BANKING ORDINANCE - minor amendment

BANKING ORDINANCE - minor amendment

CHAPTER 155

BANKING

The Banking Ordinance is amended-

(1)under the long title within the square brackets by adding at the
end-

Part XVII: 1 September 1988.

(2) in section 3-

(a) in subsection (1)(1) by repealing '(1)(c)';

(b)in subsections (3) and (4) by repealing 'The Hongkong
and Shanghai Banking Corporation' and substituting
'The Hongkong and Shanghai Banking Corporation
Limited' wherever it appears;

(3)in section 21(2)(a) by repealing '$10,000,000' and substituting
'25,000,000';

(4) in section 120--

(a)in subsection (5)(f) by adding ', a person holding an
authorized statutory office' after 'Affairs';

(b) by adding after subsection (5)-

(5A) For the purposes of subsection (5)(f),
'authorized statutory office' means-

(a)the Insurance Authority under the Insurance
Companies Ordinance (Cap. 41); or (Added 68
of 1988 s. 2. Amended 10 of 1989 s. 65)

(b)the Securities and Futures Commission. (Re-
placed 10 of 1989 s. 65)

(513) The Legislative Council may, by resolution,
amend subsection (5A). (Added 68 of 1988 s.2)

(5) in section 121 by adding after subsection (2)-

(M) Subject to subsection (3) and notwithstanding
section 120, the Commissioner may provide information on
matters relating to the affairs of an authorized institution
incorporated in Hong Kong to an authority in a place outside
Hong Kong where-

(a)that authority exercises functions in that place
corresponding to the functions of an authorized
statutory office within the meaning of section
120(5A); and





(b) in the opinion of the Commissioner---

(i) that authority is subject to adequate secrecy
provisions in that place; and

(ii) the provision of such information will enable
or assist that authority to exercise those functions.
(Added 68 of 1988 s. 3)

(6) by repealing the Second Schedule and substituting-

SECOND SCHEDULE[ss. 19, 23, 26, 27, 45, 48,
51, 109,135(2) & 144]
FEES

1. Annual banking licence fee for bank, other than an unincorporated
bank (section 19(1)) ...........388,800
2...................Registration fee (section 23(1)) 62,100
3.............Renewal of registration fee (section 23(2)) 62,100
4..............Deposit-taking licence fee (section 26(1)) 211,140
5.........Renewal of deposit-taking licence fee (section 26(2)) 211,140
6. Inspection fee (section 27(3)) ..10
7. Fee for a copy or extract, per page (section 27(3)) 5
8. Fee for the establishment of a local branch of a bank (section 45(1)) 18,360
9. Annual fee for maintaining a local branch of a bank (section 45(1)
and (2)) .........................18,360
10. Fee for the establishment of a local branch of a deposit-taking
company (section 45(1)) ................... 10,500
11. Annual fee for maintaining a local branch of a deposit-taking
company (section 45(1) and (2)) .....10,500
12. Fee for the establishment of a local representative office (section
48(1)) ..............................18,360
13. Annual fee for maintaining a local representative office (section 48(1),
(2) and (3)) ........................18,360
14. Fee for the establishment of an overseas branch of a bank (section
51(1)) ..............................36,720
15. Annual fee for maintaining an overseas branch of a bank (section
5 1 (1) and (2)) ....................36,720
16. Fee for the establishment of an overseas branch of a deposit-taking
company (section 51(1)) .............21,100
17. Annual fm for maintaining an overseas branch of a deposit-taking
company (section 51 (1) and (2)) ............................................ 21,100
18. Fee for the establishment of an overseas representative office of a
bank (section 51(1)) ................9,180
19. Annual fee for maintaining an overseas representative office of a bank
(section 51(1) and (2)) .............9,180
20. Fee for the establishment of an overseas representative office of a
deposit-taking company (section 51 (1) ) 10,500
21. Annual fee for maintaining an overseas representative office of a
deposit-taking company (section 51(1) and (2)) 10,500
22. Annual banking licence fee for unincorporated bank (section 109(1)) 5,400
(Second Schedule replaced 26 of 1988 s. 2. Amended 14 of 1989 s. 2)





(7) by repealing the Third Schedule and substituting---

THIRD SCHEDULE [ss. 98 & 135(3)]

