Resume The Law of Banking

Legal Aspect of Economy

Asfa Asfia - 18102002

Amirah Nabilla - 18102014

DEFINITION OF BANK
According to the Indonesian dictionary:
Bank is a business in the financial sector that attracts and spends money in the community, especially
providing credit and services in the traffic of payments and money circulation.
According to Law no. 10 of 1998 concerning amendments to Law no. 7 of 1992 concerning banking
Article 1 (2):
"A bank is a business entity that collects funds from the public in the form of savings and distributes it to
the public in the form of credit and / or other forms in order to improve the standard of living of the
people at large".

DEFINITION OF BANKING
Article 1 (1) of Law no. 10/1998:
"banking is everything concerning the bank, including institutions, business activities, and methods and
processes in carrying out activities"

FINANCIAL INSTITUTION
There are two types of Financial Institutions, namely:
- Bank financial institutions
- Non-bank
Financial institutions are an entity who carry out activities in the financial sector in the form of raising
funds, extending credit, acting as intermediaries in obtaining sources of financing, and undertaking
capital participation, all of which are carried out directly or indirectly through raising funds, especially by
issuing valuable paper.

Non-bank institutions operate in the field of money and capital markets.

Main business aspects that are carried out are:
- Development financing sector in the form of medium / long-term credit extension and capital
participation.
- Efforts are aimed at meeting community needs in certain fields, such as providing loans to the
community in the form of pawnshops.
The difference with a bank :
Non-bank financial institutions are not allowed to accept deposits in the form of demand deposits, time
deposits or savings accounts. Raising funds can only be done by releasing valuable paper.

Types of Non-Bank Financial Institutions:

1. Insurance
2. Financial institutions
3. Pawnshop
4. Operator pension fund
BANKING LEGAL SOURCES
- Act of 1945,
- Act No. 10 of 1998 concerning amendments to Law no. 7 of 1992 concerning banking
- Law no. 23 of 1999
- Law no. 3 of 2004 concerning Bank Indonesia
- Civil Code
- Commercial Law, and Bankruptcy Law
- Government Regulations
- Presidential
- Decree of the Minister of Finance
- Decree and Circular of Bank Indonesia
- Other regulations that are closely related to banking activities, for example: Ministerial Regulations
Agraria regarding Mortgages and Credietverband, and so on.

THE PRINCIPLES AND BANK FUNCTIONS

1. Principles
The principles of Indonesian Banking can be identified in Law no. 10/1998 concerning Banking in
Article 2:
"In conducting its business, Indonesian banking is based on economic democracy using the principle
of prudence".

Economic democracy in question is economic democracy based on the 1945 Constitution.

Regarding the principle of prudence as stated in the provisions of Article 2 of the Banking Law, there
is no official explanation, but we can state that the bank and the people involved in it especially in
making policies and carrying out their business activities, they are obliged to carry out their
respective duties and authorities carefully, thoroughly and professionally so as to gain the trust of the
public. In addition, in conducting its business, a bank must always comply with all applicable laws
and regulations consistently based on good faith.

2. Functions
Regulated in Article 3 of Law No. 10/1998:
"The main function of Indonesian banking is to collect and channel public funds".
From this provision, it can be seen that the function of a bank is as an intermediary between parties
that have surplus funds (surplus of funds) with parties that are deficient and need funds (lacks of
funds).

TYPES AND BUSINESSES OF BANKS

In the provisions of Article 5 paragraph (1) of the Banking Law, divides banks into two types, namely:
- Commercial
Banks Banks that carry out business activities conventionally and or based on Sharia principles
which in their activities provide services payment traffic
- Rural bank
Banks that carry out business activities conventionally and / or based on sharia principles, which in
their activities do not provide services in payment traffic. Public bank ownership may be owned by
the state (local government), foreign private sector, and cooperatives, while Rural banks may only
be owned by the state (local government), private sector and cooperatives only.
 Types of banks in terms of ownership
1. State-owned banks
2. Local government-owned banks
3. Private-owned banks, both domestic and foreign
4. Cooperative banks

