BANK INDONESIA REGULATION NUMBER: 5/10/PBI/2003 CONCERNING PRUDENTIAL PRINCIPLES IN EQUITY PARTICIPATION THE GOVERNOR OF BANK INDONESIA,

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1 BANK INDONESIA REGULATION NUMBER: 5/10/PBI/2003 CONCERNING PRUDENTIAL PRINCIPLES IN EQUITY PARTICIPATION THE GOVERNOR OF BANK INDONESIA, Considering: In view of: a. whereas in conducting and developing their business operations, banks may engage in provision of funds through equity participation in companies operating in the financial sector; b. whereas in conducting these activities in provision of funds through equity participation, banks are required to take account of capital adequacy, prudential principles, internal control, risk profile, and the principle of public transparency; c. now therefore it is deemed necessary to enact a Bank Indonesia Regulation concerning Prudential Principles in Equity Participation Activities; 1. Act Number 7 of 1992 concerning Banking (State Gazette of the Republic of Indonesia Number 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, Supplement to the State Gazette Number 3843); HAS DECREED:

2 - 2 - HAS DECREED: To enact: THE BANK INDONESIA REGULATION CONCERNING PRUDENTIAL PRINCIPLES IN EQUITY PARTICIPATION. CHAPTER I GENERAL PROVISIONS Article 1 The terminology used in this Bank Indonesia Regulation has the following meanings: 1. Bank is a Commercial Bank as referred to in Act Number 7 of 1992 concerning Banking as amended by Act Number 10 of 1998, including a branch office of a foreign bank; 2. Bank Capital is capital as referred to in the applicable Bank Indonesia regulations concerning the Bank Capital Adequacy Requirement; 3. Equity Participation is the placement of Bank funds in the form of shares in a company operating in the financial sector, including placements in the form of convertible bonds with equity options or certain types of transactions with the result that the Bank holds or will hold shares in a company operating in the financial sector; 4. Company Operating in the Financial Sector is a Commercial Bank, Rural Bank, and other company in another area of finance as stipulated in the applicable laws and regulations, including but not limited to leasing, venture capital, securities companies, insurance, and clearing, settlement, and depository; 5. Investee is a Company Operating in the Financial Sector in which a Bank places Equity Participation; 6. Temporary

3 Temporary Equity Participation is equity participation by a Bank in a Debtor Company to overcome loan default (debt to equity swap) as referred to in the applicable Bank Indonesia regulations, including equity participation in the form of convertible bonds with equity options or certain types of transactions with the result that the Bank holds or will hold shares in the Debtor Company; 7. Debtor Company is a company in which the Bank conducts Temporary Equity Participation. CHAPTER II SCOPE AND REQUIREMENTS OF EQUITY PARTICIPATION Article 2 Equity Participation activities shall be conducted on the basis of prudential principles. Article 3 Equity Participation as referred to in Article 2 may be entered into if: a. the Bank has a capital adequacy ratio (CAR) in accordance with the applicable regulations; b. does not disrupt the sustainability of the business of the Bank and does not materially increase the risk profile of the Bank; c. the Bank has an adequate internal control system for Equity Participation activities, at least to ensure that: 1. analysis and procedures for engaging in Equity Participation activities are conducted appropriate to the risk profile of the Bank; 2. there is documentation and regular monitoring; 3. there are

4 there are appropriate accounting and valuation procedures; and 4. there is provision for ease in conducting the audit trail; d. the plan for Equity Participation is stated in the Annual Business Plan of the Bank; e. the Bank is not under intensive supervision, except in the case of placement of a Bank under intensive supervision solely because the bank has a significant role in the systemic risk in the banking system and/or is systemically important in the national economy; f. the Bank is not under special surveillance status in accordance with the applicable regulations; and g. the Bank has not been subject to administrative sanctions in the form of freezing of certain lines of business during the latest 12 (twelve) months, imposed by Bank Indonesia and/or another authority. Article 4 (1) Equity Participation may be conducted by direct placement or through the capital market. (2) Equity Participation as referred to in paragraph (1) may only be conducted for long-term investment and not with the intention of sale and purchase of shares. Article 5 (1) Equity Participation as referred to in Article 4 paragraph (1) shall not exceed the legal lending limit (LLL) in accordance with the applicable Bank Indonesia regulations. (2) The total

