Pursuant to Bank Indonesia Regulation No. 7/15/PBI/2005
dated July 1 2005 and Circular Letter of Bank Indonesia No.
7/48/DPNP to all commercial banks in Indonesia (dated October
14 2005), all commercial banks are obliged to adjust their
minimum Tier 1 capital. This capital consists of paid-up
capital and disclosed reserves.
All commercial banks in Indonesia that provide payment
services either conventionally or based on sharia
principles (excluding branches of foreign banks) are obliged to
comply with Tier 1 capital requirements equalling at least
IDR80 billion ($7.9 million) by December 31 2007 or December 31
Commercial banks that already have Tier 1 capital of IDR80
billion must have IDR100 billion of Tier 1 capital by December
31 2010, or, at the latest, December 31 2011. After December 31
2010 all banks must have IDR100 billion of Tier 1 capital.
Banks unable to fulfill these Tier 1 minimums by 2008 and
2011 will have to limit their activities in the following
- they will be unable to conduct business activities as
foreign exchange commercial banks;
- they will be limited to providing facilities per debtor
and/or per group of debtors to no more than IDR500 million,
excluding the provision of funds to purchase Bank Indonesia
certificates, and to the government and other banks as
- the bank will only be able to take deposits of up to 10
times its Tier 1 capital; and
- the bank could face the closure of its entire network of
offices located outside the provincial territory of the
bank's head office.
Further procedural actions
Commercial banks that fail to fulfill their minimum Tier 1
capital requirements must:
Announce limits on business activities
Failing banks must announce to the public the limits placed
on its lending through newspapers widely circulated at the
bank's principal office location. The news must also be
announced through all its branch offices, with respect to:
- termination of its business as a foreign exchange
- limits on its fund provision per debtor and/or per group
of debtor. These are subject to provisions on the minimum
legal lending limit for credit, commercial paper, securities
with the option to sell, claims acceptance, credit
derivatives, administrative account transactions, derivatives
claims, potential future credit exposures, temporary or
permanent equity participation and other kinds of funding.
This excludes the provision of funds to buy Bank Indonesia
certificates or lend to the government and other banks;
- the address of each bank office that will be closed.
Settle positions affected by the limitation of
Regarding the closure of the network of offices, the bank
must provide a report to Bank Indonesia within seven days of
the newspaper announcement, which must contain:
- evidence of the announcement made to the public with
respect to the limitation of business activities;
- the method of settlement of its position for business
activities being limited and closing of offices within the
- a statement from the board of directors confirming that
all matters related to customer and other third parties will
be settled, and all claims in the future will be the
responsibility of the board of directors for and on behalf of
Commercial banks with paid up capital in the amount of at
least IDR3 trillion or sharia banks with paid-up
capital of at least IDR1 trillion can continue their business
without being subject to these limitations.
The board of directors of commercial banks that have not
complied with the Tier 1 capital requirements are obliged to
develop an action plan and have it approved by the bank
regulator. This plan must be delivered to Bank Indonesia by
December 31 2005 for private banks and on February 28 2006 for
public listed banks.
In the event that a bank fails to submit an action plan, the
banks are subject to a fine of IDR1 million each day until it
submits a plan. The maximum fine is IDR50 million.
For banks that fail to fulfill the minimum Tier 1 provisions
and also fail to limit their business activities, the following
- a penalty of IDR5 million each day until compliance;
- a prohibition on participation in clearing; and
- restrictions on the bank's business activities.