LICENSING AND LEGAL FORM OF BANKS

Bank Licensing
arrangements are very important for business activities collect funds from the community and distribute
them back to the community in various forms. This is important to protect the interests of the community,
especially for saving customers and their deposits.
Regarding licensing, the Banking Law has regulated in Article 16 paragraphs (1), (2), and (3), namely:
Article 16 (1):
"Any party that carries out activities to collect funds from the public in the form of savings is required to
first obtain a business license as a a commercial bank or a people's bank owned by the leadership of
Bank Indonesia, unless the activity of collecting funds from the public is regulated by law ”.

Requirements for license

Article 16 (2):
In order to obtain a business license for a commercial bank and rural bank as referred to in paragraph (1),
it is obligatory to meet the following requirements:
a. Organizational structure and management
b. Capital
c. Ownership
d. Expertise in banking
e. Work plan eligibility.

Article 16 (3):
The requirements and procedures for bank licensing as referred to in paragraph (2) are stipulated by Bank
Indonesia.

LEGAL FORM OF BANKS

After the enactment of the Banking Law, there are only two types of banks, namely:
1. Commercial Banks.
2. Rural bank

(Article 5)
Provisions regarding the legal form of banks according to Law no. 10 of 1998, as follows:
Legal form for Commercial Banks
- Limited Liability Companies (PT)
- Cooperatives
- Regional Companies

(Article 21 paragraph (1))

The legal form of representative offices and branch offices domiciled abroad is to follow the legal form of
the head office.
(Article 21 paragraph (3).
Legal Forms of Rural Banks
- Regional Companies
- Cooperatives
- Limited Liability Companies
- Other forms stipulated by government regulations
The legal forms of Rural Banks are more numerous than Commercial Banks intended to provide a
platform for operators of more banking institutions. smallholders from Rural Banks, such as Village
Banks, Village Credit Bodies, and other institutions as referred to in Article 58 of the Banking Law.

Establishment of Commercial Banks can only be established by:

- Indonesian citizens
- Indonesian legal entitiesIndonesian
- Citizens and / or Indonesian legal entities with foreign citizens or foreign legal entities in partnership
(Joint Venture)

(Article 22 paragraph (2))

Rural Banks can only be established and owned by Indonesian citizens, Indonesian Legal Entities whose
entire ownership is Indonesian citizens, local governments, or can be owned jointly between the three of
them

REQUIREMENTS AND PROCEDURES FOR ESTABLISHMENT

Requirements and procedures c ara of establishment of a Commercial Bank as stipulated in the Decree of
the Board of Directors of Bank Indonesia Number 32/33 / KEP / DIR concerning Commercial Banks.
Article 5 Kep. The BI Board of Directors stated that the issuance of a Commercial Bank license must go
through two stages:
1. Stage Approval in principle, namely approval to undertake preparations for the bank concerned.
2. The stages of granting a business license, namely the license granted to conduct business after the
preparations have been completed.
This provision implies that prior to obtaining a business license, parties that have obtained approval in
principle are not permitted to carry out business activities. This provision provides an understanding that
in order to legally operate a bank, a business license from Bank Indonesia is required.
In order to obtain approval in principle, the applicant must attach:
- The draft articles of association;
- List of candidate shareholders, composition of the board of directors and board of commissioners;
- Organizational structure plans;
- Work plan;
- Proof of payment of at least 30% (thirty percent) of the paid-up capital.
To obtain a business license, the applicant is required to submit a report on the readiness for bank
establishment, enclosing:
- Approved articles of association.
- List of shareholders, composition of the board of directors and board of commissioners
- Structure of the organization
- Evidence of payment of all capital.
BANK CAPITAL
In principle, the source of capital from a bank consists of four sources, namely:
1. Capital that comes from the bank itself,
namely capital from the shareholders (founders of the bank) which consists of paid-up capital which
is called "fixed capital", because it is not possible at any time. taken. Meanwhile, the government
bank consists of funds / money set aside from the budget.
2. Capital sourced from the public
Is a savings from the public that is managed by the bank as well as possible to obtain profits, in the
form of:
a. Current account
b. Deposits deposits
c. Savings
3. Capital sourced from Bank Indonesia
This is capital disbursed by Bank Indonesia through credit facilities to banks experiencing short-term
funding difficulties and is guaranteed with high-quality, easy-to-draw collateral.
4. Capital sourced from Bank Financial Institutions and Non-Bank Financial Institutions
Capital included in this case is in the form of:
- Interbank loans
- Call Money is a bailout fund sourced from bank financial institutions. Represents funds in
rupees loaned by other banks within 7 days which can be withdrawn at any time by the lending
bank without being subject to a charge.
- Foreign Fund Loans Funds

