Reconceptualizing Banking Collateral Requirements in Indonesia: The Performance-Based Guarantee System as a Modern Approach to the 5C Credit Analysis

Abstract

The Indonesian banking collateral regime, based on the traditional 5C credit analysis, requires all borrowers including bona fide debtors to provide readily executable collateral. In practice, cross-collateral arrangements under Articles 5 and 6 of the Mortgage Law have generated legal uncertainty, execution deadlocks, and substantive injustice when a single collateral object secures multiple credit facilities. This normative legal research employs a descriptive-analytical approach supported by qualitative analysis of statutory regulations, legal doctrines, and structured interviews with key stakeholders in banking, legal practice, business, and financial supervision. The study finds that the absence of specific prudential regulations at the level of the Financial Services Authority (OJK) has resulted in inconsistent banking practices and increased dispute risks. To address these shortcomings, the research proposes a Performance-Based Collateral System that limits the executorial function of collateral for bona fide debtors while strengthening risk management through enhanced Five Cs analysis, legal due diligence, and internal governance. The study further recommends the formulation of an OJK regulation, standardized internal bank manuals, and the establishment of formal debtor consortia supported by the Know Your Partner principle.