Regulation allows the OJK to maintain the stability of Indonesia鈥檚 financial system by propping up weaker banks via merger, acquisitions or integration by stronger banks.
The COVID-19 pandemic has had a significant negative impact on the world鈥檚 financial system. The falling productivity that has resulted from lockdowns and social restrictions implemented across the globe has caused uncertainty among investors, who in turn has shifted their finances to safer instruments, leaving many companies unable to maintain their staff. In that same vein, banks are also struggling to collect debts.
It is in this regard that the Indonesia Financial Services Authority (Otoritas Jasa Keuangan or OJK) released Regulation of OJK No. 18/POJK.03/2020 on Written Order for Handling Bank Issues (鈥�POJK 18/2020鈥�), which is the implementing regulation that carries out the provision in Article 23 paragraph (2) of Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Financial System Stability for Mitigation of the COVID-19 Pandemic (鈥�Perppu 1/2020鈥�). POJK 18/2020 came into force on April 21, 2020.
The scope of POJK 18/2020 applies to Conventional Commercial Banks (鈥�BUK鈥�), Sharia Commercial banks (鈥�BUS鈥�), Conventional Rural Banks (鈥�BPR鈥�), Sharia Rural Banks (鈥�BPRS鈥�), and Branch Offices of Banks domiciled overseas.
POJK 18/2020 addresses the following matters:
Bank Criteria Based on OJK Assessment鈥�&苍产蝉辫;
In handling bank issues, the OJK is authorized to give written orders to banks to:
- conduct Merger, Consolidation, Acquisition, and/or Integration for banks that meet the following criteria:
- Banks that are, based on the assessment of the OJK, experiencing financial problems that can disrupt business continuity or are deemed incapable of dealing with current or future pressures; and/or
- Banks with controlling shareholders who do not have the ability to make efforts to strengthen the Bank.
- accept Merger, Consolidation, Acquisition, and/or Integration for banks that meet the following criteria:
- The bank health level of BUK or BUS after receiving Merger, Consolidation, Acquisition, and/or Integration, of, at the lowest, Composite Rating 3 (PK-3);
- BPR's bank health level after receiving the Merger or Consolidation, of, at the lowest, of Fairly Healthy; or
- The bank health level of BPRS after receiving Merger or Consolidation, of, at the lowest, of Composite Rating 3 (PK-3).
Corporate Action Plan as Follow-up Written Order
- Banks that are given Written Orders must compile an action plan to follow-up on the Written Orders, which shall at least contain a series of processes and timelines for Merger, Consolidation, Acquisition, and/or Integration until it becomes effective, as stipulated in the applicable OJK regulations.
- Banks that are given Written Orders convey information on the progress of the implementation of the action plan to the Financial Services Authority.
- Banks that are given Written Orders must carry out and maintain a smooth Merger, Consolidation, Acquisition, and/or Integration process in accordance with the action plan.
Procedures of Merger, Consolidation, Acquisition, and/or Integration
Requirements and procedures for Merger, Consolidation, Acquisition, and/or Integration are carried out in accordance with the relevant OJK regulations, unless otherwise stipulated in this POJK 18/2020, as follows:
- The Bank may make a summary announcement of the draft Merger, Consolidation, Acquisition, and/or Integration in the Indonesian language daily newspaper and its details on the Bank's website;
- Banks can hold RUPS and/or other meetings related to the Merger, Consolidation, Acquisition, and/or Integration process through face-to-face online;
- In the event that the GMS and/or other meetings are held through face-to-face online, the Bank must determine the location of the GMS and/or other meetings related to the Merger, Consolidation, Acquisition, and/or Integration process in the territory of the Republic of Indonesia;
- Implementation of clarification for Fit and Proper Test for candidates of controlling shareholders, board of directors, and board of commissioners (鈥�Main Parties鈥�) of the Bank resulting from the Merger, Consolidation, Acquisition, and / or Integration, conducted through face-to-face online;
- Submission of documents and/or administrative requirements in the licensing process and/or reports on the implementation of the Merger, Consolidation, Acquisition, and/or Integration can be done by the Bank through an official e-mail addressed to the OJK, in the case of the licensing and reporting system of the OJK is not yet available;
- Banks are required to administer documents and administrative requirements that have to be submitted online to the OJK;
- Banks are required to submit documents related to Merger, Consolidation, Acquisition, and/or Integration without attaching a permit application for Merger, Consolidation, Acquisition, and/or Integration.
Share Valuation and Conversion
The Bank that will conduct and the Bank that receives the Merger, Consolidation, Acquisition, and/or Integration can consider the share valuation and conversion agreement based on:
- fair market value; or
- the results of the Bank's internal assessment or an independent third-party assessment.
In the event that no agreement is reached, the share valuation and conversion shall be determined based on a reasonable valuation from the Bank that are receiving the Merger, Consolidation, Acquisition, and/or Integration.
Exception for Conventional and Sharia Commercial Banks
BUK or BUS that are given Written Orders to conduct or accept Merger, Consolidation, Acquisition, and / or Integration, can be exempted from the provisions regarding:
- sole ownership in Indonesian banking;
- ownership of commercial bank shares; and / or
- the deadline to meet minimum core capital, as stipulated in the OJK regulation concerning consolidation of commercial banks.
Exception for Conventional and Sharia Rural Banks
In the event that the BPB or BPRS with the given Written Order is located within a province that borders directly, then the office network of said BPR or BPRS can still be maintained in accordance with the existing office network.
Exception for Banks with Status as Public Companies
Banks with status as public companies that are given a Written Order to conduct or accept a Merger, Consolidation, Acquisition, and/or Integration can be exempted from the obligation regarding openness with the approval of the OJK.
Sanctions in the Corporate Action Plan as Follow-up Written Order
Banks and/or Main Parties of Banks that do not implement the provisions on Corporate Action Plan as a Follow-up to the Written Order will be subjected to administrative sanctions in the form of a warning letter. In the event that the Bank and/or Main Parties of Banks have been subjected to administrative sanctions and still does not implement the provisions, then:
- Banks are subject to sanctions in the form of:
- for BUK will be determined as BPR or BPRS based on the decree of the OJK.
- for BUS, it will be determined as BPRS based on the decree of the OJK.
- for BPR or BPRS, the suspension of some business activities.
- The main parties of the Bank may be subject to sanctions in the form of:
- prohibition as the Main Parties of Banks in accordance with prevailing OJK regulations.
Sanctions in the Procedures of Merger, Consolidation, Acquisition, and/or Integration
Banks and/or Main Parties of Banks that do not carry out the provisions as referred to above in letter f and/or letter g are subject to sanctions in the form of:
- For Banks: warning letter;
- For Main Parties of Banks: prohibition as the Main Parties of Banks in accordance with prevail OJK regulations.