FUND RAISED BY BANKS

Funds are the main service offered by the banking world, both Commercial Banks and Rural Banks. The
activities of banks in their efforts to raise funds include the following:
1. Current accounts.
The definition of "Giro" according to Article 1 point 6 of the Banking Law is:
"Demand deposits are deposits which can be withdrawn at any time by means of checks, bilyet giro,
other means of payment orders or by transfer".
From this understanding, two understandings of current accounts can be drawn, namely:
- Withdrawals can be carried out at any time, which means that the depositor, the owner of the
giro, can withdraw deposits at any time as long as the bank's cash is open.
- How to withdraw using check and bilyet giro. However, with certain limits other forms of
withdrawal such as other means of payment orders and transfers can be made.
2. Deposits.
Deposits according to Article 1 point 7 of the Banking Law are:
"deposits whose withdrawal can only be made at a certain time based on an agreement between the
depositing customer and the bank".
Types of deposits:
a. Certificate of Deposit.
Namely a time deposit which proof of storage can be traded.
b. Deposit On Call.
Namely deposits which are withdrawn based on prior notification (in accordance with the
agreement between the customer and the Bank);
c. Automatic Rolled Over Deposit.
 Namely deposits that continue to run or automatic renewal.
3. Savings.
The definition of Savings is contained in Article 1 point 9 of the Banking Law
"Savings are deposits which can only be withdrawn according to certain agreed terms, but
cannot be withdrawn by check, bilyet giro, and / or other similar means".
There are 2 elements that can be found from this definition, namely:depositing
- Savings in the form of savings can only be made according to certain requirements agreed
upon by the bankcustomer.
- In the case of a deposit withdrawal in the form of savings, it can be made directly by the
depositing customer or another person authorized by him by filling in the withdrawal slip
applicable at the bank concerned.
Withdrawal of deposits in the form of savings cannot be made by means of checks, bilyet giro,
and / or other equivalent means.

LEGAL ASPECTS OF LENDING

Money received from the public, whether it is in the form of savings, current accounts, or time deposits, is
eventually circulated back by the bank. For example, through the money market (money market),
deposits, investment in other forms, and especially in the form of credit extension.

