2015-04-13
Banks Request Investment Property Measurement Subsequent Initial Recognition Based on Fair Value Model
Banks have suggested to the Financial Supervisory Commission (FSC) that FSC should allow banks to measure their investment properties based on a fair value model and to use the market price method when conducting such measurements. Banks contend that this will help increase the net value of the investment property and thus expand opportunities for banks to engage in further Chinese or overseas investments, as such investments are dependent on the net value of the investment property of a bank.
The FSC reportedly invited 12 banks to discuss this issue earlier this month. Nevertheless, according to an un-named official, regardless of the result, the appreciation benefits should be all allocated specifically to a special reserve. Additionally, in the event that banks are permitted to measure their investment property by the market price method, all banks will still be able to choose which measuring method they adopt based on their own situations.
The official explained that, in the event banks are allowed to measure their property using the market price method, not only will the net value of the investment property and the 2nd category of capital increase, but, the appreciation in the property prices can be included in the Income Statement, which will be help to achieve a surplus. However the official also expressed concern that the 1st category of capital might decline as the appreciated benefits from the property can only be included into the 2nd category of capital and not the 1st category, and also, the number of risky assets may increase due to increasing house prices, which will likely result in a decline of 1st category capital.
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