Productive Asset Quality and Formation of Productive Asset Write-off Provisions for Rural Credit Banks

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 33/POJK.03/2018
CONCERNING
PRODUCTIVE ASSET QUALITY AND FORMATION OF PRODUCTIVE ASSET WRITE-OFF PROVISIONS FOR RURAL CREDIT BANKS BY THE GRACE OF THE ALMIGHTY GOD THE BOARD OF COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that in carrying out business activities related to productive asset management, particularly in the field of lending, rural credit banks must always pay attention to the principle of prudence and the principle of healthy lending; b. that it is necessary to harmonize regulations regarding the quality of productive assets and the formation of productive asset write-off provisions for rural credit banks with several related regulations to create a productive, healthy, and competitive rural credit bank industry;
c. that in view of the dynamic and challenging development of the rural credit bank industry in facing risks of productive asset management, it is necessary to refine regulations regarding the quality of productive assets and the formation of productive asset write-off provisions for rural credit banks;
d. that based on the considerations referred to in letters a through c, it is necessary to establish a Financial Services Authority Regulation concerning Productive Asset Quality and Formation of Productive Asset Write-off Provisions for Rural Credit Banks; Recalling:

Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1992 Number 31, Supplement to the State Gazette of the Republic of Indonesia Number 3472) as amended by Law Number 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Year 1998 Number 182, Supplement to the State Gazette of the Republic of Indonesia Number 3790);
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:
Establish: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING PRODUCTIVE ASSET QUALITY AND FORMATION OF PRODUCTIVE ASSET WRITE-OFF PROVISIONS FOR RURAL CREDIT BANKS.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation:

Rural Credit Bank, hereinafter abbreviated as BPR, is a bank that conducts conventional business activities that do not provide services in payment transactions.
Productive Asset is the provision of BPR funds in Indonesian Rupiah to obtain income, in the form of loans, Bank Indonesia Certificates, and placements in other banks.
Loan is the provision of money or receivables that can be equated with it, based on a loan approval or agreement between the BPR and the borrower, which obligates the borrower to repay its debt after a certain period with the provision of interest.
Bank Indonesia Certificate, hereinafter abbreviated as SBI, is a negotiable instrument in Indonesian Rupiah issued by Bank Indonesia as recognition of short-term debt.
Placement in Other Banks is the placement of BPR funds in other banks in the form of current accounts, savings, time deposits, certificate of time deposits, given loans, and other similar fund placements.
Productive Asset Write-off Provision, hereinafter abbreviated as PPAP, is a reserve that must be formed at a certain percentage of the debit balance based on the classification of the quality of Productive Assets.
Board of Directors:
a. for BPR in the form of a Limited Liability Company is the Company Organ authorized and fully responsible for managing the Company for the interests of the Company, in accordance with the purpose and objectives of the Company and representing the Company, both inside and outside the court in accordance with the provisions of the articles of association. b. for BPR in the form of legal entity:

Regional Public Company or Regional Corporation is the regional public company organ responsible for managing the regional public company for the interests and objectives of the regional public company, and representing the regional public company both inside and outside the court in accordance with the provisions of the articles of association.
Regional Company is the board of directors at the BPR that has not yet changed its legal entity status to a Regional Public Company or Regional Corporation.
c. for BPR in the form of a Cooperative legal entity is the manager as referred to in Law Number 25 of 1992 concerning Cooperatives.

Board of Commissioners:
a. for BPR in the form of a Limited Liability Company is the Company Organ tasked with conducting general and/or specific supervision in accordance with the articles of association and providing advice to the Board of Directors. b. for BPR in the form of legal entity:

Regional Public Company is the regional public company organ tasked with conducting supervision and providing advice to the board of directors in carrying out the management activities of the regional public company.
Regional Corporation is the regional corporation organ tasked with conducting supervision and providing advice to the board of directors in carrying out the management activities of the regional corporation.
Regional Company is the supervisor at the BPR that has not yet changed its legal entity status to a Regional Public Company or Regional Corporation.
c. for BPR in the form of a Cooperative legal entity is the supervisor as referred to in Law Number 25 of 1992 concerning Cooperatives.

Debtor is an individual, company, or party that receives funding facilities from the BPR.
Credit Restructuring is an improvement effort carried out by the BPR in lending activities against a Debtor experiencing difficulties in meeting its obligations.
Acquired Collateral, hereinafter referred to as AYDA, is an asset obtained by the BPR to settle a Loan, either through auction, or outside of auction based on voluntary surrender by the collateral owner or based on a power of attorney to sell outside of auction from the collateral owner, in the event that the Debtor has been declared non-performing.

CHAPTER II
PRODUCTIVE ASSET QUALITY
First Section
General
Article 2
(1) The provision of BPR funds in Productive Assets must be carried out based on the principle of prudence.
(2) To implement the principle of prudence as referred to in paragraph (1), the BPR Board of Directors is required to assess, monitor, and take necessary steps to ensure that the quality of Productive Assets remains performing.
Article 3
(1) For the provision of funds in the form of Loans, the BPR must have and apply written lending policies and lending procedures referring to the BPR Lending Policy Guidelines (PKPB) as contained in Appendix I, which is an integral part of this Financial Services Authority Regulation. (2) The lending policy as referred to in paragraph (1) must be approved by the Board of Commissioners. (3) The lending procedure as referred to in paragraph (1) must be approved by the Board of Directors. (4) Any changes to the lending policy as referred to in paragraph (1) must be submitted to the Financial Services Authority no later than 30 (thirty) working days since the change occurred. (5) If the deadline for submitting changes to the lending policy as referred to in paragraph (4) falls on a Saturday, Sunday, or holiday, the BPR must submit the changes to the lending policy on the next working day. (6) BPRs that obtain business permits after the implementation of this Financial Services Authority Regulation must have and apply lending policies and lending procedures since conducting business activities.
Article 4
(1) The Board of Commissioners is required to conduct effective supervision over the implementation of lending policies as referred to in Article 3 paragraph (1). (2) Effective supervision conducted by the Board of Commissioners as referred to in paragraph (1) includes at least:
a. reviewing and approving the BPR lending policy proposed by the Board of Directors; b. supervising the implementation of the Board of Directors' responsibilities regarding the application of lending policies and lending procedures; and
c. reporting the results of supervision over the implementation of lending policies and lending procedures by the Board of Directors to the Financial Services Authority in the business plan supervision report of the BPR as referred to in the Financial Services Authority Regulation concerning business plans for rural credit banks and sharia rural financing banks.
(3) The supervision results report as referred to in paragraph (2) letter c must contain at least:
a. the application of the prudence principle in granting Loans, including:

assessment of the application of lending policies and lending procedures;
fulfillment of PPAP;
Maximum Loan Limit;
Loans to related parties, Group Debtors, and/or certain large Debtors; and
handling of non-performing loans, consisting of Credit Restructuring, collateral takeover, write-off, and/or write-off of receivables;
b. assessment of the implementation of handling non-performing loans accompanied by an explanation of the factors causing non-performing loans and efforts made to resolve non-performing loans; and
c. recommendations and suggestions from the Board of Commissioners regarding the implementation of lending policies.
Article 5
(1) BPRs must assess and determine the quality of Productive Assets in accordance with this Financial Services Authority Regulation.
(2) In the event of a difference in the determination of the quality of Productive Assets between the BPR and the Financial Services Authority, the quality of Productive Assets determined by the Financial Services Authority shall apply. (3) BPRs must adjust the quality of Productive Assets in accordance with that determined by the Financial Services Authority as referred to in paragraph (2) in reports submitted to the Financial Services Authority referring to regulations on monthly BPR reports.

Second Section
Loans
Article 6
(1) BPRs must determine the quality of Productive Assets in the form of Loans to be the same for multiple Loan accounts:
a. used to finance 1 (one) Debtor or 1 (one) project or the same business at the same BPR; and/or b. granted by more than 1 (one) BPR jointly used to finance 1 (one) Debtor or 1 (one) project or the same business based on a joint loan agreement. (2) In the event of differences in the quality of Productive Assets in the form of Loans as referred to in paragraph (1), the BPR must determine the quality of each Loan following the lowest quality Loan. (3) BPRs may not determine the same quality for Loans granted to 1 (one) same Debtor as referred to in paragraph (1) provided that the Debtor meets at least the following requirements:
a. financing for different projects or businesses; and b. there is a clear separation between the cash flows from each project or business that serves as the source for principal and/or interest payments. (4) BPRs that do not determine the same quality for Loans granted to 1 (one) Debtor as referred to in paragraph (3) must document a list containing the Debtor's name along with details including the financed project, loan ceiling and debit balance, the quality determined by the BPR, the quality determined by other BPRs, and the reasons for determining different qualities. (5) In the event that the results of supervision by the Financial Services Authority reveal that the assessment conducted by the BPR does not meet the requirements as referred to in paragraph (3), the assessment used shall be as referred to in paragraph (1).
Article 7
(1) The quality of Productive Assets in the form of Loans granted by each BPR to 1 (one) Debtor or 1 (one) project or business with an amount of up to Rp5,000,000,000.00 (five billion Rupiah) is assessed based on the timeliness of principal and/or interest payments. (2) The quality of Productive Assets in the form of Loans granted by each BPR to 1 (one) Debtor or 1 (one) project or business with an amount exceeding Rp5,000,000,000.00 (five billion Rupiah) is assessed based on assessment factors:
a. business prospects; b. Debtor performance; and
c. repayment ability.
(3) The determination of the quality of Productive Assets in the form of Loans as referred to in paragraph (1) and paragraph (2) is contained in Appendix II, which is an integral part of this Financial Services Authority Regulation.
Article 8
(1) Assessment of business prospects as referred to in Article 7 paragraph (2) letter a includes assessment of the following components:
a. business growth potential; b. market conditions and the Debtor's position in competition;
c. management quality and labor issues;
d. support from owners, groups, or affiliates; and e. efforts made by the Debtor to maintain the environment.
(2) Assessment of Debtor performance as referred to in Article 7 paragraph (2) letter b includes assessment of the following components:
a. profit acquisition; b. capital conditions; and
c. cash flow.
(3) Assessment of repayment ability as referred to in Article 7 paragraph (2) letter c includes assessment of the following components:
a. timeliness of principal and/or interest payments; b. availability and accuracy of Debtor financial information;
c. completeness of loan documentation;
d. compliance with loan agreements; e. appropriateness of fund usage; and f. fairness of the source of obligation payments.
Article 9
(1) Loan quality assessment conducted based on assessment factors as referred to in Article 7 paragraph (2) considers components as referred to in Article 8. (2) Loan quality assessment as referred to in paragraph (1) is conducted by considering:
a. the significance and materiality of each assessment factor and component; and b. the relevance of assessment factors and components to the respective Debtor.
Article 10
In the event of conditions causing the Debtor to be unable to repay principal and/or interest according to the Loan agreement with the BPR, the Financial Services Authority has the authority to downgrade the quality of Productive Assets determined by the BPR as referred to in Article 7 paragraph (1).
Article 11
Based on the assessment as referred to in Article 7, the quality of Productive Assets in the form of Loans is determined as:
a. performing; b. special attention;
c. substandard;
d. doubtful; or e. non-performing (loss).
Article 12
In the event of loan granting deviations, the BPR must downgrade the loan quality to non-performing (loss).
Article 13
(1) BPRs that grant Loans with a payment grace period (grace period) calculate overdue principal and/or interest installments after the payment grace period ends. (2) The deadline for Loans with a payment grace period as referred to in paragraph (1) is established in the Loan agreement between the BPR and the Debtor.

