New Rupiah and Foreign Currency Reserve Requirements for Commercial Banks

Bank Indonesia has recently issued Bank Indonesia Regulation No. 12/19/PBI/2010 on Rupiah and Foreign Currency Statutory Reserve Requirements (Giro Wajib Minimum or ‘GWM’) for Commercial Banks (‘Regulation’).  The rationale behind the issuance of the Regulation is to optimize the management of excess banking liquidity in order to support monetary stability and the financial sector. 

The Regulation divides the statutory reserve requirements into: (i) reserves in rupiah, which consist of: Primary Reserves, Secondary Reserves, and Loan to Debt Ratio (‘LDR’) Reserves and (ii) reserves in foreign currency. Each commercial bank has to meet the statutory reserve requirements in rupiah, and in foreign currency for banks carrying on activities in foreign currency, on a daily basis. Currently, Bank Indonesia requires Primary Reserves of 8% (up from a previous 5%), while there is no change in the Secondary Reserves of 2.5%, and reserves in foreign currency of 1%.

The Regulation introduces new LDR reserves which have to be held by commercial banks. Article 1 (7) defines LDR as a ratio between the credit given to third parties (both in rupiah and in foreign currency), excluding credit to other commercial banks; and the funds of third parties (consisting of clearing, savings, and depository accounts, both in rupiah and in foreign currency). The calculation of the LDR reserve requirement is set out in Articles 8 through 12.

Moreover, commercial banks are subject to a reporting obligation that has to be submitted periodically to Bank Indonesia. Sanctions are stipulated in Articles 18, 19, 20 and 21. However, sanctions for violation of the LDR reserve requirements will only come into force on 1 March 2011.

The Regulation repeals its predecessors, namely Bank Indonesia Regulation No. 10/19/PBI/2008 as amended by Regulation No. 10/25/PBI/2008. However, the previously issued implementing regulations remain unaffected, as long as they do not contradict the Regulation.

The Regulation was issued on 4 October 2010, and will come into force on 1 November 2010.