THE IMPLEMENTATION OF PRUDENTIAL PRINCIPLES IN BANKING CREDIT: A LEGAL REVIEW OF INDONESIAN PRACTICES

Abstract

The implementation of prudential principles in bank credit provision plays a crucial role in maintaining financial stability in Indonesia. This study examines how these principles are applied in practice and identifies legal challenges faced by banks, particularly state-owned banks, in adhering to regulations. The research uses a normative legal method, focusing on analyzing relevant laws such as Law No. 1/2025 concerning state investment in state-owned banks and regulations from the Financial Services Authority (OJK) and Bank Indonesia. The study identifies gaps in the application of the prudential principle, particularly concerning non-performing loans (NPLs) and the legal implications of credit defaults in state-owned banks. The results indicate that while regulations are in place, banks often face challenges in consistently implementing prudence due to external economic factors and internal procedural gaps. The study also finds that legal uncertainty surrounding the classification of credit losses as "state losses" has hindered the effective application of these principles. Recommendations are provided for strengthening oversight, clarifying legal frameworks, and improving risk management practices. The findings contribute to a deeper understanding of prudential principles in Indonesia's banking sector and suggest pathways for improving its implementation for better financial stability.