Financial Services Authority Regulation Number 40/POJK.03/2019 Concerning Asset Quality Assessment of General Banks

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 40/POJK.03/2019
CONCERNING
ASSET QUALITY ASSESSMENT OF GENERAL BANKS
BY THE GRACE OF THE ALMIGHTY GOD,
THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that a healthy and developing banking system capable of competing nationally and internationally is needed; b. that to create a healthy banking system, banks need to maintain asset quality and asset quality assessment provisions;
c. that existing provisions regarding asset quality need to be adjusted to current conditions;
d. that based on the considerations referred to in letters a, b, and c, it is necessary to establish a Financial Services Authority Regulation concerning Asset Quality Assessment of General Banks;

Recalling:

1. Law Number 7 of 1992 concerning 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 concerning Amendments to Law Number 7 of 1992 concerning 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 concerning 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 AUTHABILITY REGULATION CONCERNING ASSET QUALITY ASSESSMENT OF GENERAL BANKS.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation, the following terms are defined:

1. General Bank, hereinafter referred to as Bank, is a bank that conducts business activities conventionally, providing services in payment transactions, including branch offices of banks located abroad.
2. Assets are productive assets and non-productive assets.
3. Productive Assets are the provision of funds by the Bank to obtain income.
4. Non-Productive Assets are foreclosed collateral, abandoned properties, inter-office accounts, or deferred accounts that have potential losses.
5. Placements are the investment of Bank funds in other banks, in the form of current accounts, interbank call money, savings, time deposits, deposit certificates, loans, or other similar fund investments.
6. Derivative Claims are claims arising from derivative transactions with positive mark-to-market values, including potential profits from mark-to-market of ongoing spot transactions.
7. Securities are debt instruments, promissory notes, bonds, credit securities, or other forms commonly traded in the capital market or money market, including any derivatives thereof, or other interests, or obligations of the issuer.
8. Acceptance Claims are claims arising as a result of acceptance of time promissory notes.
9. Loans are the provision of money or claims that can be equated with it, based on loan agreements between the Bank and other parties, obligating the borrower to repay their debt after a certain period with interest, or in other forms including overdrafts in the form of negative balances in customer current accounts that cannot be paid in full by the end of the day, the takeover of claims in the course of factoring activities, and the takeover or purchase of claims from other parties.
10. Equity Investments are the investment of Bank funds in the form of shares in limited liability companies in the financial sector, including investments in the form of mandatory convertible bonds or mandatory convertible sukuk, or certain types of transactions that result in the Bank having or will have shares in limited liability companies in the financial sector.
11. Temporary Equity Investments are equity investments by the Bank in the form of shares in debtors in the form of limited liability companies to overcome the consequences of Loan failures.
12. Administrative Account Transactions are commitment and contingency obligations including the issuance of guarantees, letters of credit, standby letters of credit, or other commitment and contingency obligations.
13. Bank Indonesia Certificates, hereinafter abbreviated as SBI, are securities in Indonesian Rupiah issued by Bank Indonesia as short-term debt acknowledgments.
14. Government Securities, hereinafter abbreviated as SBN, are government debt instruments and Sharia-compliant government securities.
15. Foreclosed Collateral, hereinafter abbreviated as AYDA, are Assets obtained by the Bank, either partially or wholly, through purchase via auction or outside auction based on voluntary submission by the collateral owner or based on the power to sell outside auction from the collateral owner, in cases where the debtor fails to fulfill obligations to the Bank.
16. Abandoned Properties are fixed assets in the form of properties owned by the Bank but not used for the Bank's usual business activities.
17. Inter-Office Accounts are claims arising from inter-office transactions that have not been resolved within a certain period.
18. Deferred Accounts are accounts whose recording purpose is unidentified or not supported by adequate recording documentation, so they cannot be reclassified into the appropriate accounts.
19. Asset Quality Assessment Provisions, hereinafter abbreviated as PPKA, are provisions calculated as a certain percentage based on Asset quality for the purpose of calculating the Bank's minimum capital adequacy requirements.
20. Impairment Loss Reserves, hereinafter abbreviated as CKPN, are provisions formed for the impairment of financial instruments in accordance with financial accounting standards.
21. Related Parties are individuals or companies that have a controlling relationship with the Bank, directly or indirectly, through ownership, management, and/or financial relationships.
22. Minimum Capital Adequacy Requirements, hereinafter abbreviated as KPMM, are minimum capital adequacy requirements as regulated in Financial Services Authority Regulations concerning minimum capital adequacy requirements for general banks.
23. Board of Directors is the Bank organ authorized and fully responsible for managing the Bank for the interests of the Bank in accordance with the Bank's purposes and objectives, and representing the Bank both inside and outside of court in accordance with the articles of association for Banks in the form of limited liability companies, or the head of branch offices and officials one level below the head of branch offices for Banks that are branch offices of banks located abroad.
24. Board of Commissioners is the Bank organ tasked with conducting general and/or specific supervision in accordance with the articles of association and providing advice to the Board of Directors for Banks in the form of limited liability companies, or parties appointed to perform supervisory functions for Banks that are branch offices of banks located abroad.
25. Credit Restructuring is improvement efforts made by the Bank in lending activities for debtors experiencing difficulties in fulfilling their obligations.

CHAPTER II
ASSET QUALITY
Article 2
(1) Banks are required to manage Assets based on prudence principles.
(2) In implementing the prudence principles referred to in paragraph (1), the Board of Directors is required to assess, monitor, and take necessary steps to maintain the Bank's Assets in good quality.
Article 3
(1) Banks are required to conduct assessments and determinations of Asset quality in accordance with this Financial Services Authority Regulation. (2) In the event of differences in Asset quality determinations between the Bank and the Financial Services Authority, the Asset quality applicable is the quality determined by the Financial Services Authority. (3) Banks are required to adjust Asset quality in accordance with the Financial Services Authority's determinations as referred to in paragraph (2) in:
a. reports submitted to the Financial Services Authority; and/or b. public disclosure reports as referred to in Financial Services Authority Regulations concerning transparency and publication of bank reports, in the next reporting period after notification from the Financial Services Authority.
Article 4
(1) Banks that do not meet the provisions as referred to in Article 2, Article 3 paragraph (1), and/or Article 3 paragraph (3) are subject to administrative sanctions in the form of written reprimands. (2) In the event that Banks do not meet the written reprimands as referred to in paragraph (1), Banks may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of financial service institutions in accordance with Financial Services Authority Regulations concerning re-evaluation of main parties of financial service institutions.

CHAPTER III
PRODUCTIVE ASSETS
First Section
General
Article 5
(1) Types of Productive Assets consist of:
a. placements, b. derivative claims,
c. securities,
d. acceptance claims, e. Loans, f. equity investments, g. temporary equity investments, h. administrative account transactions, or
i. other forms of fund provision that can be equated with Productive Assets.
(2) Banks are required to determine the same quality for all Productive Assets used to finance:
a. 1 (one) debtor; or b. 1 (one) same project.
(3) In the event of differences in quality determinations for Productive Assets as referred to in paragraph (1), the quality of each Productive Asset follows the lowest quality of the Productive Assets. (4) Provisions as referred to in paragraph (2) may be exempted in cases where Productive Assets are determined based on different assessment factors.
Article 6
(1) Banks are required to determine the same quality for Productive Assets provided by more than 1 (one) Bank used to finance:
a. 1 (one) debtor; or b. 1 (one) same project.
(2) Provisions as referred to in paragraph (1) apply to:
a. Productive Assets provided by each Bank with amounts exceeding Rp10,000,000,000.00 (ten billion Rupiah) to 1 (one) debtor or 1 (one) same project; b. Productive Assets provided by Banks with amounts exceeding Rp1,000,000,000.00 (one billion Rupiah) up to Rp10,000,000,000.00 (ten billion Rupiah) to 1 (one) debtor that is among the 50 (fifty) largest debtors of that Bank, provided that Productive Assets provided by other banks to that debtor exceed Rp10,000,000,000.00 (ten billion Rupiah); and/or
c. Productive Assets provided based on joint Loan agreements to 1 (one) debtor or 1 (one) same project.
(3) In the event of differences in quality determinations for Productive Assets as referred to in paragraph (1) and paragraph (2), the quality determined by each Bank for Productive Assets follows the lowest Asset quality. (4) In the event of quality assessments for Productive Assets:
a. determined using additional assessment factors such as sovereign risk of the Republic of Indonesia; or b. determined based on different assessment factors, Banks may not follow the lowest Asset quality as referred to in paragraph (3).
Article 7
(1) Banks may determine different qualities for Productive Assets provided to debtors as referred to in Article 5 paragraph (1) letter a or Article 6 paragraph (1) letter a, provided that the debtor meets at least the following requirements:
a. the debtor has several different projects; and b. there is a clear separation of cash flows from each project.
(2) Banks that determine different qualities for Productive Assets provided to debtors as referred to in paragraph (1) are required to:
a. inform a list containing the names of debtors along with details of each Productive Asset to the Financial Services Authority; and b. document matters related to the quality determination as referred to in paragraph (1). (3) In the event that Financial Services Authority supervision results indicate that the Bank's assessments do not meet the requirements as referred to in paragraph (1), the assessments used as referred to in Article 5 paragraph (1) letter a or Article 6 paragraph (1) letter a apply.
Article 8
Banks are required to adjust Productive Asset quality assessments as referred to in Article 6 at least every 3 (three) months for end-of-month positions in March, June, September, and December.
Article 9
(1) Banks are required to have internal regulations governing criteria and requirements for debtors who must submit audited financial reports to the Bank, including rules regarding submission deadlines. (2) The debtor's obligation to submit audited financial reports as referred to in paragraph (1) must be included in the agreement between the Bank and the debtor. (3) Internal regulations as referred to in paragraph (1) must consider applicable laws and regulations. (4) The quality of Productive Assets from debtors who are late in submitting financial reports as referred to in paragraph (1) is downgraded by one level and assessed at highest as Substandard (Kurang Lancar).

Second Section
Loans
Article 10
Loan quality is determined based on assessment factors:
a. business prospects; b. debtor performance; and
c. repayment capacity.
Article 11
(1) Assessments of business prospects as referred to in Article 10 letter a include assessments of components:
a. business growth potential; b. market conditions and the debtor's position in competition;
c. management quality and labor issues;
d. support from business groups or affiliates; and e. efforts made by the debtor to maintain environmental sustainability.
(2) Assessments of debtor performance as referred to in Article 10 letter b include assessments of components:
a. profitability; b. capital structure;
c. cash flow; and
d. sensitivity to market risks.
(3) Assessments of repayment capacity as referred to in Article 10 letter c include assessments of components:
a. accuracy of principal and interest payments; b. availability and accuracy of debtor financial information;
c. completeness of Loan documentation;
d. compliance with Loan agreements; e. appropriateness of fund usage; and f. fairness of payment obligation sources.
(4) Criteria for each component in determining Loan quality are contained in the Appendix which is an integral part of this Financial Services Authority Regulation.
Article 12
(1) Loan quality determinations are made by analyzing assessment factors as referred to in Article 10, considering components as referred to in Article 11. (2) Loan quality determinations as referred to in paragraph (1) are made by considering:
a. the significance and materiality of each assessment factor and component; and b. the relevance of assessment factors and components to the respective debtor. (3) Based on assessments as referred to in paragraph (1) and paragraph (2), Loan quality is determined as:
a. Good (Lancar); b. Special Mention (Dalam Perhatian Khusus);
c. Substandard (Kurang Lancar);
d. Doubtful (Diragukan); or e. Loss (Macet).

Third Section
Securities
Article 13
(1) Securities quality measured through profit or loss or measured through other comprehensive income is determined to have Good (Lancar) quality, provided they meet the following requirements:
a. actively traded on stock exchanges in:

1. Indonesia; and/or
2. other countries included in major exchanges;
   b. transparent fair value information exists;
   c. coupons or similar obligations are paid in the correct amounts and times, in accordance with agreements; and
   d. not yet due.
   (2) Securities quality that does not meet the requirements as referred to in paragraph (1) letters a and/or b, or is measured at amortized cost, is determined as follows:
   a. Good (Lancar), if:
3. it has an investment grade rating or higher;
4. coupons and/or similar obligations are paid in the correct amounts and times in accordance with agreements; and
5. not yet due;
   b. Substandard (Kurang Lancar), if:
6. it has an investment grade rating or higher;
7. there are delays in coupon and/or similar obligation payments; and
8. not yet due,
   or
9. it has a rating one (1) level below investment grade;
10. there are no delays in coupon and/or similar obligation payments; and
11. not yet due; or
    c. Loss (Macet), if Securities do not meet the criteria as referred to in letters a and b.
    (3) In the event that Banks hold Securities in the form of debt instruments and/or sukuk conducted without public offerings that do not meet provisions as per Financial Services Authority Regulations concerning the issuance of debt instruments and/or sukuk without public offerings, the Securities quality is determined as Loss (Macet).
    Article 14
    (1) Securities ratings as referred to in Article 13 paragraph (2) are based on ratings issued by rating agencies within the last 1 (one) year. (2) In the event that ratings issued by rating agencies within the last one year as referred to in paragraph (1) are not available, Securities are considered to have no rating.
    Article 15
    Securities held by Banks in the form of SBI, SBN, and/or other Securities issued by Bank Indonesia or the central government of the Republic of Indonesia are determined to have Good (Lancar) quality.
    Article 16
    (1) Banks are prohibited from holding Productive Assets in the form of shares and/or Securities linked to or guaranteed by underlying Assets in the form of shares. (2) The prohibition as referred to in paragraph (1) is exempted for Equity Investments or Temporary Equity Investments conducted with the approval of the Financial Services Authority as referred to in Financial Services Authority Regulations concerning prudence principles in equity investment activities.
    Article 17
    Banks holding Securities linked to or guaranteed by underlying Assets are required to:
    a. have evidence of the underlying Assets; b. have rights to the underlying Assets or rights to the value of the underlying Assets;
    c. have clear, accurate, and precise information regarding details of the underlying Assets, including the issuer and the value of each underlying Asset, including any changes; and
    d. account for the composition and issuer details of the underlying Assets and adjust accounting in the event of changes in Asset composition.
    Article 18
    (1) Quality of Securities linked to or guaranteed by underlying Assets as referred to in Article 17 is determined:
    a. for Securities whose payment obligations are directly related to the underlying Assets and cannot be redeemed (non-redemption) by the issuer, quality determination is based on:

1. Securities quality as referred to in Article 13; or
2. the quality of the underlying Assets of the Securities in the event that the Securities have no rating.
   b. for Securities that do not meet the criteria as referred to in letter a, quality determination is based on Securities quality as referred to in Article 13. (2) The quality of underlying Assets of Securities as referred to in paragraph (1) letter a number 2 is determined based on the type of Asset and the quality of the underlying Assets. (3) In the event that underlying Assets of Securities as referred to in paragraph (2) have varying qualities, the Securities quality is determined based on the quality of each underlying Asset and calculated proportionally. (4) For Securities in the form of mutual funds, quality determination is based on:
   a. mutual fund quality according to Securities quality assessments as referred to in Article 13; or b. the quality of underlying Assets of the mutual fund and the quality of the mutual fund issuer, in the event that the mutual fund has no rating.
   Article 19
   (1) Quality of Securities with issuers or endorsers being banks is regulated:
   a. in the event that Securities have ratings and/or are actively traded on stock exchanges in Indonesia, determined based on the lowest quality between:
3. assessment results based on Securities quality provisions as referred to in Article 13; or
4. assessment results based on Placement quality provisions for the issuing bank or endorsing bank;
   b. in the event that Securities are not traded on stock exchanges and/or have no ratings, Securities quality:
5. issued or endorsed by banks in Indonesia is determined based on Placement quality; or
6. issued or endorsed by banks outside Indonesia is determined based on:
   a) Placement quality for Securities with terms up to 1 (one) year; or b) Securities quality as referred to in Article 13 paragraph (2) for Securities with terms longer than 1 (one) year. (2) In the event that Securities with issuers being other banks are in the form of Securities linked to or guaranteed by underlying Assets, Banks must still meet provisions as referred to in Article 17. (3) Quality of Securities with issuers being non-bank entities outside Indonesia, which based on characteristics are not traded on stock exchanges and have no ratings, is determined based on Loan quality provisions as referred to in Article 10. (4) Quality of Securities issued by non-bank entities outside Indonesia, which based on characteristics are not traded on stock exchanges, is determined based on Securities quality provisions as referred to in Article 13 paragraph (2).
   Article 20
   Quality of promissory notes taken over that are not accepted by other banks is determined based on Loan quality provisions as referred to in Article 10.

