Implementing rules on the Financial Management of City Commercial Banks and Urban Credit Cooperatives
10-27-2007
State Administration of Taxation Decree No. 3
The Implementing Rules on the Financial Management of City Commercial Banks and Urban Credit Cooperatives hereby promulgated shall enter into effect as of 1 July 2002.
Jin Renqing
Commissioner of State Administration of Taxation
23 May 2003
Implementing rules on the Financial Management of City Commercial Banks and Urban Credit Cooperatives
Chapter 1 General Provisions
Article 1 In order to meet the needs of the socialist market economy, standardize the financial behavior of city commercial banks and urban credit cooperatives and strengthen their accounting management, based on the General Rules on Corporate Finance, the Accounting Rules for Financial Enterprises and other related state laws and regulations, the Implementing Rules is hereby formulated.
Article 2 The Implementing Rules are applicable to the city commercial banks and urban credit cooperatives (hereinafter referred to as the "banks" and "credit cooperatives") duly incorporated in the People's Republic of China.
The non-financial enterprises affiliated to the Banks, Credit Cooperatives and their management authorities but with independent accounting function shall adopt the accounting rules for their respective industries.
Article 3 The Commercial Banks and Credit Cooperatives shall adopt independent accounting, make their own management decisions, take full responsibility for their own profits and losses and undertake their own risks. With improving economic efficiency as the focus of financial management, they shall establish and improve internal financial management system and self-discipline mechanism, standardize financial behavior, report their business operations faithfully, accept the supervision and management of the taxation authorities and protect the legitimate rights and interests of investors and creditors.
Article 4 On the premises of not contravening anything provided in this Implementing Rules, the Commercial Banks and Credit Cooperatives shall, based on their own situation, formulate detailed rules or procedures of operation suitable to their respective financial management needs in accordance with related laws, administrative regulations and the Implementing Rules.
Article 5 Recognition of revenue, cost and expenses of the Commercial Banks and Credit Cooperatives shall adopt the following principles, except otherwise provided for by the state:
1. Accrual basis principle. All the revenue already realized and expenses which have already been incurred or will incur during the current period, no matter whether they have been received or paid or not, shall be taken as the current revenue and expenditure; the non-current revenue and expenditure, even if they have been received or paid during the current period, shall not be treated as the current revenue and expenditure.
2. Matching principle. When recognizing current revenue, cost and expenses, the Banks shall recognize various revenue and related cost and expenses during the same accounting period in accordance with the matching principles, and the recognition shall not be made in advance or later.
3. Historical cost principle. The Commercial Banks and Credit Cooperatives shall determine the book-entry value at the real cost of each asset. After that, if the value of such asset decreases or increases, the Commercial Banks and Credit Cooperatives shall not readjust their book value at their discretion, except otherwise provided by the state.
4. Principle of strictly distinguishing revenue expenditure from capital expenditure. The revenue expenditure and capital expenditure of the Commercial Banks and Credit Cooperatives must be distinguished strictly. The expenditure which only benefits the current accounting period shall be regarded as revenue expenditure and accounted as the current cost and expenses; the expenditures which will benefit several accounting periods shall be treated as capital expenditure and shall not be added into the cost and expenses in full amount during the period concerned; instead, such expenditure shall be depreciated, amortized or added into related investment costs.
5. Principle of reasonableness. The recognition methods of cost and expenses used by the Commercial Banks and Credit Cooperatives shall comply with general operational and accounting practices.
6. Principle of consistency. The recognition methods of cost and expenses used by the Commercial Banks and Credit Cooperatives shall be consistent for all periods and shall not be arbitrarily changed. If changes are needed, the content and reasons for changes, and their accumulative impact, shall be reported to tax authorities in the year before such changes are scheduled to happen.
Article 6 The financial department of the Commercial Banks and Credit Cooperatives shall faithfully fulfill their duties of financial management and do their planning, control, evaluation and analysis of each and all financial revenues and expenditures well.
Chapter 2 Owner's Equity and Liabilities
Article 7 Owner's equity means ownership of the net assets of the Commercial Banks and Credit Cooperatives held by their investors, including paid-in capital (equity), capital reserve, surplus reserve and undistributed profit. Its amount equals the balance of total assets minus total liabilities.
Article 8 The Commercial Banks and Credit Cooperatives, at the time of establishment, must have authorized capital which refers to the capital registered with the administrations of industry and commerce. Paid-in capital is the amount actually paid by the investors of the Commercial Banks and Credit Cooperatives in accordance with the investment contract and agreement and the capital increased in line with legal procedures during the operational process.
The Commercial Banks and Credit Cooperatives must have Chinese certified public accountant to verify the paid-in capital of investors and produce the capital verification report based on which the Commercial Banks and Credit Cooperatives issue investment certificates to the investors.
Article 9 The paid-in capital of the Commercial Banks and Credit Cooperatives, based on the categories of investors, can be divided into state equity, collective equity, corporate equity, foreign investors' equity and individual equity.
1. State equity: capital invested into the Commercial Banks and Credit Cooperatives by government agencies or organizations which are entitled to making investment on behalf of the state.
2. Collective equity: paid-in capital transformed from the accumulations of the Commercial Banks and Credit Cooperatives in previous years (including the tax exemptions and reductions by the state and statutory surplus reserve) in accordance with regulations concerned.
3. Corporate equity: capital from the legally disposable assets invested by corporate agencies into the Commercial Banks and Credit Cooperatives.
4. Foreign investors' equity: capital from the investment of foreign investors and investors of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan into the Commercial Banks and Credit Cooperatives.
5. Individual equity: capital from the investment of legal assets of individuals, such as private businessmen, urban residents and employees of the Commercial Banks and Credit Cooperatives into the Commercial Banks and Credit Cooperatives.
Article 10 The Commercial Banks and Credit Cooperatives can raise capital by taking cash or issuing stocks.
Capital of the Commercial Banks and Credit Cooperatives raised by issuing stocks shall be calculated at the par value of the stocks, and capital raised in other forms shall be priced at the real invested amount.
Article 11 The Commercial Banks and Credit Cooperatives shall comply with the following requirements when raising capital:
Except that the shareholders of previous urban Credit Cooperatives can swap their equities into shares and invest those shares into city commercial Banks, the capital raised by the Commercial Banks and Credit Cooperatives from new shareholders and the capital from the original shareholders as the capital increase must take the form of currency capital (cash), and no capital investment shall be made in form of debt -to-equity, physical assets or negotiable securities. The capital newly invested must be paid in one installment.
Article 12 During the operational period, investors shall not draw their capital invested in the Commercial Banks and Credit Cooperatives except for capital transfer in accordance with relative laws or reduction of registered capital approved in accordance with legal procedures. Investors shall share both the returns and risks of the Commercial Banks and Credit Cooperatives in proportion to their investment or in accordance with the provisions of the contracts or articles of association.
Article 13 Except under the following circumstances, the capital of the Commercial Banks and Credit Cooperatives shall not be arbitrarily changed:
1. Paid-in capital can be increased after the Commercial Banks and Credit Cooperatives actually receive the investment of investors in compliance with the capital increase requirements and with the approval of related authorities.
2. Capital reserve and surplus reserve are transferred into paid-in capital in accordance with legal procedures.
3. In case of approved reduction of paid-in capital, the Commercial Banks and Credit Cooperatives can reduce the paid-in capital only after they actually return the investment to investors in compliance with legal procedures.
Article 14 The Commercial Banks and Credit Cooperatives have operational rights to the paid-in capital in accordance with laws.
Article 15 The capital reserve of Commercial Banks and Credit Cooperatives include: the surplus of actually paid-up capital of investors minus their subscribed investment; capital transferred from donated capital; capital reserve increased according to the regulations of the state.
Capital reserve can be transferred into capital according to legal procedures.
Article 16 The surplus reserve of the Commercial Banks and Credit Cooperatives include the statutory surplus reserve, free surplus reserve and statutory welfare reserve drawn by the Commercial Banks and Credit Cooperatives from their post-tax profit. The statutory surplus reserve can be used to offset losses and transferred into capital. After transferring into capital, the remaining statutory surplus reserve shall not be less than 25% of the paid-in capital.
Article 17 Undistributed profit refers to the profit reserved by the Commercial Banks and Credit Cooperatives for future distribution or not distributed yet.
