These Regulations are enacted in accordance with Article 45-1,Paragraph 2, of the Banking Act.
In evaluating non-credit assets on or off balance sheet, the bank shallevaluate possible losses based on the characteristics of the assets,generally accepted accounting principles, relevant regulations, andconservatism principles, and shall allocate sufficient reserves forsuch losses.
A bank shall classify credit assets on and off balance sheet. Normalcredit assets shall be classified as "Category One." The remainingunsound credit assets shall be evaluated based on the status of theloan collaterals and the length of time overdue. Assets that requirespecial mention shall be classified as "Category Two," assets that aresubstandard shall be classified as "Category Three," assets that aredoubtful shall be classified as "Category Four," and assets for whichthere is loss shall be classified as "Category Five."
The various types of unsound credit assets in the preceding articleare defined as follows:
1.Those require "Special Mention" shall refer to those creditassets that have been evaluated as having sufficient collateraland on which the borrower's principal or interest payments havebeen in arrears for one (1) month to twelve (12) months; or thosecredit assets evaluated as unsecured and on which the borrower'sprincipal or interest payments have been in arrears for one (1)month to three (3) months; or those credit assets that have notyet come due or reached their maturity date, but the borrower ofwhich has other instances of poor creditworthiness.
2.Those are "Substandard" shall refer to those credit assets thathave been evaluated as having sufficient collateral and on whichthe borrower's principal or interest payments have been in arrearsfor twelve (12) months or more; or those credit assets evaluatedas unsecured and on which the borrower's principal or interestpayments have been in arrears for three (3) months to six (6)months.
3.Those are "Doubtful" shall refer to those credit assetsevaluated as unsecured and on which the borrower's principal orinterest payments have been in arrears for six (6) months to twelve(12) months.
4.Those are "Losses" shall refer to those credit assets evaluatedas unsecured and on which the borrower's principal or interestpayments have been in arrears for twelve (12) months or more; orthose credit assets evaluated as impossible to obtain repayment.
With regard to those credit assets to be repaid in installments byagreement in accordance with Article 7, Paragraph 2, the bank mayevaluate the assets in accordance with the borrower's solvency and thestatus of the collateral within six (6) months after the establishmentof a separate contract; these assets may not be classified as CategoryOne, however, and relevant corroborating evidence must be provided.
A bank shall evaluate credit assets on and off balance sheet in accordance with Articles 3 and 4, and shall allocate sufficient loan loss provision as well as reserves against liability on guarantees. The minimum loan loss provision and guarantee reserve shall be the sum of 1% of the outstanding balance of Category One credit asset's claim (excluding assets that represent claims against the central and local government in Taiwan), 2% of the balance of Category Two credit assets, 10% of the balance of Category Three credit assets, 50% of the balance of Category Four credit assets, and the full balance of Category Five credit assets.
To strengthen the ability of banks to bear the loss of specific credit assets, the Competent Authority may, if necessary, require banks to raise loan loss provision and guarantee reserve of specific credit assets.
In the event that loan loss provision and reserves against liabilityon guarantees set aside by a bank in accordance with Article 2 and thepreceding article are assessed as insufficient by the CompetentAuthority or a financial examination agency (organization), the bankshall immediately supplement such reserves in accordance with therequest of the Competent Authority or comments of the financialexamination agency (organization).
"Non-Performing Loans" as referred to in the Regulations shall referto those loans for which the principal or interest has been in arrearsfor three (3) months or more, and those loans which the principal orinterest has not yet been in arrears for more than three (3) months,but with regard to which the bank has sought payment fromprimary/subordinate debtors or has disposed of collateral.
If a restructured loan meets certain conditions, the negotiatedinterest rate is not lower than the original loan or the rates of newloans in the same risk category, and the negotiated terms have beenperformed for over six (6) months, the loan may be exempted fromreporting as a non-performing loan. However, if the negotiatedinstallment payments are in arrears for three (3) months or more duringthe period of exemption as non-performing loans, the loan shall stillbe reported as such.