Fourth Section
Placements
Article 21
(1) Placement quality is determined as follows:
a. Good (Lancar), in cases where:

1. the bank receiving the Placement has a minimum KPMM ratio equal to or higher than the KPMM ratio as referred to in Financial Services Authority Regulations concerning minimum capital adequacy requirements for general banks; and

2. there are no outstanding principal and/or interest payments;
   b. Substandard (Kurang Lancar), in cases where:

3. the bank receiving the Placement has a minimum KPMM ratio equal to or higher than the KPMM ratio as referred to in Financial Services Authority Regulations concerning minimum capital adequacy requirements for general banks; and

4. there are outstanding principal and/or interest payments for up to 5 (five) working days; or
   c. Loss, in the event that:

5. the Bank receiving the Placement has a KPMM ratio lower than the KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements for general banks;

6. the Bank receiving the Placement has been established and announced as a bank with a status under special supervision subject to restrictions on certain business activities;

7. the Bank receiving the Placement has its business license revoked; and/or

8. there are outstanding principal and/or interest payments for more than 5 (five) working days.
   (2) The Quality of Placements to Rural Banks in the context of distributing Credits through a linkage program with an executing pattern is established as:
   a. Good, in the event that:

9. the Rural Bank receiving the Placement has a minimum KPMM ratio equal to the KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements and core capital fulfillment for rural banks; and

10. there are no outstanding principal and/or interest payments;
    b. Less Good, in the event that:

11. the Rural Bank receiving the Placement has a minimum KPMM ratio equal to the KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements and core capital fulfillment for rural banks; and

12. there are outstanding principal and/or interest payments for up to 30 (thirty) days; or
    c. Loss, in the event that:

13. the Rural Bank receiving the Placement has a KPMM ratio lower than the KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements and core capital fulfillment for rural banks;

14. the Rural Bank receiving the Placement has been established and announced as a bank with a status under special supervision or the Rural Bank has been subject to an administrative sanction of temporary suspension of certain business activities;

15. the Rural Bank receiving the Placement has its business license revoked; and/or

16. there are outstanding principal and/or interest payments for more than 30 (thirty) days.
    Article 22
    All forms of Placements at Bank Indonesia are established to have Good quality.

Fifth Section
Acceptance Claims, Claims on Securities Purchased with a Repurchase Agreement, and Derivative Claims
Article 23
The Quality of Acceptance Claims is established based on:
a. the Quality of Placements as referred to in Article 21 paragraph (1) in the event that the party responsible for settling the claim is another bank; or b. the Quality of Credits as referred to in Article 10 in the event that the party responsible for settling the claim is a debtor.
Article 24
(1) The Quality of claims on Securities purchased with a repurchase agreement (reverse repo) is established based on:
a. the Quality of Placements as referred to in Article 21 paragraph (1) in the event that the party selling the Securities is another bank; or b. the Quality of Credits as referred to in Article 10 in the event that the party selling the Securities is not a bank. (2) Claims on Securities purchased with a repurchase agreement (reverse repo) with underlying Assets consisting of SBI, Bank Indonesia Deposit Certificates (SDBI), Government Securities (SBN), and/or other similar instruments are established to have Good quality.
Article 25
The Quality of Derivative Claims is established based on:
a. the establishment of the Quality of Placements as referred to in Article 21 paragraph (1) in the event that the counterparty to the transaction is another bank; or b. the Quality of Credits as referred to in Article 10 in the event that the counterparty to the transaction is not a bank.

Sixth Section
Equity Investments
Article 26
(1) The measurement and/or recording of Equity Investments is conducted using:
a. acquisition cost; b. fair value; or
c. the equity method,
with reference to financial accounting standards.
(2) The Quality of Equity Investments measured with acquisition cost is established as follows:
a. Good, in the event that the entity where the Bank makes the Equity Investment earns a profit and has not experienced cumulative losses based on the audited financial statements of the last fiscal year; b. Less Good, in the event that the entity where the Bank makes the Equity Investment experiences cumulative losses up to 25% (twenty-five percent) of the capital of the entity where the Bank makes the Equity Investment based on the audited financial statements of the last fiscal year;
c. Doubtful, in the event that the entity where the Bank makes the Equity Investment experiences cumulative losses of more than 25% (twenty-five percent) up to 50% (fifty percent) of the capital of the entity where the Bank makes the Equity Investment based on the audited financial statements of the last fiscal year; or
d. Loss, in the event that the entity where the Bank makes the Equity Investment experiences cumulative losses of more than 50% (fifty percent) of the capital of the entity where the Bank makes the Equity Investment based on the audited financial statements of the last fiscal year. (3) The Quality of Equity Investments measured with fair value or the equity method is established as Good.
Article 27
(1) The Quality of Temporary Equity Investments is established as:
a. Good, in the event that the duration of Temporary Equity Investment is up to 1 (one) year; b. Less Good, in the event that the duration of Temporary Equity Investment is more than 1 (one) year up to 4 (four) years;
c. Doubtful, in the event that the duration of Temporary Equity Investment is more than 4 (four) years up to 5 (five) years; or
d. Loss, in the event that:

1. the duration of Temporary Equity Investment is more than 5 (five) years; or
2. the entity where the Bank makes the Temporary Equity Investment has cumulative profits but the Temporary Equity Investment has not yet been withdrawn.
   (2) Banks are required to downgrade the quality of Temporary Equity Investments as referred to in paragraph (1) in the event that:
   a. the sale of Temporary Equity Investments is estimated to be conducted at a price lower than the book value; and/or b. the sale of Temporary Equity Investments within a period of 5 (five) years is estimated to be difficult to conduct.

Seventh Section
Administrative Account Transactions
Article 28
(1) The Quality of Administrative Account Transactions is established based on:
a. the establishment of the Quality of Placements as referred to in Article 21 paragraph (1) in the event that the counterparty to the Administrative Account Transaction is a bank; or b. the establishment of the Quality of Credits as referred to in Article 10 in the event that the counterparty to the Administrative Account Transaction is a debtor. (2) The assessment of Administrative Account Transactions is conducted on all facilities provided, whether committed or uncommitted.

Eighth Section
Productive Assets Secured by Cash Collateral
Article 29
(1) A portion of Productive Assets secured by cash collateral is established to have Good quality.
(2) Cash collateral as referred to in paragraph (1) consists of:
a. current accounts, deposits, savings, guarantee deposits, and/or gold; b. SBI, SBN, and/or other fund placements at Bank Indonesia and the central government;
c. central government guarantees in accordance with legislation; and/or
d. standby letters of credit from prime banks, issued in accordance with the Uniform Customs and Practice for Documentary Credits or International Standby Practices. (3) Cash collateral as referred to in paragraph (2) letters a and b must meet the following requirements:
a. the collateral is blocked and accompanied by a withdrawal authorization letter from the owner of the collateral for the benefit of the receiving Bank, including partial withdrawal to pay outstanding principal and/or interest installments; b. the blocking period as referred to in letter a is at least equal to the duration of the Productive Asset;
c. it has strong legal ties as collateral, free from all other obligations, free from disputes, not currently pledged to other parties, including having a clear guarantee purpose; and
d. for cash collateral as referred to in paragraph (2) letter a, it must be stored at the fund-providing Bank.
(4) Cash collateral as referred to in paragraph (2) letters c and d must meet the following requirements:
a. it is unconditional and irrevocable; b. it can be liquidated no later than 7 (seven) working days from the claim submission, including partial withdrawal to pay outstanding principal and/or interest installments;
c. it has a duration at least equal to the duration of the Productive Asset; and
d. it is not counter-guaranteed by the fund-providing Bank or a bank that is not a prime bank.
(5) Prime banks as referred to in paragraph (2) letter d must meet the requirements of having:
a. an investment rating given by a rating agency, at minimum:

1. AA- based on Standard & Poor's assessment;
2. Aa3 based on Moody’s assessment;
3. AA- based on Fitch assessment; or
4. an investment rating equivalent to numbers 1), 2), and/or 3) based on the assessment of a rating agency recognized by the Financial Services Authority,
   based on the assessment of long-term business prospects; and b. total assets included in the 200 (two hundred) largest in the world.
   Article 30
   (1) Banks are required to conduct or submit a claim for the liquidation of cash collateral as referred to in Article 29 no later than 7 (seven) working days after the debtor defaults. (2) Defaulting debtors as referred to in paragraph (1) in the event that:
   a. they have outstanding principal, interest, and/or other charges for 90 (ninety) days even though the Productive Asset has not yet matured; b. they do not make payments of principal, interest, and/or other charges when the Productive Asset matures; or
   c. they do not meet other requirements besides the payment of principal and/or interest that can result in default.

Ninth Section
Small Amount Credits and Fund Provisioning and Credits and Fund Provisioning in Specific Regions
Article 31
(1) The establishment of Productive Asset Quality may be based solely on the timeliness of principal and/or interest payments, for:
a. Credits and other fund provisioning provided by the Bank to 1 (one) debtor or 1 (one) project with an amount less than or equal to Rp5,000,000,000.00 (five billion rupiah); b. Credits and other fund provisioning to debtors with business activity locations in specific regions with an amount:

1. up to Rp5,000,000,000.00 (five billion rupiah); or
2. more than Rp5,000,000,000.00 (five billion rupiah) based on the determination of the Commissioners' Council of the Financial Services Authority;
   c. Credits and other fund provisioning provided by the Bank to micro, small, and medium enterprise debtors with an amount:
3. more than Rp5,000,000,000.00 (five billion rupiah) up to Rp25,000,000,000.00 (twenty-five billion rupiah) for Banks that meet the following criteria:
   a) have a Credit Risk Adequacy Assessment Rating (KPMR) rating of very adequate (strong); b) have a minimum KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements for general banks; and c) have a composite health rating of the Bank at minimum 3 (PK-3);
4. more than Rp5,000,000,000.00 (five billion rupiah) up to Rp15,000,000,000.00 (fifteen billion rupiah) for Banks that meet the following criteria:
   a) have a Credit Risk Adequacy Assessment Rating (KPMR) rating of adequate (satisfactory); b) have a minimum KPMM ratio as referred to in the Regulation of the Financial Services Authority regarding minimum capital requirements for general banks; and c) have a composite health rating of the Bank at minimum 3 (PK-3). (2) The Credit Risk Adequacy Assessment Rating (KPMR) rating, KPMM ratio, and composite health rating of the Bank used in the assessment of the quality of Credits and other fund provisioning as referred to in paragraph (1) letter c are based on the assessment of the Financial Services Authority which can be known by the Bank during the prudential meeting. (3) The use of the assessment rating as referred to in paragraph (2) is as follows:
   a. the assessment rating position of December of the previous year is used for the assessment of the quality of Credits and other fund provisioning for the period from February to July; and b. the assessment rating position of June is used for the assessment of the quality of Credits and other fund provisioning for the period from August to January of the following year. (4) In the event of an adjustment of the assessment as referred to in paragraph (3) for the position of December or June by the Financial Services Authority, the latest adjusted assessment is used. (5) The provisions as referred to in paragraph (1) letter c do not apply to Credits and other fund provisioning provided to 1 (one) micro, small, and medium enterprise debtor with an amount more than Rp5,000,000,000.00 (five billion rupiah) that are:
   a. Restructured Credits; and/or b. fund provisioning to the Bank's 50 (fifty) largest debtors.
   (6) The establishment of the quality of Restructured Credits as referred to in paragraph (5) letter a continues to be conducted based on the provisions regarding Credit Restructuring. (7) The establishment of the quality of Credits and other fund provisioning provided by the Bank to:
   a. micro, small, and medium enterprise debtors with an amount more than Rp1,000,000,000.00 (one billion rupiah) up to Rp10,000,000,000.00 (ten billion rupiah); and b. including the Bank's 50 (fifty) largest debtors, is not influenced by the quality of Productive Assets provided by other banks to finance 1 (one) debtor or 1 (one) project as referred to in Article 6 paragraph (2) letter b. (8) In the event of significant deviations in healthy lending principles, the Financial Services Authority establishes the assessment of the quality of Productive Assets provided by the Bank to micro, small, and medium enterprise debtors as referred to in paragraph (1) letter c based on assessment factors as referred to in Article 10.

