Circular Letter Number 14/37/DPNP

Dec 27 2012
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With Attachment:
- Appendix 1 [PDF]
- Appendix 2 [PDF]
- Appendix 3 [PDF]
- FAQ [PDF]

Summary:
1. The amendment to this Bank Indonesia Circular is a follow-up to Bank Indonesia Regulation number 14/18/PBI//2012, dated 28th November 2012, regarding the minimum capital requirement for commercial banks.

2. The specifics of this Bank Indonesia Circular include the following:

a. The components of the Internal Capital Adequacy Assessment Process (ICAAP), which cover at least the following points:
1) Active supervision of the Board of Commissioners and Board of Directors.
The responsibilities of the Board of Commissioners and Board of Directors, among others, includes (i) understanding the characteristics and level of risk encountered by the Bank, assessing the quality of risk management and linking the level of risk to the capital adequacy of the Bank in order to anticipate the risks faced as well as to support the business plan and future strategic plan of the Bank; and (ii) ensuring the implementation of a consistent and integrated ICAAP in the Banks operational activities.
2) Assessment of Capital Adequacy.
Concerning the assessment of capital adequacy, banks shall be required to institute policy and procedures that ensure all risks are identified, measured and reported regularly to the Board of Commissioners and Board of Directors. In addition, Banks shall be required to apply methods and processes to assess capital adequacy by associating risk level with the level of capital required to absorb potential losses arising from such risks. The measurement of risk and calculating the level of capital required, including the methods and assumptions, shall be documented.
3) Monitoring and Reporting:
In terms of monitoring and reporting, Banks shall be required to implement an information system to monitor and report risk exposure as well as to measure the impact of changes in the risk profile on the capital requirement of the Bank. Reports shall be submitted regularly to the Board of Commissioners and Board of Directors.
4) Internal Control.

When conducting internal control, Banks shall be required to implement an adequate internal control system to ensure the reliability of the applied ICAAP as well as to review ICAAP at least once annually or as required by the Bank.

b. Regarding ICAAP, Bank Indonesia shall conduct a Supervisory Review and Evaluation Process (SREP), which assess the following components:
1) Adequacy of active supervision of the Board of Commissioners and Board of Directors;
2) Adequacy of the assessment of capital requirement;
3) Adequacy of monitoring and reporting;
4) Adequacy of internal control.

c. Reports pertaining to the assessment of minimum capital adequacy based on the risk profile as well as the report on minimum CEMA fulfilment shall be compiled according to the guidelines contained within this Bank Indonesia Circular.

d. In order to meet the CEMA requirements, the financial assets used as CEMA must be free of any party claims that are authenticated by a statement from a foreign bank branch office. Such a statement shall refer to the format defined in the Appendix of this Bank Indonesia Circular.

e. Fulfilment of minimum CEMA shall be achieved through phased implementation as follows:
1) All bank branches of foreign banks shall be required to meet the minimum CEMA of 8% (eight percent) of total bank liabilities no later than the position in June 2013.
2) In the event that the minimum CEMA of 8% of average total liabilities is less than Rp1 trillion (one trillion rupiah) after the position in June 2013 up to November 2017, the branches of foreign banks shall still be required to meet the minimum CEMA of 8% (eight percent) of total liabilities.
3) The minimum CEMA requirement of Rp1 trillion (one trillion rupiah) for the branches of foreign banks as referred to in item 2 shall be effective from December 2017.
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