New Bank Indonesia Regulation on the Business Plans of Banks
The Governor of Bank Indonesia issued a new regulation concerning Bank’s Business Plans. This new regulation revokes the previous regulation except for certain provisions related to reports on the realization of Business Plans and reports on the supervision of Business Plans which remain valid until the end of the 2010 Business Plan reporting period.
According to this new regulation, Banks must draft a Business Plan every year, which must comprise, among other things, an Executive Summary, Policy and Management Strategy, the Application of Risk Management and the Bank’s Performance, its Projected Financial Report, including its Assumptions, Projected Capital Ratios and Certain Other Items, a Funding Plan, Investment Funding Plan, Capital Plan, Organization and Human Resources Development Plan, New Products to be issued and/or New Activities to engage in, the Development of and/or Changes to the Office Network, and other information. The Business Plan is to be prepared by the Board of Directors of the Bank, approved by the Board of Commissioners, and submitted to the shareholders of the Bank, including all bodies within the bank’s organization.
The Business Plan must be submitted to Bank Indonesia at the latest by the end of November before the year for which the Business Plan applies. However, for the 2011 Business Plan, as the first Business Plan prepared under this new regulation, the following transitional deadline will apply:
- For the 2011 Business Plan, Banks must submit their Business Plan to Bank Indonesia by the end of December 2010.
- If a Bank submits its Business Plan after December 2010, (a) provided that the Business Plan is submitted by at least the end of January 2011, the Bank will not be fined; (b) if the Business Plan is submitted after the end of January 2011, the Bank will be fined Rp50 million.
Late submission of the Business Plan will be subject to a fine of Rp1 million per day and the fine for failure to submit a Business Plan at all will be Rp50 million. Furthermore, violations of this regulation will be subject to administrative sanctions in the form of, among other things, written notices, certain activities being suspended and the Bank’s level being downgraded.
The following are some requirements related to the content of the Business Plan under the new regulation which were not required under the previous regulation:
- Any use of outsourcing and/or foreign manpower in the Business Plan, as part of the Resources Development plan.
- An Executive Summary containing at least the bank’s vision and mission, its policy direction and the strategic measures that will be taken, short term targets and medium term targets.
- Compliance policy is to be included under Policy and Management Strategy.
- The implementation of compliance with Islamic (syariah) banking principles, especially for Islamic Commercial Banks and Islamic Business Units as part of the Application of Risk Management and the Bank’s Performance.
- An analysis of the Bank’s position in relation to business competition, as part of its Policy and Management Strategy.
Rupiah and Foreign Currency Reserve Requirements for Commercial Banks
On 4 October 2010, Bank Indonesia issued a new regulation regarding the Rupiah and foreign currency reserve requirements for commercial banks. The reserve requirements for commercial banks applies on a daily basis and comprises primary (Primary Reserve), secondary (Secondary Reserve) and loan to deposit ratio (LDR) reserves. Under the new regulation, the minimum Primary Reserve is 8% of third party funds in Rupiah currency; the minimum Secondary Reserve is 2.5% of third party funds in Rupiah currency, and the minimum LDR is the ratio between the lower and higher incentive parameters. Foreign exchange banks must also maintain foreign currency reserves at 1% of third party foreign currency funds. The regulation also provides detailed parameters regarding third party funds for calculating minimum reserves.
Banks must submit periodic reports to Bank Indonesia regarding their compliance with the minimum reserve requirement under this regulation and the regulation on periodic reporting by banks. Failure to comply with the minimum Rupiah currency reserve requirements is subject to a fine of 125% of the JIBOR overnight interest rate applicable on the day of failure, calculated on any outstanding balance and each day of failure. Failure to comply the minimum foreign currency reserve requirement is subject to a fine of 0.04% for each day of failure, calculated on the difference between the daily foreign currency amount in the account held with Bank Indonesia and the amount recorded in the accounting system of Bank Indonesia. Bank Indonesia will deduct any fine payable by the bank due to its violation of this regulation from the account of the relevant bank held with Bank Indonesia. In addition, the bank will also be subject to certain administrative sanctions imposed by Bank Indonesia.
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