Tenth Section
Export-Oriented Credits and Fund Provisioning
Article 32
(1) Productive Assets consisting of fund investments oriented towards exports to financial institutions meeting certain requirements are established to have Good quality. (2) A portion of Productive Assets receiving guarantees from financial institutions meeting certain requirements is established to have Good quality. (3) Certain requirements as referred to in paragraph (1) and paragraph (2) are:
a. owned by the central government; b. its business activities provide financing for national exports; and
c. established by Law with sovereign status.
(4) Guarantees from financial institutions as referred to in paragraph (2) must meet the following requirements:
a. they are unconditional and irrevocable; b. they can be liquidated no later than 7 (seven) working days from the claim submission, including partial withdrawal to pay outstanding principal and/or interest installments;
c. they have a duration at least equal to the duration of the Productive Asset; and
d. they are not counter-guaranteed.
(5) Banks must submit claims against the guarantees received as referred to in paragraph (4) no later than 7 (seven) working days after the debtor defaults. (6) Defaulting debtors as referred to in paragraph (5) in the event that:
a. they have outstanding principal, interest, and/or other charges for 90 (ninety) days even though the Productive Asset has not yet matured; b. they do not make payments of principal, interest, and/or other charges when the Productive Asset matures; or
c. they meet other requirements besides the payment of principal and/or interest that can result in default.

Eleventh Section
Sanctions
Article 33
(1) Banks that do not meet the provisions as referred to in Article 5 paragraph (1), Article 6 paragraph (1), Article 7 paragraph (2), Article 8, Article 9 paragraph (1), Article 9 paragraph (2), Article 9 paragraph (3), Article 16 paragraph (1), Article 17, Article 27 paragraph (2), and/or Article 30 paragraph (1) are subject to administrative sanctions in the form of written warnings. (2) In the event that Banks do not meet the written warnings as referred to in paragraph (1), Banks may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial institution in accordance with the Regulation of the Financial Services Authority regarding re-evaluation of main parties of financial institutions.

CHAPTER IV
NON-PRODUCTIVE ASSETS

First Section
Foreclosed Collateral (AYDA)
Article 34
Banks are required to establish the quality of Productive Assets as Loss before proceeding with the takeover of Foreclosed Collateral (AYDA).
Article 35
(1) Banks are required to undertake settlement efforts for Foreclosed Collateral (AYDA) owned.
(2) Banks are required to document settlement efforts for Foreclosed Collateral (AYDA) as referred to in paragraph (1).
Article 36
(1) Banks are required to conduct re-evaluations of Foreclosed Collateral (AYDA) in accordance with financial accounting standards upon the takeover of collateral. (2) Re-evaluations as referred to in paragraph (1) must be conducted by independent appraisers for Foreclosed Collateral (AYDA) with a value of at least Rp5,000,000,000.00 (five billion rupiah). (3) Re-evaluations as referred to in paragraph (1) may be conducted by the Bank's internal appraisers for Foreclosed Collateral (AYDA) with a value of less than Rp5,000,000,000.00 (five billion rupiah). (4) Independent appraisers as referred to in paragraph (2) are public appraisal service offices that meet the following requirements:
a. they are not Related Parties of the Bank; b. they are not borrower groups with the Bank's debtors;
c. they conduct appraisal activities based on professional ethics codes and regulations established by the competent authority;
d. they use appraisal methods based on professional appraisal standards issued by the competent authority; e. they have business licenses from the competent authority as public appraisal service offices; and f. they are registered as members of associations recognized by the competent authority.
Article 37
(1) Foreclosed Collateral (AYDA) for which settlement efforts have been conducted as referred to in Article 34 is established to have the following quality:
a. Good, if Foreclosed Collateral (AYDA) is held for up to 1 (one) year; b. Less Good, if Foreclosed Collateral (AYDA) is held for more than 1 (one) year up to 3 (three) years;
c. Doubtful, if Foreclosed Collateral (AYDA) is held for more than 3 (three) years up to 5 (five) years; or
d. Loss, if Foreclosed Collateral (AYDA) is held for more than 5 (five) years.
(2) The Financial Services Authority may downgrade the quality of Foreclosed Collateral (AYDA) one level below the provisions as referred to in paragraph (1) in the event that Banks do not conduct settlement efforts as referred to in Article 35.

Second Section
Vacant Properties
Article 38
(1) Banks are required to identify and establish Vacant Properties owned.
(2) The establishment of Vacant Properties as referred to in paragraph (1) must be approved by the Board of Directors and documented. (3) A portion of property that is not used by the Bank from a property used for the Bank's business activities on a majority basis is not classified as Vacant Property. (4) In the event that the Bank does not use a portion of a property on a majority basis, the portion of the property not used for the Bank's business activities is classified as Vacant Property proportionally.
Article 39
(1) Banks are required to undertake settlement efforts for Vacant Properties owned.
(2) Banks are required to document settlement efforts for Vacant Properties as referred to in paragraph (1).
Article 40
(1) Vacant Properties for which settlement efforts have been conducted as referred to in Article 39 are established to have the following quality:
a. Good, if Vacant Properties are held for up to 1 (one) year; b. Less Good, if Vacant Properties are held for more than 1 (one) year up to 3 (three) years;
c. Doubtful, if Vacant Properties are held for more than 3 (three) years up to 5 (five) years; or
d. Loss, if Vacant Properties are held for more than 5 (five) years.
(2) The Financial Services Authority may downgrade the quality of Vacant Properties one level below the provisions as referred to in paragraph (1) in the event that Banks do not conduct settlement efforts as referred to in Article 39.

Third Section
Inter-Office Accounts and Deferred Accounts
Article 41
(1) Banks are required to undertake settlement efforts for Inter-Office Accounts and Deferred Accounts.
(2) The quality of Inter-Office Accounts and Deferred Accounts is established as:
a. Good, if Inter-Office Accounts and Deferred Accounts are recorded in the Bank's books for up to 180 (one hundred eighty) days; or b. Loss, if Inter-Office Accounts and Deferred Accounts are recorded in the Bank's books for more than 180 (one hundred eighty) days.

Fourth Section
Sanctions
Article 42
(1) Banks that do not meet the provisions as referred to in Article 34, Article 35, Article 36 paragraph (1), Article 36 paragraph (2), Article 38 paragraph (1), Article 38 paragraph (2), Article 39, and/or Article 41 paragraph (1) are subject to administrative sanctions in the form of written warnings. (2) In the event that Banks do not meet the written warnings as referred to in paragraph (1), Banks may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial institution in accordance with the Regulation of the Financial Services Authority regarding re-evaluation of main parties of financial institutions.

CHAPTER V
PROVISIONING FOR ASSET QUALITY ASSESSMENT AND PROVISIONS FOR LOSS IN VALUE

First Section
Provisioning for Asset Quality Assessment
Paragraph 1
General
Article 43
(1) Banks are required to calculate Productive Asset Quality Provisions (PPKA) for Productive Assets and Non-Productive Assets.
(2) PPKA as referred to in paragraph (1) consists of:
a. general provisions for Productive Assets; and b. special provisions for Productive Assets and Non-Productive Assets.
(3) The calculation of PPKA as referred to in paragraph (2) is conducted in accordance with this Regulation of the Financial Services Authority.
Article 44
(1) General provisions as referred to in Article 43 paragraph (2) letter a are established at a minimum of 1% (one percent) of Productive Assets with Good quality. (2) General provisions as referred to in paragraph (1) are exempted for Productive Assets in the form of:
a. Credit facilities that have not been drawn which are part of Administrative Account Transactions; b. SBI, SBN, and/or other Securities issued by Bank Indonesia or the central government, as well as other fund placements at Bank Indonesia; and/or
c. A portion of Productive Assets secured by cash collateral as referred to in Article 29 paragraph (1).
(3) Special provisions as referred to in Article 43 paragraph (2) letter b are established at a minimum of:
a. 5% (five percent) of Assets with Special Attention quality after deducting collateral value; b. 15% (fifteen percent) of Assets with Less Good quality after deducting collateral value;
c. 50% (fifty percent) of Assets with Doubtful quality after deducting collateral value; or
d. 100% (one hundred percent) of Assets with Loss quality after deducting collateral value.
(4) Banks that do not meet the provisions of Article 16 paragraph (1) and Article 17 must calculate PPKA of 100% (one hundred percent).

(5) The use of collateral value as a reduction in the calculation of PPKA as referred to in paragraph (3) is only carried out for Productive Assets.

Paragraph 2
Collateral as a Reduction of PPKA

Article 45
Collateral that can be calculated as a reduction in the calculation of PPKA is determined as:
a. Securities and shares that are actively traded on the stock exchange in Indonesia or the stock exchange of another country that is included in the main exchange, or has an investment grade rating and is pledged; b. land, buildings, and residential houses that are bound with a mortgage right (hak tanggungan);
c. apartment units that are bound with fiduciary security;
d. machines that are an integral part of the land and are bound with a mortgage right (hak tanggungan); e. aircraft or sea vessels with a size of more than 20 (twenty) cubic meters that are bound with a hypothec (hipotek); f. motor vehicles and inventory that are bound with fiduciary security; and/or g. warehouse receipts that are bound with a security right over warehouse receipts.

Article 46
(1) Collateral as referred to in Article 45 must:
a. be accompanied by valid legal documents; b. be bound in accordance with legislation so as to provide preferential rights or security rights that give the Bank a position of priority; and
c. be insured with a banker’s clause that has a term of at least the same length as the term of the collateral binding as referred to in Article 45.
(2) Insurance companies providing insurance protection against collateral as referred to in paragraph (1) letter c must meet the requirements:
a. obtaining a business license from the Financial Services Authority (Otoritas Jasa Keuangan); b. meeting capital adequacy provisions as determined by the Financial Services Authority; and
c. not being a Related Party with the Bank or the borrower group with the Bank's debtor, unless reinsured to an insurance company that is not a Related Party with the Bank or the borrower group with the Bank's debtor.

Article 47
(1) Collateral that can be calculated as a reduction in the calculation of PPKA as referred to in Article 45 must at least be valued by:
a. an independent appraiser as referred to in Article 36 paragraph (4) for Productive Assets originating from a debtor or borrower group with an amount of more than Rp10,000,000,000.00 (ten billion rupiah); or b. an internal appraiser of the Bank for Productive Assets originating from a debtor or borrower group with an amount up to Rp10,000,000,000.00 (ten billion rupiah). (2) Valuation of collateral as referred to in paragraph (1) must be carried out from the beginning of the provision of Productive Assets.

Article 48
(1) The value of collateral that can be calculated as a reduction in the calculation of PPKA is determined as:
a. Securities and shares that are actively traded on the stock exchange in Indonesia or the stock exchange of another country that is included in the main exchange, or has an investment grade rating, at most 50% (fifty percent) of the book value of the Securities; b. land and/or buildings used for residential purposes and apartment units bound with fiduciary security, at most:

1. 70% (seventy percent) of the valuation if:
   a) valuation by an independent appraiser is carried out within the last 18 (eighteen) months; or b) valuation by an internal appraiser is carried out within the last 12 (twelve) months;
2. 50% (fifty percent) of the valuation if:
   a) valuation carried out by an independent appraiser is more than 18 (eighteen) months up to 24 (twenty-four) months ago; or b) valuation carried out by an internal appraiser is more than 12 (twelve) months up to 18 (eighteen) months ago;
3. 30% (thirty percent) of the valuation if:
   a) valuation carried out by an independent appraiser is more than 24 (twenty-four) months up to 30 (thirty) months ago; or b) valuation carried out by an internal appraiser is more than 18 (eighteen) months up to 24 (twenty-four) months ago; and
4. 0% (zero percent) of the valuation if:
   a) valuation carried out by an independent appraiser is more than 30 (thirty) months ago; or b) valuation carried out by an internal appraiser is more than 24 (twenty-four) months ago; or
   c. land and/or buildings not for residential purposes, machines considered as an integral part of the land, aircraft, sea vessels, motor vehicles, inventory, and warehouse receipts, at most:
5. 70% (seventy percent) of the valuation if valuation is carried out within the last 12 (twelve) months;
6. 50% (fifty percent) of the valuation if valuation is carried out more than 12 (twelve) months up to 18 (eighteen) months ago;
7. 30% (thirty percent) of the valuation if valuation is carried out more than 18 (eighteen) months up to 24 (twenty-four) months ago; or
8. 0% (zero percent) of the valuation if valuation is carried out more than 24 (twenty-four) months ago.
   (2) The Bank must use the lowest value in the event of multiple valuations of a collateral for the same position, whether carried out by an independent appraiser or an internal appraiser. (3) The Financial Services Authority may determine the value of collateral that can be calculated as a reduction in the calculation of PPKA to be lower than the determination as referred to in paragraph (1).

Article 49
The value of collateral that can be calculated as a reduction in the calculation of PPKA as referred to in Article 45 is prohibited from exceeding the value of the collateral binding.

Article 50
(1) The Financial Services Authority is authorized to recalculate the value of collateral that has been deducted in PPKA in the event that the Bank does not meet the provisions as referred to in Article 45, Article 46, Article 48 and/or Article 49. (2) The Bank must adjust the PPKA calculation in accordance with the calculation determined by the Financial Services Authority as referred to in paragraph (1) in the KPMM ratio calculation report as regulated in the Financial Services Authority's provisions regarding the fulfillment of minimum capital requirements for general banks and/or the publication report as regulated in the Financial Services Authority's provisions regarding transparency and bank report publication. (3) The PPKA calculation as referred to in paragraph (2) must be adjusted at the latest in the next reporting period after notification from the Financial Services Authority.

Part Two
Provision for Impairment Losses (CKPN)

Article 51
The Bank must form CKPN in accordance with financial accounting standards.

Part Three
Sanctions

Article 52
(1) Banks that do not meet the provisions as referred to in Article 43 paragraph (1), Article 46 paragraph (1), Article 47 paragraph (2), Article 48 paragraph (2), Article 49, Article 50 paragraph (2), Article 50 paragraph (3), and/or Article 51, shall be subject to administrative sanctions in the form of a written reprimand. (2) In the event that the Bank does not comply with the written reprimand as referred to in paragraph (1), the Bank may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial service institution in accordance with the Financial Services Authority's Regulation regarding re-evaluation of main parties of financial service institutions.

CHAPTER VI
CREDIT RESTRUCTURING

Part One
General

Article 53
The Bank may only carry out Credit Restructuring against a debtor who meets the criteria:
a. the debtor experiences difficulty in paying principal and/or interest of the Credit; and b. the debtor still has a good business prospect and is assessed to be able to fulfill obligations after the Credit is restructured.

Article 54
The Bank is prohibited from carrying out Credit Restructuring with the purpose of:
a. improving the quality of the Credit; and/or b. avoiding the increase in the formation of PPKA, without considering the debtor criteria as referred to in Article 53.

Article 55
In carrying out Credit Restructuring, the Bank must observe the principles:
a. objectivity; b. independence;
c. avoiding conflicts of interest; and
d. fairness.

