BANK INDONESIA REGULATION NUMBER: 5/ 15 /PBI/2003 CONCERNING THE SHORT TERM FUNDING FACILITY FOR COMMERCIAL BANKS THE GOVERNOR OF BANK INDONESIA,

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1 BANK INDONESIA REGULATION NUMBER: 5/ 15 /PBI/2003 CONCERNING THE SHORT TERM FUNDING FACILITY FOR COMMERCIAL BANKS THE GOVERNOR OF BANK INDONESIA, Considering : a. whereas to resolve short term funding difficulties, Bank Indonesia in its capacity as lender of last resort may extend credit to commercial banks against high quality collateral easily converted to cash; b. whereas to support the effectiveness of the provision of this credit, it is necessary for adjustments and improvements to be made to prevailing regulations; c. n o w t h e r e f o r e i t i s d e e m e d n e c e s s a r y t o e n a c t a B a n k Indonesia Regulation concerning the Short Term Funding Facility for Commercial Banks; In view of : 1. Act Number 7 of 1992 concerning Banking (State G a z e t t e o f t h e R e p u b l i c o f I n d o n e s i a N umber 31 of 1992, Supplement to the State Gazette Number 3472), as amended by Act Number 10 of 1998 (State Gazette of the Republic of Indonesia Number 182 of 1998, Supplement to the State Gazette Number 3790); 2. Act Number 23 of 1999 concerning Bank Indonesia (State Gazette of the Republic of Indonesia Number 66 of 1999

2 - 2 - o f , S u p p l e m e n t t o t h e S t a t e G a z e t t e N u m b e r 3843); HAS DECREED: T o e n a c t : THE BANK INDONESIA REGULATION CONCERNING THE SHORT TERM FUNDING FACILITY FOR COMMERCIAL BANKS.. CHAPTER I GENERAL PROVISIONS A r t i c l e 1 The terminology used in this Bank Indonesia Regulation has the following meanings: 1. B a n k i s a C o m m e r c i a l B a n k a s d e f i n e d i n A c t N u m b e r 7 o f concerning Banking as amended by Act Number 10 of 1998, conducting conventional banking operations. 2. Short Term Funding Facility, hereinafter referred to as FPJP, is a funding facility from Bank Indonesia extended to a Bank, which may be used only to resolve a short term funding difficulty; 3. Short Term Funding Difficulty is a condition experienced by a Bank as a result of mismatch in which inflow of funds is smaller than outflow o f f u n d s ; 4. Bank

3 B a n k I n d o n e s i a C e r t i f i c a t e s, h e r e i n a f t e r r e f e r r e d t o a s S B I s, a r e securities in the Rupiah currency, issued by Bank Indonesia as shortt e r m d e b t i n s t r u m e n t s ; 5. Government Securities, hereinafter referred to as SUNs, are securities in the form of debt instruments in the Rupiah currency and in foreign currencies for which interest payment and redemption of principal are guaranteed by the State of the Republic of Indonesia in accordance with their term. 6. Interbank Money Market, hereinafter referred to as PUAB, is the lending and borrowing of funds between one Bank and another Bank. A r t i c l e 2 (1) A Bank experiencing a Short Term Funding Difficulty rendering it unabl e to settle liabilities at end of day may obtain an FPJP from Bank Indonesia in compliance with the requirements stipulated in this Bank Indonesia Regulation. (2) The FPJP shall be provided to a maximum of the liabilities that cannot b e s e t t l e d. CHAPTER II REQUIREMENTS AND PROCEDURE FOR APPLICATION FOR FPJP A r t i c l e 3 Banks eligible to apply for FPJP are Banks that according to assessment by Bank Indonesia are having an adequate rating of soundness. A r t i c l e 4

4 - 4 - A r t i c l e 4 (1) FPJP shall be guaranteed against high quality collateral owned by the Bank concerned that is easily convertible into cash. (2) Collateral as referred to in paragraph (1) shall consist of: a. SBIs; b. SUNs; and/or c. securities and/or other claims. (3) T h e r e q u i r e m e n t f o r c o l l a t e r a l i n t h e f o r m o f SBIs and SUNs as referred to in paragraph (2) letter a and letter b shall be stipulated further in a Circular Letter of Bank Indonesia. (4) Types and value of collateral in the form of securities and/or other claims as referred to in paragraph (2) letter c shall be stipulated further in a Circular Letter of Bank Indonesia. A r t i c l e 5 (1) T h e v a l u e o f c o l l a t e r a l t h a t m u s t b e p l a c e d w i t h B a n k I n d o n e s i a i s shall b e s t i p u l a t e d a s f o l l o w s : a. for collateral in the form of SBIs, the collateral value shall be 100% (one hundred percent) of the FPJP, calculated on the basis of the selling value of the SBIs; b. for collateral in the form of SUNs, collateral value shall be 105% (one hundred and five percent) of the FPJP, calculated on the basis o f t h e m a r k e t v a l u e o f the SUNs. (2) Selling value of SBIs and market value of SUNs as referred to in paragraph (1) shall be stipulated in a Circular Letter of Bank Indonesia. A r t i c l e 6

