The Financial Supervisory Commission (FSC) has proposed amendments to Article 18 and Article 19-4 of the "Regulations Governing Foreign Bank Branches and Representative Offices," (hereinafter called "the Regulation") and opened a 60-day comment period after the date of publication in the Executive Yuan Gazette.
Considering the principle that local banks may include loan loss provision and operational reserves in excess of expected losses in their Tier 2 capital, the FSC has proposed to revise the Regulation, which will allow 50% of loan loss provision and reserves against liability on guarantees set aside by foreign bank branches pursuant to the relevant rules to be: (a) included by such branches in their net worth; (b) factored into determinations on whether such branches have accumulated losses; and (c) used as the basis of calculation of total deposits of the branches. The proposed amendments to the Regulation aim to expand the business capacity of foreign bank branches and to support such branches to extend credits, engage in investments, and spur real economic developments in Taiwan.
Key points of the proposed amendments are as follows:
1. The FSC has proposed to add a new Article 19-4 to the Regulation, considering the principle that loan loss provision and operational reserves in excess of expected losses may be included in Tier 2 capital for local banks, as well as the probability of default for loan portfolios of local banks. Article 19-4 expressly provides that 50% of loan loss provision and reserves against liability on guarantees of foreign bank branches may be (a) included by such branches in their net worth; (b) factored into determinations on whether such branches have accumulated losses; (c) used as the basis of calculation of total deposits of the branches, as referred to in Article 14, Article 18, and Article 19-3 of the Regulation, respectively. (See Article 19-4, Paragraph 1, as amended.)
2. In view of the rapid changes in Taiwan’s economic environment and financial industry, the proposed amendments authorize the competent authority to adjust, if necessary, the ratio of loan loss provision and reserves against liability on guarantees that may be allowed to be included in the net worth of foreign bank branches. In principle, the competent authority will conduct a review on such ratio once every three years. (See Article 19-4, Paragraph 2, as amended.)
3. With regard to the basis of calculation of total deposits of a foreign bank branch, the term “actual drawdowns under credit lines from its head office” includes “short-term loans of one-year or less received from the head office,” but the said “short-term loans of one-year or less” are not included in the basis of calculation subject to mutatis mutandis application of Article 72-2 and Article 75 of the Banking Act. To clarify this application in the Regulation, the FSC has proposed to add Paragraph 2 to Article 18. (See Article 18, as amended.)
In drafting the amendments to the Regulation, the FSC has given full consideration to the principles of prudential supervision, and has paid due attention to the needs for business development and the entailed risks faced by foreign bank branches in Taiwan. The proposed amendments will be published in the Executive Yuan Gazette, and, in addition, the FSC will post a general description along with a comparison chart of revised articles on its website. Anyone wishing to comment may visit the FSC website within 60 days after the date of the public announcement and submit comments by either: (a) visiting FSC’s Laws and Regulations Retrieving System ; or (b) directly contacting the Banking Bureau of the FSC.

Contact: Banking Bureau, Foreign Banks Division
Tel: +886 (2) 8968-9783
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