New BI Regulation on Bank Business Plans

Bank Indonesia Regulation No. 12/21/PBI/2010 on Bank Business Plans (‘Regulation’) has recently been issued in order to instruct every commercial bank (‘Bank’) to create a business plan with due consideration of the prudential principle, implementing risk management, and considering the external and internal factors that may affect the continuity of the Bank’s business. The Regulation expects every Bank to stipulate its strategic objectives and corporate values, that underlie the Bank’s operational activities and form its targeted vision and mission.

The board of directors has to produce a business plan annually, in accordance with Articles 2 and 3, and then have it approved by the board of commissioners. The board of commissioners is then tasked, under Article 4, with supervising the implementation of the business plan of the Bank. The business plan consists of: an executive summary, management policy and strategy, risk management implementation, the Bank’s current performance, a funding plan, an investment plan, a capital plan, as well as other matters. Articles 6 through 16 further elaborate on the specifics of each component of the business plan.

In accordance with Article 18 (1) the business plan must be submitted before the end of November preceding the year of the business plan. However, for the 2011 business plan, banks have until the end of December 2010. The business plan can only be amended, according to Article 19, in the event that there is an external or an internal factor that significantly affects the operational activities of the Bank and/or there is a significant factor that affects the performance of the bank (subject to the discretion of Bank Indonesia). Any such amendment to the business plan, with only a single amendment being allowed, must be submitted prior to the end of June of the year of the business plan.

Banks are also subject to certain reporting obligations under Articles 20 and 21, in the form of the realization report, which has to be submitted quarterly, and the supervision report, which to be submitted semi-annually. The realization report consists of: business plan achievements, explanation of deviations in the realization of the business plan, follow up actions on the achievement of the business plan, financial ratios, and other information. The supervision report consists the assessment of the board of commissioners on, at least, the implementation of the business plan (qualitatively and quantitatively), factors that affect the performance of the Bank, and the Bank’s improvement efforts. The business plan, any amendments, and the reports, must be submitted to Bank Indonesia via the Director of Bank Supervision or to the local Bank Indonesia office (for Banks located outside of Jakarta).

Under Article 27, failing to submit, or a late submission, of the business plan or of the reporting obligations is subject to a penalty of at least IDR 1,000,000. Furthermore, any violation to the provisions enumerated in Article 28 is subject to administrative sanctions in the form of, among others, written notices, suspension of certain activities, and the downgrading of the bank level.

The Regulation repeals its predecessor, Bank Indonesia Regulation No. 6/25/PBI/2004. However, certain provisions relating to the realization reporting obligation, the supervision reporting obligation and the associated sanctions will remain valid until the end of the 2010 business plan reporting period. The previously issued implementing regulations remain unaffected, as long as they do not contradict the Regulation.

The Regulation has been in force since 19 October 2010.