Financial Services Authority Regulation Number 14/POJK.03/2018 on Asset Quality Assessment of Commercial Banks to Encourage Housing Sector Growth and Increase Foreign Exchange

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 14/POJK.03/2018
ON
ASSET QUALITY ASSESSMENT OF COMMERCIAL BANKS TO ENCOURAGE GROWTH OF THE HOUSING SECTOR AND INCREASE FOREIGN EXCHANGE BY THE GRACE OF GOD THE ALMIGHTY THE COMMISSIONERS' BOARD OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that there is currently a need for policy to increase Indonesia's economic growth and national competitiveness; b. that to increase economic growth, policy is needed to encourage growth in priority sectors, namely the housing sector;
c. that to increase national competitiveness, policy is needed to encourage export credit that can increase foreign exchange;
d. that based on the considerations as referred to in letters a through c, it is necessary to establish a Financial Services Authority Regulation on Asset Quality Assessment of Commercial Banks to Encourage Growth of the Housing Sector and Increase Foreign Exchange;

Recalling:

1. Law Number 7 of 1992 on Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended by Law Number 10 of 1998 on Amendment to Law Number 7 of 1992 on Banking (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to the State Gazette of the Republic of Indonesia Number 3790);
2. Law Number 21 of 2011 on the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);

DECIDING:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION ON ASSET QUALITY ASSESSMENT OF COMMERCIAL BANKS TO ENCOURAGE GROWTH OF THE HOUSING SECTOR AND INCREASE FOREIGN EXCHANGE.

CHAPTER I
GENERAL PROVISIONS

Article 1
In this Financial Services Authority Regulation, the following terms are defined as:

1. Bank means a commercial bank as referred to in Law Number 7 of 1992 on Banking as amended by Law Number 10 of 1998 on Amendment to Law Number 7 of 1992 on Banking, including branch offices of banks located outside the country.
2. Productive Asset means the provision of funds by the Bank to obtain income in the form of credit, securities, interbank fund placement, acceptance bills, receivables from securities purchased with a promise to resell (reverse repurchase agreement), derivative receivables, participation, administrative account transactions, and other forms of fund provision that can be equated with them.
3. Credit means the provision of money or receivables that can be equated with them, based on a loan agreement or agreement between the Bank and another party that requires the borrower to repay the debt after a certain period with interest, including:
   a. overdraft, which is a negative balance in a customer's checking account that cannot be paid in full by the end of the day; b. takeover of receivables in the context of factoring activities; and
   c. takeover or purchase of credit from other parties.
4. Credit Restructuring is an improvement effort carried out by the Bank in lending activities towards a debtor experiencing difficulty in meeting obligations, carried out through:
   a. reduction of Credit interest rates; b. extension of Credit term;
   c. reduction of Credit interest arrears;
   d. reduction of Credit principal arrears; e. addition of Credit facilities; f. conversion of Credit into temporary equity participation; and/or g. other improvement efforts.
5. Borrower Group means a group of borrowers as referred to in legislation regarding maximum limits for Bank Credit provision.

Article 2
(1) Productive Assets in the form of export-oriented fund investment to financial institutions meeting specific requirements are established to have performing quality. (2) A portion of Productive Assets that receives guarantees from financial institutions meeting specific requirements is established to have performing quality. (3) The specific requirements as referred to in paragraph (1) and paragraph (2) are:
a. owned by the central government; b. its business activities provide national export financing; and
c. established by Law with sovereign status.

Article 3
(1) Guarantees as referred to in Article 2 paragraph (2) must meet requirements, namely:
a. unconditional and irrevocable; b. can be liquidated no later than 7 (seven) working days from the claim submission, including partial liquidation to pay principal or interest installment arrears;
c. has a term at least equal to the term of the Productive Asset; and
d. is not counter-guaranteed.
(2) The Bank must submit a claim against the guarantee received as referred to in paragraph (1) no later than 7 (seven) working days from the debtor's default. (3) The debtor is declared in default as referred to in paragraph (2) in the event:
a. principal and/or interest and/or other receivables arrears occur for 90 (ninety) days even though the Productive Asset has not yet matured; b. principal and/or interest and/or other receivables payments are not received when the Productive Asset matures; or
c. other requirements besides principal and/or interest payment are not met, which can cause default.

Article 4
(1) Credit quality is established based on assessment factors, namely:
a. business prospects; b. debtor performance; and
c. repayment ability.
(2) Components in the assessment factors as referred to in paragraph (1) refer to legislation regarding Bank asset quality.
(3) The establishment of Credit quality and other export-oriented fund provision may be based solely on the accuracy of principal and/or interest repayment, which is part of the component in the assessment factor regarding repayment ability as referred to in paragraph (1) letter c. (4) The establishment of Credit quality and other export-oriented fund provision as referred to in paragraph (3) applies to:
a. Credit and other export-oriented fund provision to micro and/or small enterprises; b. Credit and other export-oriented fund provision to medium enterprises provided by each Bank to 1 (one) debtor or 1 (one) project with an amount up to Rp5,000,000,000.00 (five billion rupiah); and
c. Credit and other export-oriented fund provision provided by each Bank to medium enterprise debtors with a specific amount.

