Following up the previous stimulus package issued by the government, OJK Regulation No. 18/POJK.03/2020 on the Written Order to Handle Banks in Distress (“POJK No. 18/2020”) has been issued recently on 20 April 2020. The government seeks to concurrently enable banks to manage the outbreak challenges and establish long-term capabilities as financial institutions.
General Overview
POJK No. 18/2020 has been issued as the implementing regulation to the Government Regulation in Lieu of Law No. 1/2020 on State Financial Policy and Financial System Stability on the Covid-19 Management and/or Encountering Threat to National Economy and/or Financial System Stability (“Perpu No. 1/2020”). As stipulated under Article 23 of Perpu No. 1/2020, the government through OJK, has full authority to give written instruction for banks to perform restructuring by way of merger, consolidation, acquisition and/or integration.
Banks’ Criteria
POJK No. 18/2020 is applicable to commercial banks (including sharia bank), rural banks (including sharia rural banks) and branch of foreign banks.
Banks with differing individual conditions (idiosyncratic) and financial standings will be severely impacted due to the financial distress Covid-19 has triggered. These economical downfalls will undoubtedly worsen the banks’ performance. Below is the criterion of banks which can be given instructions to perform restructuring:
- Banks that, under OJK valuation, is in distress which may trouble the sustainability of operation, or incapable to fight the current pressure; and/or
- Controlling shareholder of the banks have no capability to strengthen the bank such as to increase or maintain capitalization and/or liquidity level and/or to enter into consolidation as stipulated under OJK Regulation regarding Consolidation for Commercial Bank.
One specific criteria apart from the above is that OJK will issue a written instruction to a bank, to accept merger, consolidation, acquisition and/or integration to any banks with health levels reaching a minimum composite score of 3 (PK-3) (for commercial/sharia banks) or quite healthy (for rural banks) after receiving merger, consolidation, acquisition and/or integration.
What to Do Next?
After receiving a written instruction from OJK, banks must start to compose and later submit to OJK, an action plan which consists of the detail series of the restructuring process (merger, consolidation, acquisition and/or integration) from the beginning up to the end. Technical processes of restructuring refers to the prevailing OJK regulation and following the OJK guidance provided through correspondences or verbal advice. Further, banks must continually submit a report to OJK from time to time on the implementation progress of restructuring. Otherwise, an administrative sanction will be imposed by OJK.
Value of Transaction
It is interesting that to ensure the success of restructuring and prevention of any factor breaking the deal, OJK is indirectly “determining” the value of transaction. Under Article 7(1), it is stated that transaction value is based on the parties’ agreement. In the case of deadlock, then the shares value would be determined by the acquiring bank at a reasonable price.
Exemption
If OJK gives the written instruction to a public listed bank, then the bank can be exempted from the requirement on disclosure of information to public with prior approval from OJK. As for private commercial banks (including sharia), they can be exempted from the prevailing provisions regarding: single presence policy, limitation of share ownership and/or deadline to meet core capital of bank.
If there are any queries with regards to how this may affect your business, please contact us for further legal consultation.
This information does not, and is not intended to, constitute as legal advice; instead, all information, content, and materials are for general information only.
