（Promulgated and implemented by Order No. 2 [2004] of China Banking Regulatory Commission and amended according to the Decision of China Banking Regulatory Commission on Revising the Measures for the Management of Capital Adequacy Ratios of Commercial Banks as adopted at the 55th chairmen's meeting of China Banking Regulatory Commission on December 28, 2006）
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" as 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.
The "core capital adequacy ratio of a commercial bank" refers to the ratio between the core capital, which is held by the 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 as 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:
（a） A financial institution with more than half of its equity capital directly owned by the commercial bank;
（b） A financial institution with more than half of its equity capital owned by its wholly-funded subsidiary;
（c） 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:
（a） holds more than half of its voting rights by concluding agreements with other investors;
（b） has the power to control the financial affairs and operating policies of this institution according to the articles of association or agreement;
（c） 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
（d） 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 - the deduction items） / （the risk-weighted assets + 12.5 times of market risk capital）
The core capital adequacy ratio = （core capital - 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, fixed capital bonds and long-term subordinated debts.
The positive alteration, but no more than 50%, to the fair value of available-for-sale bonds that have been calculated into the owners' rights and interests may be calculated into the supplementary capital; and the negative alteration to the fair value shall be deducted from the supplementary capital. When a commercial bank calculates the capital adequacy ratio, it shall transfer the fair value of available-for-sale bonds that have been calculated into the capital reserves from the core capital into the supplementary capital.
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%.
The risk weight of fixed capital bonds and long-term subordinated debts held by a commercial bank against another commercial bank of our country shall be 100%.
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 as 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 as 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 as 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 as CBRC） each quarter.
Article 32 A commercial bank shall calculate the market risk capital through the standard approach as 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.
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; and
（6） To conduct strict examination or control on the establishment of new institutions or new operations by the commercial bank.
In case a commercial bank still fails to make correction within the time limit after being given the rectification measures as provided in the preceding paragraph, or its act has seriously endangered the stable operation of this commercial bank, damaged the legitimate rights and interests of depositors or other clients, the CBRC shall, according to the risk degree of the commercial bank and the implementation of capital complement plan, have the power to restrict the commercial bank from distributing bonuses and other incomes, order the commercial bank to suspend all operations except the low risk ones, and 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 as 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 as prescribed in the present Measures.
The calculation, supervision and administration of capital adequacy ratio of a policy bank shall be carried out by referring to the present Measures, however, there is no uniform requirement for the disclosure of capital adequacy ratio of the policy bank.
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 as 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 power to interpret the present Measures shall remain with China Banking Regulatory Commission.
Article 54 The present Measures shall be implemented as of March 1, 2004.
