OJK Regulation No. 19 of 2024 Amending OJK Regulation No. 42/POJK.03/2015 on Liquidity Coverage Ratio Requirements for Commercial Banks

COPY REGULATION OF THE FINANCIAL SERVICES AUTHORITY OF THE REPUBLIC OF INDONESIA NUMBER 19 OF 2024 CONCERNING AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 42/POJK.03/2015 CONCERNING THE OBLIGATION TO FULFILL THE LIQUIDITY COVERAGE RATIO (LIQUIDITY COVERAGE RATIO) FOR COMMERCIAL BANKS

BY THE GRACE OF GOD THE ALMIGHTY,

THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering: a. that in order to create a healthy banking system capable of developing and competing nationally and internationally, and in line with the development of international standards, banks need to have strong and adequate liquidity; b. that in order to assess liquidity adequacy, an equivalent, reliable, and comparable liquidity ratio is needed to assess the adequacy of the quantity of high-quality financial assets to anticipate net cash outflow; c. that in order to accommodate the development of international standards and support the strengthening of Indonesian banking liquidity, it is necessary to adjust the Financial Services Authority Regulation Number 42/POJK.03/2015 concerning the Obligation to Fulfill the Liquidity Coverage Ratio (Liquidity Coverage Ratio) for Commercial Banks; d. that based on the considerations as referred to in letters a, b, and c, it is necessary to establish a Financial Services Authority Regulation concerning Amendment to the Financial Services Authority Regulation Number 42/POJK.03/2015 concerning the Obligation to Fulfill the Liquidity Coverage Ratio (Liquidity Coverage Ratio) for Commercial 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 several times, lastly with Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845);
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) as amended with Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector (State Gazette of the Republic of Indonesia Year 2023 Number 4, Supplement to the State Gazette of the Republic of Indonesia Number 6845);
3. Financial Services Authority Regulation Number 42/POJK.03/2015 concerning the Obligation to Fulfill the Liquidity Coverage Ratio (Liquidity Coverage Ratio) for Commercial Banks (State Gazette of the Republic of Indonesia Year 2015 Number 369, Supplement to the State Gazette of the Republic of Indonesia Number 5809);

DECIDING:

To Establish: A FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 42/POJK.03/2015 CONCERNING THE OBLIGATION TO FULFILL THE LIQUIDITY COVERAGE RATIO (LIQUIDITY COVERAGE RATIO) FOR COMMERCIAL BANKS.

Article I Several provisions in the Financial Services Authority Regulation Number 42/POJK.03/2015 concerning the Obligation to Fulfill the Liquidity Coverage Ratio (Liquidity Coverage Ratio) for Commercial Banks (State Gazette of the Republic of Indonesia Year 2015 Number 369, Supplement to the State Gazette of the Republic of Indonesia Number 5809) are amended as follows:

1. The provisions of Article 1 are amended so that they read as follows:

Article 1 In this Financial Services Authority Regulation:

1. Bank means a Commercial Bank as referred to in Law Number 7 of 1992 concerning Banking as amended several times, lastly with Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector, including branches of banks located abroad, which conduct conventional business activities.

2. High Quality Liquid Asset, hereinafter abbreviated as HQLA, means cash and/or financial assets that can be easily converted into cash with little or no reduction in value to meet the Bank's liquidity needs during a 30 (thirty) day forward period in a stress scenario.

3. Net Cash Outflow means the total estimated cash outflow minus the total estimated cash inflow that is expected to occur during a 30 (thirty) day forward period in a stress scenario.

4. Liquidity Coverage Ratio, hereinafter abbreviated as LCR, is the ratio between HQLA and Net Cash Outflow during a 30 (thirty) day forward period in a stress scenario.

5. Deposit means Deposit as referred to in Law Number 7 of 1992 concerning Banking as amended several times, lastly with Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector.

6. Funding means receipt of funds from third parties that creates an obligation for the Bank in the form of Deposits, debt instruments, issued securities, loans received, and other forms of obligations that are equated with them.

7. Internal Liquidity Adequacy Assessment Process, hereinafter abbreviated as ILAAP, is a process conducted by the Bank to calculate liquidity adequacy in various scenarios of market conditions and stress periods that the Bank may face.

