Knowledge Highlights 3 February 2025
Indonesia expands permitted banking business activities
On 13 December 2024, Financial Services Authority or Otoritas Jasa Keuangan Regulation No. 26 of 2024 on the Expansion of Banking Business Activities (“Regulation”), issued on 10 December 2024, came into effect. It regulates, among other things, the capital participation activities of commercial banks more comprehensively than before. The Regulation also provides a legal basis for commercial banks to engage in the transfer of receivables, which was not previously regulated.
This article provides an overview of the Regulation.
Capital participation
The Regulation expands the type of companies in which Indonesian commercial banks can invest. In addition to investing in financial service institutions, financial technology companies, and credit information management agencies, Indonesian commercial banks can now also invest in companies that support the banking industry such as switching and clearing companies. Specifically:
- Companies established or operating to support the business activities of commercial banks or their subsidiaries. For example, companies providing information technology services prioritised for commercial banks and/or their subsidiaries.
- Companies utilising information technology to produce financial products as their primary business, such as electronic money management companies and FinTech companies.
- Companies whose business characteristics are designed to support the banking industry, such as credit information management institutions, switching companies, and clearinghouses.
- Companies domiciled outside Indonesia that are recognised by the competent authority as meeting the criteria and conditions for financial service institutions, with business activities equivalent to those of financial service institutions.
Transfer of receivables
The Regulation introduces provisions on the transfer of receivables. Commercial banks are permitted to transfer receivables (“Transferor Banks”) and/or receive transferred receivables (“Transferee Banks”) in the form of credit or financing. The transfer of receivables involves transferring ownership and risk to the purchaser of the receivables. Banks that have transferred receivables are prohibited from repurchasing them.
Both Transferor and Transferee Banks are required to apply risk management and prudential principles in relation to the transferred credit or financing. Transferee Banks must assess the quality of the assets represented by the transferred credit or financing. In addition, banks must:
- establish policies and procedures for transferring or receiving receivables, which must include the criteria for eligible receivables and mechanisms for transferring collateral associated with the receivables;
- include an authorisation clause for the transfer of receivables in credit or financing agreements concluded with customers; and
- notify the customer if the receivables are transferred to another party.
From 13 December 2024, banks that have entered into a credit or financing agreement without an authorisation clause for the transfer of receivables must obtain the customer’s consent before transferring receivables to another party.
Transitional policies
Bank guarantees and documentary credits issued before the Regulation came into effect on 13 December 2024 will continue to be governed by the regulations that were in effect at the time of issuance.
Banks must update their credit or financing policies and procedures for transferring or receiving receivables by no later than 13 June 2025.
