DECREE OF THE BOARD OF MANAGING DIRECTORS OF BANK INDONESIA CONCERNING THE LEGAL LENDING LIMIT FOR COMMERCIAL BANKS

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1 No. 31/177/KEP/DIR DECREE OF THE BOARD OF MANAGING DIRECTORS OF CONCERNING THE LEGAL LENDING LIMIT FOR COMMERCIAL BANKS THE BOARD OF MANAGING DIRECTORS OF, Considering: In view of : a. whereas lending beyond a reasonable limit to individual debtors or groups of debtors, whether connected parties or non-connected parties to a bank, is commonly one of the major causes of bank failure; b. whereas to avoid such business failure as a consequence of concentrated lending, it is necessary that banks seriously apply prudential principles in their lending activities; c. whereas in the effort to avoid concentrated lending, it is necessary that banks diversify their credit portfolios; d. now therefore it is deemed necessary to enact improved regulations concerning the Legal Lending Limit for Commercial Banks in a Decree of the Board of Managing Directors of Bank Indonesia; 1. Act Number 13 of 1968 concerning the Central Bank (State Gazette Number 63 of 1968, Supplement to the State Gazette Number 2865); 2. Act Number 7 of 1992 concerning Banking (State Gazette Number 31 of 1992, Supplement to the State Gazette Number 3472), as amended by Act Number

2 BOARD OF MANAGING DIRECTORS Page 2 10 of 1998 (State Gazette Number 182 of 1998, Supplement to the State Gazette Number 3790); HAS DECREED: To enact: THE DECREE OF THE BOARD OF MANAGING DIRECTORS OF CONCERNING THE LEGAL LENDING LIMIT FOR COMMERCIAL BANKS. CHAPTER I GENERAL PROVISIONS Article 1 The terminology used in this Decree has the following meanings: a. Bank is a Commercial Bank as defined in Act Number 7 of 1992 concerning Banking as amended by the Act Number 10 of 1998; b. Legal Lending Limit (LLL) is the percentage ratio of maximum permitted provision of funds in comparison to Bank capital; c. Provision of Funds is the placement of Bank funds in rupiahs or foreign currencies, comprising credit, securities, interbank placements, and equity participation, and includes commitments and contingencies in off balance sheet transactions; d. Credit is the Provision of Funds or equivalent claims based on a loan agreement between a Bank and a party in which the borrowing party is required repay the debt after certain period together with a sum of interest, including:

3 BOARD OF MANAGING DIRECTORS Page 3 1. purchase of securities from a customer accompanied with a Note Purchase Agreement (NPA); 2. negotiation of claims in the course of factoring; e. Securities are promissory notes, bills of exchange, bonds, credit securities or any derivatives thereof, or other interest, or a liability of an issuer, in a form commonly traded on the money market and capital market, including but not limited to Bank Indonesia Certificates (SBIs), Money Market Securities, Commercial Paper, Mutual Fund Certificates, and Medium Term Notes; f. Interbank Placement is the placement of Bank funds in other Banks in the form of demand deposits, call money, time deposits, certificates of deposit, loans, and other placements; g. Equity participation is placement not conducted through the capital market of Bank funds in stocks of financial institutions, including temporary equity participation in a debtor company for the purpose of resolving credit default. h. Off Balance Sheet Transactions are commitments and contingencies comprising issued guarantees, acceptances/endorsements, outstanding irrevocable letters of credit (L/Cs), import draft acceptances under usance L/Cs, securities sold under repurchase agreement (repo), standby L/Cs, and other guarantees, and derivative transactions which carry Credit risk; i. Credit Risk for derivative transactions is the mark to market value of all agreements/contracts containing possible unrealized profit but which may potentially accrue as loss to the Bank in the event of default by the counterparty; j. Program Credit is credit supported by Bank Indonesia Liquidity Credit (KLBI) and extended in support of food self-sufficiency, development of cooperatives, small-scale entrepreneurs, farmers, and ownership of low cost homes and very low cost homes, as referred

