Revised Completion Instructions for Return of Loans and Advances and Provisions (MA(BS)2A) and Return of Mainland Activities (MA(BS)20)

Banking Policy Department
Our Ref: B1/15C
B9/188C
25 October 2019
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Revised Completion Instructions of Return of Loans and Advances and Provisions (MA(BS)2A) and Return of Mainland Activities (MA(BS)20) We are writing to inform you that the completion instructions of the Return of Loans and Advances and Provisions (MA(BS)2A) and Return of Mainland Activities (MA(BS)20) have been revised consequential to the implementation of Part 7 of the Banking (Exposure Limits) Rules (Cap 155S) (“BELR”). The sole changes to these two returns concern aligning the meaning of “group of linked counterparties” with the BELR by referring to the same term under the new Large Exposures Return (MA(BS)28). We believe such minor changes should not cause reporting difficulties. Taking into account the 6-month grace period allowed for compliance with Part 7 of the BELR, AIs should start applying the revised completion instructions to report these two returns no later than the position of March 2020. An AI which is capable of starting earlier may choose to do so. If you have any questions on this circular, please contact Mr Andy Cheung on 2878-1022. Yours faithfully, Daryl Ho Executive Director (Banking Policy) Encl cc: The Chairperson, The Hong Kong Association of Banks The Chairman, The DTC Association FSTB (Attn: Ms Eureka Cheung)

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MA(BS)2A/P.1
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Completion Instructions
Quarterly Analysis of Loans and Advances and Provisions (Form MA(BS)2A) Introduction

1. This return analyses, by economic sector, an authorized institution's loans and advances
   for use in Hong Kong. It also analyses the performance of an institution's selected assets (mainly loans and advances) and off-balance sheet exposures according to the classification methods defined in these instructions. Information on provisions set aside for each category of classified assets isalso included.
   Section A : General Instructions
2. This return consists of 2 parts and 3 supplementary items. It should be completed by
   authorized institutions in the following manner:
   For Part I andNotes
   (1) & (2)
   For Part II and Notes
   (3), (4), (5), (6) & (7)
   Institutions incorporated in
   HK without overseas branches / institutions incorporated outside HK Report the aggregate positions of HK offices Report the aggregate positions of HK offices Institutions incorporated in HK with overseas branches Same as above Report the combined position of HK offices and overseas branches unless otherwise indicated
3. The return, showing the positions as at the last calendar day of each quarter, should be
   submitted no later than 14 days after the end of each quarter. In the case of an institution incorporated in Hong Kong with overseas branches, the information required under Part II and Notes (3), (4), (5), (6) & (7) of the return may be separately submitted within a period to be agreed with the Monetary Authority if that institution has difficulties in complying with the time limit. However, in no case should the information be submitted later than 6 weeks after the end of each quarter. If the submission deadline falls on a public holiday, it will be deferred to the next working day.

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4. Amounts should be shown to the nearest thousands, in HK$ or HK$ equivalent in the
case of foreign currency items. The closing middle market T/T rates prevailing at the reporting date should be used for conversion purposes.
5. Certain items reported under Parts I and II of this return should be reconciled with the
amounts reported in relevant items in the Return of Assets and Liabilities (Form MA(BS)1 or MA(BS)1B) and the Return of Current Year's Profit & Loss Account (Form MA(BS)1C). Details are given in the specific instructions below and are summarised in Appendix 1.
6. As stipulated in our guidance note “Review on Impact of the New Hong Kong
Accounting Standards on Authorized Institutions’ Capital Base and Regulatory Reporting” issued to all AIs on 12 April 2005, locally incorporated AIs and overseas-incorporated AIs whose head offices have chosen to adopt IFRS or comparable standards shall neglect any reference made thereto in this return on “interest in suspense” and “country risk provision”.
7. Specific provisions and general provisions mentioned in this completion instruction
should follow the definitions of specific provisions and collective provisions defined in section 2(1) of the Banking (Capital) Rules respectively. The categorisation of accounting provisions into specific provisions or general provisions follows the treatment adopted in MA(BS)3.
Section B: Specific Instructions
8. Part I - Classification of Loans and Advances by Economic Sectors
8.1 Items A to I - Loans and advances for use in Hong Kong
Report loans and advances for use in Hong Kong, according to each economic sector, under items A to H. A loan is regarded as for use in Hong Kong if it finances or has a direct impact on the level of economic activity in Hong Kong. For most of the cases, this can be determined by whether the loan is made available or disbursed in Hong Kong and by the principal place of business of the customer. A loan should be classified according to its usage. For example, if a loan is granted to a textile manufacturer to purchase a factory building for enhancing productive capacity, it should be allocated to "textiles" (item A1) rather than to "property investment" (item B2). But if the loan is granted to the manufacturer to purchase a commercial complex for investment purpose, it should be classified under "investment in commercial properties" (item B2c). Similarly, if a loan is granted to a property developer for purposes which are clearly unrelated to its principal activities, such as the running of a hotel, such loan should not be reported under "property development" (item B1) or "property investment" (item B2). In cases where the usage of a loan cannot be identified with reasonable certainty, it should be classified according to the principal business activity of the borrower. For example, a loan to a property developer for general working capital purposes should be reported under the relevant sub-item of item B1 - Property development.

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In cases where it may not be possible to categorise a loan, including a finance lease and a hire purchase loan, by reference to the use of the loan proceeds or the use of the asset financed by the loan, it may be categorised by reference to the asset financed. For example, a mechanical digger can be categorised under the construction industry (item B3). Lorries and vans, where the principal activity of the end-user is uncertain may be classified under item G5 - Other transport and transport equipment. The classification of loans by economic sectors should be made irrespective of whether the borrower is a corporate, firm or individual except for item H5. For example, a loan granted to an individual for purchasing a taxi should be reported under “taxis” (item G3) while a loan granted to an individual for purchasing residential property should be reported under “individuals - for the purchase of other residential properties” (item H5b). Where a loan is known to be raised by an immediate borrower to finance another party (the ultimate beneficiary), it should be classified according to the usage of the loan deployed by the ultimate beneficiary. An exception to this rule is where the principal business activity of the immediate borrower is that of lending money and it has financed the ultimate beneficiary in the ordinary course of business.
8.2 Item B1 - Propertydevelopment
Report loans to finance property development, including those for building and construction, according to the type of properties being developed. In cases where a loan cannot be readily classified by type of properties, e.g. where a loan is extended to a property developer not specifically tied to a particular project or property or where the borrower is involved in more than one sector, such loans may be reported under item B1d - Other properties.
8.3 Item B2 - Propertyinvestment
Report loans to finance investments in properties, including uncompleted properties, according to the type of properties being invested in. These include loans to finance corporate customers purchasing residential properties for the use of their directors, shareholders or employees and also loans to shell companies through which individuals acquired properties. Loans to finance the purchase of residential properties by professional & private individuals should be reported under item H5a or H5b, as the case may be. Loans to finance the acquisition of properties, e.g. factories, for a borrower's own use should be classified according to the principal activities of that borrower rather than as a property investment in general.
8.4 Item D – Recreational activities
Report loans to companies engaging in motion picture, radio, television and other entertainment activities. The manufacturing of radios and televisions should, however, be reported under item A5 “Electrical & electronic”.
8.5 Item E1 -Telecommunications
Report loans to companies that provide telecommunication services, such as residential or commercial telephone lines, mobile phone lines, pager, IDD, fax, data

