04
March
2019
March
2019
On 28 December 2018, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) of the Republic of Indonesia issued the new OJK Regulation No. 35/POJK.05/2018 on the Business Activities of Financing Companies (“POJK 35/2018”), which revokes the following regulations:
- OJK Regulation No. 29/POJK.05/2014 on the Business Activities of Financing Companies (“POJK 29/2014”);
- Article 49 of the OJK Regulation No. 30/POJK.05/2014 on Good Corporate Governance for Financing Companies;
- OJK Circular Letter No. 47/SEOJK.05/2016 on Down Payment Rates for Motor Vehicle Financing for Financing Companies; and
- Point V 2.c (number 4 to 8) of OJK Circular Letter No. 1/SEOJK.05/2016 on Financial Soundness Level for Financing Companies.
The implementing regulations of POJK 29/2014, however, remain in force to the extent that they do not conflict with the provisions of POJK 35/2018.
With the enactment of POJK 35/2018, OJK aims to enhance the role of financing companies in the national economy, the implementation of prudential principles, and also consumer protection in consumer financing industry.
Key changes under POJK 35/2018 include:
Source of funding
There are several major changes to the provisions on the source of funding that need to be noted under POJK 35/2018. Pursuant to POJK 35/2018, financing companies now can only receive funding in the form of the following:
No.
Provisions
Remarks
1.
Increase of paid-up capital not by way of public offering.
Previously under POJK 29/2014, funding sources from increase of paid-up capital can be done by way of public offering.
2.
Loan from government institutions, bank, non-bank financial industry, institution, and/or other business entity.
Under POJK 35/2018, financing companies may now obtain a loan from government institutions.
In receiving a loan from institution and/or other business entity, there are several requirements that must be taken into account:
- Loan amount for each creditor of at least IDR 1 billion;
- Repayment of loan period of at least 1 year;
- The loan agreement must be in the form of a notarial deed; and
- The loan agreement cannot be automatically renewed.
3.
Issuing or offering securities through public offering.
Previously under POJK 29/2014, the securities that can be issued or offered are limited to bonds and medium term notes. In order to issue or offer securities through public offering, the following requirements must be complied with:
- Include securities issuance plan in the business plan;
- Have a minimum financial soundness level of financially sound (sehat);
- Have a low minimum risk level; and
- Meet the gearing ratio requirements.
In addition, reporting requirements of securities issuance plan must be submitted to the OJK at least three months prior to the GMS.
4.
Issuing or offering securities not by way of public offering (for debt securities).
Financing companies are required to comply with the requirements as set out under point 4 and must also have its equity of more than IDR 200 billion.
In addition, reporting requirements of securities issuance plan must be submitted to the OJK at least 6 months prior to the securities issuance.
Moreover, other than the above source of funding, financing companies can also receive funding in the form of subordinated loan and asset securitisation. The requirements for these source of funding remain the same with provisions under POJK 29/2014.
Other Requirements
1.
Gearing Ratio
Must meet the minimum gearing ratio of 0 times and maximum of 10 times.
2.
Foreign-currency Loan
Hedging requirements
Loans (as mentioned under points 2, 3, 4, and 5) in foreign-currency received by financing companies are now required to be fully hedged.
Financial soundness level
To receive a foreign-currency loan, financing companies must have a minimum financial soundness level (sehat).
Down payment requirements
One of the provisions that has now been introduced under POJK 35/2018 is the new down payment rates for vehicle financing, which are determined by (i) the financial soundness of financing companies; (ii) net non-performing financing (“Net NPF”) ratios; (iii) type of vehicles based on the number of wheels; and (iv) type of financing provided (e.g. investment financing and multipurpose financing), as set out in the following table:
Previously, the down payments rate were set from the rate of 20% to 25% of the sale price depends only on the type of vehicles based on the number of wheels and the type of financing provided.
Additional form of Multipurpose Financing
POJK 35/2018 introduces a new type of financing namely, fund facilities, provided for Multipurpose Financing. Fund facilities is granted to the Debtors to purchase goods/services for consumption purposes. Specific requirements for the granting of fund facilities are now also regulated under POJK 35/2018.
Anti-fraud control
Enforcement of fraud control and anti-fraud strategy is now mandatory. These entire new provisions are set out in POJK 35/2018 from Article 53 to 64. In implementing anti-fraud control, financing companies are required to among others set up anti-fraud code of conduct, establish anti-fraud unit or function in their organisational structure, apply an effective mechanism to detect fraud, including to arrange educational and training programme for their employees and implement whistleblowing mechanisms. In addition, financing companies are required to submit anti-fraud strategy report to OJK covering: (i) implementation report to be included in their good corporate governance reports; and (ii) any incidental report on indication of fraud.
In conclusion, the issuance of POJK 35/2018 is an effort to improve the previous regulations by introducing several important changes and more detailed rules in relation to the organization of financing company’s business.
If you have any questions or require any additional information, please contact Ms. Leoni Silitonga, Ms. Sandro Panjaitan, Ms. Rahmatika Rasyiqa or the ZICO Law partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.
