FINANCIAL SERVICES AUTHORITY REGULATION

NUMBER 46 /POJK.03/2015

CONCERNING

THE DETERMINATION OF SYSTEMICALLY IMPORTANT BANKS AND CAPITAL SURCHARGE

BY THE GRACE OF THE ALMIGHTY GOD,

THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering:
a. that in order to identify banks that have a significant impact on the domestic financial system, a methodology is needed to determine Systemically Important Banks by referring to applicable international standards; b. that risks originating from Systemically Important Banks need to be mitigated through the determination of a capital surcharge based on the level of the bank's systemic impact on the domestic financial system;
c. that based on the considerations referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation concerning the Determination of Systemically Important Banks and Capital Surcharge;

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 2008 concerning Islamic Banking (State Gazette of the Republic of Indonesia Year 2008 Number 94, Supplement to the State Gazette of the Republic of Indonesia Number 4867);
3. 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 THE DETERMINATION OF SYSTEMICALLY IMPORTANT BANKS AND CAPITAL SURCHARGE.

CHAPTER I

GENERAL PROVISIONS

Article 1

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

1. Bank means Commercial Banks as referred to in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998, and Islamic Commercial Banks as referred to in Law Number 21 of 2008 concerning Islamic Banking.

2. Systemically Important Bank, hereinafter abbreviated as SIB, is a Bank that, due to its asset size, capital, and liabilities, network breadth, or complexity of banking service transactions, as well as its interconnection with other financial sectors, could cause the failure of some or all other banks or the financial services sector, either operationally or financially, if the Bank experiences disruption or failure.

3. Capital Surcharge for SIB is additional capital that functions to reduce negative impacts on financial system stability and the economy in the event of SIB failure by increasing the Bank's ability to absorb losses.

Article 2

(1) The Financial Services Authority determines SIBs and the Capital Surcharge for SIBs.
(2) In determining SIBs and the Capital Surcharge for SIBs as referred to in paragraph (1), the Financial Services Authority coordinates with Bank Indonesia. (3) The determination of SIBs and the Capital Surcharge for SIBs as referred to in paragraph (1) is conducted semi-annually each year on:
a. March, using position data from December of the previous year; and b. September, using position data from June.

Article 3

Banks designated as SIBs are required to establish a Capital Surcharge for SIBs.

Article 4

(1) The determination of SIBs is conducted using a specific methodology based on certain indicators.
(2) The Financial Services Authority reviews the SIB determination methodology at least once every 3 (three) years.

CHAPTER II

SYSTEMICALLY IMPORTANT BANK (SIB) INDICATORS

Article 5

The indicators used in the SIB determination methodology as referred to in Article 4 paragraph (1) consist of:
a. Bank size (size); b. Interconnection with the financial system (interconnectedness); and
c. Complexity of business activities (complexity).

Article 6

The Bank size indicator (size) as referred to in Article 5 letter a is measured from the sub-indicator of the Bank's total exposure.

Article 7

The interconnection with the financial system indicator (interconnectedness) as referred to in Article 5 letter b consists of the following sub-indicators:
a. financial assets in the form of claims or placements with financial service institutions (intra financial system assets); b. financial liabilities to financial service institutions (intra financial system liabilities); and
c. securities issued by the Bank (securities outstanding).

Article 8

The complexity of business activities indicator (complexity) as referred to in Article 5 letter c consists of the following sub-indicators:
a. notional value of spot and over-the-counter derivatives; b. securities classified as available for sale and trading, excluding securities used as high-quality liquid assets in the liquidity coverage ratio calculation;
c. domestic-specific indicators established by the Financial Services Authority; and
d. substitutability of the Bank's role in payment system activities and custody.

Article 9

(1) The weight of each SIB indicator as referred to in Article 5 is set to be equal (equal weight).
(2) The weight of each sub-indicator as referred to in Article 6, Article 7, and Article 8 is set to be equal (equal weight).

CHAPTER III

METHODOLOGY FOR DETERMINING SYSTEMICALLY IMPORTANT BANKS (SIB)

Article 10

The Financial Services Authority determines SIBs based on the calculation of the systemic importance score.

Article 11

The systemic importance score of each Bank is calculated as follows:
a. calculating the value of each sub-indicator in basis points, by calculating the proportion of each sub-indicator's value against the aggregate value of the banking industry; b. calculating the weighted value of each sub-indicator, by multiplying the value of each sub-indicator as referred to in letter a with the sub-indicator weight;
c. calculating the value of each indicator, by summing the weighted values of each sub-indicator as referred to in letter b;
d. calculating the weighted value of each indicator, by multiplying the value of each indicator as referred to in letter c with the indicator weight; and e. calculating the systemic importance score value, by summing the weighted values of each indicator as referred to in letter d.

