Prudential Principles and Reporting in the Context of Consolidated Risk Management Implementation for Banks Controlling Subsidiaries — OJK — ID

To:

Board of Directors of Conventional Commercial Banks; and
Board of Directors of Sharia Commercial Banks,
At your location.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 43/SEOJK.03/2017 CONCERNING PRUDENTIAL PRINCIPLES AND REPORTING IN THE CONTEXT OF CONSOLIDATED RISK MANAGEMENT IMPLEMENTATION FOR BANKS CONTROLLING SUBSIDIARIES

In view of the implementation of Financial Services Authority Regulation Number 38/POJK.03/2017 concerning the Implementation of Consolidated Risk Management for Banks Controlling Subsidiaries (State Gazette of the Republic of Indonesia Year 2017 Number 144, Supplement to the State Gazette of the Republic of Indonesia Number 6087), hereinafter referred to as the Consolidated Risk Management POJK, Banks that own and/or control Subsidiaries are required to implement consolidated risk management.

In accordance with the Consolidated Risk Management POJK, the implementation of consolidated risk management for Banks controlling Subsidiaries is carried out in phases. In the initial stage of implementing consolidated risk management, this is done by submitting reports and calculating certain ratios in the context of applying prudential principles.

Furthermore, with the transfer of the function, duties, and authority for the regulation and supervision of financial services in the banking sector from Bank Indonesia to the Financial Services Authority (OJK), it is necessary to regulate the implementation regarding prudential principles and reporting in the context of consolidated risk management implementation for Banks controlling Subsidiaries in a Financial Services Authority Circular Letter, as follows:

I. GENERAL PROVISIONS

The continuity of a Bank's business is influenced by risk exposures arising directly or indirectly from the Bank's business activities or from the business activities of its Subsidiaries, so the Bank must implement consolidated risk management.
In the context of implementing consolidated risk management, the Bank must have a good understanding of the condition of the Subsidiary and the impact of the Subsidiary's activities on the Bank's overall condition. Therefore, the Bank must be able to identify, measure, monitor, and control risks from the business activities of the Bank and the Subsidiary.
Furthermore, so that the Bank can monitor the impact of the Subsidiary's activities on the Bank's overall condition, prudential principles must be applied to the business activities of the Subsidiary as applied to the Bank's business activities.

II. INFORMATION SYSTEMS

In accordance with the Consolidated Risk Management POJK, Banks are required to have a system capable of identifying, measuring, monitoring, and controlling all business risks of the Bank and the Subsidiary to support the effective implementation of consolidated risk management. This system is expected to assist the Bank in comprehensively executing business risk management for the Bank and the Subsidiary. The system owned by the Bank must at least include the following:

Accounting Information System

In accordance with the Consolidated Risk Management POJK, the accounting information system that the Bank is required to own must at least be able to produce consolidated financial reports and other reports for the implementation of prudential principles. In preparing consolidated financial reports and determining the consolidation methods and techniques used, the Bank refers to financial accounting standards. Meanwhile, the prudential principles that the Bank is required to implement include, among others, the calculation of Consolidated Minimum Capital Requirements (KPMM), asset quality assessment, and the formation of Asset Impairment Provisions (PPA) for the Bank and the Subsidiary, the calculation of Maximum Credit Granting Limits (BMPK) which calculates the consolidated exposure of the Bank and the Subsidiary, and the consolidated assessment of health levels.

Risk Management Information System

In the context of implementing consolidated risk management, the risk management information system is part of the management information system that must be owned and developed according to the Bank's needs, referring to regulations by the Financial Services Authority regarding the implementation of risk management for commercial banks and regulations by the Financial Services Authority regarding the implementation of risk management for commercial banks and Sharia business units. In accordance with the Consolidated Risk Management POJK, as part of the implementation of consolidated risk management, the Bank is required to have a risk management information system that can ensure:

a. The accurate, informative, and timely measurement of risk exposures, whether overall or composite exposures, exposures by risk type inherent in the business activities of the Bank and the Subsidiary, or exposures by functional activity type of the Bank and the Subsidiary;

b. The compliance with the implementation of risk management against policies, procedures, and risk limit determinations; and

c. The availability of results or the realization of risk management implementation compared to targets set by the Bank on a consolidated basis in accordance with policies and strategies for implementing risk management.

