3) Profit or loss before tax as of the reporting month is calculated based on the amount of income minus the amount of expenses minus the estimated income tax.
4) For the calculation of total assets, the average assets throughout the year are used. As an example, for a March report position, the calculation method is as follows:
(Sum of total assets from January to March)/3. b. Operating Expense to Operating Income Ratio:
1) The operating expense to operating income ratio is calculated from the comparison between operating expenses and operating income.
2) The account details in the calculation of operating income and operating expenses in the calculation of the operating expense to operating income ratio refer to the Financial Services Authority Circular Letter regarding monthly reports of guarantee institutions.
c. Claim to Service Fee Income Ratio:
1) The claim to service fee income ratio is calculated from the comparison between net claim expenses and net Service Fees.
2) The account details in the calculation of net claim expenses and net Service Fees in the calculation of the claim to service fee income ratio refer to the Financial Services Authority Circular Letter regarding monthly reports of guarantee institutions.

VI. SELF-ASSESSMENT OF GOOD CORPORATE GOVERNANCE FOR GUARANTEE INSTITUTIONS

Measurement of the self-assessment component regarding the implementation of good corporate governance as referred to in Roman numeral II item 2 letter d is conducted by the Guarantee Institution by referring to the Financial Services Authority Circular Letter regarding reports on the implementation of good corporate governance for guarantee institutions.
The results of the self-assessment regarding the implementation of good corporate governance in the Financial Health calculation component for Guarantee Institutions as referred to in Roman numeral II item 2 letter d are established based on the ranking and predicate of the self-assessment results regarding the implementation of good corporate governance conducted by the Guarantee Institution as regulated in the Financial Services Authority Circular Letter regarding reports on the implementation of good corporate governance for guarantee institutions.
The Financial Services Authority may conduct verification and/or validation of the truthfulness and fairness of data that serves as the basis for the self-assessment calculation regarding the implementation of good corporate governance conducted by the Guarantee Institution.
In the event of a difference between the self-assessment conducted by the Guarantee Institution and the results of the Financial Services Authority's verification and/or validation, the assessment regarding the implementation of good corporate governance that applies is the assessment established by the Financial Services Authority.
The results of the assessment regarding the implementation of good corporate governance established by the Financial Services Authority as referred to in item 4 will begin to be applied in the calculation of the Financial Health of Guarantee Institutions in the reporting period for the self-assessment report regarding the implementation of good corporate governance.

VII. METHOD OF MEASURING FINANCIAL HEALTH FOR GUARANTEE INSTITUTIONS

The measurement of Financial Health for Guarantee Institutions as referred to in Roman numeral II item 2 is conducted in the following stages:
a. calculation of the value of each Liquidity Ratio, Gearing Ratio, Profitability, and self-assessment of good corporate governance for the Guarantee Institution; b. establishment of value criteria for each Liquidity Ratio, Gearing Ratio, Profitability, and self-assessment of good corporate governance for the Guarantee Institution;
c. establishment of composite Profitability value criteria; and
d. establishment of the composite Financial Health ranking of the Guarantee Institution.
The stage of calculating the value of each Liquidity Ratio, Gearing Ratio, Profitability, and self-assessment of good corporate governance for the Guarantee Institution as referred to in item 1 letter a is conducted with reference to the following provisions:
a. Liquidity Ratio, namely the calculation of the Liquidity Ratio as referred to in Roman numeral III; b. Gearing Ratio, namely the calculation of the Gearing Ratio as referred to in Roman numeral IV;
c. Profitability, namely:
1) calculation of the return on asset ratio as referred to in Roman numeral V item 2 letter a;
2) calculation of the operating expense to operating income ratio as referred to in Roman numeral V item 2 letter b; and
3) calculation of the claim to service fee income ratio as referred to in Roman numeral V item 2 letter c; and
d. self-assessment of good corporate governance for the Guarantee Institution as referred to in Roman numeral VI.
The stage of establishing value criteria for each Liquidity Ratio, Gearing Ratio, Profitability, and self-assessment of good corporate governance for the Guarantee Institution as referred to in item 1 letter b is established based on the following provisions:
a. Establishment of value criteria for Liquidity Ratio
1) Establishment of value criteria for Liquidity Ratio is established based on the following provisions:
a) Value 1 if the Guarantee Institution has a Liquidity Ratio value from 130% (one hundred thirty percent) up to less than 800% (eight hundred percent). b) Value 2 if the Guarantee Institution has a Liquidity Ratio value from 120% (one hundred twenty percent) up to less than 130% (one hundred thirty percent). c) Value 3 if the Guarantee Institution has a Liquidity Ratio value from 110% (one hundred ten percent) up to less than 120% (one hundred twenty percent). d) Value 4 if the Guarantee Institution has a Liquidity Ratio value from 100% (one hundred percent) up to less than 110% (one hundred ten percent). e) Value 5 if the Guarantee Institution has a Liquidity Ratio:
(1) less than 100% (one hundred percent); or (2) 800% (eight hundred percent) or more.
2) Example of establishing value criteria for Liquidity Ratio:
PT ABC Credit Guarantee has the following financial data:
Current assets = Rp70 billion
Current liabilities = Rp35 billion
Current ratio = (current assets/current liabilities) Current ratio = (Rp70 billion/Rp35 billion) Current ratio = 200%, then the establishment of value criteria for the Liquidity Ratio of PT ABC Credit Guarantee is value 1.