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(031/202010/201918) lines for data transmission and communication via satellite. Include loans to internet service providers and companies setting up networks/platforms for the provision of services as internet service providers. Loans to companies engaging in the manufacture of telecommunication equipment and other related accessories should be reported under item A5a “Telecommunication equipment”.
8.6 Item E2 - Information technology - Others
These include loans to companies that engage in software or application development, data processing, system administration or maintenance and the provision of IT-related consultancy services. Loans to companies engaging in the manufacture of computer hardware and other peripherals should be reported under item A5 “Electrical and electronic”. Loans to companies engaging in the wholesale or retail business of IT￾related products should be reported under item F “Wholesale and Retail Trade”.
8.7 Item H2 - Financial concerns
These include loans to investment companies, insurance companies, futures brokers, finance companies and any other persons in the financial sector not being authorized institutions or overseas banks. Investment companies include companies in the business of investment in commodity futures, foreign currencies, gold bullion, shares, funds and securities. They include also unit trusts, retirement funds and investment holding companies. Finance companies and others include companies in the business of leasing, factoring, bills discounting, hire purchase, mortgage, commercial and industrial finance. They include also gold bullion brokers, money-lenders, pawnshops and credit card companies.
8.8 Item H3a/H4a - Margin lending for stockbrokers and non-stockbroking
companies and individuals
Margin lending is defined as lending for the purchase of shares against the market value of shares pledged, typically, the borrower of such lending is obliged to ensure, and the lending institution to monitor, that the amount of the loan would not exceed a predetermined ratio of the market value of the collateral pledged. In cases where a margin loan is secured partly by shares and partly by other securities, then only that
part of the loan in excess of the value of the other securities should be reported as
margin lending. For example, in respect of a loan of 10 which is secured by shares and other securities valued at 10 and 6 respectively, 4 being the part of the loan in excess of the value of other securities should be reported as margin lending. The remaining loan of 6 should be reported under item H3b or H4b, as the case may be. Loans for subscribing for new shares in initial public offerings (IPOs) should be included under items H3a and/or H4a, as the case may be. In addition, a breakdown of the amount of such loans included in items H3a and/or H4a should be reported under Note (2)(a). Non-stockbroking companies refer to companies other than investment companies.
8.9 Item H5b - Purchase of residential properties by professional and private
individuals
Report loans to professional and private individuals for the purchase of residential properties, other than the purchase of flats under the Home Ownership Scheme (HOS),

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Private Sector Participation Scheme (PSPS) and Tenants Purchase Scheme (TPS), regardless of whether the properties are intended for occupation by the borrowers or for other purposes. As long as the loans for the purchase of flats under HOS, PSPS and TPS are covered by the guarantee issued by the Housing Authority, they should be reported under item H5a; otherwise, they should be reported under item H5b. This item includes refinancing loans and residential mortgage loans which have been transferred from other banks or companies.
8.10 Item H6 – Allothers
Report all loans and advances for use in Hong Kong that cannot be classified in the above economic sectors. Examples include “agriculture and fisheries” and “mining and quarrying”.
8.11 Item I - Loans and advances for use in Hong Kong
Report the sum of entries under items A to H under columns (1) to (6).
8.12 Item J - Trade financing
These are loans reported under items 15.1 and 15.2 of Form MA(BS)1 covering finance of imports to Hong Kong, exports and re-exports from Hong Kong and merchandising trade.
8.13 Item K - Other loans andadvances
These are loans reported under items 15.4, 15.5 and 15.6 of Form MA(BS)1.
8.14 Item L - Total loans andadvances
Report the sum of entries under items I, J, and K, columns (1) to (5). Entries under columns (1) to (4) should correspond to those reported under item 15.7g of Form MA(BS)1. The entry under column (4) should also correspond to that reported under item A1, column (6) in Part II.
8.15 Columns (1) to (3)
Report the principal amount of all loans which are outstanding as at the reporting date in the appropriate columns according to the currency in which they are denominated. Accrued interest which has been capitalised as loans should be included net of any interest in suspense. Accrued interest which has not been capitalised should be reported net of any interest in suspense under E1 in Part II. Interest in suspense refers to the interest that has been accrued to a suspense account instead of the profit and loss account.
8.16 Column (5)
Report the amount of specific provisions, other than country risk provisions, that have been set aside for each item. In the case of institutions incorporated in Hong Kong without overseas branches or institutions incorporated overseas, the total of this column as reported under item L should correspond to the entry under item A5, column (6) in PartII.

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8.17 Column (6)
Report the amount of general provisions, if any, that have been set aside for the various economic sectors under items A to H.
9. Part II - Asset Quality andProvisions
9.1 For items A1, A2, A4, B1, C1, C2, D1, D2, F1 and F2, classify and report loans and
advances, balances due from banks, acceptances and bills of exchange held, investment debt securities and commitments and contingent liabilities of similar nature into the categories as listed out in this part according to the guidelines on Loan Classification System in Appendix 2. For item A4, licensed banks incorporated in Hong Kong should report the position of loans and advances of their banking subsidiary incorporated in Mainland China. Any financial assets which are classified as fair value through profit or loss under HKFRS9 or equivalent accounting standards should NOT be included in this part except Item A.
9.2 Item B1 - Balances due frombanks
This item refers to placements with authorized institutions in Hong Kong and other banks abroad (excluding overseas head office and branches of the reporting institution).
9.3 Item C - Acceptances and bills of exchangeheld
This item refers to acceptances and bills of exchange held (i.e. excluding those held as collateral for a loan or advance) by the institution.
9.4 Item D – Investment debtsecurities
Report the holding of debt securities in items D1 to D2 according to the type of issuer and the category of classification.
9.5 Item E1 - Accruedinterest
Report interest that has been accrued but not capitalised for those exposures classified as either substandard, doubtful or loss under items A3, B1, C3 and D3. Accrued interest should be reported net of any interest in suspense (i.e. any interest which has been accrued to a suspense account instead of the profit and loss account).
9.6 Items F1 and F2 - Commitments and contingent liabilities
Report commitments and contingent liabilities which subject the reporting institution to credit risk. These include direct credit substitutes (such as guarantees and standby letters of credit), trade-related contingent items (such as letters of credit and liabilities under acceptances) and irrevocable loan commitments. Guarantees and standby letters of credit are usually converted into on-balance sheet exposures if the counterparty they are supporting fails but there may be circumstances when the bank is reasonably certain that such instruments will be called upon at a future date because of uncertainty

