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

Regulations Governing the Capital Adequacy Ratio of Credit Cooperatives
(Amended on 2006/05/09 per Order No. Jin-Kuan-Yin (3)-Zi-No. 09530002230)
Article 1
These Regulations are enacted pursuant to Article 37 of the Credit Cooperatives Act (referred to as the “Act” hereunder) to which Article 44 of the Banking Act applies mutatis mutandis.
Article 2
The terms used in these Regulations are defined as follows:
1. The term “ratio of equity capital to risk-weighted assets” (referred to as the “capital adequacy ratio” hereunder) shall mean net eligible self-owned capital divided by total risk assets.
2. The term “net eligible self-owned capital ”shall mean the aggregate of Tier 1 capital and eligible Tier 2 capital (total eligible self-owned capital) minus amounts to be subtracted in accordance with Article 5 of these Regulations.
3. The term “eligible Tier 2 capital” shall mean the type of capital that may be used to cover credit risk and market risk. .
4. The term “capital stock” shall mean the daily average of total capital stock in the past half year, the daily average of total capital stock in the past month, or total capital stock on the base date of reporting, whichever is lower.
5. The term “equity adjustment” shall mean reserve for exchange difference minus unrealized long-term equity investment losses .
6. The term “total risk-weighted asset” shall be determined by
multiplying the capital requirements for market risk by 12.5
and adding the resulting figures to the sum of risk-weighted
assets for credit risk. .
7. The term “the risk-weighted assets for credit risk” shall mean
assessment of whether there is risk of the counterparty default causing the credit cooperative's losses. This risk assessment is expressed as the total of the credit cooperative's transaction items on and off the balance sheet times a risk-weighted factor.
8. The term “capital requirement for market risk” shall meanthe capital required for assessed losses to the credit cooperative's transaction items on and off the balance sheet according to
market price (interest rates, exchange rates, and stock prices,
etc.) fluctuations.
Article 3
The scope of Tier 1 capital and Tier 2 capital is defined as follows:

1. Tier 1 capital consists of capital stock, capital surplus (apart from fixed asset appreciation surplus ), legal reserve, special reserve, retained earnings (less any insufficiency of the operating reserve and allowance for bad debt ) and equity adjustments, minus goodwill and unrealized loss on the disposal of financial assets.
2. Tier 2 capital consists of capital surplus from revaluation of fixed assets, 45% of unrealized capital gain on disposal of financial assets, operating reserve and loan loss provision (excluding provision set aside for specific losses).
The aggregate amount of operating reserve and loan loss provision as provided in subparagraph 2 of the preceding paragraph shall not exceed 1.25% of the total risk-weighted assets.
Article 4
Total eligible self-owned capital is the total of Tier 1 capital and eligible Tier 2 capital where the amount of eligible Tier 2 capital shall not exceed the amount of Tier 1 capital.
The term “eligible Tier 2 capital” in the preceding paragraph shall comply with the following requirements:
1. Capital used to cover credit risk is limited to Tier 1 capital and Tier 2 capital, and Tier 2 capital used shall not exceed the amount of Tier 1 capital used to cover the credit risk.
2. Capital used to cover market risk must include Tier 1 capital. Only the remainder of Tier 2 capital after being used to cover credit risk may be used to cover market risk.
Article 5
The eligible self-owned capital of a credit cooperative used in calculating its capital adequacy ratio shall deduct the following amounts:
1. The recorded amount of capital instruments included in the calculation of the eligible self-owned capital of the issuing bank and held by the credit cooperative for at least one year; and
2. The recorded holding of shares issued by other members of the National Federation of Credit Cooperatives.
Items already deducted from the total eligible self-owned capital need not be included in the calculation of total risk-weighted assets.
Article 6
Financial instruments held by a credit cooperative for any of the following intents and purposes are considered trading book positions:
1. Positions held with the intent of benefiting from actual or expected ask-bid spread.
2. Positions held with the intent of benefiting from other price or interest rate movement.
3. Positions held for hedging other instruments in the trading book.
4. All positions that may be traded at own discretion within a preset limit.
Positions on financial instruments held for intents and purposes other than those mentioned above shall be included in the banking book.
Article 7
The calculation of total risk-weighted assets for credit risk and capital requirements for market risk shall be in compliance with the Methods for Calculating Own Capital and Risk-Weighted Assets of Credit Cooperatives promulgated by the Ministry of Finance.
A credit cooperative shall estimate the capital requirements for market risk as provided in the preceding paragraph according to the standardized approach.
Article 8
Every credit cooperative shall, within two months after the end of each half-year account settlement, report its accountant-certified capital adequacy ratio calculated and presented in accordance with the method and format promulgated by the Ministry of Finance and submit relevant information.
Where necessary, the competent authority may order a credit cooperative to report its capital adequacy ratio and submit relevant information at any time.
Article 9
The capital adequacy ratio of a credit cooperative calculated and reported in accordance with the Regulations herein shall not be lower than 8%.
Where a credit cooperative’s capital adequacy ratio is more than 6%, but less than 8%, the ratio of earnings distributed in the form of cash or other assets shall not exceed 20% of the cooperative’s current after-tax income. In such an event, the competent authority may order the cooperative to propose a remedial plan by increasing its capital and/or reducing its risk-weighted assets within a given period of time.
A credit cooperative whose capital adequacy ratio falls below 6% shall not distribute earnings in the form of cash or other assets. In such an event, the competent authority, in addition to taking the action as described in the preceding paragraph, may impose the following dispositions depending on the severity of the situation:
1. Restricting the remuneration and allowance for directors and supervisors.
2. Restricting the establishment of branches.
3. Restricting the application for or suspending the operation of business that will increase the total amount of risk-weighted assets.
4. Ordering the closure of some branches within a specific period of time.
Article 10
The Regulations herein shall be in force from the date of promulgation. Notwithstanding the foregoing, Subparagraph 3, Paragraph 1 of Article 5 shall take effect on January 1, 2005.