III. IMPLEMENTATION OF RISK MANAGEMENT FOR SUBSIDIARIES ENGAGED IN INSURANCE BUSINESS ACTIVITIES

The implementation of consolidated risk management for Banks and Subsidiaries is also applied to Subsidiaries engaged in insurance business activities. The implementation of consolidated risk management for Banks that own and/or control Subsidiaries engaged in insurance business activities is carried out, among others, by:

a. Monitoring the fulfillment of the minimum solvency ratio (Risk Based Capital/RBC minimum) and the fulfillment of other prudential principles as referred to in regulations by the Financial Services Authority concerning the financial health of insurance and reinsurance companies and regulations by the Financial Services Authority concerning the implementation of risk management for non-banking financial service institutions; and

b. Calculating investments in Subsidiaries engaged in insurance business activities as a deduction factor in the calculation of the Bank's consolidated capital.

In the calculation of consolidated KPMM for Banks that have Subsidiaries engaged in insurance business activities, the calculation of the Bank's consolidated capital is carried out as follows:

a. The Bank's investment in Subsidiaries engaged in insurance business activities is not calculated in the Bank's consolidated Risk-Weighted Assets (RWA).

b. In the event that Subsidiaries engaged in insurance business activities do not meet the minimum RBC requirements set by the Financial Services Authority:

1) The Bank's investment in Subsidiaries engaged in insurance business activities is calculated as a capital deduction factor, namely the amount of the Bank's investment in Subsidiaries engaged in insurance business activities after being reduced by impairment loss reserves; and

2) The capital shortfall of Subsidiaries engaged in insurance business activities from the minimum RBC is calculated as a 100% (one hundred percent) deduction factor for core capital, in the event that Subsidiaries engaged in insurance business activities cannot meet the minimum RBC until the time limit set by the Financial Services Authority.

c. In the event that Subsidiaries engaged in insurance business activities meet the minimum RBC requirements set by the Financial Services Authority, the Bank's investment in Subsidiaries engaged in insurance business activities is calculated as a consolidated capital deduction factor, namely the amount of the Bank's investment in Subsidiaries engaged in insurance business activities after being reduced by impairment loss reserves.

IV. ASSET QUALITY ASSESSMENT

In accordance with the Consolidated Risk Management POJK, Banks are required to conduct asset quality assessments on the assets of the Bank and the Subsidiary in order to form Asset Impairment Provisions (PPA). The formation of PPA is intended so that the financial reports of the Bank and the Subsidiary can be consolidated fairly, and the calculation of consolidated KPMM can be carried out more accurately. Consolidated asset quality assessments are conducted on the productive and non-productive assets of the Bank as well as the productive assets of the Subsidiary in accordance with regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.

A. Assessment of Productive Asset Quality

In the event that the Subsidiary has assets that can be equated to loans or financing at the Bank, the Bank's assessment of the quality of the Subsidiary's productive assets is conducted at least based on the accuracy of principal and/or interest payments, margins, fees, or profit-sharing.
Based on the assessment in paragraph 1, the quality of loans or financing is determined as Performing, Special Mention, Substandard, Doubtful, and Loss, in accordance with regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.
In the event that the Subsidiary has assets that can be equated to securities at the Bank, the assessment of the quality of securities by the Bank follows regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.
In the event that the Subsidiary has securities in the form of shares, the quality of the shares by the Bank is determined as follows:

a. Performing, provided that the shares are actively traded on the Indonesian securities exchange and there is transparent market value information; or

b. In the event that the shares do not meet the criteria as referred to in letter a, the assessment of share quality refers to the quality assessment for investments using the cost method as referred to in regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.