4 BOARD OF MANAGING DIRECTORS Page 4 to in Decree of the Board of Managing Directors of Bank Indonesia Number 31/156/KEP/DIR dated November 23, 1998 concerning Requirements for Program Credit Executing Banks, Provision of Funds to PERTAMINA for procurement of oil fuels, and Provision of Funds to the National Logistics Agency (BULOG) for procurement of food supplies; k. Debtor is an individual or a corporate customer which has obtained one or more Provision of Funds; l. Group of Debtors is a grouping of Debtors that are linked to each other by ownership, management and/or financial ties; m. Connected Party is a Debtor or Group of Debtors linked to the Bank by virtue of being: 1. an individual shareholder owning 10% (ten percent) or more of the paid up capital of the Bank; 2. a corporate/institutional shareholder owning 10% (ten percent) or more of the paid up capital of the Bank; 3. a member of the board of commissioners of the Bank; 4. a member of the board of directors of the Bank; 5. a relative of a party as referred to in number 1, number 3, and number 4; 6. an individual owning 25% (twenty five percent) or more of shares and/or exercising control of the operations, supervision, or decision making, whether directly or indirectly, of the companies as referred to in number 2; 7. a Bank officer employed in an executive position, exerting influence over the operations of the Bank and/or is directly responsible to Directors, including an officer in the Internal Audit Unit and the Board of Auditors; 8. companies in which the Parties as referred to in point 1 to point 7 above have an interest equal to

5 BOARD OF MANAGING DIRECTORS Page 5 or greater than 10% of the paid up capital of the company; 9. companies in which the parties as referred to in point 1 to point 7 above exert influence on the operations, supervision, or decision making, even though these parties own no shares in the company; 10. a subsidiary of a Bank in which more than 25% (twenty five percent) of the paid up capital is owned by the Bank and/or the Bank exerts influence over this company. n. The criteria of family ties in the definition of Connected Parties as referred to in letter m number 5 constitutes family ties to the second degree in horizontal and vertical lines of descent, including parents-in-law, son/daughter-in-law, and brother/ sister-in-law, so that family ties encompass the following: 1. parent (natural/step-parent/adopted); 2. brother/sister (natural/half-brother or halfsister/adopted); 3. husband/wife; 4. child (natural/step-child/adopted); 5. son-in-law/daughter-in-law (husband/wife of natural/step-child/adopted child); 6. grandfather/grandmother (natural/step-grandfather or grandmother/by adoption); 7. grandchild (natural/step-grandchild/adopted); 8. brother-in-law/sister-in-law (natural/half-brother or half-sister/adopted brother or sister of husband/wife); 9. brother-in-law/sister-in-law (husband/wife of natural/half-brother or half-sister/adopted brother or sister); 10. uncle/aunt (natural/step-brother or sister of parent/by adoption );

6 BOARD OF MANAGING DIRECTORS Page mother-in-law/father-in-law. o. Non-Connected Party is a Debtor or Group of Debtors not included among the Connected Parties; p. Capital is Bank capital as referred to in the Decree of the Board of Managing Directors Number 26/20/KEP/DIR dated May 29, 1993 concerning the Bank Capital Adequacy Requirement, as amended by Decree of the Managing Directors of Bank Indonesia Number 31/146/KEP/DIR dated November 12, 1998; q. Lending in Excess of the LLL is the difference expressed in the following formula; Provision of Funds at the LLL reporting date x 100% - [ LLL ] Capital at the LLL reporting date r. Violation of the LLL is the difference expressed in the following formula: Provision of Funds at the date of provision x 100% - [ LLL ] Capital at the date of provision of funds Article 2 (1) The date of provision for the purpose of interpretation of Violation of the LLL is linked to the date that the Provision of Funds takes place. (2) The Bank shall prohibit a Debtor from drawing down the Provision of Funds if such action will result in Violation of the LLL. Article 3 Calculation of the Provision of Funds for the purpose of interpretation of Violation of the LLL is stipulated as follows: a. Loans shall be based on the outstanding balance of loan;