Article 18 The proportion of total sum of fixed net assets plus projects under construction to the owner's equity (excluding undistributed profit) of the Commercial Banks and Credit Cooperatives shall not be over 50%.
Article 19 The liabilities of the Commercial Banks and Credit Cooperatives include their savings deposits, debt capital, deposits of financial institutions, accounts payable, payments in advance, bonds and other liabilities. The liabilities are divided into current liabilities and long-term liabilities according to the term of assuming economic obligations. Current liabilities refer to the debts which shall be paid off within one year (including one year) and long-term liabilities refer to the debts which will be redeemed after a year.
The liabilities shall be calculated at actual amounts incurred. Bonds shall be accounted for at par value. When bonds are issued in premium or discount, the par value shall be written off periodically by increasing or decreasing interest expenses of every period until bonds mature. The expenditures for the issuance of bonds shall be directly accounted for as periodic expense in the current profit and loss.
Article 20 The capital raised by the Commercial Banks and Credit Cooperatives in form of debts shall set up interest payable at different levels in line with the applicable interest rates and extent and methods of drawing interest payable as required by the state and be accounted in the costs. The interest payable can be written off by the interest that is actually paid to creditors. The balance between the actually paid interest and interest payable in the current year and the actually paid interest of liabilities without drawing interest shall be directly accounted in the current profits and losses.
Chapter 3 Fixed Assets
Article 21 Fixed assets shall mean the premises, buildings, machinery, electronic equipment, transportation vehicles and such equipment, devices and tools as related to operations that have a useful life of more than one year. The items unrelated to the operation of material equipment may be accounted for as fixed assets provided that their unit value is more than RMB2000 and useful life more than two years.
Where certain component of a fixed asset is functionally independent of and use life differed from such fixed asset, such component shall be separately accounted for as fixed assets.
The computer network purchased by Commercial Banks and Credit Cooperatives out of the needs for business operation, including the price of hardware purchase, software development and purchase, shall be managed as fixed assets.
Article 22 The goods that are inconsistent with the conditions for fixed assets shall be accounted for as low-value consumables.
The following items shall be accounted for as low-value consumables regardless of its unit value:
Devices for encryption and money counting, iron box, safe-deposit box, devices for bundling, interest calculation, money detection and signature verification, micro computer, and the devices for printing, coding, numbering and punching.
Low-value consumables may be amortized as costs in the current period or over relevant periods. Where they are amortized as costs over relevant periods, the term of such amortization shall be no more than two years.
Article 23 Fixed assets shall be recorded at cost upon acquisition. Such cost shall include the purchase price, import duties, transportation and insurance costs, and any expenditure necessarily incurred to bring such fixed assets to such working condition as anticipated. The acquisition cost of fixed assets shall be determined as follows:
1. Any self-built fixed asset shall be recorded at the total amount of all such expenditure as incurred to bring such asset to its anticipated working condition.
2. Any purchased fixed asset that is able to be used without any further construction shall be recorded at the total amount of such purchase price and packing, transport and installation costs, and any relevant taxes actually paid in connection therewith and, if any change thereof has to be made prior to its use, the cost for such change.
3. Any fixed asset to which any change or expansion is applied shall be recorded at
its original price plus any expenditure actually incurred in such change or expansion less any incidental income arising in the course of such change or expansion.
4. Any fixed asset obtained through donation shall be recorded at the sum of such
amount as stated on the document or asset examination and acceptance schedule attached thereto plus any transport, insurance and installation expenses incurred by banks or credit cooperatives in connection therewith or, where no invoicing document is provided therefor, at the amount same to the market value of the fixed asset of the same or similar type.
5. Any fixed asset acquired under finance lease other than any real estate such as premises or buildings shall be recorded at the price determined under the lease contract or agreement thereof plus any expenses relating to transport, on-transit insurance, packing and installation, interest expense, and any difference out of foreign exchange translation.
6. Any excess fixed asset identified in fixed asset count shall be recorded at the amount to be paid for re-purchase of the same or similar fixed asset at prevailing market price, i.e., the replacement value.
7. Any fixed asset that is invested by any investor shall be recorded at such amount as confirmed by each investor or agreed upon under any contract or agreement.
8. Any fixed asset acquired through exchange, i.e., any fixed asset acquired from other business, unit or individual by Banks or Credit Cooperatives as its fixed asset through exchange of the fixed asset of such Commercial Banks and Credit Cooperatives, shall be recorded at the replacement value as its original value and such value as determined in any contract or agreement thereof plus (or less) any other amount paid (or received) as its net value. The difference between the value determined in any contract or agreement thereof and its carrying net value shall be charged to the income statement of the current period.
The value of such fixed asset as acquired by Banks or Credit Cooperatives through any borrowings and issued debts shall be accounted for with consideration of any interest expense or difference of foreign exchange translation incurred during such acquisition, and any value-added tax and tax for use of farmland paid by such Banks or Credit Cooperatives.
Article 24 Upon and after its recognition, the value of any fixed asset of Banks or Credit Cooperatives may not be modified unless:
1. Required under nationwide asset liquidation, verification and disposition;
2. Any part of such fixed asset will be dismantled; or
3. Such fixed asset sustains any perpetual impairment; under such circumstance, subject to the review and approval of competent tax authorities, the value thereof may be adjusted to the value collectable therefor and any loss thereof shall be recognized.
Article 25 Banks or Credit Cooperatives shall perform comprehensive counting or review of fixed assets no less than once annually or not on regular basis. Any surplus, deficiency, retirement or damage of any fixed asset shall be duly examined, accounted for and dealt with.
Any net income or loss resulting from any transfer, disposition, retirement of fixed assets by Banks or Credit Cooperatives for profit, or from any surplus, deficiency or damage identified in any counting thereof, shall be accounted for as non-operating income or expenditure.
Article 26 Any fixed asset of Banks or Credit Cooperatives shall be evaluated prior to the ownership transfer, merger and acquisition, or liquidation of such fixed asset.
Article 27 Construction in progress of Banks or Credit Cooperatives shall include pre-construction preparation work, and construction work and installation work that is either in progress or is completed but yet to be delivered for operation. Construction in progress shall be recorded at the cost actually incurred.
Article 28 If any construction in progress is destroyed or scrapped, the net loss after deducting any scrap value and any compensation from responsible individual or insurance company shall be recognized as project costs of such construction. The net loss of any scrapped individual project or of any destruction or scrap resulting from extraordinary causes shall be recognized as start-up expense if the same is incurred during the preparation stage, or as non-operating expenditure if the same is incurred after operation.
Article 29 If any construction has been delivered but the final accounts of which are yet to be processed, such construction shall be transferred to fixed assets at a value estimated with reference to project budget, contracted construction price or project cost and depreciation shall be provided therefor as required from the date on which such construction is delivered for use. Such estimated value and depreciation shall be duly adjusted as per the finalized accounts upon completion thereof.
Article 30 Banks or Credit Cooperatives shall provide depreciation for fixed assets on monthly (or quarterly) basis and recognize such depreciation as costs in the current period. The fixed asset that is put to operation in the current month shall be depreciated as of the month immediately thereafter; the fixed asset that ceases to be used in the current month shall be discontinued with depreciation as of the month immediately thereafter.
Article 31 Banks or Credit Cooperatives shall provide depreciation for the following fixed assets:
1. Premises and buildings;
2. All kinds of equipment in use;
3. The equipment the use of which is suspended on seasonal basis or due to repair or maintenance;
4. The fixed asset that is leased out under operating lease; and
5. The fixed asset that is acquired under finance lease (with the exception of real estate such as premises or buildings)
Article 32 No depreciation shall be provided for the following fixed assets:
1. The land that is separately valued and recorded in the account;
2. The fixed asset not yet put into use or that is redundant (other than premises and buildings);
3. The fixed asset prior to the delivery for use of construction work;
4. The fixed asset acquired under operating lease;
5. The fully depreciated fixed asset that is still in use;
6. The fixed asset that is early retired and eliminated;
7. The fixed asset that is received by donation; and
8. The fixed asset for which no depreciation shall be provided as required by the State.
Article 33 The depreciation ratio of fixed assets shall be determined by calculation of the original value, the ratio of expected net residual value and depreciation life of such fixed asset. The ratio of net residual value is generally determined at any ratio ranging from 3% to 5% of the original value of fixed asset, or may be omitted if the disposition expenses are larger than or equal to such residual value. Each Bank or Credit Cooperative may specify at its own discretion the depreciation life of fixed assets on the basis of required depreciation life for the category of fixed assets in which such fixed asset is classified and circumstances of such Bank or Credit.
