Newsletter
FINANCIAL INSTITUTION MAY SELL ITS BRANCH TO IMPROVE ITS FINANCIAL STRUCTURE
To encourage financial institutions to improve their financial and operating condition by an in-jection of capital, and to reduce the cost of gov-ernment for dealing with failing financial insti-tutions, on 21 April 2005 the Financial Super-visory Commission (FSC) approved the guide-lines for handling the disposal of branches by such institutions.
The guidelines provide that a financial institution with insufficient capital adequacy ratio and high overdue loans ratio may submit financial and business improvement plans (including a capital increase plan, plans to improve major asset quality and financial indicators, and a timetable for the plans’ staged implementation) to the FSC for approval. After obtaining an FSC approval and completing at least the first stage of the capital increase plan, it may sell its branch to another financial institution in accordance with the filed financial and business improvement plans. The proceeds from such sales may only be used for writing off non-performing accounts and for making provision for bad debts. Both the selling institution and the acquiring institution must carry out the procedures for branch closure and branch establishment under Article 57 of the Banking Act, including applying to the FSC for approval. The acquiring institution may also apply to the FSC for the relocation the branch in accordance with relevant laws and regulations.