(5) Credit and other export-oriented fund provision provided by each Bank to medium enterprise debtors with a specific amount as referred to in paragraph (4) letter c is with an amount:
a. more than Rp5,000,000,000.00 (five billion rupiah) up to Rp20,000,000,000.00 (twenty billion rupiah) for Banks meeting the criteria, namely:
1. having a Credit Risk Adequacy of Credit Risk Management Implementation (KPMR) assessment rating of very adequate (strong);
2. having a Minimum Capital Adequacy Ratio (KPMM) at least equal to the provisions of legislation; and
3. having a composite bank health rating of at least 3 (PK-3); or
b. more than Rp5,000,000,000.00 (five billion rupiah) up to Rp10,000,000,000.00 (ten billion rupiah) for Banks meeting the criteria, namely:
1. having a Credit Risk Adequacy of KPMR assessment rating of adequate (satisfactory);
2. having a KPMM ratio at least equal to the provisions of legislation; and
3. having a composite bank health rating of at least 3 (PK-3).
(6) The KPMR assessment rating for Credit risk, KPMM ratio, and composite bank health rating used in the assessment of Credit quality and other fund provision as referred to in paragraph (5) are based on the Financial Services Authority's assessment, which can be known by the Bank at the time of the prudential meeting. (7) In the event of significant deviation in the principle of healthy lending, the Financial Services Authority establishes the assessment of Productive Asset quality provided by the Bank to medium enterprise debtors as referred to in paragraph (4) letter c and paragraph (5) based on the assessment factors as referred to in legislation regarding Bank asset quality assessment. (8) The use of assessment ratings as referred to in paragraph (5) is:
a. the assessment rating as of December of the previous year is used for Credit quality and other fund provision assessment for the period from February to July; and b. the assessment rating as of June is used for Credit quality and other fund provision assessment for the period from August to January. (9) The provisions as referred to in paragraph (4) letter c and paragraph (5) are excluded for Credit and other fund provision provided to 1 (one) medium enterprise debtor with an amount more than Rp5,000,000,000.00 (five billion rupiah) which is:
a. Restructured Credit; and/or b. fund provision to the Bank's 50 (fifty) largest debtors.
(10) The establishment of quality for Restructured Credit as referred to in paragraph (9) letter a remains conducted based on legislation regarding Bank asset quality assessment.

Article 5
(1) Collateral in the form of residential housing to be used as a factor for reducing asset impairment provision as referred to in legislation regarding Bank asset quality assessment must be valued by at least:
a. an independent appraiser as referred to in legislation regarding Bank asset quality assessment, for Productive Assets originating from debtors or Borrower Groups with an amount more than Rp10,000,000,000.00 (ten billion rupiah); or b. the Bank's internal appraiser for Productive Assets originating from debtors or Borrower Groups with an amount up to Rp10,000,000,000.00 (ten billion rupiah). (2) Valuation of collateral as referred to in paragraph (1) is conducted at the initial provision of Productive Assets and at the time of collateral revaluation for valuation updating.

Article 6
(1) Besides the establishment of quality for Restructured Credit as referred to in legislation regarding Bank asset quality assessment, the quality of Restructured Credit is established for:
a. export-oriented Credit to micro and/or small enterprises; and b. export-oriented Credit to medium enterprises provided by each Bank to 1 (one) debtor or 1 (one) project with an amount up to Rp5,000,000,000.00 (five billion rupiah). (2) The establishment of quality for Restructured Credit as referred to in paragraph (1) is established:
a. at most substandard for Credit that before Restructuring was classified as doubtful and non-performing; or b. remains the same for Credit that before Restructuring was classified as substandard and special attention, for up to 3 (three) times the payment obligation period. (3) In the event that 3 (three) times the payment obligation period as referred to in paragraph (2) has been exceeded, the establishment of quality for Restructured Credit is established based on assessment factors regarding the accuracy of principal and/or interest repayment.

Article 7
At the time this Financial Services Authority Regulation takes effect, the provisions in Bank Indonesia Regulation Number 14/15/PBI/2012 on Asset Quality Assessment of Commercial Banks (State Gazette of the Republic of Indonesia Year 2012 Number 202, Supplement to the State Gazette of the Republic of Indonesia Number 5354) are declared to remain in force insofar as they do not conflict with the provisions in this Financial Services Authority Regulation.

Article 8
This Financial Services Authority Regulation takes effect on the date of its promulgation.

