Prudential Principles in Asset Securitization Activities for Commercial Banks

COPY
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 11/POJK.03/2019
CONCERNING
PRUDENTIAL PRINCIPLES IN ASSET SECURITIZATION ACTIVITIES FOR COMMERCIAL BANKS BY THE GRACE OF THE ALMIGHTY GOD, THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY, Considering:
a. that to enhance banking intermediation, alternative funding sources for banks other than third-party funds are needed, namely by conducting asset securitization activities; b. that asset securitization activities can increase credit risk for banks having securitization exposure, thereby affecting bank capital;
c. that asset securitization activities are global financial products with high complexity, thus requiring the application of prudential principles as referred to in Article 69 of Law Number 21 of 2011 concerning the Financial Services Authority and in accordance with international standards;
d. that based on the considerations referred to in letters a through c, it is necessary to establish a Financial Services Authority Regulation concerning Prudential Principles in Asset Securitization Activities for Commercial Banks;

Recalling:

1. 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);
2. 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);
3. Law Number 8 of 1995 concerning the Capital Market (State Gazette of the Republic of Indonesia Year 1995 Number 64, Supplement to the State Gazette of the Republic of Indonesia Number 3608);
4. Law Number 21 of 2008 concerning Sharia Banking (State Gazette of the Republic of Indonesia Year 2008 Number 94, Supplement to the State Gazette of the Republic of Indonesia Number 4867);

DECIDING:
Establishing: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING PRUDENTIAL PRINCIPLES IN ASSET SECURITIZATION ACTIVITIES FOR COMMERCIAL BANKS.

CHAPTER I
GENERAL PROVISIONS

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

1. Commercial Banks, hereinafter referred to as Banks, are Commercial Banks as referred to in laws regulating banking, including branches of banks located abroad, as well as Sharia Commercial Banks and Sharia Business Units as referred to in laws regulating Sharia banking.
2. Asset Securitization is the process of issuing securities by Asset-Backed Securities issuers or Sharia Asset-Backed Securities issuers based on the transfer of financial assets or Sharia assets from the initial creditor (originator), followed by payments derived from the sale proceeds of Asset-Backed Securities to investors or payments from the issuer's funds.
3. Asset-Backed Securities, hereinafter abbreviated as ABS, are securities issued by an issuer based on financial assets transferred by the initial creditor (originator).
4. Sharia Asset-Backed Securities, hereinafter abbreviated as SABS, are securities issued by an issuer based on Sharia assets transferred by the initial creditor (originator) through mechanisms that do not contradict Sharia principles.
5. ABS or SABS Issuers, hereinafter referred to as Issuers, are legal entities, Collective Investment Contracts for Asset-Backed Securities (CIC-ABS) or Collective Investment Contracts for Sharia Asset-Backed Securities (CIC-SABS), Asset-Backed Securities participation note issuers (ABS-SP) or Sharia Asset-Backed Securities participation note issuers (SABS-SP), special purpose entities, or other forms in accordance with applicable laws and regulations, which have the specific purpose of conducting Asset Securitization activities.
6. Initial Creditor (Originator) is:
   a. a party that transfers financial assets or Sharia assets to the Issuer; or b. a party that acts as a sponsor of a special purpose entity in issuing Asset-Backed Commercial Paper (ABCP) securities or other similar securities aimed at taking over exposure from third parties.
7. Reference Entity is a party that owes money or has payment obligations (obligor) from the underlying financial assets or Sharia assets, including:
   a. issuers of securities in cases where the underlying financial assets or Sharia assets are securities; or b. parties obligated to repay in cases where the underlying financial assets or Sharia assets are loans or financing, or claims equivalent thereto.
8. Credit Enhancement is a facility provided to the Issuer to improve the quality of the underlying financial assets or Sharia assets for payment to investors.
9. Liquidity Facility is a bridging facility provided to the Issuer to address payment mismatches (mismatch) to investors.
10. Credit Enhancement Provider is a party that provides Credit Enhancement.
11. Liquidity Facility Provider is a party that provides Liquidity Facility.
12. Servicer is a party that accounts for, processes, supervises, and takes other actions to ensure the smooth cash flow of financial assets or Sharia assets transferred to the Issuer in accordance with agreements between the Servicer and the Issuer, including issuing warnings to Reference Entities in case of payment delays, conducting negotiations, and resolving claims.
13. Investor is a party that purchases ABS or SABS.
14. Custodian Bank is a Bank providing custody services for ABS or SABS and related assets and services regarding Asset Securitization in accordance with applicable laws and regulations.
15. Clean-up Call is an option to purchase all:
    a. remaining underlying financial assets or Sharia assets; or b. securitization exposure, before maturity.

CHAPTER II
BANK ACTIVITIES IN ASSET SECURITIZATION

First Section
General

Article 2
(1) In Asset Securitization, Banks may conduct activities as:
a. Initial Creditor (Originator); b. Credit Enhancement Provider;
c. Liquidity Facility Provider;
d. Servicer; e. Investor; and/or f. Custodian Bank.
(2) Banks that may conduct activities as Initial Creditor (Originator), Credit Enhancement Provider, Liquidity Facility Provider, Servicer, and/or Investor as referred to in paragraph (1) letters a through e are Banks included in Commercial Banks based on Business Classification (BUKU) 1, BUKU 2, BUKU 3, and BUKU 4, after obtaining approval from the Financial Services Authority. (3) Approval from the Financial Services Authority as referred to in Article 2 paragraph (2) refers to Financial Services Authority Regulations regulating business activities and branch networks based on bank core capital and Financial Services Authority Regulations regulating products and activities of Sharia banks and Sharia business units. (4) Banks that may conduct activities as Custodian Bank as referred to in paragraph (1) letter f are BUKU 3 and BUKU 4. (5) Banks conducting activities as referred to in paragraph (1) must comply with laws and regulations regulating prudential principles. (6) Sharia Commercial Banks and Sharia Business Units must comply with Sharia principles in conducting Asset Securitization activities. (7) Banks must have well-documented policies and guidelines for Asset Securitization activities, which form part of the Bank's risk management policies and guidelines. (8) Asset Securitization activities as referred to in paragraph (1) must be stipulated in writing in the Asset Securitization agreement.

Article 3
(1) Banks conducting Asset Securitization activities as referred to in Article 2 may only conduct Asset Securitization on underlying financial assets or Sharia assets consisting of loans or financing, claims arising from securities or Sharia securities, future receivables, and/or other equivalent financial assets or Sharia assets. (2) The underlying financial assets or Sharia assets as referred to in paragraph (1) must meet the following criteria:
a. having cash flows; b. owned and under the control of the Initial Creditor (Originator); and
c. freely transferable to the Issuer.
(3) For Sharia Commercial Banks and Sharia Business Units, in addition to meeting the criteria in paragraph (2), the underlying Sharia assets must comply with Sharia principles.

Second Section
Banks Conducting Activities as Initial Creditor (Originator)

Article 4
(1) Banks may only conduct activities as Initial Creditor (Originator) as referred to in Article 2 paragraph (1) letter a, provided that the underlying financial assets or Sharia assets meet the criteria as referred to in Article 3 paragraph (2) and paragraph (3). (2) Banks conducting activities as Initial Creditor (Originator) may only transfer financial assets or Sharia assets to Issuers within the country. (3) Sharia Commercial Banks and Sharia Business Units conducting activities as Initial Creditor (Originator) may only transfer Sharia assets to Issuers within the country conducting business based on Sharia principles. (4) Banks conducting activities as Initial Creditor (Originator) may only transfer financial assets or Sharia assets, provided they meet the following requirements:
a. the transfer of underlying financial assets or Sharia assets from the Initial Creditor (Originator) to the Issuer meets the true sale condition; and b. the Initial Creditor (Originator) is not a related party to the Issuer. (5) Banks conducting activities as Initial Creditor (Originator) must ensure that all conditions of the underlying financial assets or Sharia assets comply with the Asset Securitization agreement. (6) Banks conducting activities as Initial Creditor (Originator) must account for underlying financial assets or Sharia assets that do not meet the requirements as referred to in paragraph (4) in the Risk-Weighted Assets (RWA) calculation, asset quality assessment, and maximum credit granting limit calculations. (7) Banks conducting Asset Securitization activities on home ownership loans or financing must compile Standard Operating Procedures (SOP) for Home Ownership Credit or Financing Administration in conducting Asset Securitization, referring to Appendix III, which is an integral part of this Financial Services Authority Regulation.

Article 5
(1) The true sale condition as referred to in Article 4 paragraph (4) letter a must meet the following requirements:
a. all benefits obtained and/or to be obtained from the underlying financial assets or Sharia assets have been transferred to the Issuer; b. credit risk from the underlying financial assets or Sharia assets has significantly transferred to the Issuer;
c. the Initial Creditor (Originator) does not have direct and/or indirect control over the underlying financial assets or Sharia assets;
d. issued ABS or SABS do not constitute an obligation for the Initial Creditor (Originator); investors only have claim rights against the Issuer regarding the underlying financial assets or Sharia assets; e. the party receiving the underlying financial assets or Sharia assets is the Issuer; f. ABS or SABS owners have the right to pledge or trade ABS or SABS; g. Clean-up Calls may only be conducted if the following requirements are met:

1. the remaining value of underlying financial assets or Sharia assets is at most 10% (ten percent) of the underlying financial assets or Sharia assets;
2. the burden borne by the Bank is greater than the income obtained from servicing the underlying financial assets or Sharia assets;
3. in cases where the Bank also conducts activities as Initial Creditor (Originator) and Credit Enhancement Provider, Clean-up Calls are not used to avoid losses that must be borne by Investors or Initial Creditor (Originator) as Credit Enhancement Provider;
4. Clean-up Calls are at the discretion of the Bank as Initial Creditor (Originator);
5. Clean-up Calls are not formal and/or material obligations of the Bank as Initial Creditor (Originator); and
6. Clean-up Calls are not used as Credit Enhancement;
   h. there are no options or triggers to terminate Asset Securitization except through Clean-up Calls meeting the requirements as referred to in letter g; and
   i. there is an Asset Securitization agreement between the Initial Creditor (Originator) and the Issuer.
   (2) The Asset Securitization agreement between the Initial Creditor (Originator) and the Issuer as referred to in paragraph (1) letter i is prohibited from containing clauses requiring:
   a. the Initial Creditor (Originator) to change the quality of underlying financial assets or Sharia assets to increase the average credit quality of the underlying financial assets or Sharia assets pool; b. the addition of first loss facilities or Credit Enhancement provided by the Bank as Initial Creditor (Originator) after the Asset Securitization transaction has commenced; and
   c. increasing the yield payable to parties other than the Initial Creditor (Originator) in case of a decline in credit quality of the underlying financial assets or Sharia assets pool.
   (3) Compliance with the true sale condition as referred to in paragraph (1) must be supported by an independent legal opinion.
   (4) In cases where the exchange of underlying financial assets or Sharia assets is agreed upon, the agreement must include at least the following requirements:
   a. the asset exchange period is at most 60 (sixty) days from the signing of the financial asset or Sharia asset transfer agreement; and b. the value of financial assets or Sharia assets that can be exchanged is at most 10% (ten percent) of the value of the underlying financial assets or Sharia assets.

Third Section
Banks Conducting Activities as Credit Enhancement Provider

Article 6
(1) Banks conducting activities as Credit Enhancement Provider as referred to in Article 2 paragraph (1) letter b may provide Credit Enhancement facilities in the form of first loss facilities and/or second loss facilities. (2) Banks conducting activities as Credit Enhancement Provider as referred to in paragraph (1) must create an agreement at the start of Asset Securitization activities, which must at least stipulate:
a. the amount of facilities provided; and b. the facility duration.
(3) The amount of Credit Enhancement facilities as referred to in paragraph (2) letter a cannot be changed during the Asset Securitization agreement period.

Article 7
(1) Banks conducting activities as Credit Enhancement Provider must account for Credit Enhancement exposure in the Risk-Weighted Assets (RWA) calculation.
(2) The RWA calculation as referred to in paragraph (1) for Banks conducting activities as Credit Enhancement Provider refers to Appendix I and Appendix II, which are integral parts of this Financial Services Authority Regulation.

Fourth Section
Banks Conducting Activities as Liquidity Facility Provider

Article 8
Banks conducting activities as Liquidity Facility Provider as referred to in Article 2 paragraph (1) letter c must meet the following requirements:
a. creating an agreement at the start of Asset Securitization activities, which must at least stipulate:

1. the amount of Liquidity Facilities provided; and
2. the agreement duration;
   b. stipulating the Liquidity Facility duration at most 90 (ninety) days;
   c. providing facilities that can only be drawn in cases where:
3. underlying financial assets or Sharia assets are performing and valued at least equal to the amount of Liquidity Facility withdrawals; or
4. Credit Enhancement guarantees have been obtained for all underlying financial assets or Sharia assets in cases where the assets do not meet the requirements as referred to in number 1;
   d. the amount of Liquidity Facilities that can be withdrawn by the Issuer is the smallest amount among:
5. the value of performing underlying financial assets or Sharia assets;
6. the value of non-performing underlying financial assets or Sharia assets that have been guaranteed by Credit Enhancement; or
7. the agreed amount;
   e. having the right to receive priority payments over any cash flows from underlying financial assets or Sharia assets compared to Investor rights; f. being used only to address mismatches and directly used to meet payment obligations to Investors; and g. not being withdrawable after all Credit Enhancement has been used.

Article 9
(1) Banks conducting activities as Liquidity Facility Provider must account for Liquidity Facility exposure in the Risk-Weighted Assets (RWA) calculation.
(2) The RWA calculation as referred to in paragraph (1) for Banks conducting activities as Liquidity Facility Provider refers to Appendix I and Appendix II, which are integral parts of this Financial Services Authority Regulation.

Fifth Section
Banks Conducting Activities as Servicer

Article 10
(1) Banks conducting activities as Servicer as referred to in Article 2 paragraph (1) letter d must meet at least the following requirements:
a. creating an agreement at the start of Asset Securitization activities; and b. having adequate administrative systems.
(2) Banks as Servicers may conduct Clean-up Calls.
(3) Clean-up Calls as referred to in paragraph (2) may only be conducted if the requirements as referred to in Article 5 paragraph (1) letter g are met.

Sixth Section
Banks Conducting Activities as Investors

Article 11
(1) Banks conducting activities as Investors as referred to in Article 2 paragraph (1) letter e may hold ABS or SABS through:
a. cash purchases; or b. exchanges with underlying financial assets or Sharia assets.
(2) Banks may hold ABS or SABS through exchanges with underlying financial assets or Sharia assets as referred to in paragraph (1) letter b, provided the Bank also conducts activities as Initial Creditor (Originator). (3) ABS or SABS held by Banks are treated as fund provision and must be accounted for in Risk-Weighted Assets (RWA). (4) The RWA calculation as referred to in paragraph (3) for fund provision refers to Appendix I and Appendix II, which are integral parts of this Financial Services Authority Regulation.