Understanding Credit
Etymologically, the term credit comes from the Latin language, credere, which means trust.
Meanwhile, according to Law no. 10 of 1998 concerning Banking.
Article 1 point 11 is formulated:
"credit is the provision of money or an equivalent claim, based on a loan agreement or agreement
between the bank and another party which requires the borrower to pay off its debt after a certain period
of time with interest."
Based on the above understanding, it shows that the performance required by the debtor for the credit
given to him is not only to pay off the debt but also accompanied by interest in accordance with the
previously agreed agreement.
Credit is given on the basis of trust, therefore the provision of credit means trust. The meaning of trust is
the confidence of the bank as a creditor that the credit given will actually be received back within a
certain period according to the agreement.
In banking science, there are credit elements consisting of:
a. Trust, means that each release of credit is based on the belief by the bank that the credit can be repaid
by the debtor according to the agreed period.
b. Time means that the release of credit by the bank and repayment by the debtor is not done at the
same time, but is separated by a grace period.
c. Degree of risk, means that every credit release of any type will contain a risk in it, namely the risk
that is contained in the time period between credit release and repayment. This means that the longer
the credit period, the higher the credit risk.
d. Achievement here means that every agreement between a bank and its debtor regarding a provision
of credit, then at that time there will also be an achievement and a counter-achievement
. Credit by the bank has a high risk because once the credit is in the debtor's hand, the bank will find it
difficult to know detect the money. So that something might happen that is not possible in the future.
BASICS OF LENDING
In channeling credit, banks must carry out healthy lending activities which are commonly known as the
principle (The five C's of Credit Analysis)
which is the basis of credit extension, namely:
a. Caracter (character) The
target of the customer (debtor) assessment is the ability to control the business, the future prospects
of the business, production and marketing.
b. Capacity (ability) The
target of the assessment of customers (debtors) is the ability to control the business, future prospects
for the business, production and marketing.
c. Capital (capital)
Bank credit is basically only additional capital. Customer (debtor) must already have initial capital
depending on the type of business activity. However, usually the minimum initial capital is 20
percent of the total funds required.
d. Collateral (collateral / guarantee)
Guarantee is one of the elements of the credit agreement, the guarantee is needed to give confidence
to the bank that the customer (debtor) is able to repay the loan in accordance with the agreement.
therefore the amount of collateral in the credit agreement is at least 100 percent of the credit value.
e. Conditio of economy (economic conditions / prospects of the debtor's business) The
assessment is prioritized on political, social, economic and cultural situations and conditions that
affect economic conditions over a certain period of time. The state of the economy here is the
country's economy, the customer (debtor), and the economic condition of the credit provider bank.

BANK CREDIT CLASSIFICATION

The term is to indicate credit classification based on credit collectibility that describes the quality of the
credit.
According to the Decree of the Director of Bank Indonesia no. 30/267 / KEP / DIR are as follows:
1. Current Credit, namely if it meets the following criteria:
• Payment of principal or interest installments is correct;
• Have an active account mutation; or
• Portions of loans that are secured by cash collateral
2. Loans with special mention, if they meet the following criteria:
• There are arrears in principal and or interest that have not exceeded 90 days;
• Overdrafts occasionally occur;
• Relatively low account movements;
• There is rarely any breach of the contract that was promised; or
• Supported by a new loan.
3. Credit is substandard, if it meets the following criteria:
• There are arrears in principal or interest installments that have exceeded 90 days;
• Frequent overdrafts;
• Relatively low frequency of account transfers;
• There are indications of financial problems faced by debtors;
4. Doubtful credit, if it meets the following criteria:
• There are arrears in installments of principal and or interest that have exceeded 180 days;
• There are frequent overdrafts that are permanent in nature;
• There is a default for more than 180 days;
 • Interest capitalization occurs,
• Weak legal documentation for both credit agreements and guarantee enhancements.
5. Bad Credit, if it meets the following criteria:
• There are arrears in principal and / or interest installments that have exceeded 270 days
• Operational losses are covered by new loans
• From a legal perspective or market conditions, collateral cannot be withdrawn at fair value.

CREDIT AGREEMENT
The term Credit Agreement was first put forward in Cabinet Presidium Instruction No. 15 / EK / 10/1996
in conjunction with SE Bank Negara Indonesia Unit I No. 2 / UPK / Pemb / 1966 Regarding Policy
Guidelines in the Credit Sector.
The definition of an agreement according to a legal expert:
Mariam Darus Badrulzaman:
"a bank credit agreement is a preliminary agreement (voorovereenkomst) for the delivery of money,
because the existence of a bank credit agreement is preceded by a loan and loan agreement which is the
principal agreement, namely the credit agreement".
R. Subekti:
"In whatever form the credit agreement is made, in essence what occurs is a loan and loan agreement as
regulated in the Civil Code (Article 1754 to Article 1769)".

