Circular of China Banking Regulatory Commission concerning Printing and Distributing the Core Indicators for the Risk Management of
Commercial Banks (for Trial Implementation)
All the banking regulatory bureaus, State-owned commercial banks as well as joint stock commercial banks:
We hereby print and distribute the Core Indicators for the Risk Management of Commercial Banks (for Trial Implementation) (hereinafter
referred to as Core Indicators) are hereby printed and distributed to you, please carry out them accordingly, and the following notification
on the related matters are made:
1.
The report of the data involved in the Core Indicators shall comply with the Circular concerning Printing and Distributing the Index
System of Off-site Monitoring Statements of China Banking Regulatory Commission Yin Jian Ban Fa [2005] No. 265.
2.
The indicator of “operational risk loss ratio” is meaningful to the evaluation of the operational risks of commercial banks, and its
calculation formula and specific specifications shall be determined by China Banking Regulatory Commission (hereinafter referred
to as the CBRC) after further study during the process of trial implementation.
3.
This document shall be forwarded by all the banking regulatory bureaus in time to the urban commercial banks, rural commercial banks,
rural cooperative banks, urban credit cooperatives, rural credit cooperatives, wholly foreign-funded banks as well as Chinese-foreign
equity joint banks under your respective jurisdictions.
4.
The year 2006 is the period of trial implementation for the Core Indicators. The conditions occurred and the opinions for modification
proposed during the course of trial implementation shall be fed back by all the banking regulatory bureaus and commercial banks in
time to the CBRC (contact person: Guo Wuping of the third department of banks; phone: 010-66194561; e-mail: guowuping@cbrc.gov.cn).
China Banking Regulatory Commission
December 31, 2005
Core Indicators for the Risk Management of Commercial Banks (for Trial Implementation)
Chapter I General Provisions
Article 1
In order to strengthen the identification, appraisal and forecast the risks of commercial banks, and effectively prevent financial
risks, the core indicators for the risk management of commercial banks are constituted in accordance with such laws and regulations
as the Banking Supervision Law of the People’s Republic of China, the Law of the People’s Republic of China on Commercial Banks,
the Regulation of the People’s Republic of China on Managing Foreign-funded Financial Institutions.
Article 2
The Chinese-funded commercial banks established within the territory of the People’s Republic of China shall comply with the core
indicators for the risk management of commercial banks.
Article 3
The core indicators for the risk management of commercial banks are the benchmarks for carrying out the risk management of commercial
banks, and a reference system for evaluating, inspecting and forecasting the risks of commercial banks.
Article 4
In accordance with the prescribed specifications, a commercial bank shall calculate the consolidated and unconsolidated core indicators
for risk management at the same time.
Article 5
The horizontal analysis, same-group comparative analysis as well as the inspection and supervision shall be carried out by the CBRC
to all core indicators for the risk management of commercial banks, and the supervisory measures shall be taken selectively in accordance
with the specific conditions.
Chapter II Core Indicators
Article 6
Such levels as risk level, risk migration as well as risk offset shall be included in the core indicators for the risk management
of commercial banks.
Article 7
The risk level indicator is on the basis of the point-of-time data, and is classified as static indicators, including the liquidity
risk indicator, credit risk indicator, market risk indicator, as well as operational risk indicator.
Article 8
The liquidity status of commercial banks and its fluctuation shall be assessed by using the liquidity risk indicator which consists
of the liquidity ratio, core debt ratio, and liquidity gap ratio, and shall be made separate calculation in accordance with RMB and
foreign currency.
(1)
The liquidity ratio refers to the proportion between the balance of liquidity assets and the balance of liquidity liabilities which
shall be 25% or higher. The overall level of the liquidity of commercial banks shall be assessed by using it.
(2)
The core debt ratio refers to the proportion between core debts and debts which shall be 60% or higher.
(3)
The liquidity gap ratio refers to the proportion between on-balance-sheet and off-balance-sheet liquidity gap within 90 days and the
due on-balance-sheet and off-balance-sheet liquidity assets within 90 days which shall be -10% or higher.