Part Two
Accounting Treatment of Credit Restructuring

Article 56
The Bank must apply accounting treatment for Credit Restructuring in accordance with financial accounting standards.

Part Three
Credit Restructuring Policy and Procedures

Article 57
(1) The Bank must have written policies and procedures regarding Credit Restructuring.
(2) The Credit Restructuring Policy as referred to in paragraph (1) must be approved by the Board of Commissioners.
(3) The Credit Restructuring Procedure as referred to in paragraph (1) must be approved by the Board of Directors.
(4) The Board of Commissioners must actively supervise the implementation of the Credit Restructuring Policy as referred to in paragraph (1). (5) The Board of Directors must actively supervise the implementation of Credit Restructuring as referred to in paragraph (1). (6) The policies and procedures as referred to in paragraph (1) are an inseparable part of the Bank's risk management policy as regulated in the Financial Services Authority's Regulation regarding the implementation of risk management for general banks. (7) In applying the principle of prudence, the Bank must have Credit Restructuring guidelines. (8) The Credit Restructuring Guidelines as referred to in paragraph (7) are contained in the Appendix which is an inseparable part of this Financial Services Authority Regulation.

Article 58
(1) The decision for Credit Restructuring must be made by a party higher than the party that decided on the provision of Credit.
(2) In the event that the decision to provide Credit is made by the party with the highest authority, Credit Restructuring is carried out through a decision in a Board of Directors meeting. (3) Credit Restructuring must be carried out by officials or employees who are not involved in the provision of the Credit being restructured. (4) In the implementation of Credit Restructuring, the formation of a special work unit is adjusted to the needs of each Bank in accordance with the Financial Services Authority's Regulation regarding the obligation to formulate and implement credit or financing policies for general banks.

Article 59
(1) Credits to be restructured must be analyzed based on the debtor's business prospects and repayment ability according to cash flow projections. (2) Credits to Related Parties to be restructured must be analyzed by an independent financial consultant who has a business license and a good reputation. (3) Every stage in the implementation of Credit Restructuring and the results of the analysis carried out by the Bank and the independent financial consultant regarding the restructured Credit must be documented completely and clearly. (4) The provisions as referred to in paragraph (1), paragraph (2), and paragraph (3) also apply to Credits that are restructured again.

Part Four
Determination of the Quality of Restructured Credit

Article 60
(1) The quality of Credit after restructuring is determined as:
a. at most equal to the quality of Credit before Credit Restructuring is carried out, if the debtor has not fulfilled the obligation to pay principal and/or interest installments consecutively for 3 (three) periods according to the agreed time; b. may increase at most 1 (one) level from the quality of Credit before Credit Restructuring is carried out, after the debtor fulfills the obligation to pay principal and/or interest installments consecutively for 3 (three) periods as referred to in letter a; and
c. based on assessment factors as referred to in Article 10:

1. after the determination of Credit quality as referred to in letter b; or
2. in the event that the debtor does not meet the conditions and/or payment obligations in the Credit Restructuring agreement, both during and after 3 (three) periods of payment obligations according to the agreed time.
   (2) The determination of the quality of restructured Credit up to an amount of Rp1,000,000,000.00 (one billion rupiah):
   a. up to 3 (three) periods of payment obligations is determined as:

1. at most Less Watchable for Credits classified as Doubtful or Bad; or
2. remains the same for Credits classified as Less Watchable or Special Mention,
   before Credit Restructuring is carried out; and b. after 3 (three) periods of payment obligations, the quality of the restructured Credit is determined based on assessment factors regarding the accuracy of principal and/or interest payments. (3) The Financial Services Authority may determine the quality of restructured Credit based on assessment factors as referred to in Article 10, in the event that the Credit Restructuring carried out by the Bank is not supported by adequate analysis and documentation as referred to in Article 59. (4) In the event that the period for fulfilling principal and/or interest installment obligations is less than 1 (one) month, the quality increase as referred to in paragraph (1) letter b may be carried out at the earliest within 3 (three) months since Credit Restructuring was carried out. (5) The provisions as referred to in paragraph (1), paragraph (3), and paragraph (4) also apply to Credits that are restructured again. (6) Additional Credit quality as part of the Credit Restructuring package is determined to be the same as the quality of the restructured Credit.

Article 61
The determination of the quality of restructured Credit with the provision of a grace period for principal and/or interest payments is determined as:
a. during the grace period for principal and/or interest payments, the quality of the Credit follows the quality of the Credit before restructuring; and b. after the grace period for principal and/or interest payments ends, the quality of the Credit follows the determination of Credit quality as referred to in Article 60.

Article 62
(1) The determination of Productive Asset quality as referred to in Article 5, Article 6, and Article 7 also applies to restructured Credits. (2) In the event that the restructured Credit as referred to in paragraph (1) amounts to more than Rp10,000,000,000.00 (ten billion rupiah), the determination of Credit quality is not influenced by the quality of Credit provided by other banks to the debtor or the same project with an amount of less than or equal to Rp10,000,000,000.00 (ten billion rupiah).

Part Five
Credit Restructuring through Temporary Equity Participation

Article 63
(1) The Bank may carry out Credit Restructuring in the form of Temporary Equity Participation.
(2) The Bank may only carry out Credit Restructuring in the form of Temporary Equity Participation as referred to in paragraph (1) for Credits that have a quality of Less Watchable, Doubtful, or Bad.

Article 64
(1) The Bank must withdraw the Temporary Equity Participation if:
a. the debtor company where the participation was made has obtained cumulative profit; or b. the longest term of 5 (five) years has been exceeded. (2) The Bank must write off the Temporary Equity Participation that has exceeded the 5 (five) year term from the Bank's balance sheet.

Part Six
Corrections in the Framework of Credit Restructuring

Article 65
The Financial Services Authority is authorized to make corrections to the determination of Credit quality and PPKA calculation, in the event:
a. in the opinion of the Financial Services Authority, Credit Restructuring is carried out with the purpose as referred to in Article 54; b. Credit Restructuring is not supported by complete documents and adequate analysis regarding the debtor's repayment ability and business prospects;
c. the debtor does not implement the Credit Restructuring agreement (breach of contract or default);
d. Credit Restructuring is carried out repeatedly with the purpose only to improve Credit quality without considering the debtor's business prospects; and/or e. Credit Restructuring is not carried out in accordance with the provisions regulated in this Financial Services Authority Regulation.

Part Seven
Sanctions

Article 66
(1) Banks that do not meet the provisions as referred to in Article 54, Article 55, Article 56, Article 57 paragraph (1), Article 57 paragraph (2), Article 57 paragraph (3), Article 57 paragraph (4), Article 57 paragraph (5), Article 58 paragraph (1), Article 58 paragraph (3), Article 59 paragraph (1), Article 59 paragraph (2), and/or Article 64, shall be subject to administrative sanctions in the form of a written reprimand. (2) In the event that the Bank does not comply with the written reprimand as referred to in paragraph (1), the Bank may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial service institution in accordance with the Financial Services Authority's Regulation regarding re-evaluation of main parties of financial service institutions.

CHAPTER VII
WRITE-OFF

Article 67
(1) The Bank must have written policies and procedures regarding write-off in accordance with financial accounting standards.
(2) The policy as referred to in paragraph (1) must be approved by the Board of Commissioners.
(3) The procedure as referred to in paragraph (1) must be approved by the Board of Directors.
(4) The Board of Commissioners must actively supervise the implementation of the policy as referred to in paragraph (1).
(5) The Board of Directors must actively supervise the implementation of write-off as referred to in paragraph (1).
(6) The policies and procedures as referred to in paragraph (1) are an inseparable part of the Bank's risk management policy as regulated in the Financial Services Authority's provisions regarding the implementation of risk management for general banks.

Article 68
(1) Write-off may only be carried out against the provision of funds that has been supported by a CKPN calculation of 100% (one hundred percent) and whose quality has been determined as Bad. (2) Write-off cannot be carried out against a partial provision of funds (partial write-off).

Article 69
(1) Write-off as referred to in Article 68 may only be carried out after the Bank has made various efforts to recover the Productive Assets provided. (2) The Bank must document the efforts made as referred to in paragraph (1) as well as the basis for the consideration of implementing write-off. (3) The Bank must administer data and information regarding Productive Assets that have undergone write-off.

Article 70
(1) Banks that do not meet the provisions as referred to in Article 67 paragraph (1), Article 67 paragraph (2), Article 67 paragraph (3), Article 67 paragraph (4), Article 67 paragraph (5), Article 69 paragraph (2), and/or Article 69 paragraph (3), shall be subject to administrative sanctions in the form of a written reprimand. (2) In the event that the Bank does not comply with the written reprimand as referred to in paragraph (1), the Bank may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial service institution in accordance with the Financial Services Authority's Regulation regarding re-evaluation of main parties of financial service institutions.

CHAPTER VIII
REPORTING

Article 71
(1) The Bank must submit a report on the difference in Productive Asset quality as referred to in Article 6 paragraph (4) letter a and Article 7 paragraph (1) at the latest on the 10th of the following month after the position of the obligation to adjust the quality assessment of Productive Assets as referred to in Article 8. (2) If the deadline for submitting the report as referred to in paragraph (1) falls on a Saturday, Sunday, and/or national holiday, the report is submitted on the next working day. (3) The report as referred to in paragraph (1) is submitted to the Financial Services Authority offline. (4) The format of the report as referred to in paragraph (1) is contained in the Appendix which is an inseparable part of this Financial Services Authority Regulation.

Article 72
(1) The Bank must submit a Credit Restructuring report every month for the end-of-month position online through the Financial Services Authority's reporting system, first for the January 2020 position. (2) In the event that online submission of the report to the Financial Services Authority as referred to in paragraph (1) cannot yet be carried out, the Bank submits the report offline. (3) The Bank must submit the report as referred to in paragraph (1) at the latest on the 7th day after the end of the reporting month. (4) If the deadline for submitting the report as referred to in paragraph (3) falls on a Saturday, Sunday, and/or national holiday, the report is submitted on the next working day. (5) In the event that the Financial Services Authority's reporting system is available, the report as referred to in paragraph (1) is submitted in accordance with the Financial Services Authority's Regulation regarding general bank reporting through the Financial Services Authority's reporting system. (6) The format of the report as referred to in paragraph (1) is contained in the Appendix which is an inseparable part of this Financial Services Authority Regulation.

Article 73
Submission of the report on the difference in Productive Asset quality as referred to in Article 71 paragraph (3) and the Credit Restructuring report as referred to in Article 72 paragraph (2) offline to:
a. the Department of Supervision of the relevant Bank or the Regional Office of the Financial Services Authority in Jakarta, for Banks with their headquarters or branches of banks domiciled abroad located in the Special Capital Region of Jakarta Province and Banten Province; or b. the Regional Office of the Financial Services Authority or the local Financial Services Authority Office, in accordance with the area where the Bank's headquarters is located.

Article 74
(1) Banks that do not meet the provisions as referred to in Article 71 paragraph (1), Article 72 paragraph (1), and/or Article 72 paragraph (3), shall be subject to administrative sanctions in the form of a written reprimand. (2) In the event that the Bank does not comply with the written reprimand as referred to in paragraph (1), the Bank may be subject to administrative sanctions in the form of:
a. suspension of certain business activities; and/or b. prohibition as a main party of a financial service institution in accordance with the Financial Services Authority's Regulation regarding re-evaluation of main parties of financial service institutions.

Article 75
Banks that are late in submitting the report as referred to in Article 72 paragraph (3) shall be subject to administrative sanctions in the form of a fine as regulated in the Financial Services Authority's Regulation regarding general bank reporting through the Financial Services Authority's reporting system.

CHAPTER IX
CLOSING PROVISIONS

Article 76
At the time this Financial Services Authority Regulation takes effect:
a. Bank Indonesia Regulation Number 14/15/PBI/2012 regarding Asset Quality Assessment of General Banks (State Gazette of the Republic of Indonesia Year 2012 Number 202, Supplement to the State Gazette of the Republic of Indonesia Number 5354); b. Financial Services Authority Regulation Number 14/POJK.03/2018 regarding Asset Quality Assessment of General Banks to Encourage the Growth of the Housing Sector and Increase Foreign Exchange Reserves (State Gazette of the Republic of Indonesia Year 2018 Number 136, Supplement to the State Gazette of the Republic of Indonesia Number 6239);
c. Board of Directors Decision of Bank Indonesia Number 23/68/KEP/DIR regarding Productive Asset Quality and Provision Formation;
d. Circular Letter of Bank Indonesia Number 15/28/DPNP regarding Asset Quality Assessment of General Banks; and e. Circular Letter of Bank Indonesia Number 4/241/UPPK/PK regarding Overdraft due to Interest/Mail Tax Evidence of Credit Provision, are repealed and declared invalid.

Article 77
This Financial Services Authority Regulation takes effect on January 1, 2020.

This copy is in accordance with the original
Director of Law 1
Legal 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.

Determined in Jakarta on December 19, 2019

CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on December 19, 2019

MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2019 NUMBER 247

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 40/POJK.03/2019
CONCERNING
GENERAL BANK ASSET QUALITY ASSESSMENT

I. GENERAL
To maintain the continuity of its business, a Bank needs to manage credit risk exposure at an adequate level, including by maintaining asset quality and calculating Asset Quality Assessment (PPKA). Thus, anticipatory steps are necessary to maintain and protect the condition and performance of the national banking system. In light of this, it is necessary to refine the regulations concerning the assessment of general bank asset quality in a Financial Services Authority Regulation.

II. ARTICLE-BY-ARTICLE EXPLANATION

Article 1
Sufficiently clear.

Article 2
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Steps required to maintain Bank Assets in good quality include, among others, applying effective credit risk management, including through the preparation of policies and guidelines as regulated in the Financial Services Authority Regulation concerning the obligation to prepare and implement credit or financing policies for general banks.

Article 3
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Notification includes, among others, notifications made by the Financial Services Authority to the Bank in the final meeting of the Bank examination (exit meeting).

Article 4
Sufficiently clear.

