POJK on Minimum Capital Provision Requirements for General Banks

FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 11 /POJK.03/2016
ON
MINIMUM CAPITAL PROVISION REQUIREMENTS FOR GENERAL BANKS BY THE GRACE OF THE ALMIGHTY GOD, 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, banks need to enhance their ability to absorb risks caused by crisis conditions and/or excessive banking credit growth; b. that in order to enhance banks' ability to absorb risks, it is necessary to improve the quality and quantity of bank capital in accordance with international standards;
c. that the improvement of capital quality is carried out through adjustments to bank capital component and instrument requirements and adjustments to capital ratios;
d. that in order to increase the quantity of capital, banks need to form additional capital above the minimum capital provision requirements according to risk profiles, functioning as a buffer (buffer) in the event of financial and economic crises that could disrupt financial system stability; FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA COPY

e. that based on the considerations referred to in letters a, b, c, and d, it is necessary to establish a Financial Services Authority Regulation on Minimum Capital Provision Requirements for General Banks;

Recalling:

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

DECIDING:
Establish: FINANCIAL SERVICES AUTHABILITY REGULATION ON MINIMUM CAPITAL PROVISION REQUIREMENTS FOR GENERAL BANKS.

CHAPTER I
GENERAL PROVISIONS

Article 1
In this Financial Services Authority Regulation:

1. Bank means a general bank as referred to in Law Number 7 of 1992 on Banking as amended by Law Number 10 of 1998, including branches of banks located outside the country, which conduct conventional business activities.

2. Board of Directors:
   a. for Banks in the form of a Limited Liability Company (Perseroan Terbatas), means the board of directors as referred to in Law Number 40 of 2007 on Limited Liability Companies; b. for Banks in the form of legal entities:

1. State-Owned Enterprises (Perusahaan Umum Daerah) or Regional State-Owned Enterprises (Perusahaan Perseroan Daerah) means the board of directors as referred to in Law Number 23 of 2014 on Regional Government as last amended by Law Number 9 of 2015;
2. Regional Enterprises (Perusahaan Daerah) means the board of directors at Banks that have not yet changed their form into State-Owned Enterprises or Regional State-Owned Enterprises according to Law Number 23 of 2014 on Regional Government as last amended by Law Number 9 of 2015;
   c. for Banks in the form of a Cooperative legal entity, means the management board as referred to in Law Number 25 of 1992 on Cooperatives;
   d. for banks with the status of branches of banks located outside the country, means the branch head and officials one level below the branch head.

3. Board of Commissioners:
   a. for Banks in the form of a Limited Liability Company (Perseroan Terbatas), means the board of commissioners as referred to in Law Number 40 of 2007 on Limited Liability Companies; b. for Banks in the form of legal entities:

1. State-Owned Enterprises (Perusahaan Umum Daerah) means the supervisory board as referred to in Law Number 23 of 2014 on Regional Government as last amended by Law Number 9 of 2015;
2. Regional State-Owned Enterprises (Perusahaan Perseroan Daerah) means commissioners as referred to in Law Number 23 of 2014 on Regional Government as last amended by Law Number 9 of 2015;
3. Regional Enterprises (Perusahaan Daerah) means supervisors at Banks that have not yet changed their form into State-Owned Enterprises or Regional State-Owned Enterprises according to Law Number 23 of 2014 on Regional Government as last amended by Law Number 9 of 2015;
   c. for Banks in the form of a Cooperative legal entity, means supervisors as referred to in Law Number 25 of 1992 on Cooperatives;
   d. for banks with the status of branches of banks located outside the country, means parties appointed to carry out supervisory functions.

4. Subsidiary Company means a legal entity or company owned and/or controlled by a Bank directly or indirectly, both inside and outside the country, which conducts business activities in the financial sector, consisting of:
   a. subsidiary company (subsidiary company), meaning a Subsidiary Company with Bank ownership of more than 50% (fifty percent); b. participation company (participation company) is a Subsidiary Company with Bank ownership of 50% (fifty percent) or less, but the Bank has control over the company;
   c. companies with Bank ownership of more than 20% (twenty percent) up to 50% (fifty percent) that meet the requirements:

1. Bank ownership and other parties' ownership in the Subsidiary Company are equal; and
2. each owner exercises joint control over the Subsidiary Company;
   d. other entities that must be consolidated based on financial accounting standards, but do not include insurance companies and companies owned for the purpose of credit restructuring.

5. Control means control as referred to in regulations regarding the application of integrated risk management for financial conglomerates.

6. Capital Equivalency Maintained Assets, hereinafter abbreviated as CEMA, is the allocation of business funds from branches of banks located outside the country that must be placed in financial assets in specific amounts and requirements.

7. Internal Capital Adequacy Assessment Process, hereinafter abbreviated as ICAAP, is a process conducted by the Bank to determine capital adequacy according to the Bank's risk profile and to determine strategies to maintain capital levels.

8. Supervisory Review and Evaluation Process, hereinafter abbreviated as SREP, is a review process conducted by the Financial Services Authority over the results of the Bank's ICAAP.

9. Capital Conservation Buffer is additional capital that functions as a buffer (buffer) in the event of losses during a crisis period.

10. Countercyclical Buffer is additional capital that functions as a buffer to anticipate losses in the event of excessive banking credit growth that has the potential to disrupt financial system stability.

11. Capital Surcharge for Domestic Systemically Important Bank, hereinafter referred to as Capital Surcharge for D-SIB, is additional capital that functions to reduce negative impacts on financial system and economic stability in the event of bank failure with systemic impact by increasing the Bank's ability to absorb losses.

12. Credit Risk is the risk resulting from the failure of debtors and/or other parties to fulfill their obligations to the Bank.

13. Market Risk is the risk on balance sheet positions and administrative accounts, including derivative transactions, resulting from overall changes in market conditions, including the risk of changes in option prices.

14. Operational Risk is the risk resulting from insufficient and/or non-functional internal processes, human error, system failures, and/or external events that affect Bank operations.

15. Trading Book means all financial instrument positions in the balance sheet and administrative accounts, including derivative transactions, owned by the Bank with the purpose of:
    a. being traded and freely transferable or can be hedged as a whole, whether from proprietary positions, customer requests, or brokering activities, and in the context of market making, which includes:

1. positions held for resale in the short term;
2. positions held for the purpose of obtaining actual and/or potential short-term profits from price movements; or
3. positions held for the purpose of locking in arbitrage profits;
   b. hedging other positions in the Trading Book.

16. Banking Book means all other positions not included in the Trading Book.

Article 2
(1) Banks are required to provide minimum capital according to their risk profile.
(2) The provision of minimum capital as referred to in paragraph (1) is calculated using the Minimum Capital Provision Ratio (KPMM).
(3) The provision of minimum capital as referred to in paragraph (1) is set at a minimum of:
a. 8% (eight percent) of Risk-Weighted Assets (RWA) for Banks with Risk Profile Rating 1; b. 9% (nine percent) up to less than 10% (ten percent) of RWA for Banks with Risk Profile Rating 2;
c. 10% (ten percent) up to less than 11% (eleven percent) of RWA for Banks with Risk Profile Rating 3; or
d. 11% (eleven percent) up to 14% (fourteen percent) of RWA for Banks with Risk Profile Rating 4 or Rating 5.
(4) The Financial Services Authority has the authority to set minimum capital higher than the minimum capital as referred to in paragraph (3) if the Financial Services Authority assesses that the Bank faces potential losses requiring greater capital. (5) The obligation to meet minimum capital according to risk profile as referred to in paragraph (1) is established:
a. capital fulfillment for positions from March to August is based on the risk profile rating for the position in December of the previous year; b. capital fulfillment for positions from September to February of the following year is based on the risk profile rating for the position in June;
c. in the event of a change in risk profile rating between risk profile assessment periods, capital fulfillment is based on the latest risk profile rating.

Article 3
(1) In addition to the minimum capital provision obligation according to risk profile as referred to in Article 2, Banks are required to form additional capital as a buffer (buffer) according to criteria regulated in this Financial Services Authority Regulation. (2) Additional capital as referred to in paragraph (1) may consist of:
a. Capital Conservation Buffer; b. Countercyclical Buffer; and/or
c. Capital Surcharge for D-SIB.
(3) The magnitude of additional capital as referred to in paragraph (2) is regulated:
a. Capital Conservation Buffer is set at 2.5% (two point five percent) of RWA; b. Countercyclical Buffer is set in a range of 0% (zero percent) up to 2.5% (two point five percent) of RWA;
c. Capital Surcharge for D-SIB is set in a range of 1% (one percent) up to 2.5% (two point five percent) of RWA.
(4) The percentage magnitude of the Countercyclical Buffer as referred to in paragraph (3) letter b is based on the determination by the competent authority. (5) The Financial Services Authority determines the percentage of the Capital Surcharge for D-SIB as referred to in paragraph (3) letter c. (6) In determining the magnitude of the Capital Surcharge for D-SIB as referred to in paragraph (5), the Financial Services Authority coordinates with the competent authority. (7) The Financial Services Authority may determine a higher percentage of the Capital Surcharge for D-SIB than the range as referred to in paragraph (3) letter c. (8) The fulfillment of additional capital as referred to in paragraph (3) is met with Core Tier 1 capital (Common Equity Tier 1). (9) The fulfillment of additional capital as referred to in paragraph (8) is calculated after Core Tier 1 capital (Common Equity Tier 1) is allocated to fulfill the provision obligations:
a. minimum core capital as referred to in Article 11 paragraph (3); b. minimum core capital as referred to in Article 11 paragraph (2); and
c. minimum capital according to risk profile as referred to in Article 2 paragraph (3).

Article 4
(1) Banks classified as General Business Banks (BUKU) 3 and BUKU 4 are required to form a Capital Conservation Buffer as referred to in Article 3 paragraph (3) letter a. (2) The obligation to form a Countercyclical Buffer as referred to in Article 3 paragraph (3) letter b applies to all Banks. (3) Banks designated as systemically important are required to form a Capital Surcharge for D-SIB as referred to in Article 3 paragraph (3) letter c.

