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Indonesia’s Buy-Now-Pay-Later Legal Framework

Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) has formally introduced a regulatory framework governing the Buy Now Pay Later (the “BNPL”) services through the issuance of OJK Regulation No. 32 of 2025 on Provisions of Buy Now Pay Later (“Regulation 32/2025”). Regulation 32/2025 took effect upon its promulgation in December 2025, marking a significant milestone in the regulation of digital financial services in Indonesia.

♦ Scope and Eligible Providers of BNPL

Under Regulation 32/2025 BNPL services may be provided by the following financial service institutions (lembaga jasa keuangan or an “LJK”):

- commercial banks (the “Banks”); and
- financing companies,

(collectively, the “Providers”).

Under Regulation 32/2025 BNPL services provided by Banks must be in accordance with the banking laws and regulations. Meanwhile, financing companies may only provide BNPL services after obtaining a prior approval from OJK. The procedures for obtaining such approvals will be determined by OJK in due course.

♦ Characteristics of BNPL Services

BNPL services provided by the Providers must have the following characteristics:

1. BNPL services are only for the purpose of financing purchase of goods or services;
2. BNPL services are without any encumbrance;
3. there is a maximum amount of financing of the BNPL services;
4. repayment of the principal amount and payment of the interests must be based on an agreement with users;
5. approvals from users may be based on face-to-face electronic meetings or non-face-to-face electronic meetings; and
6. BNPL services are done through the electronic systems.

♦ Obligations of Providers of BNPL Services

Regulation 32/2025 provides that BNPL services may be provided conventionally or based on sharia principles by the Banks and the financing companies. In this regard, Regulation 32/2025 introduces a number of substantive obligations aimed at strengthening prudential oversight and consumer protection in BNPL services, which include the following:

Prudential Principles and Consumer Protection

The Providers must apply prudential principles in providing the BNPL services in accordance with applicable laws and regulations. This includes establishing internal policies and guidelines to assess the eligibility of BNPL customers, implementing consumer protection principles (as currently regulated under OJK Regulation No. 22 of 2023 on Consumers and Public’s Protection Within the Financial Services Sector (“Regulation 22/2023”)), and ensuring the protection of customers’ or debtors’ personal data in compliance with prevailing data protection laws and regulations.

Cooperation with Third Parties

The Providers may cooperate with third parties (for instance, e-commerce/marketplace) based on cooperation agreements. However, these cooperation agreements remain subject to customer information disclosure obligations.

Information Disclosure

The Providers are required to provide, disclose, and market BNPL services transparently to prospective or existing customers in accordance with Regulation 22/2023. Information to be disclosed through electronic systems includes the source of financing funds, the amounts and the payment installments, and/or other information as determined by OJK.

Note that failure to disclose the required information may subject the Providers to the imposition of administrative sanctions by OJK. These sanctions may be as follows:

- - written reprimands;
  - partial or full restriction of products and/or services and/or business activities;
  - partial or full suspension of products and/or services and/or business activities;
  - dismissal of management;
  - administrative fines, up to a maximum of Rp 15,000,000,000; and/or
  - revocation of issued permits.

Collection Practices

The collection of BNPL payments must be carried out in compliance with Regulation 22/2023.

Reporting Obligations

The Organizers are required to prepare reports on the implementation of their BNPL services and submit such reports to OJK in accordance with applicable laws and regulations.

♦ Transition Period for Existing BNPL Services

Recognizing that BNPL products have already been widely offered prior to the issuance of the Regulation 32/2025, there is a six-month transition period from the enactment of Regulation 32/2025 up to June 15, 2026. During such period, the Providers that currently provide BNPL services must align their existing products and operational frameworks to ensure full compliance with Regulation 32/2025.

AKSET

Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com ), Adhitya Ramadhan (aramadhan@aksetlaw.com ), or Azzahra Saffanisa Sudiardiputri (asudiardiputri@aksetlaw.com ) for further information.

Disclaimer:

The foregoing material is the property of AKSET and may not be used by any other party without our prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.

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AKSET Newsflash: Indonesia’s Buy-Now-Pay-Later Legal Framework

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OJK Issues New Guidelines for Peer-to-Peer Lending Business

On November 8, 2023, the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) issued OJK Circular Letter No. 19/SEOJK.06/2023 on the Implementation of Information Technology Based Collective Financing Services (“Letter 19/2023”). Letter 19/2023 sets out a detailed guideline for the implementation of OJK Regulation No. 10/POJK.05/2022, dated June 29, 2022 on Information Technology Based Collective Financing Services (“OJK Reg. 10/2022”).

In Letter 19/2023, OJK lays out a more comprehensive list of requirements in performing the Peer-to-Peer Lending (the “P2P Lending”) business process to fill in the gaps where OJK Reg. 10/2022 is silent. The topics covered under this Newsflash relate to the operations of business activities, fund distribution, repayment mechanism, outsourced work, interest rates, and payment success rates. We set out the salient provisions of Letter 19/2023 below.

♦ Business Activities of P2P Lending Provider

OJK Reg. 10/2022 states the business activities of a P2P Lending Provider (a “Provider”) consist of (i) provision (penyediaan), (ii) management (pengelolaan), and (iii) operation (pengoperasian) of the P2P Lending. Further definitions of such elements of business activities that shall be performed by a P2P Lending Provider are not set out under OJK Reg. 10/2022.

Now, Letter 19/2023 specifically clarifies the details of each type of business activity, as follows:

Provision Business Activity: providing an electronic system that brings together a borrower and a lender in a funding or lending transaction and providing other facilities such as customer services, virtual accounts, and escrow accounts;
Management Business Activity: conducting activities including user identity verification, users’ private data processing, funding or lending disbursement from lender to borrower, fund repayment from borrower to lender, and debt collection; and
Operation Business Activity: performing operational activities of the Electronic System it owns in full.

♦ Fund Disbursement and Repayment Mechanism

Letter 19/2023 provides a comprehensive procedure for a lender and a borrower in receiving and disbursing funds within a Provider’s platform. Prior to approving certain funds to be provided by a lender, a Provider shall conduct an analysis by way of (i) verification of a document’s authenticity submitted by a lender, (ii) confirmation and clarification to the lender on matters regarding anti-money laundering and counter-terrorist financing, and (iii) an analysis of the prospective lender.

From the borrower’s side, a Provider shall conduct a credit scoring on a prospective borrower before a borrower may borrow through the platform. Following a borrower’s request to borrow funds, a borrower’s credit scoring shall be conducted by way of (i) verification of the document’s authenticity submitted by the borrower, (ii) confirmation and clarification to the borrower on matters regarding anti-money laundering and counter-terrorist financing, (iii) process of data from other relevant third parties for the purpose of scoring (if necessary), and (iv) an analysis of the prospective lender. Based on such analysis, the Provider shall determine whether or not a borrower is eligible for the disbursement of funds in the Provider’s electronic system.

Letter 19/2023 explicitly states that the scoring conducted by a Provider shall take into account the character and repayment capacity of the prospective borrower. It is stipulated under Section IV.3.i of Letter 19/2023 that scoring on the repayment capacity for consumptive funding or lending shall be conducted by way of comparing the total amount of the principal payment amount and economic benefits that are paid by the borrower with the income of the borrower. The repayment capacity of the borrower is set to be at a maximum of:

50% (fifty percent) on the first year since the issuance of Letter 19/2023;
40% (forty percent) on the second year since the issuance of Letter 19/2023; and
30% (thirty percent) on the third year since the issuance of Letter 19/2023.

Once the analysis for both the prospective lender and the borrower is complete, the prospective lender may choose the prospective borrower on a Provider’s electronic system and proceed with the execution of the P2P Lending agreement using an electronic signature. Thereafter, the payment mechanism of the funding or lending shall be disbursed by the lender through a payment gateway or a virtual account to be placed in the Provider’s escrow account which will be further transferred to the borrower.

♦ Prohibition on the Utilization of an Outsourced Worker

OJK Reg. 10/2022 stipulates that a Provider is permitted to have an outsourcing agreement through (i) a job-chartering agreement; and/or (ii) an outsourcing agreement. However, Article 19(2) of OJK Reg. 10/2022 limits that the work function of assessment of funding or lending feasibility and/or information technology may not be outsourced to another third party.

Under Section V.5 of Letter 19/2023, such function is elaborated to cover that the prohibition on the outsourced work on the works that perform the function of assessment of funding or lending feasibility is only regarding the scoring of the funding or lending feasibility. In line with the foregoing, a Provider may still cooperate with a credit information processing agency to increase the data reference in conducting the funding or lending feasibility scoring.

Letter 19/2023 further stipulates that the prohibition of outsourcing in the information technology works which essentially relates to the development and operation of the information technology, which comprise of (i) user access management activities, (ii) database management activities, (iii) backup and restore activities, (iv) troubleshooting, and (v) disaster recovery.

♦ Interest Rates for P2P Lending

Previously, the interest rate for P2P Lending Activities was only regulated under the Indonesia Fintech Lending Association (Asosiasi Fintech Pendanaan Indonesia or “AFPI”) Code of Conduct which was amended periodically since its first issuance in 2018 and its latest amendment in 2021. Under such AFPI Code of Conduct, the applicable rate is a maximum of flat interest rate of 0.4% per day, calculated based on the principal lending amount.

While OJK Reg. 10/2022 does not stipulate any maximum interest rate, Articles 29(1) and (2) of OJK Reg. 10/2022 require Providers to fulfill provisions on the maximum limitation of funding or lending economic benefits (batas maksimum manfaat ekonomi), which will be determined by OJK.

OJK through its Letter 19/2023 now stipulates the maximum limit of funding or lending economic benefits. To clarify, economic benefits that are imposed by a Provider are the return rate which includes: (i) interest/margin/profit sharing, (ii) administration fees/commission fees/platform fees/ujrah (compensation fees in syariah) equivalent to the relevant fees, and (iii) other costs, other than late fines, stamp duty, and taxes.