5 - 5 - A r t i c l e 6 (1) Collateral as referred to in Article 4 paragraph (1) must be free from any encumbrances and disputes and not be currently pledged as collateral to any other party and/or Bank Indonesia, and declared as s u c h i n a s t a t e m e n t b y t h e B a n k t o B a n k I n d o n e s i a. (2) A Bank that has obtained FPJP shall be prohibited from trading and/or secondary pledging as c o l l a t e r a l a n y s e c u r i t i e s u s e d a s c o l l a t e r a l f o r FPJP. (3) The Bank shall be required to replace collateral for FPJP in the event that the collateral fails to meet the conditions stipulated in paragraph (1) and paragraph (2). (4) The requirement that coll ateral shall not be currently pledged to Bank Indonesia as referred to in paragraph (1) shall be waived in the event of renewed pledge of collateral to Bank Indonesia for an application for extension of FPJP previously obtained by the Bank. (5) The prohibition on secondary pledging of securities still having FPJP collateral status as referred to in paragraph (2) shall not apply if the collateral is pledged to Bank Indonesia for the purpose of application for extension of FPJP previously obtained by the Bank. A r t i c l e 7 (1) A Bank requiring FPJP shall submit an application in writing to Bank I n d o n e s i a. (2) An application for FPJP as referred to in paragraph (1) shall be submitted with the required documents. (3) The procedure

6 - 6 - (3) T h e p r o c e d u r e f o r a p p l i c a t i o n a n d t h e r e q u i r e d documents as referred to in paragraph (1) and paragraph (2) shall be stipulated further in a C i r c u l a r L e t t e r o f B a n k I n d o n e s i a. A r t i c l e 8 (1) On the basis of application as referred to in Article 7, Bank Indonesia shall among others: a. verify the completeness of FPJP application documents; b. verify compliance with the requirements for the FPJP application; c. v e r i f y t h e a m o u n t o f s h o r t t e r m l i a b i l i t i e s t h a t c a n n o t b e s e t t l e d o n that day against the amount of FPJP requested in the application. (2) If based on the verification referred to in paragraph (1), Bank Indonesia approves the FPJP application, Bank Indonesia shall execute the provision of FPJP. (3) FPJP agreements shall be made in accordance with the format stipulated in the prevailing Circular Le tter of Bank Indonesia concerning FPJP. (4) The agreement referred to in paragraph (3) shall be accompanied by an agreement for pledging the collateral. (5) Bank Indonesia shall reject any application for FPJP that is not in compliance with the provisions, procedure, and requirements stipulated in this Bank Indonesia Regulation. A r t i c l e 9 (1) The term of each FPJP is 1 (one) day. (2) The term

7 - 7 - (2) The term referred to in paragraph (1) may be extended on a consecutive basis subject to an overall maximum FPJP term of 90 (ninety) days. (3) In the event that an application for extension of FPJP results in use of FPJP in excess of 90 (ninety) consecutive days as referred to in p a r a g r a p h ( 2 ), B a n k I n d o n e s i a s h a l l r e j e c t t h e a p p l i c a t i o n f o r e x t e n s i o n of FPJP. Article 10 (1) Extension of FPJP as referred to in Article 9 paragraph (2) may only be m a d e s u b j e c t t o : a. prior payment of interest on FPJP that has reached maturity; b. t h e d e m a n d d e p o s i t b a l a n c e o f t h e b a n k a t B a n k I n d o n e s i a i s insufficient for repayment of the maturing FPJP; c. t h e c o l l a t e r a l r e m a i n s s u f f i c i e n t a n d c o m p l i e s w i t h t h e r e q u i r e m e n t s r e f e r r e d t o i n A r t i c l e 4, A r t i c l e 5, a n d A r t i c l e 6. (2) Extension of FPJP as referred to in paragraph (1) shall be provided in the nominal amount of FPJP that has reached maturity. (3) In the event that the Bank is unable to pay interest on FPJP that has reached maturity as referred to in paragraph (1), the Bank may apply for extension of the FPJP in the amount of the nominal value of the matured FPJP plus the interest that cannot be paid, provided that: a. t h e c o l l a t e r a l r e m a i n s s u f f i c i e n t a n d c o m p l i e s w i t h t h e r e q u i r e m e n t s r e f e r r e d t o i n A r t i c l e 4, A r t i c l e 5, a n d A r t i c l e 6 ; a n d b. the use of the FPJP has not exceeded 90 (ninety) consecutive days as referred to in Article 9 pa ragraph (2). Article 11

