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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II CALCULATION OF CAPITAL ADEQUACY RATIOS CHAPTER III SUPERVISION AND INSPECTION CHAPTER IV INFORMATION DISCLOSURE CHAPTER V SUPPLEMENTARY PROVISIONS CHAPTER I GENERAL PROVISIONS Article 1. In order to strengthen the supervision over the capital adequacy ratios of commercial banks, promote the safety and stability of commercial banks, the present Measures are formulated in accordance with the Banking Supervision Law of the People's Republic of China, the Law of the People's Republic of China on Commercial Banks, the Administrative Regulations of the People's Republic of China on Foreign-funded Financial Institutions and other relevant laws and regulations. Article 2. The present Measures shall be applicable to the commercial banks established within the territory of the People's Republic of China, including Chinese-funded banks, wholly foreign-funded banks and Sino-foreign equity joint banks. Article 3. The term "capital adequacy ratio" mentioned in the present Measures refers to the ratio between the capital, which is held by a commercial bank and meets the requirements of the Present Measures, and the risk-weighted assets of the commercial bank. Article 4. The calculation of the capital adequacy ratio of a commercial bank shall be based on 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 shall not be lower than 8%, the core capital adequacy ratio shall not be lower than 4%. Article 8. China Banking Regulatory Commission (hereinafter referred to the CBRC) shall conduct supervision and inspection over the capital adequacy ratios and the capital management status of commercial banks. Article 9. The commercial banks shall disclose the information related to capital adequacy ratios in accordance with the present 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) The financial institutions with more than half of their equity capital owned by the commercial bank, including: 1. A financial institution with more than half of its equity capital directly owned by the commercial bank; 2. A financial institution with more than half of its equity capital owned by its wholly-funded subsidiary; 3. A financial institution with more than half of its equity capital owned by the commercial bank and its wholly-funded subsidiary; (2) A financial institution with at least half of its equity capital not owned by the commercial bank shall be listed into the consolidation scope if the commercial bank: 1. holds more than half of its voting rights by concluding agreements with other investors; 2. has the power to control the financial affairs and operating policies of this institution according to the articles of association or agreement; 3. has the power to appoint or dismiss most of the members in the board of directors or the similar powerful institution of this financial institution; or 4. holds more than half of the voting rights in the board of directors or the similar powerful institution. 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 ¨C the deduction items) / (the risk-weighted assets + 12.5 times of market risk capital) The core capital adequacy ratio = (core capital ¨C 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 supplementary capital. The core capital includes the paid-up capital or common stocks, capital reserves, surplus reserves, undistributed profits and minority interests. The supplementary capital includes the re-evaluation reserves, general reserves, preferred stocks, convertible bonds and long-term subordinated debts. Article 13. The supplementary capital of a commercial bank shall not exceed 100 % of its core capital. The long-term subordinated debts listed into the supplementary capital shall not exceed 50% of the core capital. Article 14. When calculating the capital adequacy ratio, the commercial bank shall deduct the following items from the capital: (1) Goodwill; (2) 50% of the capital investment made by the commercial bank in the unconsolidated financial institutions; and (3) 50% of the investment made by the commercial bank in non-self-use immovable property and enterprise capital. Article 15. When calculating the core capital adequacy ratio, the commercial bank shall deduct the following items from the core capital: (1) Goodwill; (2) 50% of the capital investment made by the commercial bank in the unconsolidated financial institutions; and (3) 50% of the capital investment made by the commercial bank in non-self-use immovable property and enterprise. Article 16. When calculating the weighted-risk assets of all loans, the commercial bank shall deduct the specific reserve from the book value of the loans, and shall deduct the provision for the depreciation of other types of assets from the book values of the corresponding assets. Article 17. The external credit grade evaluation result of the corresponding country or region shall be the benchmark of the risk weight of a commercial bank's credit abroad. When different credit grade evaluation companies have different evaluation results about the same country or region, the relatively lower one shall be chosen as the benchmark. (1) With regard to the credits held by it against the government of another country or region, if this country or region is with rating as AA or higher, the risk weight is 0%; if lower than AA, the risk weight is 100%; (2) With regard to the credits held by it against an overseas commercial bank or securities company, if the country or region where this commercial bank or securities company is located is with rating as AA or higher, the risk weight is 50%; if lower than AA, the risk weight is 100%; (3) With regard to the credits held by it against a public utility enterprise invested by the government of another country or region, if this country or region is with rating as AA or higher, the risk weight is 50%; if lower than AA, the risk weight is 100%. Article 18. The risk weight of the credits held by a commercial bank against a multi-lateral development bank shall be 0%. Article 19. The risk weight of all the credits in RMB or foreign currencies held by a commercial bank against the Central Government of our country and the People's Bank of China shall be 0%. The risk weight of the credits held by a commercial bank against the public utility enterprises invested