Article 9
The credit risk indicator consists of the ratio of non-performing assets, the credit concentration ratio of a single group client
as well as the generalized correlation ratio.
(1)
The ratio of non-performing assets refers to the proportion between non-performing assets and the total amount of assets which shall
be 4% or lower. This indicator is a first-class one, with one second-class indicator-ratio of non-performing loans included; and
the ratio of non-performing loans refers to the proportion between non-performing loans and the total amount of loans which shall
be 5% or lower.
(2)
The credit concentration ratio of a single group client refers to the proportion between the total credit amount of the largest group
client and the net capital which shall be 15% or lower. This indicator is a first-class one, with one second-class indicator-the
loan concentration ratio of a single client included; and the loan concentration ratio of a single client refers to the proportion
between the total amount of loans of the largest client and the net capital which shall be 10% or lower.
(3)
The generalized correlation ratio refers to the proportion between the generalized relevant credits and the net capital which shall
be 50% or lower.
Article 10
The risks of commercial banks resulted from altering foreign exchange rates and interest rates by using the market risk indicator
which consists of the ratio of accumulative open foreign exchange positions and the interest rate risk sensitivity.
(1)
The ratio of accumulative open foreign exchange positions refers to the proportion between accumulative open foreign exchange positions
and the net capital, and shall be 20% or lower. Other methods (such as risk valuation method and basic-point present value method)
shall be adopted by a qualified commercial bank at the same time to measure foreign exchange risks.
(2)
The interest rate risk sensitivity refers to the proportion between the impacts of the increase of 200 base points of interest rate
to the net bank value and the net capital, and the index value shall be separately constituted in accordance with the actual risk
supervisory requirements after the promulgation of the related policies.
Article 11
The risks resulted from imperfect internal procedures, omissions or frauds of operational staff or external affairs shall be assessed
by using the operational risk indicator, and is expressed as the loss ratio of operational risks, that is, the proportion between
the losses resulted from operations and the incomes from net interests of the previous three phases plus the average value of non-interest
incomes.
The index shall be constituted by the CBRC after the promulgation of the related policies.
Article 12
The degree of risk changes of commercial banks shall be assessed by using the risk migration indicator which is expressed as the
ratio of asset quality from the previous phase to the current phase, and be classified into a dynamic indicator. This indicator consists
of the migration ratio of pass loans and the migration ratio of non-performing loans.
(1)
The migration ratio of pass loans refers to the proportion between the amount of non-performing loans changing from pass loans and
the pass loans. The pass loans consist of the pass loans and the loans of other asset especially mentioned (OAEM). This indicator
is a first-class one, with such two second-class indicators as the migration ratio of pass loans and the migration ratio of OAEM
loans included: the former means the proportion between the amount of the last four kinds of loans changing from the pass loans and
the pass loans, and the latter means the proportion between the amount of non-performing loans changing from the OAEM loans and the
OAEM loans.
(2)
The migration ratio of non-performing loans consists of the migration ratio of substandard loans and the migration ratio of doubtful
loans. The migration ratio of substandard loans means the proportion between the amount of doubtful loans and loss loans changing
from the substandard loans and the substandard loans, and the migration ratio of doubtful loans means the migration ratio of loss
loans came from the doubtful loans to the doubtful loans.
Article 13
The ability of commercial banks to offset the risk losses shall be assessed by using the risk offset indicator which consists of
the profitability, reserve adequacy degree and capital adequacy degree and other aspects.
(1)
The profitability indicator consists of such three parts as the cost/income ratio, return on assets, and return on capital. The cost/income
ratio means the proportion between business expenses adding depreciation and the business incomes, and shall be 45% or lower; the
return on assets means the proportion between after-tax net profits and the average total amount of assets, and shall be 0.6% or
higher; and the return on capital refers to the proportion between after-tax net profits and the average net assets, and shall be
11% or higher.
(2)
The indicator of reserve adequacy degree consists of the loss reserve adequacy ratio of assets and the loss reserve adequacy ratio
of loans. The loss reserve adequacy ratio of assets is classified into a first-class indicator – the proportion between actual reserves
of credit risk assets and the required reserves, and shall be 100% or higher; and the loss reserve adequacy ratio of loans means
the proportion between actual reserves of loans and the required reserves, shall be 100% or higher, and is a second-class indicator.