For productive assets in Subsidiaries that are financing companies, the assessment of productive asset quality by the Bank is conducted in accordance with regulations by the Financial Services Authority concerning the conduct of financing company businesses.

B. Assessment of Other Productive Asset Quality

The quality assessment for productive assets of the Subsidiary other than those equated to loans or financing and securities is conducted by the Bank in accordance with regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.

C. Asset Impairment Provisions (PPA)

In accordance with the Consolidated Risk Management POJK, based on the assessment of productive asset quality as referred to in letters A and B, the Bank is required to form PPA for the Bank's assets as well as the productive assets of the Subsidiary in accordance with regulations concerning the assessment of asset quality for commercial banks and regulations by the Financial Services Authority concerning the assessment of asset quality for commercial banks and Sharia business units.
In the event that the amount of impairment loss reserves is smaller than the PPA, the PPA shortfall becomes a deduction factor for consolidated core capital.

V. CALCULATION OF MAXIMUM CREDIT GRANTING LIMITS (BMPK)

Banks must monitor the concentration of fund provision by ensuring compliance with BMPK, both for fund provision from the Bank individually and for fund provision from the Bank and the Subsidiary on a consolidated basis. Consolidated BMPK is the maximum percentage of total fund provision from the Bank and the Subsidiary permitted against the Bank's consolidated capital.

A. Limits or Caps on Fund Provision

As regulated in regulations concerning the maximum credit granting limits for commercial banks, the entire portfolio of fund provision to related parties with the Bank is set at a maximum percentage of the Bank's capital. In the calculation of consolidated BMPK, the determination of limits on fund provision to related parties also covers all fund provision from the Bank and fund provision from the Subsidiary compared to consolidated capital.

The same applies to fund provision to borrowers who are not related parties. Consolidated BMPK for fund provision to borrowers who are not related parties to the Bank is set at a specific percentage in accordance with regulations concerning the maximum credit granting limits for commercial banks. In the event of violations or exceedances of consolidated BMPK, the Bank is subject to administrative sanctions referring to regulations concerning the maximum credit granting limits for commercial banks.

B. Capital

In calculating consolidated BMPK, the capital used is the Bank's consolidated capital, with calculations referring to regulations by the Financial Services Authority concerning the Minimum Capital Requirements for commercial banks and regulations by the Financial Services Authority concerning the Minimum Capital Requirements for commercial banks.

The Bank's consolidated capital for the calculation of BMPK is not reduced by investments.

VI. MANAGEMENT OF SUBSIDIARIES

In accordance with the Consolidated Risk Management POJK, reports of the list of candidates for managers managing the Subsidiary must be submitted at the latest 10 (ten) working days before the implementation of the General Meeting of Shareholders (GMS). The report of the list of candidate managers is submitted by the Bank to the Financial Services Authority at the address:

a. The Department of Supervision of the Relevant Bank or the Department of Sharia Banking, for Banks whose headquarters or branches of banks located outside the country are located in the Special Capital Region of Jakarta Province; or

b. The Regional Office of the Financial Services Authority or the Local Office of the Financial Services Authority according to the area where the Bank's headquarters is located.

VII. REPORTING

In accordance with the Consolidated Risk Management POJK, Banks are required to submit online financial reports of the Subsidiary according to the format and regulations set by the Financial Services Authority through the Financial Services Authority's reporting system.