Article 5
Paragraph (1)
Letter a
Sufficiently clear.
Letter b
Sufficiently clear.
Letter c
Sufficiently clear.
Letter d
Sufficiently clear.
Letter e
Sufficiently clear.
Letter f
Sufficiently clear.
Letter g
Sufficiently clear.
Letter h
Sufficiently clear.
Letter i
Other forms of fund provision that can be equated to Productive Assets include fund provision with schemes similar to Credit.
Paragraph (2)
The obligation to set the same quality also applies to debtors of the Bank with debtors of Sharia business units owned by the Bank.
Letter a
Debtors in this paragraph refer to individuals, business entities, and/or legal entities that are separate entities generating cash flow as the source of repayment for Productive Assets. Letter b The same project includes, among others:

1. significant business chain linkage in the production process conducted by several debtors. Linkage is considered significant, among others, when the production process of one entity depends on the production process of another entity, such as the dependency on raw materials in the production process; and/or
2. the continuity of cash flow of one entity will be significantly disrupted, causing difficulties in meeting obligations if the cash flow of another entity is disrupted.
   Paragraph (3)
   Example 1:
   Bank “B” provides Investment Credit and Working Capital Credit facilities to debtor “A”. The assessment results conducted by Bank “B” for each of these facilities are:
   a. Special Attention, for Investment Credit; and b. Less Marketable, for Working Capital Credit.
   Given that Credit is used to finance 1 (one) debtor, the Productive Asset quality set by Bank “B” for the Credit provided to debtor “A” follows the lowest Productive Asset quality, namely Less Marketable. Example 2:
   Bank “C” provides Credit facilities to debtors “Ari” and debtor “Budi” used to finance the same project, namely project “X”. The main source of repayment for Credit, by both debtor “Ari” and debtor “Budi”, comes from cash flow to be obtained from project “X”. The assessment results conducted by Bank “C” for Credit provided to debtors “Ari” and “Budi” are:
   a. Special Attention, for debtor “Ari”; and b. Less Marketable, for debtor “Budi”.
   Given that Credit is used to finance the same project, the Productive Asset quality set by Bank “C” for Credit provided to debtors “Ari” and “Budi” follows the lowest Productive Asset quality, namely Less Marketable. Paragraph (4) Example of setting Productive Asset quality based on different assessment factors:
   Credit quality is set based on assessment factors including business prospects, debtor performance, and repayment ability. On the other hand, Securities quality is set based on assessment factors including rating, accuracy of coupon payment or other similar obligations, and payment maturity. Because there are different assessment factors for setting Credit and Securities quality, Credit and Securities quality can be set differently even for the same debtor or project.

Article 6
Paragraph (1)
Example 1:
Bank “B” and Bank “C” provide Credit facilities to debtor “Joko”. Because the facilities are provided to the same debtor, the quality set by Bank “B” and Bank “C” for these Credit facilities must be the same. Example 2:
Bank “B” and Bank “C” each provide Credit facilities to debtor “Subrata” and debtor “Utami” used to finance the same project, namely project Prima. Because the facilities are provided to the same project, the quality set for these Credit facilities, both to debtor “Subrata” by Bank “B” and to debtor “Utami” by Bank “C”, must be the same. Paragraph (2) Letter a The amount limit as referred to in this regulation is calculated against all facilities provided (plafond) to each debtor or each project, whether for individual debtors or borrower groups in cases where Productive Assets are used to finance the same project. Productive Assets provided by each Bank with an amount exceeding Rp10,000,000,000.00 (ten billion rupiah) to 1 (one) debtor or 1 (one) project that is the same are not influenced by the Productive Asset quality provided by other banks to the same debtor or project with an amount less than or equal to Rp10,000,000,000.00 (ten billion rupiah). Letter b The 50 (fifty) largest debtors are determined on an individual Bank basis. The amount limit as referred to in this regulation is calculated against all facilities provided (plafond) to each debtor. Productive Assets provided by a Bank with an amount exceeding Rp1,000,000,000.00 (one billion rupiah) up to Rp10,000,000,000.00 (ten billion rupiah) to 1 (one) debtor who is one of the 50 (fifty) largest debtors of that Bank are not influenced by the Productive Asset quality provided by other banks to the same debtor or project with an amount less than or equal to Rp10,000,000,000.00 (ten billion rupiah). Example:
Debtor “Putra” is:
a. one of the 50 (fifty) largest debtors of Bank “M” with a Credit portfolio of Rp4,000,000,000.00 (four billion rupiah) which is of Good quality; and b. a debtor of Bank “O” with a portfolio of Rp7,000,000,000.00 (seven billion rupiah) which is of Special Attention quality. Bank “M” does not need to equalize the quality of the debtor to Debtor “Putra” becoming Special Attention, considering Bank “O”'s Credit portfolio to debtor “Putra” is less than Rp10,000,000,000.00 (ten billion rupiah). Letter c Productive Assets provided based on joint Credit agreements, i.e., Credit structures such as syndication. In setting the same quality for Productive Assets provided based on joint Credit agreements, there is no minimum amount limit. Thus, Productive Assets provided to 1 (one) debtor or 1 (one) project that is the same based on joint Credit agreements are set with the same quality even if the Productive Assets provided by each Bank are less than or equal to Rp10,000,000,000.00 (ten billion rupiah). Paragraph (3) Example:
Bank “B” and Bank “C” provide Credit facilities to debtor “Amir”, with assessment results at each Bank being:
a. Special Attention, at Bank “B”; and b. Less Marketable, at Bank “C”.
Given that Credit is used to finance 1 (one) debtor, the Productive Asset quality set for Credit to debtor “Amir” follows the lowest Credit quality, namely Less Marketable. Paragraph (4) Letter a Lower Productive Asset quality assessment results solely caused by the use of additional assessment factors such as sovereign risk of the Republic of Indonesia do not influence the Productive Asset quality assessment results provided to the same debtor or project at other Banks set with assessment factors as regulated in this Financial Services Authority Regulation. However, in cases where Productive Asset quality set with additional assessment factors such as sovereign risk of the Republic of Indonesia provides better assessment results compared to Productive Asset quality assessed with assessment factors as regulated in this Financial Services Authority Regulation, the Productive Asset quality still follows the lowest quality, i.e., the quality set based on assessment factors as regulated in this Financial Services Authority Regulation. Example 1:
Bank “B” and Bank “C” provide Credit facilities to “PT Hasbi Nusantara” with assessment results at each Bank being:
a. Special Attention, at Bank “B”; and b. Less Marketable, at Bank “C”, solely due to additional assessment factors such as sovereign risk of the Republic of Indonesia. Given the additional assessment factor of sovereign risk of the Republic of Indonesia for “PT Hasbi Nusantara” at Bank “C”, making the Productive Asset quality of “PT Hasbi Nusantara” at Bank “C” worse than the Productive Asset quality of “PT Hasbi Nusantara” at Bank “B”, Bank “B” sets the Productive Asset quality as Special Attention for “PT Hasbi Nusantara”. Example 2:
Bank “B” and Bank “C” provide Credit facilities to “PT Hasbi Nusantara” with assessment results at each Bank as follows:
a. Special Attention, at Bank “B” with additional assessment factors such as sovereign risk of the Republic of Indonesia; and b. Less Marketable, at Bank “C”. Given the additional assessment factor of sovereign risk of the Republic of Indonesia for “PT Hasbi Nusantara” at Bank “B”, making the Productive Asset quality of “PT Hasbi Nusantara” at Bank “B” better than the Productive Asset quality of “PT Hasbi Nusantara” at Bank “C”, Bank “C” sets the Productive Asset quality as Less Marketable for “PT Hasbi Nusantara”. Letter b Example of setting Productive Asset quality based on different assessment factors:
Credit quality is set based on assessment factors including business prospects, debtor performance, and repayment ability. On the other hand, Securities quality is set based on assessment factors including rating, accuracy of coupon payment or other similar obligations, and payment maturity. Because there are different assessment factors for setting Credit and Securities quality, Credit and Securities quality can be set differently even for the same debtor or project.

Article 7
Paragraph (1)
Letter a
Sufficiently clear.
Letter b
Example of strict separation of cash flows from each project, i.e., no significant linkage in cash flows between projects. Cash flow linkage is considered significant, among others, in cases where the continuity of cash flow of one project will be significantly disrupted if the cash flow of another project is disrupted. Paragraph (2) Letter a Sufficiently clear. Letter b Documentation includes, among others, supporting documents explaining the debtor's condition so that there is no need to set the same quality as other Banks. These supporting documents are data or information supporting the assessment from the aspects of business prospects, performance, or debtor repayment ability, as well as the Bank's considerations in conducting the assessment, which may include documents regarding funding sources or cash flows. Paragraph (3) Sufficiently clear.

Article 8
Adjustments to Productive Asset quality assessments for end-of-March, end-of-June, end-of-September, and end-of-December positions are conducted by referring to the previous month's quality assessment. In conducting adjustments to Productive Asset quality assessments, Banks following the lower quality set by other Banks (Follower Banks) need to specifically account for changes in Productive Asset quality caused by the mechanism as referred to in Article 6. Furthermore, Follower Banks actively monitor every month the Productive Asset quality specifically accounted for to see the development of the debtor's or project's Productive Asset quality at other Banks (Initiator Banks). Banks that do not need to adjust the debtor's Productive Asset quality (Initiator Banks) with the same debtor's Productive Asset quality at other Banks or worse than the Productive Asset quality at other Banks, and subsequently the debtor's condition improves in the following month, must immediately improve the debtor's Productive Asset quality without waiting for the Productive Asset quality assessment of the debtor at other Banks at the end-of-March, end-of-June, end-of-September, and end-of-December positions. For end-of-month positions other than the end of March, June, September, and December, Follower Banks may change the adjusted Productive Asset quality following the improvement in Productive Asset quality already adjusted by the Initiator Bank, provided that the Productive Asset quality matches the Productive Asset quality at the Follower Bank.

Article 9
Paragraph (1)
The obligation for financial statement audits is intended to ensure that debtor financial statements are fair, given that the debtor's financial condition is one of the criteria in setting Productive Asset quality. Paragraph (2) Sufficiently clear. Paragraph (3) Regulatory provisions include, among others, regulations concerning limited liability companies and annual company financial information. Paragraph (4) Sufficiently clear.

Article 10
Sufficiently clear.

Article 11
Paragraph (1)
Letter a
Sufficiently clear.
Letter b
Sufficiently clear.
Letter c
Sufficiently clear.
Letter d
Sufficiently clear.
Letter e
Debtors in this case are debtors who have the obligation to conduct environmental management efforts in accordance with regulatory provisions. Efforts made by large-scale and/or high-risk debtors to maintain environmental sustainability are evidenced, among others, by Environmental Impact Analysis (AMDAL). AMDAL results are required by Banks to ensure that financed projects maintain environmental sustainability. Banks consider the assessment results of the Corporate Environmental Performance Rating Program (PROPER) issued by the Ministry of Environment and Forestry. Paragraph (2) Sufficiently clear. Paragraph (3) Sufficiently clear. Paragraph (4) Sufficiently clear.

Article 12
Sufficiently clear.

Article 13
Paragraph (1)
Securities categories measured at fair value through profit or loss or measured at fair value through other comprehensive income based on financial accounting standards. Letter a Active trading criteria include significant and reasonable transaction volumes in the last 10 (ten) working days. Foreign stock exchanges included in major stock exchanges are 25 (twenty-five) stock exchanges with the largest market capitalization of stocks in the world. Letter b Transparent fair value information must be obtainable from customary media publications for stock exchange transactions. Letter c Sufficiently clear. Letter d Sufficiently clear. Paragraph (2) Securities categories measured at amortized cost based on financial accounting standards. The use of ratings refers to regulations concerning rating agencies and ratings recognized by the Financial Services Authority. In cases where Securities have 2 (two) or more ratings, the rating used is the rating as regulated in Financial Services Authority regulations concerning guidelines for calculating risk-weighted assets for credit risk using the standard approach. Paragraph (3) Sufficiently clear.

Article 14
Paragraph (1)
Rating agencies are rating agencies recognized by the Financial Services Authority as referred to in Financial Services Authority regulations concerning rating agencies and ratings recognized by the Financial Services Authority. Paragraph (2) Sufficiently clear.

Article 15
Sufficiently clear.

Article 16
Sufficiently clear.

Article 17
Securities linked or guaranteed by underlying Assets include mutual funds, credit-linked notes, and asset-backed securities.
Letter a
The existence of Assets can be proven if such Assets are, among others, stored at a Custodian Bank, Indonesia Central Securities Depository (KSEI), or Bank Indonesia. Letter b Sufficiently clear. Letter c Sufficiently clear. Letter d Sufficiently clear.

Article 18
Paragraph (1)
Letter a
Payment of Securities obligations is categorized as directly related to underlying Assets in cases where the principal and interest payments of Securities are sourced solely from the principal and interest payments of the underlying Assets. Letter b Sufficiently clear. Paragraph (2) Sufficiently clear. Paragraph (3) Sufficiently clear. Paragraph (4) Letter a Setting the quality of mutual funds based on Securities quality assessment regulations is conducted against mutual funds as a single product and not against each type of underlying Asset of the mutual fund. Letter b The quality of mutual funds is set based on the quality of each type of underlying Asset and the quality of the mutual fund issuer in accordance with Credit quality regulations, considering, among others, performance, liquidity, issuer reputation, and portfolio diversification held by the issuer.

Article 19
Paragraph (1)
Letter a
Sufficiently clear.
Letter b
Securities not traded on stock exchanges and without ratings include, among others, taken-over export bills.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
Sufficiently clear.

Article 20
Taken-over bills include, among others, export bills and Domestic Documentary Credit (SKBDN).

Article 21
Paragraph (1)
KPMM Ratio is the KPMM ratio set by the Financial Services Authority for domestic banks or authorities competent for foreign banks.
The KPMM ratio is based on the latest published financial statements according to the period set by the Financial Services Authority for domestic banks or authorities competent for foreign banks. In cases where the latest published financial statements or the KPMM ratio in the latest published financial statements are unavailable, banks are considered to have KPMM less than the regulation. Paragraph (2) Linkage program is cooperation between Banks and Rural Banks (BPR) in distributing Credit to micro and small businesses. Linkage programs with an executing pattern are loans provided by Banks to BPR for financing to be re-lent to micro and small business customers.

Article 22
Sufficiently clear.

Article 23
Sufficiently clear.

Article 24
Paragraph (1)
Receivables from Securities purchased with an agreement to sell back (reverse repo) are receivables arising from the purchase of Securities from other parties, accompanied by an agreement to sell back to those other parties at a predetermined time and price. Paragraph (2) Sufficiently clear.

Article 25
Sufficiently clear.

Article 26
Sufficiently clear.

Article 27
Paragraph (1)
The calculation of the duration of Temporary Investments is calculated from the time the Bank makes the Temporary Investment.
Paragraph (2)
Sufficiently clear.

Article 28
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Committed and uncommitted criteria refer to financial accounting standards.