Third Section
Bank Indonesia Certificates
Article 14
The quality of Productive Assets in the form of SBI is determined as performing.

Fourth Section
Placement in Other Banks
Article 15
The quality of Productive Assets in the form of Placement in Other Banks is determined:
a. performing, in the event there are no overdue principal and/or interest payments; b. substandard, in the event there are overdue principal and/or interest payments up to 5 (five) working days;
c. non-performing (loss), in the event:

there are overdue principal and/or interest payments exceeding 5 (five) working days;
the bank receiving the Placement in Other Banks has been placed under special supervision status; and/or
the bank receiving the Placement in Other Banks has been liquidated.

CHAPTER III
PRODUCTIVE ASSET WRITE-OFF PROVISIONS
Article 16
(1) BPRs must form PPAP in the form of general PPAP and specific PPAP for each Productive Asset.
(2) General PPAP as referred to in paragraph (1) is determined at least 0.5% (zero point five percent) of Productive Assets with performing quality. (3) Specific PPAP as referred to in paragraph (1) is determined at least:
a. 3% (three percent) of Productive Assets with special attention quality after deducting collateral value; b. 10% (ten percent) of Productive Assets with substandard quality after deducting collateral value;
c. 50% (fifty percent) of Productive Assets with doubtful quality after deducting collateral value; and/or
d. 100% (one hundred percent) of Productive Assets with non-performing (loss) quality after deducting collateral value.
(4) The formation of general PPAP as referred to in paragraph (2) is exempted for Productive Assets in the form of:
a. SBI; and b. part of Loans guaranteed by liquid collateral in the form of SBI, bonds issued by the Central Government of the Republic of Indonesia, savings and/or time deposits blocked at the respective BPR accompanied by a withdrawal power of attorney, and/or gold bullion accompanied by a pledge power of attorney. (5) The application of specific PPAP formation for Productive Assets with special attention quality as referred to in paragraph (3) letter a is implemented in phases, namely:
a. 0.5% (zero point five percent) applies from December 1, 2019 to November 30, 2020. b. 1% (one percent) applies from December 1, 2020 to November 30, 2021.
c. 3% (three percent) applies from December 1, 2021.
Article 17
(1) Collateral value calculated as a deduction in the formation of PPAP as referred to in Article 16 paragraph (3) is determined at most:
a. 100% (one hundred percent) of collateral value that is liquid in the form of SBI, bonds issued by the Central Government of the Republic of Indonesia, savings and/or time deposits blocked at the respective BPR accompanied by a withdrawal power of attorney, and/or gold bullion accompanied by a pledge power of attorney; b. 85% (eighty-five percent) of market value for jewelry gold collateral;
c. 80% (eighty percent) of encumbrance or fiduciary rights value for land and/or building collateral with certificates encumbered by encumbrance or fiduciary rights;
d. 70% (seventy percent) of warehouse receipt collateral value, assessed within the last 12 (twelve) months and in accordance with regulations on warehouse receipts; e. 60% (sixty percent) of the Taxable Object Value (NJOP) or market value based on assessment by an independent appraiser for land and/or building collateral with certificates not encumbered by encumbrance or fiduciary rights; f. 50% (fifty percent) of NJOP based on the Tax Notification Letter (SPPT) or the latest NJOP certificate from the competent authority, or from market value based on assessment by an independent appraiser or competent authority, for land and/or building collateral owned by customary land acknowledgment letters; g. 50% (fifty percent) of market price, rental price, or transfer price, for business premises collateral accompanied by proof of ownership or usage permit or land use rights issued by the competent authority and accompanied by a power of attorney to sell or transfer rights made or certified by a notary or made by other competent officials; h. 50% (fifty percent) of mortgage or fiduciary value for motor vehicles, ships, motorboats, heavy equipment, and/or machinery that are integral with land, accompanied by proof of ownership and have been encumbered by mortgage or fiduciary rights in accordance with regulations;
i. 50% (fifty percent) of warehouse receipt collateral value, assessed more than 12 (twelve) months but within the last 18 (eighteen) months and in accordance with regulations on warehouse receipts;
j. 50% (fifty percent) for part of Loans guaranteed by State-Owned Enterprises (BUMN)/Regional-Owned Enterprises (BUMD) conducting business as loan guarantors meeting criteria as referred to in the Financial Services Authority Regulation concerning minimum capital provision and minimum core capital fulfillment for rural credit banks; or k. 30% (thirty percent) of warehouse receipt collateral value, assessed more than 18 (eighteen) months but not exceeding 24 (twenty-four) months in the last period and in accordance with regulations on warehouse receipts. (2) Collateral other than as referred to in paragraph (1) is not calculated as a deduction in the formation of PPAP. (3) Collateral value calculated as a deduction in the formation of PPAP for Loans with non-performing (loss) quality for collateral as referred to in paragraph (1) letters c, letters e through g:
a. is determined at most 50% (fifty percent) of the collateral value calculated after a period of 2 (two) years to 4 (four) years since the determination of the Loan quality as non-performing (loss); and b. cannot be calculated as a deduction factor in the formation of PPAP after a period of 4 (four) years since the determination of the Loan quality as non-performing (loss). (4) Collateral value calculated as a deduction in the formation of PPAP for Loans with non-performing (loss) quality for collateral as referred to in paragraph (1) letter h:
a. is determined at most 50% (fifty percent) of the collateral value calculated after a period of 1 (one) year to 2 (two) years since the determination of the Loan quality as non-performing (loss); and b. cannot be calculated as a deduction factor in the formation of PPAP after a period of 2 (two) years since the determination of the Loan quality as non-performing (loss). (5) The Financial Services Authority may establish a longer period than the period as referred to in paragraph (3) based on analysis of local and surrounding economic conditions.
Article 18
(1) BPRs must assess collateral to know the economic value of the collateral.
(2) Collateral is not calculated as a deduction in the formation of PPAP in the event:
a. no assessment is conducted by the BPR as referred to in paragraph (1); b. its existence cannot be known; and/or
c. it cannot be executed.
(3) BPRs must adjust the collateral value as a deduction in the formation of PPAP in the event of a significant decrease in collateral value.
Article 19
(1) In the event that BPRs do not meet the provisions as referred to in Article 17 and Article 18, the Financial Services Authority may recalculate or not recognize the collateral value that has been calculated as a deduction in the formation of PPAP. (2) BPRs must adjust the PPAP calculation in accordance with the calculation determined by the Financial Services Authority as referred to in paragraph (1) in reports submitted to the Financial Services Authority referring to regulations on monthly BPR reports.
Article 20
The Placement in Other Banks section meeting the criteria for the Deposit Insurance Agency guarantee can be used as a deduction factor in the formation of general and specific PPAP.

CHAPTER IV
CREDIT RESTRUCTURING
Article 21
(1) BPRs may conduct Credit Restructuring against Debtors meeting the following criteria:
a. the Debtor experiences difficulties in paying principal and/or interest of the Loan; and b. the Debtor has good business prospects and is assessed to be able to meet obligations after the Loan is restructured. (2) Credit Restructuring as referred to in paragraph (1) is conducted through:
a. rescheduling; b. reconditioning; and/or
c. reorganization.
(3) BPRs must document Credit Restructuring conducted in the Loan agreement.

(4) Credit Agreements as referred to in paragraph (3) must refer to previous Credit agreements.

Article 22
Rural Banks are prohibited from conducting Credit Restructuring as referred to in Article 21, if the purpose is to avoid:
a. a decline in Credit quality; b. an increase in the formation of PPAP; and/or
c. the cessation of accrual-based interest income recognition.

Article 23
(1) The quality of Restructured Credit as referred to in Article 21 is determined:
a. at most Substandard for Credit that was previously classified as Doubtful or Loss; or b. unchanged, for Credit that was previously classified as Performing, Special Mention, or Substandard. (2) The determination of Credit quality as referred to in paragraph (1) may become:
a. Performing, in the event that there are no defaults on principal and/or interest installments for 3 (three) consecutive payment periods; or b. the same as the Credit quality before Credit Restructuring was conducted, in the event that the Debtor cannot meet the conditions referred to in letter a. (3) The determination of Credit quality as referred to in paragraph (2) is further determined based on assessment factors as referred to in Article 7. (4) Rural Banks are required to charge losses arising from Credit Restructuring, after being offset by excess PPAP due to the improvement of Credit quality after Credit Restructuring. (5) Excess PPAP due to the improvement of Restructured Credit quality, after being offset by losses arising from Credit Restructuring as referred to in paragraph (4), may only be recognized as income if there have been 3 (three) receipts of principal installments for the Restructured Credit.

Article 24
Rural Banks are required to apply accounting treatment for Credit Restructuring in accordance with financial accounting standards and accounting guidelines for Rural Banks, including the recognition of losses arising from Credit Restructuring.

Article 25
The quality of Restructured Credit with the provision of a payment grace period as referred to in Article 13 paragraph (1) is determined:
a. during the payment grace period, the Credit quality follows the quality determination before Credit Restructuring was conducted; and b. after the payment grace period ends, the Credit quality follows the quality determination as referred to in Article 23 paragraph (1) through paragraph (3).

Article 26
Corrections to the determination of Credit quality for Restructured Credit, the formation of PPAP, and interest income recognized on an accrual basis, may be conducted by the Financial Services Authority in the event:
a. based on the Financial Services Authority's assessment, Credit Restructuring was conducted for the purpose referred to in Article 22; b. the Debtor does not implement the Credit agreement as referred to in Article 21 paragraph (3);
c. Credit Restructuring is conducted repeatedly with the purpose of improving Credit quality without considering the Debtor's business prospects; and/or
d. Credit Restructuring is not supported by complete documents and adequate analysis regarding the Debtor's repayment ability and business prospects.

CHAPTER V
ASSETS TAKEN OVER AS COLLATERAL

Article 27
(1) Rural Banks may take over collateral for the settlement of Credit with Loss quality.
(2) The takeover of collateral as referred to in paragraph (1) is temporary.
(3) The takeover of collateral as referred to in paragraph (1) must be accompanied by a statement of surrender of collateral or a power of attorney to sell from the Debtor, and a certificate of settlement from the Rural Bank to the Debtor. (4) Rural Banks are required to assess Assets Taken Over as Collateral (AYDA) at the time of takeover to determine the net realizable value. (5) The assessment of AYDA as referred to in paragraph (4) is conducted:
a. for AYDA with a value up to Rp500,000,000.00 (five hundred million rupiah), it may be conducted by the Rural Bank's internal appraiser; and b. for AYDA with a value exceeding Rp500,000,000.00 (five hundred million rupiah), it must be conducted by an independent appraiser. (6) The assessment of AYDA as referred to in paragraph (4) is conducted for each collateral item. (7) Rural Banks are required to conduct periodic re-assessment of AYDA in accordance with financial accounting standards and Rural Bank accounting guidelines, with the provisions:
a. in the event that the value of AYDA decreases, the Rural Bank is required to recognize the decrease in value as a loss; and b. in the event that the value of AYDA increases, the Rural Bank is prohibited from recognizing the increase in value as income.