5 - 5 - (2) The total Equity Participation portfolio shall not exceed 25% (twenty-five percent) of Bank Capital. (3) The restrictions referred to in paragraph (1) and paragraph (2) shall not apply to any increase in Equity Participation by reason of application of the equity method in accordance with the applicable accounting standards, insofar as it does not exceed a period of 1 (one) year from the end of the fiscal year of the Investee. Article 6 (1) Banks are required to obtain prior approval from Bank Indonesia for each Equity Participation to be made. (2) Subsequent investment in the same Investee shall also require prior approval from Bank Indonesia. Article 7 (1) Banks are required to report to Bank Indonesia any excess in which total Equity Participation of the Bank exceeds 25% (twenty-five percent) of Bank Capital by reason of decline in Bank Capital or movement in the exchange rate. (2) The report referred to in paragraph (1) shall enclose an action plan for resolving the amount of Equity Participation in excess of the limit. (3) The period for completion of the action plan as referred to in paragraph (2) shall be no more than 1 (one) year. (4) The report as referred to in paragraph (1) and action plan as referred to in paragraph (2) shall be submitted no later than 30 (thirty) days after the exceeding of the limit. Article 8

6 - 6 - Article 8 (1) A Bank shall be required to divest Equity Participation if the Equity Participation results in or is predicted to result in a significant reduction in Bank capital and/or significant increase in the risk profile of the Bank. (2) Any plan for divestiture of Equity Participation as referred to in paragraph (1) shall be reported to Bank Indonesia no later than 30 (thirty) days prior to implementing the divestiture of Equity Participation. Article 9 (1) Bank Indonesia may order a Bank to take corrective actions and/or recommend that the competent authority take corrective actions or freeze all or part of the business of the Investee. (2) An order and/or recommendation as referred to in paragraph (1) shall be made if, based on an assessment by Bank Indonesia, the business of the Investee: a. reflects an unsound financial and non-financial condition; and/or b. disrupts the financial and non-financial condition of the Bank. CHAPTER III PROCEDURE FOR APPROVAL OF EQUITY PARTICIPATION Article 10 (1) Banks are required to submit an application to Bank Indonesia for approval of Equity Participation as referred to in Article 6 no later than 30 (thirty) days prior to entering into the Equity Participation, attaching the following: a. analysis

7 - 7 - a. analysis of the condition and financial projections of the Bank, including capital adequacy projection before and after implementation of Equity Participation; b. analysis of Bank risk profile before and after implementation of Equity Participation; c. Equity Participation risk management system; d. sources of Bank funding for entering into the Equity Participation; e. statement from the Board of Directors of the Bank, stating that the Equity Participation entered into is for the purpose of long-term investment and is not intended for sale and purchase of shares; f. accounting treatment of Equity Participation applied by the Bank; g. Equity Participation and/or planned Equity Participation to be undertaken in the same Investee by parties connected with the Bank; h. analysis of the business profile of the Investee; i. financial statement for the last year, interim financial statement for the last quarter, and financial projection of the Investee; j. latest ownership and management structure of the Investee; k. identity of majority shareholders or parties exercising control of the Investee or other party to enter into Equity Participation alongside the Bank; l. agreement and/or planned agreement: 1. between the shareholders of the Investee; and/or 2. between the Bank and the shareholders of the Investee selling shares to the Bank; m. results of due diligence of the Investee, if requested by Bank Indonesia; n. statement from competent authority supervising the line of business of the Investee; and o. photocopy

