Regulation: Bank Indonesia Regulation Number 14/18/PBI/2012, dated 28th November 2012, regarding the Minimum Capital Adequacy Requirement for Commercial Banks.
Effective: 28th November 2012
1. The background behind the promulgation of this Bank Indonesia regulation is as follows:
a. Congruous with efforts to create a sound banking system that can develop and compete nationally and internationally, the calculation of bank capital adequacy should be adjusted according to prevailing international standards.
b. In addition, a portion of a foreign bank branch office’s capital should be allocated to certain financial instruments in order to anticipate the dynamics of the global economy and financial system.
2. The specifics of the Bank Indonesia regulation cover the following:
a. Banks shall be required to provide a minimum level of capital according to risk profile, thereby not only absorbing potential losses stemming from credit risk, market risk and operational risk, but also other risks like liquidity risk and other material risks. The provision of minimum capital according to the risk profile is determined as no less than:
1. 8% of risk-weighted assets (ATMR) for banks with a risk profile rating of 1;
2. 9% to less than 10% of risk-weighted assets (ATMR) for banks with a risk profile rating of 2;
3. 10% to less than 11% of risk-weighted assets (ATMR) for banks with a risk profile rating of 3; and
4. 11% to 14% of risk-weighted assets (ATMR) for banks with a risk profile rating of 4 or 5.
The risk profile rating is determined referring to Bank Indonesia regulations on assessing the soundness level of a commercial bank.
b. In order to calculate minimum capital according to the risk profile, Banks shall be required to apply an Internal Capital Adequacy Assessment Process (ICAAP) that covers (i) active supervision of the Board of Directors and Board of Commissioners; (ii) a capital adequacy assessment; (iii) monitoring and reporting; and (iv) internal control.
c. Bank Indonesia shall review the Internal Capital Adequacy Assessment Process (ICAAP), otherwise known as the Supervisory Review and Evaluation Process (SREP).
d. Calculating minimum capital according to risk profile shall commence for the position in March 2013 using the risk profile rating for the position in December 2012.
e. Foreign bank branch offices shall be required to fulfil the minimum Capital Equivalency Maintained Assets (CEMA) of 8% of total bank liabilities each month totalling no less than Rp1 trillion.
f. Minimum CEMA is calculated on a monthly basis and shall be met no later than the sixth calendar day of the following month.
g. Financial assets that meet the criteria for CEMA are (i) securities issued by the Government of the Republic of Indonesia; (ii) securities issued by other Banks incorporated in Indonesia; and (iii) securities issued by corporations incorporated in Indonesia that meet specific criteria.
h. Foreign bank branch offices shall be required to meet a minimum CEMA of 8% of total bank liabilities no later than June 2013.
i. In the event that minimum CMEA totals less than Rp1 trillion, affected foreign bank branch offices shall be required to meet a minimum CEMA of Rp1 trillion no later than December 2017.
j. This Bank Indonesia Regulation shall become effective as per the date of promulgation and supersedes Bank Indonesia Regulation Number 9/13/PBI/2007 regarding the Minimum Capital Adequacy Requirement for Commercial Banks according to Market Risk and supersedes Bank Indonesia Regulation Number 10/15/PBI/2008 concerning the Minimum Capital Adequacy Requirement for Commercial Banks.