Amendment to Bank Indonesia Regulation Concerning the Legal Lending Limit for Commercial Banks

This amendment to the Bank India Regulation Number 7/3/PBI/2005 concerns the legal lending limit (LLL) for commercial banks in Indonesia.

The paper states that the need for the amendment arose from the realization that banks can enhance their role in the economy by adopting measures that support economic sector growth, including financing of the real sector, for which they need to apply principles of good risk management and corporate governance in their business activities.

The amendment covers:

• Terminology used in the Bank India Regulation;
• The application of prudential principles and risk management in the extension of the provision of funds;
• The scope of "related party";
• The classification of "borrower";
• Reasons for the categorization of provision of funds as exceeding the LLL ;
• The action plan for the resolution of the violation of the LLL;
• The constitution of "placements";
• The provision of funds for state-owned enterprises.

Chapter 2 elucidates the reasons for the amendment and offers an article-by-article explanation of the amendment.