Seventh Section
Banks Conducting Activities as Custodian Banks

Article 12
(1) Banks conducting activities as Custodian Banks as referred to in Article 2 paragraph (1) letter f must conduct Custodian Bank activities in accordance with applicable laws and regulations.
(2) Banks conducting activities as Initial Creditor (Originator) and/or Servicers are prohibited from conducting activities as Custodian Banks for the same transactions.

CHAPTER III
MAXIMUM FACILITY LIMITS

Article 13
(1) The maximum amount of facilities that may be provided by Banks also conducting activities as Initial Creditor (Originator) in the form of:
a. Credit Enhancement; b. Liquidity Facilities; or
c. purchases of ABS or SABS,
shall each be 10% (ten percent) of the value of the underlying financial assets or Sharia assets.
(2) Banks as Initial Creditor (Originator) also conducting activities as Credit Enhancement Provider, Liquidity Facility Provider, and Investors may only provide all facilities in Asset Securitization at most 20% (twenty percent) of the value of the underlying financial assets or Sharia assets.

CHAPTER IV
REPORTING

Article 14
(1) Banks conducting activities as Initial Creditor (Originator) as referred to in Article 2 paragraph (1) letter a must submit:
a. reports on plans to transfer financial assets or Sharia assets in Asset Securitization activities comprehensively at most 60 (sixty) days before the asset transfer agreement is signed; and b. reports on the implementation of financial asset or Sharia asset transfers in Asset Securitization activities comprehensively at most 7 (seven) working days after the asset transfer agreement is signed. (2) Banks conducting activities as Credit Enhancement Provider, Liquidity Facility Provider, Servicer, and/or Custodian Banks as referred to in Article 2 paragraph (1) letters b, c, d, and f must submit reports on activity implementation at most 7 (seven) working days after the agreement is signed. (3) Reports as referred to in paragraph (1) and/or paragraph (2) must be supported by data and information related to Asset Securitization activities. (4) In cases where Banks conduct more than 1 (one) activity in Asset Securitization, Banks must submit reports on all activities as a single entity.

Article 15
(1) The report on the plan for the transfer of financial assets or Sharia assets in Asset Securitization activities by Banks as the Initial Creditor (Originator) as referred to in Article 14 paragraph (1) letter a must contain at least:
a. general information regarding:

1. the purpose of transferring financial assets or Sharia assets linked to the Bank's strategic plan and the plan for the use of funds obtained;
2. the type and book value of the underlying financial assets or Sharia assets, the appraisal results, and the estimated proceeds from the transfer of financial assets or Sharia assets;
3. the rating agency that will conduct the EBA or EBAS rating and the estimated rating results, if available;
4. the estimated value of the EBA or EBAS to be issued;
5. the concept of the Asset Securitization agreement;
6. information on other activities in Asset Securitization to be carried out by the Initial Creditor (Originator), including activities as a Service Provider (Servicer);
7. information on other parties that will carry out other activities in Asset Securitization; and
8. compliance with Sharia principles for general Sharia banks and Sharia business units;
   b. information on the prospective Issuer containing at least:
9. the name and legal form of the Issuer;
10. the ownership structure and management, including owners and/or investment manager managers and Custodian Banks, in the event the Issuer is a Collective Investment Contract (KIK)-EBA or KIK-EBAS; and
11. the articles of association or agreement between the investment manager and the Custodian Bank, in the event the Issuer is a KIK-EBA or KIK-EBAS;
    c. information on the calculation of the Minimum Capital Requirement (KPMM) ratio for the Initial Creditor (Originator) for several conditions containing at least:
12. the KPMM ratio at the end of the month before the financial assets or Sharia assets are transferred;
13. the simulation of the KPMM ratio after the financial assets or Sharia assets are transferred; and
14. the simulation of the KPMM ratio after the provision of all facilities in Asset Securitization activities, in the event the Bank carries out activities other than as an Initial Creditor (Originator);
    d. risk management information containing an analysis of the impact of the transfer of financial assets or Sharia assets as well as the implementation of other activities in Asset Securitization on the Initial Creditor (Originator)'s risk profile; and e. other supporting documents deemed necessary. (2) The report on the implementation of the transfer of financial assets or Sharia assets in Asset Securitization activities by Banks as the Initial Creditor (Originator) as referred to in Article 14 paragraph (1) letter b contains at least:
    a. general information regarding the realization of the transfer of financial assets or Sharia assets compared to the plan previously reported; b. information and new documents regarding changes to each type of information submitted in the report on the plan for the transfer of financial assets or Sharia assets as referred to in paragraph (1);
    c. information on the payment method for the underlying financial assets or Sharia assets;
    d. information on the calculation of the KPMM ratio for the Initial Creditor (Originator) for several conditions, namely:
15. before the financial assets or Sharia assets are transferred at the end of the month before the agreement is signed;
16. after the financial assets or Sharia assets are transferred at the end of the month before the agreement is signed, taking into account capital changes and Risk-Weighted Assets (ATMR) resulting from the transfer of financial assets or Sharia assets; and
17. after the provision of all facilities in Asset Securitization activities at the end of the month before the agreement is signed, taking into account:
    a) capital changes and ATMR resulting from the transfer of financial assets or Sharia assets; and b) capital changes and ATMR resulting from the provision of all facilities, in the event the Bank provides facilities in Asset Securitization activities; e. a summary of opinions from independent legal counsel; f. copies of Asset Securitization agreements including:
18. the transfer of financial assets or Sharia assets between the Bank as the Initial Creditor (Originator) and the Issuer;
19. other activities in Asset Securitization between the Bank as the Initial Creditor (Originator) and the Issuer; and/or
20. other activities in Asset Securitization by parties that are not the Initial Creditor (Originator);
    g. reports or other documents submitted by the Bank that issues products and carries out new activities as referred to in Financial Services Authority Regulations regarding business activities and office networks based on core bank capital and Financial Services Authority Regulations regarding products and activities of Sharia banks and Sharia business units, in the event the Initial Creditor (Originator) carries out other activities in Asset Securitization; and h. information on compliance with Sharia principles for general Sharia banks and Sharia business units. (3) The report by Banks as Credit Enhancement Providers, Liquidity Facility Providers, Service Providers (Servicer), or Custodian Banks as referred to in Article 14 paragraph (2) contains at least:
    a. general information regarding:
21. the type, amount, and duration of facilities provided;
22. copies of facility agreements; and
23. information on the readiness of the Bank's administrative system to perform the functions of Service Provider (Servicer) or Custodian Bank;
    b. information on the calculation of the Bank's KPMM ratio after providing facilities at the end of the month before the agreement signing date;
    c. information on the analysis of the impact of providing facilities on the Bank's risk profile;
    d. information and/or other supporting documents deemed necessary; and e. information on compliance with Sharia principles for general Sharia banks and Sharia business units.
    (4) The report by Banks as Service Providers (Servicer) conducting a Clean-up Call contains the information referred to in paragraph (3) as well as additional information containing at least:
    a. reasons for conducting a Clean-up Call; b. the remaining book value of financial assets or Sharia assets repurchased and the percentage against the value of the underlying financial assets or Sharia assets; and
    c. details of costs and income from the implementation of Service Provider (Servicer) activities for the last 3 (three) months;
    d. details of cash flows from the remaining financial assets or Sharia assets repurchased for the last 3 (three) months; and e. remaining Credit Enhancement facilities, in the event the Bank also carries out activities as a Credit Enhancement Provider.

Article 16
(1) Banks are required to report the calculation of Risk-Weighted Assets (ATMR) for securitization exposures.
(2) The reports as referred to in paragraph (1) are:
a. reports on the calculation of ATMR for securitization exposures for Banks individually submitted every month for the end-of-month position; and b. reports on the calculation of ATMR for securitization exposures for Banks consolidated submitted every quarter for the end-of-month position of March, June, September, and December, for Banks that have subsidiary companies. (3) Reports on the calculation of ATMR for securitization exposures as referred to in paragraph (1) are submitted to the Financial Services Authority online through the Financial Services Authority reporting system. (4) In the event that online reporting to the Financial Services Authority cannot yet be carried out, reports are submitted offline. (5) The deadline for submitting reports as referred to in paragraph (1) offline is established as follows:
a. reports on the calculation of ATMR for securitization exposures for Banks individually submitted no later than the 6th (sixth) day of the following month; and b. reports on the calculation of ATMR for securitization exposures for Banks consolidated submitted no later than the 21st (twenty-first) day of the following month. (6) In the event that the submission deadline falls on a Saturday, Sunday, and/or national holiday, reports are submitted on the following working day. (7) For general Sharia banks, the procedure for submitting reports on the calculation of ATMR for securitization exposures offline as referred to in paragraph (4) and the submission deadline for reports offline as referred to in paragraph (5) refers to Financial Services Authority Regulations regarding the minimum capital provision obligations of general Sharia banks. (8) In the event that the Financial Services Authority reporting system is available, reports on the calculation of ATMR for securitization exposures as referred to in paragraph (3) are submitted in accordance with Financial Services Authority Regulations regarding periodic reports of general banks. (9) Reports on the calculation of ATMR for securitization exposures as referred to in paragraph (1) are submitted starting from the April 2019 month position.

Article 17
Reports as referred to in Article 14 paragraph (1) and paragraph (2), and Article 16 paragraph (1) and paragraph (5) are submitted to the Financial Services Authority, at the address:
a. the supervision department of the relevant Bank or the Financial Services Authority regional office in Jakarta for Banks that have their headquarters or branch offices of banks located outside the country located in the Special Capital Region of Jakarta Province; or b. the Financial Services Authority regional office or local Financial Services Authority office according to the area where the Bank's headquarters is located, for Banks that have their headquarters outside the Special Capital Region of Jakarta Province.

CHAPTER V
SANCTIONS

Article 18
Banks that do not fulfill the provisions as referred to in Article 2 paragraph (5), Article 2 paragraph (6), Article 2 paragraph (7), Article 2 paragraph (8), Article 3 paragraph (2), Article 3 paragraph (3), Article 4 paragraph (5), Article 4 paragraph (6), Article 4 paragraph (7), Article 5 paragraph (3), Article 6 paragraph (2), Article 7 paragraph (1), Article 8, Article 9 paragraph (1), Article 10 paragraph (1), Article 11 paragraph (3), Article 12, Article 14, Article 15 paragraph (1), and/or Article 16 paragraph (1) are subject to administrative sanctions in the form of:
a. written reprimand; b. prohibition on expanding business activities;
c. suspension of certain business activities;
d. prohibition on opening office networks; e. downgrade of the Bank's health level; and/or f. listing of Bank management and/or shareholders in the list of persons prohibited from becoming shareholders and management of Banks in accordance with Financial Services Authority Regulations regarding the re-evaluation of key parties of financial service institutions.

Article 19
(1) In addition to administrative sanctions as referred to in Article 18, Banks that are late in submitting reports as referred to in Article 14 and/or Article 16 paragraph (1) are subject to administrative sanctions in the form of fines of Rp1,000,000.00 (one million rupiah) per working day of delay or a maximum of Rp50,000,000.00 (fifty million rupiah). (2) In addition to administrative sanctions as referred to in Article 18, general Sharia banks that:
a. are late in submitting reports as referred to in Article 14 are subject to administrative sanctions in the form of fines of Rp1,000,000.00 (one million rupiah) per working day of delay or a maximum of Rp50,000,000.00 (fifty million rupiah); and b. are late in submitting reports as referred to in Article 16 paragraph (1) are subject to administrative sanctions in the form of fines as regulated in Financial Services Authority Regulations regarding the minimum capital provision obligations of general Sharia banks.

CHAPTER VI
TRANSITIONAL PROVISIONS

Article 20
(1) Until the reporting of the March 2019 position, the calculation of Risk-Weighted Assets (ATMR) for securitization exposures refers to:
a. Bank Indonesia Regulation Number 7/4/PBI/2005 regarding Prudential Principles in Asset Securitization Activities; b. Bank Indonesia Circular Letter Number 7/51/DPNP regarding Prudential Principles in Asset Securitization Activities;
c. Financial Services Authority Circular Letter Number 34/SEOJK.03/2015 regarding Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach for General Sharia Banks; and
d. Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 regarding Guidelines for Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach.
(2) Starting from the April 2019 month position, the calculation of Risk-Weighted Assets (ATMR) for securitization exposures refers to this Financial Services Authority Regulation.
(3) Starting from the April 2019 month position, reports on the calculation of ATMR for securitization exposures previously reported through the General Bank Periodic Report (LBBU) are to be reported offline as referred to in Article 16.

Article 21
With the implementation of this Financial Services Authority Regulation:
a. The following Regulations:

1. Bank Indonesia Regulation Number 7/4/PBI/2005 regarding Prudential Principles in Asset Securitization Activities (State Gazette of the Republic of Indonesia Year 2005 Number 14, Supplement to the State Gazette of the Republic of Indonesia Number 4473);
2. Bank Indonesia Circular Letter Number 7/51/DPNP regarding Prudential Principles in Asset Securitization Activities;
3. Table 5 Securitization Exposures in Form A and Form C Appendix I of Financial Services Authority Circular Letter Number 34/SEOJK.03/2015 regarding Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach for General Sharia Banks;
4. Table 4 Securitization Exposures Not Covered by Regulations on Asset Securitization in Form B Appendix I of Financial Services Authority Circular Letter Number 34/SEOJK.03/2015 regarding Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach for General Sharia Banks;
5. Table 5 Securitization Exposures in Form I.A, Form I.C, Form II.A, and Form II.C Appendix III of Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 regarding Guidelines for Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach; and
6. Table 4 Securitization Exposures Not Covered by Regulations on Prudential Principles in Asset Securitization Activities for General Banks in Form I.B and Form II.B Appendix III of Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 regarding Guidelines for Risk-Weighted Asset Calculations for Credit Risk Using the Standard Approach,
   are revoked and declared invalid as of April 1, 2019. b. The following Regulations:
7. Bank Indonesia Circular Letter Number 12/38/DPNP regarding Guidelines for the Preparation of Standard Operating Procedures (SOP) for Home Ownership Credit Administration in the Context of Securitization;
8. Item 1 letter g regarding the scope of products and activities of General Sharia Banks and Sharia Business Units Based on Business Activity Groups related to Asset Securitization Appendix III of Financial Services Authority Circular Letter Number 36/SEOJK.03/2015 regarding Products and Activities of General Sharia Banks and Sharia Business Units; and
9. Item 3 letter e regarding the scope of products and activities based on BUKU related to Asset Securitization Appendix II of Financial Services Authority Circular Letter Number 27/SEOJK.03/2016 regarding Business Activities of General Banks based on Core Capital,
   are revoked and declared invalid as of the date this Financial Services Authority Regulation is promulgated.