by the Central Government of our country shall be 50%. Article 20. The risk weight of the credits held by a commercial bank against a policy bank of our country shall be 0%. Article 21. The risk weight of the credits held by a commercial bank against another commercial bank of our country shall be 20%, and the risk weight of the credits with an original time limit of four months or shorter shall be 0%. Article 22. The risk weight of a commercial bank's directional bonds issued by the financial asset management companies invested by the Central Government of our country for the purpose of purchasing the non-performing loans of state-owned banks shall be 0%. The risk weight of the other credits held by a commercial bank against the financial asset management companies invested by the Central Government of our country shall be 100%. Article 23. The risk weight of the credits held by a commercial bank against an enterprise, individual or other assets shall be 100%. Article 24. The risk weight of individual housing mortgage loans shall be 50%. Article 25. The following items can play a role of mitigating the risks: (1) The specified cash in the form of a special account, sealed money or security; (2) Gold; (3) Bank deposit certificates; (4) The state debts issued by the Ministry of Finance of our country; (5) The instruments issued by the People's Bank of China; (6) The bonds and instruments issued by the policy banks or commercial banks of our country and the drafts honored by them; (7) The bonds and instruments issued by the public utility enterprises invested by the Central Government of our country and the drafts honored by them; (8) The bonds issued by the government of a country or region with rating AA or higher, the bonds and instruments issued by the commercial banks and securities companies registered in this country or region, or the public utility enterprises invested by the government, and the drafts honored by them; and (9) The bonds issued by multi-lateral development banks. A loan by putting any of the items mentioned in the preceding paragraph in pledge shall obtain the same risk weight as the corresponding item or the risk weight of the direct credit held by the issuer or acceptor of the corresponding item. With regard to a loan with any item partly pledged, the part under protection of the item shall obtain the corresponding low risk weight. Article 26. The guaranties provided by the following guaranty subjects can play a role in mitigating the risks: (1) The policy banks and commercial banks of our country; (2) The state organs of our country approved by the State Council to re-lend loans extended by foreign governments or international economic organizations; (3) The public utility enterprises invested by the Central Government of our country; (4) The governments of the countries or regions with rating as AA or higher, the commercial banks registered in these countries or regions and the public utility enterprises invested by the governments of these countries or regions; and (5) Multi-lateral development banks. A loan on the basis of the full guaranty provided by any of the guaranty subjects mentioned in the preceding paragraph shall have the same risk weight as the direct credit against the guarantor. As for a loan partly guaranteed, the guaranteed part of the loan shall have the corresponding low risk weight. Article 27. A commercial bank shall calculate and deduct the capital for the credit risks of the unconsolidated businesses. A commercial bank shall multiply the unconsolidated businesses in the name of the unconsolidated items by the credit conversion coefficient, obtaining the risk assets identical with the consolidated items, then it shall determine their risk weights according to the transaction objects, finally it shall calculate the corresponding risk-weighted assets of the unconsolidated items. The risk-weighted assets of exchange rates, interest rates and other agreements on derivative products shall be calculated through the current risk exposure approach. Article 28. A commercial bank shall calculate and deduct the capital for market risk. The term "market risks" refers to the risks of losses of consolidated and unconsolidated positions caused by the variation of market price. The market risks mentioned in the present Measures include risks that various financial instruments and stocks in the transaction account may be affected by interest rates, all the risks of foreign exchange and risks of commodities of a commercial bank. Article 29. A commercial bank shall establish a transaction account. The prices of all the items in the transaction account shall be calculated according to the market prices. The transaction account shall cover the positions of financial instruments held for a short period by the commercial bank in carrying on self-operations and expected to yield profits from the actual or expected price differences, or the variation of other prices or interest rates in future sales or dealings; the positions held for making dealings entrusted by clients and making market; and positions held for avoiding risks of the transaction account and other items. Article 30. A commercial bank whose total positions in the transaction account exceed 10% of the total assets or RMB 8.5 billion yuan shall calculate and deduct the market risk capital. Article 31. A commercial bank that isn't required to calculate and deduct market risk capital according to the present Measures shall report its market risk positions to the China Banking Regulatory Commission (hereinafter referred to CBRC) each quarter. Article 32. A commercial bank shall calculate the market risk capital through the standard approach prescribed in the present Measures. Upon examination and approval of the CBRC, a commercial bank may calculate market risk capital through the internal model approach. CHAPTER III SUPERVISION AND INSPECTION Article 33. The board of directors of a commercial bank shall bear the final liabilities for the capital adequacy management of this bank, shall be responsible for determining the target of capital adequacy management, shall examine and decide the risk capacity and shall formulate and conduct supervision over the implementation of capital plans. Where the commercial bank has established the board of directors, the president of the bank