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(031/202010/201918) about the client. Loan commitments which are irrevocable should also be classified as impaired assets if the creditworthiness of the client has deteriorated to an extent that makes repayment of any loan drawdown (or associated interest payments) doubtful. The definitions of direct credit substitutes and trade-related contingent items are the same as those defined in section 2 of the Banking (Capital) Rules. Commitments and contingent liabilities to overseas head office and branches of the reporting institution are excluded for the purposes of thisitem.
9.7 Items A5 to A7, B2 to B4, C4 to C6, D4 to D5, E2, F4 to F6 - Provisions
Provisions should be reported and classified according to their nature, i.e. for general, specific or country risk, and the categories of exposures (where appropriate) for which the provisions are set aside.
9.8 Item G - Value ofsecurity
Report in item G1 the value of security held by the reporting institution to support those exposures classified as either substandard, doubtful or loss under item A3, and in item G2 the value of security for those classified exposures under items B1, C3, D3, E1 and F3. However, for each counterparty, the aggregate value of the security reported here should not exceed the aggregate of all relevant principals and accrued interest (i.e. for each counterparty, the lower of the value of the total exposure and the value of the total security should be reported here). If a security is held in support of different types of exposures to the same counterparty, the value should first apply to loans and advances. The following illustrates how value of security should be reported by institutions. HK$’000 Counterparty Net realisable value of security Exposures Value of security to be reported under Loans Others Item G(1) Item G(2) A 1,000 700 0 700 0 B 1,000 1,500 0 1,000 0 C 1,000 500 200 500 200 D 1,000 900 500 900 100 E 1,000 1,300 500 1,000 0
9.9 Item H - Assets acquired through security enforcement
Report in column (6) the net book value of any asset (e.g. shares, debt securities or real properties) the ownership of which has been transferred to the institution in settlement of all or part of a claim (e.g. by way of foreclosure). Such assets usually indicate a lack of demand which contributes to uncertainty about their actual value. They should therefore be closely monitored until sold. This item does not include those assets, such as mortgaged properties, which have been taken possession of by the reporting institution but the ownership of which has yet to be transferred to the institution.

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10. Note (1) - Loans to group companies ofproperty developers
Indicate the amount of loans reported under items H2a (to investment companies) and H2d (to finance companies) in Part I the borrowers of which are connected with property developers (where the use of such loans is known to be related to property development or property investment activities, it should be reported under item B in accordance with the purpose explained above). A borrower is regarded as property￾developer-connected if it is the holding company, sister company, subsidiary or associate of any property developer.
11. Note (2) - Margin lending
Provide the breakdown of margin lending reported under items H3a and H4a in Part I as follows:
(a) loans for subscribing new shares in IPOs; and (b) other margin lending. The breakdown relating to item H4a is required to be split further into loans to non￾stockbroking companies and loans to individuals. For other margin lending reported under Note (2)(b), provide the following supplementary information:
(i) closing market value of the shares which are pledged with the institution to support these loans; and (ii) aggregate amount of any individual loans which are in excess of 50% of the closing market value of the underlying shares pledged assecurity.
12. Note (3) - Overdue and rescheduledassets
12.1 Report the book value (net of accrued interest that has been capitalised but accrued to a
suspense account) of overdue or rescheduled assets under items (a) to (d) and (f). “Loans” include loans and advances to customers, and “other assets” include balances due from banks, acceptances & bills of exchange held and debt securities. Institutions incorporated in Hong Kong with overseas branches should report separately the aggregate positions of the Hong Kong Offices and overseas branches. Information on each individual country of the overseas branches should also be provided by completing pages 14 (for overdue and rescheduled loans) and 15 (for other overdue and rescheduled assets) of the return form. Supplementary sheets are to be used when necessary.
12.2 Sub-items (a) to (d)
The criteria for determining the overdue status of an asset are included in a separate guideline in Appendix 2.1. All assets should be reported as and when they have been overdue for more than 1 month. However, consumer loans repayable by regular monthly instalments should be treated differently and should not be reported unless they have been overdue for more

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(031/202010/201918) than three months. When such consumer loans qualify for reporting as overdue, the period overdue should be determined by reference to the earliest due date of any of the instalments. Similarly, demand loans (including overdrafts) which have exceeded the approved limit advised to the customer should not be reported unless they have remained continuously above the limit for more than three months. When such demand loans qualify for reporting as overdue, the overdue period should be determined by reference to the whole of the period that the limits were exceeded.
12.3 Sub-item (f)
All rescheduled assets (including those which have been reported under (a) - (d) above should be reported in item (f), except those specified under paragraph 9 of the “Guidelines on overdue and rescheduled assets” in Appendix 2.1. The amount of those rescheduled assets which have also been reported as overdue under item (a) should be reported in item (f)(i) and those rescheduled assets which have been reported as overdue in items (b) to (d) should be reported in item (f)(ii). The reporting treatment of a rescheduled asset taken up by a new obligor and the circumstances under which a rescheduled asset may be upgraded to “special mention” are provided under paragraphs 10 and 11 of Appendix 2.1.
13. Note (4) - Assets on which interest no longer accrues to profit and loss
Assets on which interest no longer accrues to the profit and loss refer to those assets in respect of which the interest has not been taken to the profit and loss account but credited to a suspense account or where the interest has ceased to be accrued. Report under item (a) the amount of loans and advances reported in Part II. Report under item (b) all those assets not included under item (a) above. The criteria on which institutions should cease to accrue interest on an asset to the profit and loss account are set out in CR-G-6 “Interest Recognition” of the Supervisory PolicyManual.
14. Note (5) - Interest in suspense
Interest in suspense refers to the accrued interest that has not been taken to the profit & loss account but credited to a suspense account. Report under (a) the amount that has been capitalised as the principal exposure and under (b) the amount that accrued to the interest receivable account. Accrued interest is deemed to be “capitalised” if it is treated indistinguishably from the principal exposure, rather than included within a suspense accrued interest account.
15. Note (6) – Non-bank China exposures
Note (6) has been replaced by Return of Mainland Activities MA(BS)20.
16. Note (7) - Ten largest criticised assets
Criticised assets refer to those that have been reported by the institution in Part II of this return as “special mention”, “substandard”, “doubtful” or “loss”. For the purpose of reporting under this Note, assets include on-balance sheet exposures such as loans and advances to non-bank customers, balances due from banks, acceptances and bills of exchange held, investment debt securities and accrued interest as reported under

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Items A3, B1, C3, D3 and E1 of Part II respectively. They also include commitments and contingent liabilities as reported under Item F3 of the same part of the return. Criticised assets should be reported on a gross basis before provisions and in descending order by size. Specific provisions made against these assets, which include those made for country risk, should be reported under a separate column of the return. Each reported item should be the aggregate of exposures to an individual counterparty or a group of related linked counterparties. In the latter case, the aggregate should be reported as one exposure and shown in the name(s) of the principal counterparty(ies). For the definition of “a group of linkedrelated counterparties”, reference should be made to the completion instructions of the Return of Large Exposures (MA(BS)28). The full name of each counterparty or the principal counterparty in the case of a group of linked counterpartiesrelated parties should be reported. Hong Kong Monetary Authority October 2019January 2018

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Appendix 1
Reconciliation with other returns
Return of Assets and Liabilities Return of Profit and Loss Item in this return Form MA(BS)1 Form MA(BS)1B Form MA(BS)1C (For position of HK offices) (For combined position) (For both cases)
Part I,
columns (1),(2),(3) and (4)
I Part II 15.3 N.A. N.A.
J Part II 15.1 + 15.2 N.A. N.A.
K Part II 15.4 + 15.5 + 15.6 N.A. N.A.
L Part II 15.7g N.A. N.A.
Part II, column (6)
A1 Part II 15.7g N.A. N.A.
A3 N.A. Part II 15 N.A.
A5+B2+C4 N.A. N.A.  Part II 1.9 (b)
A6+B3+C5 N.A. N.A.  Part II 1.9 (a)
A7+B4+C6 N.A. N.A.  Part II 1.9 (c)
B1 Part II 17.1 +17.2 + 17.4 Part II 17.3 N.A.
C1 Part II 19.2b(1+2) )
)  Part II 18.2 N.A.
C2 Part II 19.2a(1+2) )
F3  Part VIII(a) + (c) + (f) @ N.A. N.A.
A8+B5+C7+D6  Part II 24  PartII 23  Part II 3 +E2 (col.3+4+5)

• F7
  Notes:
  @ apply to institutions incorporated outside HK only. For institutions incorporated in Hong Kong, the amount reported should be equal to or less than the sum of the principal amounts for items 1, 3 and 9 in Table 10 (Standardized), Table 14 (BSC) and Table 20 (IRB) of the Banking (Capital) Rules.