CHAPTER VII
FINAL PROVISIONS

Article 22
This Financial Services Authority Regulation takes effect as of the date of its promulgation.

A copy of this is consistent with the original Legal Director 1 Legal Department signed Yuliana

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

Established in Jakarta on March 27, 2019
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on March 28, 2019
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2019 NUMBER 61

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 11 /POJK.03/2019
REGARDING
PRUDENTIAL PRINCIPLES IN ASSET SECURITIZATION ACTIVITIES FOR GENERAL BANKS

I. GENERAL
One alternative source of funding for Banks is by conducting Asset Securitization activities, which are activities transferring financial assets or Sharia assets from the Initial Creditor (Originator) to other parties. Through Asset Securitization, Banks can increase liquidity to support intermediation activities. The existence of EBA and EBAS, which are products of Asset Securitization activities, is important given that these products can become investment alternatives for deepening the financial market in Indonesia. However, Banks must still pay attention to prudential principles in conducting Asset Securitization activities, whether when acting as Initial Creditor (Originator), Credit Enhancement Provider, Liquidity Facility Provider, Service Provider (Servicer), Investor, and/or Custodian Bank, so that the Bank's capital conditions remain maintained. One of the prudential principles that must be applied in accordance with Indonesia's commitment as a G-20 member is "Basel III: Revisions to the Securitisation Framework." In light of these matters, it is necessary to establish regulations regarding Prudential Principles in Asset Securitization Activities for General Banks.

II. ARTICLE BY ARTICLE
Article 1
Sufficiently clear.
Article 2
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Sufficiently clear.
Paragraph (3)
Sufficiently clear.
Paragraph (4)
Sufficiently clear.
Paragraph (5)
Compliance with requirements applies to Banks both those conducting only 1 (one) specific activity in Asset Securitization activities and those conducting several activities in Asset Securitization activities simultaneously, for example, Banks as Initial Creditor (Originator) also becoming Credit Enhancement Providers and Liquidity Facility Providers. Banks must ensure that requirements can be met, both during planning and during the implementation of these activities. In the event that Banks estimate that the implementation of these activities will result in requirements not being met, Banks must cancel the implementation of the said activities. Regulatory provisions regarding prudential principles include, among others, assessments of the quality of general bank assets, assessments of the quality of Sharia bank and Sharia business unit assets, maximum limits for granting credit to general banks, principles of healthy credit or financing granting, and the application of risk management. Paragraph (6) What is meant by "Sharia principles" is Islamic law principles in Sharia banking activities based on fatwas issued by institutions having authority in issuing fatwas in the field of Sharia. Fatwas related to the implementation of Asset Securitization include, among others:
a. DSN-MUI Fatwa Number 120/DSN-MUI/II/2018 regarding Asset-Backed Securities Based on Sharia Principles; and b. DSN-MUI Fatwa Number 121/DSN-MUI/II/2018 regarding Asset-Backed Securities in the Form of Participation Certificates (EBA-SP) Based on Sharia Principles. Paragraph (7) Sufficiently clear. Paragraph (8) Asset Securitization agreements include, among others, agreements for the transfer of financial assets or Sharia assets from the Initial Creditor (Originator) to the Issuer.
Article 3
Paragraph (1)
Sufficiently clear.
Paragraph (2)
Letter a
Financial assets or Sharia assets from agreements that have matured and/or have been written off are assessed as not meeting the criteria of having cash flows.
Letter b
Included in the meaning of owned and under the control of the Initial Creditor (Originator) includes, among others, receivables arising in the future (future receivables) such as credit card or financing card (sharia card) receivables. Letter c Can be freely transferred, for example, because it has obtained debtor approval at the beginning of the agreement or has been notified to the debtor. Paragraph (3) Sharia principles, namely Islamic law principles in Sharia banking activities based on fatwas issued by institutions having authority in issuing fatwas in the field of Sharia. Based on the National Sharia Council–Indonesian Ulema Council (DSN-MUI) Fatwa Number 120/DSN-MUI/II/2018 regarding Asset-Backed Securities Based on Sharia Principles, Asset Securitization may only be conducted on Sharia Assets in the Form of Non-Debt (ASBBD).
Article 4
Paragraph (1)
Sufficiently clear.
Paragraph (2)
The form of Issuers within Indonesia that has been regulated in Indonesian regulatory provisions includes, among others, KIK-EBA or KIK-EBAS, namely Collective Investment Contracts conducted between investment managers and Custodian Banks, and EBA-SP or EBAS-SP. Paragraph (3) Issuers conducting business activities based on Sharia principles, including Issuers having Sharia business units, with activities as Issuers are conducted by Sharia business units. Paragraph (4) Letter a Sufficiently clear. Letter b In the event that Issuers are in the form of KIK-EBA or KIK-EBAS, what is meant by Issuer is the investment manager in accordance with regulatory provisions. Related parties are related parties as referred to in regulatory provisions regarding maximum limits for granting credit to general banks. Paragraph (5) Conditions of underlying financial assets or Sharia assets in accordance with agreements, including the completeness and validity of documents. Paragraph (6) Recalculation of credit risk for underlying financial assets or Sharia assets in accordance with regulatory provisions, including Financial Services Authority Regulations regarding minimum capital provision obligations, Financial Services Authority Regulations regarding assessments of the quality of Sharia bank and Sharia business unit assets, regulatory provisions regarding assessments of the quality of general bank assets, and regulatory provisions regarding maximum limits for granting credit to general banks. Paragraph (7) Sufficiently clear.
Article 5
Paragraph (1)
Letter a
Included in the meaning of benefits are rights to cash flows from financial assets or Sharia assets.
In the event that the Initial Creditor (Originator) as a Service Provider (Servicer) still receives cash flows from underlying financial assets or Sharia assets, the Initial Creditor (Originator) only passes through (passthrough) these cash flows to the Issuer or other parties designated by the Issuer. Letter b Significant transfer of credit risk is assessed, among others, in the event:

1. The Initial Creditor (Originator) provides Credit Enhancement, Liquidity Facilities, and/or conducts activities as an Investor does not exceed 20% (twenty percent) of the value of underlying financial assets or Sharia assets;
2. payments received by the Initial Creditor (Originator) for underlying financial assets or Sharia assets from the Issuer do not originate from

facilities provided by the Initial Creditor (Originator), whether directly or indirectly; and/or
3. The Initial Creditor (Originator) conducting activities as an Investor in EBA or EBAS does not exceed 10% (ten percent) of the value of the underlying financial assets or Sharia assets.
Letter c
The underlying financial assets or Sharia assets must be legally separable, including in the event of bankruptcy, from general creditors in bankruptcy as well as from the transferring party. Legal separation can be achieved, among other ways, through the sale of underlying financial assets or Sharia assets. Direct and/or indirect control can be assessed based on:

1. the ability to use and/or pledge the underlying financial assets or Sharia assets;
2. the presence or absence of requirements and/or agreements that hinder the transfer, use, and/or pledge of the underlying financial assets or Sharia assets, such as the existence of a call option or an agreement to repurchase the underlying financial assets or Sharia assets;
3. the Bank as the Initial Creditor (Originator) is permitted to repurchase the underlying financial assets or Sharia assets to take advantage of the assets;
4. the Bank as the Initial Creditor (Originator) remains responsible for the credit risk of the underlying financial assets or Sharia assets.
   Letter d
   Clearly stated.
   Letter e
   Clearly stated.

Letter f
Clearly stated.
Letter g
In the event that a Clean-up Call does not meet the requirements, the Bank must calculate the Additional Total Risk-Based Capital (ATMR) for credit risk on the underlying financial assets or Sharia assets. Number 1 Clearly stated. Number 2 Clearly stated. Number 3 Clearly stated. Number 4 Clearly stated. Number 5 Clearly stated. Number 6 A Clean-up Call that substantively constitutes one form of Credit Enhancement is considered implicit support. Banks providing implicit support must calculate the ATMR on all underlying financial assets or Sharia assets at the same magnitude as if the Bank held all underlying financial assets or Sharia assets. Furthermore, the Bank must disclose (disclosure) that it provides implicit support related to Asset Securitization, which impacts the Bank's capital. Letter h The existence of a clause to terminate Asset Securitization, including due to specific changes in tax and regulatory provisions, and/or an early amortization clause.

Letter i
Clearly stated.
Paragraph (2)
Letter a
Clearly stated.
Letter b
Clearly stated.
Letter c
Parties other than the Initial Creditor (Originator), including Investors or third parties providing Credit Enhancement.
Paragraph (3)
An independent legal opinion, namely an opinion from a legal consultant registered with the Financial Services Authority (OJK).
Paragraph (4)
The exchange of underlying financial assets or Sharia assets can only be requested by the Issuer for assets or Sharia assets whose conditions are known to be different from those agreed upon.
Article 6
Paragraph (1)
First loss facility, i.e., the primary Credit Enhancement facility that covers part or all of the credit risk of the underlying financial assets or Sharia assets forming the basis for the issuance of EBA or EBAS. For Banks conducting activities as providers of first loss facilities, attention must be paid to, among other things:
a. the type and quality of the underlying financial assets or Sharia assets; and b. the estimated losses that may arise from the underlying financial assets or Sharia assets.
Second loss facility, i.e., Credit Enhancement that covers part or all of the remaining credit risk not covered by the first loss facility. For Banks conducting activities as providers of second loss facilities, in addition to paying attention to these matters, it is necessary to analyze the credibility of the party providing the first loss facility. The second loss facility is provided after the first loss facility is available. Credit Enhancement can be in the form of:
a. guarantees, i.e., guarantee facilities provided by third parties to cover losses from credit risk on the underlying financial assets or Sharia assets up to a certain value or percentage; b. collateral in the form of cash (cash collateral), i.e., cash collateral that can be drawn to cover shortfalls in payments to Investors, which can originate from the Initial Creditor (Originator) or third parties;
c. overcollateralization, i.e., facilities provided by the Initial Creditor (Originator) in the form of excess value of the underlying financial assets or Sharia assets, equal to the difference between the value of the underlying financial assets or Sharia assets and payments received by the Initial Creditor (Originator) from the issuance of EBA or EBAS without considering profits or losses from the transfer of underlying financial assets or Sharia assets;
d. purchase of junior tranche, i.e., the purchase of subordination of EBA or EBAS classes, which can be done by the Initial Creditor (Originator) or third parties, which can only be done after payments to holders of EBA or EBAS with higher seniority classes are fulfilled; and/or e. other facility forms aimed at improving the quality of underlying financial assets or Sharia assets. Paragraph (2) Clearly stated. Paragraph (3) Clearly stated.

Article 7
Clearly stated.
Article 8
Letter a
Clearly stated.
Letter b
Clearly stated.
Letter c
Clearly stated.
Letter d
Clearly stated.
Letter e
Given that Liquidity Facilities are advances for payments to Investors, providers of Liquidity Facilities have the right to receive payments first compared to Investors from the settlement of each cash flow from the underlying financial assets or Sharia assets. Letter f Clearly stated. Letter g Clearly stated.
Article 9
Clearly stated.
Article 10
Paragraph (1)
Letter a
Clearly stated.
Letter b
An adequate administrative system, i.e., a system that has the ability, among other things, to:
a. identify underlying financial assets or Sharia assets and collateral transferred by the Initial Creditor (Originator) and other assets owned by the Service Provider (Servicer); b. separate cash flow receipts from underlying financial assets or Sharia assets from other receipts of the Service Provider (Servicer);
c. provide information on the amount and duration of principal arrears and/or interest/yield/coupon arrears from the cash flow of underlying financial assets or Sharia assets.
Paragraph (2)
Clearly stated.
Paragraph (3)
Clearly stated.
Article 11
Paragraph (1)
EBAs or EBAS purchased by Banks can be EBAs or EBAS issued by Issuers within the country or abroad.
Letter a
Cash purchases can be made through cash payments, clearing, book transfers, or other payment facilities.
Letter b
Clearly stated.
Paragraph (2)
The amount of EBAs or EBAS owned by Banks as Investors who also conduct activities as Initial Creditors (Originators) through exchanges with underlying financial assets or Sharia assets becomes part of the calculation in:
a. the maximum limit of EBAs or EBAS that can be purchased, which is 10% (ten percent) of the value of the underlying financial assets or Sharia assets; and b. the maximum limit of all facilities in Asset Securitization activities, which is 20% (twenty percent) of the value of the underlying financial assets or Sharia assets. Paragraph (3) EBAs or EBAS owned by Banks as fund providers are treated in accordance with applicable regulations, including regarding the assessment of the quality of general bank assets, the assessment of the quality of general Sharia bank assets and Sharia business units, and the maximum limit for granting credit to general banks. In assessing risks that may arise from fund investments, Banks as Investors in EBAs or EBAS must study information related to Asset Securitization activities from the prospectus and other sources, including:
a. the structure of Asset Securitization activities; b. the type, value, and quality of underlying financial assets or Sharia assets in the event that EBAs or EBAS do not have a rating;
c. information on all available facilities, including information on the possibility of payment failure to Investors;
d. the characteristics, rating, and amount of EBAs or EBAS issued; and e. other important information, including the fulfillment of conditions for the sale of underlying financial assets or Sharia assets, and costs borne by Investors, including costs to Service Providers (Servicers). Paragraph (4) Clearly stated.
Article 12
Paragraph (1)
Applicable regulations regarding Custodian Banks include Financial Services Authority Regulations governing custodian banks and Financial Services Authority Regulations governing business activities and office networks based on core capital.

Paragraph (2)
The prohibition on conducting activities as a Custodian Bank while conducting activities as an Initial Creditor (Originator) and/or Service Provider (Servicer) is intended to avoid conflicts of interest.
Article 13
Paragraph (1)
Included in the maximum limit for providing facilities is a Clean-up Call that does not meet the requirements and is therefore treated as a Credit Enhancement Provider.
Paragraph (2)
Clearly stated.
Article 14
Paragraph (1)
Included in this report are reports on other activities in Asset Securitization by the Initial Creditor (Originator) or parties providing facilities in Asset Securitization activities, such as Credit Enhancement Providers and Liquidity Facility Providers. Letter a Day means calendar day. Letter b Clearly stated. Paragraph (2) Included in the report as a provider of Credit Enhancement is the purchase of EBAs or EBAS in the form of junior tranches by the Initial Creditor (Originator) in the secondary market. Included in the report as a Service Provider (Servicer) is the implementation of a Clean-up Call. Paragraph (3) Clearly stated. Paragraph (4) Clearly stated.