Article 5
(1) The Financial Services Authority determines Banks that are systemically important as referred to in Article 4 paragraph (3).
(2) The Financial Services Authority coordinates with the competent authority in determining Banks that are systemically important as referred to in paragraph (1).

Article 6
(1) The Bank's obligation to form additional capital in the form of a Capital Conservation Buffer as referred to in Article 3 paragraph (3) letter a applies progressively starting from January 1, 2016. (2) The formation of the Capital Conservation Buffer as referred to in paragraph (1) must be fulfilled progressively:
a. at 0.625% (zero point six two five percent) of RWA starting from January 1, 2016; b. at 1.25% (one point two five percent) of RWA starting from January 1, 2017;
c. at 1.875% (one point eight seven five percent) of RWA starting from January 1, 2018; and
d. at 2.5% (two point five percent) of RWA starting from January 1, 2019.
(3) The Bank's obligation to form additional capital in the form of a Countercyclical Buffer as referred to in Article 3 paragraph (3) letter b takes effect on January 1, 2016. (4) The Bank's obligation to form a Capital Surcharge for D-SIB for Banks designated as systemically important as referred to in Article 3 paragraph (3) letter c takes effect on January 1, 2016. (5) Calculation methods and procedures for forming the Capital Surcharge for D-SIB are further regulated in Financial Services Authority regulations. (6) The Financial Services Authority coordinates with the competent authority in determining calculation methods and procedures for forming the Capital Surcharge for D-SIB as referred to in paragraph (5).

Article 7
In the event that a Bank owns and/or exercises Control over a Subsidiary Company, the minimum capital provision obligation as referred to in Article 2 and the obligation to form additional capital as a buffer (buffer) as referred to in Article 3 apply to the Bank both individually and on a consolidated basis with the Subsidiary Company.

Article 8
(1) Banks are prohibited from distributing profits if the distribution of profits results in the Bank's capital conditions not meeting the provisions as referred to in Article 2, both individually and on a consolidated basis with Subsidiary Companies. (2) Banks are subject to profit distribution restrictions if the distribution of profits results in the Bank's capital conditions not meeting the provisions as referred to in Article 3, both individually and on a consolidated basis with Subsidiary Companies. (3) Banks must implement profit distribution restrictions as referred to in paragraph (2). (4) The Financial Services Authority establishes profit distribution restrictions as referred to in paragraph (2).

CHAPTER II
CAPITAL

First Section
General

Article 9
(1) Capital for Banks with headquarters in Indonesia consists of:
a. core capital (Tier 1) which includes:

1. core capital main (Common Equity Tier 1);
2. additional core capital (Additional Tier 1); and
   b. supplementary capital (Tier 2).
   (2) Capital as referred to in paragraph (1) must take into account factors that are capital deductions as referred to in Article 17 and Article 22. (3) In consolidated capital calculations, the capital components of Subsidiary Companies that can be counted as core capital main, additional core capital, and supplementary capital must meet the requirements applicable to each capital component as applied to Banks individually. (4) In consolidated capital calculations as referred to in paragraph (3) for additional core capital and supplementary capital issued by Subsidiary Companies that are not Banks must:
   a. meet the requirements as referred to in paragraph (3); and b. have features to be converted into ordinary shares or a write-down mechanism, in the event that the Bank on a consolidated basis potentially faces disruption of its business (point of non-viability). (5) Features to be converted into ordinary shares or write-down mechanisms as referred to in paragraph (4) letter b must be clearly stated in the issuance documentation.

Article 10
(1) Capital for branches of banks located outside the country consists of:
a. business funds; b. retained earnings and prior year profits after deducting the influence of factors as referred to in Article 14 paragraph (2);
c. current year profits after deducting the influence of factors as referred to in Article 14 paragraph (2);
d. general reserves; e. surplus balance of fixed asset revaluation; f. other comprehensive income in the form of potential gains from increases in the fair value of financial assets classified in the available-for-sale group; g. purpose reserves; and h. general reserves for Provisions for Asset Write-offs (PPA) on productive assets with calculations as referred to in Article 20 paragraph (1) letter c. (2) Capital for branches of banks located outside the country as referred to in paragraph (1) must take into account factors that are capital deductions as regulated in Article 14 paragraph (1) letter b, Article 17, and Article 22. (3) The calculation of business funds as a capital component as referred to in paragraph (1) letter a is conducted in the event that:
a. the actual business funds position (actual business funds) is greater than the declared business funds (declared business funds), in which case the declared business funds are counted; b. the actual business funds position (actual business funds) is smaller than the declared business funds (declared business funds), in which case the actual business funds are counted;
c. the actual business funds position is negative, becoming a deduction factor for capital components as referred to in paragraph (1).

Second Section
Core Capital

Article 11
(1) Core capital as referred to in Article 9 paragraph (1) letter a consists of:
a. core capital main (Common Equity Tier 1) which includes:

1. paid-in capital;
2. disclosed reserves; and
   b. additional core capital (Additional Tier 1).
   (2) Banks are required to provide core capital of at least 6% (six percent) of RWA, both individually and on a consolidated basis with Subsidiary Companies. (3) Banks are required to provide core capital main of at least 4.5% (four point five percent) of RWA, both individually and on a consolidated basis with Subsidiary Companies.

Article 12
Paid-in capital instruments as referred to in Article 11 paragraph (1) letter a number 1 must meet the requirements:
a. issued and fully paid; b. subordinated to other capital components;
c. permanent in nature;
d. available to absorb losses occurring before liquidation and during liquidation; e. returns are uncertain and cannot be accumulated across periods; f. not protected or guaranteed by the Bank or Subsidiary Company; g. having dividend or return payment characteristics:

1. derived from profit balances and/or current year profits;
2. do not have a fixed value and are not related to the value paid for the capital instrument;
3. do not have preference features; and
   h. funding sources do not originate from the issuing Bank directly or indirectly.

Article 13
Repurchase of treasury stock recognized as paid-in capital components must meet the requirements:
a. after a period of 5 (five) years since issuance; b. for specific purposes;
c. conducted in accordance with laws and regulations;
d. has obtained approval from the Financial Services Authority; and e. does not cause capital to fall below minimum requirements as referred to in Article 2, Article 3, and Article 7.

Article 14
(1) Disclosed reserves as referred to in Article 11 paragraph (1) letter a number 2 consist of:
a. adding factors, namely:

1. premium arising from the issuance of instruments classified as core capital main (Common Equity Tier 1);
2. contributed capital;
3. general reserves;
4. prior year profits;
5. current year profits;
6. translation differences;
7. paid-in capital funds, which meet the requirements:
   a) fully paid for the purpose of increasing capital but not yet supported by complete requirements to be classified as paid-in capital such as holding a general meeting of shareholders or approval of the articles of association by the competent authority; b) placed in a special account (escrow account) that does not provide returns; c) cannot be withdrawn by shareholders or prospective shareholders and is available to absorb losses; and d) use of funds must be approved by the Financial Services Authority;
8. warrants issued as incentives to Bank shareholders recognized at 50% (fifty percent) of fair value and must meet the requirements:
   a) the underlying instrument is ordinary shares; b) cannot be converted into forms other than shares; and c) the value counted is the fair value of the warrant on the date of issuance;
9. stock options (stock option) issued through employee or management stock-based compensation programs (employee or management stock option) recognized at 50% (fifty percent), meeting the requirements:
   a) the underlying instrument is ordinary shares; b) cannot be converted into forms other than shares; and c) the value counted is the fair value of the stock option on the date of compensation grant;
10. other comprehensive income in the form of potential gains from increases in the fair value of financial assets categorized as available-for-sale; and
11. surplus balance of fixed asset revaluation;
    b. deduction factors, namely:
12. discount arising from the issuance of instruments classified as core capital main (Common Equity Tier 1);
13. prior year losses;
14. current year losses;
15. translation differences;
16. other comprehensive income in the form of:
    a) potential losses arising from decreases in the fair value of financial assets

classified as available for sale; and b) losses from remeasurement of defined benefit pension programs;
6. the shortfall between the Provision for Productive Asset Impairment (PPA) on productive assets and the Reserve for Asset Value Decline (CKPN) on productive assets;
7. the shortfall between the adjustment amount for valuation results of financial instruments in the Trading Book and the adjustment amount based on financial accounting standards; and
8. Non-productive PPA.
(2) In the calculation of prior years' and/or current year's profit and loss as referred to in paragraph (1) letter a numbers 4 and 5, the influence of the following factors must be excluded:
a. increase or decrease in fair value of financial liabilities; and/or b. gains from the sale of assets in securitization transactions (gain on sale).

Article 15
(1) Additional Core Capital instruments as referred to in Article 11 paragraph (1) letter b must meet the following requirements:
a. issued and fully paid; b. have no maturity date and contain no requirements mandating repayment by the Bank in the future;
c. repurchase or principal repayment of the instrument must obtain supervisory approval;
d. have no step-up feature; e. have a feature to be converted into ordinary shares or a write-down mechanism in the event the Bank is potentially disrupted in its business continuity (point of non-viability), which is clearly stated in the issuance documentation or agreement; f. are subordinate in the event of liquidation, which is clearly stated in the issuance documentation or agreement; g. the acquisition of returns cannot be guaranteed in both amount and timing and cannot be accumulated across periods; h. are not protected or guaranteed by the Bank or Subsidiary;
i. have no dividend or return payment feature that is sensitive to Credit Risk;
j. in the event accompanied by a call option feature, must meet the following requirements:

1. can only be executed at the earliest 5 (five) years after the capital instrument is issued; and
2. the issuance documentation must state that the option can only be executed with the approval of the Financial Services Authority;
   k. cannot be purchased by the issuing Bank and/or Subsidiary;
   l. the funding source does not originate from the issuing Bank either directly or indirectly;
   m. have no features that hinder the process of adding capital in the future; and n. have obtained approval from the Financial Services Authority to be counted as a capital component. (2) The execution of the call option as referred to in paragraph (1) letter j numbers 1 and 2 can only be carried out by the Bank as long as:
   a. it has obtained approval from the Financial Services Authority; b. it does not cause a decrease in capital below the minimum requirements as referred to in Article 2, Article 3, and Article 7; and
   c. it is replaced with a capital instrument of equal or better quality.

