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22 March 2019
Bank Indonesia recently issued Regulation 21/1/PBI/2019 on Offshore Bank Debt and FX-Denominated Other Bank Liabilities (Regulation 21), which entered into force on 1 March 2019. The regulation is an umbrella regulation on the application of prudential norms, which aims to limit the exposure of Indonesian banks to offshore debt and foreign currency foreign currency (FX)-denominated liabilities.
Regulation 21 revokes Bank Indonesia Regulation 7/1/PBI/2005 on Offshore Loans in the Banking Sector, as amended by Bank Indonesia Regulation 16/7/PBI/2014 (collectively, the previous regulation), with the exception of Articles 6(1) and 7 thereof.
As with the previous regulation, Regulation 21 stresses the importance of compliance with prudential norms for maintaining macroeconomic and financial system stability.
However, while the previous regulation's scope was confined to offshore bank loans, Regulation 21 encompasses "offshore bank debt and FX-denominated other bank liabilities".
This article examines:
Regulation 21 also sets out detailed provisions on supervision and penalties.
Regulation 21 provides the following definitions:
Although Regulation 21 does not specifically define the term 'FX-denominated other bank liabilities', it is explained in the body of the regulation and its elucidation, as discussed below.
Offshore bank debts
Offshore bank debts consist of:
FX-denominated other bank liabilities
FX-denominated other bank liabilities consist of:
To be categorised as an FX-denominated other bank liability, a risk participation arrangement must:
Should the bank subsequently assign a claim to the non-resident, the risk participation arrangement will be treated as an offshore bank debt owed by the bank's debtor to the participant. All such assignments of claims must be reported to Bank Indonesia.
Regulation 21 stresses that prudential norms must be adhered to in respect of offshore bank debts and FX-denominated other bank liabilities.
The applicable prudential norms differ depending on whether the offshore bank debt or FX-denominated other bank liability is categorised as a short or long-term liability.
Short-term liabilities consist of short-term:
Banks must observe a daily limit on short-term liabilities of 30% of their capital. This limit also applies in the case of long-term liabilities whose original maturity has been shortened to one year or less.
However, the following are exempt from the 30% limit:
In addition, Bank Indonesia may provide individual exemptions in cases of emergency.
Specific rules for branches of offshore banks
An Indonesian branch office of an offshore bank must:
A branch office may also have a daily operating funds balance that exceeds 100% of its declared operating funds, in which case the excess should be treated as a short-term liability.
Long-term liabilities consist of long-term:
Banks that intend to incur a long-term liability must first submit a market entry plan to Bank Indonesia for approval.
For a market entry plan to be submitted to Bank Indonesia, it must be incorporated in the bank's business plan. However, exceptions to this rule apply in case of:
The elucidation on Regulation 21 defines the 'relevant authority' as the OJK or the Deposit Insurance Agency.
A Bank Indonesia approval for a market entry plan remains valid for three months from its date of issuance. Where the bank fails to enter the market within three months, the approval will lapse and the bank must apply for a new approval before entering the market.
A bank is prohibited from incurring a long-term liability that exceeds the quantum stated in the Bank Indonesia approval.
Reports must be submitted to Bank Indonesia on market-entry realisation within seven days of market entry or the settlement date, depending on the type of offshore bank debt or FX-denominated other bank liability that is incurred.
Bank Indonesia may impose ceilings on the long-term liabilities of banks, having regard to:
The requirements set out in Regulation 21 are not applicable to bank liabilities relating to international trade (with the exception of pre-shipment financing facilities), provided that such liabilities are supported by sufficient underlying transaction evidence.
For further information on this topic please contact Monic Nisa Devina or Maher Asmoro Putra Sasongko at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125) or email (firstname.lastname@example.org or email@example.com). The Ali Budiardjo, Nugroho, Reksodiputro website can be accessed at www.abnrlaw.com.
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Monic Nisa Devina
Maher Asmoro Putra Sasongko