Article 15
Clearly stated.
Article 16
Paragraph (1)
Clearly stated.
Paragraph (2)
Clearly stated.
Paragraph (3)
Clearly stated.
Paragraph (4)
Reports on the calculation of ATMR for offline securitization exposures must contain at least the following information: Bank name, reporting period, total ATMR for Asset Securitization exposures, and capital reduction factors related to Asset Securitization exposures, in the following format:
Bank Name :
Reporting Period :
ATMR for Asset Securitization Exposures
Rp … (in millions)
Capital Reduction Factors related to
Asset Securitization Exposures
Rp … (in millions)
Paragraph (5)
Clearly stated.
Paragraph (6)
Clearly stated.
Paragraph (7)
Reports on the calculation of ATMR for securitization exposures are part of the KPMM calculation reports as referred to in Financial Services Authority Regulations governing the minimum capital provision requirements for general Sharia banks. Paragraph (8) Clearly stated. Paragraph (9) Clearly stated.

Article 17
Clearly stated.
Article 18
Clearly stated.
Article 19
Clearly stated.
Article 20
Clearly stated.
Article 21
Clearly stated.
Article 22
Clearly stated.
SUPPLEMENT TO THE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6329

APPENDIX I
FINANCIAL SERVICES AUTHORITY REGULATION
OF THE REPUBLIC OF INDONESIA
NUMBER 11 /POJK.03/2019
REGARDING
PRUDENTIAL PRINCIPLES IN ASSET SECURITIZATION ACTIVITIES FOR GENERAL BANKS GUIDELINES FOR CALCULATING ATMR FOR SECURITIZATION EXPOSURES A. Several Terms in the Calculation of ATMR for Securitization Exposures

1. Traditional Securitization
   Traditional securitization is the issuance of securities by an EBA or EBAS Issuer based on the transfer of underlying financial assets or Sharia assets from the Initial Creditor (Originator), with cash flows from the collection of underlying financial assets or Sharia assets used to fulfill obligations for at least 2 (two) risk positions with different classes (tranches) and reflecting different levels of credit risk. Payments to Investors depend on the performance of the underlying financial assets or Sharia assets, and such payments are not the obligation of the Initial Creditor (Originator). Class (tranche) division in securitization differs from the seniority or subordination levels in ordinary debt instruments. Junior classes (tranches) in securitization can absorb losses without affecting contractual payments to higher seniority classes (tranches). Meanwhile, in ordinary debt instruments, subordination in a senior or subordinated debt structure reflects the priority of claims in the liquidation process.

2. Synthetic Securitization
   Synthetic securitization is an asset securitization structure consisting of at least 2 (two) classes (tranches) with stratified risk positions reflecting different levels of credit risk, where all or part of the credit risk of the underlying asset group or exposure is transferred through the use of instruments to mitigate credit risk, such as guarantees or credit derivatives used to protect against credit risk from portfolios of underlying financial assets or Sharia assets. Thus, the risks faced by Investors depend on the performance of the underlying financial assets or Sharia assets. Banks conducting synthetic securitization must still calculate the underlying financial assets or Sharia assets in the ATMR calculation for credit risk, and Banks are not permitted to subtract ATMR values using credit risk mitigation techniques used in synthetic securitization.

3. Asset Backed Commercial Paper
   Asset Backed Commercial Paper (ABCP) is a commercial paper with a maximum term of 1 (one) year, guaranteed by a collection of assets or exposures owned by a special purpose entity, which is not included in the bankruptcy estate, in the event that the Initial Creditor (Originator) goes bankrupt.

4. Credit-enhancing Interest-only Strip
   Credit-enhancing Interest-only Strip is an asset representing the valuation of cash flows from future margin income, which is subordinated.

5. Early Amortization
   a. Early amortization is a mechanism in Asset Securitization with underlying financial assets or Sharia assets in the form of revolving credit facilities or financing, allowing Investors to be settled or paid off faster before the EBA or EBAS matures, thereby reducing the Investor's claim (investor interest) on the underlying financial assets or Sharia assets.

Asset Securitization with underlying financial assets or Sharia assets in the form of revolving credit facilities or financing is Asset Securitization where part or all of the underlying financial assets or Sharia assets are facilities with outstanding balances or facility withdrawals in the future (future draw) on revolving credit or financing. Examples of revolving credit or financing are credit card receivables or financing cards (sharia card) and working capital credit or financing. b. Asset Securitization agreements with early amortization mechanisms are considered not to meet the sale criteria, in the event they meet the following characteristics:

1. The Bank as the Initial Creditor (Originator) transfers ownership or credit risk of a collection of financial assets or Sharia assets that consist wholly or partly of revolving credit facilities or financing; and
2. there is an early amortization clause in the securitization transaction that causes:
   a) the Bank's claim as the Initial Creditor (Originator) against the collection of underlying financial assets or Sharia assets, which was originally senior or equal to Investors, to become subordinated; b) the Bank's claim against the collection of underlying financial assets or Sharia assets, which was originally subordinated to Investors, to become more subordinated to other parties; or c) increasing the Bank's exposure to losses related to revolving credit facilities or financing that are underlying financial assets or Sharia assets from the Asset Securitization transaction.

The Bank as the Initial Creditor (Originator) can exclude collections of underlying financial assets or Sharia assets that have been transferred to the Issuer from the ATMR calculation even if there is an early amortization clause, provided that the sale criteria as referred to in Article 5 are met and the Asset Securitization transaction meets one of the following requirements:

1. replenishment structures with underlying exposures that are not revolving credit facilities or financing, and early amortization that causes the Bank to be unable to add underlying exposures in the Asset Securitization transaction. A replenishment structure is an Asset Securitization structure where, if the underlying financial assets or Sharia assets deteriorate in quality or are settled, the Bank as the Initial Creditor (Originator) will replace or add underlying financial assets or Sharia assets;
2. early amortization in Asset Securitization with collections of underlying financial assets or Sharia assets in the form of revolving credit facilities or financing is conducted: (i) resembling term structures; and (ii) early amortization does not cause the Bank's claim as the Initial Creditor (Originator) to become subordinated;
3. Asset Securitization of revolving credit facilities or financing with a structure that causes Investors to remain exposed to potential future drawdowns by debtors even after early amortization has been conducted; or
   the trigger for early amortization in the Asset Securitization agreement is not based on the performance of the collection of underlying financial assets or Sharia assets or the performance of the Bank as the Initial Creditor (Originator).

6. Future Margin Income
   Future margin income or excess spread is the gross finance charge collection and other income received by the Issuer after deducting, among other things, interest costs, service fees, or other costs related to the Issuer.
7. Implicit Support
   Implicit support is a facility provided by the Bank related to Asset Securitization, but the facility exceeds what is written contractually in the relevant Asset Securitization agreement documents.
8. Senior Class (Tranche)
   Senior class (tranche) is the class (tranche) that is guaranteed or receives the first claim rights against the entire collection of underlying financial assets or Sharia assets in Asset Securitization. In practice, it is possible to have claims more senior than the senior class (tranche) in an EBA or EBAS, such as swap claims, but for capital calculation purposes, such classes (tranches) are still considered senior classes (tranches). In the event that an EBA or EBAS consists of several senior classes (tranches) with different terms but contractually will bear losses pro rata in the event of losses, all such classes (tranches) are still categorized as senior classes (tranches), considering that all such classes (tranches) will receive the same amount of Credit Enhancement facilities. The difference in terms will not affect the seniority of a class (tranche) but will affect the magnitude of the risk weight in the ATMR calculation. Example:
   An EBA or EBAS consists of 2 (two) senior classes (tranches), namely “Tranche A” and “Tranche B”, with different terms.
   In the event that “Tranche A” contractually has the right to receive cash flows first, only “Tranche A” can be categorized as a senior class (tranche). However, in the event that the difference in rating between “Tranche A” and “Tranche B” is solely due to the difference in terms, both classes (tranches) can be categorized as senior classes (tranches).
9. Special Purpose Entity
   Special Purpose Entity (SPE) is a corporation, trust, or other entity established for specific purposes and having only limited activities to achieve the specific purpose. The SPE structure is designed such that the SPE is isolated from the credit risk of the Initial Creditor (Originator) or the party transferring the exposure. SPEs are generally used as a financing vehicle, i.e., the Initial Creditor (Originator) sells financial assets or Sharia assets to the SPE, which will then issue securities linked to the financial assets or Sharia assets.
10. Attachment Point (A) and Detachment Point (D)
    a. Attachment Point (A) is the threshold with the magnitude of losses occurring in the collection of underlying financial assets or Sharia assets starting to be allocated to a class (tranche). The Attachment Point (A) has a value between 0 (zero) and 1 (one), calculated from the largest value between 0 (zero) and the ratio between:

1. the outstanding balance value of all underlying financial assets or Sharia assets minus the outstanding balance value of all classes (tranches) that are equal and more senior than the class (tranche) related to the Bank's securitization exposure; and

2. the outstanding balance value of all underlying financial assets or Sharia assets.
   b. Detachment Point (D) is the threshold with the magnitude of losses occurring in the collection of underlying financial assets or Sharia assets causing full losses to a class (tranche). The Detachment Point (D) has a value between 0 (zero) and 1 (one), calculated from the largest value between 0 (zero) and the ratio between:

3. the debit balance of all financial assets or underlying Shariah assets, minus the debit balance of all (tranches) that are more senior than the (tranche) related to the Bank's securitization exposure; and

4. the debit balance of all financial assets or underlying Shariah assets.
   c. The calculation of Attachment Point (A) and Detachment Point (D) as referred to in letters a and b must consider the existence of overcollateralization, reserve funds (funded reserve accounts), and/or reserve fund-forming assets as a (tranche). Reserve funds (funded reserve accounts) that can be treated as a (tranche) are portions of reserve funds (funded reserve accounts) that can serve as Credit Enhancement facilities, given that such facilities are able to absorb losses. Reserve funds (funded reserve accounts) that cannot be used as Credit Enhancement facilities cannot be considered as a (tranche) in the calculation of Attachment Point (A) and Detachment Point (D).
   d. Unfunded reserve accounts cannot be used as a (tranche). Examples of unfunded reserve accounts include reserve funds that will only be funded from cash receipts in the future.
   Banks must consider the economic substance and apply the determination of (tranches) in the calculation of Attachment Point (A) and Detachment Point (D) conservatively.

11. Remaining Maturity of (Tranche) (MT)
    a. The remaining maturity of a (tranche) (MT) is the effective remaining maturity, in years, of a securitization exposure tranche, calculated using one of the following 2 (two) methods:

1. The weighted average of the remaining contractual cash flow maturity, calculated using the following formula:
   CFt is the cash flow (principal, interest or yield, and fees) that is contractually the obligation of the borrower or Issuer in period t. Contractual cash flows must be unconditional and must not depend on the performance of the underlying financial assets or Shariah assets.
2. In the event that contractual cash flows cannot be identified, the Bank may calculate the remaining maturity of the (tranche) (MT) using the following formula:
   MT = 1 + (ML-1) x 80%
   ML is the remaining contractual maturity of the securitization exposure tranche.
   The lower bound (floor) of the remaining maturity of the (tranche) (MT) is 1 (one) year and the maximum (cap) is 5 (five) years. b. In determining the remaining maturity of securitization exposures, Banks must consider the maximum potential loss period from Asset Securitization activities. For example, if the Bank provides facilities in the form of commitments related to Asset Securitization activities, the remaining maturity of the securitization exposure is the sum of the commitment period and the longest period of claims or assets arising from the withdrawal of such commitment facilities. In the event that such claims or assets are revolving, the remaining maturity of such claims or assets is based on the maximum additional contractual period during the revolving period. This treatment also applies to other financial instruments in the form of commitments or credit protection or financing with unlimited risk exposure to losses occurring at EBA or EBAS, such as total return swaps related to Asset Securitization.

c. Banks that issue credit protection or financing and are only exposed to losses arising until the credit protection or financing ends, the remaining maturity of the securitization exposure can be based on the remaining contractual maturity of the credit protection or financing. Banks do not need to perform a look-through approach on positions protected by the Bank in determining the remaining maturity of securitization exposures.

B. Calculation of Risk-Weighted Assets for Securitization Exposures

1. Scope of Calculation
   a. The calculation of RWA for securitization exposures is part of the RWA calculation for credit risk. b. The scope of RWA calculation for securitization exposures is all exposures in the financial statements (balance sheet) as well as commitment and contingent liabilities in administrative account transactions related to Asset Securitization activities.
   c. Securitization exposures that have been calculated in the RWA calculation for securitization exposures are no longer calculated in the RWA calculation for credit risk using the standard approach.
   d. Banks must calculate RWA for securitization exposures when Banks engage in activities as Credit Enhancement Providers, Liquidity Facility Providers, Investors, providers of credit risk mitigation for Asset Securitization transactions, and/or engage in repurchasing securitization exposures. e. Securitization exposures may also arise from interest rate swaps, currency swaps, credit derivatives, and tranched cover transactions related to Asset Securitization. In addition, reserve account positions such as cash collateral recorded as assets by the Originator are part of securitization exposures.

What is meant by tranched cover is a transaction transferring part of the credit risk exposure on a securitization (tranche) to a protection provider (protection seller), and the transaction causes a difference in seniority levels between the protected portion and the unprotected portion. (Tranches) that can be protected by Banks are both senior (tranches) and junior (tranches). f. Specifically for securitization exposures that can increase the amount of core capital such as gains from asset sales in Asset Securitization transactions (gain on sale) and credit-enhancing interest-only strips must be calculated as a deduction factor for core capital. g. Banks must apply the RWA calculation for securitization exposures in determining the required capital for exposures arising from traditional securitization, synthetic securitization, or other structures with similar features. Given the highly flexible nature of the securitization framework, capital calculations for securitization exposures are determined more based on economic substance than legal substance. h. Banks providing implicit support must calculate RWA for all financial assets or underlying Shariah assets of securitization exposures with the same magnitude as if the Bank owned all financial assets or underlying Shariah assets. Banks must disclose that the Bank provides implicit support related to Asset Securitization and that such implicit support impacts the Bank's capital.
i. In the event of overlapping securitization exposures, only one securitization exposure is calculated in the RWA calculation as long as the Bank's fulfillment of obligations for one securitization exposure prevents the Bank from losses related to other securitization exposures.