MA(BS)2A/Appendix 2/P.1 (01/2018)
Appendix 2
Guideline on loan classification system

1. This guideline sets out the loan classification framework adopted by the Hong
   Kong Monetary Authority (“HKMA”) for monitoring the asset quality and provisioning adequacy of authorized institutions. Background
2. The purpose of a loan classification system is to enable institutions to prudently
   value loans and to act as a guide to appropriate provisions. The HKMA’s 5-grade loan classification framework was first introduced in 1994 and has been regularly updated since the first issue. The framework covers loans and advances and other types of on- and off-balance sheet exposures, including balances due from banks, investment debt securities, acceptances and bills of exchange held, accrued interest receivable and commitments and contingent liabilities. The loan classification framework
3. Under the HKMA’s loan classification system, loans and advances are to be
   classified into the following categories: Pass, Special Mention, Substandard, Doubtful, and Loss. Loans in the substandard, doubtful and loss categories are collectively known as “classified loans”. Classified loans together with loans in the special mention category are collectively referred to as “criticised loans”. The definition and characteristics of each of the categories are given below. In general, the decision to classify loans should be largely judgmental based on assessment of the borrower’s capacity to repay and on the degree of doubt about the collectibility of the principal or interest of a loan. An important indicator of collectibility is the period that payments of interest and principal are overdue. Thus, loans on which payments of interest and/or principal are overdue for more than three months and six months should generally be classified at least as substandard and doubtful respectively, unless there are good reasons for a better classification (such as the fact that the loan is fully secured by good quality collateral). However, the existence of payment arrears is only one of a number of factors to be considered in classifying problem loans and even a loan which is current or overdue for less than three months may justify a rating of substandard or doubtful if there are reasons to doubt the borrower’s ability to continue to service the loan.

MA(BS)2A/Appendix 2/P.2 (01/2018)
 Pass
This refers to loans where borrowers are current in meeting commitments and full repayment of interest and principal is not in doubt.  Special Mention This refers to loans where borrowers are experiencing difficulties which may threaten the institution's position. Ultimate loss is not identified at this stage but could occur if adverse conditions persist. These loans exhibit one or more of the following characteristics:
a) early signs of liquidity problems such as delay in servicingloans; b) inadequate loan information such as annual audited financial statements not obtained or available; c) the condition of and control over collateral is questionable; d) failure to obtain proper documentation or non-cooperation by the borrower or difficulty in keeping contact with him; e) slowdown in business or adverse trend in the borrower's operations that signals a potential weakness in the financial strength of the borrower but which has not reached a point where servicing of the loan isjeopardised; f) volatility in economic or market conditions which may in the future affect the borrower negatively; g) poor performance in the industry in which the borroweroperates; h) the borrower or in the case of corporate borrowers, a key executive, is in ill health; i) borrower is the subject of litigation which may have a significant impact on his financial position; and/or j) even if the loan in question is current, the borrower is having difficulty in servicing other loans (either from the institution concerned or from other institutions).

MA(BS)2A/Appendix 2/P.3 (01/2018)
 Substandard
This refers to loans where borrowers are displaying a definable weakness that is likely to jeopardise repayment. The institution is relying heavily on available security. This would include loans where some loss of principal or interest is possible after taking account of the “net realisable value” of security, and rescheduled loans where concessions have been made to a customer on interest or principal such as to render the loan "non-commercial" to the bank. These loans exhibit one or more of the following characteristics:
a) repayment of principal and/or interest has been overdue * for more than three months and the net realisable value of security is insufficient to cover the payment of principal and accrued interest; b) even where principal and accrued interest are fully secured, a "substandard" classification will usually be justified where repayment of principal and/or interest is overdue * for more than 12months; c) in the case of unsecured or partially secured loans, a “substandard” classification may also be justified, even if the overdue period is less than three months, where other significant deficiencies are present which threaten the borrower’s business, cash flow and payment capability. These include:
 credit history or performance record is notsatisfactory;  labour disputes or unresolved management problems which may affect the business, production or profitability of the borrower;  increased borrowings not in proportion with the borrower's business;  the borrower experiencing difficulties in repaying obligations to other creditors;  construction delays or other unplanned adverse events resulting in cost overruns that may require loan restructuring; and/ or  unemployment of an individual borrower.  Guidelines in relation to overdue and rescheduled loans are set out in Appendix 2.1.

MA(BS)2A/Appendix 2/P.4 (01/2018)
 Doubtful
This refers to loans where collection in full is improbable and the institution expects to sustain a loss of principal and/or interest after taking account of the net realisable value of security. Doubtful loans exhibit one or more of the following characteristics:
a) repayment of principal and/or interest has been overdue for more than six months and the net realisable value of security is insufficient to cover the payment of principal and accrued interest; and/or b) in the case of unsecured or partially secured loans, a shorter overdue period may also justify a “doubtful” classification if other serious deficiencies, such as default, death, bankruptcy or liquidation of the borrower, are detected or if the borrower’s whereabouts are unknown.  Loss This refers to loans which are considered uncollectible after exhausting all collection efforts such as realisation of collateral, institution of legal proceedings, etc.
4. Individual loans should not be split between categories. This means, where only
part of a loan has become overdue, the total loan outstanding should be considered
as overdue and classified under the most appropriate category.
5. Although references are made to “loans” in this guideline, the classification criteria
are also applicable to exposures arising from:
 balances due from banks;
 investment debt securities;
 acceptances and bills of exchange held; and  credit commitments and contingent liabilities.
6. Debt securities include certificates of deposit, floating rate notes, commercial paper
and other negotiable debt instruments. These securities carry credit risk and should be included in the institution’s loan classification system. A decline in the market value of a security simply due to interest rate fluctuations is not a basis for adverse classification. Classification of investment debt securities is based on credit risk. However, debt securities which are measured at fair value through profit or loss under HKFRS 9 or equivalent accounting standards are not required to be included in the loan classification system.
7. The ultimate and conclusive test of investment quality is the actual credit soundness
of the issuers. The principles underlying analysis of the credit soundness of issuers are essentially the same as those applicable to loan analysis. However, debt