Article 29
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
Letter a
Unconditional means:

1. benefits obtained by the providing Bank from guarantees do not substantially decrease even if losses occur due to factors beyond the Bank's control; and
2. do not contain procedural requirements, such as:
   a) requiring a time limit for submitting default notifications; b) requiring proof of good faith by the providing Bank; and/or c) requiring the release of guarantees through prior mutual offset (set-off) with the providing Bank's obligations to the guarantor. Letter b Sufficiently clear. Letter c Sufficiently clear. Letter d Sufficiently clear. Paragraph (5) Letter a In cases where prime banks have 2 (two) or more ratings, the rating used is the rating as referred to in Financial Services Authority regulations concerning guidelines for calculating risk-weighted assets for credit risk using the standard approach. Letter b Total assets included in the 200 (two hundred) largest in the world based on information, among others, as stated in the banker’s almanac.

Article 30
Sufficiently clear.

Article 31
Paragraph (1)
The amount limit as referred to in this regulation is calculated against all facilities provided (plafond) to each debtor or project, whether for individual debtors or borrower groups in cases where Credit and fund provision are used to finance the same project. Letter a Included in other fund provision are the issuance of guarantees and/or 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. Letter b Included in specific areas are areas that, according to the Financial Services Authority's assessment, require special handling to encourage economic development in areas designated by the Financial Services Authority. Included in other fund provision are the issuance of guarantees or letters of credit. The limit for providing Credit and other fund provision is calculated against all facilities received by each debtor, whether for individual debtors or borrower groups. Example:
The Financial Services Authority assesses that there is a need for accelerated economic growth in area “X”, so Credit quality assessment up to Rp5,000,000,000.00 (five billion rupiah) can be assessed solely based on the accuracy of principal and/or interest payments. However, in cases where the Financial Services Authority sets a higher amount limit up to Rp7,000,000,000.00 (seven billion rupiah) in the Financial Services Authority Commissioners' determination, Credit with an amount up to Rp7,000,000,000.00 (seven billion rupiah) can be assessed solely based on the accuracy of principal and/or interest payments. Letter c Criteria for micro, small, and medium enterprises refer to regulatory provisions concerning micro, small, and medium enterprises. Number 1 Letter a) KPMR Sufficiency includes:

1. active supervision by the Board of Directors and Board of Commissioners;
2. sufficiency of risk management policies and procedures as well as risk limit setting;
3. sufficiency of risk identification, measurement, monitoring, and control processes as well as risk management information systems; and
4. comprehensive internal control systems,
   as referred to in the Financial Services Authority Regulation concerning the implementation of risk management for general banks.
   Generally, the KPMR assessment predicate for very adequate (strong) credit risk is reflected through the application of all KPMR components to all credit risks that are effective in maintaining the Bank's internal healthy condition. Although there are minor weaknesses, those weaknesses are not significant and can be ignored. Letter b) Sufficiently clear.

Letter c)
Composite rating, namely the composite rating as referred to in the regulations of the Financial Services Authority regarding the assessment of the health level of general banks.

Number 2
Letter a)
In general, the adequacy assessment predicate of KPMR for credit risk (satisfactory) is reflected through the application of all components of KPMR to all credit risks that are sufficiently effective to maintain the Bank's healthy internal conditions. Although there are some minor weaknesses, these weaknesses can be resolved in normal business activities.

Letter b)
Quite clear.

Letter c)
Quite clear.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Paragraph (4)
Quite clear.

Paragraph (5)
Letter a
Quite clear.

Letter b
50 (fifty) largest debtors, namely the 50 (fifty) largest debtors of the Bank individually.

Paragraph (6)
Quite clear.

Paragraph (7)
Quite clear.

Paragraph (8)
Quite clear.

Article 32
Paragraph (1)
Investment of funds oriented towards exports is stipulated in an agreement between the Bank and a financial institution that meets certain requirements.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Paragraph (4)
Quite clear.

Paragraph (5)
Quite clear.

Paragraph (6)
Quite clear.

Article 33
Quite clear.

Article 34
Quite clear.

Article 35
Paragraph (1)
This regulation is intended so that the Bank conducts business activities in accordance with its function as a collector and distributor of public funds.

Paragraph (2)
Documentation includes, among other things, evidence of data and information regarding marketing and sales efforts for AYDA.

Article 36
Paragraph (1)
Quite clear.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Paragraph (4)
Letter a
Related Parties include parties as regulated in the regulations of the Financial Services Authority regarding maximum limits for granting credit and providing large funds for general banks.

Letter b
The term "borrower group" refers to borrowers who meet the criteria for borrower groups as regulated in the regulations of the Financial Services Authority regarding maximum limits for granting credit and providing large funds for general banks.

Letter c
Quite clear.

Letter d
Quite clear.

Letter e
Quite clear.

Letter f
Quite clear.

Article 37
Quite clear.

Article 38
Paragraph (1)
Idle Property includes, among other things, land and/or buildings that are not used for the Bank's business activities, such as buildings and/or land that are leased. Not included in Idle Property includes property used to support the Bank's business activities and owned in reasonable amounts, such as official residences, property used for educational facilities, and other property that has been designated for use in business activities in the near future.

Paragraph (2)
Quite clear.

Paragraph (3)
Property used for the Bank's business activities in the majority, namely with a share of more than 50% (fifty percent).
The measurement of the portion used for the Bank's business activities is done separately for each property.
Example:
Property "A" is used for the Bank's business activities by 65% (sixty-five percent). In this case, property "A" as a whole is not classified as Idle Property.

Paragraph (4)
Example:
Property "B" is used for the Bank's business activities by 40% (forty percent).
Property "C" as a whole is not used for the Bank's business activities.
In this case, property "B" is classified as Idle Property by 60% (sixty percent) and property "C" as a whole is classified as Idle Property.

Article 39
Paragraph (1)
Resolution efforts can include actively marketing to sell Idle Property.

Paragraph (2)
Documentation includes, among other things, evidence of data and information regarding marketing efforts for the sale of Idle Property.

Article 40
Quite clear.

Article 41
Paragraph (1)
Resolution efforts are necessary so that all Bank transactions are recognized and recorded based on the characteristics of those transactions and to reduce the possibility of transaction manipulation that could result in losses for the Bank.

Paragraph (2)
The Inter-Office Accounts assessed are asset-side Inter-Office Accounts without mutual offset (set-off) with liability-side Inter-Office Accounts, considering that the counterparty has not yet been confirmed as the same party or office.

Article 42
Quite clear.

Article 43
Paragraph (1)
The Bank calculates PPKA for both Productive Assets and Non-Productive Assets to meet the principle of prudence. The results of the PPKA calculation are not recorded in the Bank's financial reports, but will be used in the calculation of KPMM as referred to in the regulations of the Financial Services Authority regarding minimum capital provision requirements for general banks. The calculation of PPKA against Non-Productive Assets is also intended to encourage the Bank to undertake resolution efforts and to anticipate potential losses.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Article 44
Quite clear.

Article 45
Letter a
The criteria for actively traded on the stock exchange is the existence of significant and reasonable transaction volume on the stock exchange in Indonesia in the last 10 (ten) working days. Stock exchanges of other countries included in the main exchanges are 25 (twenty-five) stock exchanges with the largest stock market capitalization value in the world. Investment ratings are based on ratings issued by rating agencies within the last one year. In the event that ratings issued by rating agencies within the last one year are not available, Securities are considered to have no rating.

Letter b
The attachment of collateral via land title rights must comply with regulations and procedures in legislation, including but not limited to registration matters, so that the Bank has preferential rights against the said collateral.

Letter c
The attachment of collateral via fiduciary must comply with regulations and procedures in legislation, including but not limited to registration matters, so that the Bank has preferential rights against the said collateral.

Letter d
The installation of land title rights over land along with machinery located on top of it must be clearly stated in the deed of encumbrance of land title rights.

Letter e
The attachment of collateral via mortgage must comply with regulations and procedures in legislation, including but not limited to registration matters, so that the Bank has preferential rights against the said collateral.

Letter f
The attachment of collateral via fiduciary must comply with regulations and procedures in legislation, including but not limited to registration matters, so that the Bank has preferential rights against the said collateral.

Letter g
Warehouse receipts, namely warehouse receipts as referred to in legislation regarding the warehouse receipt system.
Collateral rights over warehouse receipts are collateral rights imposed on warehouse receipts for the settlement of debts, which give the position of priority to the recipient of collateral rights against other creditors, as referred to in legislation regarding the warehouse receipt system.

Article 46
Paragraph (1)
Letter a
Quite clear.

Letter b
Attachments that provide preferential rights or collateral rights that give priority status are attachments made via pawn, mortgage, land title rights, fiduciary guarantees, and/or warehouse receipt guarantees.

Letter c
Banker’s clause is a clause that gives the Bank the right to receive insurance money in the event of a claim payment.

Paragraph (2)
Quite clear.

Article 47
Paragraph (1)
The limit of Rp10,000,000,000.00 (ten billion rupiah) is calculated against all facilities provided to debtors or borrower groups.
The assessment of collateral by the Bank's internal appraiser refers to the valuation standards used by independent appraisers.

Paragraph (2)
Quite clear.

Article 48
Paragraph (1)
Letter a
Investment ratings are investment ratings as regulated in the regulations of the Financial Services Authority regarding rating agencies and ratings recognized by the Financial Services Authority. Stock exchanges of other countries included in the main exchanges are 25 (twenty-five) stock exchanges with the largest stock market capitalization value in the world.

Letter b
Assessment is a written statement from an independent appraiser or the Bank's internal appraiser regarding the estimation and opinion on the economic value of collateral based on an analysis of objective and relevant facts according to methods and principles generally established by associations and/or institutions authorized.

Letter c
Land and/or buildings not for residence include, among other things, shops (ruko), plantation land, and mining land.

Paragraph (2)
Quite clear.

Paragraph (3)
The determination by the Financial Services Authority is based on considerations including historical data of collateral realization values, which are generally much lower than the collateral values already calculated as a reduction of PPKA and/or there are large differences between the assessment results and the calculation of the present value of the collateral.

Article 49
The calculation of collateral as a reduction of PPKA which must be calculated by the Bank relates to the function of collateral as a credit risk mitigation tool. In this regard, collateral that can be calculated as a reduction of PPKA is collateral that can be realized by the Bank in the event of default on the funds provided. Example:
Collateral assessment is conducted within the last 12 (twelve) months with a collateral assessment result of Rp100,000,000,000.00 (one hundred billion rupiah). The collateral that can be calculated as a reduction in the PPKA calculation is 70% (seventy percent) x Rp100,000,000,000.00 (one hundred billion rupiah) = Rp70,000,000,000.00 (seventy billion rupiah). If the value of the attachment against the said collateral is Rp60,000,000,000.00 (sixty billion rupiah), then the collateral that can be calculated as a reduction in the PPKA calculation is Rp60,000,000,000.00 (sixty billion rupiah).

Article 50
Paragraph (1)
Quite clear.

Paragraph (2)
Quite clear.

Paragraph (3)
Notification includes, among other things, notification conducted by the Financial Services Authority to the Bank in the final meeting of the Bank examination (exit meeting).

Article 51
Quite clear.

Article 52
Quite clear.

Article 53
Credit Restructuring is conducted, among other things, by:
a. reduction of Credit interest rates; b. extension of Credit term;
c. reduction of Credit principal arrears;
d. reduction of Credit interest arrears; e. addition of Credit facilities; and/or f. conversion of Credit into Temporary Investment.

Article 54
Quite clear.

Article 55
Letter a
Objectivity is an attitude of honesty without being influenced by opinions and personal or group considerations in making decisions or taking actions.

Letter b
Independence is the professional management of the Bank without influence or pressure from any party.

Letter c
Conflict of interest includes differences between the economic interests of the Bank and the economic interests of shareholders, members of the Board of Directors, members of the Board of Commissioners, Executive Officials, and/or Related Parties with the Bank.

Letter d
Fairness is justice and equality in fulfilling the rights of stakeholders arising from agreements and legislation.

Article 56
Accounting treatment for Credit Restructuring is applied, among other things, to:
a. recognition of losses arising; and b. recognition of interest income and other receipts.

Article 57
Quite clear.

Article 58
Paragraph (1)
Quite clear.

Paragraph (2)
The highest authority and meeting mechanisms of the Board of Directors are determined based on the articles of association or internal regulations of the Bank.

Paragraph (3)
The purpose of Credit Restructuring is conducted by officials or employees who are not involved in granting the restructured Credit, namely to maintain objectivity.

Paragraph (4)
Quite clear.

Article 59
Quite clear.

Article 60
Quite clear.

Article 61
Quite clear.

Article 62
Quite clear.

Article 63
Quite clear.

Article 64
Paragraph (1)
Letter a
Cumulative profit is the company's profit after being calculated with losses from previous years.

Letter b
Quite clear.

Paragraph (2)
Quite clear.

Article 65
Quite clear.

Article 66
Quite clear.

Article 67
Paragraph (1)
Write-off policies and procedures include, among other things, criteria, requirements, limits, authority, responsibilities, and procedures for write-offs.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Paragraph (4)
Quite clear.

Paragraph (5)
Quite clear.

Paragraph (6)
Quite clear.

Article 68
Paragraph (1)
Quite clear.

Paragraph (2)
The implementation of write-offs is conducted against all funds provided and secured in one agreement.

Article 69
Paragraph (1)
Efforts that can be made include, among other things, collection from the debtor, Credit Restructuring, requesting payment from parties providing guarantees for the said Productive Assets, and settlement of Credit through the takeover of collateral.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Article 70
Quite clear.

Article 71
Paragraph (1)
The Bank does not need to submit a report on differences in the quality of Productive Assets in the event that there are no differences in the assessment of the quality of Productive Assets with the assessment at other Banks.

Paragraph (2)
Quite clear.

Paragraph (3)
Quite clear.

Paragraph (4)
Quite clear.

Article 72
Quite clear.

Article 73
Quite clear.

Article 74
Quite clear.

Article 75
Quite clear.

Article 76
Quite clear.

