POJK on Prudential Provisions for National Economic Stimulus for Commercial Banks

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY

FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 11/POJK.03/2015
CONCERNING
PRUDENTIAL PROVISIONS IN THE FRAMEWORK OF
NATIONAL ECONOMIC STIMULUS FOR COMMERCIAL BANKS

BY THE GRACE OF GOD THE ALMIGHTY

THE COMMISSIONERS BOARD OF THE FINANCIAL SERVICES AUTHORITY

Considering:
a. that currently there is a slowdown in Indonesia's economic growth which can affect the performance and condition of the banking industry, thereby potentially disrupting financial system stability; b. that to respond to the slowing economic growth conditions, it is necessary to implement countercyclical and temporary policies to encourage the optimalization of banking intermediation functions and economic growth while still observing prudential principles;
c. that in line with the policy as referred to in letter b, it is necessary to implement policies to support the government program in improving welfare and economic growth, particularly those favoring micro, small, and medium enterprises;
d. that based on the considerations referred to in letters a, b, and c, it is necessary to establish a Financial Services Authority Regulation concerning Prudential Provisions in the Framework of National Economic Stimulus for Commercial Banks;

Recalling:

1. Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended 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 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);

DECIDING:
To establish: A FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING PRUDENTIAL PROVISIONS IN THE FRAMEWORK OF NATIONAL ECONOMIC STIMULUS FOR COMMERCIAL BANKS.

CHAPTER I
GENERAL PROVISIONS

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

1. Bank means Commercial Bank as referred to in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998, including branch offices located outside the country, which conduct conventional business activities.
2. Credit means the provision of funds or receivables that can be equated with them, based on a loan agreement between the Bank and another party, which obligates the borrower to repay the debt after a certain period with interest, including:
   a. overdraft, which is a negative balance in a customer's checking account that cannot be paid in full by the end of the day; b. the takeover of receivables in the context of factoring activities; and
   c. the takeover or purchase of credit from other parties.
3. Credit Risk is the risk resulting from the failure of the debtor and/or other parties to fulfill their obligations to the Bank.
4. Credit Restructuring is an improvement effort carried out by the Bank in its lending activities towards a debtor experiencing difficulties in fulfilling their obligations, carried out among others through:
   a. reduction of Credit interest rates; b. extension of the Credit term;
   c. reduction of Credit interest arrears;
   d. reduction of Credit principal arrears; e. addition of Credit facilities; and/or f. conversion of Credit into temporary equity participation.
5. Equity Participation is the investment of Bank funds in the form of shares in companies operating in the financial sector, including investments in the form of mandatory convertible bonds or certain types of transactions that result in the Bank having or will have shares in companies operating in the financial sector.
6. Micro, Small, and Medium Enterprises, hereinafter referred to as MSMEs, are MSMEs as regulated in the Law concerning micro, small, and medium enterprises.

Article 2
(1) In implementing policies supporting economic growth stimulus, Banks must still apply prudential principles.
(2) The policy as referred to in paragraph (1) is applied to:
a. the calculation of Risk-Weighted Assets (RWA) for Credit Risk using the standard approach for:
1. Residential mortgage loans; and
2. Loans to MSMEs guaranteed by a guarantee institution or Credit insurance with the status of a Regional State-Owned Enterprise (BUMD);
b. the assessment and determination of asset quality for:
1. Small loans and other fund provisions; and
2. Restructured Credit;
c. Equity Participation.

CHAPTER II
CALCULATION OF RISK-WEIGHTED ASSETS (RWA) FOR CREDIT RISK USING THE STANDARD APPROACH

Section One
Risk Weights for Residential Mortgage Loans

Article 3
The risk weight for Residential Mortgage Loans is established as follows:
a. at least 35% (thirty-five percent) for consumption Credit for the purpose of owning a residence or apartment, or consumption Credit guaranteed by collateral in the form of a residence or apartment that meets all the following criteria:
1. granted to individual debtors;
2. the collateral is bound by a mortgage or fiduciary right so as to provide a preferential position (preferential right) to the Bank; and
3. the Bank has adequate systems and procedures to assess and monitor the value of the collateral periodically;
b. at least 20% (twenty percent) for consumption Credit for the purpose of owning a residence that is part of the Government of Indonesia program and meets all the following criteria:
1. conducted in accordance with applicable legislation; and
2. guaranteed 100% (one hundred percent) by a guarantee institution or Credit insurance with the status of a State-Owned Enterprise (BUMN) that meets the guarantee requirements which are credit risk mitigation techniques as regulated in the provisions concerning guidelines for calculating RWA for Credit Risk using the standard approach.

