Data Source:Laws and Regulations Retrieving System of the Banking Bureau

Amended Articles for Regulations Governing The Capital Adequacy Ratio of Banks
Article 1 These Regulations are enacted pursuant to Article 44 of the Banking Act (hereinafter referred to as “this Act”).
Article 2 Terms used in these Regulations are defined as follows:
1. The term “ratio of self-owned capital to risk-weighted assets” (hereinafter referred to as the “capital adequacy ratio”) shall mean eligible self-owned capital divided by total risk-weighted assets.
2. The term “eligible self-owned capital” shall mean the aggregate amount of Tier 1 capital, eligible Tier 2 capital, and eligible and used Tier 3 capital.
3. The term “eligible Tier 2 capital” shall mean such Tier 2 capital that may be used to cover credit risk, market risk and operational risk.
4. The term “eligible and used Tier 3 capital” shall mean such Tier 3 capital that is actually used to cover market risk.
5. The term “perpetual preferred stock” shall mean the preferred stock that satisfies one of the following conditions:
(1) No maturity date, if there is any redemption clause, issuing banks have such redemption rights; and the stock many be redeemed only after five years after the issuance date subject to the Competent Authority’s approval; or
(2) Provisions relating to mandatory conversion into common stocks are available.
6. The term “cumulative preferred stock” shall mean the preferred stock that, in a fiscal year when a bank posts a profit, entitles the holder to the payment of a dividend to make up for the bank not having distributed a dividend in which it did not post a profit.
7. The term “subordinated debts” shall mean those debts holders’ priority order for the distribution of the earnings and assets is junior to that of all banks depositors and other ordinary creditors.
8. The term “total risk-weighted assets” shall mean the aggregate amount that arises from the risk-weighted assets for credit risk together with the capital requirements for market risk and operational risk multiplied by 12.5. Those already deducted from eligible self-owned capital, however, shall no longer be counted into the total risk-weighted assets.
9. The term “risk-weighted assets for credit risk” shall mean assessment of the risk of loss caused by the counterparty’s default. This risk assessment is expressed as the total of the bank’s each transaction item on and off the balance sheet times a risk weight.
10. The term “the capital requirement for market risk” shall mean the capital required for assessed losses to the bank’s transaction items on and off the balance sheet according to market price (interest rates, exchange rates, and stock prices etc.) fluctuations.
11. The term “the capital requirement for operational risk” shall mean the capital required for the risk of loss caused by inadequate or failed internal process, people and systems or external events.
12. The term “issuance period” shall mean the period from the issuance date to the maturity date. The issuance period should be calculated based on the earliest available redemption date or repayment date if they could be redeemed or repaid prior to maturity date, as agreed upon, if there is any. Those whose earlier redemption or repayment that require the advanced approval from the Competent Authority, however, shall not be included.
Article 3 The bank shall calculate its own capital adequacy ratio. If a parent bank is required to present the consolidated financial statements in which it consolidates its investments in subsidiaries according to the “Statements of Financial Accounting Standards No. 7”, it shall in addition calculate the consolidated capital adequacy ratio. Those investments already deducted from the self-owned capital, however, shall not be included.
Article 4 Tier 1 capital consists of the aggregate of common stock, non-cumulative perpetual preferred stock, non-cumulative subordinated debts without maturity dates, advanced receipts for capital stocks, capital surplus (apart from fixed asset appreciation surplus), legal reserve, special reserve, retained earnings (subtracting any insufficiency of the operating reserve and allowance for bad debt), minority interests and the aggregate amount of other items for shareholders equity and interests (revaluation appreciation value and the available for sale financial assets’ unrealized interests excluded) minus goodwill, the unamortized loss for the disposal of non-performing loans, and the amounts that should be deducted according to the “Methods for calculation the self-owned capital and risk-weighted assets of banks”.
The aggregate of non-cumulative perpetual stock and non-cumulative subordinated debts without maturity dates listed as Tier 1 capital may not exceed 15% of the aggregate of the following amount. The excess portion may be included within Tier 2 capital:
1. Tier 1 capital calculated according to the preceding provisions.
2. Investments in other businesses that should be deducted from Tier 1 capital.
The so-called non-cumulative perpetual preferred stock and non-cumulative subordinated debts without maturity dates in Tier 1 capital shall satisfy the following terms:
1. The issuance quota for such issuance shall be fully received.
2. The bank and its affiliated business do not provide guarantee or collateral to enhance the seniority of the holders.
3. For the holder of non-cumulative subordinated debts without maturity dates, its priority orders for the distribution of the earnings and assets is junior to that of subordinated debts included in Tier 2 capital and other general creditors.
4. The bank may not pay the interest of subordinated debts if it had no earnings during the previous fiscal year and did not issue common stock dividends. In the situation where the balance of accumulated undistributed earnings after deducting the unamortized loss for the disposal of non-performing loans exceeds the interest payment and such payment does not alter the originally agreed conditions for interest payment, however, is not included.