7 BOARD OF MANAGING DIRECTORS Page 7 b. Guarantees issued by the Bank shall be based on the nominal value; c. Securities shall be based on cost; d. Equity Participation shall be based on the amount of invested funds; e. Claims negotiated in the course of factoring shall be based on the take over value; f. Derivative Transactions shall be based on value of their Credit Risk; g. The exchange rate applied for Provision of Funds in foreign currencies shall be based on the prevailing exchange rate at the date of provision as referred to in Article 2 paragraph (1). Article 4 (1) Lending in Excess of the LLL arising from the exchange rate fluctuation and/or the reduction in Capital in respect of previously extended Provision of Funds shall not be categorized as Violation of the LLL. (2) Lending in Excess of the LLL as referred to in paragraph (1) shall not be liable to sanctions for Violation of the LLL. Article 5 (1) Bank Indonesia reserves the right to make any correction to the classification of Connected Parties and Groups of Debtors as determined by the Bank. (2) The corrections as mentioned in paragraph (1) may be re-adjusted to the classification determined by the Bank insofar as the Bank is able to furnish evidence and supporting documents.

8 BOARD OF MANAGING DIRECTORS Page 8 Article 6 (1) Any Bank whose Capital Adequacy Ratio (CAR) equals to or less than 0% (zero percent) is prohibited from extending Provision of Funds in any form whatsoever. (2) The prohibition as referred to in paragraph (1) shall not be applied to a Bank which has obtained approval from the Government to participate in the recapitalization program funded by the Government as referred to in Government Regulation Number 84 of 1998 dated December 31, 1998 concerning the Recapitalization Program for Commercial Banks; (3) Violation of the LLL and/or Lending in Excess of the LLL for a Bank as referred to in paragraph (2) may be calculated by using the assumed amount of Capital in accordance with the requirements of the Capital Adequacy Requirement stipulated by Bank Indonesia. CHAPTER II LLL FOR NON-CONNECTED PARTIES Article 7 The LLL for an Individual Debtor or Group of Debtors comprising a Non-Connected Party shall be not more than: a. 30% (thirty percent) of Capital commencing from the enactment of this Decree until the end of 2001; b. 25% (twenty five percent) of Capital throughout the year 2002; c. 20% (twenty percent) of Capital commencing from January 1, 2003.

9 BOARD OF MANAGING DIRECTORS Page 9 Article 8 (1) A company shall be categorized as a member of a Group of Debtors if it satisfies at least one of the criteria in respect of ownership, management and financial ties with one or more other companies, as follows: a. 25 % (twenty five percent) or more of the ownership of each company is controlled by a company or person or jointly by a family; b. One of the companies controls 25% (twenty five percent) or more of the ownership of other companies; c. A member of Board of Directors, member of the Board of Commissioners or other officer holding an executive position in a company is also a member of the Board of Directors, a member of the Board of Commissioners, or an executive officer in another company with powers to decide matters related to the operations of the company; d. In the absence of ownership and/or management ties as referred to in the above letter a, letter b, and letter c, two or more companies shall be deemed a group if financial ties exist as follows: i. one company acts as guarantor for Provision of Funds received by the other company; ii. one company provides financial assistance to the other company to the extent that it results in control of business operations by the company providing the assistance. (2) State Owned Enterprises and/or Regional Government Owned Enterprises shall not be treated as a Group of Debtors.

10 BOARD OF MANAGING DIRECTORS Page 10 CHAPTER III LLL FOR CONNECTED PARTIES Article 9 (1) The LLL for a Connected Party, whether an individual Debtor or a Group of Debtors, shall not exceed 10% (ten percent) of Capital. (2) The LLL for all Connected Parties shall not exceed 10% (ten percent) of Capital. Article 10 (1) Provision of Funds to a Connected Party through another Bank, finance company and/or Rural Bank shall be subject to the LLL provisions as referred to in Article 9. (2) Provision of Funds to a Connected Party through another Bank for the purpose of a loan swap agreement where the risk is borne by the Bank shall be subject to LLL provisions as referred to in Article 9. (3) A finance company as referred to in paragraph (1) is a company conducting business in one or more than one of the following financial services: leasing, factoring, credit cards, and consumer finance. (4) A Rural Bank as referred to in paragraph (1) above is a Rural Bank as referred to in the Act Number 7 of 1992 concerning Banking as amended by Act Number 10 of Article 11 (1) Provision of Funds to a Connected Party shall not take place in contravention of the general lending procedure and shall in any event provide a reasonable return for the Bank.

