Decree of the Board of Managing Directors of Bank Indonesia Concerning Allowance for Earning Asset Losses

This decree, passed by the board of managing directors of Bank Indonesia, concerns the allowance for earning asset losses.

The decree specifies the following reasons for its enactment:

• Bank survival is highly dependent on the readiness to face risks of losses arising from the placement of funds;
• To cover the risks of losses, banks are obliged to establish an allowance for earning asset losses.

The decree specifies and explains:

• The terminology that it uses;
• General and specific provisions that regulate the classification of the amount of earning assets;
• The collateral deductible from the allowance for earning asset losses;
• The various approaches to be used for the appraisal of this collateral;
• The method used to determine the value of collateral that may be deducted;
• The method that an individual appraiser can use to appraise the collateral;
• Reasons why Bank Indonesia may recalculate the deducted collateral value;
• The compulsion that banks have to disclose their allowance for earning asset losses in their financial statements;
• The prohibition for banks to make any correction to the surplus allowance for earning assets;
• Punitive actions that would follow any violation of the decree.

The decree concludes with the statement that it is also applicable to banks based on Syariah principles.