Section Two
Risk Weights for Loans to MSMEs Guaranteed by Guarantee Institutions or Credit Insurance with BUMD Status

Article 4
(1) The risk weight for Loans to MSMEs guaranteed by a guarantee institution or Credit insurance with BUMD status is established at 50% (fifty percent) provided that the established requirements are met. (2) The requirements for guarantee institutions or Credit insurance with BUMD status as referred to in paragraph (1) are established as follows:
a. having a rating from a rating agency recognized by the Financial Services Authority equivalent to BBB-; or b. receiving a written recommendation from the Financial Services Authority to conduct a guarantee program. (3) In addition to meeting the requirements as referred to in paragraph (2), the recognition of guarantee or Credit insurance, the guarantee or Credit insurance scheme, and guarantee institutions or Credit insurance with BUMD status must still meet the requirements:
a. recognition of guarantees in Credit Risk mitigation techniques; b. the guarantee or Credit insurance scheme; and
c. guarantee institutions or Credit insurance with non-BUMN status, as regulated in the provisions concerning guidelines for calculating RWA for Credit Risk using the standard approach.

Article 5
The risk weight for Loans to MSMEs guaranteed by a guarantee institution or Credit insurance with BUMD status that:
a. has a rating higher than BBB-; and b. the recognition of guarantee or Credit insurance, the guarantee or Credit insurance scheme, and the guarantee institution or Credit insurance with BUMD status meet the requirements as referred to in Article 4 paragraph (3), is based on the rating of the guarantee institution or Credit insurance with BUMD status according to the portfolio category of claims to public sector entities as regulated in the provisions concerning guidelines for calculating RWA for Credit Risk using the standard approach.

CHAPTER III
ASSESSMENT AND DETERMINATION OF ASSET QUALITY OF COMMERCIAL BANKS

Section One
Small Loans and Other Fund Provisions

Article 6
(1) The determination of Credit quality and other fund provisions can be based solely on the punctuality of principal and/or interest payments, for:
a. Loans and other fund provisions granted by each Bank to 1 (one) debtor or 1 (one) project with an amount less than or equal to IDR 5,000,000,000.00 (five billion rupiah); b. Loans and other fund provisions granted by each Bank to MSME debtors with an amount:

1. More than IDR 5,000,000,000.00 (five billion rupiah) up to IDR 20,000,000,000.00 (twenty billion rupiah) for Banks that meet the following criteria:
   a) have a 'very adequate' assessment rating for Risk Management Application Sufficiency (KPMR) for Credit Risk; b) have a Minimum Capital Adequacy Ratio (KPMM) at least in accordance with applicable regulations; and c) have a Composite Rating of Bank health level of at least 3 (PK-3).
2. More than IDR 5,000,000,000.00 (five billion rupiah) up to IDR 10,000,000,000.00 (ten billion rupiah) for Banks that meet the following criteria:
   a) have an 'adequate' assessment rating for Risk Management Application Sufficiency (KPMR) for Credit Risk; b) have a KPMM ratio at least in accordance with applicable regulations; and c) have a Composite Rating of Bank health level of at least 3 (PK-3). (2) The provisions as referred to in paragraph (1) letter b do not apply to Loans and other fund provisions granted to 1 (one) MSME debtor with an amount more than IDR 5,000,000,000.00 (five billion rupiah) that are:
   a. Restructured Credit; and/or b. Fund provisions to the 50 (fifty) largest debtors of the Bank.

