Bank Indonesia has recently issued regulation pertaining the maximum limitation of credit approval. The central bank considers necessary to issue such regulation as the current practice in credit lending tends to concentrate only to a certain individual borrower or to a certain group of borrower. Such practices would be detrimental to the national banking system.

Maximum limit of credit approval (“BMPK”) with parties affiliated to the bank is allowed only for 10% of the bank’s capital. All credits given to affiliated party should obtain prior approval from the bank’s commissioner. Bank is forbidden in buying low-quality assets from affiliated parties. Definition of affiliated parties is elaborated further on the decision.

Banks may provide credit to non-affiliated party at maximum, 20% of its capital and to a group of non-affiliated party at maximum, 25% of its capital. The Regulation further elaborates the definition of group of borrower, which among others, includes an element of common ownership.