5. If the bank’s capital adequacy ratio is lower than the minimum ratio at issuance, and 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 it is agreed that before the above-mentioned minimum capital adequacy ratio is met, the payment of principal and interest should be deferred, and also upon the event of a rehabilitation or liquidation , the seniority of the holders of such debt should be treated as the same as that of the shareholders of non-cumulative perpetual preferred stock.
6. After ten years of issuance, if upon calculation the bank’s capital adequacy ratio meets the required minimum capital adequacy ratio at issuance after redemption, with the consent of the Competent Authority, such debts may be redeemed earlier; if not redeemed, the bank may raise the agreed interest rate one time with the ceiling being the annual interest rate at 1% or 50% of the initial credit spread.
Article 5 Tier 2 capital consists of the aggregate of cumulative perpetual preferred stock, cumulative subordinated debt without a maturity date, fixed asset appreciation surplus, revaluation appreciation, 45% of the available for sale financial assets’ unrealized interest, convertible bonds, loan-loss reserves and provisions, long-term subordinated bonds, and non-perpetual preferred stock minus the amount that should be deducted in compliant with the “ Methods for calculation of the self-owned capital and risk-weighted assets of banks”.
The loan-loss reserves and provisions included in Tier 2 capital as provided in the preceding Section means the amount of the reserves and provisions that the bank lists in excess of the expected loss assessed according to historical loss experience.
The so-called perpetual cumulative preferred stocks, cumulative subordinated debts without maturity dates, and convertible bonds included in Tier 2 capital shall meet the following terms:
1. The issuance quota for this issuance shall be fully received.
2. The bank or its affiliated business do not provide guarantee or collateral to enhance the seniority of the holders.
3. When the capital adequacy ratio is lower than the required minimum capital adequacy ratio at issuance as a result of the interest payment, the bank shall defer the dividend (interest) payment. The deferred dividend (interest) may not be imposed further with interest.
4. When the bank’s capital adequacy ratio is lower than the required minimum capital adequacy ratio at issuance, the accumulated loss exceeds the total of earnings reserve and capital surplus and doe not meet the requirements within six months, all cumulative subordinated debts without maturity dates and convertible bonds should be converted into cumulative perpetual preferred stocks; or it is agreed that before the above-mentioned minimum ratio is met or when the accumulated loss still exceeds the total of earning reserve and capital surplus, the payment of principal and interest should be deferred , and also upon the bank’s rehabilitation or liquidation, the seniority of holders of such debts is the same as that of the shareholders of cumulative perpetual preferred stock.
5. After five years of issuance, if upon calculation the bank’s capital adequacy ratio meets the required minimum capital adequacy ratio at issuance after redemption, with the consent of the Competent Authority, such debts may be redeemed earlier; If not redeemed, the bank may raise the agreed interest rate one time with the ceiling being the annual interest rate at 1% or 50% of the initial credit spread.
6. The convertible bonds are the subordinated debt with the issuance period of less than ten years.
7. The convertible bonds upon their maturity dates shall be converted into the common stocks or perpetual preferred stocks; before maturity dates, they may only be converted into the common stocks or perpetual preferred stocks, and other conversion methods shall be approved by the Competent Authority first.
The total amount of the so-called loan-loss reserves and provisions within Tier 2 capital, if banks adopting the credit risk standardized approach, might not exceed 1.25% of the total risk-weighted assets, and if adopting credit risk internal ratings-based approach, might not exceed 0.6% of the total risk-weighted assets for credit risk.
The total amount of the so-called long-term subordinated debt and non-perpetual preferred stock in Tier 2 capital that are included in Tier 2 capital may not exceed 50% of Tier 1 capital and also shall meet the following terms:
1. The issuance quota of such issuance shall be fully received.
2. The bank or its affiliated business does not provide guarantee or collateral to enhance the seniority of the holders.
3. The issuance period is more than five years.
4. In the last five years of the issuance period, a cumulative discount factor of 20% per year shall be applied.
Article 6 Tier 3 capital consists of the total amount of the short-term subordinated debts and the non-perpetual preferred stock.
The so-called short-term subordinated debts and the non-perpetual preferred stock in Tier 3 shall meet the following terms:
1. The issuance quota of such issuance shall be fully received.
2. The bank or its affiliated business does not provide the guarantee or collateral to enhance the seniority of the holders.
3. The issuance period is longer than two years.
4. They may not be redeemed earlier, which shall be exempted if banks acquire the approval of the Competent Authority.
5. When the bank’s capital adequacy ratio is lower than the required capital adequacy ratio at issuance as a result of interest or principal payment, the payment of the dividend (interest) and principal shall be deferred.
Article 7 The common stock, the preferred stock and the subordinated debts that the bank issues should be deemed not issuing such capital instruments when calculating the capital adequacy ratio or the self-owned capital, if the following circumstances occur:
1. Upon issuance or after issuance, the bank provides the holders of such capital instruments with relevant financing, which impairs the actual effect that the bank uses such as the capital instrument and the Competent Authority requests to be deducted from the capital.
2. The subsidiary of the financial holding company that owns such bank holds such capital instrument.
If the capital instrument issued by the bank is such that the parent company of the financial holding company raises the capital and reinvests, the bank should deem as the capital category the lower between the capital instrument issued by the bank and the capital instruments issued by the parent company.
