Financial Services Authority Regulation Number 7 of 2026 Requires Rural Banks to Maintain a Minimum Core Capital of IDR6 Billion

Introduction

On 4 June 2026, the Financial Services Authority (Otoritas Jasa Keuangan – OJK) issued Financial Services Authority Regulation Number 7 of 2026 on the Minimum Capital Adequacy Requirement and Compliance with the Minimum Core Capital Requirement for Rural Banks (“OJK Regulation 7/2026”), which took effect on 30 June 2026.

OJK Regulation 7/2026 establishes adequate capital standards to ensure that the operations of Rural Banks (Bank Perekonomian Rakyat – “BPR”) remain sound, sustainable, and competitive. The Regulation strengthens the capital capacity and institutional resilience of Rural Banks to enhance their ability to absorb risks and maintain business continuity. It also revokes Financial Services Authority Regulation Number 5/POJK.03/2015 on the Minimum Capital Adequacy Requirement and Compliance with the Minimum Core Capital Requirement for Rural Banks (“OJK Regulation 5/2015”), which is no longer aligned with current developments in the banking industry.

Comparison

The following table compares OJK Regulation 7/2026 with OJK Regulation 5/2015:

Key Provisions

Minimum Capital Adequacy Ratio

Pursuant to Article 2, every Rural Bank is required to maintain a Minimum Capital Adequacy Requirement (Kewajiban Penyediaan Modal Minimum – “KPMM”) ratio of at least 12% of its Risk-Weighted Assets (Aset Tertimbang Menurut Risiko – “ATMR”).

Furthermore, Article 4 provides that, within the total KPMM ratio, core capital must represent at least 8% of the Risk-Weighted Assets (ATMR).

Minimum Core Capital Requirement

Pursuant to Article 14, every Rural Bank is required to maintain minimum core capital of at least IDR6,000,000,000 (six billion rupiah).

Where a Rural Bank’s core capital declines below this threshold, the Rural Bank is required to restore its core capital to the prescribed minimum within six (6) months, calculated from the date of its monthly periodic report or the date of the official examination report issued by OJK.

Requirements for Capital Contributions in the Form of Fixed Assets

Pursuant to Article 8, Rural Banks intending to use fixed assets (land and/or buildings for the bank’s operational activities) as paid-up capital contributions, or Rural Banks that have not yet fulfilled the minimum core capital requirement of IDR6,000,000,000 (six billion rupiah), may only receive paid-up capital contributions and/or capital grants in the form of fixed assets if the following requirements are satisfied:

·      the fixed assets consist of land and/or buildings intended for the Rural Bank’s operational activities;

·      the Rural Bank is able to demonstrate projected performance improvements following the receipt of the paid-up capital contribution and/or capital grant in the form of fixed assets; and

·      the Rural Bank maintains a KPMM ratio exceeding 12%, based on the latest monthly report submitted at the time of the application.

Furthermore, pursuant to Article 9, applications submitted to OJK for approval to receive paid-up capital contributions and/or capital grants in the form of fixed assets must include at least:

·      a statement from the owner confirming that the fixed assets are free from any legal claims or disputes;

·      supporting documents; and

·      an appraisal report issued by an independent valuation institution.

After obtaining OJK’s approval, the Rural Bank is required to:

·      transfer ownership of the fixed assets into the name of the Rural Bank;

·      convene a General Meeting of Shareholders (GMS) to approve the paid-up capital contribution and/or capital grant; and

·      announce the paid-up capital contribution and/or capital grant in the form of fixed assets through two (2) daily newspapers and on the Rural Bank’s official website.

Where the Rural Bank fails to utilize the fixed assets for operational purposes within three (3) years after receiving OJK’s notification letter confirming that the capital contribution has been recorded in OJK’s supervisory administration, the assets will be designated as abandoned property.

Prohibition on Profit Distribution

Pursuant to Article 12, Rural Banks are prohibited from distributing profits—including dividend distributions to shareholders, tantiem bonuses for members of the board of directors and board of commissioners, and incentive payments—where such distribution would cause the Rural Bank’s capital position to decline below the required 12% KPMM ratio and/or the 8% minimum core capital ratio.

Administrative Sanctions

Pursuant to Article 24, Rural Banks that had not fulfilled the minimum core capital requirement of IDR6,000,000,000 (six billion rupiah) before the entry into force of OJK Regulation 7/2026, namely before 30 June 2026, are subject to administrative sanctions.

Referring to Article 17 paragraph (1), such administrative sanctions may include:

·      temporary suspension of certain operational activities;

·      prohibition on expanding business activities;

·      downgrading of the Rural Bank’s soundness rating;

·      prohibition on raising new funds and extending new financing;

·      prohibition on profit distribution; and

·      restrictions on allowances or other equivalent facilities provided to members of the board of commissioners and/or board of directors, or remuneration paid to executive officers.

Transitional Provision on Compliance with the Minimum Core Capital Requirement

Rural Banks that had previously complied with the minimum core capital requirement of IDR6,000,000,000 (six billion rupiah) but whose core capital declined below that amount before 30 June 2026 are granted a period of six (6) months to restore their core capital.

The six-month period is calculated from the date of the monthly periodic report submitted to OJK or the date of the official examination report issued by OJK.

Where the Rural Bank fails to restore its minimum core capital within the prescribed period, it will be subject to administrative sanctions in accordance with the applicable regulations.

Closing

OJK Regulation 7/2026 represents an important step in strengthening the resilience of Indonesia’s rural banking industry by establishing more robust minimum core capital requirements aligned with developments in accounting standards and asset quality regulations.

These changes are reflected in the mandatory minimum core capital requirement of IDR6,000,000,000 (six billion rupiah), restrictions on paid-up capital contributions in the form of fixed assets, and the introduction of a mandatory capital restoration mechanism where core capital falls below the prescribed minimum threshold.

For Rural Banks, OJK Regulation 7/2026 requires stronger capital planning and continuous risk management to ensure ongoing compliance with the prescribed KPMM ratio and minimum core capital requirement. Furthermore, the imposition of administrative sanctions and restrictions on business activities constitutes a significant regulatory risk for Rural Banks that fail to comply with these obligations.