8 - 8 - Article 11 For the purpose of extension of FPJP as referred to in Article 10, the Bank may apply for additional amount of FPJP required to cover the liabilities that cannot be settled by the Bank as referred to in Article 2 paragraph (1), provi d e d t h a t : a. t h e c o l l a t e r a l r e m a i n s s u f f i c i e n t a n d c o m p l i e s w i t h t h e r e q u i r e m e n t s r e f e r r e d t o i n A r t i c l e 4, A r t i c l e 5, a n d A r t i c l e 6 ; a n d b. the use of the FPJP has not exceeded 90 (ninety) consecutive days as referred to in Article 9 paragraph (2). Artic l e 1 2 For the purpose of extension of FPJP as referred to in Article 10 and Article 11, the Bank may use both existing collateral and new collateral. CHAPTER III CALCULATION OF INTEREST Article 13 (1) Bank Indonesia shall charge a Bank with interest for the use of FPJP. (2) The interest charged for FPJP as referred to in paragraph (1), including a n y e x t e n s i o n t h e r e t o, s h a l l b e t h e h i g h e r v a l u e o f : a. the weighted average overnight rate for the overall PUAB at 1 (one) day prior to the application for the FPJP or extension of the FPJP plus a set margin; or b. the weighted average 1 (one) month SBI discount rate sold in the latest auction plus a set margin. (3) Det ermination

9 - 9 - (3) D e t e r m i n a t i o n o f t h e P U A B i n t e r e s t r a t e, p r o c e d u r e f o r c a l c u l a t i o n o f the weighted average PUAB int erest rate, and the set margin as referred to in paragraph (2) shall be stipulated further in a Circular Letter of Bank Indonesia. CHAPTER IV REPAYMENT AND DISPOSAL OF COLLATERAL Article 14 (1) Upon maturity of FPJP, Bank Indonesia shall debit the rupiah d e m a n d d e p o s i t a c c o u n t o f t h e B a n k c o n c e r n e d a t B a n k I n d o n e s i a i n t h e amount of the FPJP plus interest on the FPJP. (2) In the event that upon maturity of the FPJP, the rupiah demand deposit a c c o u n t o f t h e B a n k c o n c e r n e d a t B a n k I n d o n e s i a i s i n s u f f i c i e n t to repay the nominal value and interest of the FPJP and the Bank no longer meets the requirements for obtaining extension of the FPJP, Bank Indonesia shall proceed with disposal of the collateral for the FPJP. (3) Bank Indonesia shall continue to charge int e r e s t u n t i l t h e d i s p o s a l o f c o l l a t e r a l i s c o m p l e t e d. (4) If the amount of the proceeds of disposal of collateral are less than the total amount of the FPJP plus interest liabilities that must be paid by the Bank, the Bank shall be required to pay the short f a l l t o B a n k I n d o n e s i a. (5) I n t h e e v e n t t h a t t h e p r o c e e d s o f d i s p o s a l o f c o l l a t e r a l a r e g r e a t e r t h a n the total amount of the FPJP plus interest liabilities that must be paid by the Bank, Bank Indonesia shall refund the surplus amount to the B a n k. CHAPTER V

10 CHAPTER V SUPERVISION Article 15 For the purpose of supervision of the use of FPJP, Bank Indonesia may c o n d u c t e x a m i n a t i o n o f t h e B a n k c o n c e r n e d. CHAPTER VI SANCTIONS Article 16 In the event that a Bank violates any of the provisions referred to in Article 6 a nd/or improper use of FPJP is discovered on the basis of examination as r e f e r r e d t o i n A r t i c l e 1 5, t h e B a n k m a y b e s u b j e c t t o s a n c t i o n s i n t h e f o r m o f : a. no longer able to obtain FPJP for a specified period; and b. a d m i n i s t r a t i v e s a n c t i o n s a s s t i p u l a t e d i n Article 52 paragraph (2) of Act Number 7 of 1992 concerning Banking as amended by Act Number 10 of 1998, including but not limited to written warning, prohibition from membership in clearing activities, freezing of s p e c i f i e d b u s i n e s s a c t i v i t i e s, a n d / o r d i smissal of the Bank management. CHAPTER VII CONCLUDING PROVISIONS Article 17 Further provisions concerning the FPJP shall be stipulated in a Circular Letter of Bank Indonesia. A r t i c l e 1 8

11 Article 18 W i t h t h e promulgation of this Bank Indonesia Regulation, Bank Indone s i a Regulation Number 2/20/PBI/2000 dated September 12, 2000 concerning the Short Term Funding Facility for Commercial Banks is revoked and declared no longer valid. Article 19 This regulation shall come into force 30 (thirty) days after the date of its e n a c t m e n t. Enacted in Jakarta Dated: August 14, 2003 THE GOVERNOR OF BANK INDONESIA (signed) BURHANUDDIN ABDULLAH STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 99 OF 2003 DPNP, DPM