8 - 8 - o. photocopy of the deed of incorporation of the legal entity and the articles of association of the Investee. (2) A Bank conducting Equity Participation of 20% (twenty percent) or more of the capital of the Investee or meeting the criteria for control, in addition to submitting the documents referred to in paragraph (1) shall also be required to submit documents as follows: a. business forecasting and market openings of the Investee; b. information on the competence and integrity of management and executive officers and of the majority shareholders of the Investee. Article 11 Banks are required to guarantee the truthfulness of any documents and data as referred to in Article 10 submitted to Bank Indonesia for the purpose of application for approval of Equity Participation. Article 12 Application for approval as referred to in Article 10 shall be submitted to: a. the relevant Directorate of Bank Supervision, Jl. MH Thamrin No. 2, Jakarta 10110, for a Bank having its head office in the working area of the Bank Indonesia Head Office; or b. the local Bank Indonesia Regional Office, for a Bank having its head office outside the working area of the Bank Indonesia Head Office. Article 13

9 - 9 - Article 13 (1) Approval or rejection of an application for Equity Participation as referred to in Article 10 shall be issued no later than 30 (thirty) days after receipt of the complete application. (2) For the purpose of issuing approval or rejection of an application as referred to in paragraph (1), Bank Indonesia shall: a. examine and verify the documents; and b. analyze the capacity of the Bank and viability of the Equity Participation activity based on the submitted information or documents and other information obtained by Bank Indonesia. (3) For the purpose of issuing approval, Bank Indonesia may request the Bank and/or Investee to provide written commitments. (4) In the event of breach of any of the commitments referred to in paragraph (3), Bank Indonesia may order the Bank to take certain actions. Article 14 Bank Indonesia may order a Bank to divest Equity Participation or may reject an application for Equity Participation if the Equity Participation or planned Equity Participation of the Bank in a company located within Indonesia or overseas will result in or indications exist that it will result in difficulties for supervision conducted by Bank Indonesia. CHAPTER IV

10 CHAPTER IV ACCOUNTING TREATMENT AND QUALITY OF EQUITY PARTICIPATION Section One Accounting Treatment Article 15 (1) Equity Participation shall be recorded in the long-term investment portfolio and valued on the basis of: a. the equity method if Equity Participation reaches 20% (twenty percent) or more of the capital of the Investee or the Equity Participation meets the criteria for element of control as referred to in paragraph 10 paragraph (2); or b. the cost method if the Equity Participation is less than 20% (twenty percent) of the capital of the Investee. (2) Banks are required to consolidate the financial statement of an Investee if it meets the requirements for consolidation of financial statement as stipulated in the applicable financial accounting standards and Bank Indonesia Regulations. Article 16 (1) Equity Participation shall be marked to market if Equity Participation recorded under the cost method as referred to in Article 15 paragraph (1) letter b has market value. (2) Unrealized profit or loss from Equity Participation based on market value as referred to in paragraph (1) shall be recorded in the capital account in the balance sheet of the Bank as other comprehensive income. Article 17

11 Article 17 (1) Banks are required to recognize loss due to permanent impairment of Equity Participation. (2) Definition and treatment of permanent impairment of Equity Participation as referred to in paragraph (1) shall conform to the applicable financial accounting standards. Section Two Quality of Equity Participation Article 18 Quality of Equity Participation as referred to in Article 15 paragraph (1) shall be determined in accordance with the applicable Bank Indonesia regulations. CHAPTER V ACCOUNTING TREATMENT AND QUALITY OF TEMPORARY EQUITY PARTICIPATION Section One Accounting Treatment and Valuation of Temporary Equity Participation Article 19 (1) The value of Temporary Equity Participation during debt restructuring shall be based on the fair value of the Debtor Company. (2) Temporary Equity Participation shall be valued using the cost method. (3) A Bank shall not be required to consolidate a financial statement in respect of Temporary Equity Participation unless otherwise determined by Bank Indonesia on the basis of findings of supervision. Article 20