CAPITAL ADEQUACY RATIO

1. In this Schedule-
'bank' means-
(a)any authorized institution (other than any deposit-taking company the
licence or registration of which is for the time being suspended under this
Ordinance); and
(b)any bank incorporated outside Hong Kong which is not licensed under this
Ordinance, except a bank which is, in the opinion ofthe Commissioner, not
adequately supervised by a recognized banking supervisory authority of the
place in which it is incorporated;
'book value' in relation to any thing means its current book value after deducting
the amount of any specific provision made in the books against a reduction in its
value;

capital base' means the capital base of an authorized institution determined in
accordance with paragraph 3;
'Claims on or claims guaranteed by, authorized institutions in Hong Kong' do not
include any claim on or guarantee by an authorized institution the licence or
registration of which, as the case may be, is for the time being suspended under
this Ordinance;
'Core Capital' means the sum, calculated in Hong Kong dollars, ofthe book values
ofthe capital items listed in paragraph 3(a) to (1);
'debt securities' means securities other than shares or stocks;
' gold bullion' held on an allocated basis' means gold bullion held by a person other
than the authorized institution, to the order of the authorized institution, and
which is separately ascertainable;
guarantee' includes indemnity;
' multilateral development bank' means the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank or the European Investment
Bank;
'public sector entity in Hong Kong' means the Mass Transit Railway Corporation,
the Kowloon-Canton Railway Corporation, the Hong Kong Housing Authority
and any body specified by the Commissioner in a notice published in the
Gazette;
' public sector entity of any other Tier 1 country' means an entity which is regarded
as a public sector entity by a recognized banking supervisory authority in the
place in which it is incorporated;
residential mortgage' means a mortgage under which-
(a) the borrower is an individual person;
(b) the principal sum does not exceed 90% of the purchase price or the market
value of the property, whichever amount is the lower;
(c) the debt is secured by a first legal charge on the property;
(d)the property secured by the charge is used as the borrower's residence or as
a residence by a tenant ofthe borrower;
' risk weighted exposure' means the risk weighted exposure of an authorized
institution determined in accordance with paragraph 4;
'Supplementary Capital' means the sum, calculated in Hong Kong dollars, of the
book values of the capital items listed in paragraph 3(g) to (o) calculated in
accordance with that paragraph;





'Tier 1 country' means a country which is a member of the Organization for
Economic Co-operation and Development or a country which has concluded a
special lending arrangement with the International Monetary Fund associated
with the Fund's General Arrangements to Borrow, and also includes Hong
Kong;
'Tier 2 country' means any country which is not a Tier 1 country.

2. The capital adequacy ratio of an authorized institution shall be calculated
as the ratio, expressed as a percentage, of its capital base, determined in accordance
with paragraph 3, to its risk weighted exposure determined in accordance with
paragraph 4.

3. The capital base of an authorized institution shall be determined by taking
the sum, calculated in Hong Kong dollars, of the book values (except in relation to
subparagraph (i), where the difference between the market value and the book value
is to be taken) of-

Category I-Core Capital
(a) its paid-up ordinary share capital;
(b) its paid-up, irredeemable, non-cumulative preference shares;

(c) its share premium account;
(d) its reserves other than those referred to in subparagraphs (e), (g), (h) and (i);
(e) its profit and loss account including its current year's profit or loss;
where the Commissioner determines under section 98(2) that the accounts
of the authorized institution are to be on a consolidated basis, minority
interests arising on such consolidation in the equity of its subsidiaries:
Provided that the amount to be included as Core Capital shall be
determined by deducting therefrom the book value calculated in Hong Kong
dollars of the goodwill of the institution;

Category II-Supplementary Capital
(g) its inner reserves;
(h)its reserves on revaluation of its real property, but not exceeding 70% of
any surplus on revaluation;
(i)its latent reserves (i.e. the difference between the market value and the book
value) determined upon revaluation, of securities listed on the Unified
Exchange or on any exchange referred to in the Securities (Recognition of
Stock Markets) (Consolidation) Notice (Cap. 333 sub. leg.):
Provided that-
(i) the amount of any increase in value to be included shall be limited to
45% of such increase;
(ii) the amount of any diminution in value is deducted;
(j)its general provisions against doubtful debts but not including any
provisions against specific or identified losses and against the diminution in
the value of particular assets:

Provided that the amount included under this subparagraph may not
exceed 1.25% of the risk weighted exposure of the authorized institution
determined in accordance with paragraph 4;
(k)its perpetual subordinated debt where the Commissioner is satisfied that
under the terms of the debt instrument the following conditions are met-
(i) the claims of the lender against the authorized institution are fully
subordinated to those of all unsubordinated creditors;
(ii) the debt is not secured against any assets of the authorized institution;
(iii) the money advanced to the authorized institution is permanently
available to it;
(iv) the debt is not repayable without the prior consent of the
Commissioner;





