Circular letter of the head of Banking Research and Regulation Department of Bank Indonesia Number 15/27/DPNP of 19 July 2013 (hereinafter referred to as ‘Circular No. 15/27/DPNP’) regulates provisions on requirements for commercial banks to undertake business activities in foreign currency. The provisions in Circular No. 15/27/DPNP start to apply on 19 July 2013. Therefore, Circular Number 28/4/UPPB of 7 September 1995 is revoked and declared null and void.
Business activities in foreign currency constitute the whole business activities of banks, including the issuance of products and/or the implementation of activities in foreign currency. Business activities executed by commercial banks (hereinafter abbreviated into ‘BUKU’) are classified on the basis of own core capital. The classification consists of 4 (four) types of BUKU: BUKU 1, BUKU 2, BUKU 3, and BUKU 4. In this regard business activities in foreign currency may only be executed for the last 3 (three) types of BUKU. Banks classified under BUKU 1 may only undertake activity as foreign currency trader, which is regulated in a special regulation. BUKU 2, 3, and 4, on the other hand, may undertake business activities in foreign currency as long as the banks have secured approval from Bank Indonesia.
Requirement and approval of business activities in foreign currency
Banks planning to undertake business activities in foreign currency are obliged to fulfill the following requirements:
a. Solvency rate with composite rate 1 (one) or 2 (two) in the last 18 (eighteen) months;
b. Having core capital minimum of Rp 1,000,000,000,000 (one trillion rupiah); and
c. Matching the capital adequacy ratio (hereinafter abbreviated into ‘CAR’) in accordance with risk profile for the last CAR evaluation as meant in the provision of Bank Indonesia ruling CAR.
Banks planning to undertake business activities in foreign currency shall make a Business Plan of Bank (hereinafter abbreviated into ‘RBB’). This RBB contains at least (a) objective and benefit of business activity in foreign currency for the banks, (b) coverage of business activities in foreign currency, and (c) brief explanation about organizational structure, human resources and information system in the framework of executing business activities in foreign currency. Bank Indonesia approves or rejects the application in no later than 60 (sixty) days after receiving the complete documents by Bank Indonesia. When approved, the business activities must be executed in no later than 6 (six) months, otherwise the approval will become invalid.
Degradation of core capital and revocation of approval
Banks reaching a decrease in core capital for 3 (three) months consecutively, and therefore not matching the requirement for the mentioned core capital, has to submit an action plan in the framework of (a) fulfilling requirement for core capital, or (b) adjusting to business activity in foreign currency. The action plan shall be submitted to Bank Indonesia in no later than 4 (four) months.
Banks unable to fulfill the action plan as mentioned under (a) in one year must submit an action plan for the adjustment of business activity in foreign currency as meant under (b) Banks need to submit a report on the realization of the action plan in the framework of adjusting to business activity in foreign currency (as mentioned under b) in no later than 7 days as from the expiration of the action plan period. Bank Indonesia revokes approval if the period of the action plan is already expiring.
Treatment of bank executing merger, consolidation, conversion, and spin off
In the case of two banks (or more) merging or consolidating, it is still possible to undertake business activity in foreign currency in the case of:
a. At least one of the merging or consolidating banks has secured approval to undertake business activity in foreign currency before the merger or consolidation took place; and
b. Bank resulting from the merger or consolidation has fulfilled the requirements for core capital as mentioned above; and
c. Bank resulting from the merger or consolidation notifies to and secure affirmation from Bank Indonesia regarding the plan for the use of approval.
Banks already having the letter of appointment as foreign exchange banks, on the basis of Decision of the Board of Directors of Bank Indonesia No. 28/64/KEP/DIR from 7 September 1995, are stipulated as follows:
a. Banks can still undertake business activity in foreign currency as long as the banks have fulfilled the requirement for core capital as much as Rp 1,000,000,000,000 (one billion rupiah); or
b. Banks must submit an action plan to adjust business activity or increase core capital.