Assets Valuation for Sharia Banks and Business Units

Bank Indonesia Regulation No. 13/13/PBI/2011 on Assets Quality Valuation for Commercial Sharia Banks and Sharia Business Units (“Regulation”) was issued to support the improvement of prudential principles in the Sharia banking business.

The Regulation calls for Sharia banks and Sharia business units to improve risk management in investing and channeling funds, requiring them to assess, supervise and take preventive actions to maintain the liquidity of their assets. This is achieved by means of the provisions on asset quality valuations and classifications contained in the Regulation.

The Regulation classifies assets of Sharia banks and Sharia business units into two types: productive assets and non-productive assets. The valuation for both productive and non-productive assets, pursuant to Article 6 in conjunction with Article 30, has to be carried out on a monthly basis.

Productive assets, as provisioned in Chapter III, are divided into several types of assets, respectively:

Each type of productive asset is valuated with a specific method, as provisioned in the abovementioned sections of Chapter III.

Financing is valued by business prospect, customer performance, and the ability to repay (Article 8), whereas Sharia bonds are valued based on their market value (Article 18). Capital participation is valued based on its participation period/liquidity (Article 24). Deposits at other banks are valued by the obligatory minimum capital ratio of the bank receiving the deposit (Article 26).

Administrative account transaction valuation, pursuant to Article 28, will be conducted differently, whereas if the counterpart is ‘another bank,’ the ‘Deposits at other Banks’ valuation method will be used. And if the counterpart is a ‘customer,’ than the ‘financing’ method will be used. (Article 28)

Non-productive assets are classified into:

Banks have to value the collateral foreclosure/repossession on the basis of its net realizable value (Article 33). Abandoned property is valued and categorized based on the length of time the Bank owns the collateral (Article 38).

To secure their financial liquidity, banks have to set an Asset Removal Allowance (Penyisihan Penghapusan Aktiva) in accordance with the amount of productive and non-productive assets, maintain their own receivable write offs (hapus buku), and removal of rights to collect (hapus tagih) (Chapter V). 

The Regulation provides administrative sanctions in the event of non-compliance with the provisions of the Regulation (Article 49), referring also to Article 58 (1) of Law No. 21 of 2008 on Sharia Banking.

The Regulation revokes the prior Bank Indonesia Regulation No. 8/21/PBI/2006 on the same issue, including its amendments. However, implementing regulations of Bank Indonesia regulation No. 8/21/PBI/2006 and their amendments that do not conflict and are not superseded by the Regulation will continue to apply.

The Regulation has been in force since 24 March 2011.