11 BOARD OF MANAGING DIRECTORS Page 11 (2) Provision of Funds to a Connected Party shall require the prior approval of the Board of Commissioners of the Bank. (3) In the event of deterioration in the quality of Provision of Funds to a Connected Party to substandard, doubtful, and loss, the Bank shall take the necessary remedial actions through debt restructuring and/or repayment by the Debtor within a period of not more than 60 (sixty) days. Article 12 (1) Any company classified as a Non-Connected Party which receives temporary equity participation from a Bank for the purpose of debt restructuring as referred to in Decree of the Board of Managing Directors Number 31/150/KEP/DIR dated November 12, 1998 concerning Debt Restructuring shall be exempt from the definition of Connected Parties. (2) The LLL for a company as referred to in paragraph (1) shall comply with the provisions as referred to in Article 7. CHAPTER IV PROVISION OF FUNDS EXEMPTED FROM THE LLL Article 13 (1) The LLL provisions shall be waived for following categories of Provision of Funds: a. Placements in Bank Indonesia Certificates and Treasury Bills issued by the Government of Indonesia; b. Portion of Provision of Funds issued and/or guaranteed by the Government of Indonesia or guaranteed by Bank Indonesia;

12 BOARD OF MANAGING DIRECTORS Page 12 c. Temporary equity participation in a debtor company for the purpose of resolving credit default as referred to in Decree of the Board of Managing Directors Number 31/150/KEP/DIR dated November 12, 1998 concerning Debt Restructuring; d. Portion of Provision of Funds guaranteed by cash collateral in the form of demand deposit, time deposit, savings deposit, and margin deposit accompanied by written authorization for withdrawal; e. Interbank Placement for as long as the government guarantee scheme remains in force and provided that the Bank accepting the placement satisfies the requirements of the guarantee scheme; f. Negotiated export drafts issued under usance L/Cs in accordance with the Uniform Customs and Practice for Documentary Credits (UCP) and endorsed by overseas prime banks according to ratings issued by international rating agencies such as Moody's and Standard & Poors. (2) The LLL provisions shall be waived for the following Provision of Funds until December 31, 2000: a. Program Credit extended through an executing Bank; b. Outstanding L/Cs for import and local L/Cs until the settlement of payment by the opening bank with the negotiating bank, whether in Indonesia or overseas. CHAPTER V REPORTING Article 14 (1) Banks shall submit reports concerning Violation of the LLL, Lending in Excess of the LLL, and

13 BOARD OF MANAGING DIRECTORS Page 13 Provision of Funds to Connected Parties on monthly basis to Bank Indonesia in accordance with the forms presented in Appendix 1, Appendix 2, Appendix 3, and Appendix 4. (2) The attachments as referred to in paragraph (1) constitute an integral part of this Decree. (3) The reports as referred to in paragraph (1) shall be signed by an authorized officer, a member of the Board of Directors, and a member of the Board of Commissioners. (4) The reports as referred to in paragraph (1) shall be received by Bank Indonesia within the first 14 (fourteen) working days commencing from the end of the reporting month. (5) A Bank shall be deemed late in delivery of the reports as referred to in paragraph (1) in the event that the Bank fails to deliver the reports concerned within the period commencing from the elapse of period as referred to in paragraph (4) until the end of the month following the reporting month. (6) A Bank shall be deemed delinquent in delivery of the reports as referred to in paragraph (1) in the event that commencing from the beginning of the second month after the reporting period, the Bank has failed to deliver the reports concerned. Article 15 (1) A Bank shall prepare and submit action plans for Violation of the LLL and Lending in Excess of the LLL respectively. (2) The action plans as referred to in paragraph (1) shall state at least the remedial measures to be taken in respect of the Violation of the LLL and Lending in Excess of the LLL within a specified timeframe for settlement. (3) The timeframe for settlement as referred to in paragraph (2) shall be determined as follows:

14 BOARD OF MANAGING DIRECTORS Page 14 a. for Violation of the LLL, not more than 1 (one) month; b. for Lending in Excess of the LLL as referred to in Article 4 paragraph (1), not more than 9 (nine) months. (4) The action plans as referred to in paragraph (1) shall require approval from Bank Indonesia. (5) The action plans as referred to in paragraph (1) shall be received by Bank Indonesia not later than 1 (one) month after the end of the reporting month. (6) A Bank shall be deemed late in submission of an action plan as referred to in paragraph (1) in the event that Bank fails to deliver the action plan within 14 (fourteen) working days after the period as referred to in paragraph (5). (7) A Bank shall be deemed delinquent in submission of an action plan as referred to in paragraph (1) in the event that commencing from the end of the period as referred to in paragraph (6) the Bank has failed to submit the action plan. Article 16 (1) A Bank shall deliver an implementation report for the respective action plans for Violation of the LLL and Lending in Excess of the LLL. (2) The implementation report for an action plan as referred to in paragraph (1) shall be delivered to Bank Indonesia not later than 14 (fourteen) working days after each phase of completion of the action plan. (3) A Bank shall be deemed late in delivery of an implementation report for an action plan as referred to in paragraph (1) in the event that commencing from the end of the period as referred to in paragraph (2) until the end of the month following a phase of completion of the action plan the Bank fails to deliver the report.

15 BOARD OF MANAGING DIRECTORS Page 15 (4) A Bank shall be deemed delinquent in delivery of an implementation report for an action plan as referred to in paragraph (1) in the event that by the beginning of the second month after the phase of completion of the action plan the Bank has failed to deliver the report. Article 17 (1) The reports as referred to in Article 14 and Article 16, and the action plans as referred to in Article 15, shall be delivered to Bank Indonesia at the following addresses: a. Bank Supervision Department, Jl. M.H. Thamrin No. 2, Jakarta in accordance with the applicable Department for a Bank having its head office in the region of Bank Indonesia Jakarta; b. Local Bank Indonesia office for a Bank having its head office in the region of a Bank Indonesia office. (2) The reports as referred to in paragraph (1) shall become effective for reports for the month of January CHAPTER VI SANCTIONS Article 18 (1) Any violation of the provisions for delivery of reports as referred to in Article 14 shall be liable to the following sanctions: a. fine in the amount of Rp 1,000,000 (one million rupiahs) per day of delay for each report as referred to in Article 14 paragraph (5);

16 BOARD OF MANAGING DIRECTORS Page 16 b. fine in the amount of Rp 30,000,000 (thirty million rupiahs) for delinquency in delivery of a report as referred to in Article 14 paragraph (6). (2) Any violation of the provision for submission of action plans for Violation of the LLL as referred to in Article 15 shall be liable to the following sanctions: a. fine in the amount of Rp 100,000,000 (one hundred million rupiahs) for delay in submission of an action plan as referred to in Article 15 paragraph (6); b. fine in the amount of Rp 500,000,000 (five hundred million rupiahs) for delinquency in submission of an action plan as referred to in Article 15 paragraph (7). (3) Any violation of the provisions for submission of an action plan for Lending in Excess of the LLL as referred to in Article 15 shall be liable to the following sanctions: a. fine in the amount of Rp 1,000,000 (one million rupiahs) for delay in submission of an action plan as referred to in Article 15 paragraph (6); b. fine in the amount of Rp 30,000,000 (thirty million rupiahs) for delinquency in submission of an action plan as referred to in Article 15 paragraph (7). (4) Any violation of the provisions for delivery of implementation reports for action plans as referred to in Article 16 shall be liable to the following sanctions: a. fine in the amount of Rp 1,000,000 (one million rupiahs) for each report per day of delay as referred to in Article 16 paragraph (3); b. fine in the amount of Rp 30,000,000 (thirty million rupiahs) for delinquency in delivery of an implementation report for an action plan as referred to in Article 16 paragraph (4).