(3)
The indicator of capital adequacy degree consists of the core capital adequacy ratio and the capital adequacy ratio: the former refers
to the proportion between core capital and risk-weighted assets, and shall be 4% or higher; and the latter refers to the proportion
between core capital adding subordinate capital and the risk-weighted assets, and shall be 8% or higher.
Chapter III Check and Supervision
Article 14
A statistical and information system consistent with these measures shall be set up by a commercial bank in order to exactly reflect
its risk level, risk migration and risk offsetting abilities.
Article 15
By reference to the Guidelines for the Classification of Loan Risks, the non-credit assets shall be divided into normal assets and
non-performing assets by a commercial bank, so as to calculate the risks of non-credit assets and assess the quality of non-credit
assets.
Article 16
All the indicators shall be incarnated in the daily risk management by a commercial bank, and the risk management methods shall be
perfected.
Article 17
The actual value of all the indicators shall be made regular examination by the board of directors of a commercial bank, and the
management personnel shall be urged to take correction measures.
Article 18
The CBRC shall make regular collection on the related data through the off-site supervisory system, make analysis on all the supervisory
indicators of commercial banks, make evaluation and forecast on their risk level, risk migration as well as risk offset in time.
Article 19
The on-site inspections shall be organized by the CBRC to make verification on the authenticity of data, and main risks of commercial
banks with priority shall be inspected in accordance with the actual value of core indicators, and admonitory talks and risk presentation
shall be implemented.
Chapter IV Supplementary Provisions
Article 20
These Core Indicators by analogy shall be complied with by rural cooperative banks, urban credit cooperatives, rural credit cooperatives,
wholly foreign-funded banks as well as Chinese-foreign joint equity banks, unless it is otherwise prescribed by any law or regulation.
Article 21
Unless it is otherwise prescribed by any law, administrative regulation or ministerial rule, any administrative punishment shall
be carried out directly based on these Core Indicators.
Article 22
The CBRC has the power to interpret the core indicators for the risk management of commercial banks.
Article 23
The core indicators for the risk management of commercial banks shall go into effect as of January 1, 2006. The Management Controlling
and Monitoring Indicators for the Proportion of Assets and Liabilities of Commercial Banks and the Assessment Methods (Yin Fa [1996]
No. 450) shall be abolished at the same time.
Appendix 1
Appendix 1:
Table of Core Indicators for the Risk Management of Commercial Banks
|
Type
of indicators |
First-class indicators |
Second-class indicators |
Index
value |
|
Risk
level |
Liquidity risk |
1.
Liquidity ratio |
|
span lang="EN-US">25% |
|
2.
Core debt dependency |
|
span lang="EN-US">60% |
|
3.
Liquidity gap ratio |
|
span lang="EN-US">-10% |
|
Credit risk |
4.
Ratio of non-performing assets |
4.1 Ratio of non-performing loans |
span lang="EN-US">4%
span lang="EN-US">5% |
|
5.
Credit concentration ratio of a single group client |
5.1 Loan concentration ratio of a single client |
span lang="EN-US">15%
span lang="EN-US">10% |
|
6.
Generalized correlation ratio |
|
span lang="EN-US">50% |
|
Market risk |
7.
Ratio of accumulative open foreign exchange positions |
|
|
|
8.
Interest rate risk sensitivity |
|
|
|
Operational risk |
9.
Loss ratio of operational risk |
|
|
|
Risk
migration |
Pass
loans |
10.
Migration ratio of pass loans |
10.1 Migration ratio of pass loans
10.2
Migration ratio of OAEM loans |
|
|
Non-performing loans |
11.
Migration ratio of non-performing loans |
11.1 Migration ratio of substandard loans
11.2 Migration ratio of doubtful loans |
|
|
Risk
offset |
Profitability |
12.
Cost/income ratio |
|
span lang="EN-US">35% |
|
13.
Return on assets |
|
span lang="EN-US">0.6% |
|
14.
Return on capital |
|
span lang="EN-US">11% |
|
Reserve adequacy degree |
15.
