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  • Tier 1: Core Capital

    • CA-2.1.1

      Tier 1 capital shall consist of the sum of items (a) to (f) below, less the sum of items (g) to (k) below:

      (a) Issued and fully paid ordinary shares and perpetual non-cumulative preference shares, but excluding cumulative preference shares;
      (b) Certain innovative capital instruments such as instruments with step-ups, subject to the fulfilment of criteria given in paragraph CA-2.1.2 to CA-2.1.4 and the limit given in paragraph CA-2.2.2.
      (c) Disclosed reserves, including:
      •  General reserves
      •  Legal / statutory reserves
      •  Share premium
      •  Capital redemption reserve
      •  Excluding fair value reserves3
      (d) Retained profit brought forward;
      (e) Unrealized net gains arising from fair valuing equities4; and
      (f) Minority interest in subsidiaries Tier 1 equity. arising on consolidation, in the equity of subsidiaries which are less than wholly owned. Further guidance on minority interests is provided in paragraphs PCD-A.2.11, PCD-1.1.3 and PCD-1.1.4 of the Prudential Consolidation and Deduction Requirements Module.

      LESS:

      (g) Goodwill;
      (h) Current interim cumulative net losses;
      (i) Unrealized gross losses arising from fair valuing equity securities5;
      (j) Other deductions made on a pro-rata basis between Tier 1 and Tier 2;
      (k) Reciprocal cross holdings of other banks' capital.

      3 This refers to unrealised fair value gains reported directly in equity (such gross gains are included in Tier 2).

      4 This refers to unrealised net fair value gains taken through P&L (which have been audited). Please note that the unrealised net gains related to unlisted equities taken through P&L arising on or after January 1, 2008 will be subject to 55% discount as stated in CA-2.1.5(c)ii.

      5 This refers to both 'net losses taken through P&L' and 'gross losses reported directly in equity'.

      Apr 08

    • CA-2.1.2

      Certain innovative capital instruments agreed to on a case by case basis by CBB, where the underlying instrument meets the following requirements which must, at a minimum, be fulfilled by all instruments in Tier 1:

      (a) Issued and fully paid;
      (b) Non-cumulative;
      (c) Able to absorb losses within the bank on a going-concern basis;
      (d) Junior to depositors, general creditors, and subordinated debt of the bank;
      (e) Permanent;
      (f) Neither be secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-à-vis bank creditors;
      (g) Callable at the initiative of the issuer only after a minimum of five years, with CBB approval and under the condition that it will be replaced with capital of same or better quality, unless the CBB determines that the bank has capital that is more than adequate to cover its risks.
      (h) The main features of such instruments must be easily understood and publicly disclosed;
      (i) Proceeds must be immediately available without limitation to the issuing bank;
      (j) The bank must have discretion over the amount and timing of distributions, subject only to prior waiver of distributions on the bank's common stock, and banks must have full access to waived payments; and
      (k) Distributions can only be paid out of distributable items; where distributions are pre-set they may not be reset based on the credit standing of the issuer.
      Apr 08

    • CA-2.1.3

      Moderate step-ups in such instruments meeting the requirements set forth above, are permitted, in conjunction with a call option, only if the moderate step-up occurs at a minimum of ten years after the issue date and if it results in an increase over the initial rate that is no greater than either;

      (a) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis; or
      (b) 50% of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis.
      Apr 08

    • CA-2.1.4

      The terms of the instrument should provide for no more than one rate step-up over the life of the instrument. The swap spread should be fixed as of the pricing date and reflect the differential in pricing on that date between the initial reference security or rate and the stepped-up reference security or rate.

      Apr 08