The depreciation life shall be no less than:
1. 20 years for premises and buildings;
2. 10 years for machinery and other equipment; and
3. 5 years for electronic equipment, transportation vehicles, devices and furniture.
Article 34 Banks or Credit Cooperatives shall provide depreciation for fixed assets by classification depreciation methods, which generally include straight-line method and unit of production method. Subject to examination and approval of competent tax authorities, Banks or Credit Cooperatives may apply to use shortened depreciation life or acceleration depreciation method for such key equipment that is conducive to science and technology improvement or environment protection, or is encouraged for investment by the State, or such machine that is in vibration, under super-pressure use, or under intensive corrosion from acid or alkali over years. Double-declining balance method or sum-of-years'-digits method may be applied in connection with accelerated depreciation.
Banks or Credit Cooperatives shall provide depreciation in such manner as specified as follows:
1. Calculation formula of straight-line method:
Yearly depreciation ratio = (1 - estimated ratio of net residual value) ÷ depreciation life x 100%
Quarterly depreciation amount = original value x annual depreciation ratio ÷ 4
Monthly depreciation amount = original value x annual depreciation ratio ÷ 12
2. Calculation formula of unit of production method:
(1) Depreciation amount of unit mileage = original value x (1 - estimated ratio of net residual value) ÷ required total traveled mileage
(2) Depreciation amount per working hour = original value x (1 - estimated ratio of net residual value) ÷ required working hours
3. Calculation formula of double-declining-balance method:
Yearly depreciation ratio =2 ÷ depreciation life x 100%
Quarterly depreciation amount = original value x annual depreciation ratio ÷ 4
Monthly depreciation amount = original value x annual depreciation ratio ÷ 12
If double-declining balance method is applied to any fixed asset for provisioning for depreciation, the net value of such fixed asset shall be evenly amortized within 2 years prior to the expiration of its depreciation life.
4. Calculation formula of sum-of-years'-digits method
Yearly depreciation ratio = 2 x (depreciation life - used life) ÷ depreciation life x (depreciation life + 1) x 100%
Quarterly depreciation amount = original value x (1 - estimated ratio of net residual value) x annual depreciation ratio ÷ 4
Monthly depreciation amount = original value x (1 - estimated ratio of net residual value) x annual depreciation ratio ÷ 12
Article 35 Subject to foregoing provisions, Banks or Credit Cooperatives may elect its own depreciation method(s) and file such method(s) with competent tax authorities. Depreciation method and depreciation life, once determined, shall not be changed without authorization. If any such change is necessary, the bank or Credit Cooperative shall apply such change to competent tax authorities for approval prior to the year in which such change will be applied.
Article 36 Any repair expenses (including decoration expenses) relating to fixed assets incurred by Banks or Credit Cooperatives in connection with its operations may be recognized as costs for the current period subject to review and confirmation of competent State tax authorities; such repair expenses that are incurred on unevenly basis may be recognized as deferred expenses and amortized as costs over relevant periods.
Improvement expenses of fixed assets of Banks or Credit Cooperatives may be recognized as addition to the value of such fixed assets if the same is not yet fully depreciated or, be evenly amortized as long-term deferred expenses within a period no less than 5 years if the same is fully depreciated.
Any repair expenses of any fixed assets shall be recognized as the improvement expenses thereof if:
1. The repair expenses so incurred are more than 20% of the original value of such fixed asset;
2. Such repair extends the life of such fixed asset for more than two years; or
3. Such fixed asset is used for any new or separate purpose upon following such repair.
Article 37 Banks or Credit Cooperatives shall not acquire under finance lease any fixed asset of real estate nature, such as premises or buildings, nor shall they lease out any fixed asset under finance lease.
Article 38 Banks or Credit Cooperatives shall put in place the systems in respect of purchase, use, damage, verification and disposition of low-value consumables and promptly recognize incidental income, if any, in the income statement of the current period.
Chapter 4 Cash Assets
Article 39 Cash assets of Banks or Credit Cooperatives shall include local and foreign currencies, business turnover funds, gold and silver, deposit reserves, settlement reserves, general transferred deposits kept therewith and deposits with other banks or credit cooperatives, as well as cash assets of other types.
Article 40 Any excess or deficiency in connection with cashing or any fault or difference in connection with settlement of Banks or Credit Cooperatives shall be promptly identified and accounted for, and in light thereof be recognized as non-operating income or non-operating expenses subject to required procedures and due approvals.
Article 41 Any difference incurred by Banks or Credit Cooperatives in trading of gold, silver or foreign currency with the original value thereof resulting from any change of price or exchange rate shall be recognized in the current gains or losses.
Chapter 5 Loans
Article 42 Banks or Credit Cooperatives shall follow the needs of State industrial policies and economic development, adhere to the operating principles of profitability, safety and liquidity, establish normative loan examination and approval system and supervision and control system, strictly implement State policies on interest rate, duly collect principal and interests of loans, and be subject to the supervision of financial regulatory authorities and other relevant authorities.
Article 43 The principal of any loan issued by Banks or Credit Cooperatives shall be recorded at its actual amount and any interest thereof shall be settled on annual, quarterly or monthly basis at applicable interest rate required by the State.
Article 44 Any discounted loan of Banks or Credit Cooperatives shall be recorded at the face value of the discounted bill thereof; any difference between the value of such discounted bill and the amount paid to the applicant of such discount shall be recognized as the income of discount interest in the income statement for the current period.
Article 45 Any item that is mortgaged or pledged for any loan issued by Banks or Credit Cooperatives shall be valuated as agreed upon by both parties or as determined by authoritative appraisal agency. Any appraisal fee of such appraisal agency shall not be borne by the issuer of such loan (Banks or Credit Cooperatives). The value of such item shall not be less than one and half times of the principal of such loan.
If the value of the item mortgaged or pledged by the borrower is significantly larger than the amount of the loan so borrowed, any clearly definable part of such item may be used to mortgage or pledge such loan, provided that such item is capable of being accurately evaluated for the purpose of loan collection thereafter.
Article 46 Any leased asset operated by Banks or Credit Cooperatives under operating lease shall be recorded at its original value; any income from such lease shall be recorded as required in the income statement for the current period.
Article 47 Banks or Credit Cooperatives shall establish and perfect a loan quality supervision system, and classify, register, inspect and call in non-performing loans.
Non-performing loans shall include overdue loans, idle loans and dead loans.
Overdue loans shall refer to the loan that has not been repaid as of the date of maturity agreed upon in the contract of such loan, with the exclusion of idle loan and dead loan. Any loan the term of which has been extended shall not be classified as overdue loan at any time prior to its maturity so extended.
Idle loans shall refer to the loan that has been overdue for more than 90 (inclusive) days and the loan that, though not overdue up to 90 days, the borrower of which has ceased production and operation or the project of which has been terminated, with the exclusion of bad loans.
Dead loans shall refer to a loan that falls within one of the following types of loans after all possible measures and procedures have been taken by banks or Credit Cooperatives:
1. Any loan not collectible after collection therefore by Banks or Credit Cooperatives from the borrower and the guarantor when such borrower and guarantor are declared as bankruptcy or closed or dissolved according to law and their legal entities are terminated;
2. Any loan not collectible after liquidation of the assets or legacy of the borrower by Banks or Credit Cooperatives according to law after such borrower is dead or declared missing or dead according to the General Principles of the Civil Law of the People's Republic of China;
3. Any loan not collectible after collection therefore by Banks or Credit Cooperatives from the borrower and the guarantor when such borrower and guarantor, though not be declared as bankruptcy or closed or dissolved according to law, has fully ceased its operations as confirmed by relevant authorities, the business license of which has been revoked or suspended by county or higher level industrial and commercial authorities and the legal person status of which has been terminated;
4. Any loan not collectible after collection therefore by Banks or Credit Cooperatives from the borrower and the guarantor when such borrower and guarantor, though inconsistent with the conditions set forth in item 3 above, in fact went bankrupt, was cancelled or dissolved, or fully ceased operations more than two years as confirmed by relevant authorities.