In the event that submitting reports through the Financial Services Authority's reporting system is not yet possible, the Bank submits online reports referring to regulations concerning Monthly Reports for Commercial Banks (LBU), Monthly Monetary Stability and Financial System Reports for Commercial Banks and Sharia Business Units (LSMK BUS UUS), Periodic Reports for Commercial Banks (LBBU), or Periodic Reports for Commercial Banks and Sharia Business Units (LBBUS).

a. Financial Reports of Each Subsidiary

The presentation and format of the Subsidiary's financial reports refer to regulations set by the Financial Services Authority through the Financial Services Authority's reporting system or regulations concerning Monthly Reports for Commercial Banks (LBU), Monthly Monetary Stability and Financial System Reports for Commercial Banks and Sharia Business Units (LSMK BUS UUS), Periodic Reports for Commercial Banks (LBBU), or Periodic Reports for Commercial Banks and Sharia Business Units (LBBUS), in the event that submitting reports through the Financial Services Authority's reporting system is not yet possible.

In the event that the Subsidiary is a company engaged in insurance business activities, the submission of financial reports includes solvency ratio calculation reports (RBC).

b. Consolidated Financial Reports

The presentation and format of consolidated financial reports refer to regulations set by the Financial Services Authority through the Financial Services Authority's reporting system or regulations concerning Monthly Reports for Commercial Banks (LBU), Monthly Monetary Stability and Financial System Reports for Commercial Banks and Sharia Business Units (LSMK BUS UUS), Periodic Reports for Commercial Banks (LBBU), or Periodic Reports for Commercial Banks and Sharia Business Units (LBBUS), in the event that submitting reports through the Financial Services Authority's reporting system is not yet possible.

c. Consolidated BMPK Calculation Reports for Conventional Commercial Banks

The presentation and format of consolidated BMPK calculation reports refer to regulations set by the Financial Services Authority through the Financial Services Authority's reporting system or regulations concerning Monthly Reports for Commercial Banks (LBU) or Periodic Reports for Commercial Banks (LBBU), in the event that submitting reports through the Financial Services Authority's reporting system is not yet possible.

In accordance with the Consolidated Risk Management POJK, in the event that online submission of reports is not yet possible, the Bank is required to submit offline reports every quarter for the periods of March, June, September, and December, which include:

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

a. Consolidated Asset Quality Assessment Reports

The presentation and format of consolidated asset quality assessment reports refer to Appendix I, which is an integral part of this Financial Services Authority Circular Letter.

b. Consolidated Maximum Fund Disbursement Limit Calculation Reports for Sharia Commercial Banks

The presentation and format of consolidated Maximum Fund Disbursement Limit (BMPD) calculation reports for Sharia Commercial Banks refer to:

1) Appendix II: Consolidated Fund Provision to Related Parties Report for Sharia Commercial Banks; and

2) Appendix III: Consolidated Exceedance or Violation of BMPD Report for Unrelated Parties for Sharia Commercial Banks,

which are integral parts of this Financial Services Authority Circular Letter.

VIII. CLOSING

At the time this Financial Services Authority Circular Letter takes effect, Bank Indonesia Circular Letter Number 8/27/DPNP concerning Prudential Principles and Reporting in the Context of Consolidated Risk Management Implementation for Banks Controlling Subsidiaries is revoked and declared invalid.

Provisions in this Financial Services Authority Circular Letter take effect on the date of determination.

Determined in Jakarta on July 19, 2017

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signed
NELSON TAMPUBOLON

Appendix I.A
Bank :
Date :
CONSOLIDATED ASSET QUALITY AND PPA FORMATION REPORT (in millions of Rupiah)

