The Financial Supervisory Commission (FSC) on Thursday moved to tighten rules for local financial holding companies to distribute cash dividends by strictly limiting the use of capital reserves and statutory surplus reserves, with the rules to be implemented next year.
The 14 listed financial holding companies that intend to distribute cash dividends from capital reserves or statutory surplus reserves must demonstrate healthy capital structure, capital adequacy, financial soundness and prudent leveraging, the commission said.
The conglomerates need to obtain approval from the commission before putting the matter to a vote by their shareholders, it said.
Photo: CNA
Banking Bureau Deputy Director-General Roger Lin (林志吉) said at a news conference that the commission decided on the regulatory changes after one year of study and discussions.
“Financial holding companies are the ultimate risk bearers of their subsidiaries and should have long-term capital planning for their operation by setting aside sufficient capital reserves and statutory surplus reserves,” Lin said.
Several financial holding companies earlier this year issued cash dividends from capital and statutory reserves to please shareholders, despite their profitability last year taking a hit from tumult in the global financial market.
The rule changes are expected to take effect next year after a 30-day notice period during which financial companies can propose revisions, Lin said.
In terms of capital structure, financial companies must maintain statutory surplus reserves equivalent to 50 percent of their paid-in capital after issuing cash dividends, the planned rules say.
This requirement is the toughest, with only one firm passing the test based on financial statements from the first six months of this year.
However, the conglomerate failed other requirements, meaning none would have been able to distribute cash dividends if the rules had applied this year.
As for capital adequacy, listed financial companies must have risk-based capital of more than 120 percent, while their subsidiaries must also meet capital requirements governing some financial operations, the commission said.
In addition, financial holding companies have to keep their bad loans low and demonstrate prudent leveraging, it said.
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