5. When Banks or Credit Cooperatives take litigation against the borrower and the guarantor who fails to repay loans upon maturity and such borrower and the guarantor have deficient or no assets to be enforced by the court, any loan not collectible in connection thereof;
6. When the borrower is legally punished due to violation of any law and its assets under disposition fail to fully repay the loan due and no other debt-holder therewith exists, any loan not collectible upon confirmation thereof;
7. Any part of the loan not collectible after collection therefore by Banks or Credit Cooperatives when the borrower or the guarantor fails to duly repay the loan due to any cause set forth in item 1 through to item 6 of this article and the collateralized assets legally obtained by such Bank or Credit Cooperative thereafter fails short of the principal of such loan;
8. When Banks or Credit Cooperatives advance any fund in connection with issuance of letter of credit, acceptance of bills, issuance of guaranty or credit card overdraft, any such fund not collectible after the LC applicant, card holder or the guarantor thereof fails to repay such fund due to any cause set forth in item 1 through to item 7 of this article and any collection by such Bank or Credit Cooperative thereafter.
9. Any other loan permitted to be written off by the State Administration of Taxation.
Article 48 Any dead loan of Banks or Credit Cooperatives shall be written off from the reserves of dead loans in such manner as required.
The method in respect of write-off of dead accounts will be separately provided by the State Administration of Taxation.
Chapter 6 Collateralized Assets
Article 49 Collateralized assets shall refer to the asset under the disposition of Banks or Credit Cooperatives which is collateralized by debtors or guarantors for any principal or interest of any loan obtained from or any debt with such Bank or Credit Cooperative when such debtor fails to repay such loan or other debt to such Bank or Credit Cooperative as per agreed upon terms and conditions, including:
1. The item that has been mortgaged or pledged according to law; and
2. Such asset other than the mortgaged or pledged item that is of value and useful value, may be readily used for value preservation, keeping and liquidity.
The following assets shall not be used as collateralized assets:
(1) the asset precluded from being used to mortgage or pledge under the Guaranty Law of the People's Republic of China;
(2) intangible assets, with the exception of land use right; and
(3) any other asset which, in the judgment of Banks or Credit Cooperatives, inappropriate to be used to mortgage or pledge loans.
Article 50 Subject to the provisions under loan contracts and relevant laws, Banks or Credit Cooperatives may obtain the ownership, right to use or dispose of the collateralized assets in such manner as legally required (hereinafter referred to as the "obtaining of collateralized assets"). The obtaining of collateralized assets may be carried out under the authority of:
1. The legally effective agreement agreed and executed by the borrower, the lender and the guarantor;
2. The arbitration resolution of an arbitration agency; and
3. The judgment or ruling of a people's court.
Article 51 Banks or Credit Cooperatives are generally precluded from using the collateralized assets and shall liquidate such assets through organized auctions or any other means as required. Prior to its liquidation, collateralized assets may be separately managed as to-be-disposed collateralized assets. Any use of collateralized assets by Banks or Credit Cooperatives as required under special circumstances shall be accounted for as the newly acquired asset and, if examination and approval be required, be subject to relevant procedures for purchase and construction as required.
Collateralized assets shall not be distributed to any employee or their family of Banks or Credit Cooperatives without authorization.
Article 52 If the collateralized assets are promptly liquidated by Banks or Credit Cooperatives, any net income from such liquidation, i.e., the net amount of any income from such liquidation less any and all expenses incurred in obtaining and liquidation of such assets, may be accounted for in the following manner:
1. When the net income is less than the principal of the loan in respect thereof, such net income shall be recognized as the collected part of such principal, and any difference by such income and the principal shall be recognized as dead assets and offset against the reserves of debt assets upon authorization; any interest collectable (i.e., on-balance-sheet interest collectable, the same below) shall also offset against any interest income for the current period.
2. When the net income is more than the principal of the loan in respect thereof, such income shall be recognized as the collected principal of such loan and any interest collectable thereof shall offset against any interest income for the current period.
3. When the net income is more than the principal of the loan in respect thereof and less than the sum of such principal and any interest collectable thereof, part of such income equal to the amount of such principal shall be recognized as the collected principal of such loan; any part of such income in excess of such principal shall be recognized as collected interest and any interest uncollected thereafter shall offset against any interest income for the current period.
4. When the net income is equal to the sum of the principal and any interest collectable of the loan in respect thereof, such income shall be recognized as the collected principal and the interest collectable thereof.
5. When the net income is more than the sum of the principal and any interest collectable of the loan in respect thereof, the part of such income equal to such principal and interest collectable shall be recognized as the collected principal and the interest collectable thereof. Any part of such income in excess thereof shall be recognized as:
(1) income for the current period of such Bank or Credit Cooperative when it is less than or equal to the off-balance-sheet interest collectable; or
(2) when it is more than the off-balance-sheet interest collectable, income for the current period of such Bank or Credit Cooperative in the same amount of such off-balance-sheet interest collectable; any part in excess thereof shall be accounted for as the income for the current period of such Bank or Credit Cooperative or refunded to the borrower or the guarantor under the relevant terms of loan contracts or agreements executed by both parties.
Article 53 Any collateralized asset obtained by Banks or Credit Cooperatives that is not readily disposable may be evaluated as:
1. Agreed upon by the borrower and the lender;
2. Determined by an authoritative appraisal agency acceptable to the borrower and the lender; and
3. Determined by court judgment.
Article 54 Any expenses incurred by Banks or Credit Cooperatives in obtaining any collateralized asset that is not readily disposable may be preferably deducted from the value of such asset, and thereafter the net value of such asset may be recorded as the carrying value thereof.
Article 55 Any collateralized asset obtained by Banks or Credit Cooperatives that is not readily disposable shall be recorded at the carrying value of such asset as reduction to the principal of the loan in respect thereof and any on-balance-sheet interest collectable thereof, of which: any deficiency of such carrying value in reducing such principal and interest collectable shall be written off as interest income or recorded as reduction of interest income; any excess of such carrying value after deduction of such principal and interest collectable may be temporarily recognized as off-balance-sheet interest collectable or liabilities of such Bank or Credit Cooperative and, upon disposition of such collateralized asset, be accounted for as the income for the current period of such Bank or Credit Cooperative or refunded to the borrower or the guarantor under the relevant terms of loan contracts or agreements executed by both parties.
Article 56 Upon disposition as required of any collateralized asset obtained by Banks or Credit Cooperatives that is not readily disposable, any net income from such disposition shall be accounted for in the following manners:
1. When the carrying value of such collateralized asset is more than or equal to the sum of the principal and on-balance-sheet interest collectable of the loan in respect thereof, if the net income from disposition is more than such sum, any amount in excess thereof shall be recognized as the interest income for the current period; if the net income from disposition is more than such principal but less than such sum, the difference between such net income and such sum shall be recorded as reduction of interest income; if the net income from disposition is less than such principal, the difference thereof shall be written off as dead asset, and such on-balance-sheet interest collectable shall offset against interest income.
2. When the carrying value of such collateralized asset is more than or equal to the principal the loan in respect thereof but less than the sum of such principal and on-balance-sheet interest collectable of, if the net income from disposition is more than such carrying value, any amount in excess thereof shall be recognized as the interest income for the current period; if the net income from disposition is more than or equal to such principal but less than or equal to such carrying value, the difference between such net income and such carrying value shall be recorded as reduction of interest income; if the net income from disposition is less than such principal, the difference thereof shall be written off as dead asset, and the difference between the carrying value of the collateralized asset and such principal shall offset against interest income.
3. When the carrying value of such collateralized asset is less than the principal of the loan in respect thereof, if the net income from disposition is more than or equal to such carrying value but less than or equal to such principal, the difference between such income and such carrying value shall be recognized as reserves for dead assets; if the net income from disposition is more than such principal, the part of such income equal to the difference between such principal and such carrying value shall be recorded as reserves for dead assets, and the difference between the such income and such principal shall be recognized as interest income for the current period.