Loss reserve adequacy ratio of assets |
15.1 Reserve adequacy ratio of loans |
>100%
>100% |
|
Capital adequacy degree |
16.
Capital adequacy ratio |
16.1 Core capital adequacy ratio |
span lang="EN-US">8%
span lang="EN-US">4% |
Appendix 2:
Instructions for the Coverage of
Core Indicators for the Risk Management of Commercial Banks
I. Risk Level
i. Liquidity risk
1. Liquidity ratio
The data on the coverage of RMB and foreign currency shall be made separate
calculation by using this indicator.
Calculation formula:
Liquidity ratio = liquidity assets / liquidity liabilities00%
Indicator Explanations:
Liquidity assets consist of cash, gold, excess deposit reserves, net assets
after inter-bank transaction differences to be mature
within one month,
receivable interests and other receivables to be mature within one month, pass
loans to be mature within one
month, securities investments to be mature within
one month, bond investments convertible at any time at the secondary market
domestic
or abroad, as well as other convertible assets to be mature within one
month (excluding non-performing assets).
Liquidity liabilities consist of the current deposits (excluding fiscal
deposits), time deposits to be mature within one month
(excluding fiscal
deposits), net liabilities after inter-bank transaction differences to be mature
within one month, issued bonds
to be mature within one month, payable interests
and all the accounts payable to be mature within one month, loans from the
Central
bank to be mature within one month, as well as other liabilities to be
mature within one month.
2. Core debt dependency
The data on the coverage of RMB and foreign currency shall be made separate
calculation by using this indicator.
Calculation formula:
Core debt dependency = core debts / total debts 00%
Indicator Explanations:
The core debt dependency consists of the time deposits to be mature in three
months or longer, the issued bonds, and 50% of
current deposits.
The term "total debts" means the balance of all the liabilities in the balance
sheet constituted in accordance with
the accounting system for financial
enterprises.
3. Liquidity gap ratio
The data on the coverage of RMB and foreign currency shall be made separate
calculation by using this indicator.
Calculation formula:
Liquidity gap ratio = liquidity gap / on-balance-sheet and off-balance-sheet
assets to be mature within 90 days00%
Indicator Explanations:
The liquidity gap means the balance of on-balance-sheet and off-balance-sheet
assets to be mature within 90 days minus the on-balance-sheet
and
off-balance-sheet debts to be mature within 90 days.
ii. Credit risk
4. Ratio of non-performing loans
The data on the coverage of RMB and foreign currency shall be made separate
calculation by using this indicator.
Calculation formula:
Ratio of non-performing loans = non-performing credit risk assets / credit
risk assets00%
Indicator Explanations:
The term "credit risk assets" means the on-balance-sheet and off-balance-sheet
assets in the balance sheet of a bank
for assuming credit risks, and mainly
consists of all the loans, inter-bank deposits, inter-bank offers, purchase of
reverse-sale
assets, bond investments of bank accounts, receivable interests,
other receivables, commitments and contingent debts, etc.
The term "non-performing credit risk assets" means the part of non-performing
assets among the credit risk assets.
The "non-performing loans" is a part of
non-performing credit risk assets, and has the same definition as that in the
"ratio of non-performing loans"; and the CBRC shall separately constitute the
classification standards for the credit
risk assets excluding loans.
4.1 Ratio of non-performing loans
The data on the coverage of RMB and foreign currency shall be made separate
calculation by using this indicator.
Calculation formula:
Ratio of non-performing loans = (substandard loans + doubtful loans + loss
loans) / all the types of loans00%
Indicator Explanations:
The Guidelines for the Classification of Loan Risks (Yin Fa [2001] No. 416),
the Circular concerning Promoting and Improving
the Classification of Loan Risks
(Yin Jian Fa [2003] No. 22) and other related legal provisions shall apply to
the classification
standards for five grades of loans.
The term "pass loans" is defined as the loans for which the borrower can carry
out the contract and there are not
enough reasons to doubt that the principal or
interests of loans could not be repaid in time or in full amount. The "OAEM
loans" is defined as the loans for which the borrower has the ability to repay
the principal
| 