CHAPTER IV

CAPITAL SURCHARGE FOR SYSTEMICALLY IMPORTANT BANKS (SIB)

Article 12

(1) The Financial Services Authority determines the Capital Surcharge for SIBs into 5 (five) groups (buckets).
(2) The amount of Capital Surcharge for SIBs in each group (bucket) is determined as follows:
a. 1% (one percent) of Risk-Weighted Assets (RWA) for SIBs classified in group (bucket) 1; b. 1.5% (one point five percent) of RWA for SIBs classified in group (bucket) 2;
c. 2% (two percent) of RWA for SIBs classified in group (bucket) 3;
d. 2.5% (two point five percent) of RWA for SIBs classified in group (bucket) 4; and e. 3.5% (three point five percent) of RWA for SIBs classified in group (bucket) 5. (3) The Capital Surcharge for SIBs as referred to in paragraph (2) must be fulfilled using Common Equity Tier 1 capital components. (4) The Financial Services Authority has the authority to review and adjust the determination of the amount and timing for fulfilling the Capital Surcharge for SIBs, considering economic conditions and financial system stability.

Article 13

Based on the determination of Capital Surcharge for SIBs into 5 (five) groups (buckets) as referred to in Article 12 paragraph (1), for the first time, the Financial Services Authority determines SIBs in 4 (four) groups (buckets) of Capital Surcharge for SIBs, namely group (bucket) 1, group (bucket) 2, group (bucket) 3, and group (bucket) 4.

Article 14

(1) In the event that there is a Bank with a very high systemic importance score such that it is classified in the highest group, the Financial Services Authority determines:
a. the addition of SIB grouping by 1 (one) group (bucket) above the highest group; and b. that there are no SIBs classified in the new highest group (bucket) as referred to in letter a. (2) For each addition of 1 (one) group (bucket) as referred to in paragraph (1), the amount of Capital Surcharge for SIBs as referred to in Article 12 paragraph (2) is determined to increase by 1% (one percent) of RWA.

Article 15

The establishment of Capital Surcharge for SIBs as referred to in Article 12 paragraph (2) must be fulfilled progressively:

1. for SIBs classified in group (bucket) 1, amounting to:
   a. 0.25% (zero point two five percent) of RWA since January 1, 2016; b. 0.5% (zero point five percent) of RWA since January 1, 2017;
   c. 0.75% (zero point seven five percent) of RWA since January 1, 2018;
   d. 1% (one percent) of RWA since January 1, 2019;

2. for SIBs classified in group (bucket) 2, amounting to:
   a. 0.375% (zero point three seven five percent) of RWA since January 1, 2016; b. 0.75% (zero point seven five percent) of RWA since January 1, 2017;
   c. 1.125% (one point one two five percent) of RWA since January 1, 2018;
   d. 1.5% (one point five percent) of RWA since January 1, 2019;

3. for SIBs classified in group (bucket) 3, amounting to:
   a. 0.5% (zero point five percent) of RWA since January 1, 2016; b. 1% (one percent) of RWA since January 1, 2017;
   c. 1.5% (one point five percent) of RWA since January 1, 2018;
   d. 2% (two percent) of RWA since January 1, 2019;

4. for SIBs classified in group (bucket) 4, amounting to:
   a. 0.625% (zero point six two five percent) of RWA since January 1, 2016; b. 1.25% (one point two five percent) of RWA since January 1, 2017;
   c. 1.875% (one point eight seven five percent) of RWA since January 1, 2018;
   d. 2.5% (two point five percent) of RWA since January 1, 2019.

CHAPTER V

SANCTIONS

Article 16

Banks designated as SIBs that do not fulfill the obligation to provide Capital Surcharge for SIBs shall be subject to sanctions as regulated concerning the obligation to provide minimum capital for conventional commercial banks or Islamic commercial banks.

CHAPTER VI

OTHER PROVISIONS

Article 17

For the first time, the determination of SIBs and Capital Surcharge for SIBs is conducted in January 2016 using position data from June 2015.

CHAPTER VII

CLOSING PROVISIONS

Article 18

This Financial Services Authority Regulation shall come into force upon its enactment.

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

Determined in Jakarta
On January 23, 2015

CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY,

signed

MULIAMAN D. HADAD

Promulgated in Jakarta
On December 28, 2015

MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA,

signed

YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2015 NUMBER 372

Copy matches the original

Legal Director 1
Ministry of Law

signed

Sudarmaji

EXPLANATION

OF

FINANCIAL SERVICES AUTHORITY REGULATION

NUMBER 46 /POJK.03/2015

CONCERNING

THE DETERMINATION OF SYSTEMICALLY IMPORTANT BANKS AND CAPITAL SURCHARGE

I. GENERAL

The determination of SIBs in the domestic financial market aims to identify Banks that have a significant impact on the domestic financial system. Thus, a methodology is required to assess the systemic level of a Bank domestically, reflecting the adverse effects that may potentially occur if an SIB fails.

