Credit Support Agreement Template for Indonesia
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What is a Credit Support Agreement?
The Credit Support Agreement is essential in Indonesian financial transactions where parties seek to mitigate credit risk through various forms of security arrangements. This document is typically used in conjunction with primary financing agreements, derivatives transactions, or other financial arrangements where credit risk needs to be managed. It becomes particularly relevant in the Indonesian context due to specific local requirements for security interests, including registration requirements and enforcement procedures under OJK regulations and Indonesian civil law. The agreement needs to carefully balance international financial practices with local regulatory requirements, especially when involving cross-border elements. The document addresses credit support calculations, delivery mechanisms, rights and obligations of parties, and enforcement procedures, all within the framework of Indonesian law.
About the Credit Support Agreement
A Credit Support Agreement is a crucial legal document that establishes security arrangements between parties to mitigate credit risk in Indonesian financial transactions. You need this agreement when entering into financing arrangements, derivatives contracts, or other transactions where credit exposure requires collateral or other forms of security support under Indonesian law.
When do you need this document?
You require a Credit Support Agreement when structuring complex financial transactions in Indonesia that involve credit risk exposure. Banks and financial institutions commonly use this document when providing credit facilities to ensure adequate security coverage. Investment firms need this agreement when engaging in derivatives trading or securities lending arrangements where counterparty risk must be managed. Corporate borrowers often enter into these agreements as part of syndicated loan structures or bond issuances where multiple creditors require security arrangements. You also need this document when establishing fiduciary security interests that must comply with Indonesian registration requirements under Law No. 42 of 1999.
Key legal considerations
Your Credit Support Agreement must clearly define the credit support obligations, including the types of collateral acceptable under Indonesian law such as cash, securities, or fiduciary interests. The agreement should specify calculation methodologies for determining credit support amounts, delivery and return mechanisms, and substitution rights for different types of collateral. You need to address default scenarios and enforcement procedures, including the rights of security agents and custodian banks in managing and liquidating security interests. The document must establish clear priority of claims and distribution mechanisms in accordance with Indonesian bankruptcy and security laws. Consider including provisions for cross-default triggers, margin call procedures, and dispute resolution mechanisms that comply with Indonesian jurisdiction requirements.
Legal requirements in Indonesia
Your Credit Support Agreement must comply with the Indonesian Civil Code governing contractual relationships and the specific requirements under Law No. 42 of 1999 on Fiduciary Security for security interest registration. Financial institutions must ensure the agreement aligns with OJK Regulation No. 40/POJK.03/2019 regarding credit risk mitigation and risk-weighted asset calculations. The document should incorporate provisions from Law No. 10 of 1998 on Banking when involving banking sector participants, including compliance with prudential banking regulations and credit facility documentation requirements. You must consider Indonesian foreign exchange regulations if the agreement involves foreign currency obligations or cross-border security interests. The agreement should address registration requirements with relevant Indonesian authorities and ensure enforceability under Indonesian courts' jurisdiction, particularly regarding security interest perfection and priority rules.
GOVERNING LAW
Applicable law
This Credit Support Agreement is drafted to comply with Indonesia law. Key legislation includes:
Law No. 42 of 1999 on Fiduciary Security: Regulates fiduciary security arrangements, which are common in credit support structures, including registration requirements and enforcement mechanisms
OJK Regulation No. 40/POJK.03/2019: Financial Services Authority regulation on credit risk mitigation and calculation of risk-weighted assets
Law No. 10 of 1998 on Banking: The primary banking law that governs credit facilities and related security arrangements in the banking sector
Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations: Governs bankruptcy proceedings and creditor rights, which are crucial for credit support arrangements
Law No. 4 of 1996 on Land Mortgage: Regulates security interests over land and buildings, which may be relevant if real estate is involved in the credit support
OJK Regulation No. 31/POJK.05/2018: Regulates the implementation of financing arrangements and risk management for non-bank financial institutions
Law No. 24 of 1999 on Foreign Exchange Flow: Relevant for cross-border credit support arrangements and foreign currency considerations
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