Article 57 Any income in respect of the collateralized asset accrued prior to its obtaining by Banks or Credit Cooperatives shall be recognized as other operating income. Any expenses in respect of the collateralized asset accrued prior to its obtaining by Banks or Credit Cooperatives shall be recognized as other operating expenses if such expenses are equal to or less than 20% of the carrying value of such collateralized asset, or as part of the carrying value of such collateralized asset if such expenses are more than 20% of such carrying value.
Article 58 Where the collateralized asset obtained by Banks or Credit Cooperatives is deficient to recover all principal and interest (including on and off-balance-sheet interest) of the loan in respect thereof, such deficiency shall be legally traced and separately accounted for and managed.
Chapter 7 Investment and Securities
Article 59 Commercial banks and credit cooperatives may handle investment business in the form of buying state bonds and financial securities and other types of negotiable notes but shall not make investment abroad with the franchise right authorized by the state. Investment abroad made by commercial banks and credit cooperatives include short-term and long-range investments.
Short-term investment covers those types of securities of a holding term of no more than one year (including one year) bought by commercial banks and credit cooperatives ready for realization at any time.
Long-range investment covers securities of a term of more than one year for realization or securities not ready for realization at any time which are bought by commercial banks and credit cooperatives and stock investment made by credit cooperatives in their next superior institutions.
Commercial banks and credit cooperatives shall abide by the relevant state laws and regulations in making investments abroad.
Article 60 The investments made by commercial banks and credit cooperatives shall be evaluated on the basis of the actual costs involved. If the actual payments for the securities include the declared accrued interests, the calculation of that declared accrued interests should be deducted from the actual payments for the securities.
Article 61 The securities bought by commercial banks and credit cooperatives shall be classified into investment securities and operating securities in accordance with their respective operating purposes. Investment securities are those bought and held over a long period of time by commercial banks and credit cooperatives which shall recover the principals and interests at time of maturity for the purpose of reaping interests. Operating securities are those bought by commercial banks and credit cooperatives on the market for the purpose of making profits from price differences.
Article 62 The commercial banks and credit cooperatives with securities bought shall record the profits or losses periodically for the accrued interests in accordance with the face value and interest rate of the securities.
Article 63 Commercial banks and credit cooperatives may use the first-in first-out method, the weighed averages method, or the moving weighed averages method to determine the actual costs of the operating securities they sell. Once a method is adopted, changes shall not be made.
The differences arising from the actual payments received for the operating securities sold by commercial banks and credit cooperatives and the actual costs on account shall be counted in the calculation of the profits and losses.
Article 64 For the long-term bonds which commercial banks and credit cooperatives bought at a discount or at a premium, the differences between the actual payments and the face value thereof shall be added to or deducted from the investment profit calculation from time to time prior to the maturity of the bonds.
Article 65 The dividends or profits which commercial banks and credit cooperatives receive from their investment shall be counted in their investment returns and the commercial banks and credit cooperatives shall pay income tax accordingly.
As for the differences between the face value and the actual recovery of the investment in accordance with the provisions of the relevant contracts or agreements or the recovery of the investment from the liquidated enterprises where the investment had been made, the difference shall be accounted as investment profit if the difference is net income or counted as operating costs if the difference is a net loss.
Chapter 8 Other Types of Assets
Article 66 Other types of assets of commercial banks and credit cooperatives include intangible assets, long amortized costs and other forms of assets.
Article 67 Intangible assets refer to the long-term assets of intangible form and not in the form of currency held by commercial banks and credit cooperatives for the purpose of business operation. They include patent right, copy right, right of rent, use right, good-will and non-patented technologies.
Article 68 An intangible asset shall be evaluated in accordance with the actual costs at the time it is obtained.
1. A bought intangible asset shall be evaluated in accordance with the actual price at the time it is bought.
2. As for the cost of the intangible asset received as a donation, the cost thereof shall be calculated in accordance with the value indicated on the relevant notes provided by the donor plus taxes and/or fees involved, or in accordance with the prevailing market price thereof.
3. As for the cost of the intangible asset developed or created by the bank or credit cooperative itself with official recognition, the cost shall be calculated in accordance with the actual costs involved in the course of the development. In applying for the patent right to an intangible asset successfully developed, the commercial bank or credit cooperative shall not capitalize the costs on the research and development which have been already counted into the operating costs.
Goodwill shall not be priced for account except for the commercial bank or credit cooperative being merged. In the course of a merger, the balance between the actual payment by the buyer and the actual net asset of the enterprise bought up shall be entered into account as the price of good will thereof. The evaluation of a non-patented technology shall be confirmed by an officially recognized appraiser.
Article 69 The cost of an intangible asset shall be amortized into the costs from the date of acquirement up to the end of the effective usage thereof.
The effective term of an intangible asset shall be determined as follows:
1. Choose whichever is shorter between the officially defined effective term and the useful term provided by the contract or the application of a commercial bank or credit cooperative if the law and a contract or the application note of the commercial bank or credit cooperative provide an effective term and the useful period.
2. If the law has not provided an effective term but the contract or application provides a useful term, the useful term thereof shall be accepted.
3. Should neither the law nor the contract or application have provided an effective term or useful term, an estimated term of benefit shall be determined.
4. If it is difficult to determine the period of benefit, a term of no less than ten years shall be adopted for amortization.
The value of goodwill shall not be amortized into the cost.
Article 70 The net income of a commercial bank or credit cooperative from selling its intangible asset shall be counted as other business income unless the state has provided for otherwise.
Article 71 Standing costs for amortization are those that cannot be included entirely into the returns or losses of the year and that should be amortized periodically in the coming years, including the founding costs, costs for the issuance of financial bonds, expenditure for the improvement of the fixed assets, the repair costs beyond the one-year amortization period and other costs beyond the one-year amortization period.
Founding costs are those that occur in the time of arrangement for the setting up of a commercial bank or credit cooperative and its branches, including the wages, office expenditure, travel fares, training expenditure, costs for printing, payments to lawyers, registration fees, the scrap value of a specific project and the net loss from scrapping or damages on account of extraordinary causes and losses from remittances and other expenditure not counted into the costs of the fixed assets and intangible assets.
The following expenses that occur during the preparations for the setting up of a commercial bank or credit cooperative shall not be counted as founding costs: costs to be borne by the shareholders, the costs made in order to obtain the fixed asset or intangible asset, the returns and losses and interest payments for remittances which should be counted construction costs.
After offsetting the losses with the returns of remittances that occur during the founding of a commercial bank or credit cooperative, the net return may be counted into the public accumulation of the capital, or retained to make up for the losses of coming years, or added to the profit or loss of the commercial bank or credit cooperative in time of liquidation.
The time for amortization of the founding expenses into operation costs shall be no less than five (5) years.
The expenses for the improvement of the fixed asset rented for operation shall be amortized by whichever is shorter between the effective term of lease and the term of durability.
Article 72 The other assets of a commercial bank or credit cooperative include its own frozen deposits and materials and assets involved in lawsuits.
Chapter 9 Costs
Article 73 Payments for interests involved in the course of business operation or related to business operation, payments for interests involved in inter-bank transactions, payments for commissions, operational expenses and other business operation costs of a commercial bank or credit cooperative shall be counted into the costs thereof in accordance with relevant provisions.
Article 74 The costs of a commercial bank or credit cooperative include the following:
1. Payments for interests. They are those interests arising from all those funds raised by a commercial bank or credit cooperative on credit (excluding inter-bank funds) to be set aside as payable interests in line with the state officially defined interest rates as well as payments for other interests permitted by the state policies.
(1) The scope of the interests to be paid by amortization: the payable interests at the officially defined rates of deposits of a fixed term of no less than one year (including one year) and savings deposits.
(2) The time and way of amortization of the payable interests: the payable interest on each deposit shall be drawn at the end of each quarter (month) at the average quarterly (monthly) balance. The payable interests thus drawn shall be abated at the time of actual payment of the interests.
2. Payment of interests on inter-bank financing. This refers to interests arising from inter-bank financing between commercial banks and credit cooperatives and the central bank, other banks and banking institutions. Those interests payable in the year yet unpaid shall be counted as payable interests one by one into the losses or returns of the year.
3. Payment of commissions. This refers to the payments for commissions for the services provided for the banking businesses activities of a commercial bank and credit cooperative. The commissions commercial banks and credit cooperatives should pay to the agencies and agents for handling savings deposits for the commercial banks and credit cooperatives shall be controlled within 8‰ of the average balance of the deposits of the year, to be made mainly for service fees for handling savings deposits, awards and honors to the agents and other fees payable by regulations.