Article 28
(1) Rural Banks are required to undertake settlement efforts for AYDA as referred to in Article 27 paragraph (1) within a maximum period of 1 (one) year from the takeover of collateral. (2) If the Rural Bank cannot undertake settlement efforts for AYDA as referred to in paragraph (1), the value of AYDA for collateral types as referred to in Article 17 paragraph (1) letters c, e through g, which are recorded in the Rural Bank's financial position report, must be calculated as a factor reducing core capital in the KPMM calculation by:
a. 50% (fifty percent) of the AYDA value for AYDA held for more than 1 (one) year up to 3 (three) years; b. 75% (seventy-five percent) of the AYDA value for AYDA held for more than 3 (three) years up to 5 (five) years; and/or
c. 100% (one hundred percent) of the AYDA value for AYDA held for more than 5 (five) years.
(3) If the Rural Bank cannot undertake settlement efforts for AYDA as referred to in paragraph (1), the value of AYDA for collateral types as referred to in Article 17 paragraph (1) letter h, which are recorded in the Rural Bank's financial position report, must be calculated as a factor reducing core capital in the KPMM calculation by:
a. 50% (fifty percent) of the AYDA value for AYDA held for more than 1 (one) year up to 2 (two) years; and/or b. 100% (one hundred percent) of the AYDA value for AYDA held for more than 2 (two) years. (4) Rural Banks are required to document settlement efforts for AYDA as referred to in paragraph (1). (5) Rural Banks are required to apply accounting treatment for the takeover of AYDA in accordance with financial accounting standards and accounting guidelines for Rural Banks.

CHAPTER VI
WRITE-OFF AND WRITE-OFF OF RECEIVABLES

Article 29
(1) Write-off and/or write-off of receivables may only be conducted against fund provision that has Loss quality.
(2) Write-off cannot be conducted against a portion of fund provision.
(3) Write-off of receivables may be conducted against a portion or all of fund provision.
(4) Write-off of receivables against a portion of fund provision as referred to in paragraph (3) may only be conducted for Credit Restructuring or Credit settlement.

Article 30
(1) Write-off and/or write-off of receivables as referred to in Article 29 may only be conducted after the Rural Bank has undertaken efforts to recover the Productive Assets provided. (2) Rural Banks are required to document efforts to recover the Productive Assets provided as referred to in paragraph (1) and the basis for consideration for implementing write-off and/or write-off of receivables. (3) Rural Banks are required to administer data and information regarding Productive Assets that have undergone write-off and/or write-off of receivables.

CHAPTER VII
OTHER PROVISIONS

Article 31
(1) Rural Banks that disburse credit to project locations or business locations in specific areas affected by natural disasters, as designated by the Financial Services Authority as areas requiring special treatment for bank Credit, are exempt from the application of Credit Restructuring accounting treatment as referred to in Article 24. (2) The exemption as referred to in paragraph (1) applies to Credit disbursed before and after the natural disaster occurs, according to the time period determined since the occurrence of the natural disaster.

Article 32
(1) Rural Banks adjust their lending policies referring to this Financial Services Authority Regulation.
(2) Rural Banks are required to submit lending policies as referred to in paragraph (1) no later than November 30, 2019.

CHAPTER VIII
SANCTIONS

Article 33
Rural Banks that violate the provisions as referred to in Article 2, Article 3, Article 4 paragraph (1), Article 5 paragraph (1) and paragraph (3), Article 6 paragraph (1) and paragraph (2), Article 12, Article 16 paragraph (1), Article 18 paragraph (1) and paragraph (3), Article 19 paragraph (2), Article 21 paragraph (3) and paragraph (4), Article 22, Article 23 paragraph (4) and paragraph (5), Article 24, Article 27 paragraph (4), paragraph (5) letter b, and paragraph (7), Article 28, Article 29 paragraph (1), paragraph (2), and paragraph (4), Article 30, and Article 32 paragraph (2) are subject to administrative sanctions in the form of:
a. written reprimand; b. reduction of credit value in the calculation of health level; and/or
c. inclusion of members of the Board of Directors, members of the Board of Commissioners, executive officials, and/or controlling shareholders in the list of failed candidates through the competency and propriety test mechanism.

CHAPTER IX
CLOSING PROVISIONS

Article 34
Upon the commencement of this Financial Services Authority Regulation:
a. Bank Indonesia Regulation Number 8/19/PBI/2006 concerning Productive Asset Quality and Formation of Provision for Write-off of Productive Assets of Rural Banks (State Gazette of the Republic of Indonesia Year 2006 Number 76, Supplement to the State Gazette of the Republic of Indonesia Number 4645); b. Bank Indonesia Regulation Number 13/26/PBI/2011 concerning Amendments to Bank Indonesia Regulation Number 8/19/PBI/2006 concerning Productive Asset Quality and Formation of Provision for Write-off of Productive Assets of Rural Banks (State Gazette of the Republic of Indonesia Year 2011 Number 146, Supplement to the State Gazette of the Republic of Indonesia Number 5266); and
c. Bank Indonesia Circular Letter Number 14/26/DKBU/2012 concerning Guidelines for Lending Policies and Procedures for Rural Banks,
are revoked and declared invalid.

Article 35
This Financial Services Authority Regulation commences on December 1, 2019, except for the provisions of Article 32 which commence on the date of promulgation.

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

To ensure everyone knows, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia. Determined in Jakarta on December 27, 2018 CHAIRMAN OF THE COMMISSIONERS BOARD FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA, signed WIMBOH SANTOSO

Promulgated in Jakarta on December 28, 2018
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2018 NUMBER 258

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 33 /POJK.03/2018
CONCERNING
PRODUCTIVE ASSET QUALITY AND FORMATION OF PROVISION FOR WRITE-OFF OF PRODUCTIVE ASSETS OF RURAL BANKS

I. GENERAL
Rural Banks (BPR) as intermediary institutions conducting business activities of gathering and disbursing funds to and from the public, must always adhere to the principle of prudence and the principles of healthy lending, including policies in granting Credit, Credit quality assessment, and the professionalism and integrity of the Board of Directors, Board of Commissioners, and BPR employees in the lending field, so that Credit quality remains Performing. Considering that there are several provisions and regulations related to BPR prudence principles, it is necessary to harmonize the provisions so that the implementation of the aforementioned provisions can be carried out well, thereby creating a productive, healthy, and competitive BPR industry. In relation to this and reflecting the dynamic and challenging development of the BPR industry in facing productive asset management risks, it is necessary to refine regulations concerning productive asset quality and the formation of provision for write-off of productive assets of Rural Banks, including adjustments to the classification of Credit quality from 4 (four) to 5 (five) categories and the determination of Credit quality based on assessment of business prospects, Debtor performance, and repayment ability for Credit with an amount exceeding Rp5,000,000,000.00 (five billion rupiah).

II. ARTICLE BY ARTICLE

Article 1
It is clear enough.

Article 2
Paragraph (1)
Prudence principles in fund provision are carried out, among others, based on business feasibility analysis by considering at least the 5C's factors, namely character, capacity, capital, collateral, and the Debtor's business prospects (condition of economy). Paragraph (2) Included in the steps required to maintain Productive Asset quality as Performing is for the BPR Board of Directors to take preventive actions and efforts against the possibility of failure in fund provision.

Article 3
Paragraph (1)
It is clear enough.
Paragraph (2)
It is clear enough.
Paragraph (3)
It is clear enough.
Paragraph (4)
Changes in lending policy are submitted to the Financial Services Authority c/o. Regional Office or Financial Services Authority Office covering the BPR's head office. Paragraph (5) Holidays are national holidays and joint leave days. Paragraph (6) It is clear enough.

Article 4
It is clear enough.

Article 5
Paragraph (1)
It is clear enough.
Paragraph (2)
The determination of Productive Asset quality by the Financial Services Authority is based, among others, on assessment and information regarding the Debtor's condition. Paragraph (3) It is clear enough.

Article 6
Paragraph (1)
Letter a
The term "same project or business" includes projects or businesses that are the same source of payment for principal and/or interest.
Letter b
It is clear enough.
Paragraph (2)
Example 1:
BPR B provides investment Credit and working capital Credit facilities to Debtor A. The assessment results conducted by BPR B for each facility are as follows:
a. Performing, for investment Credit; and b. Substandard, for working capital Credit.
Given that both Credits are used to finance 1 (one) same Debtor, the Productive Asset quality determined by BPR B for Credit given to Debtor A follows the lower Productive Asset quality, namely Substandard. Example 2:
BPR B provides Credit facilities to Debtor A and Debtor C which are used to finance the same project, namely Project D. The main source of Credit repayment, both by Debtor A and Debtor C, comes from cash flow to be obtained from Project D. The assessment results conducted by BPR B for Credit given to Debtor A and Debtor C are as follows:
a. Performing, for Debtor A; and b. Substandard, for Debtor C.
Given that both Credits are used to finance the same project and the source of payment for loan obligations comes from the same project, the Productive Asset quality determined by BPR B for Credit given to Debtor A and Debtor C follows the lower Productive Asset quality, namely Substandard. Example 3:
BPR B and BPR C have a joint Credit agreement (syndication) to provide Credit facilities to Debtor A. The assessment results conducted by BPR B and BPR C for Credit given to Debtor A are as follows:
a. Performing, at BPR B; and b. Substandard, at BPR C.
Given that the facility is given to the same Debtor and the source of payment for obligations comes from the same business and there is no clear separation of cash flows, the quality determined for the Credit facility to Debtor A, both by BPR B and BPR C, is the same, following the lower Productive Asset quality, namely Substandard. Paragraph (3) Letter a It is clear enough. Letter b The term "clear separation between cash flows from each project or business" means there is no significant interconnection in cash flows between projects or businesses. Cash flow interconnection is considered significant, among others, in the event that the continuity of cash flow of one project or business will be disrupted if the cash flow of another project or business experiences disruption. Paragraph (4) It is clear enough. Paragraph (5) It is clear enough.

Article 7
Paragraph (1)
The limit amount is calculated against all Credit facilities given to 1 (one) Debtor or more than 1 (one) Debtor in the event Credit is used to finance the same project or business. The term "timely payment of principal and/or interest" is assessed, among others, through timely payment of principal and/or interest, and/or no arrears and in accordance with the agreed Credit requirements. Paragraph (2) It is clear enough. Paragraph (3) It is clear enough.

Article 8
Paragraph (1)
Letter a
The term "potential business growth" is assessed, among others, through projections of the Debtor's business growth.
Letter b
The term "market conditions and Debtor's position in competition" is assessed, among others, through the impact of economic conditions and/or business competition in the market on the Debtor's business. Letter c The term "management quality and labor issues" is assessed, among others, through the Debtor's business management governance, labor composition, and/or labor disputes or strikes. Letter d The term "support from owners, groups, or affiliates" is assessed, among others, from the capacity and ability of owners, groups, or affiliates to support the Debtor's business. Letter e The Debtor in this case is a Debtor required to conduct environmental management efforts as referred to in regulations concerning environmental protection and management. Paragraph (2) Letter a The term "profit acquisition" is assessed, among others, through income and cost analysis (cost and benefit analysis) and/or profit growth from period to period. Letter b The term "capital conditions" is assessed, among others, through the Debtor's capital ability to finance business, including the ability to add capital if necessary. Letter c The term "cash flow" is assessed, among others, through the analysis of the Debtor's business liquidity and working capital and/or the Debtor's ability to meet principal and/or interest payment obligations without support from other funding sources other than the project or business being financed. Paragraph (3) Letter a The term "timely payment of principal and/or interest" is assessed, among others, through timely payment of principal and/or interest, and/or no arrears and in accordance with the agreed Credit requirements. Letter b The term "availability and accuracy of Debtor's financial information" is assessed, among others, through the regular and accurate submission of financial information by the Debtor which can be believed to be true. Letter c The term "completeness of Credit documentation" is assessed, among others, through the fulfillment of Credit documentation requirements based on lending policies and procedures. Letter d The term "compliance with Credit agreement" is assessed, among others, through the level of Debtor violations against the Credit agreement. Letter e The term "appropriateness of fund usage" is assessed, among others, through the correspondence between the actualization of fund usage and the purpose of the Credit application and/or the correspondence of Credit facilities with the Debtor's needs. Letter f The term "fairness of obligation payment source" is assessed, among others, through the correspondence of the obligation payment source with the project or business financed by the BPR or the income of the respective Debtor.