Article 77
Quite clear.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6440

APPENDIX
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 40 /POJK.03/2019
ON
ASSET QUALITY ASSESSMENT OF GENERAL BANKS

CREDIT QUALITY DETERMINATION

BUSINESS PROSPECTS
SPECIAL LESS FLUID DOUBTFUL LOSS
Potential growth of business

• Business activities
  have good potential growth.
• Business activities
  have limited potential growth.
• Business activities
  show very limited growth potential or no growth.
• Business activities
  have declining business conditions.
• Business activities
  have very doubtful business conditions, and difficult to recover; and/or
• High probability that
  business activities will halt.
  Market conditions and debtor's position in competition
• Stable market and
  not influenced by economic condition changes;
• Limited competition,
  including a strong position in the market; and/or
• Operating at
  optimum capacity.
• Good market position,
  not much influenced by economic condition changes;
• Market share
  proportional to competitors; and/or
• Operating at almost
  optimum capacity.
• Market influenced
  by economic condition changes;
• Market position is
  fairly good but has many competitors, but can recover if implementing new business strategies; and/or
• Not operating at
  optimum capacity.
• Market is highly
  influenced by economic condition changes;
• Business competition
  is very tight and company operations experience serious problems; and/or
• Capacity is not at a
  level that can support operations.
• Loss of market
  along with declining economic conditions; and/or
• Operations are
  unsustainable.
  Management quality and labor issues
• Very good
  management; and/or
• Adequate labor and
  never recorded experiencing disputes or labor strikes, or have experienced minor disputes or strikes but have been resolved well.
• Good management;
  and/or
• Labor is generally
  adequate, have experienced disputes or labor strikes that have been resolved well but there is still a possibility of recurrence.
• Fairly good
  management; and/or
• Excessive labor and
  there are disputes or labor strikes with fairly material impact on the debtor's business activities.
• Weak management;
  and/or
• Excessive labor in
  a fairly large amount and there are disputes or labor strikes with fairly material impact on the debtor's business activities.
• Very weak
  management; and/or
• Excessive labor in
  a large amount and there are disputes or labor strikes with material impact on the debtor's business activities.
  Support from business groups or affiliates
• Affiliate or group
  companies are stable and support business.
• Affiliate or group
  companies are stable and have no burdensome impact on the debtor.
• Affiliate or group
  companies start to have a burdensome impact on the debtor.
• Affiliate or group
  companies continuously have a burdensome impact on the debtor.
• Affiliate or group
  companies are very detrimental to the debtor.
  Efforts made by the debtor to maintain environmental protection (for large-scale debtors with significant impact on the environment)
• Good environmental
  management efforts and achieve results at least in accordance with minimum requirements as regulated in legislation.
• Environmental
  management efforts are poor and have not reached the minimum requirements as regulated in legislation.
• Environmental
  management efforts are poor and have not reached the minimum requirements as regulated in legislation, with fairly material deviations.
• Environmental
  management efforts are poor or have been carried out but have not reached the requirements as regulated in legislation, with material deviations.
• Environmental
  management efforts are poor or have been carried out but have not reached the minimum requirements as regulated in legislation, and have the possibility of being sued in court. DEBTOR PERFORMANCE SPECIAL LESS FLUID DOUBTFUL LOSS Profitability • High and stable profit acquisition.
• Fairly good profit
  acquisition but has potential to decline.
• Low profit
  acquisition. • Very small or negative profit acquisition; and/or
• Operational losses
  are financed by asset sales.
• Experiencing large
  losses; and/or
• All obligations cannot
  be fulfilled.
  Capital structure
• Strong capital;
  and/or
• Debt-to-equity ratio
  is very low.
• Fairly strong capital
  and owners have the ability to provide additional capital if needed; and/or
• Debt-to-equity ratio
  is low.
• Debt-to-equity ratio
  is fairly high.
• Debt-to-equity ratio
  is high.
• Debt-to-equity ratio
  is very high.
  Cash flow • Strong liquidity and working capital; and/or
• Cash flow analysis
  shows that the debtor can meet interest and principal payment obligations without support from additional funding sources.
• Generally good
  liquidity and working capital; and/or
• Cash flow analysis
  shows that although the debtor is able to meet interest and principal payment obligations, there are indications of certain issues that if not addressed will affect payments in the near future.
• Poor liquidity and
  limited working capital; and/or
• Cash flow analysis
  shows that the debtor can only pay interest and part of the principal.
• Very low liquidity;
• Cash flow analysis
  shows inability to pay interest and principal; and/or
• New loans are used
  to meet maturing obligations.
• Liquidity difficulties;
• Cash flow analysis
  shows that the debtor cannot cover production costs; and/or
• New loans are used
  to meet maturing obligations, materially.
  Sensitivity to market risk
• Portfolio amount
  sensitive to foreign exchange rate and interest rate changes is relatively small or has been hedged well.
• Some portfolios are
  sensitive to foreign exchange rate and interest rate changes but are still controlled.
• Business activities
  are affected by foreign exchange rate and interest rate changes.
• Business activities
  are threatened by foreign exchange rate and interest rate changes.
• Business activities
  are threatened by foreign exchange rate and interest rate fluctuations.
  REPAYMENT CAPACITY
  SPECIAL LESS FLUID DOUBTFUL LOSS
  Timeliness of principal and interest payments
• Payments are on
  time, account development is good, and there are no arrears and in accordance with Credit requirements.
• There are arrears
  for principal and/or interest payments up to 90 (ninety) days; and/or
• Rarely experiences
  shortfalls.
• There are arrears
  for principal and/or interest payments that have exceeded 90 (ninety) days up to 120 (one hundred twenty) days; and/or
• There are recurrent
  shortfalls to cover operational losses and cash flow shortages.
• There are arrears
  for principal and/or interest payments that have exceeded 120 (one hundred twenty) days up to 180 (one hundred eighty) days; and/or
• There are permanent
  shortfalls to cover operational losses and cash flow shortages.
• There are arrears
  for principal and/or interest payments that have exceeded 180 (one hundred eighty) days.
  Availability and accuracy of debtor's financial information
• Good relationship
  between debtor and
  Bank, debtor always submits financial information regularly and accurately; and/or
• There are recent
  financial reports and the Bank's analysis results on the financial reports or financial information submitted by the debtor.
• Fairly good
  relationship between debtor and Bank, and debtor always submits financial information regularly and still accurately; and/or
• There are recent
  financial reports and the Bank's analysis results on the financial reports or financial information submitted by the debtor.
• Relationship between
  debtor and Bank has deteriorated and financial information is unreliable or there are no Bank analysis results on financial reports or financial information submitted by the debtor.
• Relationship between
  debtor and Bank has further deteriorated and financial information is unavailable or unreliable.
• Relationship between
  debtor and Bank is very poor and financial information is unavailable or unreliable.

HEAD OF DEPARTMENT OF RESEARCH AND BANKING REGULATION, MULYA E. SIREGAR

ABILITY TO PAY
SPECIAL
SUBSTANDARD
DOUBTFUL
LOSS

Documentation Completeness
Credit

• Complete and correct Credit documentation.
• Credit documentation is complete but there are still matters that need to be confirmed.
• Credit documentation is incomplete.
• Credit documentation is not complete.
• No Credit documentation exists.

Compliance with
Credit Agreement

• No breach of the Credit agreement.
• Non-material breach in the Credit agreement.
• Material breach in the Credit agreement.
• Fundamental breach in the Credit agreement.
• Very fundamental breach in the Credit agreement.

Suitability of
Fund Usage

• Fund usage aligns with the purpose of the loan application;
• The amount and type of facilities provided align with needs; and/or
• Credit extension aligns with the debtor's needs analysis.
• Fund usage is less aligned with the purpose of the loan application, but the amount is not material;
• The amount and type of facilities provided are larger than needs, but the amount is not material;
  and/or
• Credit extension is less aligned with the debtor's needs analysis.
• Fund usage is less aligned with the purpose of the loan application, with an amount that is quite material;
• The amount and type of facilities provided are larger than needs, with an amount that is quite material;
  and/or
• Credit extension does not align with the debtor's needs analysis, including among others Credit extension conducted to hide financial difficulties.
• Fund usage is less aligned with the purpose of the loan application, with an amount that is material;
• The amount and type of facilities provided are larger than needs, with an amount that is material; and/or
• Credit extension does not align with the debtor's needs analysis, including among others Credit extension conducted to hide financial difficulties, with deviations that are quite material.
• Most fund usage does not align with the purpose of the loan application;
• The amount and type of facilities provided are larger than needs, with an amount that is very material;
  and/or
• Credit extension without debtor needs analysis.

ABILITY TO PAY
SPECIAL
SUBSTANDARD
DOUBTFUL
LOSS

Reasonableness of
Repayment Source

• Repayment source can be clearly identified and agreed upon by the Bank and the debtor;
• Repayment source aligns with the structure or type of loan;
• A reasonable repayment scheme, including in the provision of payment grace periods; and/or
• Foreign currency income is sufficient to support the repayment of Credit in foreign currency.
• Repayment source can be identified and agreed upon by the Bank and the debtor;
• Repayment source is less aligned with the structure or type of loan;
• A quite reasonable repayment scheme, including in the provision of payment grace periods; and/or
• Foreign currency income is less sufficient to support the repayment of Credit in foreign currency.
• Payment comes from sources other than those agreed upon;
• Repayment source is less aligned with the structure or type of loan to a quite material extent;
• An unreasonable repayment scheme and there is a provision of payment grace periods that do not align with the type of Credit; and/or
• Foreign currency income is insufficient to support the repayment of Credit in foreign currency, to a quite material extent.
• Repayment source is unknown, while the agreed source is no longer feasible;
• Repayment source is less aligned with the structure or type of loan to a material extent;
• An unreasonable repayment scheme and there is a provision of payment grace periods that do not align with the type of Credit with a quite long duration; and/or
• Foreign currency income is insufficient to support the repayment of Credit in foreign currency to a material extent.
• No feasible repayment source exists;
• Repayment source does not align with the structure or type of loan;
• An unreasonable repayment scheme and there is a provision of payment grace periods that do not align with the type of Credit with a quite long duration; and/or
• There is no foreign currency income to support the repayment of Credit in foreign currency.

GUIDELINES FOR CREDIT RESTRUCTURING
In order to minimize the potential for losses due to debtors experiencing performance declines, the Bank may conduct Credit Restructuring for debtors experiencing difficulties in paying principal and/or interest, provided that the debtor in question still has a good business prospect and is assessed to be able to meet obligations after the Credit is restructured. The aforementioned Credit Restructuring is implemented in accordance with prudent principles and financial accounting standards.

I. PROCEDURES AND METHODS
In order to apply prudent principles, the Bank must have Credit Restructuring guidelines containing procedures and methods for implementing Credit Restructuring, which must contain at least the following:

1. Analysis and Documentation
   In conducting analysis of Credit to be restructured, the Bank must at least consider:
   a. Evaluation of debtor issues, which includes:

1. evaluation of the causes of principal and/or interest arrears based on financial reports, cash flow, financial projections, market conditions, and other factors related to the debtor's business;
2. estimation of the repayment of all principal and/or interest based on the Credit agreement before and after Credit Restructuring. The estimation should be based on financial ratios, including projected financial ratios, which reflect the financial condition and ability of the debtor to repay the loan; and
3. evaluation of the debtor's management performance to determine the need for restructuring the debtor's corporate organization, which can be done, for example, by replacing shareholders, directors, and other managerial changes. If necessary, the Bank may use the assistance of external experts to conduct such organizational restructuring.

b. Approaches and assumptions used in calculating the cash flow projection and present value of principal and/or interest installments to be received.
c. Analysis, conclusions, and recommendations in adjusting Credit requirements such as interest rate reductions, reduction of principal and/or interest arrears, changes in duration, and/or addition of facilities. Such adjustments are made by considering the business cycle and the debtor's ability to pay so that the debtor can meet the obligation to pay principal and/or interest installments until maturity.
d. If Credit Restructuring is conducted by providing additional Credit, the purpose and use of the additional Credit must be clear. Additional Credit is not permitted to settle principal and/or interest arrears. In the event that Credit Restructuring results in the debtor's obligations becoming larger, the Bank may require new collateral. e. Adjustments to the repayment schedule reflect the debtor's ability to pay. f. Provision of payment grace periods is conducted based on analysis based on the business cycle and/or the debtor's business suitability, which reflects the duration of the payment grace period and the ability to pay principal and/or interest after the payment grace period ends. g. Details related to the transparency of Credit requirements, including financial agreements in the Credit agreement, such as plans for the debtor's company capital increase or clauses that the Bank can increase interest rates in line with the debtor's ability to pay. h. Requirements that the Credit agreement and other documents related to the implementation of Credit Restructuring must have legal force.
i. Completeness of documents required for the implementation of Credit Restructuring.

2. Monitoring Procedures
   The Bank must have written procedures to monitor Credit that has been restructured to ensure the debtor's ability to make payments in accordance with the requirements in the renewed Credit agreement. Several steps that the Bank must take in monitoring the implementation of Credit Restructuring include:
   a. requesting the debtor to submit financial reports accompanied by key financial ratios, business development, implementation of the action plan, and other documents or reports required by the Bank to continuously monitor the debtor's business and financial conditions. The debtor also reports the impact of various measures taken as part of Credit Restructuring, such as capital increase of the debtor's company and policies not to distribute dividends; b. evaluating restructured Credit at least every quarter, including in the event of significant differences between projections and realization, especially regarding principal and/or interest installments, duration, cash flow, interest rates, and/or collateral valuation; and/or
   c. formulating steps to be taken if the debtor experiences difficulty in paying again after Credit Restructuring.