The maximum limits of funding or lending economic benefits under Letter 19/2023 are as follows:

For productive funding or lending:
1. 0.1% (zero point one percent) per calendar day of the value of the funding or lending balance, which is valid for 2 (two) years from January 1, 2024; and
2. 0.067% (zero point zero six seven percent) per calendar day of the value of the funding or lending balance, which is valid from January 1, 2026.
For consumptive funding or lending:
1. 0.3% (zero point three percent) per calendar day of the value of the funding or lending balance, which is valid for 1 (one) year from January 1, 2024;
2. 0.2% (zero point two percent) per calendar day of the value of the funding or lending balance, which is valid for 1 (one) year from January 1, 2025; and 0.1% (zero point one percent) per calendar day of the value of the funding or lending balance, which is valid from January 1, 2026.

The above rates are also applicable for the maximum limit of late fines according to Sector VI.4 of Letter 19/2023.

Similar to the provision under AFPI Code of Conduct, Letter 19/2023 clarifies that all economic benefits and late fines that may be imposed on the borrowers may not exceed 100% (one hundred percent) of the funding or lending value that is stated in the funding or lending agreement.

♦ Introduction of a New Payment Succes Rate

Before the issuance of Letter 19/2023, there was only one criterion for a Payment Succes Rate (Tingkat Keberhasilan Bayar or “TKB”), as governed under OJK Reg.10/2022, namely TKB90. Letter 19/2023 introduces additional TKBs, which are TKB 0, TKB30, and TKB60. These TKBs are the rate for success payment by the Provider in facilitating the completion of funding or lending obligation within 0 calendar days for TKB0, 30 calendar days for TKB30, 60 calendar days for TKB60, and 90 calendar days for TKB90.

Similar to the previous requirement under OJK Reg.10/2022, the TKB shall be published in the electronic system of the Provider as part of the funding or lending performance of a Provider along with the value of distributed funding or lending, the number of lenders, and the number of borrowers.

AKSET

Please contact Johannes C. Sahetapy-Engel (jsahetaypyengel@aksetlaw.com), Clara Anastasia So (canastasia@aksetlaw.com), and Ammarsyarif G. Goenawan (agoenawan@aksetlaw.com) for further information.

Disclaimer:

The foregoing material is the property of AKSET and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.

OJK Issues New Guidelines for Peer-to-Peer Lending Business

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by Pilanita Silaen

Regulatory Overhaul for P2P Lending Business Finally Issued

The Financial Service Authority (“OJK”) recently issued OJK Regulation No. 10/POJK.05/2022 dated July 4, 2022 on Information Technology Based Collective Financing Services (“POJK 10/2022”). POJK 10/2022 revoked the previous regulation, namely OJK Regulation No. 77/POJK.01/2016 of 2016 dated December 29, 2016 on Information Technology-based Lending Services (“POJK 77/2016”), which was originally introduced to quickly response to the then-growing Peer-to-Peer Lending (“P2P Lending”) industry. Now, due to increasingly complex development of the P2P Lending industry, a highly comprehensive regulatory framework is needed to safeguard the industry.

Since its inception, the P2P Lending industry in Indonesia saw remarkable growth, with factors such as digital revolution, public interest in new financial technologies and a huge potential market, all contributing to the industry’s upward momentum. However, the expedited growth of the P2P Lending industry also gave rise to its fair shares of issues, such as poor industry practices (i.e., debt collection, data protection, exorbitant interest rates) and more notably, a pervasive growth in illegal P2P Lending activities.

Over the years, the OJK has been committed to improving the P2P Lending ecosystem, closely monitoring its players and cracking down on illegal P2P Lending companies. To this end, the OJK has even enacted a moratorium on the issuance of new P2P Lending licenses, to ensure that a more mature legal framework is in place before further growth of the industry.

POJK 10/2022 represents a culmination of the OJK’s efforts to improve the P2P Lending sector. Provisions under this new regulation prove to be far more extensive compared to the previous regime, governing aspects of the industry that POJK 77/2016 was previously silent on. Additionally, POJK 10/2022 also codifies some of the more essential provisions and policies previously scattered under the OJK’s derivative regulations under one legal product. All in all, the issuance of POJK 10/2022 imposes more stringent standards on the P2P Lending industry as a whole. Although POJK 10/2022 provides a much-needed governance to the P2P Lending industry, the comprehensive set of rules and requirements also invites more questions and issues in regard to the implementation of the newly introduced provisions.

Please see below for an overview of POJK 10/2022.

Revamping of the Licensing Regime

Under the previous regime of POJK 77/2016, the entry policy for P2P Lending business required a P2P Lending Provider (“Provider”) candidate to register first before applying for a business license (at the latest, 1 year after being registered).

Back in 2016, P2P lending was a completely new industry in Indonesia. Despite that, the business had already attracted many players. POJK 77/2016 (along with its registration-licensing regime), to some extent, was intended to provide an interim governance to nurture the development of the industry while at the same time safeguarding its operation in Indonesia.

Now, similar to other more mature financial services, the new POJK 10/2022 revamped the industry’s entry policy regime by enforcing a sole-licensing regime as a requirement to conduct its business in Indonesia.

Although the licensing process and requirements are quite similar with the licensing phase under POJK 77/2016, POJK 10/2022 adds as follows:

an obligation for a Provider to immediately carry out Electronic System Operator (ESO) registration within 30 (thirty) calendar days as of the issuance of business license by OJK;
submission of additional required documents, such as copies of tax return form of the last 2 (two) years for individual shareholder candidates, business feasibility studies for the first 3 (three) years, confirmation from relevant supervisory authority in the country of origin of the foreign shareholders.

Capitalization

Previously, POJK 77/2016 required a Provider to have a paid-up capital in the amount of at least Rp2,500,000,000 (two billion five hundred million Rupiah) at the time of licensing. Under POJK 10/2022, the amount is increased to at least Rp25,000,000,000 (twenty five billion Rupiah). POJK 10/2022 also requires the capital to be paid-up in full, cash, and stored in a form of time deposit.

Please note that this capitalization only applies for new Provider candidates, while existing licensed Providers, Providers which are in the licensing phase, and Providers which have returned their registration certificates and would like to resubmit its licensing application are exempted from this requirement.

Minimum Equity

POJK 10/2022 introduces a minimum equity to the P2P Lending business whereby a Provider must at all times have equity of at least Rp12,500,000,000 (twelve billion five hundred million Rupiah). The implementation of this requirement is done through stages within 3 (three) years’ time, as follows:

having at least Rp2,500,000,000 (two billion five hundred million Rupiah) within 1(one) year after the issuance of POJK 10/2022;
having at least Rp7,500,000,000 (seven billion five hundred million Rupiah) within 2 (two) years after the issuance of POJK 10/2022; and
having at least Rp12,500,000,000 (twelve billion five hundred million Rupiah) within 3 (three) years after the issuance of POJK 10/2022.

Controlling Shareholder and Single Presence Policy

The P2P Lending industry now acknowledges the concept of a ‘controlling shareholder’ (Pemegang Saham Pengendali or “PSP”) which is defined as a legal entity, individual, or group company either: (i) owning at least 25% (twenty five percent) voting shares in a Provider; or (ii) owning less than 25% (twenty five percent) voting shares however can be proven to have any control, whether directly or indirectly, of the Provider.

A Provider is required to state at least 1 (one) PSP, whereby OJK may also decide a Provider’s PSP at its discretion. In the event that there are more than 1 (one) shareholders that fulfills the criteria as PSP, the Provider shall determine all of such shareholders as PSPs of the Provider.

Additionally, the regulation prohibits a party to be a PSP in more than 1 (one) conventional Provider or 1 (one) sharia-based Provider, whereby a party that has already been a PSP in more than 1 (one) conventional Provider and 1 (one) sharia-based Provider, is given 1 (one) year to adjust to the new provisions.

A licensed Provider must also report its determined PSP and any changes thereof to OJK within 6 (six) months since the enactment of the provisions. POJK 10/2022 further extends liability to the PSP of a Provider in certain conditions, such as in the event of a Provider being at loss due to PSP’s involvement in any tort conducted by the Provider.

Necessary OJK Approval on Corporate Actions

Previously, there was only 1 (one) general clause which stipulates the requirements of OJK approval for corporate actions. Now, POJK 10/2022 expands on this by stipulating comprehensive provisions relating to corporate matters requiring OJK’s approval, namely:

change of ownership;
increase of paid-up capital;
change of members of Board of Directors (“BOD”), Board of Commissioners (“BOC”), and Sharia Supervisory Board (Dewan Pengawas Syariah or “DPS”); and
merger and consolidation.

Specifically, for point (i) above, POJK 10/2022 further elaborates on what constitutes a change of ownership of a Provider, which consists of changes to the following:

Shareholders of a Provider that is not a public company (direct change of shareholders);
Shareholders of the shareholders of a Provider that is not a public company (indirect change of shareholders);
PSP of a Provider that is a public company; and
PSP of the shareholders of a Provider that is a public company.

There are also additional requirements for a Provider after obtaining OJK approval on corporate matters, such as convening a General Meeting of Shareholders no later than 60 (sixty) working days as of the date of the OJK approval and submitting a report to OJK at the latest 10 (ten) business days as of the date of the GMS. Failure of comply to such provisions will result in various sanctions, such as the void of the OJK approval, written warning, limitation of business activities, and license revocation.

Lock-Up Period for Change of Ownership

POJK 10/2022 introduces a lock-up period whereby a Provider is prohibited from conducting any of the abovementioned forms of change of ownership that results in any (i) new shareholder, and/or (ii) change of PSP, within 3 (three) years since the date of the Provider’s business license from OJK.