Article 9
It is clear enough.

Article 10
The term "conditions causing the Debtor to have no ability to pay principal and/or interest" includes, among others, the source of payment for principal and/or interest coming from the same BPR.

Article 11
It is clear enough.

Article 12
The term "Credit granting deviation" includes, among others, Credit given using fake identities or the identity of another party who does not enjoy the Credit facility.

Article 13
Paragraph (1)
The term "payment grace period" is a grace period given to not make principal and/or interest installments payments while the Debtor's project or business has not generated income. Example: Credit for agriculture with a payment grace period during the planting period. Paragraph (2) It is clear enough.

Article 14
It is clear enough.

Article 15
It is clear enough.

Article 16
Paragraph (1)
It is clear enough.
Paragraph (2)
It is clear enough.
Paragraph (3)
It is clear enough.
Paragraph (4)
Letter a
It is clear enough.
Letter b
The blocking period for savings and/or deposits at the respective BPR is at least as long as the Credit period.
The term "precious metals" includes, among others, gold bars.
Paragraph (5)
Letter a
The term "effective as of December 1, 2019" refers to the position calculation of the December 2019 report submitted in January 2020.
Letter b
The term "effective as of December 1, 2020" refers to the position calculation of the December 2020 report submitted in January 2021.
Letter c
The term "effective as of December 1, 2021" refers to the position calculation of the December 2021 report submitted in January 2022.

Article 17
Paragraph (1)
Letter a
The blocking period for savings and/or deposits at the respective BPR is at least the same as the Credit period.
Letter b
The term "market value" is the money value estimated to be obtained from a buy-sell transaction or the result of exchanging an asset on the valuation date after deducting transaction costs. The market value of gold jewelry refers to the generally accepted price in the local gold market. The determination of the market value of gold jewelry can be conducted by the BPR's internal appraiser or an independent appraiser, such as a gold shop or a gold pawn institution. The BPR's internal appraiser is permitted as long as the BPR employee has adequate ability and experience in conducting appraisals of gold jewelry. Letter c The term "land and/or buildings with certificates" is land and/or buildings, with proof of ownership rights to land and/or buildings in the form of freehold rights, business use rights, building use rights, use rights, and/or building ownership certificates for individual apartment units. Included in buildings are detached houses, apartments, shop-houses, office-houses, or office buildings. Houses with individual apartment unit building ownership certificates as referred to in regulations can be subject to fiduciary rights. Letter d It is clear enough. Letter e Included in buildings are detached houses, apartments, shop-houses, office-houses, or office buildings. Letter f The term "Taxable Tax Notification (SPPT) or last NJOP certificate letter" is the SPPT or NJOP certificate letter for the last available year. The term "ad land acknowledgment letter" includes, among others, girik letters, petok D, letter C, rincik, and/or ketitir. Letter g The term "business place" includes, among others, stalls, kiosks, and/or market stalls. Letter h Mortgage for ships with a weight of 20 m3 or more in accordance with regulations. Letter i It is clear enough. Letter j The term "Guaranteed Credit" includes, among others, Credit guaranteed by job termination insurance for Credit to employees in accordance with the agreed agreement. Letter k It is clear enough.

Paragraph (2)
Clearly stated.

Paragraph (3)
Example:
On September 20, 2020, BPR Y granted a Credit facility to Debtor X with collateral in the form of land encumbered by a land mortgage worth Rp375,000,000.00 (three hundred seventy-five million rupiah). The collateral that can be counted as a reducing factor for specific PPAP is 80% (eighty percent) of the collateral value, namely Rp300,000,000.00 (three hundred million rupiah). On September 20, 2022, the Credit facility was declared non-performing by BPR Y. If after 2 (two) years, namely after September 19, 2024, the Credit of Debtor X has not been resolved or there is no resolution in the form of Credit Restructuring or collateral takeover, the collateral value used as a reducing factor for specific PPAP is 50% (fifty percent) of Rp300,000,000.00 (three hundred million rupiah), namely Rp150,000,000.00 (one hundred fifty million rupiah).

If after 4 (four) years, namely after September 19, 2026, the non-performing Credit of Debtor X above has not been resolved or there is no resolution in the form of Credit Restructuring or collateral takeover, the collateral value cannot be counted as a reducing factor in the formation of PPAP.

Paragraph (4)
Example:
On September 20, 2020, BPR Y granted a Credit facility to Debtor X with collateral in the form of motor vehicles encumbered by fiducia worth Rp100,000,000.00 (one hundred million rupiah). The collateral that can be counted as a reducing factor for specific PPAP is 50% (fifty percent) of the collateral value, namely Rp50,000,000.00 (fifty million rupiah). On September 20, 2022, the Credit facility was declared non-performing by BPR Y. If after 1 (one) year, namely after September 19, 2023, the non-performing Credit of Debtor X has not been resolved or there is no resolution in the form of Credit Restructuring or collateral takeover, the collateral value used as a reducing factor for specific PPAP is 50% (fifty percent) of Rp50,000,000.00 (fifty million rupiah), namely Rp25,000,000.00 (twenty-five million rupiah).

If after 2 (two) years, namely after September 19, 2024, the non-performing Credit of Debtor X has not been resolved or there is no resolution in the form of Credit Restructuring or collateral takeover, the collateral value cannot be counted as a reducing factor in the formation of PPAP.

Paragraph (5)
The term "analysis of the local and surrounding economic conditions" is based on economic growth, observation of land and/or building prices and/or sales rates in the area.

Article 18
Paragraph (1)
The term "collateral valuation" refers to the appraisal and opinion by the BPR's internal appraiser and/or independent appraiser on the economic value of the collateral based on an analysis of objective and relevant facts according to methods and principles generally applicable in the valuation of each type of collateral.

Paragraph (2)
Clearly stated.

Paragraph (3)
The term "significant decline in collateral value" is caused by fire and/or natural disasters.

Article 19
Clearly stated.

Article 20
The term "Deposit Insurance Agency" refers to the Deposit Insurance Agency as referred to in the Law concerning the Deposit Insurance Agency.

Example:
BPR X places funds with Bank Y with the following details:

Placement Type	Placement Amount	Quality
Current Account	Rp2,000,000,000.00	Performing
Savings	Rp1,000,000,000.00	Performing
Time Deposit	Rp4,000,000,000.00	Performing
Certificate of Deposit	Rp3,000,000,000.00	Performing
Total Placement	Rp10,000,000,000.00

All of BPR X's fund placements with Bank Y meet the criteria requirements of the Deposit Insurance Agency, including the interest rate on placements in Other Banks. Assuming the guaranteed balance as referred to in legislation concerning deposit insurance by the Deposit Insurance Agency for each customer at one bank is at most Rp2,000,000,000.00 (two billion rupiah), the PPAP that must be formed for all of BPR X's placements with Bank Y is as follows:

PPAP = 0.5% x (Rp10,000,000,000.00 – Rp2,000,000,000.00) = Rp40,000,000.00

Article 21
Paragraph (1)
Clearly stated.

Paragraph (2)
Letter a
The term "rescheduling" refers to changes in the Debtor's payment schedule and/or changes in the duration.

Letter b
The term "reconditioning" refers to changes to part or all of the Credit terms.
Reconditioning is carried out through, among others:

change of payment schedule;
change of installment amount;
change of duration;
reduction of Credit interest rate; and/or
cancellation of part of the obligation;

Letter c
The term "restructuring" refers to changes to Credit terms.
Restructuring is carried out through, among others:

addition of BPR Credit facilities; and/or
conversion of all or part of overdue interest installments into new principal credit,
which can be accompanied by rescheduling or reconditioning.

Paragraph (3)
Clearly stated.

Paragraph (4)
The term "previous Credit agreement" refers to all related Credit agreements that are still in effect between the BPR and the Debtor.

Article 22
Clearly stated.

Article 23
Paragraph (1)
Clearly stated.

Paragraph (2)
Example 1:
BPR X grants a Credit to Debtor A in the amount of Rp1,000,000,000.00 (one billion rupiah). However, Debtor A experiences difficulty in paying principal and/or interest, so the Credit quality is declared non-performing and restructuring is carried out by BPR X considering that it still has a good business prospect and is assessed to be able to meet obligations after the Credit is restructured. The determination of the Credit quality of Debtor A after Credit Restructuring is as follows:

Period	Payment Assessment	Credit Quality at End of Month
	Principal	Interest
0	Restructuring		Underperforming
1	Meets	Meets	Underperforming
2	Meets	Meets	Underperforming
3	Meets	Meets	Performing
4	Meets	Meets	Credit quality of Debtor A is determined based on the accuracy of principal and/or interest payments.

Example 2:
BPR X grants a Credit to Debtor B in the amount of Rp7,000,000,000.00 (seven billion rupiah). However, Debtor B experiences difficulty in paying principal and/or interest, so the Credit quality is declared non-performing and restructuring is carried out by BPR X considering that it still has a good business prospect and is assessed to be able to meet obligations after the Credit is restructured. The determination of the Credit quality of Debtor B after Credit Restructuring is as follows:

Period	Payment Assessment	Credit Quality at End of Month
	Principal	Interest
0	Restructuring		Underperforming
1	Meets	Meets	Underperforming
2	Meets	Meets	Underperforming
3	Meets	Meets	Performing
4	Meets	Meets	Credit quality of Debtor B is determined based on business prospects, Debtor performance, and repayment ability.

Example 3:
BPR X grants a Credit to Debtor C in the amount of Rp1,000,000,000.00 (one billion rupiah). However, Debtor C experiences difficulty in paying principal and/or interest, so the Credit quality is declared non-performing and restructuring is carried out by BPR X considering that it still has a good business prospect and is assessed to be able to meet obligations after the Credit is restructured. The determination of the Credit quality of Debtor C after Credit Restructuring is as follows:

Period	Payment Assessment	Credit Quality at End of Month
	Principal	Interest
0	Restructuring		Underperforming
1	Meets	Meets	Underperforming
2	Does not meet	Meets	Non-performing
3	Meets	Meets	Performing*
4	Meets	Meets	Credit quality of Debtor C is determined based on the accuracy of principal and/or interest payments.

*There are no outstanding principal and/or interest after restructuring is carried out; in the example above, the principal arrears for period 2 have been paid off. In the event that in period 3 the Debtor does not pay the principal arrears for period 2, the Credit quality is determined to be the same as the Credit quality before restructuring was carried out.

Example 4:
BPR X grants a Credit to Debtor D in the amount of Rp7,000,000,000.00 (seven billion rupiah). However, Debtor D experiences difficulty in paying principal and/or interest, so the Credit quality is declared non-performing and restructuring is carried out by BPR X considering that it still has a good business prospect and is assessed to be able to meet obligations after the Credit is restructured. The determination of the Credit quality of Debtor D after Credit Restructuring is as follows:

Period	Payment Assessment	Credit Quality at End of Month
	Principal	Interest
0	Restructuring		Underperforming
1	Meets	Meets	Underperforming
2	Does not meet	Meets	Non-performing
3	Meets	Meets	Performing*
4	Meets	Meets	Credit quality of Debtor C is determined based on business prospects, Debtor performance, and repayment ability.

Paragraph (3)
Clearly stated.