b. Establishment of value criteria for Gearing Ratio
1) Establishment of value criteria for Gearing Ratio is established based on the following provisions:
a) Value 1 if the Guarantee Institution has a Gearing Ratio value from 4 (four) up to less than 28 (twenty-eight). b) Value 2 if the Guarantee Institution has a Gearing Ratio value from 28 (twenty-eight) up to less than 32 (thirty-two). c) Value 3 if the Guarantee Institution has a Gearing Ratio value from 32 (thirty-two) up to less than 36 (thirty-six). d) Value 4 if the Guarantee Institution has a Gearing Ratio value from 36 (thirty-six) up to less than 40 (forty). e) Value 5 if the Guarantee Institution has a Gearing Ratio:
(1) less than 4 (four); or
(2) 40 (forty) or more.
2) Example of establishing value criteria for Gearing Ratio:
PT ABC Credit Guarantee has the following financial data:
Total value of guarantees borne by the institution itself = Rp750 billion Equity of the Guarantee Institution at a certain time = Rp100 billion Gearing Ratio = (total value of guarantees borne by the institution itself/Equity of the Guarantee Institution at a certain time) Gearing Ratio = (Rp750 billion/Rp100 billion) Gearing Ratio = 7.5 times, then the establishment of value criteria for the Gearing Ratio of PT ABC Credit Guarantee is value 1.