8. The provisions of Article 5 are deleted.

9. The provisions of Article 10 are amended so that they read as follows:

Article 10 (1) HQLA Level 1 as referred to in Article 7 paragraph (1) letter a includes: a. cash and cash equivalents; b. placements at Bank Indonesia; c. securities issued or guaranteed by other countries' governments, other countries' central banks, public sector entities, multilateral development banks, and/or international institutions as referred to in regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for commercial banks, which meet the requirements:

1. are subject to a 0% (zero percent) risk weight in the calculation of risk-weighted assets for credit risk using the standard approach;
2. are traded on an active market;
3. have been tested as a trusted source of liquidity in the market, both in normal conditions and stress conditions; and
4. are not obligations of financial service institutions and/or entities affiliated with financial service institutions; d. securities issued by the Central Government and Bank Indonesia in Rupiah; e. securities issued by the Central Government and Bank Indonesia in foreign currency, at most equal to the Net Cash Outflow requirement in the relevant foreign currency; and f. securities issued by other countries' governments and central banks with a risk weight greater than 0% (zero percent) in foreign currency as long as:
5. the Bank has a subsidiary or branch in the relevant country; and
6. at most equal to the Net Cash Outflow requirement in the currency of the country issuing the relevant foreign currency securities.

(2) For the fulfillment of LCR, HQLA Level 1 as referred to in paragraph (1) is not subject to a haircut.

4. The provisions of Article 12 are amended and the explanation of Article 12 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 12 (1) HQLA Level 2B as referred to in Article 7 paragraph (1) letter b number 2 includes: a. asset-backed securities in the form of residential mortgages that meet the requirements:

1. are not issued by the reporting Bank or affiliated entities of the reporting Bank;
2. the underlying assets do not originate from the reporting Bank or affiliated entities of the reporting Bank;
3. have a long-term rating of at least AA or a short-term rating equivalent if no long-term rating is available from an recognized rating agency;
4. are traded on an active market;
5. have been tested as a trusted source of liquidity in the market, both in normal conditions and stress conditions with criteria being: a) price decline of at most 20% (twenty percent); or b) increase in haircut of at most 20% (twenty percent), during a 30 (thirty) day stress period;
6. the underlying assets consist only of residential mortgage loans;
7. the collateral used for the loan is classified as full recourse with an average loan-to-value ratio in the portfolio to collateral value of at most 80% (eighty percent) at the time of issuance of the asset-backed securities in the form of residential mortgages; and
8. securitization must involve risk retention; b. securities issued or guaranteed by other countries' governments, other countries' central banks, and/or public sector entities that meet the requirements:
9. are subject to a 50% (fifty percent) risk weight in the calculation of risk-weighted assets for credit risk using the standard approach;
10. are traded on an active market;
11. have been tested as a trusted source of liquidity in the market, both in normal conditions and stress conditions with criteria being: a) price decline of at most 20% (twenty percent); or b) increase in haircut of at most 20% (twenty percent), during a 30 (thirty) day stress period; and
12. are not obligations of financial service institutions and/or entities affiliated with financial service institutions; c. securities in the form of debt instruments issued by corporations including commercial paper, which meet the requirements:
13. are not issued by financial service institutions and/or entities affiliated with financial service institutions;
14. have a long-term credit rating of at least BBB- or a short-term credit rating equivalent in the event that no long-term rating is available from an recognized rating agency or have a probability of default equivalent to the lowest credit rating of BBB-;
15. are traded on an active market; and
16. have been tested as a trusted source of liquidity in the market, both in normal conditions and stress conditions with criteria being: a) price decline of at most 20% (twenty percent); or b) increase in haircut of at most 20% (twenty percent), during a 30 (thirty) day stress period; d. ordinary shares owned by non-Bank subsidiaries that meet the requirements:
17. are not issued by financial service institutions and/or entities affiliated with financial service institutions;
18. are listed on a recognized stock exchange;
19. are denominated in Rupiah;
20. are traded on an active market; and
21. have been tested as a trusted source of liquidity in the market, both in normal conditions and stress conditions with criteria being: a) price decline of at most 40% (forty percent); or b) increase in haircut of at most 40% (forty percent), during a 30 (thirty) day stress period.

(2) For the fulfillment of LCR, HQLA Level 2B as referred to in paragraph (1) is subject to a haircut: a. 25% (twenty-five percent) of the market price for asset-backed securities in the form of residential mortgages as referred to in paragraph (1) letter a; or b. 50% (fifty percent) of the market price for:

1. securities issued or guaranteed by other countries' governments, other countries' central banks, and/or public sector entities as referred to in paragraph (1) letter b;

2. securities in the form of debt instruments issued by corporations as referred to in paragraph (1) letter c; and

3. ordinary shares owned by non-Bank subsidiaries as referred to in paragraph (1) letter d.

