Regulation Update concerning Mandatory Corporate Actions for Banks
By : Wemmy Muharamsyah, Agung Santoso, Suherlin
Indonesian Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) has recently issued Financial Services Authority Regulation (Peraturan OJK - “POJK”) Nr. 18/POJK.03/2020 of 2020 concerning Written Orders for the Mitigation of Bank Problems (“POJK Nr. 18/2020”) on 21 April 2020.
In a nutshell, this POJK Nr. 18/2020 regulates these followings: (i) the conditions of banks that will receive written orders for the mitigation of bank problems (“Written Order”); (ii) the follow-up actions for banks that received such Written Order; and (iii) other requirements or procedures to carry out the Corporate Action(s) based on the Written Orders.
In order to give a brief outline on this POJK Nr. 18/2020, we would like to draw the readers’ attention on these following key points:
I. Criteria of Banks that will Receives Written Orders
OJK will give Written Orders instructing to initiate or accept merger, consolidation, acquisition, or integration (“Corporate Actions”), to the banks that meet the following criteria:
A. Initiating Banks
- Banks which, based on the assessment of OJK, are suffering from financial problems that may disrupt their business continuity or are deemed incapable of dealing with the pressures that are or will be faced; and/or’;
- Banks with controlling shareholders, which do not have the capabilities in order to strengthen the relevant banks.
B. Accepting Banks
- The soundness of conventional commercial banks (Bank Umum Konvensional – “BUK”) or sharia commercial banks (Bank Umum Syariah – “BUS”) after accepting any Corporate Action(s), shall at least on the rank of Composite Rating 3 (Peringkat Komposit 3 – “PK-3”);
- The soundness of rural banks after accepting any Corporate Action(s), shall at least on the rank of Sufficiently Sound (Cukup Sehat); or
- The soundness of sharia rural banks after accepting any Corporate Action(s), shall at least on the rank of PK-3.
- BUK or BUS that conduct Corporate Action(s) under Written Orders, may be exempted from the provision with regards to: a. The single-presence policy; b. Share ownership criteria for commercial banks; and/or c.Deadlines for the fulfillments of minimum core capital levels.
- Public-company banks that are instructed to implement Corporate Action(s) may be exempted from their disclosure obligations with approval from OJK.
- The valuation and conversion of shares of each bank that carry out Corporate Action(s) is determined based on the agreement of the banks involved in the relevant Corporate Action(s). In case of they are unable to reach an agreement with regards to the foregoing, valuation and conversions of shares are determined based on a fair assessment from the accepting bank
II. Follow-Up Actions for the Banks that Received the Written Order
Once a Written Orders is received, the relevant bank shall conduct the following actions:
- Preparing follow-up action plan which contains a series of processes and timelines for the implementation of such Corporate Action(s);
- Reporting to OJK with regards to the progress of such implementation; and
- Implementing the instructed Corporate Action(s) in accordance with the follow-up action plan.
In the event banks or the primary party* (pihak utama) of the relevant banks do not conduct the follow-up actions as mentioned in the point 1 and/or 3, the relevant banks shall be subject to the following sanction:
- For BUK, shall be stipulated to change its form to rural banks;
- For BUS, shall be stipulated to change its form to sharia rural banks; or
- For rural banks or sharia rural banks, shall be suspended from carrying out business activities of rural banks or sharia rural banks.
*) Primary party refers to the controlling shareholder, board of directors’ and board of commissioners’ members.
III. Other Requirements or Procedures to Carry Out Corporate Action(s) under the Written Orders
There are some additional requirements or procedures provided by this POJK Nr. 18/2020, as follows:
- Banks may make a summary announcement of the Corporate Action(s) plan in any Indonesian language daily newspaper by informing that the detailed summary of the Corporate Action(s) plan can be accessed on the banks' website.
- Banks can hold General Meeting of Shareholders and/or other meetings related to the Corporate Action(s) process by way of face to face meeting by utilizing information technology and shall determine the location of the relevant meeting within the territory of Republic of Indonesia.
- Clarifications of fit-and-proper tests for the prospective first parties result from Corporate Action(s) carried out may be conducted by way of face to face meeting by utilizing information technology.
- Online submission of documents and/or administrative requirements in the licensing process and/or reports on the implementation of Corporate Action(s) can be done by banks through official electronic mail (e-mail) addressed to OJK in case of the OJK licensing system and reporting system is not yet available.
- Retain and administer the hard-copy version of the documents and/or administrative requirements as mentioned in point 4 above.
- Banks are required to submit documents related to Corporate Action(s) carried out by the banks, without the necessity to be accompanied by a permission request to conduct Corporate Action(s).
If banks failed to conduct obligations as referred to in point 5 and 6 above, the relevant banks shall be subject to the below sanctions:
- For banks, written warning;
- For primary party of the relevant banks, prohibition to become a primary party.