MA(BS)2A/Appendix 2/P.5 (01/2018) securities for which payments are in default should generally be classified as “doubtful”. Institutions should maintain adequate records in support of their investment decisions and current credit information relating to the securities.
8. Many debt securities are rated by credit rating agencies (e.g. S&P’s and Moody’s).
In such cases, the ratings assigned by the agencies will be useful guides for institutions to classify debt securities. This, however, should not replace the institution’s own judgement on the credit soundness of the issuers.
9. In classifying acceptances and bills of exchange held, references to "borrower" as in
the case of loans and advances should normally apply to the party who is expected to pay the bill (i.e. the acceptor or the drawee). However, they may also apply to the customer of the institution from whom the institution has purchased the bill on a recourse basis. The classification should generally be based on whether or not the bill is current except where the institution has doubt about the relevant payment or the financial condition of the parties involved. Accordingly, a bill which is overdue should at least be classified as “special mention”. A bill which has been overdue for more than 3 months should at least be classified as “substandard”. Multiple extensions of credit to one borrower and loans to related companies
10. The classification of individual loans should be based in the first instance on an
assessment of the repayment capacity of the borrower. However, even if one or more loans to the same borrower have been classified in a particular category, this does not necessarily mean that all other outstanding loans to that borrower or to other related companies should be treated in the same manner. In particular, whether individual loans should be treated separately or collectively for classification purposes will depend on how they are collateralised or guaranteed. If it is clear that there is sufficient security dedicated to a particular loan to cover payments of principal and interest on that loan, it need not be classified in the same way as other loans to the same borrower which are not similarly secured. It will however usually be appropriate to classify the loan as at least “special mention” to reflect the known financial difficulties of the borrower. Where a number of loans are supported by a pool of collateral or are cross-collateralised, they should all be classified in the same category. Value of security
11. For the purposes of the HKMA’s loan classification system, security refers to (i)
tangible assets such as cash, properties and securities and (ii) guarantees issued by a central government or central bank of a country without payment difficulties, an authorized institution or an overseas bank which is under adequate supervision. The value of tangible security means its net realisable value, being the current market value of the security less any realisation costs. Market value should be measured on the basis of up-to-date valuation and is defined in terms of the price at which an asset might be sold at the valuation date assuming:
a) a willing buyer and seller;

MA(BS)2A/Appendix 2/P.6 (01/2018) b) transaction is at arm’slength; c) a reasonable period has been allowed for the sale; and d) the asset is freely exposed to the market. Loan loss provisioning 1
12. Loan loss provisions should be established and maintained at a level that is
adequate to absorb estimated inherent losses in the institution’s loan portfolio, binding commitments and contingent liabilities. In general, provisions established to absorb unidentified losses inherent in an institution’s loan portfolio are referred to as general provisions, and provisions established to absorb losses identified for specific loans are referred to as specific provisions. Country risk provisions generally refer to provisions set aside by authorized institutions to absorb potential losses arising from their country risk exposures. If institutions reflect country risk in provisions earmarked against their aggregate exposures to a particular country after accounting for risk transfers and specific provision made against credit risk (i.e. on a country basis), such provision should be referred to as country risk provisions. If institutions do not separately set aside country risk provisions but factor in an element of provision for country risk into specific provisioning for each individual exposure (i.e. on an individual obligor basis), such provision should be referred to as “specific provisions”.
13. Every authorized institution should have a system for the establishment of adequate
provisions. There is not a single method that is suitable for all institutions. However, provisioning decisions should be based primarily on an assessment of the recoverability of individual loans or portfolios of loans with similar characteristics (such as credit card receivables). Therefore, recognising problem loans is a necessary step and an effective loan classification system is essential for the establishment of an adequate level of provisions. The level of specific provisions in respect of a particular loan should normally be related to its loan classification, with higher provisions being required when loans are downgraded into a lower category (e.g. from substandard to doubtful). Specific provisions should normally be made

1 The recommendations in this section also apply to other assets to which the loan classification framework applies (see paragraph 5 above).

MA(BS)2A/Appendix 2/P.7 (01/2018) as soon as a loan is classified as substandard, unless there are good reasons to the contrary. Provisions against substandard loans may not be necessary where the policy of the institution is to classify loans promptly as doubtful and to provision accordingly. Implementation
14. The HKMA expects every institution to have a formal loan classification system in
place for internal monitoring of its asset quality. Institutions whose internal systems are different from that of the HKMA are required to agree with the HKMA the methodology for mapping their system onto the HKMA’s system for the purposes of reporting the Quarterly Analysis of Loans and Advances and Provisions (MA(BS)2A). Hong Kong Monetary Authority January 2018

MA(BS)2A/Appendix 2.1/P.1 (01/2018)
Appendix 2.1
Guidelines on overdue and rescheduled assets

1. This paper sets out the criteria which are to be applied in determining overdue and
   rescheduled assets for the purposes of classification under the loan classification framework and for reporting in the Quarterly Analysis of Loans and Advances and Provisions (MA(BS)2A). Overdue assets
2. The overdue status of the following assets are to be determined asfollows:-
   a) Loans with a specific expiry date (e.g. a term loan, inward bill loan, advance against trust receipt, packing loan and other loans of similar nature) - these loans should be treated as overdue where the principal or interest is overdue and remains unpaid as at the reporting date. (For multiple loans to a single borrower, e.g. where there are more than one trust receipt loans, report only the one overdue according to its overdue period.) b) Consumer loans repayable by regular instalments (e.g. residential mortgage loans, hire purchase loans and personal loans) - these loans should be treated as overdue when an instalment payment is overdue and remains unpaid as at the reporting date. c) Loans repayable on demand (e.g. demand loans and overdrafts) - these loans should be treated as overdue where one or both of the following conditions are met:
   i) a demand for repayment has been served on the borrower but repayment has not been made in accordance with the instruction; or ii) the loan has remained continuously outside the approved limit that was advised to the borrower for more than the period in question (e.g. three months or six months). d) Bankers acceptances are to be treated as overdue where either the principal or interest of the instruments are still in arrears after the due dates or maturity dates. e) A bill payable at a determinable date (i.e. usance bill) should be treated as overdue if it remains in arrears after the maturity date. Sight bills/drafts in respect of goods exported from Hong Kong should normally be paid within

MA(BS)2A/Appendix 2.1/P.2 (01/2018) one week from the date of presentation (or the arrival of carrying vessel if the buyer is not obliged to pay before the arrival of goods). However, to allow for unforeseeable delays in processing the documents or effecting payments, a grace period of one month will be allowed. These bills should therefore be regarded as overdue if payment is not made within one month after presentation or the arrival of carrying vessel, as the case may be.
3. The period of overdue of a loan which has a determinable due date should
commence from the date following such due date. The whole amount of a loan is regarded as overdue even if part of it is not yet due and assessment should be made by reference to the earliest due date of such a loan. For example, if the longest overdue instalment of a loan repayable by monthly instalments has been overdue for six months as at the reporting date, the entire amount of the loan should be considered as overdue for six months.
4. Where partial repayment of an overdue loan repayable by monthly instalments is
made, to the extent that it is not financed by a new loan extended by the reporting institution for the purpose of repaying the overdue loan, the repayment should be offset against the earliest instalments due. In the previous example, if the borrower makes a partial repayment reducing the longest overdue instalment to five months, the entire loan may be considered as overdue for five months.
5. If an overdue loan is scheduled to be repaid by a lump sum payment, a partial
repayment will not change the overdue status of the remaining loan balance, i.e. the outstanding balance should continue to be treated as overdue with reference to the original due date.
6. An institution should not extend a new loan to a borrower solely for the purpose of
repaying an existing overdue loan with the institution. Where the repayment whether partial or whole is financed by a new loan extended by the institution, the overdue status of the initial loan should be considered as unchanged, i.e. as if the new loan and partial repayment had never been made.
7. It is recognised that institutions may decide to increase overdraft limits (or limits of
similar facilities) to accommodate the increased financing needs of sound customers. In such cases, the loan would not be regarded as overdue under paragraph 2(c)(ii) above. However, this should only be done on the basis of a well￾documented credit evaluation and after the appropriate internal approval have been obtained. An increase in the overdraft limit should not be sanctioned simply to avoid classifying the loan as overdue.

