Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 42

Supplementary capital of authorized institution

Division 3—Supplementary capital

(1) Subject to sections 37 and 48, for the purposes of determining an
authorized institution's capital base, the supplementary capital of the
institution shall consist of the following capital items—

   (a)  subject to section 43, that part of the institution's reserves which
        is attributable to fair value gains in profit or loss arising from—

        (i)    the revaluation of the institution's holdings of land and
               buildings except land and buildings mortgaged to the
               institution to secure a debt; and

        (ii)   the revaluation of the institution's share of the net asset
               value of any subsidiary of the institution to the extent that
               the value has changed as a result of the revaluation of the
               subsidiary's holdings of land and buildings except land and
               buildings mortgaged to the subsidiary to secure a debt;

   (b)  subject to section 44, that part of the institution's reserves which
        is attributable to fair value gains arising from—

        (i)    the revaluation of the institution's holdings of
               available-for-sale equities and debt securities; and

        (ii)   the institution's holdings of equities and debt securities
               designated at fair value through profit or loss which do not
               fall within section 38(e);

   (c)  with the prior consent of the Monetary Authority, that part of the
        institution's reserves which is attributable to fair value gains
        arising from the institution's holdings of any other
        financial assets not  held for trading purposes, including such assets
        (other than unrealized gains or losses on loans) which are
        available-for-sale or designated at fair value through profit or loss;

   (d)  subject to section 45, the institution's regulatory reserve for
        general banking risks and collective provisions;

   (e)  the institution's perpetual subordinated debt where, under the terms
        on which the debt instrument is to be issued, the Monetary Authority
        is satisfied that the following conditions are met (and, after issue,
        will continue to be met)—

        (i)    the claims of the lender against the institution are fully
               subordinated to those of all unsubordinated creditors;

        (ii)   the debt is not secured against any assets of the institution;

        (iii)  the money advanced to the institution is permanently available
               to it;

        (iv)   the debt is not repayable without the prior consent of the
               Monetary Authority;

        (v)    the money advanced to the institution is available to meet
               losses without the institution being obliged to cease trading;

        (vi)   the institution is entitled to defer the payment of interest
               where its profitability will not support such payment; and

        (vii)  if the rate of interest payable on the debt is liable to be
               increased under the terms of the debt instrument— (A) the
               rate of interest will not be increased until the expiry of 10
               years from the day on which the debt is issued; (B) the rate of
               interest will not be increased more than once; and (C) the rate
               of interest will not be increased beyond a limit considered
               appropriate by the Monetary Authority;

   (f)  the institution's paid-up irredeemable cumulative preference shares
        where, under the terms on which the shares are to be issued, the
        Monetary Authority is satisfied that the following conditions are met

(and, after issue, will continue to be met)—

        (i)    the shares are not redeemable without the prior consent of the
               Monetary Authority;

        (ii)   the money raised by the issue of the shares is available to
               meet losses without the institution being obliged to cease
               trading; and

        (iii)  if the dividends payable on the shares are liable to be
               increased under the terms— (A) such dividends will not be
               increased until the expiry of 10 years from the day on which
               the shares are issued; (B) such dividends will not be increased
               more than once; and (C) such dividends will not be increased
               beyond a limit considered appropriate by the Monetary
               Authority;

   (g)  subject to section 46, the institution's term subordinated debt where,
        under the terms on which the debt instrument is to be issued, the
        Monetary Authority is satisfied that the following conditions are met

(and, after issue, will continue to be met)—

        (i)    the claims of the lender against the institution are fully
               subordinated to those of all unsubordinated creditors;

        (ii)   the debt is not secured against any assets of the institution;

        (iii)  the debt has a minimum initial period to maturity of more than
               5 years (even though that period may be subsequently reduced
               with the prior consent of the Monetary Authority);

        (iv)   any debt repayable prior to maturity will not be so repaid
               without the prior consent of the Monetary Authority; and

        (v)    if the rate of interest payable on the debt is liable to be
               increased under the terms of the debt instrument— (A) the
               rate of interest will not be increased until the expiry of 5
               years from the day on which the debt is issued; (B) the rate of
               interest will not be increased more than once; and (C) the rate
               of interest will not be increased beyond a limit considered
               appropriate by the Monetary Authority;

   (h)  subject to section 46, the institution's paid-up term preference
        shares where, under the terms on which the shares are to be issued,
        the Monetary Authority is satisfied that the following conditions are
        met (and, after issue, will continue to be met)—

   (i)  the shares have a minimum initial period to maturity of more than 5
        years (even though that period may be subsequently reduced with the
        prior consent of the Monetary Authority);

        (ii)   any shares redeemable prior to maturity will not be so redeemed
               without the prior consent of the Monetary Authority; and

        (iii)  if the dividends payable on the shares are liable to be
               increased under the terms— (A) such dividends will not be
               increased until the expiry of 5 years from the day on which the
               shares are issued; (B) such dividends will not be increased
               more than once; and (C) such dividends will not be increased
               beyond a limit considered appropriate by the Monetary
               Authority; and

        (i)    subject to section 47, minority interests in the paid-up
               irredeemable cumulative preference shares and paid-up term
               preference shares of the institution's subsidiaries arising
               from a consolidation  requirement imposed on the institution,
               and minority interests which are not included in the
               institution's core capital pursuant to section 38(f) by virtue
               only of section 41.

(2) In subsection (1)(a) and (b)—

"reserves" (儲備), in relation to an authorized institution—

   (a)  means the institution's reserves without deduction of any deferred tax
        provisions attributable to the reserves; and

   (b)  includes, in relation to subsection (1)(a), shares issued by the
        institution through capitalizing reserves falling within that part of
        the institution's reserves referred to in that subsection.

"reserves" (儲備)