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Article 24
Clearly stated.

Article 25
Clearly stated.

Article 26
Clearly stated.

Article 27
Paragraph (1)
Clearly stated.

Paragraph (2)
Clearly stated.

Paragraph (3)
The discharge letter from the BPR to the Debtor contains information stating that the Credit settlement was carried out through the takeover of collateral by the BPR (AYDA).

Paragraph (4)
The term "net realizable value" is the market value of the collateral minus the estimated costs required to sell it, with a maximum value equal to the outstanding credit balance to be settled with AYDA.

Paragraph (5)
The term "AYDA valuation" refers to the appraisal and opinion by the BPR's internal appraiser and/or independent appraiser on the economic value of the collateral based on an analysis of objective and relevant facts according to methods and principles generally applicable in the valuation of each type of collateral. The term "independent appraiser" refers to an appraiser who:
a. is not a related party to the BPR; b. is not part of the borrower group with the BPR Debtor;
c. conducts valuation activities based on professional ethical codes and regulations set by the competent authority;
d. uses valuation methods based on professional valuation standards issued by the competent authority; e. has a business license from the competent authority to operate as a valuation company; and

f. is registered as a member of an association recognized by the competent authority.

Paragraph (6)
Clearly stated.

Paragraph (7)
Clearly stated.

Article 28
Paragraph (1)
Efforts to resolve AYDA can be carried out actively by marketing and selling the AYDA.

Example:
On September 20, 2021, BPR A has taken over collateral submitted by the Debtor, the deadline for resolving the AYDA is September 19, 2022.

Paragraph (2)
Example:
On September 20, 2021, BPR X took over collateral in the form of land submitted by the Debtor with a net realizable value of Rp100,000,000.00 (one hundred million rupiah). a. If after 1 (one) year from the date of collateral takeover, namely after September 19, 2022, BPR X has not been able to liquidate the AYDA, in the calculation of BPR X's Core Capital (KPMM), since September 20, 2022, the value of the AYDA counted as a reducing factor for BPR X's core capital is as follows:
AYDA = 50% x Rp100,000,000.00
= Rp50,000,000.00

b. If after 3 (three) years from the collateral takeover, namely after September 19, 2024, BPR X has not been able to liquidate the AYDA, in the calculation of BPR X's Core Capital (KPMM), since September 20, 2024, the value of the AYDA counted as a reducing factor for BPR X's core capital is as follows:
AYDA = 75% x Rp100,000,000.00
= Rp75,000,000.00

c. If after 5 (five) years from the collateral takeover, namely after September 19, 2026, BPR X has not been able to liquidate the AYDA, in the calculation of BPR X's Core Capital (KPMM), since September 20, 2026, the value of the AYDA counted as a reducing factor for BPR X's core capital is as follows:
AYDA = 100% x Rp100,000,000.00
= Rp100,000,000.00

Paragraph (3)
Example:
On September 20, 2021, BPR X took over collateral in the form of motor vehicles submitted by the Debtor with a net realizable value of Rp100,000,000.00 (one hundred million rupiah). a. If after 1 (one) year from the date of collateral takeover, namely after September 19, 2022, BPR X has not been able to liquidate the AYDA, in the calculation of BPR X's Core Capital (KPMM), since September 20, 2022, the value of the AYDA counted as a reducing factor for BPR X's core capital is as follows:
AYDA = 50% x Rp100,000,000.00
= Rp50,000,000.00

b. If after 2 (two) years from the collateral takeover, namely after September 19, 2023, BPR X has not been able to liquidate the AYDA, in the calculation of BPR X's Core Capital (KPMM), since September 20, 2023, the value of the AYDA counted as a reducing factor for BPR X's core capital is as follows:
AYDA = 100% x Rp100,000,000.00
= Rp100,000,000.00

Paragraph (4)
Clearly stated.

Paragraph (5)
Clearly stated.

Article 29
Paragraph (1)
Clearly stated.

Paragraph (2)
The write-off is carried out against all fund provisions given in one agreement.

Paragraph (3)
Clearly stated.

Paragraph (4)
Write-off for Credit Restructuring and Credit settlement is intended for transparency purposes to the Debtor.
Credit settlement is carried out through, among others, collateral takeover or repayment by the Debtor.

Article 30
Paragraph (1)
The term "efforts to recover Productive Assets given" include, among others, collection from the Debtor, Credit Restructuring, collection from parties providing guarantees for Productive Assets, and Credit settlement through collateral takeover.

Paragraph (2)
Clearly stated.

Paragraph (3)
Clearly stated.

Article 31
The determination of specific areas affected by natural disasters is set by the Financial Services Authority through a Commissioner's Decision referring to the Financial Services Authority Regulation regarding special treatment for bank credit or financing for specific areas in Indonesia affected by natural disasters.

Article 32
Clearly stated.

Article 33
Clearly stated.

Article 34
Clearly stated.

Article 35
Clearly stated.

SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6284

APPENDIX I
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 33 /POJK.03/2018
CONCERNING
PRODUCTIVE ASSET QUALITY AND FORMATION OF PROVISION FOR WRITE-OFF OF PRODUCTIVE ASSETS OF RURAL BANKS

RURAL BANK CREDIT POLICY GUIDELINES (PKPB)

TABLE OF CONTENTS
CHAPTER I INTRODUCTION ..............................................................................- 28 -
A. BACKGROUND..............................................................................- 28 - B. FUNCTION AND PURPOSE OF RURAL BANK CREDIT POLICY (KPB)............- 28 -

Function........................................................................................- 28 -
Purpose .......................................................................................- 29 -
CHAPTER II SCOPE OF KPB...............................................................................- 30 -
A. CORE POLICIES IN CREDIT .......................................- 30 -
Prudence Principle in Credit ....................................- 30 -
Organization and Credit Management......................................- 34 -
Credit Approval Policy .....................................................- 39 -
Credit Documentation and Administration ........................................- 43 -
Credit Supervision .....................................................................- 44 -
Handling of Problematic Credit..................................................- 48 -
B. TRANSPARENCY ..................................................................................- 53 -
Information regarding Characteristics of Offered Credit..........- 53 -
Clarity regarding Credit Agreement Material and
Collateral Attachment ....................................................................- 54 -

CHAPTER I
INTRODUCTION
A. BACKGROUND
Based on Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998 concerning Amendments to Law Number 7 of 1992 concerning Banking (Banking Law), Rural Banks (BPR) are one type of bank with main activities of collecting funds and disbursing Credit. Credit disbursement is a business activity that is the main source of income for BPR to ensure business continuity, so BPR must maintain Credit quality by applying prudence principles and healthy credit principles so that the quality of Credit given remains performing.

In the event that BPR is unable to maintain Credit quality well, this will affect BPR's performance, particularly financial performance, which can result in BPR's ability to meet obligations to depositors being disrupted. Therefore, in order for the application of prudence principles and healthy credit principles to be implemented consistently, BPR must have Rural Bank Credit Policy (KPB) at least in accordance with the guidelines in this Appendix.

B. FUNCTION AND PURPOSE OF RURAL BANK CREDIT POLICY (KPB)

Function
In carrying out business activities, BPR must have an internal control system. To implement this internal control system, BPR must have policies, procedures, and organizational devices that have functional separation.

One of the internal control systems that must be owned by BPR is the internal control system in credit, which is embodied in KPB. The aforementioned KPB has the function as:
a. a guideline for BPR in every implementation of activities in the credit field containing all aspects of credit that meet prudence principles and healthy credit principles, among others in the process of granting Credit individually, monitoring the entire credit portfolio, and rescue and settlement of Credit; and b. a standard or measure in the implementation of supervision of Credit granting at all stages of the credit process individually.

Purpose
BPR must have KPB with the purpose:
a. applying prudence principles and healthy credit principles consistently and continuously to mitigate the risk of every Credit granting; b. preventing the abuse of authority by parties in Credit granting that can harm BPR; and
c. preventing the practice of unhealthy Credit granting.

CHAPTER II
SCOPE OF KPB
A. CORE POLICIES IN CREDIT

Prudence Principle in Credit
The prudence principle in credit includes policies in Credit granting, Credit quality assessment, and the professionalism and integrity of BPR officials in the credit field.

a. Policy in Credit Granting
Policy in Credit granting covers core policies regarding the regulation of healthy Credit granting, collateral assessment, granting Credit to related parties with BPR, group Debtors, and/or large Debtors, Credit to economic sectors, business activities, and high-risk Debtors, and Credit that needs to be avoided.

Healthy Credit granting policy, at least includes:
a) procedures and authorities for healthy credit including having Credit analysis procedures, Credit approval procedures, Credit documentation and administration procedures, and Credit supervision procedures; b) Credit that needs special attention; c) procedures for handling problematic Credit consisting of Credit rescue and Credit settlement; and d) settlement of collateral already controlled by BPR obtained from the results of Credit settlement.
Collateral assessment policy, at least includes:
a) procedures and methods for collateral assessment from the aspects of legality and economics including:
(1) collateral ownership documents;
(2) collateral attachment;
(3) determination of collateral appraisal value; and (4) determination of the limit of collateral value amount against the amount of Credit to be given, with regard to changes in collateral value during the Credit period and risk mitigation in the event of obstacles to executing collateral, among others ownership of land separated from ownership of buildings on that land, which are both pledged separately. b) collateral that will be used as a reducing factor for PPAP is collateral that exists and is clearly present, and can be executed as regulated in this Financial Services Authority Regulation. As for collateral that does not exist and is not clearly present, and cannot be executed and cannot be used as a reducing factor for PPAP formation includes, among others:
(1) collateral that has been used for public facilities that cannot be returned to function, for example used as a public cemetery; (2) collateral in dispute; (3) collateral seized by the state; (4) collateral whose existence cannot be known, for example vehicles whose physical form no longer exists; and/or (5) collateral that no longer has economic value due to certain reasons, for example fire, accident, and others.
Policy of granting Credit to related parties with BPR, group Debtors, and/or large Debtors at least includes:
a) the percentage of the maximum amount of Credit facilities given to related parties with BPR, group Debtors, and/or large Debtors against the total amount of Credit or BPR capital, based on the calculation of BPR's Core Capital (KPMM); b) the percentage of the maximum amount of Credit facilities given to related parties with BPR, group Debtors, and/or large Debtors referring to the Financial Services Authority Regulation regarding the maximum limit for granting credit to rural banks;

c) granting Credit to related parties with the BPR, which must be approved by at least 1 (one) member of the Board of Directors and 1 (one) member of the Board of Commissioners; d) granting Credit to Group Debtors, and/or Large Debtors, which will be syndicated and share risk (risk-sharing) with other banks, which must be approved by at least 1 (one) member of the Board of Directors; e) maintaining a list of names of related parties with the BPR, Group Debtors, and/or Large Debtors to ensure the effectiveness of the application of the maximum limit for the provision of all Credit facilities granted by the BPR to related parties with the BPR, Group Debtors, and/or Large Debtors; and f) credit procedures approved by the Board of Directors must contain criteria for related parties with the BPR and Group Debtors by referring to the Financial Services Authority Regulation regarding the maximum limit for granting credit to rural credit banks, as well as criteria for Large Debtors established by the Board of Directors.

