The Hong Kong stock exchange yesterday set out the criteria by which H-share companies should classify their deposit arrangements with financial institutions. The move follows controversial disclosures in May by Dongfang Electrical Machinery and Maanshan Iron & Steel that they had not been able to retrieve deposits from banks and non-bank financial institutions. The exchange has reviewed disclosures of designated deposits and certain cash deposits placed with mainland financial institutions in the annual reports of H-share companies. The review came as investors were worried whether the mainland companies could withdraw their deposits. The exchange said disclosures of the deposits varied in the companies' annual reports. Some had classified the deposits as other receivables, while others put them as cash at banks, with an explanatory note in their annual reports. It said the nature of the deposit was central in determining its classification. For example, where a deposit was placed with a financial institution with a primary liability to repay the deposit and interest, the item should be classified as a deposit with a bank or a financial institution and disclosed as such in financial statements. It said designated deposit arrangements were those involving a depositor, a financial institution and a borrower. The depositor would usually be aware of the identity of the borrower before entering into the arrangement. The funds might have been placed with the financial institution with instructions or understanding that they would be lent on to the borrower. In this case, the financial institution might not have the liability to repay the deposit or be liable for only a percentage of amounts not paid by the borrower. The exchange said these kinds of deposits should be classified as a receivable from a non-banking third party.