Article 16
(1) In the calculation of the Minimum Capital Adequacy Ratio (KPMM) on a consolidated basis, non-controlling interest must be counted as Core Capital unless there is a portion of non-controlling interest that does not meet the requirements for Core Capital components. (2) Non-controlling interest as referred to in paragraph (1) can be counted in Core Capital on a consolidated basis if the Bank's ownership in the Subsidiary is more than 50% (fifty percent) and meets the following requirements:
a. the Subsidiary is a Bank; b. there is a relationship or affiliation between the non-controlling shareholders of the Subsidiary and the Bank; and
c. there is a commitment from the non-controlling shareholders of the Subsidiary to support the Bank group's capital, stated in a letter of statement or a decision of the General Meeting of Shareholders of the Subsidiary.

Article 17
(1) Core Capital as referred to in Article 9 paragraph (1) letter a number 1 is calculated with deduction factors consisting of:
a. deferred tax calculation; b. goodwill;
c. intangible assets;
d. all of the Bank's participations, including:

1. the Bank's participation in Subsidiaries, except for the Bank's temporary capital participation in Subsidiaries for the purpose of credit restructuring;
2. participation in companies or legal entities where the Bank's ownership is more than 20% (twenty percent) up to 50% (fifty percent) but the Bank does not have Control; and
3. participation in insurance companies;
   e. capital shortfall (shortfall) from meeting the minimum solvency ratio (Risk Based Capital or RBC minimum) in insurance companies owned and controlled by the Bank; f. securitization exposure; g. other Core Capital deduction factors as referred to in Article 22. (2) The capital deduction factors as referred to in paragraph (1) letter d and letter e are no longer counted in RWA for Credit Risk.

Third Part
Supplementary Capital

Article 18
Supplementary Capital as referred to in Article 9 paragraph (1) letter b can only be counted up to a maximum of 100% (one hundred percent) of Core Capital as referred to in Article 9 paragraph (1) letter a.

Article 19
(1) Supplementary Capital instruments as referred to in Article 9 paragraph (1) letter b must meet the following requirements:
a. issued and fully paid; b. have a maturity of 5 (five) years or more and can only be repaid after obtaining approval from the Financial Services Authority;
c. have a feature to be converted into ordinary shares or a write-down mechanism in the event the Bank is potentially disrupted in its business continuity (point of non-viability), which is clearly stated in the issuance documentation or agreement;
d. are subordinate, as stated in the issuance documentation or agreement; e. principal and/or return payments are deferred and accumulated across periods (cumulative) if payment could cause the KPMM ratio individually or on a consolidated basis to not meet the provisions as referred to in Article 2, Article 3, and Article 7; f. are not protected or guaranteed by the Bank or Subsidiary; g. have no dividend or return payment feature that is sensitive to Credit Risk; h. have no step-up feature;
i. if accompanied by a call option feature, must meet the following requirements:

1. can only be executed at the earliest 5 (five) years after the capital instrument is issued; and
2. the issuance documentation must state that the option can only be executed with the approval of the Financial Services Authority;
   j. have no requirements for acceleration of interest or principal payments stated in the issuance documentation or agreement; k. cannot be purchased by the issuing Bank and/or Subsidiary;
   l. the funding source does not originate from the issuing Bank either directly or indirectly; and
   m. have obtained approval from the Financial Services Authority to be counted as a capital component.
   (2) The execution of the call option as referred to in paragraph (1) letter i numbers 1 and 2 can only be carried out by the Bank as long as:
   a. it has obtained approval from the Financial Services Authority; and b. it does not cause a decrease in capital below the minimum requirements as referred to in Article 2, Article 3, and Article 7 or is replaced with a capital instrument that has:
3. equal or better quality; and
4. the same amount or a different amount as long as it does not exceed the Supplementary Capital limit as referred to in Article 18.
   (3) The amount that can be counted as Supplementary Capital is the Supplementary Capital amount minus amortization calculated using the straight-line method. (4) Amortization as referred to in paragraph (3) is carried out for the remaining 5 (five) years of the instrument's maturity. (5) In the event there is a call option, the time until the Bank can execute the call option is considered the remaining maturity of the instrument.

Article 20
(1) Supplementary Capital includes:
a. capital instruments in the form of shares or other forms that meet the requirements as referred to in Article 19; b. premium or discount arising from the issuance of capital instruments classified as Supplementary Capital;
c. general PPA reserves on productive assets that must be calculated at a minimum of 1.25% (one point two five percent) of RWA for Credit Risk; and
d. specific reserves.
(2) The excess of general reserves that must be calculated from the limit as referred to in paragraph (1) letter c can be counted as a deduction factor in the calculation of RWA for Credit Risk.

Article 21
A portion of Supplementary Capital that has formed a sinking fund is not counted as a Supplementary Capital component if the Bank:
a. has determined to set aside and manage the sinking fund specifically; and b. has publicized the formation of the sinking fund, including in the General Meeting of Bondholders (RUPO).

Article 22
(1) Factors that serve as capital deductions as referred to in Article 9 paragraph (2) and Article 10 paragraph (2) include:
a. repurchase of capital instruments that have been recognized as the Bank's capital components; and b. placement of funds in debt instruments of other Banks that are recognized as capital components by the other Bank (issuing Bank). (2) All capital deduction factors as referred to in paragraph (1) letter b are no longer counted in RWA for Credit Risk.

Article 23
In the calculation of KPMM on a consolidated basis as referred to in Article 9 paragraph (3), the Bank must submit supporting data for Additional Core Capital and Supplementary Capital components, showing that the Subsidiary's capital components counted have met all requirements as capital components.

Fourth Part
Capital Equivalency Maintained Assets (CEMA)

Article 24
(1) Branch offices of banks domiciled abroad must meet the minimum CEMA.
(2) The minimum CEMA as referred to in paragraph (1) is set at 8% (eight percent) of the total liabilities of the branch office of the bank domiciled abroad each month and at least Rp1,000,000,000,000.00 (one trillion rupiah). (3) Fulfillment of the minimum CEMA as referred to in paragraph (2) is carried out in stages:
a. up to the position in November 2017, the minimum CEMA is set at 8% (eight percent) of the total liabilities of the branch office of the bank domiciled abroad each month; b. starting from the position in December 2017, the minimum CEMA is set at 8% (eight percent) of the total liabilities of the branch office of the bank domiciled abroad each month and at least Rp1,000,000,000,000.00 (one trillion rupiah).

Article 25
(1) The minimum CEMA as referred to in Article 24 paragraph (2) must be fulfilled from business funds as referred to in Article 10 paragraph (1) letter a. (2) The business funds owned by the branch office of the bank domiciled abroad must meet KPMM according to the risk profile and the minimum CEMA. (3) The minimum CEMA as referred to in Article 24 paragraph (2) is calculated every month. (4) The minimum CEMA as referred to in Article 24 paragraph (2) must be fulfilled and placed no later than the 6th day of the following month.

Article 26
(1) Branch offices of banks domiciled abroad must designate financial assets used to meet the minimum CEMA.
(2) Financial assets designated to meet the minimum CEMA are prohibited from being exchanged and changed during the CEMA fulfillment period.
(3) Financial assets as referred to in paragraph (1) that meet the requirements and can be counted as CEMA are:
a. securities issued by the Government of the Republic of Indonesia and intended to be held until maturity; b. securities issued by other Banks with Indonesian legal entity status and meeting the criteria:

1. are not equity in nature;
2. have an investment grade rating; and
3. are not intended for trading purposes; and/or
   c. securities issued by Indonesian legal entity corporations and meeting the criteria:
4. are not equity in nature;
5. have a security rating of at least A+ or equivalent;
6. are not intended for trading purposes; and
7. the portion of corporate securities is at most 20% (twenty percent) of the total minimum CEMA.
   (4) Financial assets used as CEMA must be free from claims by anyone.
   (5) Calculation of financial assets used to meet the minimum CEMA:
   a. for financial assets already owned by the Bank, calculated based on the recorded value of the financial assets at the end of the reporting month position; b. for financial assets purchased after the end of the reporting month position, calculated based on the recorded value of the financial assets at the position of purchase of the financial assets.

CHAPTER III
RISK-WEIGHTED ASSETS (RWA)

First Part
General

Article 27
RWA used in the calculation of minimum capital as referred to in Article 2 paragraph (3) and the calculation of additional capital formation as a buffer as referred to in Article 3 paragraph (3) consists of:
a. RWA for Credit Risk; b. RWA for Operational Risk; and
c. RWA for Market Risk.

Article 28
(1) Every Bank must calculate RWA for Credit Risk and RWA for Operational Risk.
(2) In addition to meeting the obligations as referred to in paragraph (1), Banks meeting certain criteria must calculate RWA for Market Risk.

Article 29
Certain criteria as referred to in Article 28 paragraph (2) are:
a. Banks that individually meet one of the following criteria:

1. Banks with total assets of Rp10,000,000,000,000.00 (ten trillion rupiah) or more;
2. Banks conducting business in foreign currency with a position of financial instruments in the form of securities and/or derivative transactions in the Trading Book of Rp20,000,000,000.00 (twenty billion rupiah) or more; or
3. Banks not conducting business in foreign currency with a position of financial instruments in the form of securities and/or interest rate derivative transactions in the Trading Book of Rp25,000,000,000.00 (twenty-five billion rupiah) or more,
   and/or b. Banks that on a consolidated basis with Subsidiaries meet one of the following criteria:
4. Banks conducting business in foreign currency that on a consolidated basis with Subsidiaries have a position of financial instruments in the form of securities including financial instruments exposed to equity risk and/or derivative transactions in the Trading Book and/or financial instruments exposed to commodity risk in the Trading Book and Banking Book of Rp20,000,000,000.00 (twenty billion rupiah) or more;
5. Banks not conducting business in foreign currency but on a consolidated basis with Subsidiaries have a position of financial instruments in the form of securities including financial instruments exposed to equity risk and/or derivative transactions in the Trading Book and/or financial instruments exposed to commodity risk in the Trading Book and Banking Book of Rp25,000,000,000.00 (twenty-five billion rupiah) or more;
   c. Banks that have a network of offices and/or Subsidiaries in other countries or branch offices of banks domiciled abroad.

