Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 38

Core capital of authorized institution

Division 2—Core capital

Subject to sections 37, 43(6), 44(2), 45(3)(a) and 48, for the purposes of
determining an authorized institution's capital base, the core capital of the
institution shall consist of the following capital items—

   (a)  the institution's paid-up ordinary share capital except any shares
        issued by the institution by virtue of capitalizing any property
        revaluation reserves of the institution referred to in
        section 42(1)(a);

   (b)  the institution's paid-up irredeemable non-cumulative preference
        shares;

   (c)  the amount standing to the credit of the institution's share premium
        account;

   (d)  subject to section 39, the institution's published reserves except—

        (i)    unrealized fair value gains or losses on revaluation of
               available-for-sale loans;

        (ii)   cumulative fair value gains or losses on the hedged items and
               the hedging instrument in respect of cash flow hedges created
               for— (A) available-for-sale financial instruments; and (B)
               financial instruments measured at amortized cost;

        (iii)  cumulative fair value gains or losses on the hedging instrument
               which are recognized directly in equity through the statement
               of changes in equity in respect of cash flow hedges created for
               forecast  transactions;

        (iv)   unaudited profit or loss of the current financial year, and the
               institution's profit or loss of the immediately preceding
               financial year pending audit completion; and

        (v)    any capital items referred to in section 42(1)(a), (b), (c) or

   (d)  ;

   (e)  subject to section 40, the institution's unaudited profit or loss of
        the current financial year, and the institution's profit or loss of
        the immediately preceding financial year pending audit completion,
        except—

        (i)    unrealized fair value gains or losses, without deduction of any
               deferred tax provisions attributable to the fair value gains or
               losses, on loans designated at fair value through profit or
               loss;

        (ii)   unrealized fair value gains or losses, without deduction of any
               deferred tax provisions attributable to the fair value gains or
               losses, on financial liabilities arising from any change in the
               institution's creditworthiness; and

        (iii)  any capital items referred to in section 42(1)(a), (b), (c) or
               (d); and

   (f)  subject to section 41, minority interests in the equity of the
        institution's subsidiaries arising from a consolidation requirement
        except any such minority interests which are not freely transferable
        to—

        (i)    the institution; or

        (ii)   members of the group of companies of which the institution is a
               member,
after taking into account any relevant regulatory, legal or taxation
constraints on the transfer of capital.