Credit granting policies for economic sectors, business activities, and high-risk Debtors, among others, require the BPR to have a credit work unit or employees who have adequate competence in the business field to be financed.
Credit granting policies for debtors classified as politically exposed persons (PEP) must, among others, pay attention to legislation regarding anti-money laundering and the prevention of terrorism financing. Credit granting to economic sectors, business activities, and high-risk Debtors, among others:
a) commodities with highly fluctuating prices; b) economic sectors or business activities that are heavily influenced by external factors, such as weather and others; c) economic sectors or business activities outside the expertise and capabilities of the BPR; d) business locations in specific areas, such as conflict zones, riots, or disaster-prone areas; and/or e) Debtors classified as PEPs as referred to in the Financial Services Authority Regulation regarding the implementation of anti-money laundering programs and the prevention of terrorism financing in the financial services sector.
Policies regarding Credits that should be avoided, among others:
a) Credits for speculative purposes; b) Credits granted without sufficient financial information, except for Credits to micro businesses, provided that assurance over the Debtor has been obtained; c) Credits requiring special expertise not possessed by the BPR; and/or d) Credits to Problematic Debtors and/or Debtors who have Credits with non-performing quality at the BPR or other banks.

b. Credit Quality Assessment Policy
The credit quality assessment policy must be in accordance with this Financial Services Authority Regulation, among others, the BPR must establish the same Credit quality for several Credit accounts:

used to finance 1 (one) Debtor or 1 (one) project or the same business at the same BPR; and/or
granted by more than 1 (one) BPR jointly, used to finance 1 (one) Debtor or 1 (one) project or the same business based on a joint Credit agreement.
The definition of 1 (one) Debtor includes Credit facilities to husband and wife, except in the case of a property separation agreement in accordance with applicable legislation.

c. Policy on Professionalism and Integrity of Credit Officials or Employees
All BPR officials or employees related to credit, including members of the Board of Directors and members of the Board of Commissioners of the BPR, must at least:

exercise expertise professionally, honestly, objectively, carefully, and meticulously; and
have a commitment not to carry out acts as referred to in Article 49 paragraph (2) of the Banking Law.

Credit Organization and Management
a. Policy on Credit Devices
Credit devices can be:

a credit work unit or department; or
employees,
who perform the function of granting Credit from the application to the disbursement of Credit, and Credit administration.
Employees who perform Credit analysis must be different from employees who disburse Credit and employees who perform Credit administration.
The BPR forms a Credit Committee (CC), primarily for BPRs that have Credits granted to related parties with the BPR, Group Debtors, and/or Large Debtors and Debtors with high risk. The CC assists the Board of Directors in evaluating and/or deciding on Credit applications in accordance with the amount and type of Credit established by the Board of Directors. The number and membership of the CC are established by the BPR Board of Directors in accordance with the BPR's needs, consisting of at least the Board of Directors and officials in the credit field.

b. Policy on Duties, Authorities, and Responsibilities of the Board of Directors, Board of Commissioners, Credit Devices, and Credit Committee in the Field of Credit The BPR must clearly regulate the details of duties, authorities, and responsibilities of:

Board of Directors
The duties, authorities, and responsibilities of the Board of Directors related to credit at least cover:
a) being responsible for drafting the Credit Policy (KPB) containing all aspects listed in the KPB Guidelines to be approved by the Board of Commissioners; b) approving credit procedures referring to the KPB approved by the Board of Commissioners; c) ensuring the BPR's compliance with legislation in the field of credit; d) ensuring that the KPB is applied and implemented consistently and consistently; e) appointing CC members in the event that the formation of a CC is required; f) being responsible for drafting the business plan in the field of credit, which is formulated in the BPR business plan submitted to the Financial Services Authority as referred to in the Financial Services Authority Regulation regarding the business plan of rural credit banks and sharia retail financing banks; g) ensuring that the business plan in the field of credit is implemented; h) ensuring the implementation of corrective actions for various deviations in credit found by the internal audit work unit or executive officials responsible for implementing the internal audit function; i) reporting corrective actions that have been, are being, and will be carried out to the Board of Commissioners periodically and in writing, at least regarding:
(1) the development and quality of Credit as a whole; (2) the development and quality of Credit granted to related parties, Group Debtors, and/or Large Debtors; (3) Credits under special supervision and Problematic Credits; (4) deviations in the implementation of the KPB; (5) important findings in credit, including deviations or violations of regulations in the field of credit reported by the internal audit work unit or executive officials responsible for implementing the internal audit function; (6) the implementation of the credit plan as formulated in the BPR business plan submitted to the Financial Services Authority as referred to in the Financial Services Authority Regulation regarding the business plan of rural credit banks and sharia retail financing banks; (7) deviations or violations of regulations in the field of credit that are findings of external auditors and/or the Financial Services Authority; and (8) the number and type of training for credit devices, j) establishing an education and training plan for employees handling credit and ensuring the implementation of such education and training in accordance with employee needs; and k) establishing the form, duties, authorities, and responsibilities of credit devices in accordance with the BPR's needs.
Board of Commissioners
The duties, authorities, and responsibilities of the Board of Commissioners related to credit at least cover:
a) approving the BPR's credit policy proposed by the Board of Directors; b) approving the annual Credit granting plan, including to related parties with the BPR, which is formulated in the BPR business plan submitted to the Financial Services Authority as referred to in the Financial Services Authority Regulation regarding the business plan of rural credit banks and sharia retail financing banks; c) supervising the implementation of the annual Credit granting plan as referred to in letter b); d) requesting explanations and/or accountability from the Board of Directors and requesting corrective actions in the event that the implementation of Credit granting deviates from the credit plan that has been made; e) requesting explanations and/or accountability from the Board of Directors regarding all aspects listed in the KPB; f) requesting explanations and/or accountability from the Board of Directors in the event of deviations in the implementation of the KPB; g) requesting explanations and/or accountability from the Board of Directors regarding the development and quality of the overall credit portfolio, including Credits granted to related parties with the BPR, Group Debtors, and/or Large Debtors, and other matters as referred to in Chapter II Section A.1.a.3); h) monitoring the planning and implementation of education and training for employees handling credit; and i) reporting the results of supervision over the implementation of credit policies and credit procedures by the Board of Directors to the Financial Services Authority in the business plan supervision report as referred to in the Financial Services Authority Regulation regarding the business plan of rural credit banks and sharia retail financing banks.
Credit Devices
The duties, authorities, and responsibilities of each employee of the credit devices at least cover:
a) complying with all provisions established in the KPB and credit procedures; b) carrying out duties honestly, objectively, carefully, and meticulously without influence from parties interested in the Credit applicant or other parties that could harm the BPR; c) continuously improving capabilities and knowledge in the field of credit, including capabilities and knowledge regarding economic sectors, business activities, and/or high-risk debtors that have been and will be financed by the BPR; and d) rejecting Credit applications submitted if they do not meet the requirements in the credit procedures.
Credit Committee
The duties, authorities, and responsibilities of the CC from the credit devices at least cover:
a) providing recommendations for the approval or rejection of Credit in accordance with the limits of authority or type of Credit, among others by considering liquidity aspects; b) obeying and following all credit policies and credit procedures that have been established; c) carrying out duties, especially in relation to granting Credit approval, professionally, honestly, objectively, carefully, meticulously, and independently without being influenced by any party; and d) providing recommendations for Credit approval or rejection to the Board of Directors along with the considerations. The BPR may expand the scope of functions, duties, authorities, and responsibilities as mentioned in accordance with the BPR's needs, as long as it does not contradict the functions, duties, authorities, and responsibilities established in this PKPB.

Credit Approval Policy
The Credit approval policy must at least cover the concept of the total relationship of the Credit applicant, the establishment of limits for Credit approval authority, the responsibility of the Credit decision-making official, the Credit approval process, the Credit agreement, and the Credit disbursement approval.

a. Concept of Total Relationship of the Credit Applicant The approval of Credit granting must not only be based on the consideration of the application for 1 (one) transaction or 1 (one) Credit account from the applicant, but must be based on a comprehensive assessment of all Credit facilities that have been granted or will be granted simultaneously to the Credit applicant in question, known as the concept of the total relationship of the Credit applicant. The definition of the Credit applicant includes all individual persons, companies, and/or parties related to the Credit applicant who have received Credit facilities or will be granted Credit simultaneously by the BPR. The approval of Credit granting based on the concept of the total relationship of the Credit applicant must be reflected in the Credit analysis.

b. Establishment of Limits for Credit Approval Authority The regulation of limits for Credit approval authority must at least cover:

the basis for consideration and criteria for regulating limits for Credit approval authority are written down in the Board of Directors' decision, among others the ceiling amount, Debtor criteria such as connection with the BPR, classified as high-risk Debtors, PEPs, Group Debtors, and others, as well as the level of position of appointed employees;
the stages of the Credit approval process;
every Credit granting must obtain approval from the official authorized to decide on Credit;
every Credit approval must be done in writing;
signing the Credit agreement; and
Credit disbursement approval.

c. Responsibility of the Credit Decision-Making Official
The responsibility of the Credit decision-making official must at least cover:

ensuring that every Credit granted has met banking regulations and is in accordance with prudent principles and the principles of healthy credit;
ensuring that the implementation of Credit granting is in accordance with the KPB and credit procedures;
ensuring that Credit granting is based on honest, objective, careful, and meticulous assessments and is free from the influence of parties interested in the Credit applicant or other parties that could harm the BPR; and
believing that the Credit to be granted can be paid off at maturity based on an analysis of the submitted application.

d. Credit Approval Process

Credit Application
In assessing Credit applications, the BPR must pay attention to:
a) Credit applications are made in writing, both for new Credits and Credit Restructuring; b) Credit applications as referred to in letter a) must contain complete information and meet requirements in accordance with provisions established in credit procedures, including credit history at the BPR, commercial banks, and/or other financial institutions; and c) data, information, and documents submitted in the Credit application must be verified to ensure completeness and accuracy. Credit application documents must at least contain:
(1) documents related to the Debtor, such as Debtor identity documents, Family Cards, Taxpayer Identification Numbers (NPWP), business legality documents; (2) Debtor financial information; and (3) documents related to collateral and its encumbrances.
Credit Analysis
Every Credit application that meets the requirements must be analyzed in writing, paying attention to:
a) the form, format, and Credit analysis are adjusted to the amount and type of Credit; b) Credit analysis must reflect the concept of the total relationship of the Credit applicant in the event that the applicant has received Credit facilities or is simultaneously submitting other Credit applications; c) Credit analysis must be made completely, accurately, and objectively, at least containing:
(1) information related to the project or business and applicant data, including results of research in the Financial Information Services System (SLIK); (2) assessment of the feasibility of the Credit application amount with the project or business to be financed, with the aim of avoiding the possibility of inflation (mark-up) practices that can harm the BPR; and (3) objective assessment and not influenced by parties interested in the Credit applicant. Credit analysis must not merely be a formality carried out to fulfill credit procedures; d) credit analysis must at least include assessment of character, capacity, capital, collateral, and the Debtor's business prospects (condition of economy), or more commonly known as the 5 C's, and assessment of the Credit repayment source, focusing on the results of the business conducted or income sources related to the object financed by the BPR, and presenting an evaluation of credit legal aspects with the aim of protecting the BPR from risks that may arise; and e) in syndicated Credit, Credit analysis for BPRs that are syndicate participants must include assessment of the bank acting as the syndicate coordinator. In the event that the BPR acts as the syndicate coordinator, the BPR must assess the syndicate participant banks.
Credit Approval Recommendation
Credit approval recommendations must be prepared in writing based on the results of the Credit analysis that has been conducted. The content of the Credit approval recommendation must be in line with the conclusions of the Credit analysis.
Granting of Credit Approval
a) Every granting of Credit approval must pay attention to the analysis and Credit approval recommendation. b) Every granting of Credit approval that differs from the content of the Credit approval recommendation must be explained in writing.

e. Credit Agreement
Every Credit that has been approved must be formulated in a written Credit agreement. The form, format, and content of the Credit agreement are established by the BPR, at least:

meeting the validity and legal requirements that can protect the interests of the BPR and the Debtor;
containing the amount, term, interest rate, purpose of use, method of Credit repayment, and other Credit requirements as established in the approval decision for said Credit; and
the Credit agreement must be made in at least 2 (two) copies, one of which is delivered to the Debtor.

f. Credit Disbursement Approval
Disbursement of approved Credit must be based on:

Credit disbursement is only approved if all conditions established in the Credit granting approval letter and Credit agreement have been met by the Credit applicant.
Before Credit disbursement is carried out, it must be ensured that all legal aspects related to Credit have been resolved and have provided adequate protection for both the BPR and the Debtor.