4. Losses arising from transactions in gold and silver. This refers to the differences between the actual prices and the original value resulting from fluctuations of prices or exchange rates in the course of transactions.
5. Losses in foreign exchange transactions. This refers to losses involved in the course of foreign exchange transactions done by commercial banks and credit cooperatives.
6. Reserve for bad accounts. This refers to the reserve commercial banks and credit cooperatives put aside against possible risks of bad accounts of loans and losses from bad accounts. The scope of the assets for setting aside reserve shall cover specifically loans (including loans against mortgage, security and guarantee), properties taken for offsetting loans, overdraw on bank cards, time discount, advancements for acceptance notes, advancements for letters of credit, advancements for guarantees, advancements for import and export bills of exchange, investment in equities and investment in rights of claim (excluding investment in securities on the principle of whichever lower to be determined at the end of the term between the costs and market price and excluding investment in the principal and interest of treasury bills), inter-bank borrowing (lending), receivable interests (excluding receivable interests of loans), receivable dividends of shares, receivable rents and other rights of claim and equities, foreign loans through commercial banks and credit cooperatives responsible for payment to foreign creditors and assets including loans from international banking institutions, foreign buyer credit, foreign government loans, loans without strings from the International Cooperation Bank of Japan and mixed loans from foreign governments.
Commercial banks and credit cooperatives shall bear no responsibility for the risks and repayment of trust loans and agency loans and shall not draw a reserve for bad accounts thereof.
Commercial banks and credit cooperatives shall determine the ratio of the reserve for bad accounts in the light of the degree of risks of the assets involved in bad accounts.
The term-end balance of bad account reserve shall not exceed 100% of the term-end asset thereof and be no less than 1% thereof.
A reserve for bad accounts shall be drawn in full in accordance with the degree of the risks involved therein and the balance thereof shall be readjusted for tax payment at year-end at the time for tax declaration.
7. Depreciation of fixed assets. This refers to the draw for a reserve for the depreciation of the fixed assets in accordance with the accounting regulations.
8. Operating expenses and management expenses. They include publicity and promotion expenses, advertising expenses, printing expenses, expenses on hosting clients, expenses on operating electronic equipment, banknotes transportation expenses, expenses on security, insurance premiums paid, postal fees, lawyers' remunerations, notary fees, consultation fees, audition fees, technology transfer fees, R/D expenses, expenditure on foreign relation activities, wages, expenditure on employees' welfare, training and education, allocation to the trade union, expenditure on labor protection and insurance, expenditure on unemployment insurance, expenditure on office stationery, expenditure on travels, water and electricity bills, expenditure on meetings, amortization for low-cost perishables, amortization for prolonged assets, amortization for intangible assets, expenses on rents, expenses on repairs and maintenance, expenses on air-conditioning and heating, expenditure on lawns and other environment improvement programs, expenditure on council meetings, taxes, prizes and awards, administrative and management expenses handed to the superior authorities of the commercial bank or credit cooperative, association membership dues, subsidies to employees for housing, and other fees and costs.
(1) Business promotion expenditure. This refers to all payments for business publicity activities which shall be controlled within 5‰ of the business income of a commercial bank or credit cooperative.
(2) Advertising expenditure. This refers to all payments for advertising activities of a commercial bank or credit cooperative which should be controlled within 2% of the business income of a commercial bank or credit cooperative under these conditions:
(a）The ads should be made by those advertising agents authorized by the administrations for industry and commerce;
(b）The payment has been made against an invoice;
(c）The ad should be placed on a specific media.
(3) Expenditure on printing. This covers all payments on the printing, packing and transportation of business instruments, ledgers, financial statements and seals of a commercial bank or credit cooperative.
(4) Expenditure on hosting clients and guests. This covers all expenses on activities of public relations reasonably needed for business operations of a commercial bank or credit cooperative, which should be controlled within 5‰ of the annual business income of a commercial bank or credit cooperative.
(5) Expenditure on operation of electronic equipment. This covers all expenses on the paper, printing ribbons and floppy discs needed for the operation of computers of a commercial bank or credit cooperative.
(6) Expenditure on transportation of banknotes. This refers to all expenses on the trucking, fuel, road maintenance, packaging, porter service, licenses and the service of conveyers.
(7) Expenditure on security. This refers to expenses on the equipment, installations and tools purchased by a commercial bank or credit cooperative for the security thereof; the railings on the counters and windows of its business office, the special fire prevention equipment, the wages and subsidies of guards and other expenses approved by the superior department for the security of a commercial bank or credit cooperative.
(8) Insurance premiums. This refers to all payments for the premiums a commercial bank or credit cooperative pays to insurance companies.
(9) Expenses on postal service. This covers all expenses on mails, cables, telephone service, fees for installation of telephones, teletypes and fax machines and rents for the lines thereof.
(10) Expenses on lawsuits. This refers to all expenses on suiting and answering lawsuit by a commercial bank or credit cooperative.
(11) Notary fees. This refers to the expenses on the notary service provided by the notary public in the business activities of a commercial bank or credit cooperative.
(12) Consultation fees. This refers to expenses for payments for the service of economic and technical advisers and legal consultants hired by a commercial bank or credit cooperative.
(13) Expenses on auditing. This refers to all expenses arising from payments to the service of auditors and public accountants to check accounts and verify capital standing and make asset assessment.
(14) Technology transfer fees. This refers to charges on transfer of technologies to a commercial bank or credit cooperative.
(15) Expenditure on research and development. This refers to expenses on the R/D of new techniques and new business of a commercial bank or credit cooperative.
(16) Expenditure on foreign relation activities. This refers to all expenses on travels abroad by employees on business and hosting foreign guests in compliance with state regulations.
(17) Wages of employees. This covers payments by a commercial bank or credit cooperative for the wages and subsidies to its employees and other similar payments in accordance with the state regulations.
(18) Prizes and awards. This refers to the awards to be given by a qualified commercial bank or credit cooperative in compliance with the state regulations.
(19) Expenditure on the welfare of employees. This refers to expenses on the medical expenses and other collective welfare of the employees of a commercial bank or credit cooperative to be drawn at the rate of 14% from the total payroll of a commercial bank or credit cooperative.
(20) Expenditure on the education and training of employees. This covers the expenses on the education and training of the employees of a commercial bank or credit cooperative to be drawn at the rate of 1.5% from the total payroll.
(21) Allocations to the trade union. This refers to the expenses of the trade union to be drawn at the rate of 2% of the payroll of a commercial bank or credit cooperative.
(22) Expenditure on labor protection. This refers to the expenses on the purchase of labor protection equipment and subsidies to health care in work of the employees of a commercial bank or credit cooperative.
(23) Expenditure on labor insurance. This covers the old age pensions, price subsidies, medical expenses (including the medical insurance fund for retirees), subsidies to those employees for the settlement of their families in different places, compensation for resignation, the wages of those employees on a sick leave of more than six months, subsidies on the death and funeral of employees, subsidies to the families of the deceased, and other payments to the retired employees and the public accumulation fund for the old age insurance set aside in line with the state regulations for the arrangement of public funds.
(24) Premiums of insurance against unemployment. This refers to a reserve fund for unemployment insurance of the workers of a commercial bank or credit cooperative drawn in accordance with the state regulations.
(25) Other expenses. This covers all those expenses on buying office stationery and newspapers and magazines in office rooms of a commercial bank or credit cooperative.
(26) Expenditure on travels on public errands. This covers the payments for expenses on road, ship and air fare on public errands, subsidies on travels and expenses on accommodation on road of employees of a commercial bank or credit cooperative in compliance with the regulations made by the local governments.
(27) Expenditure on water and electricity. This covers the fees of water and electricity for the operation of the offices and the operation and added capacity of the electronic equipment of a commercial bank or credit cooperative.
(28) Expenditure on meetings. This covers all expenses on the preparation and holding of meetings approved by the superior department to be held by a commercial bank or credit cooperative, including expenses on food subsidies, accommodation, rents of meeting sites, stationery and other expenses.
(29) Amortization for low-cost perishables. This refers to the amortization for the consumption of low-cost perishables of a commercial bank or credit cooperative.
