| 2004.11.09 |
Regulations Governing The Capital Adequacy Ratio Of Banks
[Chinese]
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Regulations Governing The Capital Adequacy Ratio Of Banks
(AS LAST AMENDED ON 9 November 2004)
LEGISLATIVE HISTORY:
5. Article 4 amended and promulgated per 9 November 2004 Order Jin-Kuan-Yin-(I)-0931000649 of the Banking Bureau, Financial Supervisory Commission, Executive Yuan.
Article 4
The scope of Tier 1 capital, Tier 2 capital, and Tier 3 capital is defined as follows:
1. Tier 1 capital consists of the aggregate of common stocks, non- cumulative perpetual preferred stocks, non-cumulative subordinated debts without maturity dates, advanced receipts for capital stocks, capital surplus (apart from fixed asset appreciation surplus), legal reserves, special reserve, retained earnings (subtract any insufficiency of the operating reserve and allowance for bad debt), minority interests, and equity adjustment, minus goodwill and treasury stocks.
2. Tier 2 capital consists of the aggregate of perpetual cumulative preferred stocks, cumulative subordinated debts without maturity dates, fixed asset appreciation surplus, 45% of unrealized long-term equity investment capital gain, convertible bonds, operating reserve and loan loss provision (not including the money set aside against specific losses), long- term subordinated debts, and non-perpetual preferred stocks.
3. Tier 3 capital consists of the aggregate of short-term subordinated debts and non-perpetual preferred stocks.
The aggregate of non-cumulative perpetual preferred stocks and non- cumulative subordinated debts without a maturity date listed as Tier 1 capital may not exceed 15% of total Tier 1 capital. The excess portion may be included within Tier 2 capital when the following requirements are met:
1. The entire amount of the issue(s) must be received in full during the issuance.
2. The bank or its affiliated enterprises have not provided guarantees or collaterals to advance the order of holders' rights of repayment.
3. The order of holder rights of repayment of non-cumulative subordinated debts without maturity dates is after that of holders of subordinated debts included in Tier 2 capital and that of other ordinary creditors.
4. The bank may not pay interest of subordinated debts if it had no earnings during the previous fiscal year and did not issue common stock dividends.
5. When the bank's capital adequacy ratio is lower than the minimum ratio stipulated by the Competent Authority, if the bank fails to meet this requirement for a period of six months, all non-cumulative subordinated debts without maturity dates must be converted in full to non-cumulative perpetual preferred stocks; or else it shall be stipulated that prior to achieving the aforementioned minimum ratio, the payment of principal and interest to non-cumulative subordinated debts without maturity dates shall be deferred, and that during the course of bank rehabilitation or liquidation the settlement priority of the holders of non-cumulative subordinated debts without maturity dates shall be the same as that of non-cumulative perpetual preferred stock shareholders.
6. After ten years of the issuance of non-cumulative subordinated debts without maturity dates, if the calculated bank's capital adequacy ratio after redemption of the said debts can meet the Competent Authority's minimum ratio, and the Competent Authority grants its approval, such debts may be redeemed in advance.
7. The bank may increase the agreed interest rate once if no debts have been redeemed ten years after the issuance. The maximum limit of this increase shall be one percentage point annual interest rate or 50% of the interest rate spread set in the original contract.
The perpetual cumulative preferred stocks, cumulative subordinated debts without maturity dates, and convertible bonds included in Tier 2 capital must meet the following requirements:
1. the entire amount of the issue(s) must be received in full during the issuance;
2. the bank or its affiliated enterprises have not provided guarantees or collaterals to advance the order of holders rights of repayment;
3. the payment of interest (dividends) may be deferred if the payment would render the bank's capital adequacy ratio lower than the minimum ratio stipulated by the Competent Authority; in which case no additional interest on the deferred interest (dividends) shall be paid;
4.When the bank's capital adequacy ratio is lower than the minimum ratio stipulated by the Competent Authority, if the bank’s cumulative losses exceed the aggregate of retained earnings and capital surplus and it fails to comply with the above requirementt within six months, cumulative subordinated debts without maturity dates and convertible bonds must be converted in full to perpetual cumulative preferred stocks; or else it shall be stipulated that prior to achieving the aforementioned minimum ratio or while its accumulated deficit still exceeds the sum of retained earnings and capital surplus, the payment of principal and interest on these debts or bonds shall be deferred and that during the course of bank rehabilitation or liquidation, the settlement priority of the holders of these debts or bonds shall be the same as that of perpetual cumulative preferred stock shareholders;
5. after five (5) years of the issuance, if the calculated bank's capital adequacy ratio after redemption can meet the Competent Authority's minimum ratio, and the Competent Authority grants its approval, redemption may be performed in advance. The bank may increase the agreed interest rate once on those debts or shares that have not been redeemed. The maximum limit of this increase shall be one percentage point annual interest rate or fifty (50) percent of the interest rate spread in the original contract;
6. convertible bonds should be subordinated debts with a time to maturity of less than ten years; and
7. convertible bonds shall be converted to common stocks or perpetual preferred stocks at maturity. Convertible bonds may be converted only to common stocks or perpetual preferred stocks before the maturity dates. Other forms of conversion must be approved by the Competent Authority.
Total operating reserve and allowance for bad debt included in Tier 2 capital may not exceed 1.25% of total risky assets.
The aggregate of the long-term subordinated debts and the non-perpetual preferred stocks referred to as Tier 2 capital may not exceed 50% of total Tier 1 capital. The long-term subordinated debts and non-perpetual preferred stocks included in Tier 2 capital must meet the following requirements:
1. the entire amount of the issue(s) must be received in full during the issuance;
2. the bank or its affiliated enterprises have not provided guarantees or collaterals to advance the order of holders rights of repayment;
3. the issue period must be at least five (5) years; and
4. the amount must decrease progressively by at least twenty (20) percent each year during the final five (5) years.
The short-term subordinated debts and the non-perpetual preferred stocks referred to as Tier 3 capital must meet the following requirements:
1. the entire amount of the issue(s) must be received in full during the issuance;
2. the bank or its affiliated enterprises have not provided guarantees or collaterals to advance the order of holders' rights of repayment;
3. the issue period must be at least two years;
4. the bank may not make repayment before the agreed repayment date. However, the bank shall not be subject to this restriction if the Competent Authority’s approval has been granted; and
5. the bank must cease payment of interest (dividends) and principal if such payment would render the bank's capital adequacy ratio lower than the minimum ratio stipulated by the Competent Authority.
If it has been agreed that holders of preferred stocks or subordinated debts may redeem such stocks or debts before the end of the issue period, the redemption period shall be considered as the issue period.