Credit Documentation and Administration
a. Credit Documentation
Documentation is one of the important aspects in the credit process, so Credit documents must be documented well and orderly in accordance with legislation provisions.

Types of Credit Documents
Credit documents are all documents required in the framework of Credit disbursement, which are evidence of the agreement or legal bond between the BPR and the Debtor, evidence of ownership of collateral goods, and other credit documents that are legal acts and/or may have legal consequences. The types of credit documents to be documented are adjusted to the Credit granted, among others, Credit application documents, Credit analysis documents, Credit agreements, and Credit disbursement warrants.
Storage and Use of Credit Documents
Every Credit document must be stored safely and orderly in accordance with legislation regarding company documents. The method of use or taking Credit documents from the storage place must be believed to have adequate security.

b. Credit Administration
Credit administration is very necessary for assessing the development and quality of Credit, Credit supervision, protection of BPR interests, and reporting to the Financial Services Authority, so all accounting and administration of the credit process need to be regulated well and orderly.

Credit Accounting
All Credits granted by the BPR must be recorded and booked correctly, completely, and accurately and cover all information required.
Credit Administration Procedures
Credit administration procedures must include elements in the internal control system, at least covering:
a) the establishment of credit devices responsible for credit administration; b) types of documents to be accounted for, at least covering:
(1) Credit application documents including documents related to collateral and its encumbrances; (2) Credit analysis documents; (3) Credit agreements; (4) Credit disbursement warrants; (5) documents related to the Debtor; and (6) documents related to collateral and its encumbrances; and c) document accounting procedures, including document codification, and document retention periods referring to legislation provisions.

Credit Supervision
a. Principles of Credit Supervision
Credit is one of the BPR's business activities that carries risks that can harm the BPR, the interests of depositors, and users of banking services, so the Credit supervision function needs to be applied comprehensively by paying attention to:

The Credit supervision function must begin with preventive efforts against the possibility of unhealthy Credit granting practices and/or other matters that can harm the BPR.
This must be reflected in the BPR's internal control system related to credit, which must at least consist of credit organization and management, credit policies and procedures, and information systems in the field of credit.
There is a mechanism that any violations of the KPB and Credit implementation procedures can be immediately known and reported to the authorized official, the Board of Directors, and/or the Board of Commissioners.
There is sufficient opportunity for the supervised party to provide explanations regarding the background of the problems and inputs as solutions for the future.
Credit supervision covers:
a) daily supervision by the Board of Directors and/or officials handling credit hierarchically over every implementation of Credit granting, or commonly known as embedded supervision; and b) supervision carried out by the internal audit work unit or executive officials responsible for implementing the internal audit function over all aspects of credit, including review of credit policies and procedures as well as credit organization and management.

b. Objects of Credit Supervision
Credit supervision must cover all aspects of credit and all supervision objects without exception, namely:

Supervision over the implementation of credit policies and Credit granting procedures as well as BPR officials or employees related to credit.
Supervision over all types of Credits and Debtors, especially Credits to related parties with the BPR, Group Debtors, and/or Large Debtors. Supervision of these parties must be carried out intensively.

c. Coverage of Credit Supervision
Credit supervision must at least cover:

Internal to the Rural Credit Bank (BPR):
a) Monitoring and supervising the compliance of the credit granting and collection process with applicable policies, procedures, and regulations. b) Ensuring that the amount of credit granted does not violate or exceed the Maximum Credit Limit (BMPK) in accordance with Financial Services Authority Regulations governing the maximum limit for credit granting by rural credit banks. c) Monitoring and supervising the handling of problematic credits (Credit Restructuring, write-off, write-off of receivables, and collateral takeover) in accordance with Credit Policies and Regulations. d) Monitoring the compliance of credit bookkeeping and document administration with regulatory provisions. e) Monitoring the determination of credit quality and the adequacy of the amount of provision for credit write-offs in accordance with this Financial Services Authority Regulation. f) Providing early warnings to the relevant work units or employees if the quality of a Debtor's credit or the entire credit portfolio in that unit or employee's area is potentially subject to deterioration. g) Evaluating the compliance of the appointment of employees in credit-related positions with their competencies. h) Supervising the behavior of credit employees and reporting to their superiors, the Board of Directors, and/or the Board of Commissioners in the event of violations or deviations by credit employees. i) Evaluating credit policies, procedures, organization, and management comprehensively.
External to the Rural Credit Bank (BPR):
a) Supervising the use of credit in accordance with the purpose of use stated in the credit agreement. b) Monitoring the development of the Debtor's business, including monitoring through site visits to the Debtor's business and collateral locations at any time, based on criteria such as the amount of credit facilities, type of Debtor, type of project or business, and/or credit quality. c) Providing written early warnings to the Debtor in the event of a deterioration in the quality of the Debtor's credit that is assessed to pose a risk to the BPR. d) Monitoring the economic development and business competition of the Debtor, especially Debtors in specific economic sectors, business activities, and high-risk Debtors.

d. Internal Credit Audit
The internal audit function is to monitor the performance of the internal control system and ensure that credit activities have been carried out correctly and in accordance with Credit Policies, and have met the coverage of credit supervision principles accompanied by corrective actions or recommendations. Implementation of internal audits on credit to verify:

credit granting has been carried out in accordance with Credit Policies, credit granting procedures, internal BPR regulations, and statutory provisions;
credit quality and the adequacy of the amount of provision for credit write-offs are in accordance with this Financial Services Authority Regulation;
credit granting to related parties with the BPR, group Debtors, and/or large Debtors is in accordance with Credit Policies and Financial Services Authority Regulations regarding the maximum limit for credit granting by rural credit banks;
monitoring of credit bookkeeping and document administration is in accordance with statutory provisions; and
handling of problematic credits, namely Credit Restructuring, write-off, write-off of receivables, and collateral takeover, is in accordance with Credit Policies and statutory provisions.

Handling of Problematic Credits
BPRs must detect the existence of problematic credits or credits that have the potential to become problematic and handle problematic credits as soon as possible.

a. Principles of Handling Problematic Credits
All BPR employees, especially those involved in credit activities, must have a common understanding in handling problematic credits by undertaking the following efforts:

handling of problematic credits is carried out, among others, by providing more intensive guidance to Debtors with problematic credits and credits with the potential to become problematic;
information regarding problematic credits must be clearly disclosed in credit documentation and administration for follow-up handling within the BPR and submitted to the Board of Commissioners to be material for the supervision report of the BPR's business plan by the Board of Commissioners to the Financial Services Authority;
information as referred to in item 2) must at least cover the main causes of problematic credits, the development of problematic credits, the development of the handling of problematic credits, and follow-up actions on the handling of problematic credits, especially those having a significant impact on the BPR's performance;
BPRs do not make exceptions in handling problematic credits, especially for problematic credits to related parties with the BPR, group Debtors, and/or large Debtors; and
BPRs do not settle problematic credits by increasing the credit ceiling or interest arrears and capitalizing such interest arrears.

b. Formulation of Problematic Credit Handling Program The problematic credit handling program must be approved by the Board of Directors and formulated as early as possible before impacting the overall credit performance of the BPR. The problematic credit handling program must at least cover:

procedures for handling each problematic credit in accordance with this Financial Services Authority Regulation as well as BPR policies and procedures regarding the rescue and settlement of problematic credits;
estimated time for settlement;
estimated results of the rescue or settlement of problematic credits, both from the perspective of credit repayment and from the perspective of credit quality; and
prioritizing the handling of problematic credits to related parties with the BPR, group Debtors, and/or large Debtors.
This problematic credit handling program is one of the materials that must be reported in the supervision report of the business plan as referred to in Chapter II item A.2.b.2).i).

c. Efforts in Handling Problematic Credits
In formulating the problematic credit handling program, BPRs may undertake the following efforts:

Credit Restructuring
Criteria for credits that can be restructured must at least meet:
a) the Debtor experiences difficulties in paying principal and/or interest; and b) the Debtor has a good business prospect and is assessed to be able to meet obligations after the credit is restructured; Credit Restructuring Policy must at least cover:
a) the Board of Directors must form a work unit or appoint officials or employees to handle Credit Restructuring; b) officials or employees assigned to the work unit or officials or employees appointed to handle Credit Restructuring must not be involved in the process of granting credit to the Debtor to be restructured; c) in the event that the BPR does not have a sufficient number of employees, this authority may be exercised by the Board of Directors; d) the determination of the authority limit for deciding on restructured credits regulated in credit procedures; e) the development of the handling of restructured credits must be reported periodically by the work unit or appointed officials or employees to the Board of Directors and/or the Board of Commissioners; and f) the rights and obligations of the Debtor and other requirements for Credit Restructuring must be stipulated in a written amendment (addendum) to the credit agreement.
Settlement of Problematic Credits
For problematic credits that cannot be collected again after rescue efforts have been made, the problematic credit may be settled through:
a) Collateral Takeover
(1) The BPR Board of Directors formulates collateral takeover policies stipulated in credit procedures and is responsible for their implementation. (2) The BPR must choose one of the treatments regarding the method of collateral takeover, consisting of:
(a) credit settlement (AYDA); or
(b) credit settlement process.
Collateral takeover is carried out in accordance with this Financial Services Authority Regulation and BPR accounting guidelines.
The basis for choosing one of the treatments regarding the method of collateral takeover must be documented in writing.

(3) To determine the treatment as referred to in item (2), the BPR must consider:
(a) the legality of the collateral;
(b) the type of collateral;
(c) the good and marketable market value of the collateral; (d) the comparison of collateral value to the Debtor's obligations (coverage); and (e) a statement of collateral surrender or a power of attorney to sell from the Debtor.

(4) Credit settlement procedures through AYDA as referred to in item (2).(a) are supplemented with:
(a) Procedures and time limits for AYDA settlement, including the determination of the Board of Directors or appointed officials to settle AYDA, and the formulation of an action plan for AYDA settlement in accordance with this Financial Services Authority Regulation. (b) Procedures and periods for AYDA valuation. (c) Application of AYDA accounting treatment in accordance with this Financial Services Authority Regulation as well as BPR credit policies and procedures. (d) Periodic re-evaluation of AYDA in accordance with this Financial Services Authority Regulation and BPR accounting guidelines. (e) Documentation and administration of collateral takeover and sale.