From this understanding it can be concluded that:

- Bank credit agreements only occur in borrowing money
- Bank credit agreements only occur in the banking environment between the customer and the bank
or with the central bank or in other words that occur within the banking environment.

SHARIA BANK
Law No. 21 of 2008 considers:
a. That in line with Indonesia's national development goals to achieve a just and prosperous society
based on economic democracy, an economic system is developed based on the values of justice,
togetherness, equity, and benefits in accordance with the principles of sharia;
b. That the need of the Indonesian people for Islamic banking services is increasing;
c. That Islamic banking has specificities compared to conventional banking;
d. Whereas the regulations regarding sharia banking in Act Number 7 of 1992 concerning Banking as
amended by Act Number 10 of 1998 are not yet specific so that it needs to be specifically regulated
in a separate law;
e. That based on the considerations as referred to in letter a, letter b, letter c, and letter d, it is necessary
to establish a Law concerning Sharia Banking;
In this Act what is meant by Sharia Banking is everything that concerns Sharia Banks and Sharia
Business Units, including institutions, business activities, and methods and processes for carrying out
their business activities.

LEGAL BASIS OF ISLAMIC BANKING

In this law, there are several changes that provide greater opportunities for the development of Islamic
banking in Indonesia. From this law, it can be concluded that the Islamic banking system was developed
with the following objectives:
1. Meeting the needs of banking services for people who do not accept the concept of interest. With the
establishment of a sharia banking system that is side by side with the conventional banking system
 (dual banking system), the mobility of public funds can be carried out more broadly, especially from
segments that have so far not been touched by the conventional banking system that applies the
interest system.
2. Opening financing opportunities for business development based on partnership principles. In this
principle, the concept applied is a harmonious relationship between investors (mutual investor
relationship). While in conventional banks the concept applied is the debtor-creditor relationship
(debtor to creditor relationship).
3. Fulfilling the need for banking products and services that have several comparative advantages in the
form of eliminating perpetual interest charges, limiting unproductive speculation activities, financing
aimed at businesses that pay more attention to moral elements.

This Act also affirms the concept of Islamic banking by changing the mention of "Bank Based on the
Profit Sharing Principle" in Law No. 7 of 1992, becoming "Bank Based on Sharia Principles". The
mention is found in Article 1 paragraph (3), paragraph (4), paragraph (12), and paragraph (13). Even in
Article 1, paragraph 13, which explains the meaning of sharia principles in banking, there is also a
strengthening of the position of Islamic Law in the field of engagement in a positive legal framework.
Article 1 paragraph (13) states as follows:
"that the principles of sharia are the rules of an agreement based on Islamic law between a bank and
another party to deposit funds and / or finance business activities, or other activities declared in
accordance with sharia, among others, financing based on principles. profit sharing (mudharabah),
financing based on the principle of capital participation (musyarakah), the principle of buying and selling
goods for a profit (murabahah), or financing of capital goods based on the principle of pure lease without
choice (ijarah), or with the option of transferring ownership of the goods leased from the bank by another
party (ijarah wa Iqtina ') ”.

The problem regulated by this law, apart from affirming the existence of Islamic banking in Indonesia,
concerns the institution and operations of Islamic banks. Overall, these legal issues include:
1. Kinds of Islamic banks,
2. Establishment of Islamic banks,
3. Conversion of conventional banks to Islamic banks,
4. Opening of Branch Offices, which include finance and working capital,
5. Sharia Supervisory Agency and The National Sharia Council (DPS), which concerns the functions of
DPS as Advisor, Mediator and Representative,
6. Islamic banking business activities and products,
7. Bank Indonesia supervision of Islamic banks,
8. Criminal and administrative sanctions.