Article 30
Financial assets that at initial recognition are designated as financial assets measured at fair value through profit and loss and credits classified in the trading group are excluded from the scope of the Trading Book.

Article 31
Securities in the Trading Book only include securities classified in the trading group.

Article 32
Banks that after a merger, consolidation, or acquisition meet certain criteria as referred to in Article 29 for at least 3 (three) monthly reporting periods in the first 6 (six) months after the merger, consolidation, or acquisition becomes effective, must calculate Market Risk in the KPMM ratio calculation starting from the 7th (seven) month after the merger, consolidation, or acquisition becomes effective.

Article 33
Banks that have met certain criteria as referred to in Article 29 and Banks that after a merger, consolidation, or acquisition meet certain criteria as referred to in Article 32 must continue to calculate Market Risk in minimum capital adequacy obligations even if subsequently the Bank no longer meets certain criteria.

Second Part
Credit Risk

Article 34
(1) In the calculation of RWA for Credit Risk, there are 2 (two) approaches that can be used, namely:
a. Standardized Approach; and/or b. Internal Rating Based Approach.
(2) For initial implementation, the calculation of RWA for Credit Risk must be carried out using the Standardized Approach.
(3) Banks must obtain prior approval from the Financial Services Authority to use the Internal Rating Based Approach as referred to in paragraph (1) letter b.

Third Part
Operational Risk

Article 35
(1) In the calculation of RWA for Operational Risk, there are 3 (three) approaches that can be used, namely:
a. Basic Indicator Approach; b. Standardized Approach; and/or
c. Advanced Measurement Approach.
(2) For initial implementation, the calculation of RWA for Operational Risk must be carried out using the Basic Indicator Approach.
(3) Banks must obtain prior approval from the Financial Services Authority to use the approaches as referred to in paragraph (1) letter b and letter c.

Fourth Part
Market Risk

Article 36
(1) Market Risk that must be calculated by Banks individually and on a consolidated basis with Subsidiaries is:
a. interest rate risk; and/or b. exchange rate risk.
(2) Banks on a consolidated basis with Subsidiaries must calculate equity risk and/or commodity risk in addition to Market Risk as referred to in paragraph (1) if they meet the criteria:
a. have Subsidiaries exposed to equity risk and/or commodity risk; and b. on a consolidated basis with Subsidiaries meet the criteria as referred to in Article 29 letter b.

Article 37
(1) Banks must perform daily valuation of positions measured at fair value in the Trading Book and Banking Book accurately.
(2) In performing valuation as referred to in paragraph (1), Banks must have valuation policies and procedures, including having adequate and integrated management information systems and valuation process control with the risk management system. (3) Valuation policies and procedures as referred to in paragraph (2) must be based on the principle of prudence.

Article 38
(1) The valuation process must be based on fair value.
(2) For financial instruments actively traded, the valuation process as referred to in paragraph (1) is carried out using transaction prices that occur (close-out prices) or market price quotations from independent sources. (3) Valuation of financial instruments as referred to in paragraph (2) uses:
a. bid price for assets owned or liabilities to be issued; and/or b. ask price for assets to be acquired or liabilities held.
(4) In the event market prices as referred to in paragraph (2) are not available, Banks may determine fair value using a model or valuation technique based on the principle of prudence.

Article 39
(1) Banks must verify the valuation process and results.
(2) Verification as referred to in paragraph (1) must be carried out at least 1 (one) time in 1 (one) month by parties not involved in the implementation of the valuation. (3) Banks must adjust the valuation results based on the verification results as referred to in paragraph (1).

Article 40
Banks must immediately make adjustments to valuation results that do not yet reflect fair value in the event:
a. there is a significant change in economic conditions; b. the price of financial instruments used as a reference is a price resulting from forced transactions, forced liquidation, or sales due to financial difficulties;
c. financial instruments are approaching maturity; and/or
d. the price used as a reference is unfair due to other conditions.

Article 41
(1) In addition to adjustments as referred to in Article 40, Banks must make adjustments to valuations of less liquid positions by considering certain factors. (2) In the event adjustments as referred to in paragraph (1) are made, Banks must calculate the impact of the adjustments as a deduction factor for Core Capital in the KPMM ratio calculation.

Article 42
(1) In the calculation of RWA for Market Risk, there are 2 (two) approaches that can be used, namely:
a. Standard Method; and/or b. Internal Model.
(2) For initial implementation, for Banks meeting certain criteria as referred to in Article 29, the calculation of RWA for Market Risk must be carried out using the Standard Method. (3) Banks must obtain prior approval from the Financial Services Authority to use the Internal Model approach as referred to in paragraph (1) letter b.

CHAPTER IV
Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP)

First Part
Internal Capital Adequacy Assessment Process (ICAAP)

Article 43
(1) In meeting minimum capital adequacy obligations according to risk profile as referred to in Article 2 both individually and on a consolidated basis with Subsidiaries, Banks must have an ICAAP adjusted to the size, characteristics, and complexity of the Bank's business. (2) ICAAP as in paragraph (1) includes at least:
a. active supervision by the Board of Directors and Board of Commissioners; b. capital adequacy assessment;
c. monitoring and reporting; and
d. internal control.
(3) Banks must document the ICAAP.

Second Part
Supervisory Review and Evaluation Process (SREP)

Article 44
(1) The Financial Services Authority conducts SREP.
(2) Based on the results of SREP, the Financial Services Authority may request Banks to improve the ICAAP.

Article 45
(1) In the event there is a difference in the results of risk-profile-based capital calculation between the Bank's self-assessment results and SREP results, the capital calculation that applies is the SREP results. (2) In the event the Financial Services Authority assesses that the capital owned by the Bank does not meet the minimum capital according to risk profile as referred to in Article 2 both individually and on a consolidated basis with Subsidiaries, the Financial Services Authority may request the Bank to:
a. add capital to meet KPMM according to risk profile; b. improve the quality of the risk management process; and/or
c. reduce risk exposure.

Article 46
In the event the Financial Services Authority assesses there is a tendency for the Bank's capital to decrease that potentially causes the Bank's capital to be below KPMM according to risk profile, the Financial Services Authority may request the Bank to carry out among others:
a. restrictions on certain business activities; b. restrictions on opening new office networks; and/or
c. restrictions on capital distribution.

CHAPTER V
REPORTING
Article 47
(1) Banks that fulfill the obligation to calculate Minimum Capital Requirements (KPMM) on a consolidated basis as referred to in Article 7 must submit consolidated KPMM calculation reports. (2) Banks that meet certain criteria as referred to in Article 29 must submit KPMM calculation reports taking into account Market Risk. (3) The preparation and submission of reports as referred to in paragraphs (1) and (2) must refer to regulations governing periodic reports of commercial banks.

Article 48
(1) Banks must submit KPMM calculation reports according to their risk profile to the Financial Services Authority (OJK).
(2) The reports as referred to in paragraph (1) must be submitted simultaneously with the submission of the bank's self-assessment results regarding its health level.

Article 49
(1) Branch offices of banks located outside the country must submit reports on the fulfillment of Capital Equivalency Maintained Assets (CEMA).
(2) The CEMA fulfillment reports as referred to in paragraph (1) must contain at least information regarding:
a. average total liabilities on a weekly basis as referred to in Article 24 paragraph (2); b. the amount of business funds allocated in the form of CEMA;
c. the type of assets and fulfillment of CEMA financial asset criteria;
d. the book value of each CEMA financial asset; and e. the maturity date of CEMA financial assets.

Article 50
(1) The reports as referred to in Article 49 paragraph (1) are prepared every month and must be submitted to the Financial Services Authority no later than the 8th day of the following month. (2) If the final deadline for submitting reports as referred to in paragraph (1) falls on a Saturday, Sunday, and/or a holiday, the CEMA fulfillment report must be submitted on the next working day.

Article 51
(1) A bank is considered to have submitted its report late as referred to in Article 48 paragraph (1) and Article 49 paragraph (1) if the report is received by the Financial Services Authority after the submission deadline up to a maximum of 5 (five) days after the submission deadline. (2) A bank is considered to have not submitted its report as referred to in Article 48 paragraph (1) and Article 49 paragraph (1) if the report has not been received by the Financial Services Authority until the delay deadline as referred to in paragraph (1). (3) Banks considered to have not submitted their reports as referred to in paragraph (2) remain obligated to submit reports as referred to in Article 48 paragraph (1) and Article 49 paragraph (1).

Article 52
Reports as referred to in Article 48 paragraph (1) and Article 49 paragraph (1) must be submitted to:
a. the relevant Bank Supervision Department or Regional Office 1 for Greater Jakarta, Banten, Lampung, and Kalimantan, for Banks with headquarters or branch offices of banks located outside the country located in the Greater Jakarta (Jabodetabek) area, and Banten Province; or b. the Regional Office of the Financial Services Authority or the local Office of the Financial Services Authority for Banks with headquarters located outside the Greater Jakarta (Jabodetabek) area, and Banten Province.

CHAPTER VI
OTHER PROVISIONS
Article 53
Banks are prohibited from trading financial assets in the Available-for-Sale category, conducted in a pattern resembling trading of financial assets in the Trading category:
a. in significant amounts; and/or b. with high frequency.

Article 54
The Financial Services Authority, based on considerations of economic conditions and financial system stability, while still adhering to the principle of prudence, has the authority to determine:
a. risk weights for Risk-Weighted Assets (ATMR) that differ from the risk weights regulated in the implementing regulations of this Financial Services Authority Regulation; and b. additional capital amounts as buffers that differ from the additional capital amounts regulated in this Financial Services Authority Regulation.

