Indonesia’s Banking Business Activities Expansion: A Closer Look of OJK Reg 26/2024

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Authors

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Overview

The Indonesian government has issued Financial Services Authority (“Otoritas Jasa Keuangan - OJK”) Regulation No. 26 of 2024 on the Expansion of Banking Business Activities (“OJK Reg 26/2024”), effective since 13 December 2024, replacing previous regulations on guarantees, Domestic Letters of Credit (“Surat Kredit Berdokumen Dalam Negeri - SKBDN”), foreign exchange, and equity participation by commercial banks. OJK Reg 26/2024 expands the scope of permissible banking activities, aiming to enhance flexibility, innovation, and competitiveness in Indonesia’s banking sector.

Participation and Investment Restrictions for Banks

OJK Reg 26/2024 provides flexibility to the strict rules regarding equity participation by banks and sharia banks ^[1] as previously regulated in the OJK Regulation No. 22 of 2022 (“OJK Reg 22/2022”). While OJK Reg 22/2022 restricted equity participation to financial service institutions, OJK Reg 26/2024 expands this scope to include companies supporting banking operations.

The table below highlights the differences in permissible equity participation under OJK Reg 22/2022 and OJK Reg 26/2024, applicable to both conventional and sharia bank subsidiaries.

OJK Reg 22/2022	OJK Reg 26/2024
Financial service institutions [2]
Companies leveraging information technology (IT) to develop financial products as their main business [3]
Credit information management institutions [4]
	Companies primarily engaged in supporting banking business operations[5]
	Companies characterized by business operations aimed to support the banking industry[6]
	Companies domiciled outside Indonesia, provided that they meet certain specific criteria [7]

Provisions for BPR and BPR Sharia

OJK Reg 26/2024 introduces specific provisions for equity participation of Rural Banks (“BPR”) and Sharia Rural Banks (“BPR Sharia”) permitting them to engage in equity participation exclusively with Supporting Institutions ^[8] domiciled in Indonesia.

Receivables Transfers

Under OJK Reg 26/2024, banks, including BPR and BPR Sharia, are permitted to transfer and accept receivables, including credit or financing, in compliance with statutory regulations. However, the originating banks are expressly prohibited from repurchasing transferred receivables. ^[9] The regulation requires banks to implement robust risk management and adhere to prudent credit principles when transferring or accepting receivables, which must include at least: ^[10]

1. Establishing criteria for receivables eligible for transfer or acceptance.
2. Mechanisms for transferring collateral associated with the receivables.

Furthermore, OJK Reg 26/2024 introduces additional provisions requiring banks to comply with specific regulations related to clauses governing the transfer and acceptance of receivables.

Bank Guarantees

OJK Reg 26/2024 also emphasizes the provision of various guarantees by conventional banks, including: (i) Bank Guarantees, (ii) Standby Letters of Credit (SBLC), (iii) Letters of Credit (L/C), (iv) SKBDN, and (v) other types of guarantees.

OJK Reg 26/2024 introduces significant enhances that aims to ensure a greater security within the banking sector by requiring the implementation of effective risk management when providing guarantee services. When offering guarantee services, banks must conduct a thorough analysis that considers: ^[11]

1. he credibility and reputation of the party being guaranteed;
2. The nature and value of the transaction in relation to the bank’s capacity; and
3. The reasonableness of the guarantee scheme.

Further, banks must establish and maintain comprehensive written policies and procedures to manage the risks associated with providing guarantee services. These policies should address: ^[12]

1. Systems, procedures, and authority structures for managing guarantees;
2. Identification of all risks associated with guarantees;
3. Methods for measuring and monitoring guarantee-related risks;
4. Accounting practices;
5. Review and analysis methods for guarantee provisions;
6. Legal considerations in providing guarantees;
7. Sharia compliance analysis for banks conducting sharia-based business activities; and
8. Transparency in information provided to customers, in accordance with the OJK regulations on consumer and public protection in the financial services sector.

In this newly issued regulation, banks are granted flexibility to set their schedules for examining SKBDN documents, a change from the previously imposed maximum of 7 days.

Banks as KUPVA Operators

Unlike the previous regulation, OJK Reg 26/2024 now allows banks to operate as Money Changing Service Providers (“KUPVA”) by only adhering to market mechanisms and fulfiling minimum capital requirements as per OJK regulations. ^[13] Following the previous regulation, OJK Reg 26/2024 emphasizes the specific requirements and documentation necessary for the administration of KUPVA activities.

Utilization of Electronic Signatures and Electronic Agreements

OJK Reg 26/2024 provides guidelines for banks to utilize electronic signatures in the delivery of banking products. ^[14] This newly introduced regulation aims to encourage banks to utilize electronic signatures and electronic agreements provided they meet certain policies and procedures set by the OJK Reg 26/2024. Further, banks leveraging electronic signatures must exercise caution and prioritize consumer protection. ^[15]

Transitional Provisions

With the issuance of OJK Reg 26/2024, several transitional provisions must be taken into account: ^[16]

Activities	Subject to OJK Reg 26/2024	Subject to Previous Regulations
Banks with existing credit or financing agreements	✔
Banks with established policies and procedures for the utilization of electronic signatures	✔
Issued Bank Guarantees		✔
Banks involved in the transfer and/or acceptance of receivables	✔
Provisions concerning equity participation for BPR or BPR Sharia	✔

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1. Commercial banks that operated in line with sharia principles ↩︎

2. Article 4(1)(a) OJK Reg 22/2022 qq Article 2(1)(a) OJK Reg 26/2024 ↩︎

3. Article 4(1)(b) OJK Reg 22/2022 qq Article 3(1)(b) OJK Reg 26/2024 ↩︎

4. Article 4(1)(c) OJK Reg 22/2022 ↩︎

5. Article 3(1)(a) OJK Reg 26/2024 ↩︎

6. Article 3(1)(c) OJK Reg 26/2024 ↩︎

7. Article 3(1)(d) OJK Reg 26/2024 ↩︎

8. Companies primarily engaged in supporting BPR/BPR Sharia business operations; and companies characterized by business operations aimed to support the BPR/BPR Sharia industry ↩︎

9. Article 36(3) OJK Reg 26/2024 ↩︎

10. Article 38(2) OJK Reg 26/2024 ↩︎

11. Article 44 OJK Reg 26/2024 ↩︎

12. Article 45 OJK Reg 26/2024 ↩︎

13. Article 62 OJK Reg 26/2024 ↩︎

14. Article 66 of OJK Reg 26/2024 ↩︎

15. Article 68 of OJK Reg 26/2024 ↩︎

16. Article 72 OJK Reg 26/2024 ↩︎

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

Go to

1. Overview
2. Participation and Investment Restrictions for Banks
3. Provisions for BPR and BPR Sharia
4. Receivables Transfers
5. Bank Guarantees
6. Banks as KUPVA Operators
7. Utilization of Electronic Signatures and Electronic Agreements
8. Transitional Provisions

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