Limitation on the Funding Amount by Each Lender

POJK 10/2022 enforces a new limitation on the maximum amount of lending that each lender (and its affiliates) may provide, which is in the amount of 25% (twenty five percent) of the final lending position at the end of each month. Notwithstanding the aforementioned, please note that such maximum amount may be conducted in stages, as follows:

80% (eighty percent) of the final lending position at the end of the month, at the latest 6 (six) months after the enactment of POJK 10/2022;
50% (fifty percent) of the final lending position at the end of the month, at the latest 12 (twelve) months after the enactment of POJK 10/2022; and
25% (twenty five percent) of the final lending position at the end of the month, at the latest 18 (eighteen) months after the enactment of POJK 10/2022.

However, lenders in the financial services industry that is under OJK’s supervision may provide lending up to 75% (seventy five percent) of the final lending position at the end of each month.

Fit and Proper Test

POJK 10/2022 now expressly requires that (i) PSP, (ii) BOD members, (iii) BOC members, and (iv) DPS members (for Sharia-based Providers) shall obtain approval from the OJK prior to their appointment through a fit and proper test. The fit and proper test shall be conducted based on OJK Regulation No. 27/POJK.03/2016 of 2016 on Fit and Proper Test for Main Parties of Financial Services Institutions.

Introduction on the Necessity of Business Plan

The new POJK 10/2022 emphasizes the necessity of the Provider’s business plan. Business actions that are required to be included in the Business Plan under POJK 10/2022 are: (i) conversion plan into a sharia business model; (ii) entering into a cooperation; (iii) opening/closing a branch office, (iv) change of name and/or electronic system, (v) plan to change address, (vi) plan to change business model, (vii) plan to change ownership, (viii) increase of paid-up capital, (ix) plan to change members of BOD, BOC, and/or DPS, and (x) merger and consolidation plan.

Prohibitions for Provider

Other than the previously regulated prohibition under POJK 77/2016, POJK 10/2022 also introduces several new prohibitions for the Provider, notably:

Prohibition to represent lenders to provide lending and/or provide an automatic lending feature;
Prohibition to give access to the members of BOD, BOC, DPS, and employees as well as their affiliates to act as lenders;
Prohibition to give access to the members of BOD, BOC, DPS, and shareholders as well as their affiliates to act as borrowers;
Prohibition to have any loan (i.e., bank loan, shareholders’ loan, and loan from other sources); an
Prohibition to conduct any action which causes or enforces other financial services institutions under the supervision of OJK to violate and/or circumvent the laws and regulations.

Other New Provisions Under POJK 10/2022

As a more comprehensive regulatory framework, POJK 10/2022 contains a myriad of new provisions, rules, and requirements relating to the P2P Lending business in Indonesia, such as:

Corporate Governance. POJK 10/2022 now stipulates an extensive corporate governance requirements for a Provider, such as: (i) requirement to prepare good corporate governance guidelines; (ii) minimum numbers of BOD and BOC as well as DPS (iii) requirements for competence and qualifications for BOD, BOC and DPS; and (iv) internal audit requirements. Providers are required to comply with the requirements on the minimum numbers of BOD and BOC along with their competence and qualification within 1 (one) year since the enactment of POJK 10/2022.
Relevant Requirements Relating to Human Resources. Under POJK 10/2022, a Provider must fulfill several requirements with regard to human resources, among others:
- Requirement for all BOD, BOC, and officials 1 (one) level under the BOD to obtain work competence certificate from an OJK registered certification institution in the fintech industry. Such certification must be obtained within 1 (one) year since the enactment of POJK 10/2022;
- Requirement for a Provider to have special workforce to develop, change, and erase the Provider’s electronic system;
- Criteria for the utilization of foreign workers by a Provider; and
- Restriction on the types of business activities that a Provider may allocate parts of work, namely related to funding assessment and/or information technology.
Business and Operational Activities. POJK 10/2022 sets out extensive rules and requirements concerning the business activities and operation of a Provider, among others:
- a Provider may only be in the form of a limited liability company;
- POJK 10/2022 further sets out the types of business activities of a Provider, dividing them into conventional and sharia models and acknowledging 2 (two) types of lending, namely productive and multifunction (multiguna);
- the use of the payment methods of escrow account, fund account, and virtual account or payment gateway is similarly regulated under POJK 10/2022. However, POJK 10/2022 stipulates a specific maximum period for the fund placement in an escrow account, i.e., 2 (two) working days for the lender and 1 (one) working day for the borrower.
Sharia-based P2P Lending. POJK 10/2022 recognizes the concept of Sharia-based P2P lending, which in essence, P2P lending conducted based on provisions of Islamic law in accordance with fatwa and/or statements of conformity with sharia from Dewan Syariah Nasional Majelis Ulama Indonesia. Additionally, POJK 10/2022 also provides the possibility of conversion from conventional P2P lending to sharia-based P2P lending. As it is already possible to convert, POJK 10/2022 now expressly prohibits conventional Provider to conduct sharia-based P2P Lending activities and must stop all marketing of sharia-based P2P Lending products. Consequently, Providers conducting concurrent sharia-based and conventional P2P Lending activities must settle any outstanding rights and obligations within 6 (six) months since the enactment of POJK 10/2022.
Funding Quality of Provider. POJK 10/2022 now introduces rates of funding quality of Providers into current loans (lancar), loans with special attention (dalam perhatian khusus), non-current loans (kurang lancar), doubtful loans (diragukan), and non-performing loans (macet). Further implementation of this provision will be regulated by the OJK.
Debt Collection. POJK 10/2022 stipulates a general guideline on debt collection in the event of a defaulting borrower through the use of a warning letter to such borrower. POJK 10/2022 also stipulates that Providers may enter into a cooperation with certain qualified third parties, such as those with certifications, to conduct debt collection to its borrowers. Further implementation of this provision will be regulated by the OJK.
Reporting to OJK. Similar to the previous regime, a Provider is required to conduct regular (which consists of monthly and annual reporting) and incidental reporting to OJK. However, Providers are now required to submit an annual financial statement audited by public accountant. Other activities also require a Provider to submit a report to OJK, for example: (i) branch opening; (ii) change of name and Electronic System; (iii) change of domicile; and (iv) change of business model. In addition, POJK 10/2022 now also provides a more extensive set of template forms for submission of reports and/or approval applications to OJK in its Appendix.
Cooperation with Government Agencies and Third Parties. POJK 10/2022 governs on the cooperation between a Provider and third parties, either financial or non-financial institutions, including in relation to the cooperation on data sharing. POJK 10/2022 also opens the possibility for Providers to enter into a cooperation with government agencies to support government programs to become a distribution partner for state securities (surat berharga). However, such cooperation can only be for securities offering in the primary market.
Electronic System, Technical Requirements, and Personal Data Protection. There are several key-items stipulated in POJK 10/2022 relating to the applicable requirements for the Electronic System used by the Providers in performing its business activities, among others: (i) the obligation to own, control, and operate the Electronic System; (ii) prohibition on the number of Electronic System owned by a Provider; (iii) data submission obligation to fintech lending data center maintained by OJK through system integration; (iv) the obligation to have Electronic System processing record; and (v) relevant security requirements for the Electronic System. Personal data protection-wise, POJK 10/2022 adopts a similar approach to the personal data protection provisions adopted in other financial services regulations and still relies on a consent of data subject as the primary legal basis for personal data processing activities.
Further Provisions by OJK. Several matters under POJK 10/2022 will be regulated further by OJK, namely on licensing procedure and mechanism; types of business activities, lender and borrower; risk management; escrow account, virtual account, fund account, and other means of fund transfer; cooperation; data and information processing; lending quality; reporting procedure and mechanism, success rate of repayment (tingkat keberhasilan bayar/TKB), and debt collection.

POJK 10/2022 is in force as of the date of its enactment, July 4, 2022. The new regulation revokes POJK 77/2016 in its entirety and Article 30 letter a of OJK Regulation No. 4/POJK.05/2021 of 2021 dated March 17, 2021 on Risk Management in for the Use of Information Technology by Non-bank Financial Institutions (“POJK 4/2021”). However, the provisions under the previous regime’s implementing regulations still apply so long as they do not contradict to the new POJK 10/2022.

We note that while POJK 10/2022 provides a more extensive regulatory framework for the P2P lending business industry, there are still some aspects that remain unregulated under the POJK 10/2022. In the near future, we expect that OJK will issue more guidelines and legal products to supplement the effective implementation of POJK 10/2022.

Please look forward to our next articles within the series, where we will provide more in-depth elaboration on the notable changes under POJK 10/2022.

July 20, 2022

AKSET

Please contact Abadi Abi Tisnadisastra (atisnadisastra@aksetlaw.com), Alfa Dewi Setiawati (asetiawati@aksetlaw.com), Noor Prayoga Mokoginta (nmokoginta@aksetlaw.com), Clara Anastasia So (canastasia@aksetlaw.com), Caleb Nathanael Sitorus (csitorus@aksetlaw.com), M. Satria Kasmaliputra (mkasmaliputra@aksetlaw.com), and Ammarsyarif G. Goenawan (agoenawan@aksetlaw.com) for further information.

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POJK 10 2022 on P2P Lending

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by Pilanita Silaen

OJK Issues New Regulations on General Meeting of Shareholders using Conventional and Electronic Means

On April 21, 2020, the Indonesia Financial Service Authority (Otoritas Jasa Keuangan or “OJK”) issued 2 (two) new regulations in relation to the General Meeting of Shareholders for Public Companies (“GMS”), as follows:

OJK Regulation No. 15/POJK.04/2020 dated April 21, 2020 on Planning and Implementation of GMS for Public Companies (“OJK Reg. 15/2020”) – replacing the previous OJK Regulation No. 32/POJK.04/2014 of 2014 dated December 8, 2014 as amended by OJK Regulation No. 10/POJK.04/2017 of 2017 dated March 14, 2017.