12 Article 20 (1) Banks are required to recognize loss due to permanent impairment of Temporary Equity Participation. (2) Definition and treatment of permanent impairment of Temporary Equity Participation as referred to in paragraph (1) shall conform to the applicable financial accounting standards. Section Two Quality of Temporary Equity Participation Article 21 (1) Quality of Temporary Equity Participation shall be assessed on the basis of the time limit stipulated in the applicable regulations and the likelihood of sale of the Temporary Equity Participation within that deadline. (2) Quality of Temporary Equity Participation is determined as follows: a. current, if not exceeding a period of 1 (one) year; b. sub-standard, if exceeding a period of 1 (one) year but has not exceeded a period of 4 (four) years; c. doubtful, if exceeding a period of 4 (four) years but has not exceeded a period of 5 (five) years; d. loss, if the Temporary Equity Participation is not withdrawn even though the Debtor Company has posted cumulative profit. (3) Bank Indonesia may downgrade the quality of Temporary Equity Participation as referred to in paragraph (2) if there is adequate evidence that: a. the sale of the Temporary Equity Participation is deemed likely to take place at a price below book value; and/or b. sale

13 b. sale of the Temporary Equity Participation within the period of 5 (five) years is deemed to be difficult to achieve. Article 22 Banks are required to establish allowance for earning assets losses in respect of Temporary Equity Participation, based on quality as referred to in Article 21 in accordance with the applicable Bank Indonesia regulations. Article 23 During the implementation of Temporary Equity Participation, Banks shall comply with the provisions in this Bank Indonesia Regulation and other applicable Bank Indonesia regulations. CHAPTER VI TRANSPARENCY OF EQUITY PARTICIPATION AND TEMPORARY EQUITY PARTICIPATION Article 24 (1) Banks are required to disclose Equity Participation and Temporary Equity Participation activities in the Annual Report. (2) The disclosure requirement referred to in paragraph (1) shall conform to the applicable Bank Indonesia regulations. CHAPTER VII

14 CHAPTER VII MANAGEMENT OF EQUITY PARTICIPATION AND TEMPORARY EQUITY PARTICIPATION ACTIVITIES Article 25 (1) Banks are required to have written policies for Equity Participation and Temporary Equity Participation activities. (2) The Board of Directors of the Bank is required to be directly involved in the formulation of policy for Equity Participation and Temporary Equity Participation activities as referred to in paragraph (1) and to be responsible for implementation of this policy. (3) The policy referred to in paragraph (1) shall be approved by the board of commissioners of the Bank. (4) The board of commissioners of the Bank shall supervise the implementation of policy for Equity Participation and Temporary Equity Participation activities as referred to in paragraph (1). Article 26 (1) Banks are required to establish written procedures on the implementation of Equity Participation and Temporary Equity Participation activities. (2) The procedures for implementation of Equity Participation and Temporary Equity Participation activities as referred to in paragraph (1) shall encompass at least the following: a. analysis and approval process; b. regular evaluation; c. accounting treatment and valuation method; d. audit trail; e. regular

15 e. regular reports from Investees and Debtor Companies; and f. actions of the Bank in the event of diminished value of Equity Participation and Temporary Equity Participation (contingency plan). Article 27 (1) Banks are required to prepare a written internal control system concerning the implementation of Equity Participation and Temporary Equity Participation activities. (2) The internal control system referred to in paragraph (1) shall encompass at least the following: a. adequacy and appropriateness of policies and procedures; b. adequacy of valuation method; c. risk identification; d. compliance with the internal regulations of the Bank and the applicable laws and regulations; e. reporting of Equity Participation and Temporary Equity Participation activities to the board of directors and/or board of commissioners of the Bank. CHAPTER VIII MISCELLANEOUS PROVISIONS Article 28 Banks are prohibited from: a. equity participation in a company not in the financial sector; b. divestiture of Equity Participation other than for compulsory divestiture as referred to in Article 8; c. accepting

