31. Commercial banks shall have in place effective governance structure, evaluation tools and control procedures to ensure objective, accurate and consistent results from multiple financial evaluation instruments, and demonstrate the capability of evaluation appropriate to the complexity of their business practices in the PFTZ.

V. Counterparty Credit Risk

32. Commercial banks shall identify their management strategies, policy process, risk preferences and overall limits in terms of counterparty credit risk and obtain approvals from the board of directors. Counterparty credit risk preferences and overall limits shall be set at a level appropriate to the banks’ risk tolerance and capital adequacy.

33. Commercial banks shall develop proper counterparty credit risk management policies to satisfy the particular needs of development strategies for their business practices in the PFTZ, including but not limited to:

(1) Definition of counterparty credit risk and its difference from general credit risks;

(2) Organizational structure, terms of reference and responsibilities in counterparty credit risk management;

(3) Procedures to identify, measure, monitor and control counterparty credit risk;

(4) Drawing policies and capital requirements for counterparty credit risk reserves;

(5) Stress tests and emergency response plans for counterparty credit risk;

(6) Reporting and information systems in counterparty credit risk management.

34. Commercial banks shall develop specific procedures to identify, measure, monitor and control counterparty credit risk, including but not limited to:

(1) Counterparty access control, including risk assessment, internal rating and internal approval procedures;

(2) Central counterparty identification standards and management requirements;

(3) Procedures of follow-up counterparty risk assessment;

(4) Counterparty credit risk measurement methods, models and standards;

(5) Counterparty credit risk control and mitigation strategies;

(6) Management requirements for large exposures and concentration risk in business activities;

(7) Limits system, independent monitoring and monitoring frequency of counterparty credit risk as well as processing procedures in case of limits breach for all business practices in the PFTZ.