There are no material changes to the process of GMS under the OJK Reg. 15/2020. However, this new regulation introduces new provisions allowing: (i) BOC to propose convening a GMS and (ii) GMSto be carried out through electronic means.

OJK Regulation No. 16/POJK.04/2020 on the Implementation of GMS Through Electronic Means by Public Companies (“OJK Reg. 16/2020”). Preceded by OJK Circular Letter on March 18, 2020 on the Implementation of GMS (as discussed in our previous newsflash, OJK now specifically regulates the implementation of GMS through electronic means (“E-GMS”).

In brief, this OJK Reg. 16/2020 allows public companies to hold E-GMS, through a system provided by either: (i) an E-GMS Provider (ii.e., the Indonesia Central Securities Depository (“KSEI”)) or other party appointed by OJK; or (ii) the said public company itself.

Please see our previous newsflash on KSEI’s current rules on E-GMS and provision of authorization via electronic means.

Further, this OJK Reg. 16/2020 sets out, among others, the requirements and obligations that must be complied with by the E-GMS Provider or the public companies in preparing and carrying out the E-GMS.

The following are the key points to be noted under the OJK Reg. 15/2020 and OJK Reg. 16/2020.

OJK Reg. 15/2020 – Planning and Implementation of GMS

Deadline for Convening Annual GMS

Previously, public companies were required to convene their annual GMS 6 (six) months after the end of their respective financial year at the latest. Under OJK Reg. 15/2020, OJK, under certain circumstances, has the discretion to determine another deadline for public companies to convene their GMS. Such circumstances may include potential of significant fluctuation on market condition – as evident in the recent market condition, amid the COVID-19 outbreak.

BOC Request to Convene GMS

OJK Reg. 15/2020 now permits Board of Commissioners (“BOC”) of public companies to request their Board of Directors (“BOD”) to convene GMS. Under the previous regime, only one or more shareholders holding at least 1/10 or more voting shares are entitled to request BOD to convene GMS.

Submission of Additional Information Relating to GMS

Prior to convening GMS, public companies need to complete the following actions: (i) submission of the agenda of the GMS to OJK; (ii) announcement of GMS to shareholders (GMS Announcement); and (iii) issuance of GMS invitation to shareholders (GMS Invitation).

In submitting the GMS agenda to OJK, the Public Company must now include: (i) an explanation on whose request the GMS is going to be held (i.e., either the shareholder’s request or court decision) and (ii) details of the party(ies) requesting the GMS (i.e., name and share percentage of the relevant shareholder(s) in such public company and/or the relevant court decision, as applicable).

In addition, OJK Reg. 15/2020 stipulates that in the event a GMS is to be attended only by independent shareholders, the GMS announcement must also include the following information:

The subsequent GMS that will be convened if the first GMS fails to meet the attendance quorum of the independent shareholders; and
The voting quorum required for each meeting.

With respect to the GMS Invitation, OJK Reg. 15/2020 now also requires informing shareholders of possibility of a shareholder to be represented by a proxy by providing a power of attorney through the E-GMS mechanism.

Miscellaneous

In the event that the result determined in the resolution of a GMS is not implemented within 12 (twelve) months from the date of such GMS, public companies must provide an explanation on the reasons behind the failure to implementing the next GMS and include such information in the annual report.
Appointment and termination of public accountant in providing audit services relating to the annual financial information must be resolved in GMS, taking into account the proposal from the BOC and the recommendation of the audit committee.

Lastly, it is to be noted that Public Companies also need to amend their Articles of Associations to be in line with the provisions of OJK Reg. 15/2020 within 18 (eighteen) months from April 21, 2020 – i.e., by October 21, 2021.

OJK Reg. 16/2020 – GMS THROUGH ELECTRONIC MEANS

E-GMS System

OJK Reg. 16/2020 provides that public companies may hold GMS through electronic means (using teleconferencing media, video conferencing, or other electronic media facilities) – through a system (an electronic GMS system which supports the provision of information, implementation, and reporting of the said GMS) provided by either:

E-GMS Providers, which can be:
1. KSEI – through its “eASY.KSEI” system; or
2. Other parties designated by the OJK (must be an Indonesian legal entity based in Indonesia).
The Public Company itself.

It is to be noted that:

If the Public Company convenes GMS using the system hosted by E-GMS Provider, the Public Company must comply with the terms and conditions set by the E-GMS provider; and
All systems of E-GMS, whether hosted by OJK’s appointed provider or by the Public Company itself, must be connected with KSEI and the relevant Securities Administration Bureau (Biro Administrasi Efek or “BAE”) as to ensure the said meeting is attended by the rightful shareholders.
Requirements for E-GMS Provider

In carrying out its role, E-GMS Provider and Public Companies (which provide their own E-GMS system – except letter (h) below) must comply with the following requirements:

Be registered as an electronic system provider (Penyelenggara Sistem Elektronik or “PSE”) to the Ministry of Communication and Informatics;
Provide access rights to the users (Public Companies, BAE, shareholders, other participants as allowed by the provider);
Determine and follow a set of standard operating procedures for the implementation of the system;
Ensure the implementation of the E-GMS;
Ensure the safety and reliability of the system;
Notify the users in case of changes or development to the system, including the addition of services and features of the E-GMS;
Provide an audit track record of all data processing activities at the system for the purpose of supervision, law enforcement, dispute resolution, verification, and examination;
Provide replacement facilities for data centers and disaster recovery centers which relate to the implementation of E-GMS at a safe location within Indonesia territory and located in a separate area from the main data centers;
Meet various minimum standards which apply to information technology systems, information technology security, system disruptions and failures, and the management of information-transfer technology systems;
Save all data on the implementation of the E-GMS; and
Accept liability for any losses that are incurred as a result of any errors or omissions which occur during the provision and management of E-GMS.

For E-GMS system that is provided by the Public Company itself, all above-mentioned requirements are also applicable to such company, except for item (h) above.

OJK Reg. 16/2020 also requires KSEI to issue a procedure and guidelines for its system within 6 (six) months after its enactment – which will fall on October 21, 2020. Such procedure and guidelines will contain, among others, requirements and procedures for the registration and/or granting of access rights to E-GMS users, including cancellation of E-GMS user registrations, protection of personal data according to the relevant laws and regulation, etc.

Procedures and Requirements for E-GMS

In convening an E-GMS, OJK Reg. 16/2020 requires the following:

Public Companies must include information regarding the implementation plan of E-GMS in the notification of the GMS agenda to OJK, the GMS Notification, and the GMS Invitation;
Public Companies must also hold a Physical GMS (that will be used as the main location to convene the E-GMS) which must be held and attended by at least the following parties:
- Chairman of the said GMS;
- 1 (one) director and/or 1 (one) commissioner; and
- Supporting professionals in capital market – namely the Public Accountant, Appraiser, Legal Consultant, and Public Notary.

In certain conditions, the Public Company may not have to carry out the above-mentioned physical GMS or otherwise limit the physical presence of the parties, either partially or wholly, in convening an E-GMS. Such conditions will be determined by the government or proceeded with approval from OJK.

Determination of Total Attendees

The shareholders or their proxies can attend the GMS either physically or electronically when Public Companies decide to hold a GMS through the E-GMS mechanism. The total attending shareholders will be calculated based on the shareholders or their proxies attending the E-GMS physically or electronically.

The number of shareholders/proxies that can attend the GMS physically can be determined by the Public Company on a first come first served basis up to the determined number.

Mandatory Features

OJK Reg. 16/2020 also stipulates that E-GMS must have the following features:

Ability to display the rules, materials of the GMS and the agenda of the GMS needed for shareholders to make decisions for each item listed in the agenda of the GMS;
Ability to allow all participants of the GMS to participate and interact in the GMS;
Ability to provide calculation system to determine the attendance quorum;
Ability to collect and count casted votes, including if there are more than 1 (one) shares classifications;
Ability to record all interactions in the GMS, both in the form of audio, visual, audiovisual, and non-audiovisual electronic recordings; and
Ability of granting power of attorneys electronically.

Voting Mechanism

Under this OJK Reg. 16/2020, voting through electronic means can be submitted from after the GMS Notification is sent until the opening of each agenda on the GMS date. This electronic vote may be changed or canceled up to the point where the GMS Chairman commences the voting process over each of the GMS agenda. Shareholders who have voted electronically before the actual GMS will still be considered validly attending the GMS.

In its implementation, the E-GMS Provider, who has recorded and stored the already-submitted votes, must keep the said votes confidential until the time of the votes’ count.

Minutes of E-GMS

The results of the E-GMS must be made into an E-GMS minutes and made in the form of a notarial deed, without requiring the signatures of the GMS participants.

Sanction

OJK may impose administrative sanctions or specific measures for violation of OJK Reg. 16/2020 ranging from written warnings to cancellation of registration. OJK may also publish a public announcement regarding the imposition of administrative sanctions and other specific measures.

Transitional Provisions

Public Companies that have delivered the agenda of the GMS to the OJK prior to the enactment of OJK Reg. 16/2020 may follow the provisions stipulated this OJK Reg. 16/2020.

Furthermore, until KSEI’s procedures and guidelines for the system to hold E-GMS is issued by OJK under OJK Reg. 16/2020 (i.e, by October 21, 2020 at the latest), KSEI may act as E-GMS Provider based on an agreement with the users.

***

June 3, 2020

by Adho Fadillah Putera

OJK Amends Regulation on Material Transaction and Change of Business Activities

On April 21, 2020, the Financial Services Authorities (Otoritas Jasa Keuangan or “OJK”) issued OJK Regulation No. 17/POJK.04/2020 on Material Transaction and Change of Business Activities (“OJK Reg. 17/2020”) – replacing the previous Regulation No. IX.E.2 issued by the Capital Market and Financial Institution Supervisory Body (now OJK) concerning the same (“Regulation IX.E.2”).

There are several notable developments in OJK Reg. 17/2020 compared to Regulation IX.E.2 as follows.

