To:
The Board of Directors of Islamic Commercial Banks at their place.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 12/SEOJK.03/2015

ABOUT

MINIMUM CAPITAL PROVISION REQUIREMENTS ACCORDING TO RISK PROFILE FOR ISLAMIC COMMERCIAL BANKS

In light of the implementation of Financial Services Authority Regulation Number 21/POJK.03/2014 concerning Minimum Capital Provision Requirements for Islamic Commercial Banks (State Gazette of the Republic of Indonesia Year 2014 Number 352, Supplement to the State Gazette of the Republic of Indonesia Number 5630), it is necessary to further regulate the minimum capital provision requirements according to risk profile for Islamic Commercial Banks in a Financial Services Authority Circular Letter, as follows:

I. GENERAL

1. In light of the increasing risk of Banks caused by the complexity of products, services, and business activities of the Bank, and in line with the development of methods and techniques for risk measurement in the financial and banking industry, the calculation of capital adequacy needs to be adjusted so that it is not only able to absorb potential losses arising from credit risk, market risk, and operational risk, but also from other material risks anticipated by the Bank by providing minimum capital according to the risk profile.

2. Minimum capital adequacy according to risk profile is not only intended to anticipate potential losses that arise, among others, from Risk-Weighted Assets (RWA) which have taken into account credit risk, market risk, and operational risk, but also to anticipate potential future losses from risks that have not been fully taken into account in the RWA, such as concentration risk, investment risk (equity investment risk), liquidity risk, benchmark interest rate risk in banking book, rate of return risk, legal risk, compliance risk, reputational risk, and strategic risk, and to anticipate the impact of applying stress test scenarios on the Bank's capital adequacy.

3. In order to meet the minimum capital provision requirements according to the risk profile mentioned above, the Bank has and implements an internal capital adequacy calculation process or Internal Capital Adequacy Assessment Process (ICAAP).

II. MINIMUM CAPITAL PROVISION REQUIREMENTS ACCORDING TO RISK PROFILE

1. Internal Capital Adequacy Assessment Process (ICAAP)

a. ICAAP is a process carried out by the Bank to determine capital adequacy according to the Bank's risk profile, and to set strategies to maintain the level of capitalization.

b. ICAAP components must at least include:

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

In carrying out active supervision, the Board of Directors and Board of Commissioners have responsibilities at least as follows:

a) The Board of Directors and Board of Commissioners are responsible for:
(1) understanding the nature and level of risks faced by the Bank, assessing the adequacy of risk management quality, and linking the level of risk with the adequacy of capital held by the Bank to anticipate the risks faced and to support the Bank's business plans and strategic plans for the future; and (2) ensuring the consistent and integrated implementation of ICAAP in the Bank's operational activities.

b) The Board of Commissioners has the authority and is responsible at least for:
(1) approving the Bank's capital management policies, strategies, and procedures; (2) conducting a review of the quality and effectiveness of capital management carried out by the Board of Directors; and (3) conducting periodic evaluations of the quality and effectiveness of capital management policies, strategies, and procedures, and requesting adjustments if necessary.

c) The Board of Directors has the authority and is responsible at least for:
(1) formulating capital management policies, strategies, and procedures in accordance with the size, characteristics, business complexity, and risk level of the Bank, and ensuring that the Bank consistently maintains an adequate level of capitalization to anticipate the Bank's risks; (2) developing a framework to assess the level of risks faced by the Bank, and processes that link the level of risk with capital needs; (3) ensuring that the Bank's strategic plan includes a capital management strategy that describes capital needs, anticipated capital expenditure, target capitalization to be achieved, and expected capital sources; and (4) ensuring that capital management strategies, policies, and procedures are communicated and implemented comprehensively (bank-wide).