Example:
A Bank provides full protection or guarantees to an EBA or EBAS “tranche A” and the Bank also engages in activities as an Investor for part of the EBA or EBAS “tranche A” mentioned. Thus, the Bank only calculates RWA for the protection or guarantees provided by the Bank and does not need to calculate RWA for ownership of the EBA or EBAS as long as it can be verified that under various conditions, the Bank's fulfillment of obligations when protection or guarantees are disbursed can prevent the Bank from losses from securitization exposures from ownership of the EBA or EBAS. j. To determine the magnitude of overlapping securitization exposures, Banks can use securitization exposure separation methods or securitization exposure expansion. What is meant by securitization exposure separation is separating the portion of overlapping securitization exposures from non-overlapping securitization exposures. What is meant by securitization exposure expansion is assuming a larger magnitude of the Bank's obligations compared to contractual obligations. Example:
A Bank provides a Liquidity Facility that is not protection to an EBA or EBAS “tranche A” and the Bank also engages in activities as an Investor for part of the EBA or EBAS “tranche A” mentioned. The Liquidity Facility and ownership of the EBA or EBAS can be considered overlapping if, in the RWA calculation, the Bank performs securitization exposure expansion by assuming that the Liquidity Facility provided by the Bank also bears all losses against the EBA or EBAS “tranche A” in the event of default on the underlying financial assets or Shariah assets. Thus, the Bank only calculates RWA for the Liquidity Facility with a securitization exposure magnitude according to the assumed securitization exposure expansion.

k. Banks can recognize the existence of overlapping securitization exposures for RWA calculations on specific securitization exposures in the trading book with RWA calculations on securitization exposures in the banking book as long as the Bank can calculate and compare the RWA calculations on securitization exposures.

2. Calculation Procedures
   a. The RWA calculation for securitization exposures is the result of multiplying:

1. net securitization exposure charges; and

2. risk weights.
   b. The risk weights as referred to in letter a.2) are calculated using:

3. the external rating-based approach; or

4. the standardized approach.
   c. Banks unable to use the risk weight calculation methods as referred to in letter b, set the risk weight for securitization exposures at 1,250% (one thousand two hundred fifty percent).
   d. Banks must meet due diligence criteria when using the external rating-based approach or the standardized approach. e. In the event that Banks do not meet the due diligence criteria, the risk weight for securitization exposures is set at 1,250% (one thousand two hundred fifty percent). f. The due diligence criteria as referred to in letter d that must be met by Banks are as follows:

5. Banks must continuously (on going basis) have a comprehensive understanding of the risk characteristics of:
   a) securitization exposures both present in the financial statements (balance sheet) and in administrative accounts; and b) collections of financial assets or underlying Shariah assets of Asset Securitization transactions.

6. Banks must continuously (on going basis) have timely access to information regarding financial assets or underlying Shariah assets, including:
   a) type of exposure; b) percentage of credit or financing that has become past due for 30 (thirty) days, 60 (sixty) days, and 90 (ninety) days; c) Non-Performing Loan (NPL) ratio or Non-Performing Financing (NPF) ratio; d) average credit or financing quality; e) percentage of credit or financing repaid before maturity (prepayment rate); f) problematic credit or financing to be resolved through collateral liquidation (loans in foreclosure); g) type of property; h) occupancy rate; i) average Loan to Value (LTV) or Financing to Value (FTV); and/or j) classification, for example by industry and geographic location.

7. Specifically for re-securitization exposures, Banks must have information on the issuer of securitization exposures, credit or financing quality, characteristics, and performance of collections of financial assets or underlying Shariah assets of securitization (tranches).

8. Banks must have an understanding of all features of Asset Securitization transactions that can materially impact the quality and performance of securitization exposures held by Banks, such as the termination of agreements, availability of Credit Enhancement (Credit Enhancement), Liquidity Facilities (Liquidity Facility), factors affecting market value, and definitions of default in Asset Securitization activities.

3. Net Charges for Securitization Exposures
   a. For exposures in the financial statements (balance sheet) as referred to in item B.1.b related to Asset Securitization activities, net charges for securitization exposures are the recorded value of assets plus accrued interest or yields to be received (if any) after deducting Impairment Loss Reserves (CKPN) for such assets according to applicable accounting standards, with the following formula:
   Net Charges = {recorded value of assets + accrued interest or yields to be received (if any)} – CKPN Specifically for collectively formed CKPN, only CKPN for assets identified as having impaired value is calculated. b. For administrative account transaction exposures as referred to in item B.1.b, net charges are the result of multiplying:

1. the value of commitment obligations or contingent liabilities after deducting Special Asset Write-off Provisions (PPA Khusus) according to laws and regulations governing the assessment of universal bank asset quality;
2. Credit Conversion Factors (FKK) or financing set at 100% (one hundred percent), with the following calculation:
   Net Charges = (value of commitment obligations or contingent liabilities – PPA Khusus) x FKK
   c. For administrative account transactions in the form of cash advances or other facilities provided by Service Providers (Servicers) and meeting all the following requirements:
3. cash advances or other facilities can be unconditionally cancellable by the Bank without prior notice; and
4. Service Providers (Servicers) are entitled to full reimbursement that is most senior compared to other claims on cash flows from collections of financial assets or underlying Shariah assets,

FKK can be granted with a magnitude equal to the FKK for commitment obligations meeting the uncommitted criteria as regulated in Financial Services Authority Regulations governing guidelines for calculating risk-weighted assets for credit risk using the standard approach or Financial Services Authority Regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Shariah universal banks. d. Administrative account transaction positions arising from derivative contracts other than credit risk derivatives, the calculation of net charges for such exposures refers to Financial Services Authority Regulations governing guidelines for calculating net charges for derivative transactions in calculating risk-weighted assets for credit risk using the standard approach. Examples of derivative contracts other than credit risk derivatives include interest rate swaps and currency swaps.

4. Calculation of Risk Weights
   a. External Rating Based Approach

1. Determination of risk weights using the external rating-based approach is based on the latest rating of securitization exposures.
2. For securitization exposures with short-term ratings, risk weights are set as follows:

Equivalent Rating
A-1 / P-1
A-2 / P-2
A-3 / P-3
Others
Risk Weight
15%
50%
100%
1,250%

3. For securitization exposures without short-term ratings, the magnitude of risk weights refers to the following table:

Senior (Tranche) Rating
Non-Senior (Tranche) Rating
Remaining Maturity of (Tranche) (MT)
Remaining Maturity of (Tranche) (MT)
1 Year
5 Years
1 Year
5 Years
AAA
15%
20%
15%
70%
AA+
15%
30%
15%
90%
AA
25%
40%
30%
120%
AA-
30%
45%
40%
140%
A+
40%
50%
60%
160%
A
50%
65%
80%
180%
A-
60%
70%
120%
210%
BBB+
75%
90%
170%
260%
BBB
90%
105%
220%
310%
BBB-
120%
140%
330%
420%
BB+
140%
160%
470%
580%
BB
160%
180%
620%
760%
BB-
200%
225%
750%
860%
B+
250%
280%
900%
950%
B
310%
340%
1,050%
1,050%
B-
380%
420%
1,130%
1,130%
CCC+/CCC/CCC
460%
505%
1,250%
1,250%
CCC- and below
1,250%
1,250%
1,250%
1,250%

Banks must perform linear interpolation if the remaining maturity of the (tranche) (MT) is between 1 (one) year and 5 (five) years.
Specifically for non-senior (tranches), the calculation of risk weights is as follows:
Risk Weight = (Risk weight from linear interpolation) x (1 – min (tranche thickness; 50%)) Tranche thickness is the difference between Detachment Point (D) and Attachment Point (A).

Specifically for hedging instruments for market risk related to securitization, such as currency swaps or interest rate swaps, the determination of risk weights refers to the risk weights of securitization exposures that are equivalent or more junior than the market risk hedging instruments. In the event that the calculation results in a risk weight of less than 15% (fifteen percent), the risk weight is set at 15% (fifteen percent).
4) Ratings used in the external rating-based approach must meet all the following requirements:
a) the rating used is the latest rating that has considered all credit risks; b) the rating is issued by a rating agency recognized by the Financial Services Authority according to Financial Services Authority Regulations governing recognized rating agencies and ratings; c) rating agencies must disclose factors affecting the rating, in this case, the rating agency publishes the background thinking including critical factors, processes, criteria, and rating methodologies in the analysis and decision-making for each rating result, sensitivity analysis of rating changes due to assumption changes, loss and cash flow analysis, monitoring results, rating adjustments, and rating transition matrices. Such publications must be easily accessible to the public (non-selective) and free of charge; d) rating agencies must have adequate competence in conducting ratings related to Asset Securitization. This competence can be reflected in the widespread use of ratings issued by the respective rating agencies by market participants;

e) in the event that a securitization exposure has more than 1 (one) rating issued by different rating agencies, the method of using ratings refers to Financial Services Authority Regulations governing guidelines for calculating risk-weighted assets for credit risk using the standard approach or Financial Services Authority Regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Shariah universal banks; f) in the event that:
i. there are credit risk mitigation techniques for part or all of the underlying financial assets or Shariah assets; and
ii. the credit risk mitigation technique has become one of the factors in determining the rating of a securitization exposure,
the risk weight according to the rating can be used in the RWA calculation for securitization exposures. However, Banks cannot use credit risk mitigation techniques in the RWA calculation for securitization exposures. This is done to avoid double counting given that credit risk mitigation techniques have become one of the factors in determining the rating. Providers or issuers (providers) of credit risk mitigation technique instruments must be parties as regulated in Financial Services Authority Regulations governing guidelines for calculating risk-weighted assets for credit risk using the standard approach or Financial Services Authority Regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Shariah universal banks. In the event that providers or issuers (providers) of credit risk mitigation technique instruments are not parties as regulated in Financial Services Authority Regulations, securitization exposures are treated as exposures without ratings; g) in the event that:
i. there are credit risk mitigation techniques that only provide protection for securitization exposures specifically in a structure, for example protection only on one (tranche); and
ii. the credit risk mitigation technique becomes one of the factors in determining the rating,
such ratings cannot be used by Banks in the RWA calculation for securitization exposures. Thus, securitization exposures must be considered as exposures without ratings. However, Banks are permitted to recognize protection as credit risk mitigation techniques as long as they meet the requirements as regulated in Financial Services Authority Regulations governing guidelines for calculating risk-weighted assets for credit risk using the standard approach or Financial Services Authority Regulations governing the calculation of risk-weighted assets for credit risk using the standard approach for Shariah universal banks; and h) Banks cannot use ratings issued by rating agencies in the event that the assessment conducted by the rating agency considers facilities provided by the Bank in the form of unfunded support.

Example:
“Bank A” acting as an underwriter of an EBA or EBAS, and such underwriting is also used as a basis for rating agencies to assign ratings to such EBA or EBAS. Consequently, such ratings cannot be used by “Bank A”, so for “Bank A” all related securitization exposures to such EBA or EBAS are treated as unrated exposures.

5. For securitization exposures that are unrated, Banks may use an inferred rating based on other securitization exposures that are rated, provided the following requirements are met:
   a) The securitization exposure used as a reference must be equal to or subordinate to the Bank’s unrated securitization exposure. In the presence of Credit Enhancement, this must be considered when determining the level of subordination relative to the Bank’s unrated securitization exposure; b) The remaining maturity of the securitization exposure used as a reference must be at least equal to that of the Bank’s unrated securitization exposure; c) The inferred rating must be reviewed periodically, no later than each reporting date; d) The rating of the securitization exposure used as a reference must meet the requirements as stated in item 4). e) The securitization exposure used as a reference must be traded in the same market and have the same type of financial assets or underlying Shariah assets; and f) The quality of the securitization exposure used as a reference must be equal to or lower than that of the Bank’s unrated securitization exposure. The assessment of the quality of securitization exposures refers to the laws and regulations governing the assessment of the quality of assets of universal banks.

b. Standardized Approach

1. The standardized approach is used for securitization exposures where the risk weight cannot be determined using the external rating based approach.

2. The determination of risk weights using the standardized approach is performed based on a specific formula with several steps.

3. The steps in calculating risk weights using the standardized approach are as follows:
   a) Calculating the KSA variable
   i. KSA is the product of:
   (1) the weighted average risk weight of the pool of financial assets or underlying Shariah assets, referring to the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks; and (2) 8% (eight percent).

Example:
The pool of financial assets or underlying Shariah assets of an EBA or EBAS consists of residential mortgage loans or financing amounting to Rp1,000,000,000 (one billion rupiah) with a composition of Rp950,000,000 (nine hundred fifty million rupiah) having a risk weight of 35% (thirty-five percent) and Rp50,000,000 (fifty million rupiah) with a risk weight of 100% (one hundred percent) because it is included in the portfolio category that has become past due. Thus, the KSA amount is calculated as follows:

ii. In the event there are credit risk mitigation techniques for the pool of financial assets or underlying Shariah assets that meet the requirements as regulated in the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks, such credit risk mitigation techniques can be included in the calculation of the weighted average risk weight of the pool of financial assets or underlying Shariah assets.

iii. For structures involving EBK (External Credit Assessment Institutions), all EBK exposures related to securitization must be part of the pool of financial assets or Shariah assets. Examples of EBK exposures related to securitization are assets invested by EBK in securitization structures such as reserve accounts, cash collateral accounts, and receivables from counterparties arising from interest rate swap or currency swap transactions.
Banks may exclude EBK exposures as part of the pool of financial assets or Shariah assets if such exposures have an insignificant impact or have immaterial risk.

iv. In calculating the weighted average risk weight of the pool of financial assets or underlying Shariah assets, the nominal amount of the pool of financial assets or underlying Shariah assets is the value before deducting CKPN (Credit Conversion Factor for Non-Refundable Purchase Discounts) or non-refundable purchase discounts.

v. For funded synthetic securitization, the proceeds from the issuance of credit-linked notes or other debt instruments issued by EBK must be included in the calculation of the KSA variable as long as:
(1) the proceeds from such issuance are invested in an asset that serves as collateral for the payment of securitization exposures; and (2) the default risk of the collateral is one of the factors considered in allocating losses to Securitization Asset tranches. Banks may exclude the proceeds from the issuance of credit-linked notes or other debt instruments in the calculation of the KSA variable as long as the proceeds from the issuance of such credit-linked notes or other debt instruments are immaterial.

b) Calculating the Delinquency Ratio (W)
i. The delinquency ratio (W) is the ratio between:
(1) the nominal value of the pool of financial assets or underlying Shariah assets that are problematic (delinquent); and (2) the total nominal value of the pool of financial assets or underlying Shariah assets.

ii. The term “problematic (delinquent) financial assets or underlying Shariah assets” refers to financial assets or Shariah assets that have been past due for 90 (ninety) days or more, are in bankruptcy proceedings, are in foreclosure proceedings, are in receivership, or meet the default criteria as regulated in the Securitization Asset agreement.

