New Bank Indonesia Regulation on Commercial Bank Ratings

Bank Indonesia Regulation No. 13/1/PBI/2011 on Banks Ratings (“Regulation”) has been issued to improve the effectiveness of the rating of commercial banks. The Regulation also aims to adjust the ratings of commercial banks by implementing consolidated supervision.

Under Article 2 (1), every commercial bank is obliged to maintain and/or improve its rating by implementing the precautionary principle and risk management in the course of business activities.

Additionally, pursuant to Article 2 (3), commercial banks are obliged to assess their level of health via the risk-based bank rating approach, either on an individual or a consolidated basis.

Article 3 (1) sets out the obligation for commercial banks to conduct self-assessment for its own rating (as elaborated on in Article 2 (3)). The self-assessment has to be conducted twice a year, at the end of June and December.

Under Article 4, Bank Indonesia will also rate commercial banks, at the end of June and December.

Pursuant to Article 6, commercial banks are obliged to conduct the rating (individually) under the risk-based bank rating approach, by considering: the risk profile (as elaborated on in Article 7(1)), good corporate governance (as elaborated on in Article 7 (2)), earnings (as elaborated on in Article 7 (3)), and capital (as elaborated on in Article 7 (4)).

Additionally, under Article 11, the rating can also be conducted on a consolidated basis, with the same approach and the same factors as on an individual basis.

Article 17 sets out sanctions for violations of the Regulation’s provisions. The sanctions include written warnings, rating downgrades, suspension of certain activities, and the addition of management and shareholders into the list of those failing the fit and proper test.

The Regulation repeals and replaces Bank Indonesia Regulation No. 6/10/PBI/2004 on the Bank Rating System.

The Regulation has been in force since 5 January 2011.