shall be responsible. Article 34. The senior managerial personnel of a commercial bank shall be responsible for carrying out capital adequacy management, which includes formulating bylaws on the capital adequacy management of this bank, perfecting the identification, measurement and reporting procedures for credit risks and market risks, shall regularly assess the capital adequacy level, shall establish corresponding capital management mechanism, shall strengthen the examination and audit over the capital assessment procedure and shall ensure that all supervisory and control measures be carried out effectively. Article 35. A commercial bank shall report the unconsolidated and consolidated capital adequacy ratios to the CBRC. The consolidated capital adequacy ratio shall be reported once every half year and the unconsolidated capital adequacy ratio shall be reported once every quarter. When confronting any extremely serious matter involving capital adequacy, it shall report it to CBRC in time. When reporting the capital adequacy ratio to the CBRC, the commercial bank shall report it to the People's Bank of China at the same time. Article 36. The CBRC shall conduct on-the-spot inspection and non-on-the-spot monitoring over the capital adequacy ratio of each commercial bank. The inspection shall mainly cover the following: (1) The formulation and implementation of the bylaws related to the capital adequacy ratio of the commercial bank; (2) The commercial bank's capital plan on keeping the capital adequacy ratio and its implementation of the plan, its ability and methods to monitor the capital level; (3) The status of the credit risks and market risks of the commercial bank; and (4) Whether the establishment of the transaction account or the item pricing meets the provisions of the present Measures. Article 37. The CBRC may ask a commercial bank to increase the minimum standard for capital adequacy ratio according to its risk status and risk management capacity. Article 38. The CBRC may classify the commercial banks into the following three categories on the basis of their respective capital adequacy ratio: (1) Commercial banks with adequate capital: the capital adequacy ratio not lower than 8%, the core capital adequacy ratio not lower than 4%; (2) Commercial banks with inadequate capital: the capital adequacy ratio lower than 8%, or the core capital adequacy ratio lower than 4%; and (3) Commercial banks whose capital is seriously inadequate: the capital adequacy ratio lower than 4 %, or the core capital adequacy ratio lower than 2%. Article 39. The CBRC shall encourage the commercial banks with adequate capital to develop business stably and soundly. In order to prevent their capital adequacy ratio from sliding lower than the minimum standard, the CBRC shall adopt the following control measures: (1) To ask the commercial banks to perfect the bylaws on risk management; (2) To ask the commercial banks to increase the risk control capacity; (3) To ask the commercial banks to strengthen the analyses and forecasts about the capital adequacy ratios; and (4) To ask the commercial banks to formulate practical and feasible capital keeping plan, and to impose limits on their participation in some high risk business. Article 40. The CBRC shall take the following rectification measures against a commercial bank with inadequate capital: (1) To give the commercial bank supervisory advices, which shall include descriptions of the status quo of the commercial bank's capital adequacy ratio, the to-be-taken rectification measures and the detailed plan on the implementation of all the measures; (2) To ask the commercial bank to formulate practical and feasible capital complement plan within 2 months from the day when it receives the supervisory advices of the CBRC; (3) To ask the commercial bank to control the capital increase speed; (4) To ask the commercial bank to reduce the scale of risk assets; (5) To ask the commercial bank to control the purchase of fixed assets; (6) To ask the commercial bank to control the distribution of bonus and other incomes; and (7) To conduct strict examination or control on the establishment of new institutions or new operations by the commercial bank. Besides the rectification measures mentioned in the preceding paragraph, the CBRC has power to ask the commercial bank to suspend all operations except the low risk ones, to suspend examining and approving the establishment of any new institution and new operation by the commercial bank. Article 41. With regard to a commercial bank facing serious shortage of capital, the CBRC may take the following rectification measures besides those listed in Article 40 of the present Measures: (1) To ask the commercial bank to change the senior managerial personnel; and (2) To take over the commercial bank or urge it to restructure, even to cancel it. When dealing with this kind of commercial banks, the CBRC shall take into account the external factors comprehensively, and shall take other necessary measures. CHAPTER IV INFORMATION DISCLOSURE Article 42. The board of directors of a commercial bank shall be responsible for the information disclosure of the capital adequacy of this bank. If there is no board of directors, the president of the bank shall be responsible. The content of the information disclosure shall be subject to the approval of the board of directors or president. Article 43. The information disclosure of the capital adequacy ratio shall mainly include five aspects: the risk management target and policy, the consolidation scope, capital, capital adequacy ratio, credit risks and market risks. With regard to the items that can't be disclosed due to involving commercial secrets, the commercial bank may disclose the overall information about the items that can be disclosed and make explanations about the special items that can't be disclosed. Article 44. A commercial bank shall disclose the information about its capital adequacy ratio within 4 months after the end of every fiscal year. Where it is unable to disclose the said information within the time limit for special reason, it shall file an application to the CBRC for extension at least 15 days prior to the deadline. Article 45. The capital adequacy ratio information of a commercial bank shall be reported to the CBRC before it is disclosed. Article 