4. The provisions of Article 14 are amended and the explanation of Article 14 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 14 Individual customer deposits as referred to in Article 13 paragraph (1) letter a and Funding originating from Micro and Small Business customers as referred to in Article 13 paragraph (1) letter b, which are calculated in LCR, are: a. Deposits that are not pledged and have a maturity of up to 30 (thirty) days; b. Deposits that are not pledged and have a maturity of more than 30 (thirty) days but can be withdrawn at any time by the customer without significant penalty; and c. Deposits that are pledged to the Bank in connection with credit facilities or loans, except if the credit facilities or loans provided:

1. have a maturity of more than 30 (thirty) days; and

2. there is a clear and binding agreement that the Deposits cannot be withdrawn before the end of the credit facility or loan term.

3. The provisions of Article 51 are amended and the explanation of Article 51 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 51 (1) In addition to the obligation to calculate LCR as referred to in Article 2, Banks are required to monitor liquidity conditions and adequacy using specific indicators. (2) In addition to liquidity monitoring as referred to in paragraph (1), Banks are required to conduct an ILAAP that is adjusted to the size, characteristics, and complexity of the Bank's business. (3) The method of preparation and submission of ILAAP as referred to in paragraph (2) is determined by the Financial Services Authority.

7. The provisions of Article 52 are amended and the explanation of Article 52 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 52 Banks are required to conduct: a. daily LCR calculations; b. monthly LCR calculations and reporting; and c. quarterly LCR calculations and reporting, both individually and consolidated.

8. The provisions of Article 53 are amended and the explanation of Article 53 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 53 (1) The obligation for daily LCR calculation for Banks included in the bank group based on Core Capital 1 other than foreign banks as referred to in Article 52 letter a, is first conducted for the position on December 1, 2024. (2) The results of daily LCR calculations become the basis for calculating LCR in monthly and quarterly reporting. (3) The Financial Services Authority may request Banks to submit daily LCR calculation reports if necessary.

9. Between Article 59 and Article 60, 1 (one) article is inserted, namely Article 59A so that it reads as follows:

Article 59A (1) The LCR reporting obligation for Banks included in the bank group based on Core Capital 1 other than foreign banks, is first conducted for the end-of-December 2024 position for: a. submission of monthly LCR reports as referred to in Article 52 letter b; and b. publication of quarterly LCR calculations and values via the Bank's website as referred to in Article 57 paragraph (4) letter a. (2) The procedures, formats, and timeframes for submitting monthly LCR reports are carried out in accordance with the Financial Services Authority Regulation concerning reporting of commercial banks through the Financial Services Authority reporting system. (3) The procedures, formats, and timeframes for publishing LCR calculations and values are carried out in accordance with the Financial Services Authority Regulation concerning transparency and publication of bank reports.

10. The provisions of Article 60 are amended and the explanation of Article 60 is amended as stated in the article-by-article explanation, so that they read as follows:

Article 60 In the event that there are Banks included in the bank group based on Core Capital 2, the bank group based on Core Capital 3, the bank group based on Core Capital 4, or foreign banks that subsequently become Banks included in the bank group based on Core Capital 1 other than foreign banks before the December 2024 position, the Banks remain obligated to fulfill the LCR calculation and reporting provisions as regulated in this Financial Services Authority Regulation.

11. The provisions of Article 63 are amended so that they read as follows:

Article 63 Banks that do not comply with this Financial Services Authority Regulation and violate the provisions as regulated in Article 2 paragraph (1), Article 3 paragraph (1), paragraph (2), Article 6 paragraph (1), paragraph (2), Article 13 paragraph (1), Article 15 paragraph (1), Article 16, Article 19, Article 23, Article 26 paragraph (1), Article 27, Article 28 paragraph (1), Article 29, Article 36 paragraph (1), paragraph (4), Article 41 paragraph (1), paragraph (2), Article 43 paragraph (1), paragraph (2), Article 47, Article 51 paragraph (1), paragraph (2), Article 52, Article 54 paragraph (1), Article 55 paragraph (1), paragraph (2), paragraph (3), Article 57 paragraph (1), paragraph (3), paragraph (4), paragraph (7), Article 60, Article 61 paragraph (3) and/or Article 62, are subject to administrative sanctions in the form of: a. written reprimand; b. prohibition of profit transfer for branches of banks located abroad; c. suspension of dividend distribution on all share ownership from shareholders who made capital contributions; d. suspension of certain business activities; e. prohibition of opening branch networks; f. downgrade of the Bank's health level; and/or g. prohibition from acting as a principal party for the Bank's principal parties in accordance with the Financial Services Authority Regulation concerning the re-evaluation of principal parties of financial service institutions.

Article II This Financial Services Authority Regulation takes effect on the date of its enactment.

