New Bank Indonesia Regulation on Multiple Licensing Policy

Bank Indonesia (“BI”) has issued Regulation No. 14/26/PBI/2012 of 2012 dated December 27, 2012 on Business Activities and Office Networks Based on Bank Core Capital (“BI Reg. 14/26/2012” or “Regulation”). The Regulation contains several of the six policies announced by BI during a Bankers’ Dinner held in late November 2012.
1 BI Reg. 14/26/2012 regulates permitted business activities, obligations for the amount of credit a bank must grant as productive financing, and establishment/expansion of branch office networks—all based on the amount of Core Capital.
2 The Regulation entered into force on January 2, 2013.

Business Activities Based on Core Capital Classification
The Regulation classifies commercial banks based on Core Capital and stipulates permitted activities for each classification or “BUKU” (Bank Umum berdasarkan Kegiatan Usaha—Commercial Bank Based on Business Activities).

BUKU 1: Core Capital less than Rp 1 Trillion

  • Basic Rupiah intermediary functions for deposit and distribution, trade finance, limited agency/cooperation, limited electronic banking and payment systems, temporary capital participation for credit based or other services, and limited foreign exchange
  • Branches only within Indonesia
  • No capital participation in other financial institutions
  • Must distribute 55% of total credit/financing to productive business

BUKU 2: Core Capital of Rp 1 – 5 Trillion

  • Same business activities as BUKU 1, but with higher transaction value
  • Branches only within Indonesia
  • Capital participation in other Indonesian financial institutions, up to 15% of capital
  • Must distribute 60% of total credit/financing to productive business

BUKU 3: Core Capital Rp5 – 30 Trillion

  • All types of business activities, in Rupiah and foreign currency
  • Branches and representative offices in Indonesia and Asia region
  • Capital participation in Indonesian and other Asian financial institutions, up to 25% of capital
  • Must distribute 65% of total credit/financing to productive business

1 At the Dinner, BI announced 6 new policies: (1) classification of banks and permitted activities based on core capital; (2) branch expansion to correlate with core capital; (3) required loan to value ratio for Sharia banks; (4) provision on trustees; (5) single presence policy; and (6) obligation to provide credit allocation to SME business.
2 Core Capital refers to: paid‐up capital, disclosed reserve, and innovative capital instruments. For Foreign Banks, Core Capital refers to capital calculated based on Capital Equivalency Maintained Assets (CEMA). See BI Reg. 14/18/PBI/2012 regarding Commercial Bank Minimum Provision of Capital. M‐00338

BUKU 4: Core Capital atleast Rp30 Trillion

  • All types of business activities, in Rupiah and foreign currency
  • Worldwide branches and representative offices
  • Worldwide capital participation in other financial institutions, up to 35% of capital
  • Must distribute 70% of total credit/financing to productive business

Branch Office Networks and Regional Expansion
To establish branch and representative offices, banks must have a composite rating 3 of 1 – 3 and fulfill Core Capital allocation requirements.
There are two exemptions to the Core Capital requirements:

  • Banks that wish to open functional offices to provide credit to Small and Medium Enterprises (SMEs) do not have to meet Core Capital allocation requirements.
  • Banks of any size may open branch offices without meeting Core Capital allocation requirements on the condition that they distribute at least 20% of credit/financing to micro‐businesses.

In conjunction with capital allocation requirements, BI will determine: (a) regional zones, numbered 1 – 6 based on density of banks and level of economic development; (b) density coefficients for each zone; and (c) the investment cost of establishing a branch network for each BUKU classification. The zone system will be used to define obligations for banks to open branch or representative offices in lower density areas. The determination of zones will be stipulated in a BI Circular Letter.
Timeline for Compliance
Banks whose business activities are not in accordance with BUKU classifications must either adjust their business activities or increase their Core Capital. Action plans reflecting adjustment measures must be submitted to BI by the end of March 2013. After BI approves the action plan, the banks must revise their business plans (Rencana Bisnis Bank – RBB) before the end of June 2013.
Banks must submit action plans for branch network establishment/expansion, taking into account the Core Capital allocation requirements, and revise their RBB accordingly before the end of June 2013. Previously approved branch establishment/expansion that can be completed before the 2013 RBB is revised will be exempted from Core Capital requirements.