A. MATERIAL TRANSACTION

Definition and Scope of Material Transaction

1. Definition

The OJK Reg. 17/2020 defines ‘Material Transaction’ as every transaction conducted by a Public Company having a transaction value of at least 20% (twenty percent) of the said company’s equity, be it in a single or a series of transactions. These transactions include:

1. 1. Participation in a business entity, project, and/or certain business activity;
  2. Purchase, sale, transfer, use, exchange or assets or operation/business segments;
  3. Acquisition, disposal and/or use of services;
  4. Lease assets;
  5. Lending and borrowing of funds including its transfer;
  6. Securing the assets of the said company and/or a Controlled Company over loans from other parties; and
  7. Providing a corporate guarantee.

OJK Reg. 17/2020 now provides an elaboration on the term “a single or a series of transactions” under the definition of a Material Transaction, as follows:

1. 1. Having dependency and/or continuity between the contemplated transactions;
  2. Obtaining other company(ies)’s securities in stages with the intention to control or conduct investment;
  3. Disposing a company’s securities in stages with the intention of divestment resulting in in loss of control; and
  4. Obtaining or disposing a unit of asset that is carried out separately (for example, selling a factory by splitting its components and selling it to different parties).

Examples of “A Series of Transactions” falling into the definition of Material Transaction under OJK Reg. 17/2020:

Party X purchases shares issued in Company A, Company B, and Company C – from Party Y.

These transactions will be considered as a series of transactions if: (i) Party Y offers its shares in each of these companies to Party X in a packaged deal with a certain total price and (ii) there is a correlation between the business activities of these companies.

1. Threshold of Material Transaction

Similar to Regulation IX.E.2, the OJK Reg. 17/2020 maintains the 20% (twenty percent) threshold to determine a transaction as Material Transaction, while also introducing new specific thresholds for the following transaction/condition:

- - Acquisition or disposal of a company or a business segment can also be considered as Material Transaction if:

1. - 1. the transaction value is equal to 20% (twenty percent) or more of the equity of the Public Company;
    2. the total assets of the transaction object divided by the total assets of the Public Company is equal to or more than 20% (twenty percent);
    3. the net profit of the transaction object divided by the net profit of the Public Company is equal to or more than 20% (twenty percent); and
    4. the revenue of the transaction object divided by the revenue of the Public Company is equal to or more than 20% (twenty percent).
  - Public Companies with negative equity will be deemed to be carrying out Material Transaction if the above listed types of transaction represent at least 10% (ten percent) of the said company’s total assets (instead of equity).
  - Non-consolidated subsidiary. Public Companies that due to dilution during a capital increase in the Controlled Companies no longer able to maintain financial statement consolidation, must comply with the provisions under this OJK Reg. 17/2020 if:
    1. total assets of the said Controlled Company represent at least 20% (twenty percent) of the total consolidated assets of the Public Company.
    2. the net profit of the said Controlled Company represents at least 20% (twenty percent) of the consolidated net profits of the Public Company; and
    3. the revenue of the Controlled Company represents at least 20% (twenty percent) of the consolidated revenue of the Public Company.

In order to determine whether a company transaction has reached a certain threshold as determined above, the calculation needs to be based on an audited financial report that is made no more than 12 (twelve) months prior to:

1. 1. the date that the Public Company is diluted, if the calculation as noted above is no more than 50% (fifty percent); or
  2. the date of the General Meeting of Shareholders (“GMS”) if the calculation as noted above is more than 50% (fifty percent).

3. Method of Determining Value of Material Transaction

Transaction value to determine whether a transaction is considered a Material Transaction shall be calculated based on: (i) an audited annual financial report, (ii) a quarterly financial report – with the review or audit accountant report, or (iii) any audited interim financial report that is made no more than: (i) 12 (twelve) months prior to the transaction date (for any transaction without a GMS approval or (ii) the date of the GMS (for transaction requiring a GMS approval).

Procedures and Requirements

OJK Reg. 17/2020 requires Public Companies to comply with the following procedures to carry out Material Transaction:

1. engage an Appraiser to determine the reasonable value of the Material Transaction object and/or the fairness of such transaction;
2. publish an information disclosure regarding such transaction to the public;
3. submit such information disclosure and its supporting documents to OJK;
4. obtain a GMS approval in the event that:
  1. the value of such transaction is more than 50% (fifty percent) of the equity of the Company;
  2. the value of such transaction is more than 25% (twenty five percent) of the total assets of the Public Company with negative equity; or
  3. the appraisal report shows that such transaction is non-arms-length (transaksi tidak wajar).

In comparison to the Regulation IX.E.2 – point 4a and b are the new conditions introduced in OJK Reg. 17/2020.

Both Regulation IX.E.2 and OJK Reg. 17/2020 require Public Companies to obtain a new GMS approval if they fail to carry out the Material Transaction within 12 (twelve) months after the initial GMS approving such transaction. In addition, Public Companies must also disclose such event in its annual report, providing the reason why it failed to do so within the given period.

- Provisions on Material Transaction Having Potential to Disrupt Business

OJK Reg. 17/2020 now requires any Public Company intending to carry out a Material Transaction with potential to disrupt business continuity to (i) have the transaction appraised, (ii) conduct disclosure of information to public and OJK, and (iii) obtain approval from independent shareholders in a GMS held in accordance with OJK Regulation No. 15/POJK.04/2020 dated April 21, 2020 on Planning and Implementation of GMS for Public Companies.

- Exemptions

Similar to the Regulation IX.E.2, OJK Reg. 17/2020 also provides certain conditions of exemptions to the procedures and/or requirements for Material Transaction. Unlike in Regulation IX.E.2, the exemptions introduced in OJK Reg. 17/2020 are limited to exemptions from obligation to engage Appraiser and to obtain GMS approval but does not include exemptions of the disclosure obligation (notwithstanding disclosure requirements under OJK Regulation No. 31/POJK.04/2015 on Disclosure of Material Fact and/or Information by Public Companies). Therefore, for exempted Transaction Materials under OJK Reg. 17/2020, Public Companies still need to comply with the disclosure requirement (to public and the OJK) – unless specifically exempted from such requirement.

The types of transaction exempted under OJK Reg. 17/2020 are similar with exemptions in Regulation IX.E.2, save for the following:

1. transactions conducted by a publicly listed financial services companies whose Controlled Company engages in sharia-based financial services, for the purpose of developing such sharia-based financial services Company; and
2. transactions for the purpose of restructuring, conducted by a Public Company either directly or indirectly controlled by the government.

Specifically, OJK Reg. 17/2020 provides that publicly listed financial services companies are exempted under ‘certain condition’, which means such companies are precluded from the requirements (i) to engage an Appraiser,(ii) to conduct public disclosure, (iii) to submit disclosure documents to OJK, as well as (iv) to obtain GMS approval. However, OJK Reg. 17/2020 does not provide further elaboration on this ‘certain condition’, which will be further regulated by OJK.

Exemptions of Main Business Activities

OJK Reg. 17/2020 no longer includes ‘main business activities’ under the list of exempted transactions under OJK Reg. 17/2020. In addition, the previously exempted ‘activities using the company’s assets for or in support of the said company’s production and/or main business activities’ are also excluded in OJK Reg. 17/2020.

In relation to this, OJK Reg. 17/2020 now details that capital expenditures (CAPEX), such as the purchase of production machinery or assets leasing for production, would not fall under the category of transactions relating to business activities and therefore, will not be exempted from the requirements of Material Transaction.

Only those expenditures related to operational expenditures (OPEX) are exempted from all requirements of Material Transaction under OJK Reg. 17/2020 and will only need to be stipulated in the annual report or annual financial report of such company.

B. CHANGE OF BUSINESS ACTIVITIES

OJK Reg. 17/2020 stipulates the following actions shall be considered as a change of business activities:

1. Addition of a business activity in the articles of association which will be implemented;
2. The performance of a business activity that has been stated in the articles of association but is yet to be performed;
3. Reduction of a business activity that has been performed; and
4. Replacing all business activities that have been performed with new business activity.

Similar with Regulation IX.E.2, OJK Reg. 17/2020 also requires a GMS approval and certain information disclosure for any change of business activities. However, OJK Reg. 17/2020 now additionally requires Public Companies to engage an Appraiser to carry out feasibility study over the change of business activity.

C. SANCTIONS AND EFFECTIVE DATE

Unlike Regulation IX.E.2, OJK Reg. 17/2020 provides certain type of sanctions for non-compliance ranging from written warnings to cancellation of registration.

OJK Reg. 17/2020 will be effective 6 (six) months after its enactment, which will be on October 21, 2020, except for the provision of Article 12 and provisions on sanctions.

Article 12 of OJK Reg. 17/2020 and provisions on sanctions will be enforced starting from April 21, 2020. Article 12 of OJK Reg. 17/2020 discusses the exemption of GMS approval for publicly listed financial services companies in certain condition.

***

May 15, 2020

by Adho Fadillah Putera

COVID-19: OJK Relaxes Requirements for Bank’s Asset Quality Assessment

Amid the Coronavirus Disease 2019 (“COVID-19”) outbreak in Indonesia, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan - “OJK”) issued The OJK Regulation No. 11/POJK.03/2020 of 2020 effective on March 16, 2020, on National Economic Stimulus as A Countercyclical Impact Policy Spread Of Coronavirus Disease 2019 (“OJK Reg. 11/2020”). This OJK Reg. 11/2020 is enacted to anticipate the disruption that may occur in the banking industry by relaxing certain requirements on banks’ asset quality assessment concerning borrowers affected by COVID-19. OJK Reg. 11/2020 entered into force as of March 16, 2020 and will be effective until March 31, 2021.

One of the key mandates of OJK Reg. 11/2020 is that it enables banks to implement certain policies that support the stimulus for economic growth, particularly for borrowers affected by the COVID-19 outbreak, including micro, small and medium enterprises (collectively, the “Affected Borrowers”).