CHAPTER VII
SANCTIONS
Article 55
Banks that violate provisions as regulated in Article 2 paragraph (1), Article 3 paragraph (1), Article 4, Article 6 paragraph (1), Article 6 paragraph (2), Article 6 paragraph (3), Article 6 paragraph (4), Article 7, Article 8 paragraph (1), Article 8 paragraph (3), Article 9 paragraph (2), Article 10 paragraph (2), Article 11 paragraph (2), Article 11 paragraph (3), Article 12, Article 13, Article 15, Article 16, Article 18, Article 19, Article 20 paragraph (2), Article 21, Article 23, Article 24 paragraph (1), Article 25, Article 26, Article 27, Article 28, Article 29, Article 30, Article 31, Article 32, Article 33, Article 34 paragraph (2), Article 34 paragraph (3), Article 35 paragraph (2), Article 35 paragraph (3), Article 36, Article 37, Article 38 paragraph (1), Article 39, Article 40, Article 41, Article 42 paragraph (2), Article 42 paragraph (3), Article 43 paragraph (1), Article 43 paragraph (3), Article 47, Article 48 paragraph (1), Article 49 paragraph (1), Article 50 paragraph (1), or Article 51 paragraph (3) are subject to administrative sanctions, including:
a. written reprimand; b. prohibition of profit transfers for branch offices of banks located outside the country;
c. prohibition of business activity expansion;
d. suspension of certain business activities; e. prohibition of opening office networks; f. downgrade of the Bank's health level; and/or g. listing of the Bank's management and/or shareholders in the list of persons prohibited from becoming shareholders and management of Banks.

Article 56
Banks that violate reporting provisions as referred to in Article 47 are also subject to sanctions as regulated in regulations governing periodic reports of commercial banks.

Article 57
(1) In addition to sanctions as referred to in Article 55, Banks that are considered:
a. to have submitted reports late as referred to in Article 51 paragraph (1), are subject to administrative sanctions in the form of a fine of IDR 1,000,000.00 (one million rupiah) per working day of delay; b. to have not submitted reports as referred to in Article 51 paragraph (2), are subject to administrative sanctions in the form of a fine of IDR 50,000,000.00 (fifty million rupiah). (2) In the event that a Bank is subject to administrative sanctions in the form of a fine for being considered to have not submitted reports, administrative sanctions in the form of fines for late submission of reports are not applied.

Article 58
In addition to administrative sanctions as referred to in Article 55, Banks that do not fulfill Minimum Capital Requirements (KPMM) according to their risk profile as referred to in Article 2, both individually and on a consolidated basis with Subsidiary Companies, are required to take supervisory steps or actions as regulated in regulations concerning supervisory follow-up and the determination of Bank status.

Article 59
(1) Banks that violate provisions as referred to in Article 53 are subject to sanctions prohibiting the recording of subsequent purchases of financial assets in the Available-for-Sale category for 6 (six) months calculated from the date the supervisory letter is issued by the Financial Services Authority. (2) Banks that violate provisions as referred to in Article 53 for the second time are subject to sanctions prohibiting the recording of subsequent purchases of financial assets in the Available-for-Sale category for 1 (one) year calculated from the date the supervisory letter is issued by the Financial Services Authority. (3) Banks that violate provisions as referred to in Article 53 more than 2 (two) times are subject to sanctions prohibiting the recording of subsequent purchases of financial assets in the Available-for-Sale category for 2 (two) years calculated from the date the supervisory letter is issued by the Financial Services Authority.

CHAPTER VIII
TRANSITIONAL PROVISIONS
Article 60
Capital instruments without a maturity date that have been recognized in the Minimum Capital Requirement (KPMM) calculation as of December 31, 2013, but no longer meet the capital component criteria according to this Financial Services Authority Regulation, may continue to be recognized as capital components until December 31, 2018.

Article 61
Capital instruments with a maturity date that have been recognized in the Minimum Capital Requirement (KPMM) calculation as of December 31, 2013, but no longer meet the capital component criteria according to this Financial Services Authority Regulation, may continue to be recognized as capital components until maturity and their maturity date cannot be extended.

Article 62
Capital instruments issued since January 1, 2014, must meet the requirements as regulated in this Financial Services Authority Regulation.

CHAPTER IX
CLOSING PROVISIONS
Article 63
Further provisions of this Financial Services Authority Regulation are regulated in Financial Services Authority Circular Letters.

Article 64
At the time this Financial Services Authority Regulation comes into force:
a. Bank Indonesia Regulation Number 15/12/PBI/2013 dated December 12, 2013, concerning Minimum Capital Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2013 Number 223, Supplement to the State Gazette of the Republic of Indonesia Number 5469); and b. Bank Indonesia Circular Letter Number 9/31/DPNP dated December 12, 2007, regarding Guidelines for the Use of Internal Models in the Calculation of Minimum Capital Requirements for Commercial Banks Taking into Account Market Risk; are revoked and declared invalid.

Article 65
At the time this Financial Services Authority Regulation comes into force:
a. Bank Indonesia Circular Letter Number 9/33/DPNP dated December 18, 2007, regarding Guidelines for the Use of Standard Methods in the Calculation of Minimum Capital Requirements for Commercial Banks Taking into Account Market Risk; b. Bank Indonesia Circular Letter Number 11/3/DPNP dated January 27, 2009, concerning the Calculation of Risk-Weighted Assets (ATMR) for Operational Risk Using the Basic Indicator Approach (PID);
c. Bank Indonesia Circular Letter Number 13/6/DPNP dated February 18, 2011, regarding Guidelines for the Calculation of Risk-Weighted Assets for Credit Risk Using Standard Approaches;
d. Bank Indonesia Circular Letter Number 14/21/DPNP dated July 18, 2012, concerning Amendments to Bank Indonesia Circular Letter Number 9/33/DPNP dated December 18, 2007, regarding Guidelines for the Use of Standard Methods in the Calculation of Minimum Capital Requirements for Commercial Banks Taking into Account Market Risk; and e. Bank Indonesia Circular Letter Number 14/37/DPNP dated December 27, 2012, concerning Minimum Capital Requirements according to Risk Profile and Fulfillment of Capital Equivalency Maintained Assets (CEMA), remain valid insofar as they do not conflict with the provisions in this Financial Services Authority Regulation.

Article 66
At the time this Financial Services Authority Regulation comes into force, implementing regulations of:
a. Bank Indonesia Regulation Number 14/18/PBI/2012 dated November 28, 2012, concerning Minimum Capital Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2012 Number 261, Supplement to the State Gazette of the Republic of Indonesia Number 5369); and b. Bank Indonesia Regulation Number 15/12/PBI/2013 dated December 12, 2013, concerning Minimum Capital Requirements for Commercial Banks (State Gazette of the Republic of Indonesia Year 2013 Number 223, Supplement to the State Gazette of the Republic of Indonesia Number 5469), except those mentioned in Article 65, are declared to remain valid insofar as they do not conflict with the provisions in this Financial Services Authority Regulation.

Article 67
This Financial Services Authority Regulation comes into force upon being enacted.

To ensure that everyone knows it, the enactment of this Financial Services Authority Regulation is ordered by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta
On January 29, 2016
THE CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY, signed
MULIAMAN D. HADAD

Enacted in Jakarta
On February 2, 2016
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2016 NUMBER 25 Copy matches the original 25 Legal Director 1 Legal Department signed Yuliana

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 11 /POJK.03/2016
CONCERNING
MINIMUM CAPITAL REQUIREMENTS FOR COMMERCIAL BANKS

I. GENERAL

The experience of financial and economic crises that have occurred in various countries in recent years shows that bank failures are partly caused by inadequate quality and quantity of bank capital to anticipate the risks faced. In order to improve the quality and quantity of bank capital so that banks are better able to absorb potential losses due to financial and economic crises or due to excessive credit growth, the requirements for capital components and instruments, as well as bank capital adequacy calculations, need to be adjusted to international standards. The International Standard that serves as the reference is the “Global Regulatory Framework for More Resilient Banks and Banking System”, better known as Basel III.

To improve the quality of bank capital, capital components and instrument requirements are adjusted by referring to international standards. Bank Core Capital (Tier 1) components must primarily be dominated by high-quality capital instruments, namely common stocks and retained earnings, which are part of Core Capital or Common Equity Tier 1.

Other Core Capital components, namely Additional Tier 1 capital, have increased in quality to only be financial instruments that are subordinated in nature, with non-cumulative dividend or yield payments, and meet certain criteria. Additional Tier 1 capital components are an improvement of innovative capital components that were previously part of Core Capital.

In line with the improvement of Core Capital quality, Supplementary Capital (Tier 2) components and instrument requirements are also adjusted, including by eliminating the Upper Tier 2 and Lower Tier 2 categories. Supplementary Capital (Tier 3) components, which were previously only issued for capital calculations for Market Risk, are eliminated with the implementation of Basel III. To ensure adequate capital quality or level, improvements are made to capital ratios, including Core Capital ratios and Core Capital ratios.

Banks are required to form additional capital in the form of Capital Conservation Buffer and Countercyclical Buffer, and banks considered systemically important are required to form additional capital in the form of Capital Surcharge. The purpose of forming additional capital is as a buffer (buffer) to absorb risks caused by crisis conditions and/or excessive banking credit growth. The obligation to form additional capital is applied gradually since 2016 to provide sufficient time for banks to form this additional capital.

In relation to these matters, it is necessary to establish provisions regarding Minimum Capital Requirements for Commercial Banks in a Financial Services Authority Regulation.

II. ARTICLE BY ARTICLE

Article 1
Sufficiently clear.

Article 2
Paragraph (1)
What is meant by “risk profile” is the bank’s risk profile as regulated in regulations concerning bank health level assessments.

Paragraph (2)
What is meant by “KPMM ratio” is the ratio of bank capital to Risk-Weighted Assets (ATMR).