Risks originating from SIBs are mitigated through the determination of a Capital Surcharge for SIBs based on the level of the Bank's systemic impact on the domestic financial system. The determination of Capital Surcharge for SIBs is part of supervisory actions conducted under normal conditions.

In relation to these matters, it is necessary to have regulations concerning the Determination of Systemically Important Banks and Capital Surcharge.

II. ARTICLE BY ARTICLE

Article 1

Sufficiently clear.

Article 2

Paragraph (1)

What is meant by "Capital Surcharge for SIB" is the Capital Surcharge for Domestic Systemically Important Banks as per Financial Services Authority regulations governing the obligation to provide minimum capital for conventional commercial banks or Islamic commercial banks.

Domestic Systemically Important Banks are Banks in Indonesia designated as SIBs.

Paragraph (2)

Coordination between the Financial Services Authority and Bank Indonesia is conducted through a coordination mechanism.

Paragraph (3)

The Financial Services Authority notifies in writing to Banks designated as SIBs and the amount of Capital Surcharge for SIBs.

Article 3

The determination of a Bank as an SIB does not cover branches of banks located outside the country.

Article 4

Paragraph (1)

What is meant by "specific methodology" is the methodology used in accordance with international standards in determining SIBs.

Paragraph (2)

Sufficiently clear.

Article 5

Sufficiently clear.

Article 6

What is meant by "Bank's total exposure" is the sum of exposure on the balance sheet, exposure on administrative accounts, and potential future exposure from derivative transactions.

What is meant by "exposure on the balance sheet" is total assets minus inter-office positions.

What is meant by "exposure on administrative accounts" is total commitment and contingent liabilities.

The calculation of potential future exposure from derivative transactions refers to regulations governing the calculation of risk-weighted assets for credit risk using the standard approach.

Derivative transactions in Islamic Commercial Banks are Shariah hedging transactions that refer to regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Islamic commercial banks.

Article 7

Sufficiently clear.

Article 8

Letter a

For Islamic Commercial Banks, what is meant by "notional value of over-the-counter derivatives" is the notional value of over-the-counter Shariah hedging that refers to regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Islamic commercial banks.

Letter b

Sufficiently clear.

Letter c

What is meant by domestic-specific indicators includes, among others:

1. outstanding value of bank guarantees;
2. outstanding value of irrevocable Letters of Credit;
3. value of portfolios of Government Securities and/or Shariah State Securities held;
4. number of third-party funds accounts;
5. number of credit accounts; and
6. number of domestic and foreign branches.

Letter d

Sufficiently clear.

Article 9

Paragraph (1)

The indicators used in the SIB determination methodology consist of 3 (three) indicators, so each indicator has a weight of (100/3)%.

Paragraph (2)

As an example, the interconnection with the financial system indicator consists of 3 (three) sub-indicators, so each sub-indicator of interconnection with the financial system has a weight of (100/3)%.

Article 10

The systemic importance score of each Bank is a value that reflects the systemic level of each Bank.

Article 11

Sub-Indicator Value	Indicator Value	Systemic Importance Score
Calculating the proportion of the value of each sub-indicator against the aggregate value of the banking industry.	Calculating the value of each indicator by summing the weighted values of the sub-indicators.	Calculating the systemic importance score value by summing the weighted values of the indicators.
Calculating the weighted value of each sub-indicator.	Calculating the weighted value of each indicator.

Article 12

Paragraph (1)

Sufficiently clear.

Paragraph (2)

Sufficiently clear.

Paragraph (3)

What is meant by "Common Equity Tier 1 capital component" is Common Equity Tier 1 capital as referred to in Financial Services Authority regulations governing the obligation to provide minimum capital for conventional commercial banks or Islamic commercial banks.

Paragraph (4)

Considerations for reviewing and adjusting the determination of the amount and timing for fulfilling the Capital Surcharge for SIBs are based on, among others, economic growth, credit growth, and/or the performance of the banking industry.

Article 13

Group (bucket) 5 of Capital Surcharge for SIBs is not filled or is empty because group (bucket) 5 is the group for Banks with a very high systemic importance score.

Article 14

Paragraph (1)

Capital Surcharge in group (bucket) 5 and subsequent groups serves as a disincentive for Banks with a very high systemic importance score, thereby encouraging Banks to reduce systemic risk.

As an example, in the event that there is a Bank with a very high systemic importance score such that it is classified in group (bucket) 5, the Financial Services Authority determines:
a. the addition of SIB grouping, namely group (bucket) 6; and b. that there are no SIBs classified in group (bucket) 6.

Paragraph (2)

As an example, the amount of Capital Surcharge for group (bucket) 5 is 3.5% (three point five percent), so the Capital Surcharge for group (bucket) 6 is determined to be 4.5% (four point five percent) of RWA.

Article 15

Sufficiently clear.

Article 16

Sufficiently clear.

Article 17

Sufficiently clear.

Article 18

Sufficiently clear.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5812