c. Establishment of value criteria for Profitability
1) Establishment of value criteria for the return on asset ratio is as follows:
a) Value 1 if the Guarantee Institution has a return on asset ratio of 5% (five percent) or more. b) Value 2 if the Guarantee Institution has a return on asset ratio from 2.5% (two point five percent) up to less than 5% (five percent). c) Value 3 if the Guarantee Institution has a return on asset ratio from 0% (zero percent) up to less than 2.5% (two point five percent). d) Value 4 if the Guarantee Institution has a return on asset ratio from -5% (minus five percent) up to less than 0% (zero percent). e) Value 5 if the Guarantee Institution has a return on asset ratio less than -5% (minus five percent).
2) Establishment of value criteria for the operating expense to operating income ratio is as follows:
a) Value 1 if the Guarantee Institution has an operating expense to operating income ratio of less than 85% (eighty-five percent). b) Value 2 if the Guarantee Institution has an operating expense to operating income ratio from 85% (eighty-five percent) up to less than 90% (ninety percent). c) Value 3 if the Guarantee Institution has an operating expense to operating income ratio from 90% (ninety percent) up to less than 95% (ninety-five percent). d) Value 4 if the Guarantee Institution has an operating expense to operating income ratio from 95% (ninety-five percent) up to less than 100% (one hundred percent). e) Value 5 if the Guarantee Institution has an operating expense to operating income ratio of 100% (one hundred percent) or more.
3) Establishment of value criteria for the claim to service fee income ratio is as follows:
a) Value 1 if the Guarantee Institution has a claim to service fee income ratio of less than 70% (seventy percent). b) Value 2 if the Guarantee Institution has a claim to service fee income ratio from 70% (seventy percent) up to less than 80% (eighty percent). c) Value 3 if the Guarantee Institution has a claim to service fee income ratio from 80% (eighty percent) up to less than 90% (ninety percent). d) Value 4 if the Guarantee Institution has a claim to service fee income ratio from 90% (ninety percent) up to less than 100% (one hundred percent). e) Value 5 if the Guarantee Institution has a claim to service fee income ratio of 100% (one hundred percent) or more.
4) Example of establishing value criteria for Profitability
a) Example calculation of return on asset ratio Financial data of PT ABC Credit Guarantee as of May 2019:
Profit before tax up to May 2019 = Rp12.5 billion Average assets up to May 2019 = Rp1,600 billion Thus, the return on asset ratio value of PT ABC Credit Guarantee as of May 2019 is:
Annualized profit before tax = (Rp12.5 billion/5)x12 = Rp30 billion Return on asset ratio = Rp30 billion/Rp1,600 billion = 1.88%. b) Example calculation of operating expense to operating income ratio Financial data of PT ABC Credit Guarantee as of May 2019:
Operating expenses = Rp100 billion Operating income = Rp130 billion Thus, the operating expense to operating income ratio value of PT ABC Credit Guarantee as of May 2019 is:
Operating expense to operating income ratio = Rp100 billion/Rp130 billion = 76.92%. c) Example calculation of claim to service fee income ratio Financial data of PT ABC Credit Guarantee as of May 2019:
Net claim expenses = Rp80 billion Net guarantee service fee income = Rp100 billion Thus, the claim to service fee income ratio value of PT ABC Credit Guarantee as of May 2019 is:
Net claim ratio to net service fee income = Rp80 billion/Rp100 billion = 80%. d) Regarding the profitability ratio data of PT ABC Credit Guarantee as referred to in letter a), letter b), and letter c), the establishment of value criteria for Profitability is presented in the table as follows:

No	Profitability Ratio	Value	Criteria Value
1.	Return on Asset Ratio	1.88%	3
2.	Operating Expense to Operating Income Ratio	76.92%	1
3.	Claim to Service Fee Income Ratio	80%	3

d. Establishment of value criteria for self-assessment of good corporate governance for the Guarantee Institution  
   1) Establishment of value criteria for self-assessment of good corporate governance for the Guarantee Institution is established based on the following provisions:  
      a) Value 1 if the Guarantee Institution has a self-assessment result of good corporate governance with the predicate "very good". b) Value 2 if the Guarantee Institution has a self-assessment result of good corporate governance with the predicate "good". c) Value 3 if the Guarantee Institution has a self-assessment result of good corporate governance with the predicate "fairly good". d) Value 4 if the Guarantee Institution has a self-assessment result of good corporate governance with the predicate "poor". e) Value 5 if the Guarantee Institution has a self-assessment result of good corporate governance with the predicate "very poor".  
   2) Example of establishing value criteria for self-assessment of good corporate governance for the Guarantee Institution:  
      PT ABC Credit Guarantee has a self-assessment result of good corporate governance with the predicate "good", then the establishment of value criteria for the self-assessment of good corporate governance for PT ABC Credit Guarantee is value 2.

4. The stage of establishing composite Profitability value criteria as referred to in item 1 letter c is established based on the following provisions:
a. To determine the composite Profitability value criteria, the weighted average method of the value criteria for each Profitability ratio is used, with each ratio having a weight of:
1) Return on Asset Ratio at 30% (thirty percent).
2) Operating Expense to Operating Income Ratio at 35% (thirty-five percent).
3) Claim to Service Fee Income Ratio at 35% (thirty-five percent).

b. Establishment of composite Profitability value criteria is as follows:  
   1) Value 1 if the Guarantee Institution has a composite Profitability value from 1 (one) up to less than 1.8 (one point eight).  
   2) Value 2 if the Guarantee Institution has a composite Profitability value from 1.8 (one point eight) up to less than 2.6 (two point six).  
   3) Value 3 if the Guarantee Institution has a composite Profitability value from 2.6 (two point six) up to less than 3.4 (three point four).  
   4) Value 4 if the Guarantee Institution has a composite Profitability value from 3.4 (three point four) up to less than 4.2 (four point two).  
   5) Value 5 if the Guarantee Institution has a composite Profitability value from 4.2 (four point two) up to 5 (five).

c. Example of establishing composite Profitability value criteria:  
   Regarding the establishment of value criteria for Profitability of PT ABC Credit Guarantee as referred to in item 3 letter c item 4 letter d), the establishment of composite Profitability value criteria is as follows:  
   Composite Profitability Value = (30%*3) + (35%*1) + (35%*3) = 2.3.  
   The composite Profitability value criteria with a composite value of 2.3 is value 2.