(30) Amortization for prolonged assets. This refers the amortization of the prolonged assets to the costs of the current term by a commercial bank or credit cooperative in accordance with term and rates as provided by regulations.
(31) Amortization for intangible assets. This refers to amortizable expenses on the purchase of intangible assets (excluding the amortization of the intangible assets created through R/D by the commercial bank or credit cooperative on its own).
(32) Payments for rents. This covers payments for rents of business offices, electronic equipment, cars and other fixed properties hired by a commercial bank or credit cooperative for business operation.
(33) Expenses on repairs and maintenance. This covers payments for repairs and maintenance of the fixed assets and low-cost perishables of a commercial bank or credit cooperative.
(34) Expenses on heating and cooling of office rooms. This covers the expenses required for the heating and cooling of the offices of a commercial bank or credit cooperative.
(35) Expenses on lawns and tree planting. This refers to the expenses on the laws and other plantation in and around the compound of the office of a commercial bank or credit cooperative.
(36) Expenditure on council activities. This refers to the expenses arising from the proper functioning of the council and council members, including travel fares and meeting expenses.
(37) Tax payments. This refers to the estate tax, tax on vehicle and vessel usage, tax on land use, stamp tax and other taxes a commercial bank or credit cooperative pays, and such payments shall be listed in the costs.
(38) Payments for administration and management handed to the superior department. This refers to the administrative and management fees handed to the superior authorities of the commercial bank or credit cooperative.
(39) Membership dues. This refers to the membership dues a commercial bank or credit cooperative pays to the association it belongs to.
(40) Housing subsidies. This refers to subsidies a commercial bank or credit cooperative pays to its workers as housing subsidies to be listed in the operational costs in line with the policy of housing reforms.
(41) Other expenses. This refers to other expenses not covered by those of a commercial bank or credit cooperative cited above.
9. Other expenditure. This refers to other expenses as costs in the banking business activities of a commercial bank or credit cooperative not covered by those cited above.
Article 75 The business promotion expenses, advertising fees, commissions paid to agents and expenses for hosting clients and guests by a commercial bank or credit cooperative shall be paid within the scope and at the rates officially stipulated and shall not be drawn in advance.
Article 76 The expenses to be amortized by a commercial bank or credit cooperative shall be determined on the accrual basis and the principle of cost-benefit ratio in accordance with the relevant provisions and in the light of the actual conditions.
Article 77 The following expenses of commercial banks and credit cooperatives shall not be counted into the current costs:
1. Expenditure on buying and building fixed assets, intangible assets and other assets;
2. Expenditure of investment abroad and profits distributed to investors;
3. Confiscated money and things, payments as fine for delayed payment, fines, penalty profits, fines for defaults, compensations and contributions and donations;
4. Payments for fees not provided by state laws and regulations;
5. Other expenses not allowed by the state regulations to be listed as costs.
Article 78 In cost accounting, commercial banks and credit cooperatives should strictly delineate between current costs and future costs and between expenditure on costs and expenditure on non-operating spending.
Article 79 The cost accounting of commercial banks and credit cooperatives should be based on monthly and annual terms. The accounting of the cost expenditure and operational expenditure of the same term shall begin and end on the same dates and be done in the same extent and standards.
Chapter 10 Operating Income, Profit and Distribution
Article 80 The business income of a commercial bank or credit cooperative shall be the income from business operations, including interests received, income from inter-bank transactions, commissions and other business income.
1. Income of interests. This refers to the interests actually received and receivable (excluding interests from inter-bank transactions) from all sorts of loans of commercial banks and credit cooperatives.
The interests receivable of loans issued by a commercial bank or credit cooperative delayed for payment for no more than 90 days (including 90 days) from the closing day of interests should be included for settlements in schedule in accordance with relevant regulations and the interests receivable of loans issued by a commercial bank or credit cooperative delayed for payment for more than 90 days (excluding 90 days), no matter whether the term of the principal has expired, shall not be included for settlement in schedule until the interests have been received as the regulations provide. In the event the principal of a loan issued by a commercial bank or credit cooperative delayed for repayment for more than 90 days (excluding 90 days), the interests receivable thereof shall not be included in for settlement in schedule in accordance with the relevant regulations until actually received.
2. Income from inter-bank transactions. This refers to the receipt of interests accrued from inter-bank transactions between a commercial bank or credit cooperative and the central bank, other banks and banking institutions.
3. Income from commissions. This refers to incomes from agency business in settlement, financing, trust loans, the agency business of issuing of bonds, stocks and other securities, agency business in insurance and agency intermediate business, etc.
4. Other business income. This includes incomes of commercial banks and credit cooperatives from rents, recoveries of loans, income from land development, consultancy commissions, returns from exchange transactions, income from trust and agency business, returns from floating securities and transactions in securities, income from trusteeship and other income.
Article 81 The total profit of a commercial bank or credit cooperative includes business profits, returns from investment and favorable balance of non-operating income and expenditure. Calculation shall follow the formula below:
Net profit = total profit - income taxes payable.
Total profit = business profit + returns from investment + non-operating income - non-operating expenditure ± results of readjustment of the income and loss of the previous year.
Business profit = business income - business expenditure - business tax and surcharges.
By results of readjustment of the income and loss of the previous year, it refers to over-calculated or under-calculated returns and losses of the previous year.
Returns from investment refers mainly to the interests actually received and receivable of the securities bought by commercial banks and credit cooperatives.
Non-operating income refers to all those incomes without any direct connections with the business operations of commercial banks and credit cooperatives. They include income from operating lease of fixed assets, added value of fixed assets, net returns from liquidation of fixed assets, returns of additional education fees, income from confiscations, surplus of cashiers' receipts, income from errors in security transactions, loans payable but unable to be paid to the creditor for special reasons, etc.
Non-operating expenditure refers to all sorts of expenditure without direct connections with the business operations of commercial banks and credit cooperatives. They include losses from liquidation of fixed assets, net losses from damages and scrapping of things, shortages of cashier receipts, compensations arising from settlements, losses from errors in security transactions, expenditure of all types of training schools and courses and schools of employee's children, extraordinary losses, losses for confiscations and compensation, donations and other charity payments, and other non-operating expenditure.
Business taxes and surcharges refer to business tax and education surcharges.
Article 82 Annual losses of commercial banks and credit cooperatives may be offset by the pre-tax profits of the next year for five consecutive years. If the loss cannot be totally offset in five years that way, it may be further offset by after-tax profits.
Article 83 The total profit of a commercial bank or credit cooperative shall be subject to income taxation after proper readjustment has been made in accordance with the relevant provisions of state laws and regulations.
Article 84 The profit of a commercial bank or credit cooperative after income tax shall be distributed in the following order, unless it is stipulated otherwise by the state laws and regulations:
1. To be used to offset the loss of the previous year.
2. To be drawn as officially defined public accumulation. The rate of such draw after tax payment shall be no less than 10% of the balance after payment of income tax and such draw may stop when the public accumulation has reached 50% of the registered capital.
3. To be drawn as officially defined public welfare fund. The rate of such draw in principle shall not exceed that of public accumulation fund, to be used mainly for the canteen, bathroom, kindergarten and other similar facilities of a commercial bank or credit cooperative.
4. Outlays to be used for other purposes in accordance with the relevant regulations.
Chapter 11 Foreign Exchange Business
Article 85 The foreign exchange business of a commercial bank or credit cooperative refers to the business activities of deposits, loans, transactions in foreign exchange and settlements in currencies other than the standard accounting currency (RMB).
Commercial banks and credit cooperatives having foreign exchange business shall keep general accounting and ledgers in foreign currencies.
Commercial banks and credit cooperatives with large volumes of business in foreign currencies shall keep ledgers in foreign currencies and translate the volume of foreign currencies into the standard accounting currency at the end of each term; those keeping general accounting in foreign currencies shall translate each entry of foreign currency into the standard accounting currency on the day or translate the amount of foreign currency into standard accounting currency at the exchange rate of the first day of the term.
Article 86 The differences arising from the exchange rate in the foreign exchange transactions of a commercial bank or credit cooperative shall be entered as return or loss of the current term in accounting.
Article 87 The overage from the difference between the value the investment in a foreign currency at the rate of exchange on the day of investment received by a commercial bank or credit cooperative and the amount translated into the standard accounting currency at a changed rate of exchange shall be entered into the accumulation fund.