Key policies contained in OJK Reg. 11/2020 are as follows:

Determination of Affected Borrowers

OJK Reg. 11/2020 defines an Affected Borrower as a borrower that faces difficulty fulfilling its obligations to banks because the borrower or its businesses are affected (directly or indirectly) by the COVID-19 outbreak. The Affected Borrowers may be involved in any of these business sectors: tourism, transportation, hospitality, trade, processing, agriculture, and mining. In determining policies to define an Affected Borrower, OJK Reg. 11/2020 requires such policies to be enacted by banks to consist of at least: (a) the criteria to constitute an Affected Borrower, and (b) the sectors that are affected by COVID-19.

Determination of Bank’s Asset Quality Assessment

OJK Reg. 11/2020 provides certain leniency for banks in determining their asset quality in the forms of:

debts (for conventional banks),
financing (for sharia banks or sharia business units), or
other provision of funds (for conventional banks, sharia banks or sharia business units) (all of which, collectively, the “Loan”)

given to any Affected Borrower in the amount of up to Rp10,000,000,000 (ten billion Rupiah) or less.

The quality assessment of the Loan will be determined only based on the timely payment of either the Loan’s principal and/or interest (for conventional banks), or the margin or the profit share or ujrah (for sharia banks or sharia business unit). Whereas in ordinary time, the quality assessment of any Loan as a bank’s asset is determined by a borrower’s business prospects, a borrower’s performance, and a borrower’s ability to pay.

Credit Restructuring Policy
- Any Loan of an Affected Borrower that is restructured will be classified Current (Lancar). In respect of a borrower with the Current status, banks are only required to set a 1% (one percent) provision of the amount of the restructured Loan for their loan-loss reserves in relation to that particular borrower. This provision aims at improving the banks’ soundness level.
- For Rural Banks (BPR), a restructured Loan is excluded from the application of the credit restructuring accounting treatment as referred to in the Indonesian Banking Accounting Guidelines (Pedoman Akuntansi Perbankan Indonesia “PAPI”).

New Loans for Affected Borrowers

Banks may provide new Loans to any Affected Borrower. The credit assessment for such new Loan as the banks’ asset will be determined separately from the Affected Borrowers’ existing Loans. For any new Loan with a principal amount of up to Rp10,000,000,000, its credit assessment will be determined only based on the timely payment of either the Loan’s principal and/or interest (for conventional banks), or the margin or profit share or ujrah (for sharia banks or sharia business unit). This is a more lenient requirement compared to the standard determining factors, namely a borrower’s business prospects, a borrower’s performance, and a borrower’s ability to pay. For any Loan with a principal amount above Rp10,000,000,000, its quality assessment shall be determined by the standard formula stipulated under the relevant OJK Regulation concerning Quality Assessment of Assets for Commercial Banks.

Reporting Requirements

Banks that provide the above stimulus shall report to OJK based on the respective Banks’ positions at the closing month report for their closing positions at the ends of April 2020, June 2020, September 2020, December 2020, and March 2021. The form of the report is attached to OJK Reg. 11/2020. Reports shall be delivered in the form of hardcopy to OJK no later than the end of month following each of the abovementioned reporting months.

COVID-19: OJK Relaksasi Persyaratan atas Penetapan Kualitas Aset Bank

Di tengah penyebaran wabah Virus Corona 2019 (“COVID-19”) di Indonesia, Otoritas Jasa Keuangan Indonesia (“OJK”) menerbitkan Peraturan OJK No. 11/POJK.03/2020 tahun 2020 yang mulai berlaku pada 16 Maret 2020 tentang Stimulus Perekonomian Nasional Sebagai Kebijakan Countercyclical Dampak Penyebaran Coronavirus Disease 2019 (“POJK 11/2020”). POJK 11/2020 diberlakukan dalam rangka mengantisipasi hambatan yang mungkin terjadi dalam industri perbankan dengan menerapkan kebijakan tertentu untuk penetapan kualitas aset bank terkait debitur yang terkena dampak COVID-19. POJK 11/2020 diterbitkan pada tanggal 16 Maret 2020 dan akan berlaku hingga 31 Maret 2021.

Salah satu amanat dari POJK 11/2020 ini adalah untuk memberikan kewenangan kepada bank untuk dapat menerapkan suatu kebijakan stimulus untuk mendukung pertumbuhan ekonomi, terutama untuk debitur yang terdampak penyebaran COVID-19, termasuk debitur usaha mikro, kecil, dan menengah (secara bersama-sama “Debitur Terdampak”).

Kebijakan penting dalam POJK 11/2020 adalah sebagai berikut:

Penetapan Debitur Terdampak

POJK 11/2020 menetapkan bahwa Debitur Terdampak merupakan debitur yang mengalami kesulitan untuk memenuhi kewajiban pembayaran kredit kepada bank karena debitur atau usaha debitur terdampak (secara langsung ataupun tidak langsung) dari penyebaran COVID-19 pada sektor ekonomi antara lain pariwisata, transportasi, perhotelan, perdagangan, pengolahan, pertanian, dan pertambangan. Dalam menerapkan kebijakan yang mendukung stimulus pertumbuhan ekonomi ini, POJK 11/2020 mensyaratkan Bank memiliki pedoman penetapan Debitur Terdampak, yang paling sedikit memuat: (a) kriteria Debitur Terdampak, dan (b) sektor yang terkena dampak COVID-19.

Penetapan Kualitas Aset Bank

POJK 11/2020 memberikan kelonggaran tertentu untuk bank dalam menetapkan kualitas aset berupa:

kredit (untuk bank umum konvensional),
pembiayaan (untuk bank umum syariah atau unit usaha syariah), dan/atau
penyediaan dana lain (untuk bank umum konvensional, bank umum syariah atau unit usaha syariah) (secara bersama-sama “Kredit”)

yang diberikan kepada Debitur Terdampak dengan plafon paling banyak Rp10.000.000.000 (sepuluh miliar rupiah).

POJK 11/2020 mengatur bahwa penetapan kualitas Kredit akan hanya didasarkan pada ketepatan pembayaran pokok atas pokok Kredit dan/atau bunga (untuk bank umum konvensional), atau margin atau bagi hasil atau ujrah (untuk bank umum syariah atau unit usaha syariah). Di mana dalam kondisi normal, kualitas Kredit sebagai aset bank ditetapkan berdasarkan prospek usaha debitur, kinerja debitur, dan kemampuan membayar debitur.

Kebijakan Restrukturisasi Kredit
- Kualitas Kredit dari suatu Debitur Terdampak yang direstrukturisasi akan diklasifikasikan Lancar sejak dilakukan restrukturisasi. Dalam hal Debitur berstatus Lancar, bank hanya diwajibkan untuk menetapkan penyisihan umum 1% (satu persen) dari jumlah Kredit yang direstrukturisasi sebagai bentuk pemenuhan kewajiban penyisihan penilaian kualitas aset. Ketentuan ini bertujuan untuk membantu mempertahankan dan memperbaiki tingkat kesehatan bank yang ditinjau salah satunya berdasarkan risiko Kredit bank tersebut.
- Untuk Bank Perkreditan Rakyat (BPR), Kredit yang direstrukturisasi dikecualikan dari penerapan perlakuan akuntansi restrukturisasi kredit yang ditetapkan dalam Pedoman Akuntansi Perbankan Indonesia (“PAPI”).
Pemberian Penyediaan Dana Baru untuk Debitur Terdampak

Bank dapat memberikan Kredit baru kepada Debitur Terdampak. Penetapan kualitas kredit atas Kredit baru tersebut sebagai aset bank dilakukan secara terpisah dari Kredit Debitur Terdampak yang telah diberikan sebelumnya. Untuk Kredit baru dengan plafon paling banyak Rp10.000.000.000,00 (sepuluh miliar rupiah), penetapan kualitas Kredit akan didasarkan oleh ketepatan pembayaran pokok atas pokok Kredit dan/atau bunga (untuk bank umum konvensional), atau margin atau bagi hasil atau ujrah (untuk bank umum syariah atau unit usaha syariah). Hal tersebut merupakan persyaratan yang lebih longgar dibandingkan dengan faktor penilaian kualitas Kredit pada kondisi normal seperti: prospek usaha debitur, kinerja debitur, dan kemampuan membayar debitur untuk membayar. Untuk Kredit baru dengan plafon lebih dari Rp10.000.000.000,00 (sepuluh miliar rupiah), penetapan kualitas Kredit akan ditentukan sesuai dengan ketentuan peraturan OJK mengenai penilaian kualitas aset.

Persyaratan Pelaporan

Bank yang menerapkan kebijakan pendukung stimulus di atas harus melaporkan laporan posisi akhir bulan Bank tersebut kepada OJK untuk posisi akhir bulan April 2020, Juni 2020, September 2020, Desember 2020, dan Maret 2021. Format laporan tersebut terlampir dalam Lampiran POJK 11/2020. Laporan disampaikan secara luring kepada OJK paling lambat akhir bulan berikutnya setelah posisi bulan laporan.

***

April 2, 2020

by Adho Fadillah Putera

OJK Eases Up on Annual Report Obligation and General Meeting of Shareholders

As the Coronavirus Disease (“COVID-19”) represents an unprecedented challenge to business operations and compliance requirements, and to minimize the spread requires limitation to public meetings and gatherings, the Indonesian Financial Services Authority (“OJK”) responsively issued 2 (two) letters, namely: OJK Circular Letter No. S-88/D.04/2020 dated March 16, 2020 on the Handling and Controlling of the COVID-19 (“OJK Letter 88/2020”) and OJK Circular Letter No. S-92/D.04/2020 dated March 18, 2020 on the Relaxation on the Report Obligation and the Implementation of General Meeting of Shareholders (“GMS”) (such letter, “OJK Letter 92/2020”).

