Short-Term Fund Facilities for Community Credit Banks

This Bank Indonesia (BI) Regulation is part of a raft of legislation issued in an effort to address immediate financial problems that can be traced directly to the ongoing global financial crisis and to anticipate future issues and handle them before they become problems, particularly with regards to liquidity. The belief of BI is that any liquidity problems that arise with banks will see a very quick erosion in the community’s trust of the stability of the banking sector. To this end, BI has issued Regulation No. 10/35/PBI/2008 to set out the provisions for providing short-term fund facilities to community credit banks.

The short-term fund facility is designed to assist community credit banks (Bank Perkreditan Rakyat / BPR) who get into liquidity difficulty. Specifically, where the BPR is suffering a mismatch, which is simply where incoming funds are less than the BPR’s outgoing obligations.

In order to access the short-term fund facility the requesting BPR must satisfy the basic criteria set out in this Regulation:

a.              Have held a sound rating for the previous six months;

b.              Have a Cash Ratio for the previous six months of no less than 4.05%;

c.              Have a Capital Adequacy Ratio of no less than 8%; and

d.              Have a negative cash flow for the previous 14 calendar days.

In addition the BPR must hold some collateral that is considered to be of high quality. High quality is defined in this Regulation as being Bank Indonesia Certificates (SBI) and / or Credit Assets. Acceptable credit assets must be valid for the period of the short-term fund facility agreed, be problem free for the previous three months in terms of collectability, and not be held by a party associated with the BPR, among others. For SBI the value of the collateral must be 100% of the short-term fund facility and for credit assets the value must be 150% of the short-term fund facility.

The short-term fund facility is for a period of 30 calendar days and can be extended up to a period of 90 days.

Once a short-term fund facility is agreed, the BPR has 10 working days to submit a remedial action plan that sets out how the BPR is intending to overcome the liquidity difficulties that is encountering. Further, the BPR is required to report weekly to BI regarding Daily Cash Ration Requirements, Daily Collectability of Guaranteed Credit Assets, and how the short-term fund facility has been used. BI can undertake an examination of the BPR to ensure compliance and accuracy of reporting.

There are sanctions for breach of the provisions. The applicable sanctions are those contained in Article 52(2) of the Banking Law No. 7 of 1992 as amended by Law No. 10 of 1998). These sanctions are administrative in nature. Other available sanctions include those noted in Articles 49 and 50 of the same Banking Law.