2. Capital Adequacy Assessment

In carrying out capital adequacy assessment, the following actions must be taken at least:

a) The Bank must have adequate policies and procedures to ensure that all risks are identified, measured, and reported periodically to the Board of Directors and Board of Commissioners. The types of risks and factors considered in the assessment of each risk refer to the Financial Services Authority regulations regarding the assessment of the health level of Islamic Commercial Banks. Meanwhile, for the implementation of risk management such as identification and measurement processes, refer to the applicable regulations regarding the implementation of risk management for Islamic Commercial Banks.

b) The Bank must have methods and processes in carrying out capital adequacy assessment by linking the level of risk with the level of capitalization needed to absorb potential losses from the aforementioned risks.

c) The Bank must adjust the methods and assumptions used if there are changes in business plans, risk profiles, and external factors.

d) The Bank must document the results of risk measurement and the calculation of the required level of capitalization, including the methods and assumptions used.

3. Monitoring and Reporting

In carrying out monitoring and reporting, the following actions must be taken at least:

a) The Bank must have adequate information systems to monitor and report risk exposures and measure the impact of changes in the risk profile on the Bank's capital needs.

b) Risk profile reports and the required level of capitalization must be submitted periodically to the Board of Directors and Board of Commissioners.

c) The risk profile reports and the required level of capitalization that must be submitted periodically to the Board of Directors and Board of Commissioners as referred to in letter b) must be usable by the Board of Directors for:
(1) evaluating the level of risk, risk movement trends, and their impact on the level of capitalization; (2) evaluating the fairness of methods as well as the sensitivity and fairness of assumptions used in measuring the level of risk and assessing the Bank's capital adequacy; (3) determining whether the Bank has adequate capital according to the risk profile; and (4) estimating future capital needs based on the results of the latest risk profile assessment and adjusting the Bank's strategic plan if necessary.

4. Internal Control

In carrying out internal control, the following actions must be taken at least:

a) The Bank must have an adequate internal control system to ensure the reliability of the implemented ICAAP.

b) The Bank must conduct a periodic review of ICAAP at least once (1) a year and whenever necessary according to the Bank's needs, to ensure the reliability, accuracy, and fairness of the aforementioned process. The review process is conducted by internal parties of the Bank who have adequate competence and are independent of the capital adequacy determination process. The scope of the ICAAP review must at least include:
(1) the suitability of the capital adequacy assessment process with the size, characteristics, and business complexity of the Bank; (2) the accuracy and completeness of data used in the capital adequacy assessment process; (3) the fairness of methods and assumptions used in the capital adequacy assessment process; and (4) the fairness of stress testing scenarios used in the capital adequacy assessment process.

2. Supervisory Review and Evaluation Process (SREP)

a. SREP is a review process conducted by the Financial Services Authority over the Bank's ICAAP results.

b. SREP includes assessments of:

1. the adequacy of active supervision by the Board of Directors and Board of Commissioners;
2. the adequacy of capital adequacy assessment;
3. the adequacy of monitoring and reporting; and
4. the adequacy of internal control.

3. Calculation of Minimum Capital Provision Requirements According to Risk Profile

a. The Bank must provide minimum capital according to the risk profile, both individually and on a consolidated basis.

b. The provision of minimum capital is set at a minimum as follows:

1. 8% (eight percent) of RWA, for Banks with risk profile rank 1 (one);
2. 9% (nine percent) up to less than 10% (ten percent) of RWA, for Banks with risk profile rank 2 (two);
3. 10% (ten percent) up to less than 11% (eleven percent) of RWA, for Banks with risk profile rank 3 (three); and
4. 11% (eleven percent) up to 14% (fourteen percent) of RWA, for Banks with risk profile rank 4 (four) or rank 5 (five).

c. Total RWA is the sum of RWA for credit risk, RWA for market risk, and RWA for operational risk.

d. The Financial Services Authority has the authority to set minimum capital higher than the minimum capital as referred to in letter b), in the event that the Financial Services Authority assesses that the Bank faces potential losses requiring greater capital.

e. Several illustrations of minimum capital provision calculations according to risk profile are as follows:

Illustration 1:
Bank A has total capital of Rp100,000,000,000.00 (one hundred billion rupiah) and total RWA of Rp1,000,000,000,000.00 (one trillion rupiah), so Bank A's Minimum Capital Provision Ratio (KPMM) is 10% (ten percent). Bank A has a risk profile with rank 2. Based on the ICAAP results and the Financial Services Authority's calculations, Bank A needs to provide minimum capital according to the risk profile of 9% (nine percent) of RWA. Thus, Bank A is required to provide minimum capital according to the risk profile of Rp90,000,000,000.00 (ninety billion rupiah). With Bank A's KPMM ratio of 10% (ten percent), in this case, Bank A has met the minimum KPMM ratio requirement according to the risk profile, which is 9% (nine percent).

Illustration 2:
Bank B has total capital of Rp1,000,000,000,000.00 (one trillion rupiah) and total RWA of Rp10,000,000,000,000.00 (ten trillion rupiah), so Bank B's KPMM ratio is 10% (ten percent). Bank B has a risk profile with rank 3. Based on ICAAP results, the Bank requires minimum capital of 10% (ten percent) of RWA. However, based on the Financial Services Authority's assessment results, Bank B requires minimum capital of 11% (eleven percent), among others due to potential losses requiring greater capital. Thus, Bank B is required to provide minimum capital according to the risk profile of Rp1,100,000,000,000.00 (one trillion one hundred billion rupiah). With Bank B's KPMM ratio of 10% (ten percent), Bank B does not meet the minimum KPMM ratio requirement according to the risk profile, which is 11% (eleven percent), so Bank B requires additional capital of at least Rp100,000,000,000.00 (one hundred billion rupiah), which is Rp1,100,000,000,000.00 (one trillion one hundred billion rupiah) minus Rp1,000,000,000,000.00 (one trillion rupiah).

III. REPORTING

1. The Bank submits KPMM reports using the format according to Appendix I.A and Appendix I.B of this Circular Letter no later than the 21st of the following month after the relevant report. If the 21st falls on a holiday, the report is submitted on the next working day.

2. Appendix I.A is the KPMM calculation report format using capital components and requirements as referred to in Articles 3, 4, and 5 of Bank Indonesia Regulation Number 7/13/PBI/2005 concerning Minimum Capital Provision Requirements for Commercial Banks Based on Sharia Principles as amended by Bank Indonesia Regulation Number 8/7/PBI/2006, which remains in effect until December 31, 2015.

3. Appendix I.B is the KPMM calculation report format using capital components and requirements as referred to in Articles 8 through 21, except for Article 9 paragraph (2) and (3) of Financial Services Authority Regulation Number 21/POJK.03/2014 concerning Minimum Capital Provision Requirements for Islamic Commercial Banks, which takes effect starting January 1, 2016.

4. The Bank submits reports on the assessment of minimum capital adequacy according to the risk profile to the Financial Services Authority referring to the format as in Appendix II of this Circular Letter at least every semester for the end-of-June position and end-of-December position. The report is submitted together with the submission of the results of the Self-Assessment of the Bank's Health Level according to Financial Services Authority regulations regarding the assessment of the health level of Islamic Commercial Banks.

5. Reports as referred to in item 1 and item 4 are submitted to:
   a. Sharia Banking Department – Financial Services Authority, Jl. M.H. Thamrin No.2, Radius Prawiro Tower 21st Floor, Jakarta 10350, for Banks with headquarters in the working area of the Financial Services Authority Headquarters; or b. Regional Office and local Financial Services Authority Office, for Banks with headquarters outside the working area of the Financial Services Authority Headquarters.

IV. OTHERS

Appendix I and Appendix II are an integral part of this Financial Services Authority Circular Letter.

V. TRANSITIONAL PROVISIONS

1. Bank Indonesia Circular Letter Number 7/53/DPbS Regarding Minimum Capital Provision Requirements for Commercial Banks Carrying Out Business Activities Based on Sharia Principles as amended by Bank Indonesia Circular Letter Number 8/10/DPbS is repealed and declared invalid as of January 1, 2016.