MA(BS)2A/Appendix 2.1/P.3 (01/2018)
Rescheduled assets
8. Rescheduled assets refer to loans and other assets that have been restructured and
renegotiated between the reporting institution and the borrower because of a deterioration in the financial position of the borrower or of the inability of the borrower to meet the original repayment schedule and for which the revised repayment terms, either of interest or of repayment period, are 'non-commercial' to the bank. A rescheduled asset will normally require an adverse classification under the loan classification system (i.e. substandard or doubtful).
9. The following assets are not regarded as rescheduled even if their repayment terms
have been revised:
a) Assets rescheduled in response to the changes in market conditions provided that at the time of rescheduling, the assets have been serviced normally, the ability of borrowers to service the assets according to the revised repayment terms is not in doubt and the rescheduled assets are priced at interest rates equal to the current market interest rates for new assets with similar risks. b) Rescheduled assets whose revised repayment terms are, or become, commercial to the institution and where there is reasonable assurance that the borrowers will be able to service all future principal and interest payments on the assets in accordance with the revised repayment terms and the borrowers have serviced all principal and interest payments on the assets in accordance with the revised repayment terms continuously for a reasonable period. The reasonable period of continuing repayments for rescheduled assets with monthly payments (including both interest and principal) is 6 months. For other rescheduled assets, a period of continuing repayment of 12 months would be considered as reasonable.
10. If a rescheduled asset is taken up by a new obligor, the reporting institution may
regard it as a new asset (i.e. no longer a rescheduled asset) and classify it according to the creditworthiness of the new obligor provided that:
a) it is restructured with the new obligor on commercial terms; b) the agreed haircut, if any, has been fully written off upon completion of restructuring; and c) it is a genuine restructuring and not merely a transfer of an overdue loan among the borrower’s group companies. The reporting institution must be satisfied with the creditworthiness and repayment ability of the new obligor (e.g. the new obligor must have sufficient assets that can generate adequate funds to repay the outstanding debt) before entering into the restructuring.

MA(BS)2A/Appendix 2.1/P.4 (01/2018)
11. A rescheduled asset may be upgraded to “special mention” if : i) the agreed haircut
has been fully written off and all the potential losses have been fully provided upon completion of restructuring; and ii) the reporting institution is satisfied that the borrower will be able to service all future principal and interest payments in accordance with the revised repayment terms. Such asset will however continue to be regarded as rescheduled until the borrowers have serviced all principal and interest payments on the assets in accordance with the revised repayment terms continuously for a reasonable period (see paragraph 9 above). Hong Kong Monetary Authority January 2018

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MA(BS)20 P.1 (01/201810/2019)
Quarterly Return of Mainland Activities
For Position of the Hong Kong Office(s), Mainland Branch(es) and Mainland Subsidiary Bank(s) of an Authorized Institution Completion Instructions Introduction

1. This statutory return collects information on the Mainland-related business
   activities of authorized institutions and their Mainland bank subsidiaries. The scope of reporting covers activities booked in the Hong Kong office(s), Mainland branch(es) and subsidiary bank(s) in Mainland China. General instructions
2. This return is divided into 8 parts and reporting institutions should
   complete all parts.
    Part 1. Abridged balance sheet for position of the subsidiary bank(s) in Mainland China  Part 2. Current year’s profit and loss account for position of the subsidiary bank(s) in Mainland China  Part 3. Type and counterparty breakdown of non-bank Mainland China exposures  Part 4. Geographical breakdown of non-bank Mainland China exposures  Part 5. Economic sector breakdown of non-bank Mainland China exposures  Part 6. Classification of Mainland-related loans and advances  Part 7. Ten largest non-bank Mainland China exposures  Part 8. Risk mitigation breakdown of selected non-bank Mainland China exposures
3. Reporting institutions should submit this return via STET not later than 6
   weeks after the end of March, June, September and December each year. If the submission deadline falls on a public holiday, it will be deferred to the next working day.
4. Report the position as at the last calendar day of the reporting period
   except for the current year’s profit and loss account of subsidiary bank(s) in Mainland China, which should cover the position from the first calendar day of the reporting bank’s financial year to the last calendar day of the current reporting period.
5. Amounts should be reported to the nearest thousand in HK$ or HK$
   equivalent. The closing middle market T/T rates should be used for conversion purposes.

MA(BS)20 P.2 (01/201810/2019)
6. As stipulated in our guidance note “Review on Impact of the New Hong
Kong Accounting Standards on Authorized Institutions’ Capital Base and Regulatory Reporting” issued to all AIs on 12 April 2005, locally incorporated AIs and overseas-incorporated AIs whose head offices have chosen to adopt IFRS or comparable standards shall neglect any reference made thereto in this return on “interest in suspense”.
7. Specific provisions and general provisions mentioned in this completion
instruction should follow the definitions of specific provisions and collective provisions defined in section 2(1) of the Banking (Capital) Rules respectively. The categorisation of accounting provisions into specific provisions or general provisions follows the treatment adopted in MA(BS)3. Specific instructions
Part 1: Abridged balance sheet for position of the subsidiary bank(s) in
Mainland China
8. Unless otherwise specified, the reporting of Part 1 should follow the same
treatment as in the Return of Assets and Liabilities (MA(BS)1,1A and 1B).
9. Except where otherwise stated, book value should be used. Report figures
on an accrual basis and report the gross position (i.e. do not net off assets and liabilities). Total liabilities must equal total assets less provisions. Capital and reserves
10. “Paid-up capital” should be reported at the nominal paid-up value.
11. “Reserves” include retained earnings, general reserves, revaluation reserves
and share premium accounts but exclude provisions. The amount to be included shall be net of any dividend paid or declared out of retained earnings on or before the reporting date. Accumulated losses, if any, should also be reported.
12. “Current profits/losses” refers to any balance in the current year’s profit and
loss account (which should be the same as the amount reported in item 19 of
Part 2) less any dividend which has been paid or declared (i.e. on or before
the reporting date) out of the current year’s profit.
Capital-type instruments
13. Report all capital-type instruments including loan capital.

MA(BS)20 P.3 (01/201810/2019)
Deposits from customers
14. Report all deposit liabilities due to parties other than banks and other
authorized institutions (AIs). Exclude negotiable debt instruments issued. Such amounts should be reported separately under “negotiable debt instruments issued and outstanding”. Exclude also cash margins which do not form part of the savings, current or other deposit accounts. Such amounts should be reported as “other liabilities”. When reporting deposits with embedded derivative contract, the value of the deposit leg before adjusting the effect of fair value on the embedded derivative contract should be reported under this item while the fair value of the embedded derivative contract should be reported under “other liabilities” or “other assets” as appropriate. Negotiable debt instruments issued and outstanding / held
15. Report the nominal value of negotiable certificates of deposits and other
negotiable debt instruments, which include negotiable securities other than shares and stocks. If the reporting bank’s own negotiable debt instruments are being repurchased, whether for trading or market-making purposes, they should be netted off from “negotiable debt instruments issued and outstanding”. The difference between the nominal value and the book value should be reported as “other liabilities” or “other assets” as appropriate. Other liabilities
16. Report all other liabilities that have not been reported elsewhere.
Placement with The People’s Bank of China
17. Placement with The People’s Bank of China in excess of the deposit
reserve requirements should be reported as “other placement”.
Loans and advances to customers
18. Report all loans and advances to customers other than banks and other
AIs in gross amount before provisions. Holdings of debt instruments which are not negotiable should be regarded as loans and advances. Exclude holdings of negotiable bills accepted or payable by banks or non￾banks which should be reported as “negotiable debt instruments held”. Investments
19. “Investment in shareholdings” captures all holdings of share capital of
any other company (i.e. excluding those held as collateral for a loan or advance) owned by the Mainland subsidiary bank(s). This also includes