16 c. accepting equity participation in shares from an Investee or conducting Equity Participation in a company that is a shareholder in the Bank, whether directly or indirectly; d. conducting Equity Participation that causes the Bank to hold open-ended liabilities or sustain unlimited losses in the Investee. Article 29 Equity Participation in an Investee that is a Bank in addition to being subject to these provisions shall also conform to the applicable legal provisions and laws concerning Purchase of Shares in Commercial Banks and concerning Merger, Consolidation, and Acquisition of Banks. CHAPTER IX SANCTIONS Article 30 Any Bank in violation of the provisions in Article 2, Article 4 paragraph (2), Article 5 paragraph (2), Article 6, Article 7, Article 8, Article 10, Article 11, Article 15, Article 16, Article 17, Article 18, Article 19, Article 20, Article 21, Article 22, Article 23, Article 24, Article 25, Article 26, Article 27, and Article 28 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. written warning; b. downgrading of rating; c. inclusion of members of management, Bank employees, and shareholders in the list of persons prohibited from becoming owners and managers of Banks; d. freezing

17 d. freezing of certain business activities; e. dismissal of Bank Management and thereafter the appointment and installation of caretaker management until a General Meeting of Shareholders or Meeting of Co-operative Members appoints permanent replacements with the approval of Bank Indonesia. CHAPTER X TRANSITIONAL PROVISIONS Article 31 Banks are required to bring themselves into compliance with the provisions referred to in Article 5 paragraph (2) and Article 28 letter c and letter d of this Bank Indonesia Regulation no later than 12 (twelve) months after the issuance of this Bank Indonesia Regulation. CHAPTER XI CONCLUDING PROVISIONS Article 32 Further implementation regulations required under this Bank Indonesia Regulation shall be stipulated in a Circular Letter of Bank Indonesia. Article 33 (1) The definition and treatment of Bank Equity Participation as stipulated in the applicable legal provisions shall be adjusted to the provisions of this Bank Indonesia Regulation. (2) With the enactment of this Bank Indonesia Regulation: a. Article 10

18 a. Article 10 paragraph (2) of Decree of the Management of Bank Indonesia Number 31/147/KEP/DIR dated November 12, 1998, concerning Earning Assets Quality, stipulating the quality of Temporary Equity Participation, shall be adjusted to these provisions. b. Decree of the Management of Bank Indonesia Number 23/66/KEP/DIR dated February 28, 1991, concerning Equity Participation in Overseas Banks and Non-Bank Financial Institutions, is declared no longer valid. Article 34 This Bank Indonesia Regulation shall come into force on the date of its enactment. Enacted in Jakarta On June 11, 2003 THE GOVERNOR OF BANK INDONESIA BURHANUDDIN ABDULLAH STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 66 OF 2003 DPNP

19 ELUCIDATION TO BANK INDONESIA REGULATION NUMBER: 5/10/PBI/2003 CONCERNING PRUDENTIAL PRINCIPLES IN EQUITY PARTICIPATION GENERAL REVIEW Equity participation conducted by Banks represent one part of the revenue-earning fund placement activities of the Bank, in addition to other activities such as channeling of loans, placements of funds in securities, and interbank money market activities. On one hand, these equity participation activities have potential for profit, but on the other hand the companies in which the equity participation is placed also carry risk. At the same time, as stipulated in the applicable laws and regulations, Banks may only place equity participation in companies operating in the financial sector or place temporary equity participation in debtor companies for the purpose of debt restructuring. For these reasons, equity participation in a company operating in the financial sector also carries risk for the Bank, and therefore the Bank needs to take in-depth consideration of the capacity of the Bank, and specifically the condition of capital, for entering into equity participation. In this regard, it is necessary to enact requirements and criteria for a Bank that can safely enter into equity participation, maximum limit of equity participation, procedures for approval or rejection of applications to conduct certain activities in equity participation, and certain prohibitions in equity participation activities. To strengthen the application of prudential principles, Banks are also required to take into account the accounting treatment and quality of equity participation or temporary equity participation for the purpose of debt restructuring