Enforcement of Law No. 10 of 1998 is a moment for the development of Islamic banking in Indonesia.
This law opens opportunities for the development of sharia banking networks, including through permits
to open Sharia Branch Offices (KCS) by conventional banks. In other words, conventional banks can
conduct business activities based on sharia principles. A strong legal foundation and certainty for business
actors and the wider community includes:
a. Regulation of institutional aspects and business activities and Islamic Banks as mandated in Article 1
paragraph 3 of Law No. 10 of 1998. This article explains that a Commercial Bank may choose to
carry out business activities based on a conventional system or based on sharia principles or to carry
out both activities. In the event that a commercial bank conducts business activities based on sharia,
this activity is carried out by opening a work unit and special branch offices, namely the Sharia
 Business Unit and Sharia Branch Office. Meanwhile, BPRs must choose business activities based on
sharia principles only, or based on conventional systems only. Conventional commercial banks that
will open sharia branch offices are required to:
1) Establish Sharia Business Units (UUS);
2) Has a Sharia Supervisory Board (DPS) assigned by
3) the National Sharia Council (DSN); and
4) Providing working capital set aside by the bank in a
5) separate account in the name of UUS that can be used to pay office fees and permits related to
operational and non-operational activities of Sharia Branch Offices (KCS).
b. However, during the period of Law no. 10 of 1998 can also be seen that there are several legal issues
that still need to be further regulated and separate regulations that need to be considered in the
upcoming national banking regulations. These problems include the following:
1) Islamic banks are subject to two different legal systems.
2) The existence of the Sharia Supervisory Board.
3) Islamic bank supervisors are still based on conventional approaches. 4. The Central Bank uses
the standard of interest.
4) Inadequate implementing regulations for Islamic banks.
5) Civil law remains a reference in documentation and legitimacy.

From these problems, it is still felt the importance of issuing separate provisions concerning the Sharia
Banking System. For this reason, efforts were made to formulate a separate Draft Law on Sharia Banking
which is expected to be passed around 2006.
After the passing of Law no. 21 of 2008 concerning Sharia Banking, the legal basis for the operation of
sharia banking in Indonesia is Law No. 21 of 2008 as described in the previous chapter.

DIFFERENCE BETWEEN SHARIA BANKS AND CONVENTIONAL

Banks Sharia Banks:
- Based on profit margins or profit sharing
- and falah oriented
- Legal relations between banks and customers are partnerships
- User of real funds
- Only make halal investments
- Mobilization and distribution of funds must be in accordance with the opinion of the Sharia
Supervisory Board

Conventional Banks:
- Use interest-devices
- orientedProfit oriented
- The legal relationship between customers and banks is Debtor - Creditor
- Creator of money supply
- Halal and illegal investment
- There is no similar board like DPS

SHARIA SUPERVISORY BOARD

Basically, the legal form of Sharia Banks and Conventional Banks are the same, which can be in the form
of Regional Companies, Cooperatives, or Limited Liability Company. However, one thing that
distinguishes Sharia Banks from Conventional Banks, both for commercial banks, and for BPRS, namely
in the organizational structure of Islamic banks (commercial banks or BPRS), there must be a Sharia
Supervisory Board (DPS).

The functions of the Sharia Supervisory Board (DPS) are:

1. Oversee the day-to-day operationalization of the bank in accordance with sharia provisions.
2. Make a statement periodically (usually annually) that the bank under supervision has been running in
accordance with the provisions sharia.
3. Researching and making new product recommendations from existing banks supervised.

The functions of the National Sharia Council (DSN) are:

1. Supervise the products of Islamic financial institutions for compliance with sharia.
2. Researching and giving fatwas for products that are developed by Islamic financial institutions.
3. Provide recommendations for scholars who will be assigned as Sharia Supervisory Board in a sharia
financial institution.
4. Give a warning to Islamic financial institutions if that concerned deviates from the predefined guide
lines.

References
Imaniyati, N. S. (2008). Hukum Perbankan. Bandung: Fakultas Hukum Unisba.
Petawari. (2009, Desember 9). Hukum Perbankan. Retrieved from Civitas Akademika:
https://patawari.wordpress.com/2009/12/19/bahan-hukum-perbankan/