46. A commercial bank shall announce the information required in disclosure by the present Measures, and shall ensure that the shareholders and relevant interested persons obtain the information in time. CHAPTER V SUPPLEMENTARY PROVISIONS Article 47. The calculation of the capital adequacy ratio of a wholly foreign-funded financing company or joint equity financing company, the supervision and examination and the information disclosure shall be made by referring to the present Measures. A foreign bank's branch in China shall calculate the RMB risk weighted assets by referring to the risk weights prescribed in the present Measures. Article 48. Attachments 1 to 5 are component parts of the present Measures, which shall cover the following: (1) Attachment 1: The Definitions of Capital; (2) Attachment 2: The Risk Weights of Consolidated Assets; (3) Attachment 3: The Credit Conversion Coefficients of Unconsolidated Items and Definitions of Unconsolidated Items; (4) Attachment 4: The Standard Approach Required for Calculating Market Risk Capital; (5) Attachment 5: The Content of Information Disclosure Article 49. The Standard & Poor's rating denotation "AA" is adopted in the present Measures, but no limit is set on the commercial banks' options of external credit rating companies, the commercial banks may choose the rating result of a rating company by themselves, and keep the consistency. Article 50. The credits against the governments of other countries or regions include the credits against the governments of these countries or regions, their central banks and other institutions equivalent to the governments. The definition of the term "institutions equivalent to the governments" shall be in line with the regulations of the local banking supervisory authorities. Article 51. The term "equity capital" refers to the capital that gives the holder the right to participate in the company management and the voting power in operational decision-making. Article 52. The term "public utility enterprises" refers to the operators of public utilities, including the supplies of water, electricity, heat and gas, post, telecommunication, transport and transportation and other industries. The public utilities are mainly distributed in the basic industries of national economy, and most of them undertake the task of providing services to the general public. These enterprises are usually established by the state by making huge investment from the government finance. Article 53. The commercial banks shall meet the standards for minimum capital on January 1, 2007 at the latest. During the period of transition, the commercial banks shall formulate and implement practical and feasible step-by-step plan on meeting the standard capital adequacy ratio and shall report it to CBRC. The CBRC shall adopt the rectification measures prescribed in Articles 40 and 41 of the present Measures according to the commercial banks' implementation of their plan on meeting the standard capital adequacy ratio. Article 54. The power to interpret the present Measures shall remain with China Banking Regulatory Commission. Article 55. The present Measures shall be implemented as of March 1, 2004. Attachment 1 DEFINITIONS OF CAPITAL (1) CORE CAPITAL The paid-up capital refers to the capital actually paid by the investors to a commercial bank according to the articles of association or contract or agreement. The capital reserves include the capital premium, the reserve for the acceptance of donations of non-cash assets and donations in cash, the reserve for equity investments, foreign currency transaction differences, connected transaction differences and other capital reserves. The surplus reserves include statutory surplus reserve, discretionary surplus reserve and statutory public welfare fund. The undistributed profits refer to the undistributed profits or uncovered deficit of any previous year. The minority interests include the minority interests in a non-wholly funded subsidiary in the core capital on the consolidation basis, which refers to the part among the net operational gains of the subsidiary and net assets not pertaining to the parent bank in any direct or indirect form. (2) THE SUPPLEMENTARY CAPITAL The re-evaluation reserve refers to the positive balance between the fair value of fixed assets and the book value calculated by a commercial bank when it reevaluates its fixed assets upon approval of the relevant department of the state. If the CBRC considers that the reevaluated price is made prudently, this kind of reevaluation reserve may be incorporated into the supplementary capital, but the part incorporated into the supplementary capital shall not exceed 70 % of the reevaluation reserve. The general reserve is a reserve calculated and withheld from the balance of all payments for goods by a certain proportion and used for covering the unidentified possible losses. The preferred stocks refer to the stocks issued by a commercial bank that provide the investors with priorities in distributing yields and residual assets. The convertible bonds refer to the bonds issued by a commercial bank according to the legal procedure that may be converted into common stocks of the commercial bank under the stipulated conditions within a time limit. The convertible bonds incorporated into the supplementary capital shall meet the following conditions: (a) The right of any holder of bonds to assert a claim against a bank shall be placed after the depositors and other common creditors, which shall not be based on mortgaging or pledging assets of the bank; (b) The bonds shall not be repurchased by the holders actively, and shall not be redeemed by the issuer without the prior consent of the CBRC; (c) The long-term subordinated debts refer to the subordinated debts with the original time limit of at least five years. Upon acknowledge of the CBRC, the common, unsecured long-term subordinated debts issued by a commercial bank without mortgaging or pledging the assets of the bank may be incorporated into the supplementary capital. In the last five years from the date of maturity, 20 % of the amount incorporated into the supplementary capital shall be discounted accumulatively each year. For example, for a ten-year subordinated debt, the amount incorporated into the supplementary capital shall be 100% in the sixth year, 