(5) Credit settlement procedures through the credit settlement process as referred to in item (2).(b) are carried out in accordance with BPR accounting guidelines.

d. Write-off and/or Write-off of Receivables
In carrying out write-off and/or write-off of receivables for credits with bad quality, BPRs must pay attention to the following provisions:

Write-off and/or write-off of receivables can only be carried out against credits with bad quality.
Plans for write-off and/or write-off of receivables for credits with bad quality in significant amounts must be recorded in the BPR's business plan.
The implementation of write-off and/or write-off of receivables is adjusted to the authorities stated in the BPR's credit policies and procedures.
Write-off of bad credits can be carried out in the event that:
a) the debtor has no prospect for restructuring or Credit Restructuring efforts have failed so that the BPR's credit portfolio remains bad; b) the collateral controlled by the BPR is insufficient to pay off the credit; and c) the BPR has formed sufficient PPAP (Provision for Productive Asset Write-off).
Write-off cannot be carried out against part of a credit (partial write-off).
Write-off of receivables can be carried out against part or all of the credit.
Write-off of receivables against part of the credit can only be carried out for Credit Restructuring or credit settlement.
Write-off and/or write-off of receivables can only be carried out after the BPR has made efforts to recover the granted credit.
Write-off of bad credits is carried out in good faith, considering fairness, and without conflict of interest.
The BPR must document the efforts made and the basis for the implementation of write-off and/or write-off of receivables.
The BPR must administer data and information regarding credits that have been written off and/or had receivables written off.

B. TRANSPARENCY
In the application of good corporate governance, BPRs must apply transparency of information regarding each type of credit to be offered to Debtors or prospective Debtors adequately, clearly, accurately, and comparable between products one and another in accordance with the rights and needs of the Debtor or prospective Debtor. The information provided must be easy and understandable for the Debtor and must at least cover:

Information Regarding Characteristics of Offered Credits
Information regarding the characteristics of offered credits must at least cover:
a. product name; b. benefits and risks of the credit offered to the Debtor or prospective Debtor in full, especially risks that will arise if the Debtor or prospective Debtor cannot meet obligations as stated in the credit agreement, including imposition of penalties, collateral takeover, and others;
c. credit requirements including, among others, required documents, mechanisms, credit application procedures, and collateral requirements;
d. attached costs to be charged to the Debtor, including administrative fees, commissions, penalties, and insurance, so that the Debtor obtains clarity regarding costs to be charged and has confidence in the ability and willingness to meet obligations to the BPR; e. information on interest rates must at least cover the calculation method, calculation manner, imposition, and adjustment of credit interest rates in accordance with market interest rates. The interest calculation method must be supplemented with an estimate or simulation of interest to be charged to the Debtor during the credit period; and

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

f. the duration of each offered product and the installment schedule.
Information regarding product characteristics as referred to in letters a through f must be provided by the BPR to the Debtor or prospective Debtor before the signing of the credit agreement.

Clarity Regarding Credit Agreement Material and Collateral Binding
Before the signing of the credit agreement, the BPR must inform the prospective Debtor transparently, completely, and clearly regarding the form and content of the credit agreement and the collateral binding agreement.

Determined in Jakarta on 27 December 2018
CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

APPENDIX II
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 33 /POJK.03/2018
REGARDING
PRODUCTIVE ASSET QUALITY AND FORMATION OF PROVISION FOR WRITE-OFF OF PRODUCTIVE ASSETS OF RURAL CREDIT BANKS

DETERMINATION OF CREDIT QUALITY
BUSINESS PROSPECTS
Component
Normal Special Attention Substandard Doubtful Loss

Potential
business growth
Business activities still have growth.
Business activities have no growth.
Business activities have negative growth.
Business activities likely have the potential to stop operating in the near future.
No business growth potential
(business has already stopped operating).
Market conditions
and Debtor's position in competition

Stable market.
Debtor's position
in the market is quite good with a high level of competition.
Debtor's position
in the market is less good.
Debtor's position
in the market is weak.
Loss of market
along with deteriorating economic conditions.
Debtor's position
in the market is good, including a strong position in the market.
Market share is
comparable to competitors.
Market is
influenced by changes in economic conditions.
Market is influenced by significant changes in economic conditions.
Debtor's business
has ceased operation.

BUSINESS PROSPECTS
Component
Normal Special Attention Substandard Doubtful Loss
3. Quality of
management and labor issues

Quality of
management is very good.
Quality of
management is good.
Quality of
management is quite good.
Quality of
management is less good.
Quality of
management is poor (no human resources supporting business implementation).

BUSINESS PROSPECTS
Component
Normal Special Attention Substandard Doubtful Loss

No recorded
management disputes or labor strikes, or experienced minor management disputes or labor strikes in the last 1 (one) year but resolved well.
Experienced
management disputes or labor strikes in the last 1 (one) year that were resolved well but there is still a possibility of recurrence.
There are
management disputes or labor strikes in the last 1 (one) year with considerable material impact on the Debtor's business activities.
There are
management disputes or labor strikes in the last 1 (one) year with material impact on the Debtor's business activities.

Support from
owners, groups, or affiliations
Owners, groups, or affiliates are stable and supportive Owners, groups, or affiliates are stable and do not have a burdensome impact on the Debtor. Owners, groups, or affiliates are less stable and begin to provide a burdensome impact on the Debtor. Owners, groups, or affiliates have provided a burdensome impact on the Debtor. Owners, groups, or affiliates are very detrimental to the Debtor.

BUSINESS PROSPECTS
Component
Normal Special Attention Substandard Doubtful Loss
5. Efforts made by
the Debtor to maintain the environment
(for large-scale
Debtors whose business type has a significant impact on the environment according to regulatory provisions) Environmental management efforts have been carried out well and achieved results in accordance with minimum requirements as referred to in regulations on environmental protection and management. Environmental management efforts have been carried out adequately but have not reached minimum requirements as referred to in regulations on environmental protection and management. Environmental management efforts are poor and have not reached minimum requirements as referred to in regulations on environmental protection and management. The company has not implemented environmental management efforts as referred to in regulations on environmental protection and management. The company has not implemented environmental management efforts as referred to in regulations on environmental protection and management and has the possibility of being sued criminally or civilly in court.

DEBTOR PERFORMANCE
Component
Normal Special Attention Substandard Doubtful Loss

Profit acquisition • Good profit
acquisition.

Profit acquisition
is quite good but tends to decline.
Low profit
acquisition and very significant decline.
Experiencing
losses
Operational activities
are financed by asset sales.
Experiencing
significant losses that erode capital
Debtor is unable
to meet all obligations.

Capital conditions
Capital is very strong.
Capital is strong.
Capital is quite strong.
Capital is less strong.
Capital is not strong.
Cash flow • Strong liquidity
and working capital.

Cash flow analysis
shows that the
Debtor is able to meet payment obligations
Liquidity and
working capital are quite strong.
Cash flow analysis
shows that although the
Debtor is able to meet payment obligations
Liquidity is low
and working capital is limited.
Cash flow analysis
shows that the
Debtor is only able to pay interest and part of the principal.
Liquidity is
very low.
Cash flow analysis
shows inability to pay principal and interest.
Liquidity
problems.
Cash flow analysis
shows that the
Debtor is unable to pay principal and interest and close production costs.
principal and
interest without additional funding support and meet other operational needs.
payment obligations
for principal and interest but there are indications of certain problems that if not addressed will affect payments in the near future.

Component
Normal Special Attention Substandard Doubtful Loss

Timeliness of principal and/or interest payments
a. Credits with installments of
1 (one) month or more

No arrears
in principal and/or interest installments; or
There are
arrears in principal and/or interest installments more than 30 (thirty) days from the maturity date of the installment but not more than 90 (ninety) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 90 (ninety) days from the maturity date of the installment but not more than 180 (one hundred eighty) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 180 (one hundred eighty) days from the maturity date of the installment but not more than 360 (three hundred sixty) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 360 (three hundred sixty) days from the maturity date of the installment;

Component
Normal Special Attention Substandard Doubtful Loss

There are
arrears in principal and/or interest installments not more than 30 (thirty) days from the maturity date of the installment and the credit has not matured.
The credit has
matured not more than 15 (fifteen) days.
The credit has
matured more than
15 (fifteen) days but not more than
30 (thirty) days.
The credit has
matured more than
30 (thirty) days but not more than 60 (sixty) days.
The credit has matured
more than
60 (sixty) days;
The credit has
been handed over to the Directorate
General of State
Property (DJKN); and/or
The credit has
been submitted for compensation replacement to a credit insurance company.

Component
Normal Special Attention Substandard Doubtful Loss b. Credits with installments less than 1 (one) month

No arrears
in principal and/or interest installments; or
There are
arrears in principal and/or interest installments more than 15 (fifteen) days from the maturity date of the installment but not more than 30 (thirty) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 30 (thirty) days from the maturity date of the installment but not more than 90 (ninety) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 90 (ninety) days from the maturity date of the installment but not more than 180 (one hundred eighty) days from the maturity date of the installment; and/or
There are
arrears in principal and/or interest installments more than 180 (one hundred eighty) days from the maturity date of the installment;

Component
Normal Special Attention Substandard Doubtful Loss

There are
arrears in principal and/or interest installments not more than 15 (fifteen) days from the maturity date of the installment and the credit has not matured.
The credit has
matured not more than 15 (fifteen) days.
The credit has
matured more than
15 (fifteen) days but not more than
30 (thirty) days.
The credit has
matured more than
30 (thirty) days but not more than 60 (sixty) days.
The credit has matured
more than
60 (sixty) days;
The credit has
been handed over to DJKN; and/or
The credit has
been submitted for compensation replacement to a credit insurance company.

Availability and
accuracy of financial information of the Debtor

The relationship
between the Debtor and the BPR is good, the Debtor always provides financial information
The relationship
between the Debtor and the BPR has deteriorated and financial information cannot be trusted or there is no BPR analysis result
The relationship
between the Debtor and the BPR is very poor and financial information is unavailable or cannot be trusted.

Components
Normal | Special Mention | Substandard | Doubtful | Loss

Regularity and Accuracy
Regular and accurate.
Timeliness of Financial Reports
There are recent financial reports and the results of the BPR's analysis of the financial reports or financial information submitted by the Debtor. Financial reports or financial information submitted by the Debtor are not available.
Completeness of Credit Documentation
Credit documentation is complete.
Credit documentation is incomplete, including but not limited to credit application documents, specifically the business owner's identity documents. Credit documentation is incomplete, including but not limited to credit application documents, specifically business legality documents. Credit documentation is significantly incomplete, including but not limited to credit application documents and inadequate credit analysis. No credit documentation exists (credit application documents, credit analysis, credit agreements, disbursement warrants).
Compliance with Credit Agreements
No violations of credit agreements.
There are violations of core credit requirements that can affect the Debtor's repayment ability.
There are very fundamental violations of core requirements in the credit agreement that can affect the Debtor's repayment ability and cause collateral to be executed.
Consistency of Fund Usage
Funds are used in accordance with the credit application.
Funds are used less in accordance with the credit application, but the amount is not material.
Funds are used less in accordance with the credit application, with a sufficiently material amount.
Funds are used less in accordance with the credit application, with a material amount.
Funds are used not in accordance with the credit application.
Reasonableness of Payment Source
The payment source originates from the results of the financed project/business or the income of the Debtor concerned.
The payment source does not always originate from the results of the financed project/business or the income of the Debtor concerned.
The payment source originates from other than the results of the financed project/business or the income of the Debtor concerned.
The payment source is unknown and the payment source originates from other than the results of the financed project/business or the income of the Debtor concerned. No payment source exists.

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

Components
Normal | Special Mention | Substandard | Doubtful | Loss

Debtor concerned.
Debtor concerned. financed project/business or the income of the Debtor concerned.

Determined in Jakarta on the date of 27 December 2018 CHAIRMAN OF THE COMMISSIONERS COUNCIL FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA, signed WIMBOH SANTOSO

Productive Asset Quality and Formation of Productive Asset Write-off Provisions for Rural Credit Banks

Lineage: In force