This copy is in accordance with the original. Director of Legal Development Legal Department Aat Windradi

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

Established in Jakarta on November 1, 2024

CHAIRMAN OF THE COMMISSIONERS FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA, MAHENDRA SIREGAR

Promulgated in Jakarta on November 8, 2024 MINISTER OF LAW AND HUMAN RIGHTS REPUBLIC OF INDONESIA, SUPRATMAN ANDI AGTAS

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2024 NUMBER 29/OJK

EXPLANATION OF THE FINANCIAL SERVICES AUTHORITY REGULATION OF THE REPUBLIC OF INDONESIA NUMBER 19 OF 2024 CONCERNING AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 42/POJK.03/2015 CONCERNING THE OBLIGATION TO FULFILL THE LIQUIDITY COVERAGE RATIO (LIQUIDITY COVERAGE RATIO) FOR COMMERCIAL BANKS

I. GENERAL

Just as with capital, a standard for calculating liquidity ratios is needed to measure the minimum liquidity that must be maintained by Banks in accordance with applicable international standards, namely Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools issued by the Basel Committee on Banking Supervision (BCBS). The assessment of liquidity adequacy as regulated in the aforementioned international standard is conducted through the fulfillment of high-quality asset ratios to anticipate net cash outflow.

The aforementioned ratio has been applied in Indonesia since 2015 for Banks that meet certain criteria. Given that the maintenance of this ratio is intended to support the strengthening of banking liquidity, in its development, equivalent, reliable, and comparable data are needed that apply to all Banks.

Furthermore, there is a desire for BCBS standards, among others, regarding liquidity risk monitoring tools and additional explanations regarding the components of the Liquidity Coverage Ratio (LCR). Therefore, it is necessary to adjust the currently applicable LCR provisions so that their application can be carried out consistently.

In this regard, it is necessary to adjust the Financial Services Authority Regulation concerning the obligation to fulfill the liquidity coverage ratio (liquidity coverage ratio) for commercial banks, including the expansion of the scope of Banks and the harmonization of liquidity adequacy ratio components.

II. ARTICLE-BY-ARTICLE EXPLANATION

Article I Number 1 Article 1 It is clear enough.

Number 2 Article 5 Deleted.

Number 3 Article 10 It is clear enough.

Number 4 Article 12 Paragraph (1) Letter a Number 1 It is clear enough.

Number 2 It is clear enough.

Number 3 The use of ratings refers to regulations governing rating agencies and ratings recognized by the Financial Services Authority.

Number 4 The term market includes, among others, the money market and the repo market.

Number 5 Example: If the haircut is 17% (seventeen percent), the maximum increase in haircut is: 17% + 20% = 37%.

Number 6 The definition of residential mortgage loans refers to regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for commercial banks.

Number 7 Examples of loans classified as full recourse are when the Bank seizes assets because the debtor defaults, so that upon the sale of the assets, the debtor remains responsible for any shortfall in the sale proceeds of the assets against the debtor's debt. The average loan-to-value ratio in the portfolio to collateral value refers to the weighted average based on the credit portfolio balance (not based on per facility).

Number 8 Risk retention is carried out, among others, by the issuer of asset-backed securities retaining ownership of the securitized assets.

Letter b Number 1 The calculation of risk-weighted assets for credit risk using the standard approach refers to regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for commercial banks.

Number 2 See explanation of letter a number 4.

Number 3 See explanation of letter a number 5.

Number 4 It is clear enough.

Letter c Number 1 It is clear enough.

Number 2 See explanation of letter a number 3.

Number 3 See explanation of letter a number 4.

Number 4 See explanation of letter a number 5.

Letter d It is clear enough.

Paragraph (2) It is clear enough.

Number 5 Article 14 Letter a It is clear enough.

Letter b A penalty is considered significant if the penalty in question is greater than the Deposit interest, thereby cutting into the Deposit principal.

Letter c The amount of Deposits that can be excluded from the cash outflow calculation is at most equal to the outstanding amount of the credit facility or loan.

Number 6 Article 51 Paragraph (1) The term monitoring of liquidity conditions and adequacy using specific indicators includes, among others:

1. contractual maturity mismatch, which is monitoring using the contractual maturity mismatch indicator aimed at identifying the gap between contractual inflows and outflows within a certain period. The gap based on maturity indicates the Bank's potential liquidity needs within a certain period in the event of outflows;
2. Funding concentration, which is monitoring to identify significant corporate Funding sources that, if withdrawn, would cause liquidity problems. Funding concentration indicators are conducted through monitoring: a. the percentage of Funding sources originating from counterparties classified as significant against the Bank's total liabilities; Funding sources originating from s

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