80% in the seventh year, 60% in the eighth year, 40% in the ninth year, and 20% in the tenth year. Attachment 2 THE RISK WEIGHTS OF CONSOLIDATED ASSETS a. Assets in cash Items / Risk Weights -aa. cash on hand 0% -ab. gold 0% -ac. the money deposited in the people's bank 0% b. The Credits Against Central Governments And Central Banks Items / Risk Weights -ba. the credits against the Central Government of our country 0% -bb. the credits against the People's Bank of China 0% -bc. the credits against the governments of countries or regions and central banks with rating AA or higher 0% -bd. the credits against the governments of countries or regions and central banks with rating lower than AA 100% c. The Credits Against Public Utility Enterprises (Excluding Their Subsidiary Commercial Companies) Items/ Risk Weights -ca. the credits against the public utility enterprises invested by the governments of countries or regions with rating AA or higher 50% -cb. the credits against the public utility enterprises invested by the governments of countries or regions with rating lower than AA 100% -cc. the credits against the public utility enterprises invested by the Central Governments of our country 50% -cd. the credits against other public utility enterprises 100% d. The Credits Against The Financial Institutions Of Our Country Items / Risk Weights -da. the credits against the policy banks of our country 0% -db. the credits against the financial assets management companies invested by the Central Government of our country -dba. the directional bonds issued by financial assets management companies for the purpose of purchasing non-performing loans of the state-owned banks 0% -dbb. other credits against financial assets management companies 100% -dc. the credits against the commercial banks of our country -dca. with the original time limit of not more than four months 0% -dcb. with the original time limit of more than 4 months 20% e. The Credits Against The Financial Institutions Registered In Other Countries Or Regions Items / Risk Weights -ea. the credits against the commercial banks or securities companies registered in countries or regions with rating AA or higher 20% -eb. the credits against the commercial banks or securities companies registered in countries or regions with rating lower than AA 100% -ec. the credits against multi-lateral development banks 0% -ed. the credits against other financial institutions 100% f. The Credits Against Enterprises And Individuals Items / Risk Weights -fa. the individual housing mortgage loans 50% -fb. other credits against enterprises and individuals 100% g. Other Assets 100% Attachment 3 THE CREDIT CONVERSION COEFFICIENT OF UNCONSOLIDATED ITEMS AND DEFINITIONS OF UNCONSOLIDATED ITEMS 1. THE CREDIT CONVERSION COEFFICIENT OF UNCONSOLIDATED ITEMS Items / Credit Conversion Coefficient -the credit business equivalent to loans 100% -related to some dealings or getting into debt 50% -short term related to trade or getting into debt 20% -commitments: --the commitments with the original time limit of less than 1 year 0% --the commitments with the original time limit of more than one year but which are cancelled unconditionally at any time 0% --other commitments 50% -the asset sales agreements with the credit risks still remaining in the banks 100% In the above-mentioned unconsolidated items: (a) The term "the credit business equivalent to loans" includes the common debt guaranties, the acceptance of forward instruments and the endorsement of acceptance nature. (b) The term "related to some dealings or getting into debt" mainly refers to the bid guaranty, contract guaranty, advance payment guaranty and reserve guaranty. (c) The term "short term related to trade or getting into debt" mainly refers to the documentary letter of credit based on the mortgage of the shipment with a priority to assert the claim. (d) The commitments with the original time limit of less than 1 year or may be canceled unconditionally at any time include the credit intent of commercial banks. (e) The asset sales agreements with the credit risks still remaining in the banks include agreements on the repurchase of assets or the sales of assets with a right of claim. 2. THE RISK ASSETS OF EXCHANGE RATES, INTEREST RATES AND OTHER AGREEMENTS ON DERIVATIVE PRODUCTS The exchange rates, interest rates and other agreements on derivative products mainly include swaps, options, futures and dealings of valuable metals, of which the risk assets shall be calculated through the current risk exposure approach. The risk asset of the agreement on an interest rate or exchange rate consists of two parts, one is the replacement cost calculated according to the market price, the other is obtained by multiplying the book value by the fixed coefficient. The fixed coefficients for different remaining maturities shall be shown in the following table: The Remaining Maturities of Items: not exceeding 1 year Interest Rates: 0.0% Exchange Rates and Gold: 1.0% Valuable Metals Except Gold: 7.0% The Remaining Maturities of Items: 1-5years Interest Rates: 0.5% Exchange Rates and Gold: 5.0% Valuable Metals Except Gold: 7.0% The Remaining Maturities of Items: more than 5 years Interest Rates: 1.5% Exchange Rates and Gold: 7.5% Valuable Metals Except Gold: 8.0% Attachment 4 THE STANDARD APPROACH REQUIRED FOR CALCULATING MARKET RISK CAPITAL I. INTEREST-RATE RISKS Interest-rate risks include the risks of bonds (bonds of fixed interest rates and floating interest rates, convertible deposit certificates, inconvertible preferred stocks, and convertible bonds traded under rules on transactions of bonds) and positions of interest rate and bond derivative instruments. The capital requirements for interest rate risks consist of two parts, one for the specific risks and the other for the general market risks. 