2. CHAPTER III items 1, 2, 3, 4, 5.1, CHAPTER V, and Appendix II of Bank Indonesia Circular Letter Number 7/53/DPbS Regarding Minimum Capital Provision Requirements for Commercial Banks Carrying Out Business Activities Based on Sharia Principles as amended by Bank Indonesia Circular Letter Number 8/10/DPbS are declared to remain in effect.

3. Appendix I of Bank Indonesia Circular Letter Number 7/53/DPbS Regarding Minimum Capital Provision Requirements for Commercial Banks Carrying Out Business Activities Based on Sharia Principles as amended by Bank Indonesia Circular Letter Number 8/10/DPbS is declared to remain in effect specifically regarding the format of the Risk-Weighted Assets Report for Fund Disbursement.

VI. CLOSING

This Financial Services Authority Circular Letter takes effect as of the date of determination.

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

Determined in Jakarta on April 27, 2015

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

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2015 NUMBER 35 DATE APRIL 30, 2015

Copy consistent with the original
Director of Legal Affairs I
Legal Department,
Signed,
Signed,
Sudarmaji

APPENDIX I
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 12/SEOJK.03/2015 ABOUT MINIMUM CAPITAL PROVISION REQUIREMENTS ACCORDING TO RISK PROFILE FOR ISLAMIC COMMERCIAL BANKS

Bank Name :
Month :
(in millions of Rp)
CONSOLIDATED BANK

1. Core Capital (Tier 1)
   1.1. Common Equity Tier 1 (CET 1)
   1.1.1. Paid-up Capital (common stock)
   1.1.1.1. Authorized capital
   1.1.1.2. Unpaid capital (-/-)
   1.1.1.3. Repurchased common stock (treasury stocks) (-/-)
   1.1.2. Additional Capital Reserves (Disclosed Reserves)
   1.1.2.1. Adders to Additional Capital Reserves
   1.1.2.1.1. Common stock premium
   1.1.2.1.2. Donated capital
   1.1.2.1.3. General reserves
   1.1.2.1.4. Prior years' profit after tax
   1.1.2.1.5. Current year profit after tax (100%)
   1.1.2.1.6. Translation differences of financial statements
   1.1.2.1.7. Capital deposit funds
   1.1.2.1.8. Common stock-based warrants issued (max 50%)
   1.1.2.1.9. Common stock-based share options issued (max 50%)
   1.1.2.1.10. Other comprehensive income: potential gains
   1.1.2.1.11. Surplus balance of fixed asset revaluation
   1.1.2.2. Deductors from Additional Capital Reserves
   1.1.2.2.1. Common stock discount (-/-)
   1.1.2.2.2. Prior years' loss (-/-)
   1.1.2.2.3. Current year loss (-/-)
   1.1.2.2.4. Translation differences of financial statements (-/-)
   1.1.2.2.5. Other comprehensive income: potential losses (-/-)
   1.1.2.2.6. Shortfall between Provision for Productive Assets (PPA) on productive assets and CKPN on productive assets (-/-)
   1.1.2.2.7. Shortfall from fair value adjustment of financial instruments in trading book (-/-)
   1.1.2.2.8. PPA on non-productive assets that must be calculated (-/-)
   1.1.3. Minority Interest from CET 1 issued by subsidiaries (specifically for consolidation)
   1.1.4. Deductors from Common Equity Tier 1 (CET 1)
   1.1.4.1. Deferred tax asset calculation (-/-)
   1.1.4.2. Goodwill (-/-)
   1.1.4.3. Other intangible assets
   1.1.4.3.1. Copyright (-/-)
   1.1.4.3.2. Patent Rights (-/-)
   1.1.4.3.3. Other intellectual property rights (including software applications) (-/-)
   1.1.4.3.4. Others (-/-)
   1.1.4.4. Investments (-/-)
   1.1.4.5. (-/-)
   1.1.4.6. Securitization exposures (-/-)
   1.1.4.7. (-/-)
   1.1.4.8. (-/-)
   Total Common Equity Tier 1 (CET 1)