Article 8 For the total amount of the eligible self-owned capital of the Tier 1 capital, the eligible Tier 2 capital, and the eligible and used Tier 3 capital, the aggregate of eligible Tier 2 capital and the eligible and used Tier 3 capital should not exceed the Tier 1 capital.
The above-mentioned so-called eligible Tier 2 capital and the eligible and used Tier 3 capital shall comply with following requirements:
1 The capital needed to cope with the credit risk and operational risk should be limited to the Tier 1 capital and the Tier 2 capital, and the Tier 2 capital used shall not exceed the Tier 1 capital that is used to cope with the credit risk and the operational risk.
2 The capital used to cope with the market risk shall comply with following requirements:
（1）The capital used to cope with the market risk should include the Tier I capital. The remainder of the Tier 2 capital after being used to cover credit risk and operational risk may be used to cover market risk.
（2）The Tier 3 capital only shall be used to cover market risk. Also, when the Tier 2 capital and the Tier 3 capital are used to cover market risk, the total amount of these two shall not exceed 250% of the Tier 1 capital used to cover market risk.
Article 9 The calculation of total risk-weighted assets for credit risk, market risk, and operational risk shall be in compliant with the “Methods for calculation the self-owned capital and risk-weighted assets of banks”.
Article 10 The bank shall report to the Competent Authority the capital adequacy ratio according to the following rules:
1. Within four months after the end of each business year, the bank shall report its own capital adequacy ratio and consolidated capital adequacy ratio reviewed by the certified public accountant together with the calculation form and the relevant information.
2. Within two months after the end of each half business year, the bank shall report its own capital adequacy ratio and consolidated capital adequacy ratio reviewed by the certified public accountant together with the calculation form and the relevant information.
3. Within two months after the end of each business year and each half business year, and within forty five days after the end of the first quarter and the third quarter, the bank shall report the relevant information concerning the capital adequacy ratio to the Competent Authority.
If necessary, the Competent Authority may order the bank to report and enclose the relevant information at any time.
Article 11 The bank shall establish the procedure for assessing its capital adequacy consistent with its risk profile, and provide the strategy to maintain the capital adequacy..
To follow the principle of capital adequacy supervisory review, each bank shall report to the Competent Authority the bank’s capital allocation, the self assessment for the capital adequacy, and self assessment for management of each kind of risk and enclose the relevant information as required by the Competent Authority.
Based on the risk assessment of each bank, the Competent Authority may request the bank to improve its risk management. If the bank does not improve its risk management as required by the Competent Authority, the Competent Authority may ask such bank to raise the minimum capital adequacy ratio, adjust its self-owned capital and risk-weighted assets, or submit the capital restoration plan within certain period.
The information that is required to be reported provided in Section 2 and its reporting schedule will be further provided by the Competent Authority.
Article 12 The bank shall disclose the relevant information concerning the capital adequacy as requested by the Competent Authority.
The rules with respect to the disclosure for the capital adequacy as mentioned in the above Section will be further provided by the Competent Authority.
Article 13 The bank’s own capital ratio and consolidated capital adequacy ratio prescribed in these regulations should be not lower than 8% and the minimum capital adequacy requirement decided by the Competent Authority in compliant with Article 11 Section 3.
The bank whose capital adequacy ratio is above 6% but does not reach 8% and the minimum capital adequacy requirement as above mention shall not distribute the dividend by cash or buy back its own stock and also shall not pay the responsible person the compensation, the bonus, the warrant, or make other payments with such similar nature. The Competent Authority may also take all or part of the following measures:
1. Ordering the bank and its responsible person to submit the capital restoration plan or other financial improvement plans within certain period, and at the discretion, taking the measures of the below Section for those who do not submit the capital restoration plan or the financial improvement plan,as ordered or do not execute those plans.
2. Limitation the increase of the risk-weighted assets or other necessary measures.
In addition to the measures mentioned in the above Section, for the bank whose capital adequacy ratio is lower than 6%, the Competent Authority may take the following measures depending on the seriousness of the situation:
1. Dismissing the responsible person and informing the Competent Authority in charge of corporate registration to revoke such registration.
2. Requiring the bank to obtain the initial approval of the Competent Authority when acquiring or disposing of the specific assets.
3. Ordering the bank to dispose of the specific assets.
4. Limiting or forbidding loans or other transactions with the relevant parties.
5. Limiting the investments, partial business or ordering to close the subsidiaries or departments.
6. Limiting the deposit interest rate not to exceed the interest rate of other comparable or similar deposits.
7. Reducing the compensation of the responsible person which also shall not exceed the average compensation for such responsible person during the twelve months preceding the month in which the bank’s capital adequacy ratio is lower than 6 %.
8. Assigning the officials to take conservatorship or receivership over operations or taking other necessary actions.
Article 14 The bank’s unamortized loss that resulted from the disposal of non-performing loans and already issued capital instrument before the implementation of the amendment on January 4, 2007 may apply to the provisions before amendment implementation.
Article 15 These Regulations shall become effective from the issuance date.