12 ELUCIDATION TO BANK INDONESIA REGULATION NUMBER: 5/ 15 /PBI/2003 CONCERNING THE SHORT TERM FUNDING FACILITY FOR COMMERCIAL BANKS I. GENERAL REVIEW Pursuant to Act Number 23 of 1999 concerning Bank Indonesia, Bank Indonesia may extend credit to Banks for resolution of short term funding difficulties against high quality collateral easily convertible to cash. Accordingly, Bank Indonesia provides Banks with a funding facility for resolution of short term funding difficulties for the purpose of maintaining the continuity of Bank operations and unimpeded operation of the payments system. Provision of a funding facility by Bank Indonesia as referred to above comprises the provision of a Short Term Funding Facility (FPJP) a g a i n s t c o l l a t e r a l i n t h e f o r m o f B a n k Indonesia Certificates, Government Securities and/or other high quality securities easily convertible to cash. FPJP is provided only to Banks experiencing short term funding d i f f i c u l t i e s, a n d t h u s i t i s n e c e s s a r y t o s t i p u l a t e s p e c i f i c r e q u i r e m e n t s f o r banks submitting applications for FPJP. To support

13 - 2 - To support effective implementation, improvements to the mechanism for provision of FPJP have been made in this Bank Indonesia Regulation. II. ARTICLE BY ARTICLE A r t i c l e 1 A r t i c l e 2 Un a b l e t o s e t t l e l i a b i l i t i e s i s d e f i n e d a s t h e i n a b i l i t y o f t h e B a n k to settle liabilities whether generated through the clearing system and/or due to use of funding facilities within the f r a m e w o r k o f t h e B I-RTGS System. Liabilities are defined as exclusive o f l i a b i l i t i e s f o r c o m p l i a n c e with the prevailing Statutory Reserve provisions. A r t i c l e 3 Bank rated as adequately sound is defined as a Bank still in operation. A r t i c l e 4

14 - 3 - Le t t e r a L e t t e r b In the event that collateral is in the form of GS, the collateral must consist of GS in the trading portfolio in accordance with prevailing regulations. Letter c Securities and/or other claims are defined as encompassing securities issued by the Government and/or other legal entities having a high rating based on assessment by a competent rating agency and that may be easily sold on the market at any time for conversion into c a s h. Paragraph (3) Paragraph (4) A r t i c l e 5 A r t i c l e 6

15 - 4 - A r t i c l e 6 Paragraph (3) Paragraph (4) Paragraph (5) Se lf -explanatory. A r t i c l e 7 Paragraph (3) A r t i c l e 8 Paragraph (3) Paragraph (4)

16 - 5 - Paragraph (4) Self -e xplanatory. Paragraph (5) A r t i c l e 9 Day in this paragraph is defined as calendar day. If the maturity date of the FPJP falls on a Saturday, Sunday, or public holiday, the maturity date of the FPJP shall be the following busi n e s s d a y. The maturity of any extension of FPJP is 1 (one) day. Calculation of overall maximum 90 (ninety) day term of FPJP shall be inclusive of Saturdays, Sundays, or public holidays calculated from the first instance of use of FPJP by the B a n k. Paragraph (3) Article 10 Letter a L e t t e r b Letter c

17 - 6 - Letter c For the purpose of extension of FPJP, collateral pledged by the Bank for FPJP previously received by the Bank w i l l b e r e a s s e s s e d, a n d t h u s t h e B a n k w i l l n e e d t o m a k e a d j u s t m e n t t o t h e a m o u n t o f c o l l a t e r a l p l e d g e d f o r extension of the FPJP. Paragraph (3) Article 11 Any additional value of FPJP under application will be accumulated with the value of outstanding FPJP. Article 12 Existing collateral is defined as collateral used to guarantee FPJP still in use by the Bank. Article 13 Imposition of interest charge on FPJP shall be calculated according to the following fo r m u l a : (Amount of FPJP) x (FPJP interest rate) x (term in days) 360 Paragraph (3)

18 - 7 - Paragraph (3) Article 14 Maturity is defined as when the Bank does not apply for extension of FPJP as referred to in Article 10 or Article 11 and/or the Bank no longer complies with the requirement concerning term as referred to in Article 9 paragraph (3). Paragraph (3) Paragraph (4) Paragraph (5) Article 15 Examination of a Bank having received FPJP may be conducted during the period in which FPJP is received or subsequent to maturity of the FPJP. Article 16 Article 18

19 - 8 - Article 17 Article 18 Article 19 SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 4317