Guidance for Capital Market Industry Players

The OJK Letter 88/2020 provides a set of guidance for capital market industry players on their daily operational activities considering the outbreak of COVID-19 as to minimize the spread of such virus in Indonesia.

This guidance covers as follows:

- Daily operational must be adjusted as to minimize face-to-face communication, without hindering any services to the public, by maximizing indirect communication facilities. Notification of this adjustment must be made to the employees, customers, and business partners through mass media and other normal communication means.
- Procedures and guidelines on working from home policies must be immediately determined, based on the applicable laws and regulations, government-issued guidelines, company regulation, or other common practice. This working from home policy must be implemented in such a way that it does not obstructs the provision of service.
- Improve the sanitary level on workplace and customer service facilities.
- Suspend all business travels within the territory of Republic of Indonesia, especially to the regions with confirmed case of COVID-19, based on the most-updated data and information from the Ministry of Health.
- Meetings and other events to be carried out through video conference, webinar, email and/or Whatsapp group.
- Obligations to render services to the public must still be carried out, such as, among others: settlement on securities transactions, custodian services, customer service for collective investment contract, services to potential issuer or public company, securities administration, reporting to OJK, and public announcements.
- Letters communication to OJK can be submitted via email to the Executive Head of Capital Market Supervisory: hoesen@ojk.go.id (cc: septiana@ojk.go.id and fakhri.hilmi@ojk.go.id).

Annual Report Submission

As stipulated under OJK Regulation No. 29/POJK.04/2016 on Annual Report of Issuer or Public Company, publicly listed companies must submit an annual report (along with, among others, audited annual financial statement) to OJK at the latest by the end of the 4^th month after the end of financial year.

With the issuance of the OJK Letter 92/2020, OJK extends the deadline for publicly listed companies for annual financial statement report and annual report submission for 2 (two) months after the original deadline.

This extension also applies for: (i) the evaluation report of Audit Committee on the performance of rendering audit service on annual historical financial information of issuers and publicly listed companies and (ii) annual financial statement of other capital market industry players such as, among others, IDX, KSEI, KPEI, Securities Companies, Securities Administration Bureau, Mutual Funds, and Collective Investment Contracts in the form of Real Estate Investment Trust and Assets-Backed Securities.

Implementation of the Annual General Meeting of Shareholders

Extension of AGMS period

OJK Regulation No. 32/POJK.04/2014 on the Planning and Performance of General Meeting of Shareholders of Public Companies (“OJK Regulation 32/2014”) requires publicly listed companies to carry out AGMS at the latest by 6 (six) months after the end of the financial year.

With the issuance of OJK Letter 92/2020, OJK extends such deadline by 2 (two) months.

Implementation of E-GMS

With the issuance of OJK Letter 92/2020, OJK allows publicly listed companies to hold a GMS – whether annual GMS or other GMS (i.e. to discuss material transactions, transaction with conflict of interest) – using a mechanism of electronic proxy by using e-GMS system as currently being prepared by the Indonesia Central Securities Depository (Kustodian Sentral Efek Indonesia – “KSEI”).

As a follow up to OJK Letter 92/2020, on March 24, 2020, KSEI through a video conference with relevant stakeholders demonstrated the implementation of e-proxy and e-voting in a system called ‘eASY®‘, in relation the proposed implementation of e-GMS (the “Platform”).

Below is the brief summary of the process of e-GMS through the Platform:

GMS Announcement

GMS announcement will be carried out through the Platform by sending an announcement (along with the supporting document, and the link to the document and information on the GMS) by blasting emails to the registered recipients as determined by relevant publicly listed company and KSEI.

According to KSEI, there will be a validation period of 14 (fourteen) days from the date of GMS announcement to the date of the GMS invitation – although it will be not implemented during the early stage.

Detailed information that must be completed are as follows: (a) type of meeting (i.e., AGMS/EGMS); (b) meeting date; (c) date of invitation; (d) record date; (e) start meeting hour; (f) end meeting hour; (g) address; (h) country; (i) province; (j) name of the notary, etc.

GMS Invitation

GMS invitation will be carried out by sending a notification to the shareholders through the Platform and relevant publicly listed company shall upload the agenda(s) of the GMS. The agenda must be made in 2 (two) languages, namely Indonesian and English language. The supporting document as well as the link to the document and information on the GMS can be attached to the GMS announcement.

Through the Platform, the publicly listed company can blast e-mails to the list of shareholders as determined by the said publicly listed company and KSEI.

According to KSEI, there will be a validation period of 21 (twenty-one) days from the date of GMS invitation to the date of GMS– although it will be not implemented during the early stage.

Physical GMS will still be held - attended by the appointed BAE and shareholders or their Proxies (to be defined below).

The quorum for attendance and voting will be calculated by those who are attending the GMS physically and via video conference (with prior registration through the Platform).

Simultaneously with the physical GMS, the GMS can be started when the publicly listed company clicks the 'e-meeting call' button on the Platform. On the screen, the parties can see, among others, the GMS agenda and its discussion, live streaming screen, and a chat room. The participants or the proxies can accept or reject the agenda of GMS by clicking 'accept', 'reject', or 'abstain' button on each agenda. These data then will be stored by the KSEI database, these data will be processed not later than d+1 from the meeting date at 12 noon.

Proxies

For this e-GMS system, the shareholders may appoint proxies as follows:

- Individual

Shareholders can provide power of attorney to individual proxy who has been registered in the AKSes facility (electronic information access facility maintain by KSEI). If the individual proxy does not have the access to the AKSes facility, the relevant shareholder can input e-mail addresses, and an e-mail notification will be automatically sent to the individual proxy requesting to create a user ID at AKSes.

- Independent Proxy

Shareholders may appoint the Independent Proxy as its proxy for the e-GMS. The Independent Proxy is the BAE as appointed by the relevant publicly listed company at the latest prior to the GMS invitation.

- Account Holder Proxy

Shareholders may appoint its account holder (Custodian or Securities Companies) as its proxy for the e-GMS. The appointed account holder will register the vote to the KSEI database on the Platform by d-1 from the meeting date at 12 noon.

Lastly, KSEI also prepares to issue a decree of KSEI's directors regarding the implementation of the ‘eASY® system which will be expected to be released within this week. The first e-GMS using the ‘eASY® system will be held on May 13, 2020.

***

March 26, 2020

by Adho Fadillah Putera

OJK Takes Action to Stimulate Uncertain Market Conditions

The Indonesian Financial Services Authority (“OJK”) recently issued two letters, namely: OJK Circular Letter No. 3/SEOJK.04/2020 dated March 9, 2020 on Additional Conditions Constituting Significantly Fluctuating Market On the Implementation of Shares Buyback of Issuers or Publicly Listed Companies (“OJKCL 3/2020”) and OJK letter No. S-89/D.04/2020 dated March 16, 2020 to provide detail and explanation to the OJKCL 3/2020 (“OJK Letter 89/2020”).

The OJKCL 3/2020 and OJK Letter 89/2020 are issued to stimulate and to improve the recent unexpected plunge in the global and local market, due to (i) the decline of the Joint Share Price Index (“IHSG”) by 18.46%, and (ii) the recent worldwide outbreak of Coronavirus Disease (“COVID-19”). The expectation from the issuance of OJKCL 3/2020 and OJK Letter 89/2020 is to give more flexibility for Issuers and Publicly Listed Companies (jointly referred as the “Publicly Listed Companies”) in carrying out shares buyback during the current market condition.

Conditions on Significantly Fluctuating Market

To refresh, in 2013 OJK issued a rule governing buyback of shares in the event where market conditions significantly fluctuates. OJK Regulation No. 2/POJK.04/2013 on Share Buybacks of Issuers and Publicly Listed Companies in Significantly Fluctuating Market Conditions (“OJK Reg 2/2013”) defines Significantly Fluctuating Market as a condition where: (a) there is a 15% of collective decline to the IHSG for 3 (three) consecutive market days; or (b) additional conditions determined by OJK.

The decline of IHSG by 18.46% and COVID-19 outbreak meets additional fluctuating market condition as referred in OJK Reg 2/2013. OJKCL 3/2020 determined that the Significantly Fluctuating Market Conditions is effective as of the date of the OJKCL 3/2020 – March 9, 2020 – and shall cease to exist when the OJKCL 3/2020 is revoked.

Implementation of Buyback Shares During Significantly Fluctuating Market

With the OJKCL 3/2020 in effect, a Publicly Listed Company which: (i) will buy back; or (ii) are currently carrying out the buyback; or (iii) has possessed its shares (treasury) based on the prevailing regulations in the Capital Market sector; are allowed to carry out buyback of shares under, among others, the following mechanism:

such Publicly Listed Company may buy back its shares without the approval of the General Meeting of Shareholders;
the maximum number of shares that can be bought back is up to 20% of the paid-up capital, with the condition that at least 7.5% of such Publicly Listed Company continued to be held by public;
such Publicly Listed Company may buyback the shares under this mechanism after carrying out disclosure of information to Indonesia’s Stock Exchange (“IDX”) and OJK. This disclosure of information can be carried out at any time until 7 (seven) Market days after the OJKCL 3/2020 is revoked – while the shares buyback itself may be conducted within the period of 3 (three) months after the disclosure of information.

Implementation of the Resale of the Purchased Shares Through Buyback (Refloat)

For refloat, the pricing for such resale must be determined by:

If the resale of shares purchased through buyback is being carried out via regular market on the IDX, then as stipulated under OJK Reg 2/2013, the price cannot be a lower price than the average price of the buyback, with additional consideration that the price cannot be a lower price than (whichever the highest):
1. share’s closing price in the regular market 1 (one) day before the resale date; or
2. closing value of daily trading in the IDX during the last 90 (ninety) days before the resale date.
If the resale of shares purchased through buyback is being carried out via negotiation market on the IDX, the price must refer to the following (whichever the highest):
1. average price of the buyback; or
2. average price of the closing value of daily trading in the IDX during the last 90 (ninety) days before the resale of the shares.