(v) the money advanced to the authorized institution is available to meet
losses without the institution being obliged to cease trading;
(vi) the authorized institution is entitled to defer the payment of interest
where its profitability will not support such payment;
(l)its paid-up irredeemable cumulative preference shares, that is to say, shares
that are irredeemable or that may be redeemed only with the prior consent
of the Commissioner;
(m)its term subordinated debt, where the Commissioner is satisfied that under
the terms of the debt instrument the following conditions are met-
(i) the claims of the lender against the authorized institution are fully
subordinated to those of all unsubordinated creditors;
(ii) the debt is not secured against any assets of the authorized institution;
(iii) the debt has a minimum initial period to maturity of more than 5
years;
(iv) the debt is not repayable without the prior consent of the
Commissioner:
Provided that-
(A)amounts included under this subparagraph shall be discounted by 20%
each year during the 4 years immediately preceding maturity; and
(B)the total amount included under this subparagraph and subparagraph
(n) shall not exceed in total, 50% of the total of the Core Capital;
(n)its paid-up term preference shares, where the Commissioner is satisfied
that the shares have been issued and remain subject to the following
conditions-
(i) the shares have a minimum initial period to maturity of more than 5
years;
(ii) the shares are not redeemable without the prior consent of the
Commissioner:
Provided that-
(A)amounts included under this subparagraph shall be discounted by 20%
of the original amount each year during the 4 years immediately
preceding maturity; and
(B)the total amount included under this subparagraph and subparagraph
(m) shall not exceed in total, 50% of the total of the Core Capital; and
(o)where the Commissioner determines under section 98(2) that the accounts
of the authorized institution are to be on a consolidated basis, any minority
interests arising on such consolidation in the paid-up irredeemable
cumulative preference shares and paid-up term preference shares of its
subsidiaries:
Provided that the amount to be included as Supplementary Capital shall
not exceed the total of the amount determined as Core Capital,
and by deducting therefrom the sum calculated in Hong Kong dollars of the book
value of-
(A)its shareholding in any company which is a subsidiary or holding company
of the authorized institution, other than-
(i) any shareholding that falls to be deducted under subparagraph (B),
(C) or (D); and
(ii) where the Commissioner determines under section 98(2) that the
accounts of the authorized institution are to be on a consolidated basis, its
shareholding in any subsidiary the subject of such consolidation;
(B)its loans to, shares and debentures issued by, and its guarantees of the
liabilities of, connected companies of the authorized institution (other than
shares that fall to be deducted under subparagraph (D)), where in the
opinion of the Commissioner the institution has made the loans, is holding
the shares or debentures or, as the case may be, has given the guarantees,
other than in the ordinary course of business; and for the purposes of this
subparagraph 'shares' and 'debentures' mean shares and debentures
within the meaning of section 2(1) of the Companies Ordinance (Cap. 32),
and a company shall be treated as a connected company of the institution if
it is a subsidiary or the holding company of the institution, or is otherwise
of a description falling within section 64(1) (b), (c), (d) or (e);





(C)its shareholding in any company in which the authorized institution is
entitled to exercise, or control the exercise of, more than 20% of the voting
power at general meetings of the company; and
(D) its holding of shares, stocks or debt securities issued by any bank unless the
Commissioner is satisfied that the holding is not the subject of an
arrangement in which 2 or more persons agree to hold each others capital
or is not otherwise a strategic investment.

4. The risk weighted exposure of an authorized institution shall be the sum of
all the products achieved by-
(a)taking the book value, calculated in Hong Kong dollars, of each of the
items referred to in Table A in relation to the authorized institution; and, in
relation to each item multiplying that value by the risk weight specified in
Table A in relation to that item; and
(b)taking the principal amount, calculated in Hong Kong dollars, of each of
the items referred to in Table B in relation to the authorized institution;
and, in relation to each item converting that principal amount into a credit
equivalent amount by multiplying the principal amount by the credit
conversion factor specified in Table B in relation to that item, and then
multiplying those credit equivalent amounts by the appropriate risk weight
specified in Table A as if the items to which they relate were on-balance
sheet (Table A) items:
Provided that the value of general provisions not included in the capital base
shall be deducted from the book value of relevant items.