The "certain conditions" referred to in the preceding paragraph shallinclude the following circumstances:
1.Those were originally short-term loans with annual payment ofprincipal and interest generally over 10%. However, the maximumloan period shall be five (5) years.
2.Those were originally mid-/long-term loans with an installmentpayment period limited to twice the original remaining number ofyears. However, the maximum loan period shall be thirty (30) years.The installments paid within the original remaining number ofyears may not be less than 30% of the owed principal and interest.If a mid-/long-term has no remaining number of years, or twice theremaining number of years is less than five (5) years, theinstallment payment period may be extended to five (5) years, andthe annual payment of principal and interest shall generally beover 10%.
The so-called "payment period" in the first paragraph shall be theagreed-upon date for restructured loans and other extensions ofcredit. However, if the bank requests earlier repayment inaccordance with contract, the repayment period of which the banknotifies the debtor shall be the payment period.
"Non-accrual loans" as used in these Regulations shall refer to loansand other extensions of credit transferred to the non-accrual loansaccount item.
All non-performing loans shall be transferred to non-accrual loansaccount item within six (6) months after the end of the payment period.However, those restructured loans to be performed in accordance withthe agreement shall not be subject to this restriction.
Banks shall actively clear up non-performing loans and non-accrualloans in accordance with the following regulations:
1.After an evaluation of the debtor's financial and businessconditions, if a bank determines that the business may continueto operate as a viable entity, the repayment terms of the originalloan agreement may be amended within the amount standardsauthorized by the board of directors; the amended terms shall beapproved by an authorized person.
2.Banks shall actively clear up loans in accordance with the Codeof Civil Procedure, the Compulsory Execution Law, and otherrelevant laws and regulations. However, those resturctured loansshall not be subject to this restriction.
3.If a bank feels that primary/subordinate debtors are unable torepay loan principal, the bank may establish a settlement with thedebtor(s) reflecting the actual circumstances, based on the amountstandards authorized by the board of directors, and approved byan authorized person; then the settlement shall be reported to theboard of executive directors for acknowledgement.
4.If a bank cannot obtain timely repayment of foreign debts becausea foreign government has amended foreign exchange laws orregulations, the bank may take appropriate action after reportingthe case to the board of executive directors for approval.
Interest shall not be accrued to non-performing loans that aretransferred to non-accrual loans account item. However, loancollection shall continue as per the terms of the relevant agreement,and accrued interest shall continue to be posted to the interest columnof the non-accrual loans account for each borrower, or a notation ofsuch shall be made. Any unpaid interest due on a non-performing loanprior to its transfer to a non-accrual loan shall be transferred tothe non-accrual loans item together with principal.
Any non-performing loans or non-accrual loans, after subtracting theestimated recoverable portion, that have one of the followingcharacteristics shall be written off:
1.The loan cannot be recovered in full or in part because the debtorshave dissolved, gone into hiding, reached a settlement, declaredbankruptcy, or for other reasons.
2.The collateral and property of the primary/subordinate debtorshave been appraised at a very low value or become insufficient torepay the loan after the subtraction of senior mortgages; or theexecution cost approaches or possibly exceeds the amount that thebank might collect [from the debtor(s)] where there is no financialbenefit in execution.
3.The primary/subordinate debtor's collateral has failed to sell atsuccessive auctions where the price of such collateral has beensuccessively lowered, and there is no financial benefit to bederived from the bank's taking possession of such collateral.
4.More than two (2) years have elapsed since the maturity date ofthe non-performing loans or non-accrual loans, and the efforts ofcollection have failed.
The write-off of non-performing loans and non-accrual loans shall beauthorized by a resolution passed by the board of directors, and thesupervisors shall be notified. However, when requested by theCompetent Authority or a financial examination agency (organization),loans must be immediately written off, a report must be made to thesubsequent board meeting, and the supervisors must be notified foracknowledgement. When the board of directors is in recess, the boardof executive directors may exercise its authority on [the board ofdirectors'] behalf, and shall notify the supervisors and make a reportto the board of directors for acknowledgement.