5. The stage of establishing the composite Financial Health ranking of the Guarantee Institution as referred to in item 1 letter d is conducted with reference to the following provisions:
a. Based on the establishment of value criteria for Liquidity Ratio as referred to in item 3 letter a, the establishment of value criteria for Gearing Ratio as referred to in item 3 letter b, the establishment of composite Profitability value criteria as referred to in item 4 letter c, and the establishment of value criteria for self-assessment of good corporate governance for the Guarantee Institution as referred to in item 3 letter d, the value is subsequently calculated...

composite Financial Health with weights as follows:

Liquidity Ratio, with a weight of 10% (ten percent).
Gearing Ratio, with a weight of 35% (thirty-five percent).
Profitability, with a weight of 35% (thirty-five percent).
self assessment of good corporate governance, with a weight of 20% (twenty percent).
b. Based on the composite Financial Health value as referred to in letter a, the Financial Health of Guarantee Institutions is determined as follows:
very healthy if the Guarantee Institution has a Financial Health value from 1 (one) to less than 1.8 (one point eight).
healthy if the Guarantee Institution has a Financial Health value from 1.8 (one point eight) to less than 2.6 (two point six).
fairly healthy if the Guarantee Institution has a Financial Health value from 2.6 (two point six) to less than 3.4 (three point four).
unhealthy if the Guarantee Institution has a Financial Health value from 3.4 (three point four) to less than 4.2 (four point two).
very unhealthy if the Guarantee Institution has a Financial Health value from 4.2 (four point two) to 5 (five).
c. Example of determination on the composite Financial Health rating of Guarantee Institutions
Regarding the data determination on the Liquidity Ratio value criteria for PT Penjaminan Kredit ABC as referred to in number 3 letter a number 2), the determination on the Gearing Ratio value criteria for PT Penjaminan Kredit ABC as referred to in number 3 letter b number 2), the determination on the composite Rentabilitas value criteria for PT Penjaminan Kredit ABC as referred to in number 4 letter c, and the data determination on the self assessment criteria for good corporate governance of PT Penjaminan Kredit ABC as referred to in

number 3 letter d number 2) are:
Determination on composite Financial Health rating = (10%*1)+ (35%*1)+(35%*2)+(20%*2) = 1.55  very healthy.
Thus, PT Penjaminan Kredit ABC has Financial Health with a very healthy category.
VIII. MEASUREMENT PROCEDURE FOR FINANCIAL HEALTH FOR UUS

Financial Health measurement for UUS as referred to in Roman II number 3 is carried out in the following stages:
a. calculation of the value of each Liquidity Ratio, Profitability, and Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS; b. determination on the value criteria for each Liquidity Ratio, Profitability, and Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS;
c. determination on the composite Rentabilitas value criteria; and
d. determination on the composite Financial Health rating of UUS.
The stage of calculating the value of each Liquidity Ratio, Profitability, and Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS as referred to in number 1 letter a, is carried out with reference to the following provisions:
a. Liquidity Ratio, namely the calculation of the current ratio as referred to in Roman III; b. Profitability, namely:

calculation of the return on asset ratio as referred to in Roman V number 2 letter a;
calculation of the operational expense to operational income ratio as referred to in Roman V number 2 letter b; and
calculation of the claim to Imbal Jasa income ratio as referred to in Roman V number 2 letter c;
and

c. Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS, namely by using the following provisions:

In order to carry out an assessment on the implementation of good corporate governance for UUS, Otoritas Jasa Keuangan conducts an assessment based on:
a) the results of evaluation on the self-assessment results regarding the implementation of good corporate governance submitted by Guarantee Companies that have UUS; and/or b) the results of supervision and/or examination of UUS.
The assessment as referred to in number 1) is carried out at least on the following factors:
a) the implementation of duties and responsibilities of the board of directors, board of commissioners, and board of Sharia supervisors regarding the management of Sharia guarantee business activities; b) the implementation of duties and responsibilities of UUS leadership; c) the implementation of compliance functions regarding the implementation of Sharia principles; d) the implementation of UUS risk management, including internal control systems, and the implementation of information technology governance; and e) the transparency of UUS financial and non-financial conditions.
The predicate of the Otoritas Jasa Keuangan assessment results on the implementation of good corporate governance for UUS is categorized into 5 predicates, namely:
a) very good predicate, if UUS management has implemented good corporate governance for UUS which is generally very good. This is reflected in the very adequate fulfillment of good corporate governance principles for UUS. In the event there are weaknesses in the implementation of good corporate governance principles for UUS, generally these weaknesses are not significant and can be immediately improved by UUS management. b) good predicate, if UUS management has implemented good corporate governance for UUS which is generally good. This is reflected in the adequate fulfillment of good corporate governance principles for UUS. In the event there are weaknesses in the implementation of good corporate governance principles for UUS, generally these weaknesses are less significant and can be resolved with normal actions by UUS management. c) fairly good predicate, if UUS management has implemented good corporate governance for UUS which is generally fairly good. This is reflected in the fairly adequate fulfillment of good corporate governance principles for UUS. In the event there are weaknesses in the implementation of good corporate governance principles for UUS, generally these weaknesses are fairly significant and require fairly close attention from UUS management. d) less good predicate, if UUS management has implemented good corporate governance for UUS which is generally less good. This is reflected in the less adequate fulfillment of good corporate governance principles for UUS. There are weaknesses in the implementation of good corporate governance principles for UUS which are generally significant and require comprehensive improvement by UUS management. e) not good predicate, if UUS management has implemented good corporate governance for UUS which is generally not good. This is reflected in the inadequate fulfillment of good corporate governance principles for UUS. There are weaknesses in the implementation of good corporate governance principles for UUS which are generally very significant and difficult to improve by UUS management.
Otoritas Jasa Keuangan determines the assessment results on the implementation of good corporate governance for UUS periodically at the latest by June 30 of each year.
Otoritas Jasa Keuangan submits the assessment results on the implementation of good corporate governance for UUS to the Guarantee Company that has UUS.
The Otoritas Jasa Keuangan assessment results on the implementation of good corporate governance for UUS as referred to in number 5) are applied as the basis for measuring Financial Health for UUS for the period from July of the current year to June of the following year.

The stage of determination on the value criteria for each Liquidity Ratio, Profitability, and Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS as referred to in number 1 letter b, is determined based on the following provisions:
a. Determination on the value criteria for Liquidity Ratio

determination on the value criteria for Liquidity Ratio is determined based on the following provisions:
a) Value 1 if UUS has a Liquidity Ratio value from 130% (one hundred thirty percent) to less than 800% (eight hundred percent). b) Value 2 if UUS has a Liquidity Ratio value from 120% (one hundred twenty percent) to less than 130% (one hundred thirty percent). c) Value 3 if UUS has a Liquidity Ratio value from 110% (one hundred ten percent) to less than 120% (one hundred twenty percent). d) Value 4 if UUS has a Liquidity Ratio value from 100% (one hundred percent) to less than 110% (one hundred ten percent).

e) Value 5 if UUS has a Liquidity Ratio value:
(1) less than 100% (one hundred percent); or
(2) 800% (eight hundred percent) or more.
2) Example of determination on the value criteria for Liquidity Ratio of UUS from PT Penjaminan Kredit XYZ has the following financial data:
Current assets = Rp10 billion
Current liabilities = Rp5 billion
Current ratio = (current assets/current liabilities) Current ratio = (Rp10 billion/Rp5 billion) Current ratio = 200%, then the determination on the value criteria for Liquidity Ratio of UUS from PT Penjaminan Kredit XYZ is value 1. b. Determination on the value criteria for Profitability