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Article 3
Paragraph (1)
The formation of additional capital other than minimum capital as referred to in this paragraph functions as a buffer (buffer) in the event of a financial and economic crisis that can disrupt financial system stability.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
What is meant by “competent authority” is Bank Indonesia.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
What is meant by “competent authority” is Bank Indonesia.

Paragraph (7)
Sufficiently clear.

Paragraph (8)
The fulfillment of additional capital as referred to in paragraph (3) for branch offices of banks located outside the country is fulfilled from the portion of business funds placed in CEMA.

Paragraph (9)
Sufficiently clear.

Article 4
Paragraph (1)
Book grouping refers to regulations governing business activities and office networks based on the bank’s Core Capital.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Article 5
Paragraph (1)
Sufficiently clear.

Paragraph (2)
What is meant by “competent authority” is Bank Indonesia.

Article 6
Paragraph (1)
Sufficiently clear.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
What is meant by “competent authority” is Bank Indonesia.

Article 7
Sufficiently clear.

Article 8
Paragraph (1)
What is meant by profit distribution includes, among others, dividend payments and bonus payments to management.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
The determination of profit distribution limits considers factors such as the magnitude of the shortfall in fulfilling additional capital, the bank’s financial condition, the bank’s projected ability to increase capital, and the bank’s business expansion trends.

Article 9
Sufficiently clear.

Article 10
Paragraph (1)
Letter a
Number 1
What is included in paid-up capital is common stocks in accordance with applicable laws and accounting standards.

Number 2
Sufficiently clear.

Letter b
What is included in Additional Tier 1 capital components includes, among others:

1. debt instruments with capital characteristics, subordinated in nature, without a maturity date, and non-accumulative yield payments (perpetual non-cumulative subordinated debt);
2. non-cumulative preference shares (perpetual non-cumulative preference shares) with or without call option features;
3. hybrid instruments without a maturity date and non-accumulative yield payments (perpetual and non-cumulative); and
4. agio or disagio arising from the issuance of instruments classified as Additional Tier 1 capital.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Article 11
Letter a
Sufficiently clear.

Letter b
Core Capital instruments are subordinated to, among others, holders of instruments meeting Additional Tier 1 capital criteria, Supplementary Capital, depositors, and creditors.

Letter c
Included in the meaning of permanent features includes, among others, no expectation that the issuer will buy back, or other activities that may give rise to such expectations.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Included in the category protected or guaranteed by the Bank or Subsidiary Company means protection or guarantees received from other parties but conducted through the Bank or Subsidiary Company, for example, premiums or fees in the context of guarantees paid by the Bank or Subsidiary Company.

Letter g
Sufficiently clear.

Letter h
Sufficiently clear.

Article 12
Letter a
Sufficiently clear.

Letter b
Specific purposes for buying back shares that have been recognized as paid-up capital components are as stock reserves for employee stock option programs or management stock option programs or to avoid takeover attempts.

Letter c
What is meant by applicable laws and regulations includes Law Number 40 of 2007 concerning Limited Companies and other laws and regulations in the capital market sector.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Article 13
Paragraph (1)
Letter a
Number 1
What is meant by “agio” is the excess of capital contributions received by the Bank at the time of share issuance because the market price of shares is higher than the nominal value.

Number 2
What is meant by “contributed capital” is capital obtained from the donation of the Bank’s shares, including the difference between the book value and the selling price if the shares are sold.

Number 3
What is meant by “general reserves” is reserves formed from the allocation of retained earnings after tax and approved by the General Meeting of Shareholders or Members as general reserves.

Number 4
Retained earnings of previous years after tax include:
a) previous year’s earnings, namely all net earnings of previous years after tax, and whose use has not been determined by the General Meeting of Shareholders or Members; and b) retained earnings, namely net retained earnings after tax, which have been decided by the General Meeting of Shareholders or Members not to be distributed.

Number 5
What is meant by “current year’s earnings” is earnings obtained in the current fiscal year after deducting estimated taxes.

Number 6
What is meant by “translation differences of financial statements” is exchange rate differences arising from the translation of financial statements of bank branches and/or subsidiary companies abroad as regulated in accounting standards.

Number 7
In the event that, based on research by the Otoritas Jasa Keuangan (OJK), the prospective shareholder of a Bank or capital deposit is found not to meet the requirements as a shareholder or as capital, such funds cannot be recognized as a capital component.

Number 8
What is meant by “warrant” is an effect issued by a company that gives the holder of the effect the right to purchase shares of that company at a specific price and within a specific time frame.

Number 9
Quite clear.

Number 10
The definition of financial assets categorized as available-for-sale groups refers to accounting standards regarding financial instruments.

Number 11
What is meant by “balance of surplus from revaluation of fixed assets” is the difference in the revaluation of fixed assets owned by the Bank.
The recognition of the balance of surplus from the revaluation of fixed assets follows accounting standards regarding fixed assets.

Letter b
Number 1
What is meant by “disagio” is the shortfall in capital deposits received by the Bank at the time of share issuance because the market price of shares is lower than the nominal value.

Number 2
What is meant by “prior year losses” is all losses booked by the Bank in prior years.

Number 3
What is meant by “current year losses” is all losses booked by the Bank in the current fiscal year.

Number 4
What is meant by “translation difference of financial reports” is the exchange rate difference arising from the translation of financial reports of the Bank’s branch offices and/or Subsidiary Companies abroad as regulated in accounting standards regarding the translation of financial reports in foreign currencies.

Number 5
Letter a)
The definition of financial assets categorized as available-for-sale groups refers to accounting standards regarding financial instruments.
Letter b)
The definition of losses from the remeasurement of defined benefit pension programs refers to accounting standards regarding employee benefits.

Number 6
What is meant by “shortfall between PPA on productive assets and impairment losses on financial assets on productive assets” is the shortfall between total PPA (general reserves and special reserves on all productive assets) that must be formed in accordance with regulations regarding the assessment of the quality of Bank assets with the total impairment losses on financial assets (impairment) on all productive assets (individually and collectively) in accordance with accounting standards.

Number 7
This shortfall arises because the amount of adjustments to valuation results (mark to market) of financial instruments in the Trading Book, which considers various specific factors, including positions that are less liquid than the amount of adjustments required in accordance with accounting standards regarding the measurement of financial instruments, specifically financial instruments measured at fair value. In accordance with Indonesian Banking Accounting Guidelines, adjustments to the valuation results of financial instruments will directly reduce or increase the book value of financial instruments.

Number 8
What is meant by “non-productive PPA” is reserves that must be formed for non-productive assets in accordance with regulations regarding the assessment of the quality of Bank assets.

Paragraph (2)
Letter a
This occurs when the Bank elects to measure financial liabilities at fair value through profit or loss (fair value option) in accordance with accounting standards. Letter b What is meant by “gain on sale of assets in securitization transactions (gain on sale)” is the profit obtained by the Bank as the originator of credit from the sale of assets in securitization transactions, derived from the capitalization of expected future margins (expected future margin) or capitalization of income from providing services (servicing income).

Article 15
Paragraph (1)
Letter a
Quite clear.
Letter b
Quite clear.
Letter c
In order to obtain supervisory approval, the Bank cannot assume or create market expectations that supervisory approval will be granted.
Letter d
What is meant by “step-up feature” is a feature that promises an increase in interest rates or yields if the call option is not exercised within the specified time frame. Letter e The Otoritas Jasa Keuangan has the authority to determine conditions where a Bank is potentially disrupted in its business continuity (point of non-viability) and order the Bank to convert Additional Tier 1 capital instruments into common shares or perform a write-down. Included in the write-down mechanism are reductions in liability values, reductions in liability values when the call option is exercised, or reductions in part or all of yield payments. In the issuance documentation, there must be a clause stating that Additional Tier 1 capital instruments can be converted into common shares or written down if ordered by the Otoritas Jasa Keuangan. Letter f Additional Tier 1 capital instruments are subordinate to, among others, depositors, creditors, and holders of instruments that meet the criteria for supplementary capital components.

Letter g
In the event that yields are not paid, this does not cause restrictions on dividend or coupon payments for other instruments, except for common stock (common stock). Letter h Included in the category of being protected or guaranteed by the Bank or Subsidiary Company are protections or guarantees received from third parties but processed through the Bank or Subsidiary Company, for example, premiums or fees for guarantees paid by the Bank or Subsidiary Company. Letter i What is meant by “dividends or yields sensitive to Credit Risk” is the level of dividends or yields determined based on the rating or level of Credit Risk of the issuing Bank. Letter j Even if there is a call option, the Bank is not permitted to prepare specific criteria or conditions that allow for the exercise of the call option (call option). Letter k Quite clear. Letter l Quite clear. Letter m Features that hinder the process of adding capital in the future, including requirements that oblige the Bank to provide compensation to investors if the Bank issues new capital instruments at a lower price. Letter n Quite clear.

Paragraph (2)
Letter a
Quite clear.
Letter b
Quite clear.
Letter c
What is meant by “same or better quality” is a capital instrument that at least meets the requirements as an Additional Tier 1 capital component.

Article 16
What is meant by “non-controlling interests” is non-controlling interests as referred to in accounting standards.

Article 17
Paragraph (1)
Letter a
Deferred taxes are deducted by 100% (one hundred percent), both for deferred tax calculations in prior years and in the current year.
Deferred taxes are transactions arising as a result of the application of accounting standards regarding income tax accounting.
In the individual KPMM calculation, deferred taxes issued are equal to the excess of deferred tax assets minus deferred tax liabilities.
In the event of a shortfall, the deferred tax calculation to be issued is nil.
In the consolidated KPMM calculation, the deferred tax assets of one company cannot be offset against the deferred tax liabilities of other companies within the Bank’s business group. Therefore, the effect of deferred taxes in the consolidated KPMM calculation must be calculated and issued separately for each entity.

