Martha Dewi

BANKING REGULATION
IN INDONESIA
By
MAIN
MANAGE and DITRIBUTE
FUNCTION PUBLIC FUNDS, which in
turn supports national
development, economic
growth and national stability,
toward the INCREASE of
PEOPLE’s WELFARE.

Banking sector is one of the

most strictly regulated sectors
in Indonesia
REGULATORY ARCHITECTURE
OJK
• Governed by LAW • OJK is the financial
no.7 of 1992 as regulator established in
amended by law no.10
of 1998 and it’s January 2013 with
implementing authority to regulate,
regulations -> refered supervise, examine and
to BANKING LAWS
investigate the financial
• This authority is
assigned to OJK
services sector in
(OTORORITAS JASA Indonesia.
KEUANGAN) in • OJK is an independent
2013. entity reporting to the
parliament (People’s
Representative Council).
 1. Regulating and supervising 3. Regulating and supervising a
BANKING INSTITUTIONS, covering BANK’S PRUDENT ASPECTS,
A) Licensing for establishment of a bank,
opening of a bank’s office
covering
A) Risk management
B) Business activity of a bank, source of funds, B) Bank governance procedure
provision of funds
C) Principle of know-your-customer and anti-money
laundering
D) Prevention of terrorism and banking criminal act
2. Regulating and supervising a
BANK’S SOLVENCY RATING,
4. BANK
covering EXAMINATION
A) liquidity, profitability, solvency, asset quality, ratio
of minimum capital sufficiency, maximum limit of
credit provision
B) Bank report related to bank solvency rating Authorities of OJK
C) Debtor information system
D) Credit testing
E) Bank accounting standard
 Types of Bank

Commercial The Central

Bank Rural Bank
Bank

Indonesia recognize 3 types of bank

The Central Bank
• The Central bank of Indonesia is BANK
INDONESIA (BI)

It has the MONETARY FUNCTION to SET and

IMPLEMENT MONETARY POLICIES and
MANAGE PAYMENT SYSTEMS in Indonesia.

• It doesn’t engage in conventional banking

activities
• Sustainable Economic dDevelopment
Commercial Bank
• Conventional banking activities ( ex : provide paymet
traffic service, provide loans and savings )
• Sharia-compliant banking activities
• Divided into 4 categories (BUKU) “Bank Umum
berdasarkan Kegiatan Usaha” which is determined based
on the amount of the banks' core capital:

a. BUKU 1 : banks with a core capital of less than Rp 1,000,000,000,000

b. BUKU 2 : banks with a core capital of at least Rp 1,000,000,000,000
up to less than Rp 5,000,000,000,000
c. BUKU 3 : banks with a core capital of at least Rp 5,000,000,000,000
up to less than Rp 30,000,000,000,000
d. BUKU 4 : banks with a core capital of at least Rp 30,000,000,000,000
Commercial Bank
• Commercial banks are prohibited from
conducting these following activities:
1. Capital participation in non-
financial institutions (with
exceptions like in case of recovering a credit
failure of a non-financial institutions)
2. Insurance business
3. Those beyond determined
law
 Rural Bank
(BPR – Bank Perkreditan Rakyat
• Provide loans to small and medium
enterprises
• BPR activities are limited:
a. mobilizing funds from the public as
savings and term deposits
b. providing loans
c. placing funds with central bank (BI)
and other banks
• BPR are prohibited from
conducting these following
activities:
a. Cheque accounts
b. Participation in the transfer
clearing system
c. Forex activities
d. Capital investment
e. Insurance business
 Maximum Share loading in a
Commercial Bank
• Can be established by INDONESIANS/ JOINTLY between
INDONESIANS & FOREIGNERS.
• The maximum limit for participation by foreign individuals
and foreign legal entities are 99% of the total issued and
paid up capital.
• OJK Regulation no.56

a. 40% of the bank’s capital -> for bank or another non-bank

financial legal entity
b. 30% of the bank’s capital -> for a non-financial legal entity
c. 20% of the bank’s capital -> for an individual
Single presence policy

• OJK regulation No.39

“ Restricts a party from becoming a controlling
shareholder in only one commercial bank.”