Determination on the value criteria for the return on asset ratio is as follows:
a) Value 1 if UUS has a return on asset ratio of 5% (five percent) or more. b) Value 2 if UUS has a return on asset ratio from 2.5% (two point five percent) to less than 5% (five percent). c) Value 3 if UUS has a return on asset ratio from 0% (zero percent) to less than 2.5% (two point five percent). d) Value 4 if UUS has a return on asset ratio from -5% (minus five percent) to less than 0% (zero percent). e) Value 5 if UUS has a return on asset ratio less than -5% (minus five percent).
Determination on the value criteria for the operational expense to operational income ratio is as follows:
a) Value 1 if UUS has an operational expense to operational income ratio of less than 85% (eighty-five percent). b) Value 2 if UUS has an operational expense to operational income ratio from 85% (eighty-five percent) to less than 90% (ninety percent). c) Value 3 if UUS has an operational expense to operational income ratio from 90% (ninety percent) to less than 95% (ninety-five percent). d) Value 4 if UUS has an operational expense to operational income ratio from 95% (ninety-five percent) to less than 100% (one hundred percent). e) Value 5 if UUS has an operational expense to operational income ratio of 100% (one hundred percent) or more.
Determination on the value criteria for the claim to Imbal Jasa income ratio is as follows:
a) Value 1 if UUS has a claim to Imbal Jasa income ratio of less than 70% (seventy percent). b) Value 2 if UUS has a claim to Imbal Jasa income ratio from 70% (seventy percent) to less than 80% (eighty percent). c) Value 3 if UUS has a claim to Imbal Jasa income ratio from 80% (eighty percent) to less than 90% (ninety percent). d) Value 4 if UUS has a claim to Imbal Jasa income ratio from 90% (ninety percent) to less than 100% (one hundred percent). e) Value 5 if UUS has a claim to Imbal Jasa income ratio of 100% (one hundred percent) or more.
Example of determination on the value criteria for Profitability
a) Example of return on asset ratio calculation UUS financial data from PT Penjaminan Kredit XYZ as of May 2019:
Profit before tax up to May 2019 = Rp1.25 billion Average assets up to May 2019 = Rp160 billion Thus, the return on asset ratio value of UUS from PT Penjaminan Kredit XYZ as of May 2019 is:
Annualized profit before tax = (Rp1.25 billion /5)x12 = Rp3 billion Return on asset ratio = Rp3 billion/Rp160 billion = 1.88%. b) Example of operational expense to operational income ratio calculation UUS financial data from PT Penjaminan Kredit XYZ as of May 2019:
Operational expenses = Rp10 billion
Operational income = Rp13 billion
Thus, the operational expense to operational income ratio value of UUS from PT Penjaminan Kredit XYZ as of May 2019 is:
Operational expense to operational income ratio = Rp10 billion /Rp13 billion = 76.92%. c) Example of claim to Imbal Jasa income ratio calculation UUS financial data from PT Penjaminan Kredit XYZ as of May 2019:
Net claim expenses = Rp8 billion
Net Imbal Jasa income = Rp10 billion
Thus, the claim to Imbal Jasa income ratio value of UUS from PT Penjaminan Kredit XYZ as of May 2019 is:
Net claim ratio to net Imbal Jasa income= Rp8 billion/Rp10 billion = 80%. d) Regarding the Profitability ratio data of UUS from PT Penjaminan Kredit XYZ as referred to in letter a), letter b), and letter c), the determination on the value criteria for Profitability is presented in the table as follows:
No Profitability Ratio Criteria Value
Value

Return on asset ratio 1.88% 3
Operational expense to operational
income ratio
76.92% 1
Claim to Imbal Jasa income ratio
80% 3
c. Determination on the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS:

Determination on the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS is determined based on the following provisions:
a) Value 1 if UUS has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the very good predicate. b) Value 2 if UUS has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the good predicate. c) Value 3 if UUS has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the fairly good predicate. d) Value 4 if UUS has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the less good predicate. e) Value 5 if UUS has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the not good predicate.
Example of determination on the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS
UUS of PT Penjaminan Kredit XYZ has the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS with the very good predicate, then the determination on the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS from PT Penjaminan Kredit XYZ is value 1.