1.2. Additional Core Capital (AT 1)
1.2.1.
1.2.2.
1.2.3.
1.2.4.
1.2.5. (-/-)
1.2.6.
1.2.7.
1.2.7.1. Investment in AT 1 instruments of other banks:
1.2.7.1.1. Preferred shares (non-cumulative) (-/-)
1.2.7.1.2. Subordinated securities (perpetual non-cumulative) (-/-)
1.2.7.1.3. Subordinated loans (perpetual non-cumulative) (-/-)
1.2.7.2. Investment in Tier 2 instruments of other banks (in case Tier 2 amount is insufficient) (-/-)
Total Additional Core Capital (AT 1)

Total Core Capital (1.1. + 1.2.)

2. Supplementary Capital (Tier 2)
   2.1. Preferred shares (cumulative) after subtracting repurchases
   2.2. Subordinated securities (perpetual cumulative, non-perpetual) after subtracting repurchases
   2.3. Subordinated loans (perpetual cumulative, non-perpetual) after subtracting repurchases
   2.4. Mandatory convertible bond
   2.5. Premium from supplementary capital instruments
   2.6. Discount from supplementary capital instruments (-/-)
   2.7. General reserves for PPA that must be formed on productive assets (max 1.25% RWA for Credit Risk)
   2.8. Purpose reserves
   2.9.
   2.10. Other supplementary capital instruments (Tier 2)
   2.11. Amortization based on remaining term (-/-)
   2.12. Sinking fund formed to repay supplementary capital instruments (-/-)
   2.13. Deductors from supplementary capital (Tier 2) in the form of investments in Tier 2 instruments of other banks
   2.13.1. Preferred shares (cumulative) (-/-)
   2.13.2. Subordinated securities (perpetual cumulative, non-perpetual) (-/-)
   2.13.3. Subordinated loans (perpetual cumulative, non-perpetual) (-/-)

APPENDIX I.B
MINIMUM CAPITAL PROVISION REQUIREMENT CALCULATION REPORT Issuance of supplementary capital instruments by subsidiaries purchased by third parties (specifically for consolidation)

CAPITAL COMPONENTS
Investment in AT 1 instruments of other banks (in case AT 1 amount is insufficient) Investment in Tier 2 instruments of other banks (in case AT 1 and Tier 2 amounts are insufficient) Preferred shares (non-cumulative) after subtracting repurchases Subordinated securities (perpetual non-cumulative) after subtracting repurchases Subordinated loans (perpetual non-cumulative) after subtracting repurchases Capital deficiency in subsidiaries that are insurance companies (specifically for consolidation) Premium from additional core capital instruments Discount from additional core capital instruments Issuance of additional core capital instruments by subsidiaries purchased by third parties (specifically for consolidation) Deductors from Additional Core Capital (AT 1)