Article 88 The loss or income in foreign exchange to a commercial bank or credit cooperative directly connected with the fixed asset bought or built shall be entered into the value of the asset if it occurs prior to the handover of the asset or the settlement on completion of the project, or as loss or gain of the current term if it occurs after the handover or the settlement.
Article 89 The term-end balance of each project in a foreign currency of a commercial bank or credit cooperative shall be translated into the standard currency at the exchange rate declared by the state at the end of the term and the difference from the volume of original book value shall be treated as loss or gain in exchange payment and entered as loss or gain of the current term or expenses of long-term amortization or as part of the value of relevant fixed asset.
Chapter 12 Liquidation
Article 90 When a commercial bank or credit cooperative is disbanded in accordance with the Articles of Association, or is declared bankrupt in accordance with the law or terminated on other account, a liquidation organization shall be set up. In the course of liquidation, this organization shall be in charge of making a clearing plan and settle the assets of the commercial bank or credit cooperative, making relevant statements of assets and liabilities and lists of the assets; handle the credits and liabilities of the commercial bank or credit cooperative, collect from the shareholders the contributions they had promised but unpaid, clear tax payments, provide the basis for the evaluation of the assets and after approval by the general meeting of the shareholders, clear the remaining assets of the commercial bank or credit cooperative.
Article 91 The asset of a commercial bank or credit cooperative to be liquidated shall include all the assets of it at the time its termination is announced and the assets the commercial bank or credit cooperative receives during the time of liquidation.
As for the asset that has been used as mortgage to a loan, the portion thereof equal to the value of the debt shall not be liquidated but the portion above the value of the debt shall be subject to liquidation.
Without the approval of the liquidation organization, no one has the right to dispose of any asset of the commercial bank or credit cooperative during liquidation.
Article 92 The pricing of the assets for liquidation shall be based on the net book value thereof or it may be re-evaluated or sold for cash.
Article 93 The gains and losses in clearing the assets, the cash from selling an asset, the debts unable to repay and the unrecoverable loans, the gains or losses from business operation during the liquidation shall be counted as gain or loss from liquidation of the commercial bank or credit cooperative.
Article 94 The below-cited conducts and actions that take place in the six months between the day the commercial bank or credit cooperative is declared terminated to the day it has actually terminated shall be null and void. If any such conduct occurs, the liquidation organization has the right to retrieve the asset and enter into account as that for liquidation.
1. Dividing secretly or transferring assets free of charge;
2. Disposing of assets below market price abnormally;
3. Providing guarantee for those assets originally without guarantee;
4. Repaying debts not due;
5. Giving up claim of credit.
Article 95 The wages of the staff members on the liquidation organization, office expenses, travel fares, public announcement expenses, law suits expenses and other expenses that occur during the liquidation shall be entered into account as liquidation expenditure to be paid first of all from the existing assets.
Article 96 A commercial bank or credit cooperative shall repay its debts in the following order after clearing the liquidation expenses:
1. The unpaid wages and labor insurance premium of the employees payable;
2. The unpaid taxes and other payables to the state;
3. Unpaid debts payable. If the remaining assets are insufficient to clear the debts, the debts shall be repaid partially with the remaining assets proportionately.
Article 97 As for the favorable balance between gain and loss after deducting the liquidation expenses at the end of the liquidation, an income tax shall be paid in accordance with the law.
Article 98 The remnant of the asset after liquidation shall be distributed to the shareholders in proportion to their contributions of shares unless otherwise provided by the law.
Article 99 On completion of the liquidation, the liquidation organization shall put forth a liquidation report and make balance sheets of income and expenditure that occur during the liquidation and submit them together with the confirmation report of a licensed accountant to the superior department in charge of the liquidated commercial bank or credit cooperative.
Chapter 13 Financial Statements and Financial Assessment
Article 100 Financial statements are written reports of a commercial bank or credit cooperative on its financial state and business performance, which should include financial statements and reports on its financial situation. The compilation of the financial statements shall comply with the relevant provisions of the "Regulations concerning Financial and Accounting Statements of an Enterprise".
Article 101 Financial statements shall include statements of the business operations, balance sheets, statements of profits and losses and other relevant auxiliary accounting statements. The business operation statement shall state the changes in the asset and liabilities in the daily business operations of a commercial bank or credit cooperative, reflect the sources and uses of the funds of a commercial bank or credit cooperative and provide detailed information of major financial activities of the commercial bank or credit cooperative.
Balance sheets should list the assets and liabilities of the day of statement of a commercial bank or credit cooperative and the type of credit and amount of the ownership interest. A balance sheet should be in keeping with the following balances:
Assets = liabilities and equity
A balance sheet should sufficiently reflect the returns of a commercial bank or credit cooperative in its business operations and list its business income and expenditure, its non-operating income and expenditure, returns from investment, taxes paid and other data.
The appendices mainly should include a statement of profit distribution, a statement of fixed asset, a statement of cost accounting and other appendices shall be compiled in accordance with the relevant state regulations and in the light of the actual need of the commercial bank or credit cooperative.
The statement of the performance of a commercial bank or credit cooperative in foreign exchange business shall be submitted as appendix.
Article 102 The statement on the financial situation should mainly cover:
1. The state of assets and liabilities: the total volume, increases (decreases), composition and quality of assets and liabilities of the current accounting period, and reasons for the changes;
2. The state of financial income and expenditure: the changes in the incomes, costs, expenses of the current accounting period;
3. Business performance: the state of the returns and losses of the assets of the current accounting period and reasons for that;
4. The state of profits, distribution and tax payments;
5. The accounting system used for a specific major project and the reasons for that; matters of major impact to the financial state of the current and next accounting period; matters of major impact to the financial situation of a commercial bank or credit cooperative in the period covered by the balance sheet beginning on the date of the balance sheet; other matters that require explanations for correctly understanding the financial statements;
6. Major cases, major errors and other losses.
Article 103 A commercial bank or credit cooperative should institute a sound system of financial statements and report its financial situation to the meeting of shareholders and the relevant authorities.
Article 104 A commercial bank or credit cooperative should make summaries, appraisals and examinations of the performance and results of its business operations, including:
1. The indices of business operation, including the floating ratio, asset risk ratio and fixed asset ratio.
(1) Floating ratio = current asset ÷ current liabilities x 100%
By floating asset, it refers to the asset that is turned into cash or used in an operating circle of a year or longer than a year, including cash, deposits of a commercial bank or credit cooperative in the central bank and other specialized banking institutions, short-term loans, short-term investments, accounts receivable and advance payments, etc.
By floating liability, it refers to debts to be repaid in an operating circle of a year or longer than a year, including short-term borrowing, current deposits, current savings deposits, bills payable, accounts payable, wages payable, tax to be paid, profits to be paid, other payables and expenses withheld in advance, etc.
(2) Asset risk ratio = overdue loans ÷ capital x 100%
(3) Fixed asset ratio = (net fixed asset + project in construction) ÷ equity (excluding profits to be distributed) x 100%
2. Indices of operating results, including profit rate, capital profit rate, cost rate and expense rate.
(1) Profit rate = total profit ÷ operating income x 100%
(2) Capital profit rate = total profit ÷ capital x 100%
(3) Cost rate = total cost ÷ business income x 100%
(4) Expense rate = business expense ÷ business income x 100%
A commercial bank or credit cooperative may add more indices for examination of the performance of its business operation in the light of the actual conditions of itself.
Chapter 14 Supplementary Provisions
Article 105 These procedures shall enter into force as of July 1, 2002 and in the meantime, the Circular of the State Administration of Taxation on the Printing and Distribution of the Procedures for the Financial Management of Urban Credit Cooperatives (GSF [1995] No.211) and the Circular of the State Administration of Taxation on the Printing and Circulation of the Procedures for the Financial Management of City Commercial Banks (GSF[1998]No.220) shall be repealed.
Article 106 The indices provided for in this document are for use in the examination of commercial banks and credit cooperatives as legal persons.
Article 107 The offices of State Administration of Taxation in provinces, autonomous regions and municipalities directly under the State Council may add more procedures to this document in the light of the actual local conditions and report them to the State Administration of Taxation for the record.
Article 108 The State Administration of Taxation shall be responsible for the interpretation of these Procedures.