Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 71

Off-balance sheet exposures

Division 4—Calculation of risk-weighted amount of authorized institution's
off-balance sheet exposures

(1) An authorized institution shall, in calculating the risk-weighted amount
of an off-balance sheet exposure of the institution—

   (a)  specified in column 2 of Table 10; and

   (b)  booked in the institution's banking book, calculate the
        credit equivalent amount of the off-balance sheet exposure by
        multiplying the principal amount of the exposure, after deducting any
        specific provisions applicable to the exposure, by the CCF specified
        in column 3 of Table 10 opposite the exposure.

TABLE 10

DETERMINATION OF CCF FOR OFF-BALANCE SHEET EXPOSURES OTHER THAN OTC DERIVATIVE
TRANSACTIONS OR CREDIT DERIVATIVE CONTRACTS

Item
Off-balance sheet exposures
CCF

1. Direct credit substitutes 100% 2. Transaction-related contingencies 50% 3.
Trade-related contingencies 20% 4. Asset sales with recourse 100% 5.
Forward asset purchases 100% 6. Partly paid-up shares and securities 100% 7.
Forward forward deposits placed 100% 8.
Note issuance and revolving underwriting facilities 50% 9. Commitments which
do not fall within any of items 1, 2, 3, 4, 5, 6, 7 and 8 and—

   (a)  subject to paragraph (d), which have an original maturity of not more
        than one year; 20%

   (b)  subject to paragraph (d), which have an original maturity of more than
        one year; 50%

   (c)  which may be cancelled at any time unconditionally by the authorized
        institution or which provide for automatic cancellation due to a
        deterioration in the creditworthiness of the persons to whom the
        institution has made the commitments; 0%

   (d)  the drawdown of which will give rise to an off-balance sheet exposure
        falling within any of items 1, 2, 3, 4, 5, 6, 7 and 8 or any item
        specified in section 73,
the lower of the CCF applicable to the commitment based on its original 
maturity or the CCF applicable to the off-balance sheet exposure arising from
the drawdown of the commitment concerned
where—

"original maturity" (原訂到期期限), in relation to an off-balance sheet
exposure of an authorized institution, means the period between the date on
which the exposure is entered into by the institution and the earliest date on
which the institution can, at its option, unconditionally cancel the exposure.

(2) Subject to section 72, an authorized institution shall, in calculating the
risk-weighted amount of an off-balance sheet exposure of the institution being
an OTC derivative transaction or credit derivative  contract—

   (a)  specified in column 2 of Table 11; and

   (b)  booked in the institution's banking book or trading book, calculate
        the credit equivalent amount of the off-balance sheet exposure—

   (c)  subject to paragraph (d) and to any exceptions specified in column 2
        of Table 11 applicable to the off-balance sheet exposure, by
        multiplying the principal amount of the off-balance sheet exposure by
        the CCF specified in column 3 of Table 11 opposite the off-balance
        sheet exposure and aggregating the resultant figure with the
        current exposure of the off-balance sheet exposure;

   (d)  if the off-balance sheet exposure is a single-currency floating rate
        against floating rate interest rate swap, by taking the
        current exposure of the off-balance sheet exposure as the
        credit equivalent amount.

TABLE 11

DETERMINATION OF CCF FOR OTC DERIVATIVE TRANSACTIONS OR CREDIT DERIVATIVE
CONTRACTS

Item
Off-balance sheet exposures
CCF

1. Exchange rate contracts (other than an excluded exchange rate contract)—

   (a)  with a residual maturity of not more than one year; 1%

   (b)  with a residual maturity of more than one year but not more than 5
        years; 5%

   (c)  with a residual maturity of more than 5 years, 7.5%
where—
“excluded exchange rate contract” (豁除匯率合約) means—

   (a)  an exchange rate contract (except a contract the value of which is
        determined by reference to the value of, or any fluctuation in the
        value of, gold) which has an original maturity of not more than 14
        calendar days; or

   (b)  a forward exchange rate contract entered into by the authorized
        institution pursuant to a swap deposit arrangement with an obligor;
“swap deposit arrangement” (掉期存款安排) means an arrangement
entered into by the authorized institution with an obligor whereby the
institution sells a specified currency at spot rate to the obligor against
another currency, and at the same time, the obligor deposits the specified
currency so purchased with the institution and enters into a forward
exchange rate  contract with the institution to sell the specified currency so
purchased back to the institution against another currency at a specified
exchange rate on a future date.

2. Interest rate contracts—

   (a)  with a residual maturity of not more than one year; 0%

   (b)  with a residual maturity of more than one year but not more than 5
        years; 0.5%

   (c)  with a residual maturity of more than 5 years.
1.5%

3. Equity contracts—

   (a)  with a residual maturity of not more than one year; 6%

   (b)  with a residual maturity of more than one year but not more than 5
        years; 8%

   (c)  with a residual maturity of more than 5 years.
10% 4. Precious metal contracts—

   (a)  with a residual maturity of not more than one year; 7%

   (b)  with a residual maturity of more than one year but not more than 5
        years; 7%

   (c)  with a residual maturity of more than 5 years.
8% 5. Debt security contracts or other commodity contracts—

   (a)  with a residual maturity of not more than one year; 10%

   (b)  with a residual maturity of more than one year but not more than 5
        years; 12%

   (c)  with a residual maturity of more than 5 years.
15% 6. Credit derivative contracts which are—

   (a)  credit default swaps booked in the trading book—

   (i)  where the authorized institution is a protection buyer and the
        reference obligation is—

                (A)  a qualifying reference obligation; 5%

                (B)  a non-qualifying reference obligation; 10%

   (ii) where the authorized institution is a protection seller and the
        credit default swap is subject to close-out upon the insolvency of the
        protection buyer while the reference entity is still solvent and the
        reference obligation is—

                (A)  a qualifying reference obligation; 5%

                (B)  a non-qualifying reference obligation; 10%

   (iii) where the authorized institution is a protection seller and the
        credit default swap does not fall within subparagraph (ii) and the
        reference obligation is—

                (A)  a qualifying reference obligation; 0%

                (B)  a non-qualifying reference obligation; 0%

   (b)  total return swaps booked in the trading book—

   (i)  where the authorized institution is a protection buyer and the
        reference obligation is—

                (A)  a qualifying reference obligation; 5%

                (B)  a non-qualifying reference obligation; 10%

   (ii) where the authorized institution is a protection seller and the
        reference obligation is—

                (A)  a qualifying reference obligation; 5%

                (B)  a non-qualifying reference obligation, 10%
where the amount of the potential exposure for a credit derivative  contract
which falls within paragraph (a)(ii) shall be capped at the amount of the
unpaid premium under the contract.

(3) For the avoidance of doubt, it is hereby declared that an authorized
institution is not required to hold regulatory capital in respect of an
excluded exchange rate contract specified in Table 11.

"original maturity" (原訂到期期限)

"excluded exchange rate contract" (豁除匯率合約)

"swap deposit arrangement" (掉期存款安排)