Bank Indonesia Re-Introduces Limits on Short-Term Offshore Bank Loans

Bank Indonesia (BI) Regulation No. 13/7/PBI/2011 on the Second Amendment of BI Regulation No. 7/1/PBI/2005 on Offshore Bank Loan (‘Regulation’) has been issued to limit short-term offshore loans. The Regulation adds and amends Articles 1, 3A, 3B, 14 (1) and 17A to limit short-term offshore loans, a restriction which was previously repealed in 2008 (by BI Regulation No. 10/20/PBI/2008) in the anticipation of the global financial crisis. 

Article 3A limits the daily balance of short-term offshore loans to a maximum of 30% of the bank’s capital. The bank capital is defined as consisting of the core and the supplementary capital (for banks headquartered in Indonesia), and net head office funds (for branch offices of foreign banks).

However, Article 3B provides an exemption for this limit, for, among others: (i) short-term offshore loans from controlling shareholders to resolve liquidity difficulties faced by the bank and lending to the real sector, and (ii) demand deposits held by non-residents that are used for investment activities in Indonesia.

In the event that a bank currently exceeds the maximum balance of short-term offshore loans, the bank has to comply with the limits within 3 months (i.e. by 28 April 2011). It should be noted however that this transitional period is not applicable to short-term offshore loan agreements (except for rollovers and extensions), which have been signed prior to the enactment of the Regulation.

Failing to comply with the limits set out in Article 3A is subject to financial sanctions in the amount of 1% per annum of the excess for each day.

The Regulation has been in force since 28 January 2011.