17 BOARD OF MANAGING DIRECTORS Page 17 Article 19 (1) Any violation of the provisions of Article 7 and Article 9 shall be liable to sanctions in the form of downgrading of the credit score in bank rating. (2) Any violation by virtue of delinquency in delivery of reports as referred to in Article 14, and delinquency in submission of action plans as referred to in Article 15 and Article 16, after the issuance of 2 (two) letters of warning from Bank Indonesia with a 2 (two) week interval between each warning, shall be liable to administrative sanctions as referred to in Article 52 of Act Number 7 of 1992 concerning Banking as amended by Act Number 10 of 1998, including but not limited to: a. Posting of the names of members of management, Bank employees, and shareholders in the list of disreputable persons in banking; b. Freezing of certain business activities of the Bank, including but not limited to expansion of Provision of Funds; c. Dismissal of the Bank management followed by the appointment of caretaker management; d. Suspension from clearing. (3) Any violation by virtue of failure to implement an action plan for Lending in Excess of the LLL as referred to in Article 15 shall be liable to administrative sanctions as referred to in paragraph (2). (4) Any violation by virtue of failure to implement an action plan for Violation of the LLL as referred to in Article 15, after the issuance of 2 (two) letters of warning from Bank Indonesia with a 2 (two) week interval between each warning, shall be liable to administrative sanctions as referred to in paragraph (2). (5) Any violation by virtue of failure to implement an action plan for Violation of the LLL shall in addition

18 BOARD OF MANAGING DIRECTORS Page 18 to administrative sanctions as referred to in paragraph (2) also render the Board of Commissioners, Board of Directors, Bank employees, shareholders, and other affiliated parties liable to criminal sanctions as referred to in Article 49 paragraph (2) letter b, Article 50, and Article 50A of Act Number 7 of 1992 concerning Banking, as amended by Act Number 10 of CHAPTER VII MISCELLANEOUS PROVISIONS Article 20 (1) The provisions of this Decree shall also apply to Banks based on Syariah Principles. (2) Syariah Principles as referred to in paragraph (1) are rules of agreement based on the Islamic law between a Bank and a party for the purpose of deposits and/or financing for business activity or other business operations declared to comply with syariah law, including but not limited to financing based on the mudharabah principle (profit sharing), financing based on the musharakah principle (equity participation), the murabahah principle (trading for profit), ijarah (leasing without option), or ijarah wa iqtina (leasing with option). (3) Financing based on Syariah Principles is the Provision of Funds or equivalent claims based on financing agreement between a Bank and a party which requires the borrowing party to repay the debt or claim after a certain period with fee or profit share. Article 21 (1) Credit extended through a risk sharing agreement or guaranteed by a standby L/C prior to the enactment of this Decree shall be exempted from the calculation of

19 BOARD OF MANAGING DIRECTORS Page 19 the LLL until the expiration of the risk sharing agreement or standby L/C. (2) A Bank which has Equity Participation in a company operating in financial services as referred to in Decree of the Board of Managing Directors of Bank Indonesia Number 25/97/KEP/DIR and Circular Letter of Bank Indonesia Number 25/1/BPPP, both dated November 17, 1992, concerning Equity Participation and Ownership of Shares by Banks, shall be required to bring its LLL percentage into conformity with the provisions of this Decree not later than the end of December Article 22 With the issuance of this Decree: a. Decree of the Board of Managing Directors of Bank Indonesia Number 25/97/KEP/DIR dated November 17, 1992 concerning Equity Participation and Ownership of Shares by Banks; b. Decree of the Board of Managing Directors of Bank Indonesia Number 26/21/KEP/DIR dated May 29, 1993 concerning the Legal Lending Limit; and c. Decree of the Board of Managing Directors of Bank Indonesia Number 28/63/KEP/DIR dated September 6, 1995 concerning the Legal Lending Limit for Companies Listed and Traded on the Stock Exchange; are revoked and declared no longer valid. Article 23 This Decree shall come into force on the date of its enactment.

20 BOARD OF MANAGING DIRECTORS Page 20 For public to be informed, it is ordered that this Decree be promulgated in the State Gazette of the Republic of Indonesia. Enacted in Jakarta December 31, 1998 THE BOARD OF MANAGING DIRECTORS (signed) A c h w a n (signed) Subarjo Joyosumarto UPPB.