Furthermore, if the resale of shares purchased through buyback is carried out via the IDX (either through regular market or negotiated market), the obligation to disclose the identity of the recipient of the refloat shares as stipulated by Article 16 paragraph (3) letter a of OJK Reg 2/2013 shall not be applicable, as such requirement only applies to the refloat carried out outside the IDX.

The maximum value of the refloat shares via the continuous auction market in the IDX each day shall not exceed 20% of the total value of the bought back shares. Contrarily, such limitation is not applicable for the refloat shares carried out via the negotiated market.

Further, OJK Letter 89/2020 also provides that the foregoing mechanism may also be applied to the refloat of shares bought back under the other significantly fluctuating market events determined by OJK previously.

Indonesian Stock Market Update

Following the issuance of OJKCL 3/2020, there have been many reports on shares buyback initiative by several major Publicly Listed Companies – consisting of banks, construction as well as mining companies. As of March 16, 2020, there are several Publicly Listed Companies which have announced their plan to carry out the shares buyback, amongst other, PT Bank Rakyat Indonesia (Persero) Tbk., PT Bank Negara Indonesia Tbk., PT Bank Pan Indonesia Tbk., PT Kalbe Farma Tbk., etc.

March 19, 2020

by Adho Fadillah Putera

OJK Re-Introduces Rules to Accommodate Rising M&A Trends in Banking Sector

On December 26, 2019, the Indonesian Financial Services Authority (“OJK”) issued and enacted OJK Regulation No. 41/POJK.03/2019 of 2019 on Mergers, Consolidations, Acquisitions, Integrations and Conversions of Banks (“OJK Reg. 41/2019”). OJK Reg. 41/2019 combines and revives the rules concerning mergers, consolidations, and acquisitions (“MCAs”) of commercial banks (the “Bank”). With these new rules, OJK Reg. 41/2019 replaces Bank Indonesia (“BI”) Board of Directors Decrees No. 32/50/KEP/DIR on Requirements and Procedures to Purchase Shares of Banks, and No. 32/51/KEP/DIR on Requirements and Procedures for Mergers, Consolidations, and Acquisitions of Banks (collectively, the “BI Decrees”). OJK Reg. 41/2019 also introduces several other new concepts to add and make relevant rising trends in relation to corporate restructuring arrangement in the financial service business, particularly banking.

New Framework for Bank’s Integration and Conversion

OJK Reg. 41/2019 now enables and makes clear procedure for “Integration” and “Conversion”.

Integration is defined as legal action conducted by foreign bank branch office (kantor cabang dari bank yang berkedudukan di luar negeri/”KCBLN”) and a Bank by transferring the assets and liabilities of the KCBLN to a Bank, followed by revocation of the KCBLN’s license.

Conversion is defined as legal action conducted by KCBLN to convert its license into a commercial banking license, followed by revocation of the said KCBLN’s license.

Introduction of New Concept for Controller and Acquisition

OJK Reg. 41/2019 adds provision stating that a transfer of control occurs when: (1) an acquisition of shares causes the acquirer’s share-ownership to be the largest in the Bank, or (2) ownership of shares that does not constitute the largest in the Bank, but is able to determine, directly or indirectly, management in a Bank.

Recognition of More OJK’s Involvement

OJK Reg. 41/2019 now makes clear requirement to obtain OJK’s blessing in conducting MCAs, Integration, and Conversion, before the Bank’s shareholders approve the corporate actions are conducted. Previously, the BI Decrees require OJK’s approval only after obtaining shareholders’ approval from the merging/consolidating Banks or the target Bank (for acquisition). However, in practice, parties will have always conducted discussion with OJK in order to gauge OJK’s preliminary view on the proposed MCAs. With the issuance of OJK Reg. 41/2019, preliminary discussion with OJK is now explicitly required.

Similar with MCAs, proposed Integration and Conversion must also be initiated by preparing an integration plan and submitting preparatory documents to be submitted to OJK.

Following OJK’s blessing, MCAs, Integration, and Conversion must then be announced in national newspaper and similar procedures as in the BI Decrees must be undertaken.

Acknowledgement for Acquisition through Rights Issue

OJK Reg. 41/2019 stipulates that Bank acquisitions are carried out by taking over shares that have been issued and/or will be issued by the Bank, which results in the transfer of control in the Bank to the acquiring party. With this provision, it is now expressly allowed for acquisition to be conducted through rights issue.

Rules over Listed Banks

Similar to Controlling shareholders of the Bank owning shares that are not through the stock exchange, OJK Reg. 41/2019 stipulates that any shareholders of the Bank owning shares through the stock exchange and meeting the criteria of a Controller must undergo a fit and proper test. OJK Reg. 41/2019 also requires any party to divest its shares in the Bank if such party, when prohibited by laws from owning shares in the Bank, is proven to own shares in the Bank in the stock exchange. This provision seems to address possible scenarios where a party holds a Bank's shares in the stock exchange by skipping the fit and proper test procedures or bypassing the shareholding restriction requirement for the Bank.

February 17, 2020

by Adho Fadillah Putera

OJK Improved Regulation on Quality Assessment of Asset for Commercial Banks

To maintain the soundness level of banks through the protection of banks’ quality of asset and loan-loss provisions, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan - “OJK”) enacted OJK Regulation No. 40/POJK.03/2019 on Quality Assessment of Asset for Commercial Banks that came into effect on January 1, 2020 (“POJK 40/2019”). This POJK 40/2019 replaces and synchronizes (i) Bank Indonesia (“BI”) Regulation No. 14/15/PBI/2012 on Asset Quality Assessment of Conventional Bank, (ii) POJK No. 14/POJK.03/2018 on Quality Assessment of Conventional Bank to for the Improvement of Growth in Real Estate Sector and Foreign Exchange, (iii) Bank Indonesia Directors’ Decision Letter No. 23/68/KEP/DIR on Productive Assets Quality and Reserves Structure, (iv) BI Circular Letter No. 15/28/DPNP on Quality Assessment of Conventional Bank, and (v) BI Circular Letter No. 4/241/UPPK/PK on Overdrafts due to Interest/Stamp Duty on Loans (collectively, the “Previous Regulations”).

Continuing the Previous Regulations, POJK 40/2019 governs the procedure for banks’ quality assessment of asset, loan-loss provisions and credit restructuring. Adopting the previous concept in assessing the quality of their assets, banks are required to make an evaluation based on two categories of assets namely:

productive asset which includes, among others, credit, placements, securities and derivative receivables; and
non-productive asset which includes acquired collateral (Aset Yang Diambil Alih), dormant property and inter-office accounts and suspense accounts.

Similar to the Previous Regulations, in terms of collectability, the new POJK 40/2019 maintains the 1 (one) to 5 (five) classification with 1 (one) being Current (Lancar) to 5 (five) being Loss (Macet). The same rule of loan-loss provisions is also restated. Essentially, banks are required to maintain loan-loss provisions over their productive and non-productive asset in order to prevent potential losses arising from their assets. The calculating procedure for loan-loss provisions is as follows.

For productive assets classified as Current, banks shall set aside 1% (one percent) to be accounted for their general loan-loss provisions. This excludes outstanding credit facility which is part of Administrative Account Transaction, government issued securities and productive assets backed by cash collateral.
As for the calculation for loan-loss provisions of non-productive assets and productive assets classified other than Current, banks shall apply the following:
1. 5% (five percent) for assets classified as Special Mention (Dalam Perhatian Khusus),
2. 15% (fifteen percent) for assets classified as Sub-Standard (Kurang Lancar),
3. 50% (fifty percent) for assets classified as Doubtful (Diragukan); and
4. 100% for assets classified as Loss.
Bonds and/or sharia bonds which are not issued through public offering and securities and/or shares securitized by or subject to shares as its underlying asset classified as Loss and shall be calculated based on Loss classification.

The above calculation shall be made after the subtraction of assets’ collateral.

Key Changes from the Previous Regulations

Aside from reinstating the Previous Regulations as set out above, the new POJK 40/2019 now gives room for securities listed in off-shore stock exchange to be considered as productive asset, includes apartment unit with fiduciary security as asset collateral that can be subtracted for loan-loss provisions, provides more detailed reporting guideline for credit restructuring and implements two-stages approach in sanction enforcement that will be elaborated below.

Productive Asset: Room for Securities Listed in Off-Shore Stock Exchange

POJK 40/2019 explicitly allows securities that are being actively traded in off-shore stock exchange as productive asset with Current classification provided that such off-shore stock exchange is among the top 25 (twenty-five) biggest capitalization capital market value in the world.

Loan-Loss Provisions: Apartment Unit with Fiduciary Security as An Additional Asset Collateral Subtraction

POJK 40/2019 adds the list of asset collateral that can be subtracted in calculating loan-loss provisions set out in the Previous Regulations by including apartment unit securitized by fiduciary security.

Credit Restructuring: A More Detailed Guideline

OJK now provides a detailed form of credit restructuring report which was not stipulated in the Previous Regulations. The form requires banks to report the type of credit restructuring as well as debtors’ credit condition before and after the restructuring. Further the reporting procedure for credit restructuring also refers to the sanctions set out in OJK Regulation No. 12/POJK.03/2019 on Conventional Bank Report Through OJK Reporting System dated April 5, 2019, where incompliance is subject to additional sanctions in the form of fines.

Sanction: Two-Stages Enforcement Approach

Unlike the Previous Regulations, POJK 40/2019 now imposes sanction for non-compliance in two stages namely (i) written warning, before (ii) additional sanctions in the form of suspension of business activities and/or prohibition of banks to participate as primary parties within financial institutions. Banks will only be subjected to additional sanctions if they have received written warning and remain to ignore such written warning.

February 12, 2020

by Adho Fadillah Putera

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