Section Two
Determination of Restructured Credit Quality

Article 7
(1) The quality of Credit after restructuring is established as follows:
a. at most 'Doubtful' for Credit that before restructuring was classified as 'Doubtful' or 'Loss'; b. remain unchanged for Credit that before restructuring was classified as 'Performing', 'Special Mention', or 'Doubtful'. (2) The quality of Credit after restructuring as referred to in paragraph (1) can become 'Performing', provided that there are no arrears for 3 (three) consecutive periods of principal and/or interest installment payments in accordance with the Credit Restructuring Agreement. (3) In the event that the debtor does not meet the criteria and/or requirements in the Credit Restructuring Agreement, the Credit quality assessment is established in accordance with applicable provisions based on:
a. punctuality of principal and/or interest payments for Restructured Credit up to an amount of IDR 5,000,000,000.00 (five billion rupiah); or b. business prospects, debtor performance, and repayment ability for Restructured Credit with an amount more than IDR 5,000,000,000.00 (five billion rupiah). (4) In the event that the payment period for principal and/or interest installments is less than 1 (one) month, the upgrade of quality to 'Performing' as referred to in paragraph (2) can be carried out for a minimum of 3 (three) months since the Credit Restructuring was conducted.

Article 8
The quality of Restructured Credit as referred to in Article 6 paragraph (2) letter a is established in accordance with the provisions as referred to in Article 7.

Article 9
(1) Restructured Credit with the provision of a grace period for principal payments is established to have the following quality:
a. at most 'Doubtful' for Credit that before restructuring was classified as 'Doubtful' or 'Loss'; b. remain unchanged for Credit that before restructuring was classified as 'Performing', 'Special Mention', or 'Doubtful'. (2) The quality of Credit during the principal payment grace period as referred to in paragraph (1) can:
a. become 'Performing', provided that there are no interest payment arrears for 3 (three) consecutive payment periods in accordance with the Credit Restructuring Agreement; or b. be in accordance with the worse Credit quality between the Credit quality as referred to in paragraph (1) or the actual Credit quality, provided that there are interest payment arrears or the criteria and/or requirements in the Credit Restructuring Agreement are not met. (3) The quality of Credit after the principal payment grace period is based on:
a. punctuality of principal and/or interest payments for Restructured Credit up to an amount of IDR 5,000,000,000.00 (five billion rupiah); or b. business prospects, debtor performance, and repayment ability for Restructured Credit with an amount more than IDR 5,000,000,000.00 (five billion rupiah).

CHAPTER IV
BANK EQUITY PARTICIPATION

Article 10
(1) Equity Participation for the purpose of:
a. establishing a company that will take over problematic Credit assets from the Bank making the participation, with Bank ownership at most 20% (twenty percent) of the company's capital and the Bank not becoming the controller; or b. additional participation for the rescue of a subsidiary company in the form of a bank, can be conducted if the Bank has a Composite Rating of Bank health level of at least 3 (PK-3) immediately before conducting the participation and has a prospect of improving the Composite Rating to a better level. (2) Other requirements for the purpose of Equity Participation as referred to in paragraph (1) refer to the applicable provisions regarding prudential principles in Equity Participation activities.

CHAPTER V
TRANSITIONAL PROVISIONS

Article 11
Requests for approval of Equity Participation as referred to in Article 10 submitted to the Financial Services Authority before this Regulation takes effect, shall be adjusted to this Financial Services Authority Regulation.

Article 12
At the time this Financial Services Authority Regulation takes effect:
a. The quality of Restructured Credit that is still within the period of 3 (three) principal payment obligations after the signing of the Credit Restructuring Agreement; or b. The quality of Restructured Credit that is still within the principal payment grace period after the signing of the Credit Restructuring Agreement, shall be established in accordance with this Financial Services Authority Regulation.

CHAPTER VI
CLOSING PROVISIONS

Article 13
At the time this Financial Services Authority Regulation takes effect, the provisions in:
a. Bank Indonesia Regulation Number 14/15/PBI/2012 concerning the Assessment of Asset Quality of Commercial Banks (State Gazette of the Republic of Indonesia Year 2012 Number 202, Supplement to the State Gazette of the Republic of Indonesia Number 5354); b. Bank Indonesia Regulation Number 15/11/PBI/2013 concerning Prudential Principles in Equity Participation Activities (State Gazette of the Republic of Indonesia Year 2013 Number 187, Supplement to the State Gazette of the Republic of Indonesia Number 5466);
c. Bank Indonesia Circular Letter Number 13/6/DPNP dated February 18, 2011 concerning Guidelines for Calculating Risk-Weighted Assets for Credit Risk Using the Standard Approach,
are declared to still remain in force insofar as they do not conflict with the provisions in this Financial Services Authority Regulation.