20 - 2 - restructuring. In addition, Banks are also required to put together policies and procedures for equity participation and temporary equity participation for the purpose of debt restructuring that are aimed at improving the quality of risk management and internal control of those activities. Furthermore, for the purpose of rating the quality of equity participation conducted by a Bank for the public, Banks are also required to disclose the exposure of these fund placements in accordance with the applicable regulations. ARTICLE BY ARTICLE Article 1 Article 2 Article 3 Letter a Before and after entering into the Equity Participation, the CAR of the Bank must be in compliance with the applicable regulations. Letter b Disrupting the sustainability of the business of the Bank is defined as significant deterioration in the business condition of the Bank, among others in regard to solvability and liquidity, in the absence of corrective actions. The risk profile of the Bank is reflected in the inherent risk in all lines of business of the Bank and the adequacy of the risk control system. Material

21 - 3 - Material increase of the risk profile of a Bank may take the form of heightening of risk originally classified as low risk to moderate risk or high risk. Letter c Letter d Letter e and Letter f The criteria of a Bank under intensive supervision or special surveillance status shall conform to the applicable Bank Indonesia regulations. Letter g Article 4 Article 5 Equity Participation is a component of provision of funds calculated into the LLL. The total amount of Equity Participation includes any additional Equity Participation from dividend received in the form of stock dividend.

22 - 4 - The total amount of all Equity Participation portfolios includes any additional Equity Participation from dividend received in the form of stock dividend. Paragraph (3) Any increase in Equity Participation due to application of the equity method shall not be calculated into the Equity Participation limit because the increased value of Equity Participation is only temporary, lasting until the time of dividend payment. Article 6 Article 7 Paragraph (3) Paragraph (4) Article 8

23 - 5 - Article 8 Significant reduction of Bank capital is defined as when the Bank Capital declines or is deemed likely to decline to below the level stipulated in the applicable provisions concerning the Minimum Capital Adequacy Requirement. Significant increase in the risk profile of the Bank is caused among others by increased reputational risk or legal risk that may affect the sustainability of the business operations of the Investee. Article 9 Corrective actions as referred to in this article include but are not limited to divestiture of Equity Participation, whether in all or in part. Article 10 Letter a Letter b

24 - 6 - Letter b Analysis of risk profile is made not only of the Bank as an individual entity, but also of the Bank as a consolidated entity. Letter c Letter d Letter e Letter f Letter g Parties connected with the Bank are connected parties as referred to in the applicable Bank Indonesia regulations. Letter h In conducting analysis, Banks are required to take into account factors that include but are not limited to: 1. characteristics of the Investee s business; 2. Equity Participation that has and will be entered into by the Investee; 3. compliance of the business operations of the Investee with the applicable laws and regulations. Letter i The latest annual financial statement submitted is the financial statement audited by a public accountant. Letter j Letter k

25 - 7 - Letter k Letter l Agreement or planned agreement includes any agreement for sale and purchase of shares and an agreement or planned agreement referring to the Articles of Association of the Investee. Letter m Letter n Letter o Investee capital in this paragraph is defined as the paid up capital of the Investee. The criteria for control in this paragraph include the following: 1. The Bank has more than 20% (twenty percent) of voting rights based on an agreement with other investors; 2. The Bank has the right to stipulate and determine the financial and operational policies of the Investee by virtue of the articles of association or an agreement; 3. The bank has power to appoint or dismiss the majority of the management of the Investee; 4. The Bank is able to control a majority of the votes in an executive board meeting of the Investee; 5. The Bank