With regard to the stipulations of the preceding paragraph, if any loancases exceed the limits prescribed in Article 33 of the Banking Actwhen a bank is conferring credit or writing off loans, at leasttwo-thirds of all directors must be present, and at least three-fourthsof the present directors must give their consent [to pass aresolution].
The Taiwan branch of a foreign bank shall handle the authorizationsdescribed above in accordance with the authorization procedures of itshead office.
With regard to the write-off of non-performing loans and non-accrualloans, the amount provided under the loan loss provision or the reserveagainst liability on guarantees shall be used to offset [the write off],and, if such amount(s) is insufficient, the deficiency shall berecognized as a loss in the current year.
A bank shall establish an internal management control system andprocedures for the evaluation of asset quality, allocation of lossreserves, clearance of non-performing loans/non-accrual loans, andthe write off loans, and such management control system and proceduresshall be reported to, and approved by, the board of directors andsubmitted to the Competent Authority for acknowledgement. The internalmanagement control system and procedures, shall, at a minimum, includethe following items:
1.The evaluation and classification of assets.
2.A policy of loan loss provision.
3.Measures to be taken when a credit extension becomes past due.
4.Regulations governing relevant collection procedures.
5.Regulations governing procedures for amending original creditrepayment agreements of non-performing/non-accrual loans andestablishing settlement, as well as authorization standards.
6.Accounting treatment of non-accrual loans and writing off loans.
7.Accounting treatment of the pursuit of creditor rights and debtcollections, and the documentation needed to evidence the same.
8.Key points to be used by the [internal] auditors when conductingan audit.
9.Internal responsibilities and disciplinary/award measures.
The Taiwan branch of a foreign bank shall establish its internalmanagement control system and procedures in accordance with theauthorization procedures of its head office, and submit the same tothe Competent Authority for acknowledgement.
When writing off non-performing loans and non-accrual loans, a bankshall investigate whether at the time of the credit extension, suchextension was made in accordance with [applicable] laws, regulations,and bank rules. If such investigation determines that the creditextension was made in accordance with procedures, and, the appropriatefollow up reviews were conducted and no laws were violated orresponsibilities neglected, then no administrative measures need betaken. If such investigation reveals a violation or omission withregard to applicable laws, regulations, or bank rules, the bank shallpunish [the responsible persons] based on their degree ofresponsibility and the circumstances of the credit authorization. Ifsuch violations or omissions are criminal in nature, the bank shallreport the matter to the proper prosecutorial authority forinvestigation.
When a loan is written off in accordance with relevant regulations andprocedures, the creditor's rights shall still be posted in the accountsand registry books for acknowledgement. The relevant businessdepartment shall monitor the activities of the primary/subordinatedebtor. If it is discovered that the primary/subordinate debtor hasproperty that may be executed against the same shall be pursued inaccordance with relevant laws.
If an evaluation determines that there is no benefit to be gained fromthe collection activities described in the preceding paragraph, suchshall be reported to, and approved by the board of executive directors,and the debt shall no longer be posted in the accounts and no longerbe subject to control; however, but shall continue to be recorded inregistry books for acknowledgement.
A bank shall report its non-performing loans and non-performing assetsas required by the Competent Authority on a monthly basis in accordancewith the format and content required by the Competent Authority.
The minimum loan loss provision and reserves against liability on guarantees of Category One for a bank that is calculated based on Paragraph 1 of Article 5 amended on January 28, 2014, shall be allocated sufficiently within one year of the execution of the amendment. As long as a bank posses the legitimate reasons and acquires the concurrence of a board of director meeting, prior to the expiry date, the bank may apply to the Competent Authority for extension no longer than one year.
For a foreign bank branch in Taiwan, the duties of the board of directors prescribed in the proviso of the preceding paragraph, will be fulfilled by an officer authorized by its head office.
These Regulations shall take effect on July 1, 2005.
These Regulations amended and promulgated on November 18, 2010 shall take effect on January 1, 2011.
These Regulations amended and promulgated on January 28, 2014 shall take effect on January 1, 2014.