Example:
The pool of financial assets or underlying Shariah assets of an EBA or EBAS consists of residential mortgage loans or financing amounting to Rp1,000,000,000 (one billion rupiah) with a composition of Rp950,000,000 (nine hundred fifty million rupiah) having a risk weight of 35% (thirty-five percent) and Rp50,000,000 (fifty million rupiah) with a risk weight of 100% (one hundred percent) because it is included in the portfolio category that has become past due. Thus, the delinquency ratio (W) amount is calculated as follows:

iii. Banks must be able to know and identify each problematic (delinquent) financial asset or underlying Shariah asset or not.

iv. In the event that Banks do not know the status of problematic (delinquent) financial assets or underlying Shariah assets or not, more than 5% (five percent) of the total pool of financial assets or underlying Shariah assets, Banks are not permitted to use the standardized approach. Consequently, the risk weight of securitization exposures is set at 1,250% (one thousand two hundred fifty percent).

Example:
A Bank purchases an unrated EBA or EBAS with a pool of financial assets or underlying Shariah assets being residential mortgage loans or financing valued at Rp1,000,000,000 (one billion rupiah). The Bank only knows 70% (seventy percent) of the financial assets or underlying Shariah assets that are problematic (delinquent) or not. Consequently, the Bank cannot use the standardized approach as there is 30% (thirty percent) of the pool of financial assets or underlying Shariah assets that are unknown to be problematic (delinquent) or not. Therefore, the risk weight for securitization exposures from the ownership of such EBA or EBAS is set at 1,250% (one thousand two hundred fifty percent).

c) Calculating the KA variable
i. The KA variable is calculated with the following formula:
KA = [(1 – W) x KSA] + [W x 0,5]

ii. In the event that Banks do not know the status of problematic (delinquent) financial assets or underlying Shariah assets or not, less than or equal to 5% (five percent) of the total pool of financial assets or underlying Shariah assets, the calculation of the KA variable is as follows:

Explanation:
EADsubpool1 : total nominal value of the pool of financial assets or underlying Shariah assets that are known to be problematic (delinquent) or not.
KA subpool 1 : value of the KA variable for the pool of financial assets or underlying Shariah assets that are known to be problematic (delinquent) or not.
EADsubpool2 : total nominal value of the pool of financial assets or underlying Shariah assets that are unknown to be problematic (delinquent) or not.
Total EAD : total nominal value of the pool of financial assets or underlying Shariah assets.

d) Calculating the KSSFA(KA) variable
The KSSFA(KA) variable is calculated with the following formula:

Explanation:
a : - (1 / (p x KA)), with p value being 1 (one) as long as the exposure is not a re-securitization exposure.
In the event the exposure is a re-securitization exposure, the p value is 1.5 (one point five). u : D - KA, which is the difference between Detachment Point (D) and KA. l : max (A - KA ; 0), which is the highest value between 0 (zero) and the difference between KA and Attachment Point (A).

e) Calculating the risk weight
Risk weight calculations are performed as follows:
i. In the event that the Detachment Point (D) value of a securitization exposure is equal to or less than the KA variable value, the risk weight is set at 1,250% (one thousand two hundred fifty percent).
ii. In the event that the Attachment Point (A) value of a securitization exposure is equal to or greater than the KA variable value, the risk weight is the product of the KSSFA(KA) variable value and 12.5 (twelve point five).
iii. In the event that:
(1) the Attachment Point (A) value is smaller than the KA variable value; and (2) the Detachment Point (D) value is greater than the KA variable value, the risk weight is calculated with the following formula:

4. The risk weight amount using the standardized approach is set at a minimum of 15% (fifteen percent). In the event that the steps as stated in item 3) result in a risk weight value less than 15% (fifteen percent), the risk weight is set at 15% (fifteen percent).

5. The risk weight amount for a junior tranche of a Securitization Asset structure that is unrated must not be smaller than that of a more senior tranche that is rated.

C. Caps on Risk Weight and Risk-Weighted Assets for Securitization Exposures

1. Caps on Risk Weight for Senior Securitization Exposures
   a. The risk weight amount for senior securitization exposures can be limited in the calculation of Risk-Weighted Assets for securitization exposures. b. The risk weight limitation as stated in letter a is calculated from the weighted average risk weight of the pool of financial assets or underlying Shariah assets, referring to the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks.

Example:
The pool of financial assets or underlying Shariah assets of an EBA or EBAS consists of residential mortgage loans or financing valued at Rp1,000,000,000 (one billion rupiah) with a composition of Rp950,000,000 (nine hundred fifty million rupiah) having a risk weight of 35% (thirty-five percent) and Rp50,000,000 (fifty million rupiah) with a risk weight of 100% (one hundred percent) because it is included in the portfolio category that has become past due. The risk weight referred to refers to the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks. The Bank has securitization exposures in the form of ownership of senior tranche EBA or EBAS. Thus, the maximum risk weight that can be imposed on the ownership of senior tranche EBA or EBAS is:

The amount of 38.25% (thirty-eight point two five percent) is the cap on the risk weight for securitization exposures in the form of ownership of senior tranche EBA or EBAS. In the event that the calculation results using the external rating based approach or standardized approach result in a risk weight greater than 38.25% (thirty-eight point two five percent), the risk weight used in the calculation of Risk-Weighted Assets for securitization exposures is 38.25% (thirty-eight point two five percent).

c. The risk weight limitation as stated in letters a and b can only be used by Banks in the event that Banks know the composition of the pool of financial assets or underlying Shariah assets in detail (look through) at all times.
d. In the event that the calculation of the risk weight limitation as stated in letters a and b results in a value below 15% (fifteen percent), Banks may use such risk weight value.
The risk weight limitation as stated in letters a and b does not apply to re-securitization exposures.

2. Caps on Risk-Weighted Assets for Securitization Exposures
   a. In the calculation of Risk-Weighted Assets for securitization exposures, Banks acting as Originators may limit the Risk-Weighted Assets calculated in the calculation of Core Capital for universal banks or Core Capital for universal Shariah banks.

Example:
Banks as Originators who also act as Investors by purchasing EBA or EBAS issued by Issuers. Thus, Banks must calculate Risk-Weighted Assets for ownership of such EBA or EBAS. Banks may apply caps on the Risk-Weighted Assets value in the calculation of Core Capital for universal banks or Core Capital for universal Shariah banks for ownership of such EBA or EBAS.

b. The cap amount on Risk-Weighted Assets for securitization exposures in the calculation of Core Capital for universal banks or Core Capital for universal Shariah banks as stated in letter a is calculated with the following method:
Maximum Risk-Weighted Assets = Total Value of Securitization Exposures in the same Securitization Asset x KP x P x 12.5

Explanation:
KP : KSA value as regulated in item B.4.b.3).a).
P : the largest interest claim proportion of the Bank to each tranche, calculated as follows:
i. In the event that securitization exposures owned by the Banks are only in one tranche, the P value is calculated from the ratio between securitization exposures and the nominal value of the tranche.
ii. In the event that securitization exposures owned by the Banks are in several different tranches, the P value is the largest interest claim proportion among such tranches.

The calculation of the interest claim proportion in each tranche refers to item i.

c. In the calculation of caps on Risk-Weighted Assets for Securitization Exposures, gains from the sale of assets in asset securitization transactions (gain on sale) and credit-enhancing interest-only strips must be considered as capital deduction factors.

D. Re-securitization Exposures

1. Definition of Re-securitization Exposures
   a. Re-securitization exposures are exposures with risks related to financial assets or underlying Shariah assets divided into several tranches, with one of the financial assets or underlying Shariah assets being securitization exposures. b. Exposures to one or more re-securitization exposures are also categorized as re-securitization exposures.
   c. Exposures arising from the re-tranching of securitization exposures are not categorized as re-securitization exposures as long as Banks can demonstrate to the Financial Services Authority that under various conditions, cash flows both from the Bank or to the Bank resulting from such re-tranching can be replicated by exposures to a securitization with financial assets or underlying Shariah assets that do not contain re-securitization exposures.

2. Calculation of Risk-Weighted Assets for Re-securitization Exposures
   a. The calculation of Risk-Weighted Assets for re-securitization exposures is the product of:

1. the net charge of re-securitization exposures; and
2. the risk weight.
   b. The calculation of net charges for re-securitization exposures must use the standardized approach.
   c. The risk weight amount for re-securitization exposures as stated in item a.2) is set based on the highest value between:
3. 100% (one hundred percent); or
4. the risk weight calculated using the standardized approach.
   d. The calculation of risk weights using the standardized approach as stated in letter c.2) is performed with several adjustments as follows:
5. Risk-Weighted Assets for underlying exposures of Securitization Assets are calculated using the calculations as regulated in the appendix of this Financial Services Authority Regulation.
6. The delinquency ratio (W) value for pools of financial assets or Shariah assets that are exposures to a tranche of Securitization Assets is set at 0 (zero).
7. The variable p value in the KSSFA(KA) calculation is set at 1.5 (one point five).
8. In the event that the pool of financial assets or underlying Shariah assets consists of 2 (two) sub-pools:
   a) exposures to a tranche of Securitization Assets; and b) other financial assets or Shariah assets (not a tranche of Securitization Assets), Banks must first calculate the KA variable for each sub-pool with different delinquency ratios (W). The delinquency ratio (W) for other financial assets or Shariah assets is calculated as regulated in item B.4.b.3).b). The delinquency ratio (W) for exposures to a tranche of securitization is set at 0 (zero). Thus, the KA variable value for re-securitization exposures is the weighted average KA value of each sub-pool based on exposure nominal values. e. The regulation of caps on risk weights and Risk-Weighted Assets for securitization exposures as regulated in letter C does not apply to the calculation of Risk-Weighted Assets for re-securitization exposures.

E. Credit Risk Mitigation Techniques for Securitization Exposures

1. General
   a. In calculating Risk-Weighted Assets for securitization exposures, Banks may recognize the existence of collateral, guarantees, underwriting, or credit insurance as credit risk mitigation techniques, hereinafter referred to as CRM Techniques. b. CRM Techniques that can be recognized in the calculation of Risk-Weighted Assets for securitization exposures are CRM Techniques that meet the following requirements:

1. CRM Techniques meet the provisions as regulated in the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks;
2. the validity period of collateral, guarantees, underwriting, or credit insurance agreements is at least equal to the remaining maturity of the securitization exposure; and
3. Issuers or EBK cannot be recognized as issuers of guarantees recognized in CRM Techniques – Guarantees.

2. CRM Techniques for Part or All of Securitization Exposures
   a. Protection Provider Banks that issue guarantees or protections for all or part of securitization exposures must calculate Risk-Weighted Assets for securitization exposures. The Risk-Weighted Assets amount is based on the value of the guarantees or protections.

Example:
Banks guarantee all EBA or EBAS issued by Issuers. Thus, Banks are considered as if they own EBA or EBAS, so Banks must calculate Risk-Weighted Assets for securitization exposures using the external rating based approach or standardized approach.

b. Protection Buyer Banks

1. Guarantees or protections used by Banks for all or part of securitization exposures can be recognized as CRM Techniques as long as they meet the requirements as stated in item 1.
2. The impact of the existence of guarantees or protections as stated in item 1) in the calculation of Risk-Weighted Assets refers to the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks.

3. Guarantees or Protections for Tranches in Securitization Assets
   a. In the event that guarantees or protections are only given to specific tranches, such tranches must be divided into 2 (two) sub-categories, namely:

1. sub-tranches that are guaranteed or protected; or
2. sub-tranches that are not guaranteed or protected.
   b. Banks issuing guarantees or protections (protection providers) must calculate Risk-Weighted Assets for securitization exposures. The Risk-Weighted Assets amount is based on the value of the guarantees or protections.
   c. Banks receiving guarantees or protections (protection buyers) may recognize CRM Techniques as long as they meet the requirements as stated in item 1, taking into account:
3. the calculation of Risk-Weighted Assets for securitization exposures against sub-tranches that are not guaranteed or protected;
4. the Risk-Weighted Assets amount for securitization exposures against sub-tranches that are guaranteed or protected can be reduced by the existence of such guarantees or protections, referring to the Financial Services Authority Regulation governing guidelines for calculating risk-weighted assets for credit risk using the standardized approach, or the Financial Services Authority Regulation governing the calculation of risk-weighted assets for credit risk using the standardized approach for universal Shariah banks.

Finance regulating the calculation guidelines for Risk-Weighted Assets (RWA) for credit risk using the standardized approach, or Financial Services Authority Regulation regulating the calculation of Risk-Weighted Assets for credit risk using the standardized approach for Islamic commercial banks, while still considering the Remaining Maturity of the class (tranche) (MT) as referred to in item A.11.

d. The calculation of RWA for issuers of guarantees or protection (protection provider) as referred to in letter b and the calculation of RWA for securitization exposures against sub-classes (sub-tranches) that are not guaranteed or protected as referred to in letter c are carried out as follows:

1. Banks using the standardized approach must make adjustments to the values of the Attachment Point (A) and Detachment Point (D) parameters. The Attachment Point (A) and Detachment Point (D) parameters must be calculated for each sub-class (sub-tranche). Thus, each sub-class (sub-tranche) is considered a different class (tranche). For the value of the variable KSA in the standardized approach calculation, it is calculated based on the portfolio of financial assets or underlying Islamic assets of the original transaction before the existence of guarantees or protection (underlying portfolio of the original transaction).

2. Banks using the external rating based approach, the risk weight is calculated as follows:

a) For sub-classes (sub-tranches) with the highest priority, the risk weight used is the risk weight of the securitization exposure before the existence of guarantees or protection (original securitization exposure).

b) For sub-classes (sub-tranches) with lower priority, the determination of risk weights is carried out as follows:

i. The rating of the sub-class (sub-tranche) in question must be determined using the inferred rating approach. The class (tranche) used as a reference is the class (tranche) in the original transaction of Asset Securitization that is subordinate to the sub-class (sub-tranche). The inferred rating will determine the risk weight of the sub-class (sub-tranche) adjusted by the thickness of the sub-class (sub-tranche) with lower priority.

ii. In the event that the Bank cannot use the inferred rating approach, the magnitude of the risk weight is the largest value between:

(1) the risk weight calculated using the standardized approach as referred to in number 1); or

(2) the risk weight of the securitization exposure before the existence of guarantees or protection (original securitization exposure) calculated using the external rating based approach.

In both approaches to calculating risk weights, sub-classes (sub-tranches) with lower priority must be treated as non-senior securitization exposures.

