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COVID-19: GOVERNANCE (INDONESIA): OJK Authorised to Order Merger, Consolidation, Acquisition or Integration of Local Banks

Indonesia’s financial services authority now has the authority to order an Indonesian bank to merge, consolidate, acquire or integrate with another bank to address the impact of the Covid-19 pandemic on the stability of the country’s financial system.

On 31 March, the Government issued Government Regulation in lieu of Law (PERPPU) No. 1 of 2020 on State Financial Policy and Financial System Stability for Handling Corona Virus Disease 2019 (Covid-19) Pandemic and/or to Handle Threats That Harm the National Economy and/or Financial System Stability.

This regulation authorised Indonesia’s financial services authority (Otoritas Jasa Keuangan or OJK) to order Indonesian banks to carry out a merger, consolidation, acquisition or integration (together, MCAI).

On 20 April, OJK issued a regulation to implement this authority – OJK Regulation No. 18/POJK.03/2020, which came into effect on 21 April (POJK 18/2020).

Under POJK 18/2020, OJK is authorised to order any Indonesian banks to conduct and/or accept any MCAI proposal if, in OJK’s assessment, they meet the criteria set out in POJK 18/2020, which are summarised here.


Banks satisfying the following criteria may be instructed by OJK to conduct an MCAI:

  1. banks facing financial difficulties that may affect their business continuation or cause them to be unable to handle current or future pressures; and/or
  2. banks whose controlling shareholders lack the capacity to strengthen the bank’s liquidity position.

Meanwhile, banks may be instructed by OJK to accept an MCAI if their soundness rating so dictates – depending on whether they are a commercial bank, sharia bank, rural credit bank (BPR) or sharia rural credit bank (BPRS).

Under POJK 18/2020, the prescribed soundness ratings after MCAI are a minimum composite rating of “3” for a commercial bank, sharia bank or BPRS, and a minimum rating of “sufficiently sound” for a BPR.

Appraisals and share transfers in banks ordered to conduct or accept MCAI should be mutually agreed by the banks concerned. Without such an agreement, the appraisal or share transfer will be set at a “reasonable price” for the MCAI-accepting bank. 

POJK 18/2020 is silent on whether MCAI may be conducted among banks with different book classifications.


All requirements, procedures and steps for an MCAI ordered by OJK must comply with the relevant OJK Regulation on Merger, Consolidation, Acquisition, Integration and Conversion (Bank Merger Rules). Please see our January 2020 bulletin on the Bank Merger Rules.

OJK has relaxed some of the requirements under the Bank Merger Rules for the purposes of the MCAI process. First, the fit and proper test for the key parties in the post-MCAI bank can be conducted by video conference, and second, MCAI documents and administrative submissions can be made by email to OJK.


There are certain exemptions for banks that are ordered by OJK to conduct and/or accept an MCAI:

  • exemption from disclosure requirements for banks that are publicly listed companies, with prior OJK approval;
  • exemption from single presence policy for banks;
  • exemption from bank ownership rules; and
  • exemption from deadline to satisfy minimum core capital requirement.


On receiving OJK’s written instruction to conduct and/or accept MCAI, the relevant banks must prepare an action plan for the proposed MCAI, then implement the MCAI based on that plan. If they fail to comply with the OJK instruction, the banks and their principal parties may initially face an administrative sanction in the form of a written warning, and ultimately the following additional sanctions:

  • commercial banks and sharia banks may be downgraded to a BPR or BPRS,
  • BPR and BPRS may face temporary suspension of their business activities, and
  • principal parties may face administrative sanctions prohibiting them to be a principal party.

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