Bank Indonesia set the loan-to-value level for mortgages and down payments on motor vehicle loans in order to enhance bank prudence when allocating such loans as well as to bolster financial sector resilience. The legislation is contained within Bank Indonesia Circular No. 14/10/DPNP, dated 15th March 2012, concerning the Application of Risk Management by Banks that offer Mortgages and Motor Vehicle Loans.
LTV, which is the ratio between the value of credit that may be allocated by a bank and the initial value of collateral held, was set at a maximum of 70%. The scope of housing loans affected includes mortgages for houses and apartments that exceed 70m2 but does not include home offices or home stores. The LTV regulation does not affect the implementation of government housing programs.
Down payments (DP) on motor vehicle loans have been determined as follows: (i) A minimum DP of 25% for two-wheeled motor vehicles; (ii) A minimum of 30% for four-wheeled vehicles; and (iii) A minimum of 20% for commercial vehicles of four wheels or more. Pursuant to the corresponding regulation, a commercial vehicle must meet one of the following requirements: (a) A public or goods transportation vehicle licensed by the relevant authority to conduct specific activities, or (b) a vehicle declared by an individual or legal entity, licensed by the relevant authority, used to support the operational activities of the corresponding business.
The lower down payment level set for commercial vehicles aims to align those officially using commercial vehicles for commercial purposes while adhering to prudential principals.
LTV and DP are calculated based on the value of collateral. In addition, the magnitude of LTV for KPR and DP for KKB will be adjusted from time to time in harmony with the latest economic developments.
From when the regulation was issued, Bank Indonesia has allocated a transitional period of three months, which should be adequate for the banking sector to adjust its Standard Operating Procedures (SOP), conduct socialisation activities and fine-tune the reports submitted to Bank Indonesia. After the transitional period, all KPR and KKB must be processed according to the new regulation.
Sanctions will be imposed on banks that violate this regulation, consisting of administrative sanctions as set forth in Bank Indonesia Regulation (PBI) No.11/25/PBI/2009, dated 1st July 2009, concerning the application of risk management.
Office of the Governor
Jakarta, 16th March 2012
Dody Budi Waluyo