Established in Jakarta, on 27 March 2019

CHAIRMAN OF THE COMMISSIONERS BOARD
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

signed
WIMBOH SANTOSO

APPENDIX II
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 11 /POJK.03/2019
REGARDING
PRUDENTIAL PRINCIPLES IN
ASSET SECURITIZATION ACTIVITIES FOR
COMMERCIAL BANKS

EXAMPLE OF RWA CALCULATION FOR SECURITIZATION EXPOSURE

An EBA or EBAS with a portfolio of financial assets or underlying Islamic assets consisting of consumer housing-secured loans or financing valued at Rp1,000,000,000,- (one billion rupiah) consists of 3 (three) classes (tranches) as follows:

Underlying Financial Assets or Islamic Assets
Consumer Housing-Secured Loans or Financing valued at Rp1,000,000,000,- (one billion rupiah)

Risk weights* if not securitized:

• Rp950,000,000,- (nine hundred fifty million rupiah) has a risk weight of 35% (thirty-five percent)
• Rp50,000,000,- (fifty million rupiah) has a risk weight of 100% (one hundred percent) because it includes overdue claims

EBA or EBAS class (tranche) A senior = Rp700,000,000,- (seven hundred million rupiah) Rating: AAA Remaining Maturity = 5 (five) years

EBA or EBAS class (tranche) B = Rp200,000,000,- (two hundred million rupiah) Rating: AA Remaining Maturity = 4 (four) years

EBA or EBAS class (tranche) C = Rp100,000,000,- (one hundred million rupiah) Unrated Remaining Maturity = 5 (five) years

*According to applicable regulations, namely Financial Services Authority Circular Letter Number 34/SEOJK.03/2015 regarding the Calculation of Risk-Weighted Assets for Credit Risk Using the Standardized Approach for Islamic Commercial Banks and Financial Services Authority Circular Letter Number 42/SEOJK.03/2016 regarding Guidelines for the Calculation of Risk-Weighted Assets for Credit Risk Using the Standardized Approach.

Class (Tranche) EBA or EBAS

Bank “X”, Bank “Y”, and Bank “Z” purchase the aforementioned EBA or EBAS with the following details:

• Bank “X” purchases EBA or EBAS class (tranche) A with a book value on the financial statements (balance sheet) of Rp500,000,000,- (five hundred million rupiah).
• Bank “Y” purchases EBA or EBAS class (tranche) B with a book value on the financial statements (balance sheet) of Rp150,000,000,- (one hundred fifty million rupiah).
• Bank “Z” as the Original Lender (Originator) purchases EBA or EBAS class (tranche) C with a book value on the financial statements (balance sheet) of Rp100,000,000,- (one hundred million rupiah).

It is assumed that the EBA or EBAS pays coupons annually, with contractual cash flows (principal and coupons) from each class (tranche) of EBA or EBAS as follows:

Class (Tranche) | Year 1 t =1 | Year 2 t =2 | Year 3 t =3 | Year 4 t =4 | Year 5 t =5 --- | --- | --- | --- | --- | --- A (10% p.a.) | 70 | 70 | 70 | 70 | 770 B | Contractual cash flows (principal and coupons) cannot be determined C | Contractual cash flows (principal and coupons) cannot be determined

A. Calculation of RWA for Securitization Exposure for Bank “X”

Bank “X” has a securitization exposure in the form of ownership of EBA or EBAS class (tranche) senior with a book value of Rp500,000,000,- (five hundred million rupiah). Since the class (tranche) has a rating, Bank “X” can use the external rating based approach to determine the risk weight for the ownership of the aforementioned EBA or EBAS.

The steps in calculating the risk weight using the external rating based approach are as follows:

1. Calculating the Remaining Maturity of the Class (Tranche) (MT)

∑ t x CFt (1 x 70) + (2 x 70) + (3 x 70) + (4 x 70) + (5 x770) = 4.550 ∑ CFt 70 + 70 + 70 + 70 + 770 = 1.050 Remaining Maturity (MT) = 4.550 / 1.050 = 4.33 years

2. Performing Linear Interpolation of Risk Weights

Class (tranche) A is a senior EBA or EBAS class, so based on the table as referred to in item B.4.a.3) Appendix I, the risk weight is generated from the interpolation of the following risk weight magnitudes:

Rating	Senior Class (Tranche) Risk Weight
MT =1 year	MT = 5 years
AAA	15%

The interpolated risk weight result for an MT of 4.33 years is calculated as follows:

3. Calculating RWA for Securitization Exposure

RWA = Rp500,000,000,- x 19.16% = Rp95,812,500,-

B. Calculation of RWA for Securitization Exposure for Bank “Y”

Bank “Y” has a securitization exposure in the form of ownership of EBA or EBAS class (tranche) B which is non-senior with a book value of Rp150,000,000,- (one hundred fifty million rupiah). Since the class (tranche) has a rating, Bank “Y” can use the external rating based approach to determine the risk weight for the ownership of the aforementioned EBA or EBAS.

1. Calculating the Thickness of the Class (Tranche)

To calculate the thickness of EBA or EBAS class (tranche) B, one must first know the Attachment Point (A) and Detachment Point (D)

Attachment Point (A)
Value of the remaining debit of all financial assets or underlying Islamic assets minus all classes (tranches) that are equal and more senior Rp1,000,000,000,- – (Rp700,000,000,- + Rp200,000,000,-) = Rp100,000,000,- Value of the remaining debit of all financial assets or underlying Islamic assets Rp1,000,000,000,- Attachment Point (A) Rp100,000,000,- ÷ Rp1,000,000,000,- = 0.1

Detachment Point (D)
Value of the remaining debit of all financial assets or underlying Islamic assets minus all classes (tranches) that are more senior Rp1,000,000,000,- – Rp700,000,000,- = Rp300,000,000,- Value of the remaining debit of all financial assets or underlying Islamic assets Rp1,000,000,000,- Detachment Point (D) Rp300,000,000,- ÷ Rp1,000,000,000,- = 0.3

Thus, the thickness of the class (tranche) = 0.3 - 0.1 = 0.2 = 20%

2. Calculating the Remaining Maturity of the Class (Tranche) (MT)

Contractual cash flows (principal and coupons) from EBA or EBAS class (tranche) B are unknown, so the Remaining Maturity of the Class (Tranche) (MT) is based on the remaining maturity according to the issuance documentation (ML) calculated with the following formula:

MT = 1 + (ML-1) x 80%
MT = 1 + (4-1) x 80% = 3.4 years

3. Performing Linear Interpolation of Risk Weights

Class (tranche) B is a non-senior EBA or EBAS class (tranche), so based on the table as referred to in item B.4.a.3) Appendix I, the risk weight is generated from the interpolation of the following risk weight magnitudes:

Rating | Non-Senior Class (Tranche) Risk Weight --- | --- MT = 1 year | MT = 5 years AA | 30% | 120%

The linear interpolation risk weight result for an MT of 3.4 (three point four) years:

4. Adjusting the Interpolated Risk Weight Result with the Thickness of the Class (Tranche)

Risk weight = (Linear interpolation risk weight result) x (1 – min (tranche thickness; 50%)) Risk weight = 84% x (1 – min (20% ; 50%)) = 67.2%

5. Calculating RWA for Securitization Exposure

RWA = Rp150,000,000,- x 67.2% = Rp100,800,000,-

C. Calculation of RWA for Securitization Exposure for Bank “Z”

Bank “Z” as the Original Lender (Originator) has a securitization exposure in the form of ownership of EBA or EBAS class (tranche) C which is non-senior with a book value of Rp100,000,000,- (one hundred million rupiah). Since the class (tranche) does not have a rating, Bank “Z” cannot use the external rating based approach but must use the standardized approach to determine the risk weight for the ownership of the aforementioned EBA or EBAS.

1. Calculating the Attachment Point (A) and Detachment Point (D) of EBA or EBAS Class (Tranche) C

Attachment Point (A)
Value of the remaining debit of all financial assets or underlying Islamic assets minus all classes (tranches) that are equal and more senior Rp1,000,000,000,- – (Rp700,000,000,- + Rp200,000,000,- + Rp100,000,000,-) = 0 Value of the remaining debit of all financial assets or underlying Islamic assets Rp1,000,000,000,- Attachment Point (A) 0 ÷ Rp1,000,000,000,- = 0

Detachment Point (D)
Value of the remaining debit of all financial assets or underlying Islamic assets minus all classes (tranches) that are more senior Rp1,000,000,000,- – (Rp700,000,000,- + Rp200,000,000),- = Rp100,000,000,- Value of the remaining debit of all financial assets or underlying Islamic assets Rp1,000,000,000,- Detachment Point (D) Rp100,000,000,- ÷ Rp1,000,000,000,- = 0.1

Thus, the value of the Attachment Point (A) is 0 (zero) and the Detachment Point (D) is 0.1 (zero point one).

2. Calculating the KSA variable

KSA is the result of multiplying (i) the weighted average risk weight of the portfolio of financial assets or underlying Islamic assets referring to the Financial Services Authority Regulation regulating the calculation of Risk-Weighted Assets for credit risk using the standardized approach for Islamic commercial banks and the Financial Services Authority Regulation regulating the guidelines for the calculation of Risk-Weighted Assets for credit risk using the standardized approach and (ii) 8% (eight percent).

3. Calculating the Delinquency Ratio (W)

The Delinquency Ratio (W) is the ratio between:
a) the nominal value of financial assets or underlying Islamic assets that are problematic (delinquent); and

b) the total nominal value of the portfolio of financial assets or underlying Islamic assets.

4. Calculating the KA variable

The KA variable is calculated with the following formula:

KA = [(1 – W) x KSA] + [W x 0.5]
KA = [(1 – 5%) x 3.06%] + [5% x 0.5] = 5.41%

Thus, the value of KA is 5.41% (five point four one percent).

5. Calculating the KSSFA(KA) Variable

The KSSFA(KA) variable is calculated with the following formula:

Explanation:
a = - (1 / (p x KA)), with p value equal to 1 (one), then a value = - (1/ (1 x 5.41%) = -18.49 u = D - KA, which is the difference between the Detachment Point (D) and KA. The value u = 0.1 – 5.41% = 4.59% l = max (A - KA ; 0), which is the highest value between 0 (zero) and the difference between KA and the Attachment Point (A). The value l = max ((0-5.41%) ; 0) = 0

Thus, the value of the KSSFA(KA) variable is 67.38% (sixty-seven point three eight percent).

6. Calculating Risk Weight

Since (i) the value of the Attachment Point (A) is smaller than the value of the KA variable; and (ii) the value of the Detachment Point (D) is greater than the value of the KA variable, the risk weight is calculated with the following formula:

Thus, the risk weight is 1,062.71% (one thousand sixty-two point seven one percent).

7. Calculating RWA for Securitization Exposure Using the Standardized Approach

RWA = Rp100,000,000,- x 1,062.71% = Rp1,062,710,000,-

8. Calculating the Upper Limit (Caps) of RWA for Securitization Exposure

In the calculation of RWA for securitization exposure, Banks acting as Original Lenders (Originators) can limit the RWA value calculated in the KPMM calculation using the following calculation:

Maximum RWA = total value of securitization exposures in the same Asset Securitization x KP x P x 12.5

Explanation:
KP : KSA value is 3.06% (three point zero six percent) P : proportion of the largest claim (interest) of the Bank against each class (tranche). The securitization exposure owned by Bank “Z” is only in one class (tranche) of EBA or EBAS, namely class (tranche) C, the value of P is calculated from the ratio between the securitization exposure and the nominal value of the class (tranche). Mathematically:
Rp100,000,000,- ÷ Rp100,000,000,- = 100%
Maximum RWA = Rp100,000,000,- x 3.06% x 100% x 12.5 = Rp38,250,000,-

Thus, the Bank as the Original Lender (Originator), the upper limit (caps) of the RWA value calculated in the KPMM calculation is Rp38,250,000,- (thirty-eight million two hundred fifty thousand rupiah).

9. Comparing the RWA Value based on the Standardized Approach (Standardized Approach) with the Upper Limit (Caps) of RWA for Securitization Exposure

RWA Value Based on Standardized Approach (Standardized Approach) | Upper Limit (Caps) of RWA for Securitization Exposure --- | --- Rp1,062,710,000,- | Rp38,250,000,-

The RWA value based on the standardized approach (standardized approach) is larger than the upper limit (caps) of the RWA value for securitization exposure, so the RWA value calculated in the KPMM calculation is Rp38,250,000,- (thirty-eight million two hundred fifty thousand rupiah).

Established in Jakarta, on 27 March 2019

CHAIRMAN OF THE COMMISSIONERS BOARD
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA,

signed
WIMBOH SANTOSO

APPENDIX III
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 11 /POJK.03/2019
REGARDING
PRUDENTIAL PRINCIPLES IN
ASSET SECURITIZATION ACTIVITIES FOR
COMMERCIAL BANKS

GUIDELINES FOR THE PREPARATION OF STANDARD OPERATING PROCEDURES (SOP) FOR CREDIT OR FINANCING ADMINISTRATION FOR HOUSING OWNERSHIP IN THE FRAMEWORK OF ASSET SECURITIZATION

A. Introduction

1. Background

The continuity of a Bank's business depends on the Bank's ability and effectiveness in managing credit risk. Asset Securitization is an alternative way to mitigate credit risk. Banks in conducting Asset Securitization activities need to pay attention to and fulfill prudential principles and are supported by good credit or financing administration to avoid the possibility of facing greater risks.

The increasing public demand for housing needs to be supported by a continuous supply of credit or financing. In this regard, the securitization of housing ownership credit or financing (Housing Loans/KPR) is an alternative to support the continuity of the supply of housing credit or financing.

In supporting the effectiveness and efficiency of the implementation of KPR securitization while also supporting the development of a healthy secondary KPR market and still considering aspects of transparency and protection of debtor customers of credit or financing for housing ownership, it is necessary to standardize the KPR administration process included in the Standard Operating Procedure for Credit or Financing Administration for Housing Ownership in the Framework of Securitization (KPR SOP).

2. Scope of the KPR SOP Preparation Guidelines

The KPR SOP preparation guidelines are minimum references for Banks in standardizing the KPR administration process, which is intended to support the smoothness and efficiency of the Bank's KPR securitization process. The KPR SOP Preparation Guidelines include the standardization of the KPR administration process from the origin stage, namely Banks conducting activities as KPR Original Lenders (Originators) until the KPR is securitized, namely Banks conducting activities as KPR Service Providers.

3. Obligations to Conduct KPR Administration

In order to conduct good KPR administration while considering aspects of information transparency and aspects of KPR debtor protection, every Bank has written KPR SOPs which at least include the standardization of the KPR administration process according to the KPR SOP Preparation Guidelines.

4. Legal Basis for the KPR SOP Preparation Guidelines

In addition to referring to this Appendix, in preparing KPR SOPs, Banks refer to Financial Services Authority Regulations regulating the application of risk management for commercial banks or Financial Services Authority Regulations regulating the application of risk management for Islamic commercial banks and Islamic business units.

