Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 43

Provisions supplementary to section 42(1)(a)

(1) An authorized institution's reserves shall not fall within that part of
reserves referred to in section 42(1)(a) unless—

   (a)  the institution has a clearly documented policy on the frequency and
        method of revaluation of its holdings of land and buildings which is
        satisfactory to the Monetary Authority;

   (b)  the institution does not depart from that policy except after
        consultation with the Monetary Authority;

   (c)  subject to paragraph (d), any revaluation of the institution's
        holdings of land and buildings is undertaken by an independent
        professional valuer;

   (d)  in any case where the institution demonstrates to the satisfaction of
        the Monetary Authority that, despite all reasonable efforts, the
        institution has been unable to obtain the services of an independent
        professional valuer to undertake the revaluation of all or part, as
        the case may be, of the institution's holdings of land and buildings,
        any revaluation of such holdings undertaken by a person who is not an
        independent professional valuer is endorsed in writing by an
        independent professional valuer;

   (e)  any revaluation of the institution's holdings of land and buildings
        is—

        (i)    approved by the institution's external auditors; and

        (ii)   explicitly reported in the institution's audited accounts; and

   (f)  the fair value gains referred to in section 42(1)(a) are recognized in
        accordance with relevant accounting standards and any such gains not
        recognized in the financial statements of the institution are excluded
        from the part of reserves referred to in that section.

(2) Subject to subsections (3) and (4), an authorized institution shall not
include in its supplementary capital more than 45% of any fair  value gains of
any item referred to in section 42(1)(a) arising from any revaluation referred
to in that section.

(3) Subject to subsection (4), an authorized institution shall only include in
its supplementary capital—

   (a)  that amount of fair value gains referred to in section 42(1)(a) which
        arise from revaluations referred to in section 42(1)(a)(i) as does not
        exceed—

        (i)    where the institution was an authorized institution on 31
               December 1998, the amount included in the institution's
               supplementary  capital as at that date in respect of the like
               gains as at that date; or

        (ii)   where the institution became an authorized institution after 31
               December 1998, the amount included in the institution's
               supplementary  capital as at the relevant date in respect of
               the like gains as at that date; and

   (b)  that amount of fair value gains referred to in section 42(1)(a) which
        arise from revaluations referred to in section 42(1)(a)(ii) as does
        not exceed—

        (i)    where the institution was an authorized institution on 31
               December 1998, the amount included in the institution's
               supplementary  capital as at that date in respect of the like
               gains as at that date; or

        (ii)   where the institution became an authorized institution after 31
               December 1998, the amount included in the institution's
               supplementary  capital as at the relevant date in respect of
               the like gains as at that date.

(4) An authorized institution shall not include any fair value gains referred
to in section 42(1)(a) for the purposes of determining its capital base
unless—

   (a)  the gains comprise—

        (i)    where the institution was an authorized institution on 31
               December 1998, any amount of fair value gains which as at that
               date were reported to the Monetary Authority; or

        (ii)   where the institution became an authorized institution after 31
               December 1998, any amount of fair value gains which as at the
               relevant  date were reported to the Monetary Authority; or

   (b)  the gains arise from a merger or acquisition and the institution has
        the prior consent of the Monetary Authority to so use the gains.

(5) An authorized institution shall not, in calculating its
supplementary capital, set-off losses in respect of land and buildings which
are for the institution's own use where the losses are recognized in the
institution's profit or loss against unrealized gains that are reflected
directly in equity through the statement of changes in equity.

(6) An authorized institution shall deduct from its core capital any
cumulative losses of the institution arising from the institution's holdings
of land and buildings below the depreciated cost value (whether or not any
such land and buildings are held for the institution's own use or for
investment purposes).

(7) In subsection (3)(a) and (b)—

"supplementary capital" (附加資本), in relation to an authorized
institution,
has the meaning assigned to "Supplementary Capital" by the Third Schedule to
the Ordinance—

   (a)  as in force on 31 December 1998 if the institution was an authorized
        institution on that date; or

   (b)  as in force on the relevant date in any other case if, and only if,
        the relevant date is a date before the date on which this section
        comes into operation.

(8) In this section—

"relevant date" (有關日期), in relation to an authorized institution,
means that date after 31 December 1998 on which the institution became an
authorized institution.

"supplementary capital" (附加資本)

"relevant date" (有關日期)