- Exceptions apply in :
1. A controlling shareholder in two commercial
banks (1 conventional & 1 sharia)
2. A controlling shareholder in two commercial
banks (1 of them is a joint venture
commercial bank)
 Recent Regulatory Themes
&
Key Regulatory Developments
 Financial Technology (Fintech)
• OJK Regulation No.77 (OJKR 77)
1. Peer-to-peer lending services on technology
information basis (P2P)
2. Obliged P2P companies to ensure security &
reliability of their electronic system.
3. Limits P2P debtors only to Indonesian citizens
domiciled in Indonesia with a maximum IDR 2
billion
4. Distinguish P2P agreement into 2 categories :
A) Between lender and the P2P company
B) Between lender and the debtor
5. Strictly prohibits P2P company as a lender, a
debtor/guarantor, and requires a P2P company
to be liable for any loss
6. A requirement to obtain consent from OJK for
any change of a shareholder of a P2P company
• BI Regulation No.19 (BIR 19)
Classiies fintech activities into 5 categories :
1. Payment systems -> covering clearing,
final settlement and payment processing
2. Market support -> facilitating faster and
cheaper distribution of
informationrelated to financial products
and/or services to the public
3. Investment Management and Risk
Management
4. Lending, finacing/funding and capital
raising
5. Other financial services
 Financial Technology
(Fintech)
• OJK Regulation No.13 (OJKR 13)
“ Setting out the regulatory framework for Digital
Financial Innovation (DFI).”
• Classifies DFI activities into 8 categories :
1. Transaction Settlement
2. Capital Accumulation
3. Investment Management
4. Fund Accumulation
5. Insurance
6. Market Support
7. Other Supporting Activities
8. Other Financial Activities
Bank Governance
&
Internal Controls
OJK Regulation No.55
(OJKR 55)
• Implementation • OJK requires all
of Commercial
Commercial
Bank’s
Governance Banks to
implement
Good
Corporate
Governance
principle (GCG) ->
requirements for
directors,
commissioners, and
other specific internal
governance
Boards Of Directors
(BoD)
• OJKR 55 requires a
Commercial Bank to have a
minimum of 3 Directors,
one of whom is to be
appointed as the President
Director.
• Each director must pass
fit&proper test requirement OJK requires the BoD to establish these
and be domiciled in working units:
Indonesia. 1. Internal audit unit
2. Risk management unit 7 risk management
• OJK requires more than committee
50% of all BoD members to 3. Compliance unit
have a minimum of 5 years
Board of Commissioners
(BoC)
• A Commercial bank must have ATLEAST 3
COMISIONERS.
• 50% minimum of the members must be an
independent commissioners.
• The number of BoC members must not exceed
the number of BoD members
• The restrictions on BoD apply to BoC ->
MUTATIS MUTANDIS
• BoC is required to establish :
1. An Audit committee
2. A Risk Monitoring Committee
 Other GCGs include
1. Conduction portfolio 4. Implementing
diversification by information
spreading out its transparency
funding distribution principles on a
2. Observing financial and non
compliance with the financial condition
maximum threshold 5. Ensuring
of credit provision sufficiency of
3. Preparing and management
submitting strategic information
coporate and 6. Performing periodic
business plans to self-assessment on
OJK
Bank Capital Requirements
 Risk-Based Capital
Adequacy OJK Regulation No.11 (OJKR 11)
Requirements Requires Commercial Banks to
maintain a minimum capital in
(CAR) accordance with their risk profile