MA(BS)20 P.4 (01/201810/2019) the holdings of capital instruments (e.g. perpetual subordinated debts) and unit trusts which are established specially for investment in shares. Investment in shares not for strategic purpose (e.g. for trading purposes) should be reported as other investments (i.e. “Others”).
Part 2: Current year’s profit and loss account for position of the
subsidiary bank(s) in Mainland China
20. Unless otherwise specified, the reporting of Part 2 should follow the same
treatment as in the Return of Current Year’s Profit & Loss (MA(BS)1C).
21. Report the position from the first calendar day of the financial year to the
last calendar day of the current reporting period.
Interest income
22. Report interest received and accrued interest receivable attributable to the
reporting period, including those arising from trading securities held. Amortisation of discounts and premiums of securities held by the reporting bank should also be included.
23. Where interest rate-related derivatives are used to hedge banking book
assets, the net interest arising from the combination of the asset and the hedge should also be included as interest income.
24. Where the reporting bank is engaged in interest arbitrage dealing and does
not distinguish between exchange and interest gains or losses on such dealing, the entire amount of the profits or losses concerned should be reported as interest income or interest expenses as the case may be. A profit arising from the transaction should be treated as interest income and a loss as interest expenses. Interest expenses
25. Report interest paid and accrued interest payable attributable to the
reporting period, including those arising from securities short positions held for trading purposes. Amortisation of discounts and premium of securities issued by the reporting bank should also be included.
26. Where interest rate-related derivatives are used to hedge banking book
liabilities, the net interest arising from the combination of the liability and the hedge should be included as interest expenses.

MA(BS)20 P.5 (01/201810/2019)
Income from trading activities
27. Trading activities mean the reporting bank’s proprietary positions in
financial instruments which are intentionally held for short term resale and / or which are taken on by the reporting bank with the intention of benefiting in the short term from actual and / or expected differences between buying and selling prices, or from other price or interest rate variations, and positions in financial instruments arising from matched￾principal brokering and market-making, or positions taken in order to hedge other elements of the trading book.
28. The following items should be included:
1. realised and unrealised gains less losses (or income less costs) for the
current financial year from the reporting bank’s foreign exchange operations and trading in other derivatives;
2. profit or loss from equity or debt instruments held for trading or
dealing purposes;
3. net profit or loss arising from the combination of the instrument and
the hedge in the cases where derivatives are used to hedge instruments held for trading; and
4. all fees and commissions derived from trading activities.
29. In the cases where the losses exceed the gains or the costs exceed the
income, the net figure should be reported as negative values.
Income from non-trading activities and investments
30. The following items should be included:
 realised and unrealised gains less losses (or income less costs) arising from non-trading activities in derivatives and foreign exchange, and equity and debt instruments held by the reporting bank for non￾trading purposes;  profit and loss (including any remaining unamortised premiums or discounts) from derecognition (e.g. sale, early redemption, modifications that result in derecognition) of all equity and debt instruments other than those held for trading;  net profit or loss arising from the combination of the instrument and the hedge in the cases where derivatives are used to hedge non￾trading instruments;  fees and commissions derived from non-trading activities and investments; and  dividends declared by group companies, associated companies and other equity investments during the reporting period. For the avoidance of doubt, dividends attributable to profits earned in

MA(BS)20 P.6 (01/201810/2019) previous years should be included if these were declared during the reporting period.
Part 3: Type and counterparty breakdown of non-bank Mainland China
exposures
Non-bank Mainland China exposures (NBMCE)
31. NBMCE refer to exposures of the reporting institution to the seven
categories of counterparty set out in paragraph 40 below.
32. Report direct exposures, which are exposures to non-bank counterparties
that are directly liable to the reporting institution as principals.
33. Report the gross outstanding amount of non-bank Mainland China
exposures before deduction of provisions. Accrued interest, if any, on an exposure should also be reported. However, any accrued interest which has not been recognised in the profit and loss account but credited as interest in suspense should be netted off against the corresponding amount of interest in suspense whether or not it has been capitalised.
34. On-balance sheet exposures should be split into “loans and advances”,
“negotiable debt instruments” and “others”. The breakdown of plain vanilla negotiable debt instruments should be provided as a memorandum item. Off-balance sheet exposures should be split into “contingent liabilities”, “irrevocable undrawn commitments’ and “foreign exchange and derivatives contracts”.
35. The proportion of on-balance sheet non-bank Mainland China exposures
to total assets after provisions should also be reported.
36. “Contingent liabilities” refer to any potential liabilities of the reporting
institution that may arise from guarantees, letters of credit, etc, issued by it.
37. “Irrevocable undrawn commitments” refer to commitments which the
reporting institution is obliged to honour under all circumstances.
38. “Foreign exchange and derivatives contracts” are contracts with positive
value to the reporting institution at replacement cost. “Foreign exchange contracts” include cross-currency swaps, forward foreign exchange contracts, currency futures and foreign exchange options purchased.
39. Total on-balance sheet exposures reported under geographical location
breakdown in Part 4 as well as on-balance sheet loans and advances reported under economic sector breakdown in Parts 5 and 8 should tally

MA(BS)20 P.7 (01/201810/2019) with the same items reported under the type and counterparty breakdown in Part 3. Breakdown by non-bank counterparty
40. Exposures to non-bank counterparties should be categorised in the
following order of reporting priority. The same principle applies to counterparties with multiple shareholders.
1. Central government, central government-owned entities and their
majority-owned subsidiaries and majority-owned joint ventures (JVs) incorporated in or outside Mainland China.
2. Local governments, local government-owned entities and their
majority-owned subsidiaries and majority-owned joint ventures incorporated in or outside Mainland China.
3. The People’s Republic of China (PRC) nationals residing in Mainland
China whether the credit is for use in or outside Mainland China or other entities incorporated in Mainland China including those that are minority-owned by central or local governments. Majority-owned subsidiaries and majority-owned JVs of “other entities incorporated in Mainland China” and incorporated outside Mainland China should also be included.
3.1 Of which, PRC nationals residing in Mainland China or entities
with ultimate beneficial ownership held by Mainland interest other than the central and local governments. If the ultimate beneficial ownership cannot be established after reasonable efforts have been made, AIs can determine on a best effort basis whether the borrower is ultimately owned by Mainland interest.
4. Other entities incorporated outside Mainland China and minority￾owned by the central government not reported in item 1 above.
5. Other entities incorporated outside Mainland China and minority￾owned by the local governments not reported in item 2 above.
6. PRC nationals residing outside Mainland China or entities
incorporated outside Mainland China other than those reported under items 1 to 5 where the credit is granted for use in Mainland China. For avoidance of doubt, credit granted for use outside Mainland China to PRC nationals residing outside Mainland China is outside the reporting scope of this return.
7. Other counterparties where the exposures are considered by the
reporting institution to be non-bank Mainland China exposures.
41. Central government-owned entities refer to the entities owned by the
central government, including but not limited to those on the list of central government-owned entities (央企) published by the State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會).

