萬國法律事務所

The Financial Supervisory Commission (FSC) has held discussions on and has passed the “Regulations Governing Capital Reductions of Financial Holding Company Subsidiaries” on October 28, 2010, and these Guidelines will impose higher thresholds for capital reductions of subsidiaries of financial holding companies. Moreover, the thresholds with respect to existence of disciplinary matters, NPL ratios and the coverage of allowance for doubtful accounts, credit ratings, debt-equity ratios and more have been raised.

FSC officials indicated that when a financial holding company subsidiary seeks to reduce capital, the purpose should be to repatriate funds upstream to return value to the majority of shareholders, as opposed to making up losses. As such, the FSC will also closely monitor the use of funds once in the hands of the financial holding companies, requiring both prior reporting and approval and after the fact review. Administratively, therefore, additional rules will be enacted to provide for administrative discipline where the use of the funds is discovered to be inconsistent with the approved use.

FSC officials also stressed that the Regulations, enacted under Paragraph 8 of Article 36 of Financial Holding Company Act, will have effect of law and clarified that the Regulations do not apply to capital reductions for non-financial holding company subsidiaries, which will continue to be subject to the Company Act.

The conditions applicable to capital reduction for financial holding company subsidiaries will be the same as the requirements applicable to banking institution subsidiaries and insurance company subsidiaries. For banking institution subsidiaries, for example, the NPL ratio may not exceed the average ratio for domestic banks and may not exceed 1.5%, and the coverage of allowance for doubtful accounts must be above the national average and exceed 80%. Further, the capital adequacy ratio must be higher than 10% and the tier 1 capital adequacy ratio must be more than 8%. Similarly high thresholds also exist for insurance company subsidiaries.