POS-POS BANK	KONSOLIDASI	L	DPK	KL	D	M	Jumlah	L	DPK	KL	D	M	Jumlah
A. PRODUKTIF ASET
1. Penempatan pada bank lain
PPA yang wajib dihitung - Penempatan pada bank lain
CKPN - Penempatan pada bank lain
2. Surat-surat berharga
a. Diperdagangkan
b. Tersedia untuk dijual
c. Dimiliki sampai jatuh tempo
PPA yang wajib dihitung - Surat berharga
CKPN - Surat berharga
3. Kredit
a. Konsumsi
b. Modal Kerja
c. Investasi
PPA yang wajib dihitung - Kredit
CKPN - Kredit
4. Penyertaan
a. Pada perusahaan keuangan selain asuransi
b. Pada perusahaan asuransi
c. Dalam rangka restrukturisasi kredit/pembiayaan (PMS)
PPA yang wajib dihitung - Penyertaan
CKPN - Penyertaan
5. Tagihan lain
PPA yang wajib dihitung - Tagihan Lain
CKPN - Tagihan Lain
6. Komitmen dan kontinjensi
PPA yang wajib dihitung - Komitmen dan Kontinjensi
CKPN - Komitmen dan Kontinjensi
B. ASET NON PRODUKTIF
1. Properti terbengkalai
PPA yang wajib dihitung - Properti Terbengkalai
CKPN - Properti Terbengkalai
2. Agunan yang diambil alih
PPA yang wajib dihitung - Agunan yang Diambil Alih
CKPN - Agunan yang Diambil Alih
3. Rekening antar kantor dan suspense account
PPA yang wajib dihitung - RAK & Suspense Account
CKPN - RAK & Suspense Account
JUMLAH
1. a. PPA produktif yang wajib dihitung
b. PPA non produktif yang wajib dihitung
c. Total PPA yang wajib dihitung
2. a. CKPN dari aset produktif
b. CKPN dari aset non produktif
c. Total CKPN
3. Kekurangan/kelebihan PPA yang wajib dibentuk dibanding CKPN

*CKPN yang diperhitungkan adalah CKPN sesuai standar akuntansi keuangan

Appendix I.B
Bank :
Date :
CONSOLIDATED ASSET QUALITY AND PPA FORMATION REPORT FOR SHARIA COMMERCIAL BANKS (in millions of Rupiah)

POS-POS BANK	KONSOLIDASI	L	DPK	KL	D	M	Jumlah	L	DPK	KL	D	M	Jumlah
A. PRODUKTIF ASET
1. Penempatan pada bank lain
PPA yang wajib dihitung - Penempatan pada bank lain
CKPN - Penempatan pada Bank Lain
2. Surat-surat berharga
a. Diperdagangkan
b. Tersedia untuk dijual
c. Dimiliki sampai jatuh tempo
PPA yang wajib dihitung - Surat berharga
CKPN - Surat Berharga
3. Pembiayaan
a. Konsumsi
b. Modal Kerja
c. Investasi
PPA yang wajib dihitung - Pembiayaan
CKPN - Pembiayaan
4. Penyertaan
a. Pada perusahaan keuangan selain asuransi
b. Pada perusahaan asuransi
c. Dalam rangka restrukturisasi pembiayaan (PMS)
PPA yang wajib dihitung - Penyertaan
CKPN - Penyertaan
5. Komitmen dan kontinjensi
PPA yang wajib dihitung - Komitmen dan Kontinjensi
CKPN - Komitmen dan Kontijensi
B. ASET NON PRODUKTIF
1. Properti terbengkalai
PPA yang wajib dihitung - Properti Terbengkalai
CKPN - Properti Terbengkalai
2. Agunan yang diambil alih
PPA yang wajib dihitung - Agunan yang Diambil Alih
CKPN - Agunan yang Diambil Alih
3. Rekening antar kantor dan suspense account
PPA yang wajib dihitung - RAK & Suspense Account
CKPN - RAK & Suspense Account
JUMLAH
1. a. PPA produktif yang wajib dihitung
b. PPA non produktif yang wajib dihitung
c. Total PPA yang wajib dihitung
2. a. CKPN atas aset produktif
b. CKPN atas aset non produktif
c. Total CKPN
3. Kekurangan/kelebihan PPA yang wajib dibentuk dibanding CKPN