1. Specific Risks The capital requirements for the specific risks shall be gradually increased according to the following five grades: Government securities 0.00% Qualified securities: (1) with the remaining maturity of not more than 6 months: 0.25% (2) with the remaining maturity of 6 months to 24 months: 1.00% (3) with the remaining maturity of 24 months or longer: 1.60% Other securities: 8.00% 2. The General Market Risks The capital requirements for the general market risks consist of the following three parts: (a) The vertical capital requirements for the corresponding part that may be offset between the weighted long positions and short positions within each period of time; (b) The horizontal capital requirements for the corresponding part that may be offset between the weighted long positions and short positions during different periods of time; and (c) The capital requirements for the corresponding weighted net long positions or net short positions in the transaction account. The general market risk capital requirements shall be calculated through the maturity date approach. For the different periods of time and the risk-weights of each period of time, Table 1 shall be referred to. For the different time zones and their corresponding risk weights, Table 2 shall be referred to. First, the weighted positions are calculated by multiplying the positions within each period by the corresponding risk. Second, the vertical capital requirements shall be obtained by multiplying the part that may be offset between the weighted long positions and short positions during each period by 10%. Third, the net amount of the weighted positions during each period shall be obtained by offsetting the long positions against the weighted short positions during each period; the horizontal capital requirements within each time zone shall be obtained by multiplying the part that may be offset among the net amount of the weighted positions during different periods of different time zones by the first group of risk weights listed in Table 2. Fourth, the net amount of the weighted positions of each time zone shall be obtained by offsetting the net amounts of the weighted positions of different periods of time of each time zone against each other; the horizontal capital requirements shall be obtained by multiplying the part that may be offset between the net amounts of weighted positions of every two time zones by the risk weights of the second group listed in Table 2. Fifth, the corresponding capital requirements for the whole net weighted long positions or short positions of the whole transaction account shall be obtained by offsetting the net weighted positions of all different time zones. TABLE 1. PERIODS OF TIME AND RISK WEIGHTS Coupon interest rates not less than 3%: not longer than 1 month Coupon interest rates less than 3 %: not longer than 1 month Risk weights: 0.00% Presumptive changes of yields: 1.00 Coupon interest rates not less than 3%:1-3 months Coupon interest rates less than 3 %: 1-3 months Risk weights: 0.20% Presumptive changes of yields: 1.00 Coupon interest rates not less than 3%: 3-6 months Coupon interest rates less than 3 %: 3-6 months Risk weights: 0.40% Presumptive changes of yields: 1.00 Coupon interest rates not less than 3%: 6-12 months Coupon interest rates less than 3 %: 6-12 months Risk weights: 0.70% Presumptive changes of yields: 1.00 Coupon interest rates not less than 3%:1-2 years Coupon interest rates less than 3 %: 1.0-1.9 year Risk weights: 1.25% Presumptive changes of yields: 0.90 Coupon interest rates not less than 3%:2-3 years Coupon interest rates less than 3 %: 1.9-2.8 years Risk weights: 1.75% Presumptive changes of yields: 0.80 Coupon interest rates not less than 3%:3-4 years Coupon interest rates less than 3 %: 2.8-3.6 years Risk weights: 2.25% Presumptive changes of yields: 0.75 Coupon interest rates not less than 3%:4-5 years Coupon interest rates less than 3 %: 3.6-4.3 years Risk weights: 2.75% Presumptive changes of yields: 0.75 Coupon interest rates not less than 3%:5-7 years Coupon interest rates less than 3 %: 4.3-5.7 years Risk weights: 3.25 % Presumptive changes of yields: 0.70 Coupon interest rates not less than 3%:7-10 years Coupon interest rates less than 3 %: 5.7-7.3 years Risk weights: 3.75% Presumptive changes of yields: 0.65 Coupon interest rates not less than 3%:10-15 years Coupon interest rates less than 3 %: 7.3-9.3 years Risk weights: 4.50 % Presumptive changes of yields: 0.60 Coupon interest rates not less than 3%:15-20 years Coupon interest rates less than 3 %: 9.3-10.6 years Risk weights: 5.25 % Presumptive changes of yields: 0.60 Coupon interest rates not less than 3%: more than 20 years Coupon interest rates less than 3 %: 10.6-12 years Risk weights: 6.00 % Presumptive changes of yields: 0.60 Coupon interest rates not less than 3%: more than 20 years Coupon interest rates less than 3 %: 12-20 years Risk weights: 8.00 % Presumptive changes of yields: 0.60 Coupon interest rates not less than 3%: more than 20 years Coupon interest rates less than 3 %: more than 20 years Risk weights: 12.50% Presumptive changes of yields: 0.60 TABLE 2. TIME ZONES AND RISK WEIGHTS Time zone: 1 Coupon interest rate not less than 3%; Periods of time: 0-1 month Coupon interest rate less than 3%; Periods of time: 0-1 month Within a time zone: 40% Between neighboring time zones: 40% Between time zone 1 and time zone 3: 100% Time zone: 1 Coupon interest rate not less than 3%; Periods of time: 1-3 months Coupon interest rate less than 3%; Periods of time: 1-3 months Within a time zone: 40% Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 1 Coupon interest rate not less than 3%; Periods of time: 3-6 months Coupon interest rate less than 3%; Periods of time: 3-6 months Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 1 Coupon interest rate not less than 3%; Periods of time: 6-12months Coupon interest rate less than 3%; Periods of time: 6-12months Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 2 Coupon interest rate not less than 3%; Periods of time: 1-2 years Coupon interest rate less than 3%; Periods of time: 1.0-1.9 year Within a time zone: 30% Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 2 Coupon interest rate not less than 3%; Periods of time: 2-3 years Coupon interest rate less than 3%; Periods of time: 1.9-2.8 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 2 Coupon interest rate not less than 3%; Periods of time: 3-4 years Coupon interest rate less than 3%; Periods of time: 2.8-3.6 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: 4-5 years Coupon interest rate less than 3%; Periods of time: 3.6-4.3 years Within a time zone: 30% Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: 5-7 years Coupon interest rate less than 3%; Periods of time: 4.3-5.7 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: 7-10 