This content is from: Local Insights

Indonesia: New foreign loan requirements

Oene MarseilleEmir Nurmansyah
The central bank of Indonesia, Bank Indonesia, has issued regulation 16/21/2014, which is effective as of January 1 2015, requiring all non-exempt, non-bank entities to comply with certain minimum hedging, liquidity, credit rating, and reporting requirements when they take out foreign loans.

The regulation applies to all foreign loans, which is defined broadly to include all rupiah or foreign-currency denominated debts owing by a resident of Indonesia to a non-resident. Resident of Indonesia includes any person or legal entity that is has been or plans to be domiciled in Indonesia for at least one year.

First, all non-exempt, non-bank resident entities of Indonesia taking out foreign loans are required to maintain a minimum hedging ratio of 25% of the negative spread between its foreign exchange assets and foreign exchange liabilities. The ratio is to be maintained by taking out relevant derivative coverage, including forward, swap, or option, from a bank in Indonesia (although hedging transactions entered into with an offshore bank prior to January 1 2017 will count toward fulfilling the minimum hedging ratio).

An entity with financial reporting denominated in US dollars is exempted from having to meet the minimum hedging ratio if: (i) it has obtained approval from the Ministry of Finance to keep its financial record in US dollars; and (ii) its export income is more than 50% of its preceding year income.

Second, the relevant non-bank entity is required to maintain a minimum liquidity ratio of 70%. The liquidity ratio is calculated by dividing the total value of foreign exchange assets by the amount of foreign exchange liability. Certain receivables may be included in the foreign exchange asset calculation.

Third, subject to certain exemptions, the entity taking out a foreign loan is generally required to maintain a credit rating of at least BB- from a credit rating agency acknowledged by Bank Indonesia.

Finally, the relevant non-bank entity is required to deliver a report of its compliance to Bank Indonesia.

Oene Marseille and Emir Nurmansyah

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