Article 14
This Financial Services Authority Regulation shall remain in force for 2 (two) years from the date of promulgation.

Article 15
This Financial Services Authority Regulation shall take effect on the date of promulgation.

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

Established in Jakarta
On August 21, 2015
CHAIRMAN OF THE COMMISSIONERS BOARD
FINANCIAL SERVICES AUTHORITY,

signed
MULIAMAN D. HADAD

Promulgated in Jakarta
On August 24, 2015
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA,

signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2015 NUMBER 197

A copy in accordance with the original
Legal Director 1
Department of Law

signed
Sudarmaji

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 11 /POJK.03/2015
CONCERNING
PRUDENTIAL PROVISIONS IN THE FRAMEWORK OF
NATIONAL ECONOMIC STIMULUS FOR COMMERCIAL BANKS

I. GENERAL
In order to stimulate national economic growth, efforts are needed to encourage the banking intermediation function through countercyclical policies, including regarding provisions concerning the calculation of Risk-Weighted Assets for Credit Risk using the standard approach, asset quality assessment, and prudential principles in conducting Equity Participation. The aforementioned countercyclical policy is aimed at maintaining financial system stability, encouraging intermediation functions to increase the potential expansion of Bank Credit in a measured manner while still observing prudential principles and preventing moral hazard. This countercyclical policy is temporary (temporary policy), so as the performance and financial condition of Banks and economic growth improve, the aforementioned policy needs to be adjusted again. This countercyclical policy is focused on encouraging Credit growth to MSMEs and Residential Mortgage Loans and improving Bank performance and conditions. In addition, this policy is in line with the government program to improve welfare and economic growth, particularly in the housing financing program for low-income communities and the distribution of Credit to MSMEs. In relation to the above considerations, it is necessary to have a policy in the form of Prudential Provisions in the Framework of National Economic Stimulus for Commercial Banks in a Financial Services Authority Regulation.

II. ARTICLE BY ARTICLE EXPLANATION

Article 1
Clear enough.

Article 2
Clear enough.

Article 3
Letter a
The term residence or apartment refers to a detached house or apartment building but does not include shops and office buildings.
Letter b
The term Government of Indonesia refers to the Central Government as referred to in the Law regulating regional government.

Article 4
Paragraph (1)
Clear enough.
Paragraph (2)
Letter a
Clear enough.
Letter b
Criteria for guarantee institutions or Credit insurance with BUMD status that receive recommendations from the Financial Services Authority include having good financial performance. Paragraph (3) Clear enough.

Article 5
Clear enough.

Article 6
Paragraph (1)
The term "other fund provisions" refers to the issuance of guarantees and/or opening of letters of credit.
Included as Loans and other fund provisions are all types of Loans or other fund provisions granted to all categories of debtors.
Paragraph (2)
The term 50 (fifty) largest debtors refers to the 50 (fifty) largest debtors of the Bank individually.
Productive Assets granted by the Bank with an amount more than IDR 5,000,000,000.00 (five billion rupiah) up to IDR 10,000,000,000.00 (ten billion rupiah) to 1 (one) debtor who is one of the 50 (fifty) largest debtors of the Bank are not affected by the quality of Productive Assets granted by other Banks to the same debtor or project with an amount less than or equal to IDR 10,000,000,000.00 (ten billion rupiah).

Article 7
Paragraph (1)
Clear enough.
Paragraph (2)
Clear enough.
Paragraph (3)
Letter a
Clear enough.
Letter b
Factors for assessing business prospects, debtor performance, and repayment ability refer to the provisions concerning the assessment of commercial bank asset quality. Paragraph (4) Clear enough.

Article 8
Clear enough.

Article 9
Paragraph (1)
Clear enough.
Paragraph (2)
Letter a
Clear enough.
Letter b
The term "actual Credit quality" refers to the Credit quality assessment based on:
a. punctuality of principal and/or interest payments for Restructured Credit up to an amount of IDR 5,000,000,000.00 (five billion rupiah); b. business prospects, debtor performance, and repayment ability for Restructured Credit with an amount more than IDR 5,000,000,000.00 (five billion rupiah). Paragraph (3) Clear enough.

Article 10
Clear enough.

Article 11
Clear enough.

Article 12
Clear enough.

Article 13
Clear enough.

Article 14
Clear enough.

Article 15
Clear enough.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5734