years Coupon interest rate less than 3%; Periods of time: 5.7-7.3 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: 10-15 years Coupon interest rate less than 3%; Periods of time: 7.3-9.3 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: 15-20 years Coupon interest rate less than 3%; Periods of time: 9.3-10.6 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: Time zone: 3 Coupon interest rate not less than 3%; Periods of time: More than 20 years Coupon interest rate less than 3%; Periods of time: 10.6-12 years Within a time zone: Between neighboring time zones: Between time zone 1 and time zone 3: 3. The Interest Rate And Bond Derivative Instruments The interest derivative instruments include the derivative instrument contracts and the off-balance sheet instruments that may be affected by the change of interest rates, for examples: interest rate futures, forward interest rate agreements, interest rate swaps and cross currency swap agreements, interest rate options and forward foreign exchange positions. The bond derivative instruments include bond futures and options. The above-mentioned derivative instruments shall be converted into basic instruments, and the capital requirement shall be calculated according to the approaches for the specific risks and general market risks of the basic instruments. There are no capital requirements for the specific risks of interest rate or currency swaps, agreements on forward interest rates, contracts on forward foreign exchange, interest rate futures and interest rate indictor futures. If the basic instruments in the contracts on futures are bonds or indicators representing the combination of bonds, the capital requirement for the specific risks shall be calculated according the credit risks of the issuers. II. STOCK RISKS The stock risks refer to the risks of stocks and positions of stock derivative instruments in the transaction account. The said stocks refer to all the financial instruments traded according to stock transaction rules, including common stocks (taking no account of the existence of voting power), the convertible bonds and commitments to stock dealings. 1. Specific Risks and General Market Risks The capital requirement for specific risks shall be the sum of various numerical values obtained by multiplying the sum of the absolute values of various stock positions in different markets by 8%. The corresponding capital requirement of the general market risks shall be the sum of the various numerical values obtained by multiplying the net positions of various stocks in different market (absolute values) by 8%. 2. Stock Derivative Instruments The stock derivative instruments include contracts on stocks, forward stock indicators, futures and swaps. The derivative instruments shall be converted into basic instruments, and the capital requirement shall be calculated according to the specific risks and general market risks of the basic instruments. III. FOREIGN EXCHANGE RISKS Foreign exchange risks refer to the risks of the positions of foreign exchange (including gold) and foreign exchange derivative positions. 1. The capital requirement for foreign exchange risks shall be calculated by multiplying the total amount of the net open positions by 8%. The total amount of the net open positions shall be the sum of the following two items: (1) The sum of the net long positions of the combination of foreign currency assets (the sum of the net long positions of all currencies) or the sum of the net short positions (the absolute values of the sum of the net short positions of all currencies), whichever is bigger; (2) The net position of gold. 2. The foreign exchange derivative instruments shall be converted into basic instruments, the capital requirement shall be calculated according to the approach of basic instrument. IV. RISKS OF COMMODITIES The risks of commodities shall be applicable to commodities, forward commodities, futures of commodities and swaps of commodities. The term "commodities" mentioned in the present Measures refers to the products in kind traded or may be traded in secondary market, such as valuable metals (excluding gold), agricultural products and minerals (including petroleum), etc. 1. The corresponding capital requirement for the risks of commodities is the sum of the following two items: (1) The result obtained by multiplying the sum of the absolute values of the net positions of various positions by 15%; (2) The result obtained by multiplying the total sum of the positions of various commodities (the absolute values of the long positions and the short positions) by 3%. 2. The commodities derivative instruments shall be converted into nominal commodities. And the capital requirement shall be calculated according to the above-mentioned approach. V. RISKS OF OPTIONS 1. The simple calculation methods shall be applicable to a commercial bank that merely purchases options. (1) With regard to the current long positions and long positions of put options or the current short positions and short positions of call option, the capital requirement is calculated by multiplying the corresponding market value of the basic instruments of the option contracts by the sum of the capital ratios required for the specific risks and the general market risks, then subtract option premium. The minimum capital requirement is zero. (2) With regard to the long positions of call options and the long positions of put options, the capital requirement shall be the result obtained by multiplying the market values of basic instruments by the sum of the capital ratios required for the specific risks and the general market risks or the market value of the options, whichever is smaller. (3) The corresponding capital requirements for the specific risks and general market risks of the basic instruments shall be calculated according to the following table: BASIC INSTRUMENTS: BONDS (1) Ratio of General Market Risk: The risk weights required in Table 1. shall be calculated according to the remaining maturities (fixed interest rates) or the re-determination date of the interest rates (floating interest rates). (2) Ratio of Specific Risk: Government: 0.00% Qualified (Remaining Maturities): -6 months or less: 0.25% -more than 6 months to 24 months: 1.00% -more than 24 months: 1.60% Others; Ratio of Specific Risk: 8.00% Interest