The stage of determination on the composite Rentabilitas value criteria as referred to in number 1 letter c, is determined based on the following provisions:
a. To determine the composite Rentabilitas value criteria, the weighted average method of the value criteria for each Profitability ratio is used, with the weight of each ratio being:

Return on asset ratio at 30% (thirty percent).
Operational expense to operational income ratio at 35% (thirty-five percent).
Claim to Imbal Jasa income ratio at 35% (thirty-five percent).
b. Determination on the composite Rentabilitas value criteria is as follows:
Value 1 if UUS has a composite Rentabilitas value from 1 (one) to less than 1.8 (one point eight).
Value 2 if UUS has a composite Rentabilitas value from 1.8 (one point eight) to less than 2.6 (two point six).
Value 3 if UUS has a composite Rentabilitas value from 2.6 (two point six) to less than 3.4 (three point four).
Value 4 if UUS has a composite Rentabilitas value from 3.4 (three point four) to less than 4.2 (four point two).
Value 5 if UUS has a composite Rentabilitas value from 4.2 (four point two) to 5 (five).
c. Example of determination on the composite Rentabilitas value criteria
Regarding the data determination on the Profitability value criteria of UUS from PT Penjaminan Kredit XYZ as referred to in number 3 letter b number 3) letter c), the determination on the composite Rentabilitas value criteria is as follows:
Composite Rentabilitas value = (30%*3)+ (35%*1) + (35%*3) = 2.3 then the value criteria for composite Rentabilitas with a composite value of 2.3 is 2.

The stage of determination on the composite Financial Health rating of UUS as referred to in number 1 letter d is carried out with reference to the following provisions:
a. Based on the determination on the value criteria for Liquidity Ratio as referred to in number 3 letter a, the determination on the composite value criteria for Rentabilitas as referred to in number 4 letter b, and the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS as referred to in number 3 letter c, the composite Financial Health value of UUS is subsequently determined through weighting of the rating values as follows:

Liquidity Ratio, with a weight of 30% (thirty percent).
Profitability ratio, with a weight of 50% (fifty percent).
Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS, with a weight of 20% (twenty percent).
b. Based on the composite Financial Health value of UUS as referred to in letter a, the Financial Health of UUS is determined as follows:
very healthy if UUS has a Financial Health value from 1 (one) to less than 1.8 (one point eight).
healthy if UUS has a Financial Health value from 1.8 (one point eight) to less than 2.6 (two point six).
fairly healthy if UUS has a Financial Health value from 2.6 (two point six) to less than 3.4 (three point four).
unhealthy if UUS has a Financial Health value from 3.4 (three point four) to less than 4.2 (four point two).
very unhealthy if UUS has a Financial Health value from 4.2 (four point two) to 5 (five).
c. Example of determination on the composite Financial Health rating of UUS
Regarding the data determination on the Liquidity Ratio value criteria of UUS at PT Penjaminan Kredit XYZ as referred to in number 3 letter a number 2) determination on the composite Rentabilitas value criteria of UUS at PT Penjaminan Kredit XYZ as referred to in number 4 letter c, and determination on the value criteria for the results of the Otoritas Jasa Keuangan assessment on the implementation of good corporate governance for UUS at PT Penjaminan Kredit XYZ as referred to in number 3 letter c number 2) are:
Composite Financial Health value of UUS = (30%*1)+ (50%*2)+ (20%*1) = 1.5  very healthy.
Thus, UUS at PT Penjaminan Kredit XYZ has UUS Financial Health with a very healthy category.
IX. VERIFICATION AND/OR VALIDATION BY OTORITAS JASA KEUANGAN

Otoritas Jasa Keuangan may carry out verification and/or validation on the truthfulness and reasonableness of data that serves as the basis for the Financial Health calculation prepared by Guarantee Institutions and UUS.
In the event there is a difference between the Financial Health prepared by Guarantee Institutions and UUS and the Financial Health resulting from the verification and/or validation by Otoritas Jasa Keuangan, the Financial Health that applies is the Financial Health determined by Otoritas Jasa Keuangan.

This copy is in accordance with the original
Legal Director 1
Legal Department signed
Yuliana
X. CLOSING
The provisions in this Circular Letter of Otoritas Jasa Keuangan shall take effect as of the date of determination.
Determined in Jakarta on December 18, 2018
EXECUTIVE HEAD OF INSURANCE, PENSION FUND,
FINANCING INSTITUTION, AND
OTHER FINANCIAL SERVICES INSTITUTIONS
OTORITAS JASA KEUANGAN, signed
RISWINANDI

Financial Health of Guarantee Institutions

Lineage: In force