The Application of Business Judgment Rule to Credit Decision Making at Rural Banks: Between Board Protection and the Prudential Principle

Rizki Tri Anugrah  Bhakti; Dwi Afni Maileni; Frans Borgias

doi:10.59261/jlsp.v4i4.189

Authors

Rizki Tri Anugrah Bhakti Universitas Riau Kepulauan
Dwi Afni Maileni Universitas Riau Kepulauan
Frans Borgias Universitas Riau Kepulauan

DOI:

https://doi.org/10.59261/jlsp.v4i4.189

Keywords:

Business Judgment Rule, Board of Directors, Credit, People's Economic Bank, The Principle of Prudence

Abstract

Background: Credit-granting decisions at Rural Banks (Bank Perkreditan Rakyat or BPR) are business decisions that inherently involve risk, yet they also possess a distinct legal character because banks manage funds entrusted to them by the public. Existing studies of the Business Judgment Rule have largely situated the doctrine within the general framework of corporate law, whereas studies of non-performing loans in the banking sector have tended to focus on the prudential principle, lending procedures, and risk management.

Objective: This article aims to analyze the position of the Business Judgment Rule in relation to the liability of the Board of Directors of BPRs for credit-granting decisions that result in losses and to delineate the conditions under which directors may or may not be afforded protection when loans subsequently become non-performing.

Method: This study employs a normative legal research method using statutory and conceptual approaches.

Result: The findings demonstrate that the Business Judgment Rule may protect the Board of Directors of BPRs when a non-performing loan results from a legitimate business risk—that is, a risk that materializes even though the credit decision was made through a prudent, rational, independent, and properly documented process and within the limits of lawful authority. Conversely, such protection is unavailable when the credit loss arises from governance failures in the lending process.

Conclusion: The applicability of the Business Judgment Rule to credit decisions made by BPRs is determined by the distinction between legitimate business risks and governance failures.

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