As mandated under Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector, in order to prevent bank failures that may ultimately have a disruptive effect upon the financial system, while maintaining the overall stability of the banking industry, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) has issued Regulation of the OJK No. 5 of 2024 on the Determination of Supervision Statuses and the Handling of General Banking Issues (“Regulation 5/2024”), which has been in force since 27 March 2024.[1]

Generally speaking, Regulation 5/2024 sets out various arrangements that span 140 articles and seven chapters, including the following: 1) Determinations of systemic banks and surcharge capital; 2) Recovery plans; 3) Determinations of Statuses and Bank Supervision Follow-ups; and 4) Intermediary banks. This new framework also merges and revokes the following five previously issued Regulations of the OJK:

1. Regulation No. 14/POJK.03/2017 on Systemic Bank Recovery Plans (“Regulation 14/2017”);
2. Regulation OJK No. 15/POJK.03/2017 on Determinations of Statuses and Bank Supervision Follow-ups for Commercial Banks (“Regulation 15/2017”)[2];
3. Regulation No. 16/POJK.03/2017 on Intermediary Banks, as amended by Regulation of the OJK No. 13/POJK.03/2021 (“Regulation 16/2017”);
4. Regulation No. 43/POJK.03/2017 on Follow-ups to the Implementation of Bank Supervision (“Regulation 43/2017”); and
5. Regulation No. 2/POJK.03/2018 on the Identification of Systemic Banks and Capital Surcharge (“Regulation 2/2018”)[3].

Due to the wide scope of Regulation 5/2024, this edition of Indonesian Legal Brief will limit its discussion to a summary of the following specific topics:

1. Mandatory Preparation of Recovery Plans;
2. Determinations of Statuses and Bank Supervision Follow-up Actions; and
3. Intermediary Banks: Adjusted Requirements and Sales of Shares.

Mandatory Preparation of Recovery Plans

Regulation 5/2024 mandates that all banks are required to prepare and submit recovery plans to the OJK.[4] In comparison, Regulation 14/2017 previously only mandated that systemic banks were required to prepare and submit recovery plans to the OJK.[5] However, the requirement for all recovery plans to be approved by the relevant shareholders during general meetings of shareholders (rapat umum pemegang saham/RUPS), as originally set out under Regulation 14/2017, has been retained.[6]

All recovery plans must address the following aspects at the least:[7]

Submissions of recovery plans have now been updated under the framework of Regulation 5/2024 and should be performed in line with the following deadlines:[8]

Banks that were engaging in business activities before 31 December 2023 and that are subject to the obligation to prepare and submit recovery plans for the first time are required to fulfill various requirements that apply to savings ownership and/or debt instruments or investments with capital characteristics, that belong to controlling shareholders (Pemegang Saham Pengendali/PSP) and/or ultimate shareholders (Pemegang Saham Pengendali Terakhir/PSPT) and/or that belong to other parties in line with the following provisions:[9]

*) KBMI stipulations should be based on the levels of core capital that said banks possessed as of 31 December 2023

Determinations of Statuses and Bank Supervision Follow-up Actions

The nomenclature and criteria that apply to bank supervision statuses have now been updated from those previously set under Regulation 15/2017, as summarized in the following tables:

In addition to taking actions in order to improve the statuses of banks, banks that are currently in recovery must also submit the following documents to the OJK:[14]

1. Current financial reports, including balance sheets, profit and loss statements, and administrative accounts;
2. Details of any currently productive assets, as grouped by quality;
3. Current financial reports from companies that receive capital injections from relevant banks, excluding temporary capital injections that are used for credit or financing restructuring purposes;
4. Current group structure reports, as they relate to relevant banks;
5. Cash-flow projection reports for the upcoming month or based on other reporting periods, as detailed on a daily basis in line with frequencies that are determined by the OJK; and
6. Other information and/or reports, as required by the OJK.

However, it should be noted that banks can be exempted from recovery status determinations if they meet the following criteria:[15]

1. Are in the process of mergers, amalgamations, acquisitions or integrations;
2. Are undergoing additional capital injections in situations where the minimum deposit criteria have been met, which should at the least fulfill the applicable minimum capital adequacy ratios in order to accommodate the additional capital as a buffer; and/or
3. Are implementing recovery plans.

Intermediary Banks: Adjusted Requirements and Sales of Shares

In terms of applications for intermediary bank business licenses, the applicable requirements have now been simplified under the new framework of Regulation 5/2024, as broadly summarized in the following table:

Newly featured under Regulation 5/2024, in cases where the LPS sells all of the shares in an intermediary bank as a part of their termination process but said sale does not meet the applicable shareholder or foreign ownership requirements set out therein, then this process must be brought into compliance within one year of the date of purchase of the relevant shares.[18]

Source: hukumonline.com