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

In order that everyone may know it, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on 15 August 2018
CHAIRMAN OF THE COMMISSIONERS' BOARD
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on 16 August 2018
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2018 NUMBER 136

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 14 /POJK.03/2018
ON
ASSET QUALITY ASSESSMENT OF COMMERCIAL BANKS TO ENCOURAGE GROWTH OF THE HOUSING SECTOR AND INCREASE FOREIGN EXCHANGE

I. GENERAL
To increase Indonesia's economic growth and national competitiveness, efforts are needed to encourage the intermediary function of banking through adjustment of provisions regarding Bank asset quality assessment. The aforementioned provisions are expected to increase the potential for Bank Credit expansion conducted in a measurable manner while still paying attention to the principle of prudence. The aforementioned provisions are focused on encouraging growth in priority sector Credit, namely the housing sector, and increasing foreign exchange through the provision of export-oriented funds. In light of these considerations, banking policy is needed to encourage economic growth.

II. ARTICLE BY ARTICLE
Article 1
Sufficiently clear.

Article 2
Paragraph (1)
Export-oriented fund investment is embodied in an agreement between the Bank and a financial institution meeting specific requirements. Paragraph (2) Sufficiently clear. Paragraph (3) Letter a Central government means the central government as referred to in legislation regarding regional government. Letter b Sufficiently clear. Letter c Sufficiently clear.

Article 3
Paragraph (1)
Letter a
Unconditional means the benefits obtained by the fund-providing Bank from the guarantee are not substantially reduced even if losses occur due to factors beyond the Bank's control and do not contain procedural requirements. Procedural requirements include:

1. requiring a time limit for submission of default notification;
2. requiring the fund-providing Bank to prove good faith; and/or
3. requiring the liquidation of the guarantee to be conducted through mutual offset (set-off) first with the fund-providing Bank's obligations to the guarantor.
   Letter b
   Sufficiently clear.
   Letter c
   Sufficiently clear.
   Letter d
   Sufficiently clear.
   Paragraph (2)
   Sufficiently clear.
   Paragraph (3)
   Sufficiently clear.

Article 4
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
Criteria for micro, small, and medium enterprises refer to legislation regarding micro, small, and medium enterprises.
The amount limit as referred to in this regulation is calculated against all facilities provided (ceiling) to each debtor or project, both for individual debtors and Borrower Groups in the event Credit and other fund provision are used to finance the same project. Other fund provision means the issuance of guarantees and/or opening of letters of credit. Included as Credit and other fund provision are all types of Credit or other fund provision provided to all categories of debtors.

Paragraph (5)
Letter a
Number 1
Adequacy of KPMR includes:
a. active supervision by the Board of Directors and Board of Commissioners; b. adequacy of risk management policies, procedures, and limit setting;
c. adequacy of risk identification, measurement, monitoring, and control processes, as well as risk management information systems; and
d. comprehensive internal control systems, as referred to in Financial Services Authority legislation regarding risk management implementation for Banks. Generally, the assessment rating of Credit Risk Adequacy of KPMR being very adequate (strong) is reflected through the application of all KPMR components to all effective Credit risks to maintain a healthy internal Bank condition. Although there are minor weaknesses, such weaknesses are not significant and can be ignored. Number 2 Sufficiently clear. Number 3 Composite rating means the composite rating as referred to in Financial Services Authority legislation regarding Bank health rating assessment. Letter b Number 1 Adequacy of KPMR includes:
a. active supervision by the Board of Directors and Board of Commissioners; b. adequacy of risk management policies, procedures, and limit setting;
c. adequacy of risk identification, measurement, monitoring, and control processes, as well as risk management information systems; and
d. comprehensive internal control systems, as referred to in Financial Services Authority legislation regarding risk management implementation for Banks. Generally, the assessment rating of Credit Risk Adequacy of KPMR being adequate (satisfactory) is reflected through the application of all KPMR components to all Credit risks that are sufficiently effective to maintain a healthy internal Bank condition. Although there are some minor weaknesses, such weaknesses can be resolved in normal business activities. Number 2 Sufficiently clear. Number 3 Composite rating means the composite rating as referred to in Financial Services Authority legislation regarding Bank health rating assessment. Paragraph (6) Sufficiently clear. Paragraph (7) Sufficiently clear. Paragraph (8) In the event of an adjustment to the assessment rating as of December or June by the Financial Services Authority, the latest adjusted assessment position is used. Paragraph (9) Letter a Sufficiently clear. Letter b The Bank's 50 (fifty) largest debtors means the Bank's 50 (fifty) largest debtors individually.

Paragraph (10)
Sufficiently clear.

Article 5
Paragraph (1)
The limit of Rp10,000,000,000.00 (ten billion rupiah) is calculated against all facilities provided to the debtor or Borrower Group.
Collateral valuation by the Bank's internal appraiser refers to the valuation standards used by the independent appraiser.
Paragraph (2)
Sufficiently clear.

Article 6
Paragraph (1)
Criteria for micro, small, and/or medium enterprises refer to legislation regarding micro, small, and medium enterprises.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.

Article 7
Sufficiently clear.

Article 8
Sufficiently clear.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6239