5. Definitions

a. KPR is consumer credit or financing for the ownership of residential houses consisting of landed houses, apartment buildings, or apartments (excluding office houses and shop houses) with collateral in the form of residential houses provided by Banks to individual debtors with a maximum loan or financing amount determined based on the value of the collateral.

b. Loan to Value Ratio (LTV) is the ratio number between the amount of loans that can be provided by Banks against the value of the collateral.

c. Financing to Value Ratio (FTV) is the ratio number between the amount of financing that can be provided by Banks against the value of the collateral.

d. KPR Securitization is the issuance of securities by EBA or EBAS Issuers in the form of KPR based on the transfer of assets in the form of KPR from the Original Lender (Originator) followed by payments originating from the results of the sale of EBA or EBAS in the form of KPR to Investors or payments originating from the funds of the Issuer.

e. Asset-Backed Securities or Islamic Asset-Backed Securities for KPR (EBA or EBAS KPR) are securities issued by Issuers based on assets in the form of KPR transferred by the Original Lender (Originator).

f. EBA or EBAS KPR Issuer is a legal entity, Special Purpose Vehicle for EBA or EBAS, or other forms in accordance with statutory regulations, which have the specific purpose of conducting asset securitization activities in the form of KPR.

g. KPR Original Lender is a party that transfers assets in the form of KPR to the Issuer.

h. KPR Service Provider is a party that accounts for, processes, supervises, and takes other actions to ensure the smoothness of the cash flow of assets in the form of KPR transferred to the Issuer in accordance with agreements between such parties and the Issuer, including giving warnings to the KPR Reference Entity in the event of payment delays, conducting negotiations, and resolving claims.

i. KPR Reference Entity is a party that owes or has the obligation to pay from assets in the form of KPR transferred.

j. KPR Refinancing is the activity of providing funds again by Banks through the replacement of debtors' KPR loans.

k. KPR Repurchase Agreement (Repo) is a transaction buying and selling assets in the form of KPR that obligates the seller to buy back the assets in the form of KPR concerned in accordance with the agreed term.

B. Risk Management

To support the implementation of good KPR administration so as to facilitate and simplify the securitization process, the application of risk management related to the implementation of KPR administration consists at least of:

1. Active Supervision by the Board of Directors and Board of Commissioners

a. Active Supervision by the Board of Directors consists at least of:

1. establishing KPR SOPs which include the standardization of the KPR administration process and are part of the Bank's KPR disbursement policy based on the approval of the Board of Commissioners;

2. ensuring that the implementation of KPR administration at the head office and branches has been in accordance with the procedures established in the KPR SOP;

3. conducting periodic evaluations of the KPR SOP, including conducting revisions so that they are in accordance with statutory regulations; and

4. ensuring that the KPR SOP has been socialized to all KPR unit employees.

b. Active supervision by the Board of Commissioners consists at least of:

1. giving approval for the KPR SOP for the standardization of the KPR administration process; and

2. evaluating the implementation of the Board of Directors' responsibilities regarding the implementation of the KPR SOP.

2. Adequacy of Risk Management Policies, Systems, and Procedures and the Establishment of Risk Limits

Risk management policies, systems, and procedures, and the establishment of Risk Limits in conducting KPR administration consist at least of:

a. policies regulating the establishment of organizational units and employees in conducting the KPR administration process from the KPR disbursement stage until the KPR is securitized;

b. policies and procedures for the accounting of KPR documents;

c. policies in the development of application systems for data processing and/or information-based technology;

d. policies in the development of application systems for reporting KPR debtor performance;

e. set overall funding limits for the KPR borrower; and f. set risk tolerance for credit risks related to KPR.

3. Identification, Measurement, Monitoring, and Control of Risks and Risk Management Information Systems
   To identify, measure, monitor, and control the risks of KPR administration services, the Bank must ensure that:
   a. prospective KPR borrowers understand the rights and obligations related to the administration of borrower data and information as included in the KPR agreement; b. employees in the KPR administration service unit have performed verification to ensure that KPR document management is carried out in accordance with applicable procedures;
   c. KPR document management for each borrower is conducted separately, distinguishing between KPR documents that are Bank assets and KPRs that have been securitized; and
   d. the information system owned must be able to accommodate credit risk mitigation strategies carried out through the Asset Securitization method.

4. Comprehensive Internal Control System
   To support the effectiveness of the internal control system in the implementation of KPR administration, the Bank must:
   a. conduct regular evaluations and audits regarding the compliance of KPR administration with KPR Standard Operating Procedures (SOPs); and b. follow up on and document audit findings regarding KPR administration, including the Bank's management's response to audit results, including deadlines for corrective actions.

C. Implementation of KPR Administration
To implement KPR administration processes that can support the smoothness and efficiency of the KPR securitization process while considering transparency and KPR borrower protection aspects, the implementation of KPR by the Bank needs to be supported by the standardization of KPR administrative processes from the KPR disbursement stage until the KPR is securitized.

1. Guidelines for the Implementation of KPR Disbursement Administration
   In the disbursement of KPR by the KPR Unit, the Bank must at least separate the implementation of 5 (five) processes regarding:

a. KPR Offer
In the KPR offer, the Bank provides a separate KPR offer document which is a document delivered to prospective borrowers that at least includes information regarding:

1. prospective KPR borrower requirements which at least include citizenship requirements and income requirements;
2. KPR requirements which at least include:
   a) KPR collateral requirements, namely:
   i. land and building mortgage rights (Hak Tanggungan);
   ii. fiduciary guarantees on:
   (1) all claims, rights, authorities, and claims for insurance compensation arising from property insurance and life insurance policies of the borrower; or (2) claims against the central government and local governments arising from the termination of the borrower's rights to the land before the expiration of such rights; b) minimum KPR down payment requirements referring to regulations regarding the loan to value (LTV) ratio for property credit or the financing to value (FTV) ratio for property financing; c) insurance requirements which include the obligation to:
   i. life insurance for each KPR borrower with an insurance value at the lowest equal to the value of the KPR provided by the Bank;
   ii. general insurance which at least includes protection against fire with an insurance value at the lowest equal to the result of the building house valuation at the time of KPR provision; and
   iii. insurance equipped with a bankers clause for the interest of the Bank as the Initial Creditor (Originator);
   d) KPR costs that will become the burden of the KPR borrower and their details; e) penalties imposed for accelerated repayment of KPR (prepayment penalty) and penalties for borrower delays in fulfilling obligations; f) criteria and requirements that must be met by the borrower to be able to refinance the KPR; g) document requirements for KPR application submission; and h) KPR installment calculation system and KPR installment payment method.
3. KPR interest rate or yield policy and KPR interest rate or yield calculation system which include:
   a) KPR interest rate or yield; b) fixed KPR interest/yield or adjustable KPR interest/yield; c) formula for calculating KPR interest or yield; and d) conditions causing adjustments to KPR interest or yield.

b. KPR Application Analysis
To maintain consistency in analyzing KPR applications, the Bank must at least standardize the following:

1. methods and formulas for assessing the repayment capacity of prospective borrowers;
2. methods and formulas for assessing collateral;
3. criteria for independent appraisers in assessing collateral;
4. format for KPR application analysis reports; and
5. format for collateral assessment reports.

c. KPR Decision Making
In making KPR decisions, the Bank establishes standard procedures at least for:

1. delivering written decisions regarding the approval or rejection of prospective borrower KPR applications, including reasons if rejection occurs;
2. evaluating the results of credit or financing decisions to ensure there are no deviations in the KPR decision-making process and establishing necessary corrective policies; and
3. documenting credit or financing decisions from each KPR applicant.

d. Implementation of KPR Credit or Financing Agreements In the implementation of KPR credit or financing agreements, the Bank establishes standard procedures at least to ensure:

1. the completeness and correctness of documents required for the credit or financing agreement;
2. the existence of an official letter of confirmation (cover note) from a notary stating that all original collateral files not yet received are still being used in the administrative process at the competent government agency and will be handed over to the Bank at an agreed time after the aforementioned administrative process is completed;
3. the credit or financing agreement/KPR agreement at least contains:
   a) a statement from the borrower that:
   i. the collateral submitted to the Bank is not currently pledged to other parties and is not in dispute; and
   ii. the borrower will not re-pledge the collateral already submitted to the Bank;
   b) supporting documents that:
   i. are adequate and still valid;
   ii. can be enforced under Indonesian law; and
   iii. do not conflict with Indonesian legislation;
   c) clauses establishing the relationship between the creditor and the borrower, and a statement of guarantee between the Initial KPR Creditor and the relevant borrower which is declared to end, in the event of full repayment of the amount paid by the borrower based on the KPR agreement; d) the mechanism for collecting KPR installments and the possibility of using third-party services to carry out collective collection of KPR installments; e) the system for calculating KPR interest rates or yields, including the possibility of changes in KPR interest rates or yields and the conditions underlying such changes, as well as the time of implementation of changes in KPR interest rates or yields; f) the borrower's approval to the bank allowing the Bank to sell outright for securitization or the possibility of conducting a Repurchase Agreement (Repo) on the borrower's KPR; g) the rights and responsibilities of the Bank and KPR borrower in the implementation of collateral execution; and h) the borrower's approval to the Bank to use data or information related to the borrower and/or KPR collateral to conduct KPR securitization.

e. Disbursement of KPR Credit or Financing
In the disbursement of KPR credit or financing, the Bank establishes standard procedures, at least for:

1. ensuring that the obligations of the prospective KPR borrower have been met, namely at least:
   a) submitting valid supporting documents for the KPR application, including land right certificates, Sale and Purchase Agreement (PPJB) or Deed of Sale (AJB), Building Construction Permit (IMB) and its attachments, land and building mortgage right certificates signed by the prospective KPR borrower, and life insurance policies and property insurance policies; b) signing agreements related to the encumbrance of KPR collateral; c) granting power of attorney to a notary or land deed official to directly submit documents related to collateral, such as land and building right certificates, land and building mortgage right certificates, and/or fiduciary certificates, submitted by the land and building seller, to the Bank; d) opening an account at the Bank as the Initial KPR Creditor and granting debit authorization to the Bank for KPR installment payments; and e) settling KPR costs;
2. documenting the disbursement documents of credit or financing from each KPR borrower.

2. Guidelines for the Implementation of KPR Service Provider Functions by the Bank
   In carrying out functions as a KPR Service Provider, the Bank carries out at least the following:
   a. Building communication with KPR borrowers through the Customer Loan Service (CLS) unit The Customer Loan Service (CLS) unit includes at least the functions:

1. serving the information needs of KPR borrowers;
2. ensuring the implementation of KPR installment collection in accordance with Bank policies; and
3. ensuring that KPR loan problems from borrowers are resolved.

b. Documenting KPR documents that are Bank assets and KPRs that have been securitized In documenting KPR documents that are Bank assets and KPR documents that have been securitized, the Bank has standard procedures at least regarding:

1. receipt, documentation, borrowing, and return of KPR documents;
2. maintenance of KPR documents; and
3. security of KPR documents.

c. Managing KPR data and information that are Bank assets and KPRs that have been securitized
In managing KPR data and information that are Bank assets and KPRs that have been securitized, the Bank has at least an information system for:

1. supporting the monitoring and preparation of routine reports on KPR borrower performance; and
2. conveying KPR borrower performance information to fulfill transparency obligations to EBA or EBAS KPR Investors, for Banks that have conducted KPR securitization.

d. Periodically monitoring the performance of KPR borrowers that are Bank assets and KPR borrowers that have been securitized In periodically monitoring the performance of KPR borrowers that are Bank assets and KPR borrowers that have been securitized, the Bank at least:

1. has a standard format for KPR borrower performance reports which at least includes information as referred to in Appendix I, Section B.2.f.2); and
2. has information regarding the performance of the relevant borrower for credit or financing facilities from the Bank other than KPR, including credit cards or financing cards (sharia card).

e. Supporting the process of settling KPR installment payments (collection) In supporting the smooth settlement of KPR installment payments (collection), the Bank at least compiles systems and operational procedures regarding collection, both carried out by the Bank's work unit using collectors who are Bank employees, as well as using third-party services, including alternative follow-up handling of collection problems. The use of third-party services for collection refers to regulations in legislation.

f. Implementing collateral execution
In supporting the smooth implementation of collateral execution, the Bank at least:

1. establishes standard procedures for collateral execution;
2. ensures that the process and stages of collateral execution run in accordance with regulations in legislation; and
3. establishes the time limit for the completion of collateral execution.

3. Guidelines for the Implementation of KPR Service Provider Functions by Third Parties
   In carrying out functions as a KPR Service Provider, the Bank may appoint third parties to act on behalf of the Bank in activities as a KPR Service Provider in the following cases:
   a. Implementation of KPR document management
   In the implementation of KPR document management by third parties, the Bank at least considers the following:

1. there are criteria which at least consider aspects of security and confidentiality of borrower KPR documents for selecting third parties that become partners of the Bank as providers of KPR document management;
2. there is a written cooperation agreement between the Bank and the provider of KPR document management which at least contains:
   a) the authority and responsibility of both parties; b) the mechanism for resolving problems; c) aspects of borrower personal data confidentiality; and d) matters causing the end of the cooperation agreement; and
3. the use of third-party services for KPR document management refers to regulations in legislation.

b. Implementation of KPR installment payment settlement (collection) or implementation of collateral execution In the implementation of KPR installment payment settlement (collection) or implementation of collateral execution by third parties, the Bank at least considers:

1. there are criteria for selecting third parties that become partners of the Bank as providers of collection or providers of collateral execution;
2. there are written guidelines established by the Bank as a reference for the implementation of collection or collateral execution by third parties; and
3. there is a written cooperation agreement between the Bank and the provider of collection or provider of collateral execution which at least contains:
   a) the authority and responsibility of both parties; b) the mechanism for resolving problems; and c) matters causing the end of the cooperation agreement; and
4. the use of third-party services for collection providers refers to regulations in legislation.

D. Human Resources
The implementation of KPR administration needs to be supported by competent Human Resources (HR) who understand the role of good KPR administration in supporting the smoothness and efficiency of the KPR securitization process. The Bank has HR policies to designate KPR administration officers. HR policies in supporting the implementation of KPR administration at least include:

1. designation of employees appointed as KPR administration officers based at least on knowledge possessed in the field of housing financing;
2. preparation of written work guidelines for KPR administration officers containing the main tasks and responsibilities of KPR administration officers when the Bank conducts activities as an Initial KPR Creditor and as a KPR Service Provider; and

This copy is consistent with the original
Legal Director 1
Legal Department signed
Yuliana
3. conducting regular training to increase the competence of KPR administration officers and/or involving KPR administration officers in training related to knowledge in the field of housing financing.

Established in Jakarta, on the date of 27 March 2019 CHAIRMAN OF THE COMMISSIONERS COUNCIL FINANCIAL SERVICES AUTHORITY REPUBLIC OF INDONESIA, signed WIMBOH SANTOSO