Administrative Measures for Capital Adequacy Ratio of Commercial Banks

Administrative Measures for Capital Adequacy Ratio of Commercial Banks

Order of the China Banking Regulatory Commission [2007] No. 11

July 3, 2007

(Promulgated and Implemented by Order of China Banking Regulatory Commission [2004] No. 2 Amended in accordance with Decision on Amending Administrative Measures for Capital Adequacy Ratio of Commercial Banks adopted at the 55th Session of Chairman Meeting of the China Banking Regulatory Commission on December 28, 2006)

Administrative Measures for Capital Adequacy Ratio of Commercial Banks

Chapter I General Provisions

Article 1 With the purpose of strengthening the supervision over the capital adequacy ratios of commercial banks, promoting the safe and stable operation of commercial banks, these Measures are promulgated in accordance with the Banking Supervision Law of the People's Republic of China, Law of the People's Bank of China on Commercial Banks and Administrative Regulations of the People's Republic of China on Foreign-funded Banks and other laws and regulations.

Article 2 These Measures shall be applicable to commercial banks established within the territory of the People's Republic of China, including Chinese-funded banks, wholly foreign-invested banks and Chinese-foreign equity joint banks.

Article 3 The term "capital adequacy ratio" as mentioned in these Measures refers to the ratio between capital, which is held by a commercial bank and meets the requirement of these Measures, and the risk-weighted assets of the commercial bank.
The term "core capital adequacy ratio of a commercial bank" refers to the ratio between core capital, which is held by a commercial bank and meets the requirements of these Measures, and the risk-weighted assets of the commercial bank.

Article 4 The calculation of capital adequacy ratio of commercial bank shall be based on the provision for loan loss and other losses.

Article 5 The capital of a commercial bank shall prevent credit risk and market risk.

Article 6 A commercial bank shall simultaneously calculate the unconsolidated capital adequacy ratio and the consolidated capital adequacy ratio.

Article 7 The capital adequacy ratio of a commercial bank shall not be lower than 8%, and the core capital adequacy ratio shall not be lower than 4%.

Article 8 The China Banking Regulatory Commission (hereinafter referred to as CBRC) shall supervise and inspect the capital adequacy ratio and management of capitals of commercial banks in accordance with these Measures.

Article 9 A commercial bank shall disclose the information related to capital adequacy ratio in accordance with these Measures.

Chapter II Calculation of Capital Adequacy Ratios

Article 10 When calculating the consolidated capital adequacy ratio, a commercial bank shall list the following institutions into the consolidation scope:
(1) Invested financial institutions which the commercial bank owns more than half of their equity capital (excluding half), including:
1 Invested financial institutions with more than half of their equity capital owned directly by the commercial bank;
2 Invested financial institutions with more than half of their equity capital owned by a subsidiary which is wholly-funded by the commercial bank;
3 Invested financial institutions with more than half of their equity capital jointly owned by the commercial bank and its wholly-funded subsidiary.
(2) Invested financial institutions, which the commercial bank does not own more than half of their equity capitals, shall be listed into the consolidated scope if the commercial bank:
1 holds more than half of its voting right by concluding agreements with other investors;
2 has the power to control its financial affairs and operation policies according to articles of association or agreement;
3 has the power to appoint or dismiss the main members of board of directors or similar powerful organ; or
4 owns more than half of voting rights in the board of directors or similar powerful organ.
The institutions that may not be listed into the consolidation scope shall include the financial institutions that have been closed or have been announced bankruptcy; the financial institutions that have entered into the liquidation procedure; the financial institutions with more than half of their equity capital owned by the commercial bank, which decides to sell it out within a year; the overseas subsidiary financial institutions whose fund procurement capacity is limited due to the control on foreign exchange by the countries where they are located or the impact of other emergencies.

Article 11 The calculation formulas of the capital adequacy ratio of a commercial bank:
The capital adequacy ratio = (capital - the deduction items) / the risk-weighted assets + 12.5 times of market risk capital)
The core capital adequacy ratio = (core capital - core capital deduction items) / the risk-weighted assets + 12.5 times of market risk capital)

Article 12 The capital of a commercial bank includes the core capital and subordinated capital.
The core capital includes the paid-up capital or common stocks, capital reserves, surplus reserves, undistributed profits and minority interests.
The subordinated capital includes the re-evaluation reserves, general reserves, preferred stocks, convertible bonds, mixed capital bonds and long-term subordinated debts.
The positive alteration, but no more than 50%, to the fair value of available-for-sale bonds that have been calculated into the owners' rights and interests may be calculated into the subordinated capital; and the negative alteration to the fair value shall be deducted from the subordinated capital.
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