Bank Name :
Month :
(in millions of Rp)
CONSOLIDATED BANK

APPENDIX I.B
MINIMUM CAPITAL PROVISION REQUIREMENT CALCULATION REPORT CAPITAL COMPONENTS

2.13.4. Mandatory convertible bond (-/-)
Total Supplementary Capital (2.1. to 2.13.)

Bank Name :
Month :
(in millions of Rp)
CONSOLIDATED BANK

APPENDIX I.B
MINIMUM CAPITAL PROVISION REQUIREMENT CALCULATION REPORT CAPITAL COMPONENTS

3. Total Capital (1 + 2)
4. Risk-Weighted Assets (RWA)
   4.1. RWA for Credit Risk
   4.2. Excess of general reserves for PPA on productive assets that are deductors for Credit Risk RWA (-/-)
   4.3. RWA for Market Risk
   4.4. RWA for Operational Risk
   Total RWA (4.1. to 4.4.)
5. KPMM Ratio (Actual)
   5.1. CET1 Ratio
   5.2. AT 1 Ratio
   5.3. Tier 1 Ratio (5.1 + 5.2)
   5.4. Tier 2 Ratio (max equal to Tier 1)
   5.5. Total Ratio (5.3 + 5.4)
6. CET1 Deficiency to meet at least 4.5%
7. Tier 1 Deficiency to meet at least 6%
8. KPMM Ratio according to risk profile
9. Allocation of KPMM fulfillment according to risk profile
   9.1. CET1 Ratio (at least 4.5%)
   9.2. Allocated AT1 Ratio
   9.3. Additional CET1 allocated to meet at least 6% of Tier 1 (if 9.2 < 1.5%)
   9.4. Allocated Tier 2 Ratio
   9.5. Additional CET1 Ratio allocated to meet Risk Profile KPMM (if 8 > 9.1 + 9.2 + 9.3 + 9.4)
   9.6. Fulfillment of risk profile KPMM ratio
10. Capital deficiency for risk profile KPMM fulfillment (8 - 9.6)
11. CET 1 available for buffer fulfillment
12. Total buffer that must be formed
    12.1. Capital Conservation Buffer
    12.2. Countercyclical Buffer
    12.3. Capital Surcharge for D-SIB
    12.4. Total Buffer
13. Excess or deficiency of CET 1 for buffer fulfillment

Signed,
Determined in Jakarta on April 27, 2015
EXECUTIVE HEAD OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY,
NELSON TAMPUBOLON

KPMM Ratio (%)
Copy consistent with the original
Director of Legal Affairs I
Legal Department,
Signed,
Signed,
Sudarmaji

Bank Name :
Month :
(in millions of Rp)
CONSOLIDATED BANK

APPENDIX I.B
MINIMUM CAPITAL PROVISION REQUIREMENT CALCULATION REPORT CAPITAL COMPONENTS

APPENDIX II
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 12/SEOJK.03/2015 ABOUT MINIMUM CAPITAL PROVISION REQUIREMENTS ACCORDING TO RISK PROFILE FOR ISLAMIC COMMERCIAL BANKS

REPORT ON THE ASSESSMENT OF MINIMUM CAPITAL ADEQUACY ACCORDING TO RISK PROFILE

The Report on the Assessment of Minimum Capital Adequacy According to Risk Profile must include at least:

I. CAPITAL MANAGEMENT STRATEGY

This chapter must describe at least:
A. the Bank's capital composition; and
B. the capital management strategy, which among other things includes capital sources and capital planning to meet Minimum Capital Adequacy (KPMM) according to the risk profile and to support the Bank's future business plans and strategies.

II. IDENTIFICATION AND MEASUREMENT OF MATERIAL RISKS

This chapter must describe at least:
A. the identification and measurement of risk types deemed material by the Bank; and B. the methods and assumptions used.

The types of risks and factors considered in the assessment of each risk must at least refer to the regulations of the Otoritas Jasa Keuangan regarding the assessment of the health level of Islamic Commercial Banks.

III. CAPITAL ADEQUACY ASSESSMENT

This chapter must describe at least the methods and processes for conducting the capital adequacy assessment by linking the risk level with the capital level required to absorb potential losses from the aforementioned risks.

IV. MINIMUM CAPITAL ACCORDING TO RISK PROFILE

This chapter must describe at least an executive summary of the results of the risk profile self-assessment and the results of the calculation of minimum capital according to the aforementioned risk profile.

Determined in Jakarta
On the date of 27 April 2015
CHIEF EXECUTIVE OF BANKING SUPERVISOR
FINANCIAL SERVICES AUTHORITY,
Signed,
NELSON TAMPUBOLON

Copy consistent with the original
Director of Law I
Legal Department,
Signed,
Signed,
Sudarmaji