With the exclusion of the impact of deferred taxes from the Core Capital calculation, deferred tax assets are not included in the ATMR calculation. Letter b The definition of goodwill refers to accounting standards regarding business combinations. Goodwill is calculated as a deduction factor in the calculation of the Bank’s minimum capital, both individually and consolidated. Letter c The definition of intangible assets refers to accounting standards regarding intangible assets. All intangible assets are calculated as a deduction factor for Core Capital. Examples of intangible assets include copyrights, patent rights, and other intellectual property rights (intellectual property right), including software applications (software) developed by the Bank. Letter d The value of participations calculated is the book value recorded in the financial position reports (balance sheet). Letter e Capital shortfall (shortfall) is calculated as a deduction factor only in the consolidated KPMM ratio calculation. The capital shortfall (shortfall) of insurance companies from the minimum RBC is calculated if the company in question cannot meet the minimum RBC until the time frame specified by the Otoritas Jasa Keuangan. Letter f Treatment of securitization exposures as capital deductions or calculated as ATMR refers to regulations regarding asset securitization. What is meant by “securitization exposure” is credit support (credit enhancement), liquidity facilities (liquidity support), and asset-backed securities (asset backed securities). Letter g Quite clear.

Paragraph (2)
Quite clear.

Article 18
Quite clear.

Article 19
Paragraph (1)
Letter a
Quite clear.
Letter b
Quite clear.
Letter c
The Otoritas Jasa Keuangan has the authority to determine conditions where a Bank is potentially disrupted in its business continuity (point of non-viability) and order the Bank to convert supplementary capital instruments into common shares or perform a write-down. Included in the write-down mechanism are reductions in liability values, reductions in liability values when the call option is exercised, or reductions in part or all of yield payments. In the issuance documentation, there must be a clause stating that supplementary capital instruments can be converted into common shares or written down if ordered by the Otoritas Jasa Keuangan. Letter d Supplementary capital instruments are subordinate to, among others, depositors and creditors. Letter e Quite clear. Letter f Included in the definition of being protected or guaranteed by the Bank or Subsidiary Company are protections or guarantees received from third parties but processed through the Bank or Subsidiary Company, for example, premiums or fees for guarantees paid by the Bank or Subsidiary Company. Letter g What is meant by “dividends or yields sensitive to Credit Risk” is the level of dividends or yields determined based on the rating or level of Credit Risk of the issuing Bank. Letter h What is meant by “step-up feature” is a feature that promises an increase in interest rates or yields if the call option is not exercised within the specified time frame. Letter i Even if there is a call option, the Bank is not permitted to prepare specific criteria or conditions that allow for the exercise of the call option (call option). Letter j Quite clear. Letter k Quite clear. Letter l Quite clear. Letter m Quite clear.

Paragraph (2)
Letter a
Quite clear.
Letter b
Number 1
What is meant by “same or better quality” is a capital instrument that at least meets the requirements as a supplementary capital component.
Number 2
The supplementary capital limit is calculated by considering all available supplementary capital instruments.
Example of “different amount”:
Supplementary capital executed is Rp500 million, but at the time of replacement, the Bank’s Core Capital undergoes a change so that the supplementary capital limit becomes at most Rp400 million. With this condition, the Bank can replace supplementary capital amounting to Rp400 million.

Paragraph (3)
What is meant by “straight-line method” is prorated amortization calculation.

Paragraph (4)
Amortization is calculated based on the value of the capital instrument that has taken into account deductions from the sinking fund (sinking fund).

Paragraph (5)
Example illustration of amortization implementation:
a. The Bank issues subordinated bonds with a 10 (ten) year term and has a call option at the end of the fifth year. In this condition, the Bank must start calculating amortization from the first year. If at the end of the fifth year, the Bank does not exercise the call option (call option), from the beginning of the sixth year, the subordinated bonds can be recalculated in the KPMM calculation, considering the required limits, including the obligation to calculate amortization. b. The Bank issues subordinated bonds with a 10 (ten) year term and has a call option (call option) after the fifth year has passed. In this condition, the remaining term of the instrument at the time of issuance is 5 (five) years. Amortization must be calculated by the Bank from the first year. After the fifth year has passed until maturity, the Bank cannot recalculate the subordinated bonds as supplementary capital even if the Bank has not exercised the call option (call option).

Article 20
Paragraph (1)
Letter a
Examples of capital instruments in the form of shares or other forms that meet the requirements are:

1. preferred shares (which give holders the right to receive dividends prior to holders of other share classifications) cumulatively (cumulative preference share);
2. debt instruments with capital characteristics, subordinate, cumulative, and meeting all requirements to be calculated as supplementary capital components (cumulative subordinated debt); and
3. debt instruments with capital characteristics that automatically without requirements can be converted into shares after obtaining approval from the Otoritas Jasa Keuangan (mandatory convertible bond). Conditions and conversion values must be determined at the time of issuance, in line with market conditions.
   Letter b
   What is meant by “agio” is the excess in capital deposits received by the Bank at the time of issuing supplementary capital instruments because the market price of the capital instruments is higher than the nominal value. What is meant by “disagio” is the shortfall in capital deposits received by the Bank at the time of issuing supplementary capital instruments because the market price of the capital instruments is lower than the nominal value. Letter c The formation of general PPA reserves on productive assets that must be formed refers to regulations regarding the assessment of the quality of Bank assets. Example:
   General PPA reserves on productive assets that must be formed amount to Rp15 million, and the Bank’s ATMR for Credit Risk is Rp1 billion.
   General PPA reserves on productive assets that can be calculated as supplementary capital components are at most 1.25% of Rp1 billion, namely Rp12.5 million. In this case, there is an excess of general reserves amounting to Rp2.5 million that cannot be calculated as supplementary capital components. Letter d What is meant by “purpose reserves” is reserves formed from the allocation of retained earnings after deducting taxes for specific purposes and have received approval from the General Meeting of Shareholders or Members Meeting. The use of purpose reserves is prioritized to cover the Bank’s losses in the event that general reserves are insufficient to cover the Bank’s losses.

Paragraph (2)
The excess of general PPA reserves on productive assets according to the example in explanation of paragraph (1) letter c, namely Rp2.5 million, becomes a deduction factor in the ATMR calculation for Credit Risk.

Article 21
Quite clear.

Article 22
Paragraph (1)
Letter a
The repurchase of Core Capital, Additional Tier 1, or supplementary capital instruments that have been recognized as Bank capital components becomes a deduction factor for each respective capital component. Example 1:
Included in the repurchase of capital instruments that must be deducted from Core Capital includes, among others, the repurchase of capital instruments already issued by the Bank, either directly or indirectly. Example 2:
Included in the repurchase of capital instruments that must be deducted from Additional Tier 1 includes, among others, the exercise of the call option (call option). Letter b The placement of funds on debt instruments that have been recognized as other Bank capital components becomes a deduction factor for the Bank placing funds on capital components of the same and/or better quality. Example 1:
Bank A has supplementary capital components amounting to Rp100 billion.
Bank A purchases subordinated bonds issued by Bank B, which are Bank B’s supplementary capital components, amounting to Rp20 billion.
In this condition, Bank A’s supplementary capital will be reduced by the subordinated bonds purchased by Bank A from Bank B, namely:
Rp100 billion - Rp20 billion = Rp80 billion
The Rp80 billion above is subsequently recognized as supplementary capital, considering the permitted supplementary capital limits.

Example 2:
Bank A has supplementary capital components amounting to Rp10 billion and Core Capital amounting to Rp100 billion.
Bank A purchases subordinated bonds issued by Bank B, which are Bank B’s supplementary capital components, amounting to Rp20 billion.
In this condition, Bank A’s supplementary capital will be reduced by the subordinated bonds purchased by Bank A from Bank B, namely:
Rp10 billion - Rp20 billion = (Rp10 billion)
The Rp10 billion above will subsequently be deducted from Bank A’s Core Capital.

Example 3:
Bank A only has Core Capital components amounting to Rp100 billion and has no other capital components.
Bank A purchases subordinated bonds issued by Bank B, which are Bank B’s supplementary capital components, amounting to Rp20 billion.
In this condition, Bank A’s Core Capital will be reduced by the subordinated bonds purchased by Bank A from Bank B, namely:
Rp100 billion - Rp20 billion = Rp80 billion.

Paragraph (2)
Quite clear.

Article 23
Quite clear.

Article 24
Paragraph (1)
Quite clear.
Paragraph (2)
What is meant by “total bank liabilities” is total liabilities minus all inter-office liabilities (head office and other branch offices abroad).
The total bank liabilities used as the basis for determining the minimum CEMA are calculated based on the average weekly bank liabilities in the relevant month. Example:
The average total liabilities at the end of week 1, week 2, week 3, and week 4 are respectively Rp10 trillion, Rp15 trillion, Rp10 trillion, and Rp20 trillion. Therefore, the average total liabilities = (Rp10 trillion + Rp15 trillion + Rp10 trillion + Rp20 trillion) ÷ 4 = Rp13.75 trillion. The CEMA calculation based on the average total liabilities is 8% x Rp13.75 trillion = Rp1.1 trillion. Thus, the minimum CEMA that must be maintained is the larger of Rp1 trillion or Rp1.1 trillion, namely Rp1.1 trillion.

Paragraph (3)
Quite clear.

Article 25
Paragraph (1)
Quite clear.
Paragraph (2)
Quite clear.
Paragraph (3)
Quite clear.
Paragraph (4)
Example:
The minimum CEMA for the position in March 20xx amounting to Rp1.1 trillion must be placed on financial instruments that meet the requirements no later than April 6, 20xx.

