Decree of the Board of Managing Directors of Bank Indonesia Concerning the Legal Lending Limit for Commercial Banks

This decree stipulates terms for Legal Lending Limit (LLL) for commercial banks in Indonesia. The decree states that:

• Lending beyond a reasonable limit to debtors is commonly one of the major causes of bank failure;
• To avoid such concentrated lending, banks should diversify their credit portfolios.

The provisions that the decree sets out include the following:

• The bank shall prohibit a debtor from drawing upon funds, if such action will result in a violation of the LLL;
• Loans could be exempted from being categorized “"over the LLL”" for various reasons;
• Bank Indonesia reserves the right to make corrections to the classifications of “"connected parties"” and “"groups of debtors”";
• A bank, whose capital adequacy ratio is zero, is prohibited from extending funds.

The decree then sets out the following provisions:

• LLL for non- connected and connected parties;
• Provision of funds exempted from the LLL;
• Reporting on the violation of the LLL;
• Sanctions for violating the LLL;
• Miscellaneous provisions.