MA(BS)20 P.8 (01/201810/2019)
42. Local governments refer to governments other than the central
government. Examples of local governments are provincial governments, municipal governments, etc.
43. Majority-owned subsidiaries and majority-owned JVs refer to entities
majority-owned or controlled (i.e. controlling larger than 50% shareholdings or voting rights) by the parent company.

44. Examples of exposures to entities incorporated outside Mainland China
    where the credit is granted for use in Mainland China include loans to finance a specific building or manufacturing plant construction project in Mainland China, trade finance facilities known to be for imports to or exports from the Mainland.
45. The reporting item “Other counterparties where the exposures are
    considered by the reporting institution to be non-bank Mainland China exposures” is intended to be a residual item not captured under other categories of counterparty.
46. Loans for use as general working capital or revolving credit facilities
    where the loan usage is not specified should be classified according to the principal place of business of the borrower.
    Part 4. Geographical breakdown of non-bank Mainland China exposures
47. Report the geographical breakdown of all on-balance sheet non-bank
    Mainland China exposures as indicated. Loans and advances should be categorised according to the loan usage. In cases where the usage of a loan cannot be identified with reasonable certainty (e.g. working capital loan), it should be classified according to the principal place of business of the borrower. Instruments such as negotiable debt instruments should similarly be categorised according to the location of issuers’ principal place of business.
    Part 5. Economic sector breakdown of non-bank Mainland China
    exposures
48. Report the breakdown of the on-balance sheet loans and advances for use
    in Mainland China according to loan usage as indicated. Refer to the Completion Instructions for the Return of Loans and Advances and Provisions (MA(BS)2A) for the definitions of individual economic sectors.

MA(BS)20 P.9 (01/201810/2019)
Part 6: Classification of Mainland-related loans and advances
49. Report the classification of on-balance sheet loans and advances
according to the classification criteria of the HKMA’s guideline on loan classification. The “Total” on-balance sheet loans and advances figures reported under “Item 6” in Part 6 should reconcile with the corresponding “Total” figures reported under “Item 1.1” in Part 3.
50. Classified loans refer to loans classified as “substandard”, “doubtful” and
“loss”. The amount of specific provisions and the current market value of the collateral should be reported separately.
Part 7. Ten largest non-bank Mainland China exposures
51. Report the ten largest exposures on an aggregate basis, i.e. on-balance
sheet plus off-balance sheet non-bank exposures, as at the reporting date and the proportion of total on-balance sheet exposures to the reporting institution’s total assets after provisions.
52. Each reported item should be the aggregate exposures to an individual
counterparty or a group of relatedlinked counterparties. In the latter case, the aggregate should be reported as one exposure under the name(s) of the principal counterpart(ies). For the definition of “Aa group of relatedlinked counterparties”, references should be made to refer to parties which are connected in such a way that the financial soundness of any of them may affect the financial soundness of the others. For details, refer to paragraph 5(i) of the Completion Instructions of the Return of Large Exposures (MA(BS)1D28).
53. Ten largest exposures on an aggregate basis, i.e. on-balance sheet plus
off-balance sheet non-bank exposures as at the reporting date to PRC nationals residing in Mainland China or entities beneficially-owned by Mainland interest as reported in item 3.1 of Part 3 and the proportion of total on-balance sheet exposures to the reporting institution’s total assets after provisions should also be reported.

MA(BS)20 P.10 (01/201810/2019)
Part 8. Risk mitigation breakdown of selected non-bank Mainland China
exposures
54. Report the risk mitigation breakdown for total on-balance sheet loans and
advances included as non-bank Mainland China exposures under the counterparty breakdown in Part 3.
55. Risk mitigation position for on-balance sheet loans and advances to PRC
nationals residing in Mainland China or entities beneficially-owned by Mainland interest as reported in item 3.1 of Part 3 should also be reported.
56. Report the amount based on the type of risk mitigation features. Loans
should be reported using the following ranking order: fully collateralised loans, loans with full guarantee from banks, partially collateralised loans, loans with full non-bank guarantee and unsecured.
57. An indication of obligation covering an exposure such as letter of
indemnity, letter of comfort or letter of undertaking that is considered equivalent to a guarantee by the reporting institution can be treated as a guarantee for reporting purpose.
58. In the case where the loan amount is less than the value of the collateral
or the amount of bank or non-bank guarantees, only the loan amount should be reported.
59. In the case where the loan amount exceeds the value of the collateral or
the amount of bank or non-bank guarantees, the exceeded amount should be treated as unsecured.
60. For loans with full collateral, report the loan value based on the following
type and order of collateral: pledged deposits, properties, debt securities, shares and other assets. For example, if the outstanding loan amount is HK$100,000 and the loan is collateralised with pledged RMB deposits (HK$40,000), properties (value after applying haircut / loan-to-value ratio:
HK$20,000) and shares (value after applying haircut / loan-to-value ratio:
HK$80,000), the reporting should be as follows: 40 under “pledged deposits”, 20 under “properties” and 40 under shares.
61. For loans with partial collateral, the loan should first be reported in the
order of collateral type as specified. The remaining balance (i.e. the outstanding loan net of collateral) should be split into guarantee from banks, guarantees from non-banks and the remaining loan balance. For example, if the outstanding loan amount is HK$100,000 and the loan is collateralised with pledged RMB deposits (HK$40,000), properties (value after applying haircut / loan-to-value ratio: HK$20,000), bank guarantees (HK$10,000) and non-bank guarantees (HK$10,000), the reporting should be as follows: 40 under pledged RMB deposits, 20 under properties, 10

MA(BS)20 P.11 (01/201810/2019) under bank guarantees, 10 under non-bank guarantees and 20 as unsecured.
62. Loans secured by collateral and non-bank guarantees should be reported
as partially secured. For example, if the outstanding loan amount is HK$100,000 and the loan is collateralised with pledged RMB deposits (HK$40,000), properties (value after applying haircut / loan-to-value ratio HK$20,000) and non-bank guarantees (HK$40,000), the reporting should be as follows: 40 under pledged RMB deposits, 20 under properties, 40 under non-bank guarantees.
63. In the case where the loan is granted based on bank guarantees and non￾bank guarantees, the loan should be also reported as partially
collateralised loans with the respective amount of bank guarantees and non-bank guarantees being reported. For example, if the outstanding loan amount is HK$100,000 and the loan is supported by Mainland bank guarantees (HK$40,000), non-Mainland bank guarantees (HK$20,000) and non-bank guarantees (HK$30,000), the reporting should be as follows:
40 under Mainland bank guarantees, 20 non-Mainland bank guarantees, 30 under non-bank guarantees and 10 under “remaining loan balance (i.e. unsecured portion)”.
64. Unsecured loans refer to clean loans without collateral, bank guarantees
as well as non-bank guarantees.
65. The amount of loans and advances supported by bank guarantees issued
by wholly-owned subsidiary banks without backing by collateral such as deposits pledged to the subsidiary banks should be treated as an unsecured amount.
66. Exposures with guarantees from the central government, central
government-owned entities and their subsidiaries and JVs, from the local governments, local government-owned entities and their subsidiaries and JVs, and from PRC nationals residing in Mainland China or private enterprises incorporated in Mainland China and their subsidiaries and JVs should be reported separately as memorandum items. Exposures with intragroup bank guarantees should be provided as a separate memorandum item as well. Hong Kong Monetary Authority September 2013 Revised:
December 2013
January 2018
OctoberJanuary 2019