22 Jul 2020
OJK Can Now Order Healthy Non-Bank Financial Institutions to Shoulder Responsibility for Distressed Peers


Following an earlier Financial Services Authority (Otoritas Jasa Keuangan / “OJK”) regulation that may be used to require compulsory consolidation in the banking sector in order to avoid potential bank collapses,[1] healthy, well-managed non-bank financial institutions (“NBFI”) may now be required by the OJK to effectively carry the can for their ailing peers through OJK-engineered merger, consolidation or integration schemes. NBFIs, which include insurance companies, leasing and finance companies, and pension providers, must comply with such instructions – should they fail to do so, they will be liable to potentially heavy sanctions.


This is the upshot of OJK Regulation No. 40/POJK.05/2020 (“Reg. 40”, effective 15 June 2020), which has been issued as an implementing or ancillary regulation for Emergency Government Regulation (Perppu) No. 1 of 2020.[2] As with the earlier regulation aimed at the banking sector, Reg. 40 authorizes the OJK to order a distressed NBFI and a healthy NBFI to jointly conduct a merger, consolidation, acquisition and/or integration process based on a written instruction issued to each financial institution (“Participating NBFI”).


A healthy NBFI that, based on an OJK assessment, is capable of withstanding current and anticipated pressures and which has:


  1. a soundness level of composite rating 1, 2 or 3; or
  2. a minimum solvency or risk-based capital level that accords with the requirements of the prevailing laws and regulations,


must accept an instruction to conduct a merger, consolidation, acquisition and/or integration process with a distressed NBFI.


A distressed NBFI is one that, according to an OJK assessment, fulfills the following criteria:


  1. Is incapable of withstanding current and anticipated pressures, even if its soundness level and statutory minimum solvency or capital level are similar to those of a healthy NBFI;
  2. has a soundness level of composite rating 4 or 5, or its solvency or capital level is lower than the statutory threshold;
  3. the shareholders are not capable of injecting additional capital to improve the NBFI’s condition.


Action Plan


Upon receiving an OJK instruction to merge, consolidate or integrate, the Participating NBFIs are required to prepare an action plan that describes the step-by-step procedures and detailed timeline for carrying out the merger, consolidation, acquisition and/or integration process. The instruction will be deemed to have been fulfilled upon the full implementation of the action plan in accordance with the terms of the OJK instruction.


It is as yet unclear whether Participating NBFIs will be given the option to choose as between a merger, consolidation, acquisition or integration. Further, Reg. 40 it silent as to whether the OJK will issue instructions simultaneously to the healthy NBFI and distressed NBFI or whether these will be issued at different times. What POJK 40/2020 does tell us is that Participating NBFIs are free to reach agreement on the financial aspects (i.e., valuation and conversion of shares) of the corporate action. If the Participating NBFIs are unable to reach an agreement, the valuation and conversion of shares will be determined on the basis of the fair value of the NBFI accepting the merger, consolidation, acquisition and/or integration.




Once the action plan has been approved by the OJK, the Participating NBFIs must update the OJK on progress in the implementation of the plan. Failure to do so will result in the Participating NBFIs being liable to administrative sanctions ranging from written warnings up to the revocation of their business licenses. In addition, the OJK may blacklist individual officers of non-compliant Participating NBFIs from serving in certain roles in the financial-services sector for up to 10 years.


ABNR Commentary


It remains unclear whether the OJK will confine its “shotgun-marriage” strategy to NBFIs operating in the same business lines, or whether, for example, a large, healthy finance company (or even a pension fund) might be ordered to acquire or merge with a distressed microfinance company.


The general lack of clarity in Reg. 40 has given rise to uncertainty, particularly in the insurance industry, where foreign-invested insurers are concerned that they might be forced to shoulder the burden of rescuing their weaker Indonesian peers if the economic situation worsens further. Should such a scenario come to pass, it would obviously do nothing to enhance Indonesia’s attractiveness to foreign investors, particularly those in the financial-services sector.


However things pan out, it is certainly a sign of the current uncertain times that the OJK is even thinking about forcing sound financial institutions to shoulder the obligations and liabilities of their struggling peers. One can only imagine how the CFO of a sound, well-run insurance or finance company might react upon receiving such a directive.


Contact Us


Should you have any queries or require legal advice on how you can best protect your interests during this time of uncertainty, please contact any of the persons below, call us on +6221-2505125, or email us at


Mr. Emir Nurmansyah (

Mr. Nafis Adwani (

Mr. Agus Ahadi Deradjat (


[1] No. 18/POJK.03/2020

[2] Now enacted into law as Law No. 2 of 2020


This edition of ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained herein. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.