26 The Bank owns or controls at least 10% (ten percent) of the shares of the Investee and is the largest shareholder in comparison to the holdings of other parties in the Investee; 6. The Bank and parties connected with the Bank have total shares in excess of 20% (twenty percent) of the capital of the Investee; 7. The principal activities of the Investee yield benefits for the Bank; 8. The Bank holds voting rights and is the largest creditor of the Investee; 9. Other criteria stipulated by Bank Indonesia. Parties connected with the Bank are connected parties as defined in the applicable Bank Indonesia regulations. Letter a Business forecasting is defined as business forecasting of the financial and non-financial aspects of the Investee, while market openings are openings in the financial institutions industry/market. Letter b Article 11 Article 12 Article 13

27 - 9 - Article 13 Paragraph (3) In relation to prudential principles and Bank rating, Bank Indonesia may request a written commitment from the management of the Bank as part of the issued approval. These commitments among others may comprise a commitment by the Bank that the Investee will not engage in certain activities deemed likely to affect the financial and non-financial condition of the Bank. Paragraph (4) Certain actions include order for divestiture of Equity Participation. Article 14 Indications of difficulties in supervision include but are not limited to: 1. difficulties for the supervisory authority in obtaining access to data and information on the Investee; 2. difficulties in conducting examination of the Investee; 3. ineffective or non-existent supervisory authority for the Investee in the domicile of the Investee; 4. the Investee is used as a means for financial engineering/window dressing. Article 15

28 Article 15 Article 16 Market value is defined as the value formed on the stock exchange during the most recent 3 (three) months on significant transaction volume in comparison to total Equity Participation held by the Bank. Article 17 Article 18 The applicable Bank Indonesia regulations are the provisions regulating earning assets quality. Article 19

29 Article 19 Fair value of a Debtor Company is the sum that can be obtained in an arm s length transaction on a knowledgeable basis, not by reason of coercion or liquidation. Paragraph (3) Article 20 Article 21 In accordance with the applicable regulations, Banks are required to withdraw their Temporary Equity Participation in the event that: a. it has exceeded a term of not more than 5 (five) years; or b. the debtor company in which the equity participation is placed has earned a cumulative profit. Cumulative profit is defined as the profit of a company after deduction for losses in previous years. The applicable regulations also stipulate that a Bank is required to write off Temporary Equity Participation from the balance sheet of the Bank

30 the Bank if the Temporary Equity Participation has exceeded a period of 5 (five) years. Determination of quality on the basis of time limit for ownership of Temporary Equity Participation and the requirement for formation of allowance for earning assets losses adjusted to this quality is intended so that Banks do not form a large allowance for earning assets losses for write-off at the end of the Temporary Equity Participation period. Paragraph (3) Letter a and letter b Sale below book value and/or difficulty in sale over a period of 5 years include but are not limited to difficulties caused by weaknesses in financial condition, company management, market conditions, or low demand for the company s shares. Article 22 The applicable Bank Indonesia regulations are the provisions regulating allowance for earning assets losses. Article 23 The applicable Bank Indonesia regulations are the provisions regulating debt restructuring. Article 24

31 Article 24 Article 25 These polices among others encompass policies in risk management and internal control in Equity Participation and Temporary Equity Participation activities. Paragraph (3) Paragraph (4) Article 26 The requirement for establishment of written procedures applies to Banks having policies for entering into or that will enter into activities of Equity Participation and Temporary Equity Participation. Article 27

32 Article 27 Article The written internal control system constitutes part of the internal control system established by the Bank as referred to in the applicable Bank Indonesia regulations. The internal control system is intended as a control mechanism within the framework of checks and balances and to provide a clear audit trail. The obligation to prepare an internal control system applies to Banks having policies for entering into or that will enter into Equity Participation and Temporary Equity Participation activities. Letter a Letter b Letter c Letter d The purpose of this prohibition is for Bank to avoid exposure to Equity Participation in companies with open-ended liability, such as having a letter of undertaking that in accounting terms and in legal terms binds the Investee to another party in such a manner that the bank holds unlimited responsibility. Article 29

33 Article 29 Article 30 Sanctions in the form of written warning include order to conduct divestiture. Article 31 Article 32 Article 33 Article 34 SUPPLEMENT TO STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 4296