*CKPN yang diperhitungkan adalah CKPN sesuai standar akuntansi keuangan

Determined in Jakarta on July 19, 2017

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signed
NELSON TAMPUBOLON

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

Appendix II
(In Millions of Rupiah)

| No | Kurs Rp | Kurs Valas*) | I | II | III | IV | V | VI | VII | VIII.1 | VIII.2 | IX.1 | IX.2 | X | XI | XII | XIII.1 | XIII.2 | XIV.1 | XIV.2 | XV | XVI | XVII.1 | XVII.2 | XVIII.1 | XVIII.2 | XIX | XX |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |

*) equivalent value in Rupiah using the exchange rate on the report date ) consolidated capital is consolidated capital in the report month

Determined in Jakarta on July 19, 2017

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signed
NELSON TAMPUBOLON

CONSOLIDATED FUND PROVISION TO RELATED PARTIES REPORT FOR SHARIA COMMERCIAL BANKS

No	Nasabah Nama Peminjam	Individu/Kelompok/Total Kelompok	Status Hubungan dengan Bank	BANK PERUSAHAAN ANAK KONSOLIDASI	Modal Konsolidasi)	Pelampauan/ Keterkaitan dengan Bank	No. Rekening	Jenis Penyediaan Dana	Jangka Waktu	Jumlah Rp	Jumlah Valas*)	No. Rekening	Nominal (Rp)	%	Jenis Penyediaan Dana	Jangka Waktu	Jumlah Rp	Jumlah Valas*)	Jumlah Pelanggaran BMPD	Awal	TOTAL	Jatuh Tempo

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

Appendix III.A
(In Millions of Rupiah)
No
Start
Maturity
Rp Foreign Currency*) Start
Maturity
Rp Foreign Currency*) Rp Foreign Currency*)
Nominal
(Rp) %
I II III IV V VI VII.1 VII.2 VIII.1 VIII.2 IX X XI XII.1 XII.2 XIII.1 XIII.2 XIV XV XVI.1 XVI.2 XVII.1 XVII.2 XVIII XIX *) equivalent value in Rupiah using the exchange rate on the reporting date ) consolidated capital is the consolidated capital in the reporting month Exceedance of BMPD REPORT ON EXCEEDANCE OF BMPD ON A CONSOLIDATED BASIS FOR NON-AFFILIATED PARTIES FOR SHARIA COMMERCIAL BANKS No Customer Name Borrower Individual/ Group/ Total Group Name of Borrower Group/Group BANK SUBSIDIARIES Consolidated Capital CONSOLIDATION No. Quality Description Account Number Type of Fund Provision Duration Amount of Provision Exchange Rate Amount of Provision TOTAL Exchange Rate No. Account Number Type of Fund Provision Duration Amount of Provision

Appendix III.B
(In Millions of Rupiah)
No
Start
Maturity
Rp Foreign Currency*) Start
Maturity
Rp Foreign Currency*) Rp Foreign Currency*)
Nominal
(Rp) %
I II III IV V VI VII.1 VII.2 VIII.1 VIII.2 IX X XI XII.1 XII.2 XIII.1 XIII.1 XIV XV XVI.1 XVI.2 XVII.1 XVII.2 XVIII XIX *) equivalent value in Rupiah using the exchange rate on the date of realization of fund provision ) consolidated capital is the consolidated capital in the last quarter before the realization of fund provision Established in Jakarta on July 19, 2017

EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY, signature
NELSON TAMPUBOLON
TOTAL
BMPD Violations
No. Quality
Account Number
Type of
Fund Provision
Duration Amount of Provision
Exchange Rate
REPORT ON BMPD VIOLATIONS ON A CONSOLIDATED BASIS FOR NON-AFFILIATED PARTIES FOR SHARIA COMMERCIAL BANKS No Customer Name Borrower Individual/G roup/T otal Group Name of Borrower Group/Group BANK SUBSIDIARIES Consolidated Capital) CONSOLIDATION No. Description Account Number Type of Fund Provision Duration Amount of Provision Exchange Rate Amount of Provision This copy is in accordance with the original Director of Law 1 Legal Department signature Yuliana

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