Article 26
Paragraph (1)
Quite clear.
Paragraph (2)
Quite clear.
Paragraph (3)
Letter a
Examples of securities issued by the Government of the Republic of Indonesia include:

1. Government Bonds (SUN) as referred to in legislation regarding Government Bonds; and
2. Sharia Government Securities (SBSN) as referred to in legislation regarding Sharia Government Securities.
   Securities issued by the Government of the Republic of Indonesia and intended to be held until maturity are:
3. securities categorized as held-to-maturity groups; or
4. securities categorized as available-for-sale groups supported by a commitment from the Bank to:
   a) hold such securities until maturity; and b) use such securities only to anticipate the impact of economic and global financial system problems that disrupt branch offices in Indonesia, and/or the stability of the financial system and banking system in Indonesia, which are stated in a letter of statement. Letter b Number 1 What is meant by “non-equity nature” is securities that are not calculated as capital components by the issuing Bank. Number 2 What is meant by “investment grade rating” is as regulated in regulations regarding rating agencies and ratings recognized by the Otoritas Jasa Keuangan. Number 3 Quite clear. Letter c Quite clear. Paragraph (4) What is meant by free from claims includes free from lawsuits, demands, acknowledgments, and seizures, and is not currently pledged to other parties or seized by competent authorities. Example:
   Financial assets used as CEMA cannot be subject to repurchase agreements (repo) with other parties.
   Freedom from claims is evidenced, among others, by a letter of statement from the branch office of the bank located abroad.
   Paragraph (5)
   What is meant by “book value of financial assets” is the value of financial assets in the financial position reports (balance sheet) after deducting impairment losses.

Article 27
Quite clear.

Article 28
Quite clear.

Article 29
Quite clear.

Article 30
Recognition and measurement treatment refers to accounting standards regarding financial instruments.

Article 31
Quite clear.

Article 32
Example 1:
Before a merger or consolidation, Bank A and Bank B do not meet the criteria to calculate Market Risk.
During the 6 (six) months after the merger or consolidation is declared effective, in the first, third, and fourth months, the merged or consolidated Bank meets the criteria to calculate Market Risk. Thus, the merged or consolidated Bank must calculate Market Risk starting from the 7th (seventh) month. Example 2:
Bank A does not meet the criteria to calculate Market Risk. Subsequently, Bank A acquires Financial Company X, so Bank A consolidates Company X.
During the 6 (six) months after the acquisition of Company X is declared effective, in the second, fourth, and sixth months, the Bank consolidated with Company X meets the criteria to calculate Market Risk. Thus, the Bank consolidated with Subsidiary Company X must calculate Market Risk starting from the 7th (seventh) month.

Article 33
Quite clear.

Article 34
Quite clear.

Article 35
Quite clear.

Article 36
Paragraph (1)
Letter a
What is meant by “interest rate risk” is the risk of loss due to changes in the price of financial instruments

from the Trading Book position caused by interest rate changes.
Letter b
What is meant by “exchange rate risk” is the risk of loss due to changes in the value of Trading Book and Banking Book positions caused by changes in the value of foreign currency, including changes in the price of gold. Paragraph (2) What is meant by “equity risk” is the risk of loss due to changes in the price of financial instruments from the Trading Book position caused by changes in stock prices. What is meant by “commodity risk” is the risk of loss due to changes in the price of financial instruments from the Trading Book and Banking Book positions caused by changes in commodity prices.
Article 37
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Such valuation policies and procedures include among others the determination of clear responsibilities of various parties involved in determining valuation, market information sources, review processes for valuation feasibility, guidelines for using data when actual market price data is not available (unobservable) which reflects the bank’s assumption that such data is data that will be used by the market in the valuation process, valuation frequency (daily), determination of time for end-of-day valuation (closing price), implementation procedures, and submission of verification results both periodically and incidentally, as well as valuation adjustment procedures. Information management and control systems for the valuation process must at least include documentation of established valuation policies and procedures, as well as clear reporting lines for work units responsible for the valuation and verification processes.

Paragraph (3)
Valuation policies and procedures based on the principle of prudence include among others conducting valuations by paying attention to the application of risk management aspects and reasonable valuation procedures.
Article 38
Paragraph (1)
What is meant by “fair value” is fair value as referred to in financial accounting standards regarding fair value measurement.
Paragraph (2)
What is meant by “financial instruments traded actively” is if the price of financial instruments is available at any time and can be obtained routinely on exchanges, from securities dealers (dealers), securities brokers (brokers), or other agents, and such prices are prices resulting from actual transactions conducted fairly (arm's length basis). Transaction prices that occur or market price quotes from independent sources include among others prices on exchanges (exchange prices), prices on dealer screens (screen prices), or the most conservative quotes provided by at least 2 (two) brokers and/or market makers with good reputations, of which at least one is an independent party. The use of independent sources is done consistently unless the obtained prices do not reflect fair value. Paragraph (3) Letter a What is meant by “bid price” is the buy price quoted by independent sources. Letter b What is meant by “ask price (offer price)” is the sell price quoted by independent sources.

Paragraph (4)
In conducting fair value valuation, banks must maximize the use of actual market price data (observable input) and minimize the use of data that is not actual market price data or that is determined using a valuation model/technique (unobservable). Included in valuation models or techniques are:
a. the use of prices arising from transactions that occurred in the last 10 (ten) working days; b. the use of market prices from other instruments that have similar characteristics (at least maturity, interest rate or coupon, rating, and issuer category);
c. discounted cash flow analysis;
d. option pricing models; or e. models or valuation techniques generally used by market participants in determining instrument prices.
The application of the prudence principle in the use of models or valuation techniques includes among others:
a. separation of duties and competence of parties involved in the development and use of models; b. ensuring that the accuracy of models or valuation techniques is reviewed by an independent function;
c. procedures and documentation of model or valuation technique development and changes;
d. the Bank’s Board of Directors must understand the valuation of Trading Book positions and other fair value positions calculated using models and understand the uncertainties; e. the data used in fair value calculations is actual market data and must be reviewed periodically; f. valuation methodologies generally applicable to certain products should be used as much as possible;

g. developed models must use appropriate assumptions, and the Bank must have a copy of the model to be used to periodically check valuation results; and h. the risk management work unit must know the weaknesses of the model used in fair value valuation.
Article 39
Paragraph (1)
Verification is conducted to ensure the accuracy of profit and loss report preparation.
Verification of the valuation process and results must at least be conducted regarding the fairness of market prices or information used as input in models or valuation techniques. Paragraph (2) Sufficiently clear. Paragraph (3) Adjustments are implemented against the value of financial instruments in the financial position report (balance sheet) and profit and loss report.
Article 40
Valuation results are adjusted based on daily monitoring or verification results by parties not involved in the implementation of valuation.
For example, valuations that do not yet reflect fair value may occur in valuations using models or valuation techniques.
Letter a
What is meant by significant changes in economic conditions include among others significant changes in the yield curve outside market expectations. Letter b Sufficiently clear.

Letter c
The remaining time factor until maturity is taken into account considering that as maturity approaches, the value of financial instruments approaches the nominal value. Letter d Other conditions include:

1. the possibility of potential losses arising because counterparties cannot fulfill their obligations (unearned credit spreads);
2. the possibility of calculation of costs or penalties arising from early repayment before maturity (early termination);
3. the occurrence of cash flow mismatches that cause prices to be influenced by calculations of costs for borrowing and investing funds (investing and funding costs); and
4. the occurrence of certain conditions that cause uncertainty in valuation models, for example, the inability to capture changes in abnormal conditions.
   Article 41
   Paragraph (1)
   Certain factors include among others the average and volatility of trading volume, the average volatility of bid or ask spread ranges, and the availability of market quotes. Paragraph (2) Adjustments will not reduce the value of financial instruments in the financial position report (balance sheet) and will not affect the profit and loss report.
   Article 42
   Sufficiently clear.

Article 43
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
Active supervision by the Board of Directors and Board of Commissioners includes among others understanding the nature and level of risks faced by the Bank, assessing the adequacy of risk management quality, and linking the level of risk with the capital adequacy owned by the Bank. Letter b Capital adequacy assessments include among others processes that link the level of risk with the level of the Bank’s capital adequacy by considering the Bank’s strategy and business plan. Letter c Monitoring and reporting include among others risk exposure monitoring and reporting systems, as well as the impact of changes in risk profiles on the Bank’s capital requirements. Letter d Internal controls include among others the adequacy of internal controls and reviews. Reviews are conducted by internal Bank parties with adequate competence and independence regarding the capital adequacy determination process. Paragraph (3) Sufficiently clear.
Article 44
Sufficiently clear.
Article 45
Sufficiently clear.

Article 46
Letter a
Sufficiently clear.
Letter b
Sufficiently clear.
Letter c
What is meant by capital distribution restrictions includes among others restrictions or postponement of bonus and/or dividend payments.
Article 47
Paragraph (1)
Sufficiently clear.
Paragraph (2)
KPMM Reports with Market Risk considerations include among others position reports considered in Market Risk and capital adequacy ratio calculation reports. Paragraph (3) Sufficiently clear.
Article 48
Paragraph (1)
Risk profiles are based on the results of the Bank’s self-assessment. Capital adequacy ratio calculation reports according to risk profiles include among others:
a. capital management strategy; b. identification and measurement of material risks; and
c. assessment of capital adequacy.
Paragraph (2)
The submission and deadlines for submitting self-assessment results regarding the Bank’s health level refer to regulations governing the assessment of the Bank’s health level.

Article 49
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
Sufficiently clear.
Letter b
Sufficiently clear.
Letter c
Sufficiently clear.
Letter d
What is meant by “carrying amount” is the value of financial assets in the financial position report (balance sheet) after being reduced by impairment loss provisions. Letter e Sufficiently clear.
Article 50
Paragraph (1)
Sufficiently clear.
Paragraph (2)
What is meant by “holiday” is national holidays established by the central government and/or local holidays established by local governments.
Article 51
Sufficiently clear.
Article 52
Sufficiently clear.
Article 53
What is meant by “significant amount” is significant to the total financial assets in the available-for-sale category.
Article 54
Sufficiently clear.

Article 55
Sufficiently clear.
Article 56
Sufficiently clear.
Article 57
Sufficiently clear.
Article 58
Sufficiently clear.
Article 59
Sufficiently clear.
Article 60
Sufficiently clear.
Article 61
Sufficiently clear.
Article 62
Sufficiently clear.
Article 63
Sufficiently clear.
Article 64
Sufficiently clear.
Article 65
Sufficiently clear.
Article 66
Sufficiently clear.

Article 67
Sufficiently clear.
ADDITION TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5848 ---