8% of the weighted 9% < 10% of the 10%<11% of the 11% to 14% of the
assets by risk for weighted assets by weighted assets by weighted assets by
Commercial Banks risk for Commercial risk for Commercial risk for Commercial
with risk profile Banks with risk Banks with risk Banks with risk
ranking 1 profile ranking 2 profile ranking 3 profile ranking 4 or 5

Weighted assets by risk -> credit risk, operational risks, and

market risks
 Rules Governing Bank’s Relationships
with their Customers and Other Third Parties
OJK Regulation No.12 (OJKR 12)
Implementation of It requires every Commercial Reference to the
the Anti-Money Financial Service Banks must National Risk
Laundering Provider conduct assessment and
Program and (including Customer Due Sectoral Risk
Terrorism Funding
Prevention in the Commercial Diligence Assessment.
Financial Sector. Banks) to (CDD) and
IDENTIFY, Enhanced Due
ASSESS and Diligence
UNDERSTAND (EDD).
the risk of
money
laundering
and/or terrorist
Customer Due Diligence (CDD)
Activities -> IDENTIFICATION, VERIFICATION, and
SUPERVISION to ensure the transactions are in
accordance with the profile, characterictic and/or
pattern of customer’s transactions.

Commercial banks are obliged to conduct CDD

a. when : business
Conducting a. An indication of a
relations with customer suspicious financial
candidates; related to money
b. A financial transaction laundering and/or
with Rupiah currency terrorism funding
and/or foreign b. The Commercial Banks
currencyin the minimum doubt the accuracy of
of IDR 100 million information provided by
c. A fund transfer customer candidates,
customers, attorneys
an/or beneficial owners
• A more thorough CDD action that
focus on High Risk Customers and
Politically Exposed Persons.
i. High Risk Customers -> a person
who are considered to have high
risk of conducting activities
related to money-laundering
and/or terrorism funding.
ii. Politically Exposed Persons ->
persons authorized by their
countries or international
organization to conduct
prominent functions
Enhanced Due Diligence
(EDD)
• Examples :
i. Seeking additional information
on prospective customers such
as their occupation, list of assets,
reasons for transaction, and
source of fund and assets.
ii. Obtaining approval from highe-
level position before proceeding
with the transaction
iii. Conducting stricter evaluation by
adding the evaluation period and
observing he customer’s
transaction pattern
 Transparency on Banking Products and
Usage of Customer’s Personal Data
• BI Regulation Implementation of transparency
No.7 -> of : 2. Usage of customer’s
Transparency on 1. Information on banking personal data through
Banking products their policies and
Products and - To provide Complete and clear written procedures
written information on the - A Commercial Bank must
Usage of
characteristics of every banking obtain customer’s consent
Customer’s before providing and/or
product in Bahasa Indonesia and
Personal Data to deliver the information to the distributing customer’s
• OJK Regulation customers verbally or in writing; Personal data
No.1 -> - To notify customers on every
Consumer amendment, supplement and/or
Protection in reduction to the characteristics of
Financial Sector banking products prior to the
effectiveness of such amendment,
supplement and/or reduction;
 Settlement of Customer’s Complaints
OJK Regulation NO.18 (OJKR 18)

It requires the FS
provider to settle every
Regulates
dissatisfaction
complaints statement from
settlements for the customers caused by
Came into effect 6 months
Financial Services as of its issuance date
financial loss that is
provider (FS suspected to be caused
by the Commercial
Provider)
Bank’s fault or
negligence.
 Banking Mediation
• BI Regulation No.8
i. Disputes resulting from unfulfilled
customer's financial claims may be
sttled through banking mediation.
ii. Banking Mediation is conducted by
an independent banking Mediation
institution established by the
banking association.
iii. Can only be conducted for disputes
with financial claims of a maximum
amount of IDR 500 million.
 Outsourcing

• OJK Regulation No.9

(OJKR 9)
i. Low risk;
ii. Do not require high
banking competency and
skills qualification;
iii. Do not directly relate to
operational decision-
making.
THANK YOU !