Taipei,Oct.1,2012(CENS)--With the new international accounting criteria Basel III scheduled to hit the road next year,the calculation of banks qualified capital will become stricter.According to the initial investigation of the Financial Supervisory Commission(FSC),some NT$300-400 billion of subordinated bonds issued by domestic banks cannot meet the new requirement and must be deducted from their capital from next year,necessitating capital increment for many banks.
According to the trial calculation by the FSC recently,all domestic banks can meet the new accounting criteria next year in equity ratio for common shares,the first-category capital ratio,and capital adequacy ratio.However,some disqualified capital must be deducted gradually,including subordinated bonds and deferred income-tax assets,inflicting the pressure of capital increment on some banks.
According to Basel III,in the future whenever banks issue capital instruments with the nature of bond,such as subordinated bonds,they must formulate triggering conditions.Banks must convert the bonds into common shares or cancel the bonds,whenever one of the triggering conditions appears,including the equity ratio of common shares drops below 5.125%,loss exceeds one third of the capital,or the regulator takes over the management of the banks.The purpose is to improve the capital structure of banks and boost the percentage of common shares, thereby strengthening the risk-withstanding capability of banks.
Domestic banks have floated large amount of subordinated bonds in recent years,most of which don't meet the conditions of qualified capital stipulated in Basel III.As a result,from next year these subordinated bonds must be decreased by at least 10%a year and be amortized fully by 2019,at the latest.
Assuming a bank has floated NT$10 billion worth of subordinated bonds,from next year it will have to deduct at least NT$1 billion from its capital.The capital reduction will have major influence on the operation of domestic banks,since they have to meet certain standard for their capital adequacy ratio for their operation and overseas deployment.
An FSC official noted that disqualified capital consists mainly of subordinated bonds and deferred income-tax assets;the former has wider influence,while the latter applies to only a number of banks.Deferred income tax assets refer to loss of a bank in the previous year,which can be used to offset profits in the current year.