The Bill also requires that an institution shall not, except with the
Commissioner's approval, give credit against the security of the shares of
its related companies that is, any subsidiary of that institution, the
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holding company of that institution, or any subsidiary of such holding
company.
There is a further proposal to tighten lending. The definition of
"company" in the two existing Ordinances covers only those incorporated in
Hong Kong or doing business in Hong Kong. As a result, exposures to
companies outside this definition are not regulated at all. It is now
proposed to extend the definition to include other foreign companies. This
change should help, in particular, in monitoring lending to overseas
companies related to directors and major shareholders.
Capital to risk assets ratio
The fifth area deals with capital adequacy. One obvious common
feature of the banks that have had to be taken over by Government was
insolvency. In other words, their capital and reserves were grossly
inadequate to meet the losses arising from bad debts. The Bill introduces a
new ratio, the capital to risk assets ratio, to apply to all banks and
deposit-taking companies incorporated in Hong Kong.
A deposit-taking institution's capital is there to provide a cushion
against losses so that they do not fall to be borne by depositors. Although
the present two Ordinances prescribe minimum capital requirements for
banks and deposit-taking companies, these take no account of either the
amount or riskiness of the assets which need to be supported by the
capital. The new ratio is designed to remedy that deficiency. The detailed
definitions of capital and risk assets, and the manner in which the ratio is
calculated, are contained in the Third Schedule of the Bill.
No comments yet.
Private notes are available after approval.