TABLE A-ON-BALANCE SHEET ITEMS

Category I-Cash items
Item Nature of item Risk weight
1 . Notes and coins. 0%
2. Hong Kong Government certificates of indebtedness. 0%
3. Gold bullion in the possession of an authorized institution
or held on an allocated basis, to the extent backed by gold
liabilities. 0%
4. Gold held which is not backed by gold liabilities. 100%
5. Claims to the extent that they are collateralized by cash
deposits held by the authorized institution. 0%
6. Cash items in the course of collection. 20%

Category II-Claims on central governments and central banks
Item Nature of item Risk weight
7. Loans to, or loans to the extent that they are guaranteed by,
the Exchange Fund. 0%
8. Loans to, or loans to the extent that they are guaranteed by,
the central government or the central bank of any Tier 1
country. 0%
9. Holdings of fixed interest securities with a residual maturity
of under 1 year or floating rate securities of any maturity
issued by or guaranteed by the central government or by the
central bank of a Tier 1 country, or by the Exchange Fund,
or claims to the extent that they are collateralized by such
securities. 10%
10. Holdings of fixed interest securities with a residual maturity
of 1 year and over issued by or guaranteed by the central
government or by the central bank of a Tier 1 country, or
by the Exchange Fund, or claims to the extent that they are
collateralized by such securities. 20%
11. Loans denominated in the currency of a Tier 2 country and
funded in that currency, to, or to the extent that they are
guaranteed by, the central government or the central bank
of that country. 0%





Item Nature of item Risk weight
12. Holdings of fixed interest securities with a residual maturity
of under 1 year or floating rate securities of any maturity
issued by or guaranteed by the central government or by the
central bank of a Tier 2 country, where denominated and
funded in the currency of that country. 10%
13. Holdings of fixed interest securities with a residual maturity
of 1 year and over issued by or guaranteed by the central
government or by the central bank of a Tier 2 country,
where denominated and funded in the currency of that
country. 20%
14. Other claims on the central government or on the central
bank of a Tier 2 country. 100%

Category III-Claints on Public Sector Entities
Item Nature of item Risk weight
15. Claims on or to the extent that they are guaranteed by,
public sector entities in Hong Kong. 20%
16. Claims on or to the extent that they are guaranteed by,
public sector entities of any other Tier 1 country. 20%
17. Claims on public sector entities of a Tier 2 country. 100%

Category IV-Claims on banks
Item Nature of item Risk weight
18. Claims on or to the extent that they are guaranteed by,
authorized institutions or banks incorporated in Tier 1
countries. 20%
19. Claims on or to the extent that they are guaranteed or
collateralized by securities issued by, a multilateral
development bank. 20%
20. Claims on or to the extent that they are guaranteed by, any
bank other than a bank referred to in item 18 or 19, with a
residual maturity of under 1 year. 20%
21. Claims on or to the extent that they are guaranteed by, any
bank other than a bank referred to in item 18 or 19, with a
residual maturity of 1 year or more. 100%

Category V-Residential Mortgages
Item Nature of item Risk weight
22. Loans fully secured by a residential mortgage. 50%
23. Securities backed by residential mortgages and
participations in residential mortgages. 50%

Category VI-Other assets
Item Nature of item Risk weight
24. Claims on non-bank private sector persons. 100%
25. Investments in the equity or other capital instruments of
other banks, other than where deducted from the capital
base. 100%
26. Premises, plant and equipment and other fixed assets for the
authorized institution's own use. 100%
27. Other interests in real property. 100%
28. All assets not elsewhere specified- 100%





TABLE B-OFF-BALANCE SHEET ITEMS
Credit
Item Nature of item conversion factor
1 . Direct credit substitutes
Irrevocable off-balance sheet obligations which carry the
same credit risk as a direct extension of credit. This includes
guarantees, the confirming of letters of credit, standby
letters of credit serving as financial guarantees for loans,
securities and acceptances (including endorsements with the
character of acceptances) other than acceptances included in
item 3. 100%
2. Transaction-related contingencies
Contingent liabilities which involve an irrevocable
obligation of the authorized institution to pay a beneficiary
when a customer fails to perform some contractual,
non-financial obligation. This includes performance bonds,
bid bonds, warranties and standby letters of credit related to
a particular transaction. 50%
3. Trade-related contingencies
Contingent liabilities which relate to trade related
obligations. This includes letters of credit, acceptances on
trade bills, shipping guarantees and any other trade related
contingencies. 20%
4. Sale and repurchase agreements (see Note 1)
Arrangements whereby the authorized institution sells a
loan, security or other asset to another person with a
commitment to repurchase the asset at an agreed price on
an agreed future date. 100%
5. Assets sales or other transactions with recourse (see Note 1)
Assets sales where the holder of the asset is entitled to put
the asset back to the authorized institution within an agreed
period or should the value or credit quality of the asset
deteriorate. 100%
6. Forward asset purchases (see Note 1)
Commitment to purchase a loan, security or other asset,
including under a put option granted by the authorized
institution to another party, at specified future date on
pre-arranged terms. 100%
7. Partly paid-up shares and securities (held by the authorized
institution)
The unpaid portion of shares or securities which the issuer
of such shares or securities may call for at a future date. 100%
8. Forward deposits placed
Any agreement between the authorized institution and
another party whereby the institution will place a deposit at
an agreed rate of interest with that party at some
predetermined future date. 100%
9. Note issuance and revolving underwriting facilities
Arrangements whereby a borrower may draw down funds
up to a prescribed limit over a predefined period by making
repeated note issues to the market, and where, should the
issue prove unable to be placed in the market, the unplaced
amount is to be taken up or funds made available by the
underwriter of the facility. 50%
10. Other commitments with an original maturity of under 1
year or which may be cancelled at any time unconditionally
by the authorized institution. 0%