Rate: Ratio of Specific Risk: 0.00% BASIC INSTRUMENTS: STOCKS Ratio of General Market Risk: 8.00% Ratio of Specific Risk: 8.00% BASIC INSTRUMENTS: Foreign Exchange Ratio of General Market Risk: 0.00% Ratio of Specific Risk: 8.00% BASIC INSTRUMENTS: Commodities Ratio of General Market Risk: .00% Ratio of Specific Risk: 15.00% 2. The Delta-plus approach shall be applicable to the commercial banks that sell out options. The capital requirement calculated through Delta-plus approach consists of the following parts: (1) To obtain the Delta weighted option position by multiplying the market value of a basic instrument of option by the Delta value of this option, then plus the position of the basic instrument, the result shall be the capital requirement. (2) The capital requirement for Gamma Risk Gamma Value = 0.5 W gamma WVU In this formula, -when bonds serve as a basic instrument: VU = the risk weights of corresponding periods of time listed in Table 1. for the market values of the basic instruments W; when interest rates serve as a basic instrument: VU = the changes of the presumptive yields of the corresponding periods of time listed in Table 1. for the market values of the basic instruments W; -when stocks, stock index, foreign exchange and gold serve as a basic instrument: VU = the market value of the basic instrument W 8%; -when commodities options serve as a basic instrument: VU = the market value of the basic instrument W15%; The sum of corresponding Gamma values of all options of a same basic instrument shall be the net Gamma value of each basic instrument. If the Gamma values of a basic instrument are negative, the total amount of the capital requirement for Gamma Risk shall be the sum of the absolute values of these net Gamma Values. (3) The capital requirement for Vega Risk The capital requirement for Vega Risk = (25% - the floating rate of this basic instrument) W the sum of all the options of a basic instrument The total capital requirement for Vega Risk shall be the sum of the capital requirements for the Vega Risk of all basic instruments. Attachment 5 THE CONTENTS OF INFORMATION DISCLOSURE I. THE RISK MANAGEMENT AIMS AND POLICIES: A commercial bank shall disclose the following items: 1. The overall strategy of risk management 2. The organization structure for the risk management work 3. The scope and types of the risks that shall be reported and measured 4. The risk prevention policies and specific implementing measures II. THE CONSOLIDATION SCOPE A commercial bank shall disclose the consolidation scope for the calculation of capital adequacy ratio, and shall disclose the following contents item by item: 1. The consolidated financial institutions 2. The unconsolidated financial institutions III. THE CAPITAL A commercial bank shall disclose the information about the capital item by item: 1. The final number of the core capital, which includes: (1) the paid-up capital or common stock; (2) the capital reserves; (3) the surplus reserves; (4) the undistributed profits; and (5) the minority interests 2. The final number of the supplementary capital, which includes: (1) the re-evaluation reserve; (2) the general reserve; (3) the preferred stocks; (4) the convertible bonds; and (5) the long-term subordinated debts 3. The final number of capital 4. The items that shall be deducted from the capital, which include: (1) the goodwill; (2) the capital investments made by the commercial bank in the unconsolidated banking institutions; and (3) the capital investments made by the commercial bank in the real property for non-self-use, non banking financial institutions and enterprises. 5. The items that shall be deducted from the core capital, which include: (1) the goodwill; (2) 50% of the capital investments made by the commercial bank in the unconsolidated banking institutions; and (3) 50% of the capital investments made by the commercial bank in the real property for non-self-use, non banking financial institutions and enterprises 6. The time limits, conditions and repayment order for the long-term subordinated debts 7. The increase or reduction of registered capital, division, and mergence matters within the reporting time limit 8. The important capital investments within the reporting time limit IV. THE CAPITAL ADEQUACY RATIO A commercial bank shall account for the assessment methods for its capital planning and the capital adequacy ratio, which shall focus on the disclosure of the relevant factors that affect the capital adequacy ratio, and shall disclose the following contents item by item: (1) The total amount of the consolidated risk-weighted assets; (2) The total amount of the unconsolidated risk-weighted assets; (3) The total amount of the risk-weighted assets; (4) The capital requirement for market risks; (5) The unconsolidated core capital adequacy ratio and capital adequacy ratio; and (6) The consolidated core capital adequacy ratio and capital adequacy ratio V. CREDIT RISKS AND MARKET RISKS 1. Credit Risks (1) The credit risk management and control policies; (2) The organization structure of the credit risk management and functions; (3) The name, basis and consistency of the external rating company; (4) The final number of credit risk exposure; (5) The initial number and the final number of non-performing loans; (6) The calculating and withholding approach and the statistic approach for the general reserve, specific reserve and special reserve£» (7) The initial numbers, the current withholding numbers, the current retiring numbers and the current return number, the current write-off numbers and the final numbers of the general reserve, the specific reserve and special reserve; (8) The main principle on the affirmation of the collateral and the ratio between the internally determined collateral and the principal of loans; and (9) The relevant principles on the management of guaranteed loans 2. Market Risks (1) The market risk management and control policies; (2) The risks of various financial instruments and stocks in the transaction account that may be affected by the interest rates; (3) All the foreign exchange risks and commodities risks of a commercial bank; and (4) The effects of changes in foreign exchange rates and interest rates on the profit-making abilities and financial status of the bank. |
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