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Directions Governing the Acquisition of Treasury Stock by Exchange-listed and OTC-listed Financial Institutions
(3 November 2005)
Order Ref. Jin-Kuan-Yin-(VI)-0946000967 of the Financial Supervisory Commission, Executive Yuan
To maintain the financial soundness of financial institutions, it is hereby required that an exchange-listed or OTC-listed financial institution intending to repurchase its own shares pursuant to Article 28-2 of the Securities and Exchange Act and the Regulations Governing Share Repurchase by Listed and OTC Companies shall meet the following requirements:
1.If a financial holding company:
(1) The group capital adequacy ratio shall meet the following criteria respectively according to the purpose of the share repurchase (using the group capital adequacy ratio for the most recent fiscal half year reviewed by a certified public accountant):
(i) For the purpose of transferring shares to employees and/or equity conversion: The group capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 110 percent.
(ii) For the purpose of retirement of shares: The group capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 120 percent.
(2) The capital adequacy ratio of any banking subsidiary and any bills finance subsidiary respectively is not less than 10 percent and the tier-one capital adequacy ratio thereof is not less than 6 percent; the capital adequacy ratio of any securities subsidiaries is not less than 200 percent; and the capital adequacy ratio of any insurance subsidiary is not less than 300 percent.
(3) None of its subsidiaries has been ordered by the competent authority to carry out a capital increase but failed as yet to raise the funds.
2.If a bank:
(1) The capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 10 percent, and the tier-one capital adequacy ratio is not less than 6 percent (using the capital adequacy ratio for the most recent fiscal half year reviewed by a certified public accountant).
(2) The most recent financial examination or an examination by the competent authority does not reveal any instance of insufficient provisioning of allowance for bad debt (including reserve for guarantee liabilities), false reporting of non-performing loans, or other similar circumstances.
(3) The non-performing loan (NPL) ratio as most recently filed by itself is lower than 2.5 percent, and the coverage ratio of allowance for bad debts is not less than 40 percent.
3.If a bills finance company:
(1) The capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 10 percent, and the tier-one capital adequacy ratio is not less than 6 percent (using the capital adequacy ratio for the most recent fiscal half year reviewed by a certified public accountant).
(2) The non-performing credit ratio as most recently filed by itself is lower than 2.5 percent, and the most recent financial examination or an examination by the competent authority does not reveal any instance of insufficient provisioning of allowance for bad debts (including reserve for guarantee liabilities), false reporting of non-performing credit, or other similar circumstance.
4.If an insurance company: The capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 300 percent (using the capital adequacy ratio for the most recent fiscal year reviewed by a certified public accountant), and all funds are utilized at a ratio complying with Articles 146 to 146-6 of the Insurance Act and other applicable acts and regulations.
5.If a securities firm: The capital adequacy ratio after deduction of the dollar amount for the presently filed share repurchase is not less than 200 percent (using the information from the monthly accounting statement or the capital adequacy ratio calculated based on the financial report for the most recent period certified by a certified public accountant, whichever is lower).
6.A certified public accountant has audited and certified the financial statements of the aforesaid financial institution for both the most recent fiscal year and the most recent fiscal half year and has issued an unqualified opinion or modified unqualified opinion for them, and the financial institution is financially sound, and has neither any deficit nor accumulated deficit (provided that this restriction shall not apply where the certified public accountant has issued a qualified opinion on an interim financial report for the reason that a long-term equity investment of the financial holding company and the investment gains/losses therefrom are accounted for based on a financial report of the investee company that has not yet been audited or reviewed by a certified public accountant), and furthermore there is no other factual evidence indicating any likelihood of false profit presentation in the financial statements. In addition, if a bank or bills finance company sells non-performing loans and defers recognition of the losses on an annual amortization basis, when calculating the maximum share repurchase amount permitted under Article 28-2 of the Securities and Exchange Act, it shall deduct the full amount of any such deferred and unrecognized losses.
7.When filing to repurchase its own shares in accordance with the Regulations Governing Share Repurchase by Listed and OTC Companies, a financial institutional shall though its responsible person additionally issue an undertaking stating: (i) that its financial status complies with the regulatory provisions set out above; and (2) that, if the share repurchase is made for the purpose of transferring shares to employees, it will carry out that purpose truly and in good faith. A copy of the undertaking shall, together with a copy of the filing document and the share transfer rules, be given to the competent authority for the relevant industry.
8.Where a financial institution repurchases its own shares for the purposes of transferring shares to employees or otherwise for purposes of equity conversion, it shall submit a report on a semi-annual basis to the competent authority for the relevant industry, giving detailed information on the progress of its implementation of the share transfer scheme and the concrete measures adopted, and shall complete the share transfer within three years after the repurchase. If by the end of that period the share transfer is not completed, necessitating retirement of capital, except in the situation where an employee or investor elects to waive the right to share subscription or equity conversion by reason of market price, the FSC will take any of the following measures:
(1) Require the financial institution to, within six months following share retirement, carry out cash capital increase to supplement the retired capital; before that capital is fully supplemented, the FSC may reject any application filed by the financial institution for operation of a new line of business or for share repurchase;
(2) If after capital has been fully supplemented as stated above the financial institution intends to make any additional repurchase of its own shares, require it to meet the following criteria for capital adequacy ratio, as calculated in accordance with the above principles, before it may carry out such share repurchase: not less than 135% if it is a financial holding company (with all subsidiaries meeting the following capital adequacy ratio criteria for each industry), not less than 12% if a bank or bills finance company (with the tier-one capital adequacy ratio not less than 7.2%), not less than 360% if an insurance company, and not less than 240% if a securities firm; and
(3) Publish the name of the financial institution and any of the above restrictions that the FSC has imposed thereupon.
9.A financial institution is not subject to the provisions hereof for any repurchase of its own shares that, prior to the issuance hereof, has already been announced and filed in compliance with Article 28-2 of the Securities and Exchange Act and the Regulations Governing Share Repurchase by Listed and OTC Companies.
In the event of any discrepancy between this English translation and the original Chinese text, the original text will take precedence. |