Credit
Item Nature of item conversion factor
11. Other commitments with an original maturity of 1 year or
over. 50%
12. Exchange rate contracts (see Note 2) (Calculated in
accordance with either the original exposure method or the
current exposure method)
(a) credit conversion factors to be used in calculating in
accordance with original exposure method-
contracts with an original maturity of-
(i) under 1 year; 2%
(ii) 1 year and less than 2 years; 5%
(iii) 2 years or more, the factor for 1 year and less than
2 years plus for each additional year; 3%
(b) credit conversion factors to be used to determine the
potential future credit exposure in accordance with the
current exposure method-
contracts with a residual maturity of-
(i) under 1 year; 1%
(ii) 1 year and over. 5%
13. Interest rate contracts (see Note 2) (Calculated in
accordance with either the original exposure method or the
current exposure method)
(a)credit conversion factors to be used in calculating in
accordance with the original exposure method-
contracts with an original maturity of-
(i) under 1 year; 0.5%
(ii) 1 year and under 2 years;1 %
(iii) 2 years or more, the factor for 1 year and under 2
years plus for each additional year; 1 %
(b)credit conversion factors to be used to determine the
potential future credit exposure in accordance with the
current exposure method-
contracts with a residual maturity of-
(i) under 1 year; 0%
(ii) 1 year and over. 0.5%

Note
1. The appropriate risk weight to be used in relation to transactions to which
items 4, 5 and 6 apply, shall be determined on the basis of the nature of the asset and
not the nature of the counterparty with whom the transaction has been entered into.
Reverse repos (i.e. purchase and resale agreements where the authorized institution is
the recipient of the asset) are to be regarded as collateralized loans.
2. In relation to exchange rate contracts and interest rate contracts an
authorized institution shall, in determining the credit equivalent amount use either
the current exposure method of valuation or, with the agreement of the
Commissioner, the original exposure method of valuation.
(Third Schedule replaced L.N. 412 of 1989)

(8) in the Fifth Schedule-
(a) by repealing item 29 and substituting-
29. Niaga Finance March 1988 US$1.5 millions Perpetual floating
Company rate notes.
Limited
(L.N. 255 of 1988)





(b) by adding after item 29-
30. Hamburg LB August 1988 DM 18 millions Undated
International subordinated
Limited zero coupon
(L.N. 272 of 1988) notes.
31. Wa Pei Finance July 1988 HK$9,250,000 Perpetual floating
Company rate notes.
Limited
(L.N. 285 of 1988)
32. Generale Belgian August 1988 US$4 millions Perpetual floating
Finance rate notes.
Company
Limited
(L.N. 300 of 1988)
33. Amro FinanceNovember HK$10millions Perpetual floating
and Securities1988 rate notes.
(Asia) Limited
(L.N. 346 of 1988)
34. Standard November HK$30 millions Perpetual floating
Chartered 1988rate notes.
Finance
Limited
(L.N. 5 of 1989)
35. Dab Heng Bank November HK$150 Mandatory
Limited 1989 millions convertible debt.
(L.N. 397 of 1989)
36. BNP Inter-December US$5 millions Undated
national 1988 subordinated
Financial floating rate
Services (Hong notes.
Kong) Limited
(L.N. 66 of 1989)
37. Chiyu Banking August 1989 HK$200 Primary capital
Corporation millions undated floating
Limited rate notes.
(L.N. 283 of 1989)
L.N. 210 of 1988 10 of 1989 s. 65 L.N. 333 of 1989 L.N. 75 of 1989 68 of 1988 s.2 L.N. 106 of 1988

L.N. 210 of 1988 10 of 1989 s. 65 L.N. 333 of 1989 L.N. 75 of 1989 68 of 1988 s.2 L.N. 106 of 1988

https://oelawhk.lib.hku.hk/items/show/3713

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