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08 September 2017
New regulations require the banking and finance industries to comply with heightened supervision by financial authorities and will be welcomed by foreign investors and customers concerned with Indonesia's financial stability. Key developments include intensifying reporting obligations for systemically important banks, introducing tiered supervision and raising safeguard measures.
The government continues its efforts, developed in response to the Asian and global financial crises of 1997 and 2008, to build and maintain a solid financial system. The enactment of Law 9/2016 regarding the prevention and mitigation of financial system crises provided a legal basis for the government to form the Financial System Stability Committee (KSSK). The KSSK comprises the Ministry of Finance, Bank Indonesia, the Financial Services Authority (OJK) and the Deposit Insurance Corporation (LPS). KSSK members cooperate in order to maintain financial stability, manage financial crises and supervise systemically important banks.
So far in 2017 the OJK and the LPS have issued regulations in line with the requirements for Law 9/2016.
The OJK regulations deal with:
Further, the LPS regulations deal with the:
This update outlines the key provisions of Law 9/2016 and the implementing regulations.
As a measure for the prevention of a financial crisis due to a systemically important bank's financial stress, the OJK (via Regulation 14/2017) obliges systemically important banks to prepare and submit a plan for the solution of their financial problems to the OJK. This obligation applies to all banks which qualify as systemically important banks. The recovery plan must contain at least:
The recovery plan must be approved by the bank's board of commissioners and general meeting of shareholders.
Law 9/2016 lists recovery options for the following issues faced by a systemically important bank:
POJK 15/2017 stipulates three levels of supervision to which banks may be subjected. The new provisions reflect the government's concern with maintaining the financial health of the country's commercial banks with close monitoring and requirements to maintain a problem-solution plan:
A non-systemically important bank with significant issues should:
PLPS 2/2017 provides steps for non-systemically important banks which are having solvability problems to:
Systemically important banks with significant issues should:
PLPS 1/2017 provides three main steps for a systemically important bank which is having solvability problems:
Both PLPS 1/2017 and PLPS 2/2017 vest authority in the LPS to, among other things:
Bridge banks were established by the LPS to receive the good quality assets and liabilities of a troubled bank and take over the troubled bank's operational activities before they are transferred to other parties.
Under POJK 16/2017 a bridge bank must have a principal licence and a business licence, for which the LPS is to submit an application to the OJK. After the bridge bank's establishment, the LPS will arrange for the revocation of the troubled bank's business licence and liquidation.
The bridge bank is dissolved when the sale of the bridge bank's shares to other parties and transfer of its assets and liabilities to other parties have been completed.
Under PLPS 3/2017 the LPS must accept banks which the KSSK puts under its care and handling through the bank restructuring programme. In this programme the LPS can manage the assets of the banks under its care by way of:
The mechanism of each of these is expanded on within the regulation. The programme may be terminated by the president at any time.
Generally, Law 9/2016 is also an attempt to mitigate gaps among the financial regulators. From the view of the affected parties, the legislation:
In principle, the legislation enhances Indonesia's regulatory support for a solid, stable and sustainable financial system.
For further information on this topic please contact Sarah Faisal Rosa at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125) or email (firstname.lastname@example.org). The Ali Budiardjo, Nugroho, Reksodiputro website can be accessed at www.abnrlaw.com.
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