Legal Literacy - Understand the vital role of banks in business financing and how banks manage credit risk. Learn about mortgage rights as collateral, the process of charging and executing them, including auctions and parate executions.

Providing Funds for Business Development

Banks play an important role in advancing the economy by providing loans to people or businesses who want to expand their business. To develop a business, capital or funds are needed, and this is where banks play a role as providers of funds to help economic growth.

As stipulated in Article 1 Number (2) Law No. 10 of 1998 concerning Amendments to Law No. 7 of 1992 concerning Banking  "A bank is a business entity that collects funds from the public in the form of savings and channels them to the public in the form of credit and or other forms in order to improve the standard of living of the people at large."."

Risks in Credit Distribution

However, in carrying out business activities in the form of distributing credit to the public or business actors, banking institutions must be able to manage risk properly and adhere to the principle of prudence if they do not want to experience bad credit risk or Non Performing Loan (NPL).

In Article 1 Number (11) of Law No. 10 of 1998 concerning Amendments to Law No. 7 of 1992 concerning Banking states,

"Credit is the provision of money or a bill that can be equated with it, based on an agreement or loan agreement between a bank and another party that requires the borrower to repay the debt after a certain period of time with the provision of interest."

It can be said that credit is a form of debt agreement so that the position of the customer as the debtor and the bank as the creditor in the debt agreement is called a credit agreement. The bank must be sure that the funds lent to the public will be returned on time along with interest with the terms and conditions that have been mutually agreed upon in the credit agreement.

This agreement is made on the basis of agreement as regulated in Article 1338 of the Civil Code “All agreements made in accordance with the law apply as law to those who make them. The agreement cannot be withdrawn except by agreement of both parties, or for reasons determined by law. The agreement must be implemented in good faith”.