II. EXAMPLES OF CREDIT QUALITY DETERMINATION
Example 1:
In December 2018, the Bank conducted Credit Restructuring on the Credit facility of debtor "A" with Credit quality classified as Loss. The Credit Restructuring agreement states that debtor "A" must pay principal and/or interest installments monthly starting from January 10, 2019. Subsequently, debtor "A" in 3 (three) consecutive payment periods, namely on January 10, 2019, February 10, 2019, and March 10, 2019, was able to meet payment obligations according to the time stipulated in the Credit Restructuring agreement. Thus, the Credit quality of debtor "A" from January 2019 is determined as follows:

Table 1
Period
Payment Fulfillment
Agreement Requirements
Other Requirements
Credit Quality at the end of the assessment month Jan 2019 meet meet Highest Loss (as Credit quality before restructuring) Feb 2019 meet meet Highest Loss (as Credit quality before restructuring) Mar 2019 meet meet Highest Doubtful (can rise one level from Credit quality before restructuring) April 2019 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Month

• • Based on factors of business prospect assessment,
    debtor performance, and ability to pay

Example 2:
In December 2018, the Bank conducted Credit Restructuring on the Credit facility of debtor "B" with Credit quality classified as Doubtful. The Credit Restructuring agreement states that debtor "B" must pay principal and/or interest installments monthly starting from January 10, 2019. Subsequently, in the third payment period, namely on March 10, 2019, debtor "B" was unable to meet payment obligations on time. Thus, the Credit quality of debtor B from January 2019 is determined as follows:

Table 2
Period
Payment Fulfillment
Agreement Requirements
Other Requirements
Credit Quality at the end of the assessment month Jan 2019 meet meet Highest Doubtful (as Credit quality before restructuring) Feb 2019 meet meet Highest Doubtful (as Credit quality before restructuring) Mar 2019 not meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay, highest Doubtful April 2019 meet meet Highest Doubtful (as Credit quality before restructuring) May 2019 meet meet Highest Doubtful (as Credit quality before restructuring) June 2019 meet meet Highest Substandard (can rise one level from Credit quality before restructuring) July 2019 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Month

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

Example 3:
In December 2018, the Bank conducted Credit Restructuring on the Credit facility of debtor "C" with Credit quality classified as Doubtful. The Credit Restructuring agreement states that debtor "C" must pay principal and/or interest installments monthly starting from January 10, 2019, and the debtor is also requested to replace one of the managers by March 31, 2018. Debtor "C" was always able to meet payment obligations on time. However, the replacement of the manager was only conducted in March 2019, so before the replacement of the manager, debtor "C" was considered not to have met the agreed requirements. Thus, the Credit quality of debtor "C" from January 2019 is determined as follows:
Table 3
Period
Payment Fulfillment
Agreement Requirements
Other Requirements
Credit Quality at the end of the assessment month January meet not meet Based on factors of business prospect assessment, debtor performance, and ability to pay, highest Doubtful February meet not meet Based on factors of business prospect assessment, debtor performance, and ability to pay, highest Doubtful March meet meet Highest Substandard (can rise one level from Credit quality before restructuring) April 2019 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Month

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

Example 4:
Provision of working capital Credit, i.e., payment every month consisting of interest payments only and at the end of the period the debtor makes principal payments, so that Credit quality can directly rise 1 (one) level calculated since interest payments 3 (three) times consecutively after Credit Restructuring. In January 2019, the Bank conducted Credit Restructuring of working capital to debtor "Z" with Doubtful quality. The Credit Restructuring agreement states that debtor "Z" must pay interest monthly starting from February 7, 2019. Thus, the Credit quality of debtor "Z" from February 2019 is determined as follows:
Table 4
Period
Payment Fulfillment
Agreement Requirements
Other Requirements
Credit Quality at the end of the assessment month February Meet meet Highest Doubtful (as Credit quality before restructuring) March meet meet Highest Doubtful (as Credit quality before restructuring) April 2019 meet meet Highest Substandard (can rise one level from Credit quality before restructuring) May 2019 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Month

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

Example 5:
Provision of Credit with other schemes, such as quarterly, semi-annual, or annual principal payments, so that Credit quality can rise 1 (one) level after there are 3 (three) consecutive payments after Credit Restructuring. In December 2018, the Bank conducted Credit Restructuring to debtor "Y" whose quality was Doubtful. The Credit Restructuring agreement states that debtor "Y" must pay principal installments quarterly starting from March 5, 2019. However, the debtor was only able to make the first payment in June 2019. Thus, the Credit quality of debtor "Y" from March 2019 is determined as follows:
Table 5
Period
Payment Fulfillment
Agreement Requirements
Other Requirements
Credit Quality at the end of the assessment month March not meet meet Highest Doubtful (as Credit quality before restructuring) June 2019 meet meet Highest Doubtful (as Credit quality before restructuring) September meet meet Highest Doubtful (as Credit quality before restructuring) December meet meet Highest Substandard (can rise one level from Credit quality before restructuring) March meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Month

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

In conducting Credit Restructuring, the Bank may provide facilitation in the form of providing payment grace periods. Credit quality after restructuring with the provision of payment grace periods is regulated differently, namely during the payment grace period, the quality is set the same as the Credit quality before restructuring was conducted. Generally, payment grace periods can be provided by the Bank to the debtor in the form of postponement of principal and/or interest payments.

Example 6:
Credit Restructuring is conducted on the Credit facility of debtor "X" with Credit quality classified as Loss. Regarding debtor "X", the Bank provides a payment grace period for principal for 3 (three) months, while interest payments are made every month. During the payment grace period, the debtor's quality is set to follow the quality before Credit Restructuring was conducted, namely Loss. After the end of the payment grace period, debtor "X" can meet its obligations in accordance with the Credit Restructuring agreement. Thus, the Credit quality of debtor "X" is determined as follows:

Table 6
Period
Payment
Credit Quality at the end of the month
Principal Interest assessment
1 - meet Highest Loss
(as Credit quality before restructuring)
2 - meet Highest Loss
(as Credit quality before restructuring)
3 - meet Highest Loss
(as Credit quality before restructuring)
4 meet meet Highest Loss
(as Credit quality before restructuring)
5 meet meet Highest Loss
(as Credit quality before restructuring)
6 meet meet Highest Doubtful
(can rise one level from
Credit quality before restructuring)
7 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Period

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

Example 7:
Credit Restructuring is conducted on the Credit facility of debtor "Y" with Credit quality classified as Substandard. Regarding debtor "Y", the Bank provides a payment grace period for principal and interest for 6 (six) months. During the payment grace period, debtor Y's quality is set to follow the quality before Credit Restructuring was conducted, namely Substandard. After the end of the payment grace period, debtor "Y" can meet its obligations in accordance with the Credit Restructuring agreement. Thus, the Credit quality of debtor "Y" is determined as follows:
Table 7
Period
Payment
Credit Quality at the end
Principal Interest of assessment month
1 - - Highest Substandard
(as Credit quality before restructuring)
2 - - Highest Substandard
(as Credit quality before restructuring)
3 - - Highest Substandard
(as Credit quality before restructuring)
4 - - Highest Substandard
(as Credit quality before restructuring)
5 - - Highest Substandard
(as Credit quality before restructuring)
6 - - Highest Substandard
(as Credit quality before restructuring)
7 meet meet Highest Substandard
(as Credit quality before restructuring)
8 meet meet Highest Substandard
(as Credit quality before restructuring)
9 meet meet Highest Special Attention
(can rise one level from
Credit quality before restructuring)
10 meet meet Based on factors of business prospect assessment, debtor performance, and ability to pay Subsequent Period

• • Based on factors of business
    prospect assessment, debtor performance, and ability to pay

REPORT ON DIFFERENCES IN PRODUCTIVE ASSET QUALITY Bank Name :
Report Position :
*) Filled with the Bank's reason for setting a quality different from other Banks Account Number Type Facility Recorded Value Duration Quality Other Bank Name Type Facility Plafond Value Recorded Duration Quality Asset Debtor Name At the Bank in Question At Other Banks Remarks *) No Debtor Address Taxpayer Identification Number

CREDIT RESTRUCTURING REPORT
Bank Name :
Report Position :

GUIDELINES FOR FILLING OUT THE CREDIT RESTRUCTURING REPORT In this form, all Credit Restructuring in rupiah and foreign currency that has been conducted in the reporting month is reported. Credit Restructuring is an improvement effort conducted by the Bank in lending activities towards debtors experiencing difficulties in meeting obligations, which is conducted among others through:
a. reduction of Credit interest rates; b. extension of Credit duration;
c. reduction of Credit principal arrears;
d. reduction of Credit interest arrears; e. addition of Credit facilities; and/or f. conversion of Credit into Temporary Equity Participation. Explanation of Filling Rows or Columns
I. Restructured Debtors

1. Name
   This column is filled with the debtor's name, with the following provisions:
   a. Individual Debtors
   This column is filled with the individual's name in full (not abbreviated) with the following provisions:

1. Individual debtors as stated in the Identity Card (KTP). In the event that the name stated in the KTP is abbreviated, it must be filled in completely. Included in the definition of individual debtors are trading businesses (UD, PO, and others), industries, or other businesses whose Taxpayer Identification Number (NPWP) is the same as the individual's NPWP. The debtor's name must not exceed 30 (thirty) characters and must not contain punctuation marks including apostrophes ('). If the individual's name has more than one word, then between subsequent words must use a space.

2. In the event of trading businesses, industries, or other businesses owned by individuals, filled with the owner's name as stated in the KTP. Starting with the personal name, followed by the family name or surname.

3. Must not begin with an abbreviation.

4. Family name or surname (if stated in the ID card) must be typed in full.

5. The debtor's name using the words "bin" or "binti" as stated in the ID card must also be filled in completely in the name column.
   b. Corporate Debtors
   This column is filled with the name of the business entity as follows:

6. The name of the corporate debtor or institution as stated in the Taxpayer Identification Number (NPWP) card or Deed. The debtor's name must not exceed 30 (thirty) characters and must not contain punctuation marks, including apostrophes (’). If the corporate debtor's name has more than one word, subsequent words must be separated by a space.

7. Filled in accordance with the name of the business entity stated in the NPWP card or Deed (excluding the form of the business entity). The filling must not be abbreviated. The type of business entity, such as PT, CV, Firma, PERSERO, and others, is filled in after the name of the business entity.
   Example: Artha Mandiri PT, Sinar Terang Sejati PT (Persero).
   c. Group Debtors
   This column is filled with the group name with filling requirements in accordance with the filling of individual debtors. Group debtors are debtors whose members are formed based on common interests and are led by a chairman, and are not in the form of a business entity that obtains one or more facilities for the provision of funds. Example: Andrawina Farmer Fisher Group, filled with the name "Andrawina Farmer Fisher Group".

2. CIF Number
   The third-party customer information number not from the bank used in the Single Customer Information File (CIF) or integrated customer profile as regulated in the Financial Services Authority regulations regarding the implementation of anti-money laundering and counter-terrorism financing programs in the financial services sector. For customers that are banks, the identification number given by the reporting bank to that customer is used.

II. Type of Use
This item is detailed based on the type of use, as follows:

1. Working Capital
   Short-term credit to finance the debtor's working capital needs.
2. Investment
   Medium or long-term credit for the purchase of capital goods and services needed, including for rehabilitation, modernization, expansion, and relocation of projects and/or establishment of new businesses.
3. Consumption
   Credit for consumption needs by purchasing, renting, or by other means.

III. Economic Sector
Details of the economic sector refer to the list of economic sector codes as regulated in legislation regarding integrated commercial bank reports. In the event that Credit is used to finance more than one (1) type of economic activity that cannot be separated, the classification method focuses on the priority economic sector (the sector that receives the largest facility).

IV. Method of Credit Restructuring
The Method of Credit Restructuring is filled with the following code:

No	Method of Credit Restructuring	Code
1	Reduction of Credit Interest Rate	1
2	Extension of Credit Tenor	2
3	Reduction of Principal Arrears	3
4	Reduction of Interest Arrears	4
5	Addition of Credit Facilities	5
6	Conversion of Credit into Temporary Equity Participation	6
7	Addition of Credit Facilities and Reduction of Interest Arrears	7
8	Addition of Credit Facilities and Extension of Credit Tenor	8
9	Addition of Credit Facilities and Reduction of Credit Interest Rate	9
10	Addition of Credit Facilities, Reduction of Interest Arrears, and Reduction of Credit Interest Rate	10
11	Addition of Credit Facilities, Reduction of Interest Arrears, and Extension of Credit Tenor	11
12	Others	99

V. Credit Limit
This column is filled with the Credit limit before restructuring. The limit is the maximum amount of facilities received by the debtor as stated in the agreement or deed. The filling of the limit amount in rupiah or foreign currency is expressed in millions of rupiah. The Credit limit for facilities is filled as follows:

1. Joint Financing or Syndication
   This column is filled with the share of the limit for each participating Bank.
2. Other Credits
   This column is filled with the maximum amount of facilities stated in the agreement.

VI. Recorded Value

1. Rupiah
   This column is filled with the recorded value amount in rupiah currency (in millions) at the end of the reporting month for each respective account before the Credit is restructured.
2. Foreign Currency
   This column is filled with the recorded value amount in foreign currency after being converted into rupiah (in millions) with the exchange rate on the last date of the end of the reporting month for each respective account before the Credit is restructured. The exchange rate is the average of the buy and sell exchange rates based on the Bank Indonesia closing exchange rate at the end of the reporting month.

VII. Interest Arrears (On Balance Sheet)
This column is filled with the interest arrears recorded in the balance sheet before the Credit is restructured.

VIII. Administrative Interest (Off Balance Sheet)
This column is filled with the debtor's interest payment obligation recorded in the administrative account before the Credit is restructured.

IX. Tenor

1. Start
   This column is filled with the date, month, and year of the start of the provision of Credit facilities before the Credit is restructured, in accordance with the Credit agreement.
2. Maturity
   This column is filled with the date, month, and year of the maturity of the provision of Credit facilities before the Credit is restructured, in accordance with the Credit agreement.

X. Interest Rate
This column is filled with the last interest rate before the Credit is restructured.

XI. Credit Quality
This column is filled with the Credit quality before Credit Restructuring is carried out as regulated in this Financial Services Authority Regulation. This column is filled with the following code:

No	Credit Quality	Code
1	Good	1
2	Special Attention	2
3	Substandard	3
4	Doubtful	4
5	Loss	5

XII. Collateral Value
This column is filled with the last collateral value before the Credit is restructured.

XIII. Credit Limit
This column is filled with the Credit limit after restructuring.

XIV. Recorded Value
This column is filled with the recorded value at the end of the reporting month after the Credit is restructured.

1. Rupiah
   This column is filled with the recorded value amount in rupiah currency (in millions) at the end of the reporting month for each respective account after the Credit is restructured.
2. Foreign Currency
   This column is filled with the recorded value amount in foreign currency after being converted into rupiah (in millions) with the exchange rate on the last date of the end of the reporting month for each respective account after the Credit is restructured. The exchange rate is the average of the buy and sell exchange rates based on the Bank Indonesia closing exchange rate at the end of the reporting month.

XV. Tenor

1. Start
   This column is filled with the date, month, and year of the start of the new Credit agreement in accordance with the Credit agreement.
2. Maturity
   This column is filled with the date, month, and year of the maturity of the new Credit agreement in accordance with the Credit agreement.

XVI. Interest Rate
This column is filled with the last interest rate after the Credit is restructured.

XVII. Credit Quality
This column is filled with the Credit quality after Credit Restructuring is carried out as regulated in this Financial Services Authority Regulation. This column is filled with the following code:

No	Credit Quality	Code
1	Good	1
2	Special Attention	2
3	Substandard	3
4	Doubtful	4
5	Loss	5

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

XVIII. Collateral Value
This column is filled with the last collateral value after the Credit is restructured.

XIX. Credit Restructuring Loss
This column is filled with the loss value due to Credit Restructuring as regulated in this Financial Services Authority Regulation.

XX. Total Recorded Value of Credits Restructured This Month
This row is filled with the sum of the recorded values of all Credits restructured during the reporting month.

XXI. Recorded Value of Credits Restructured Last Month
This row is filled with the recorded value of all Credits restructured in the previous month's report.

XXII. Cumulative Recorded Value of Credits Restructured
This row is filled with the total recorded value of Credits restructured.

Determined in Jakarta on December 19, 2019
CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO