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  • CA-2.1 CA-2.1 Regulatory Capital

    • Tier 1 (T1)

      • CA-2.1.1

        The predominant form of T1 capital must be common shares and retained earnings (hereafter referred to as CET1). Deductions from capital and prudential filters are applied at the level of CET1 (see CA-2.1 to CA-2.4 for a more detailed explanation). The remainder of the T1 capital base must be comprised of instruments that are subordinated, have fully discretionary non-cumulative dividends or coupons and have neither a maturity date nor an incentive to redeem.

        January 2015

    • Common Equity Tier 1 (CET1)

      • CA-2.1.2

        CET1 capital consists of the sum of the following items (a) to (d) below:

        (a) Issued and fully paid common shares that meet the criteria for classification as common shares for regulatory purposes (see Paragraph CA-2.1.3);
        (b) Disclosed reserves including:
        (i) General reserves;
        (ii) Legal / statutory reserves;
        (iii) Share premium;
        (iv) Fair value reserves arising from fair valuing financial instruments; and
        (v) Retained earnings or losses (including net profit and loss for the reporting period, whether reviewed or audited);
        (c) Common shares issued by consolidated banking subsidiaries of the conventional bank licensee and held by third parties (i.e. minority interest) that meet the criteria for inclusion in CET1. See Section CA-2.3 for the relevant criteria; and
        (d) Regulatory adjustments applied in the calculation of CET1 (see Section CA-2.4).
        Amended: April 2015
        January 2015

      • CA-2.1.2A

        For unrealised fair value reserves relating to financial instruments to be included in CET1 Capital, conventional bank licensees and their auditor must only recognise such gains or losses that are prudently valued and independently verifiable (e.g. by reference to market prices). The CBB will closely review the components and extent of unrealised gains and losses and will exclude any that do not have reference to independent valuations (i.e. those made by bank management alone will not be included) or which are not deemed to be made on a prudent basis. As such, the prudent valuations, and the independent verification thereof, are mandatory. Unrealised gains and losses that have resulted from changes in the fair value of liabilities that are due to changes in the bank's own credit risk must be derecognised in the calculation of CET1.

        January 2015

      • CA-2.1.3

        For a common share to be included in CET1, it must meet the following criteria:

        (a) It is directly issued to shareholders and fully paid in;
        (b) It is non-cumulative;
        (c) It is able to absorb losses within the conventional bank licensee on a going-concern basis;
        (d) It is neither secured nor covered by a guarantee of the issuer or a related entity or any other arrangement that legally or economically enhances the seniority of the claim vis-à-vis bank creditors;
        (e) It represents the most subordinated claim in liquidation of the conventional bank licensee (i.e. it is junior to depositors, general creditors, and subordinated debt of the bank);
        (f) It is entitled to a claim on the residual assets that is proportional with its share of issued capital, after all senior claims have been repaid in liquidation (i.e. it has an unlimited and variable claim, not a fixed or capped claim);
        (g) Its principal is perpetual and never repaid outside of liquidation;
        (h) The conventional bank licensee does nothing to create an expectation at issuance that the instrument will be bought back, redeemed or cancelled nor do the statutory or contractual terms provide any feature which might give rise to such an expectation;
        (i) Distributions are paid out of distributable items (retained earnings included). The level of distributions is not in any way tied or linked to the amount paid in at issuance and is not subject to a contractual cap (except to the extent that a bank is unable to pay distributions that exceed the level of distributable items);
        (j) There are no circumstances under which the distributions are obligatory. Non-payment is therefore not an event of default;
        (k) Distributions are paid only after all legal and contractual obligations have been met and payments on more senior capital instruments have been made. This means that there are no preferential distributions;
        (l) It is the issued capital that takes the first and proportionately greatest share of any losses as they occur;
        (m) The paid in amount is recognised as equity capital (i.e. it is not recognised as a liability) for determining balance sheet insolvency;
        (n) The paid in amount is classified as equity under IFRS and disclosed separately in the financial statements;
        (o) The conventional bank licensee cannot directly or indirectly have funded the purchase of the instrument (i.e. treasury shares and shares purchased or funded by the conventional bank licensee for employee share purchase schemes must be deducted from CET1, and are subject to the 10% limit under the Commercial Companies' Law. Any of the conventional bank licensee's own shares used as collateral for the advance of funds to its customers must be deducted from CET1 and are also subject to the above 10% limit); and
        (p) It is only issued with the approval of the shareholders of the issuing conventional bank licensee.
        January 2015

    • Additional Tier 1 Capital (AT1)

      • CA-2.1.4

        AT1 capital consists of the sum of the items (a ) to (d):

        (a) Instruments issued by the bank that meet the criteria for inclusion in AT1 outlined in Paragraph CA-2.1.6;
        (b) Stock surplus (share premium) resulting from the issue of instruments included in AT1;
        (c) Instruments issued by consolidated subsidiaries of the bank and held by third parties that meet the criteria for inclusion in AT1 and are not included in CET1. See section CA-2.3 for the relevant criteria; and
        (d) Regulatory adjustments applied in the calculation of AT1 (see CA-2.4).
        January 2015

      • CA-2.1.5

        [This paragraph has been left blank.]

        January 2015

      • CA-2.1.6

        For an instrument to be included in AT1, it must meet or exceed all the criteria below:

        (a) It is issued and paid-in;
        (b) It is subordinated to depositors, general creditors and subordinated debt of the conventional bank licensee;
        (c) It is neither 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 conventional bank licensee creditors;
        (d) It is perpetual, i.e. there is no maturity date and there are no step-ups or other incentives to redeem;
        (e) It may be callable at the initiative of the issuer only after a minimum of five years and a conventional bank licensee must not do anything which creates an expectation that the call will be exercised. A conventional bank licensee may not exercise such a call option without receiving prior written approval of the CBB and the called instrument is replaced with capital of the same or better quality; or the conventional bank licensee demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised;
        (f) In all early call situations, replacement of existing capital must be done at conditions which are sustainable for the income capacity of the conventional bank licensee;
        (g) Any repayment of principal (e.g. through repurchase or redemption) must be with prior written approval of the CBB and the conventional bank licensee must not assume or create market expectations that supervisory approval will be given;
        (h) The conventional bank licensee must have full discretion at all times to cancel distributions/payments. This means that 'dividend pushers' are prohibited. A dividend pusher obliges a bank to make a dividend or coupon payment on an instrument if it has made a payment on another capital instrument or share. Also features that require the conventional bank licensee to make distributions in kind are not permitted;
        (i) Cancellation of discretionary payments must not be an event of default;
        (j) Conventional bank licensees must have full access to cancelled payments to meet obligations as they fall due;
        (k) Cancellation of distributions/payments must not impose restrictions on the conventional bank licensee except in relation to distributions to common stockholders;
        (l) Dividends/coupons must be paid out of distributable items;
        (m) The instrument cannot have a credit sensitive dividend feature (this might serve to increase the dividend payable if a bank's credit rating falls from A to BBB, for example) which may lead to the dividend/coupon being reset periodically based in whole or in part on the conventional bank licensee's credit standing;
        (n) The instrument cannot contribute to liabilities exceeding assets if such a balance sheet test forms part of national insolvency law. This means that instruments accounted for as liabilities must be able to be written down in some way as described in subparagraph (o);
        (o) All instruments must have principal loss absorption through either (i) conversion to common shares at an objective pre-specified trigger event; or (ii) a write-down mechanism which allocates losses to the instrument at a pre-specified trigger event. The write-down will reduce the claim of the instrument in liquidation and reduce the amount that will be re-paid when a call is exercised and partially or fully reduce coupon/dividend payments on the instrument;
        (p) Neither the conventional bank licensee nor a related party over which it exercises control or significant influence can have purchased the instrument, nor can the conventional bank licensee directly or indirectly have funded the purchase of the instrument. This also means that own holdings of AT1 instruments and AT1 instruments purchased or funded by the bank for employee share purchase schemes must be deducted from AT1. Any of the conventional bank licensee's AT1 instruments used as collateral for the advance of funds to its customers must be deducted from AT1 ;
        (q) The instrument cannot have any features that hinder recapitalisation, such as provisions that require the issuer to compensate investors if a new instrument is issued at a lower price during a specified time frame; and
        (r) If the instrument is not issued out of a fully consolidated subsidiary bank or the parent conventional bank licensee in the consolidated group (e.g. a special purpose vehicle — "SPV"), proceeds must be immediately available without limitation to the parent bank in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in AT1.
        Amended: January 2016
        January 2015

      • CA-2.1.7

        [This paragraph has been left blank.]

        January 2015

      • CA-2.1.7A

        The issuance of any new shares as a result of a trigger event must occur prior to any public sector injection of capital so that the capital provided by the public sector is not diluted.

        January 2015

      • CA-2.1.7B

        Where an issuing bank or SPV is part of a banking group and the issuer wishes the instrument to be included in the capital base of the group (in addition to its solo capital where applicable), the terms and conditions must specify an additional trigger event.

        January 2015

      • CA-2.1.7C

        Any common stock paid as compensation to the holders of the instrument must be common stock of either the issuing bank or the parent bank of the group (including any successor in resolution).

        January 2015

    • Write Down or Conversion of Additional Tier 1 Instruments

      • CA-2.1.7D

        For the purposes of Subparagraph CA-2.1.6(o), the following provisions apply to AT1 instruments accounted for as liabilities:

        (a) A trigger event occurs when the CET1 capital ratio of the conventional bank licensee institution referred to in Subparagraph CA-B.2.1(a) falls below either of the following:
        (i) 7.0%;
        (ii) A level higher than 7.0 %, where determined by the conventional bank licensee and specified in the provisions governing the instrument; and
        (b) Conventional bank licensees may specify in the provisions governing the instrument one or more trigger events in addition to that referred to in Subparagraph (a).
        January 2015

      • CA-2.1.7E

        Where the provisions governing AT1 instruments require them to be converted into CET1 instruments upon the occurrence of a trigger event, those provisions must specify either of the following:

        (a) The rate of such conversion and a limit on the permitted amount of conversion; or
        (b) A range within which the instruments will convert into CET1 instruments.
        January 2015

      • CA-2.1.7F

        Where the provisions governing AT1 instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:

        (a)The claim of the holder of the instrument in the insolvency or liquidation of the conventional bank licensee;
        (b)The amount required to be paid in the event of the call or redemption of the instrument; and
        (c)The distributions made on the instrument.
        January 2015

      • CA-2.1.7G

        Write down or conversion of an AT1 instrument must, under the applicable accounting framework, generate items that qualify as CET1 items.

        January 2015

      • CA-2.1.7H

        The amount of AT1 instruments recognised in AT1 items is limited to the minimum amount of CET1 items that would be generated if the principal amount of the AT1 instruments were fully written down or converted into CET1 instruments.

        January 2015

      • CA-2.1.7I

        The aggregate amount of AT1 instruments that is required to be written down or converted upon the occurrence of a trigger event must be no less than the lower of the following:

        (a)The amount required to restore fully the CET1 ratio of the conventional bank licensee to 7.0 %; and
        (b)The full principal amount of the instrument.
        January 2015

      • CA-2.1.7J

        When a trigger event occurs conventional bank licensees must do the following:

        (a) Immediately inform the CBB;
        (b) Inform the holders of the AT1 instruments; and
        (c) Write down the principal amount of the AT1 instruments, or convert the instruments into CET1 instruments without delay, but no later than within one month, in accordance with the requirement laid down in this Section.
        January 2015

      • CA-2.1.7K

        A conventional bank licensee issuing AT1 instruments that convert to CET1 on the occurrence of a trigger event must ensure that its authorised share capital is at all times sufficient, for converting all such convertible AT1 instruments into shares if a trigger event occurs.

        January 2015

      • CA-2.1.7L

        All necessary authorisations must be obtained at the date of issuance of such convertible AT1 instruments. The conventional bank licensee must maintain at all times the necessary prior authorisation from the CBB to issue the CET1 instruments into which such AT1 instruments would convert upon occurrence of a trigger event.

        January 2015

      • CA-2.1.7M

        A conventional bank licensee issuing AT1 instruments that convert to CET1 on the occurrence of a trigger event must ensure that there are no procedural impediments to that conversion by virtue of its incorporation or statutes or contractual arrangements.

        January 2015

    • Consequences of the Conditions for AT1 Instruments Ceasing to Be Met

      • CA-2.1.7N

        The following must apply where, in the case of an AT1 instrument, the conditions laid down in Paragraph CA-2.1.6 cease to be met:

        (a) That instrument must immediately cease to qualify as an AT1 instrument; and
        (b) The part of the share premium accounts that relates to that instrument must immediately cease to qualify as an AT1 item.
        January 2015

    • Tier 2 Capital (T2)

      • CA-2.1.8

        T2 capital consists of the sum of the following items:

        (a) Instruments issued by the conventional bank licensee that meet the criteria for inclusion in T2 outlined in Paragraph CA-2.1.10;
        (b) Stock surplus (share premium) resulting from the issue of instruments included in T2;
        (c) Instruments issued by consolidated subsidiaries of the conventional bank licensee and held by third parties that meet the criteria for inclusion in T2 capital and are not included in T1. See CA-2.3 for the relevant criteria;
        (d) General loan loss provisions held against future, presently unidentified losses and are freely available to meet losses which subsequently materialise and qualify for inclusion within T2. Such general loan loss provisions which are eligible for inclusion in T2 will be limited to a maximum of 1.25 percentage points of credit risk-weighted risk assets. Provisions ascribed to identified deterioration of particular assets or known liabilities, whether individual or grouped, must be excluded;
        (e) Regulatory adjustments applied in the calculation of T2 (see CA-2.4); and
        (f) Asset revaluation reserves which arise from the revaluation of fixed assets from time to time in line with the change in market values, and are reflected on the face of the balance sheet as a revaluation reserve. Similarly, gains may also arise from revaluation of Investment Properties (real estate). These reserves (including the net gains on investment properties) may be included in T2 capital, with the concurrence of the external auditor, provided that the assets are prudently valued, fully reflecting the possibility of price fluctuation and forced sale.
        January 2015

      • CA-2.1.9

        The treatment of instruments issued out of consolidated subsidiaries of the conventional bank licensee and the regulatory adjustments applied in the calculation of T2 are addressed in Section CA-2.3.

        January 2015

      • CA-2.1.10

        For an instrument to be included in T2(see CA-2.1.8(a)), it must meet all the criteria below:

        (a) It is issued and paid-in;
        (b) It is subordinated to depositors and general creditors of the conventional bank licensee;
        (c) It is neither secured nor covered by a guarantee of the issuing conventional bank licensee or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-à-vis depositors and general creditors of the conventional bank licensee;
        (d) It must have a minimum maturity of at least 5 years and it will be amortised on a straight line basis in the remaining five years before maturity and there are no step-ups or other incentives to redeem;
        (e) It may be callable at the initiative of the conventional bank licensee only after a minimum of five years and the conventional bank licensee must not do anything which creates an expectation that the call will be exercised. The conventional bank licensee may not exercise such a call option without receiving written prior approval of the CBB and the called instrument must be replaced with capital of the same or better quality; or the conventional bank licensee demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised. In all early call situations, any replacement of existing capital must be done at conditions which are sustainable for the income capacity of the conventional bank licensee;
        (f) The investor must have no rights to accelerate the repayment of future scheduled payments (coupon or principal), except in bankruptcy and liquidation;
        (g) The instrument cannot have a credit sensitive dividend/coupon that is reset periodically based in whole or in part on the conventional bank licensee's credit standing;
        (h) Neither the conventional bank licensee nor a related party over which the bank exercises control or significant influence can have purchased the instrument, nor can the conventional bank licensee directly or indirectly have funded the purchase of the instrument. This means own holdings of T2 instruments and T2 purchased or funded by the conventional bank licensee for employee share purchase schemes must be deducted from T2. Any of the conventional bank licensee's own T2 instruments used as collateral for the advance of funds to its customers must be deducted from T2;
        (i) If the instrument is not issued out of a fully consolidated subsidiary bank or the parent conventional bank licensee in the consolidated group (e.g. a special purpose vehicle — "SPV"), proceeds must be immediately available without limitation to the parent conventional bank licensee in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in T2; and
        (j) All T2 Instruments must have principal loss absorption through either (i) conversion to common shares at an objective pre-specified trigger event; or (ii) a write-down mechanism which allocates losses to the instrument at a pre-specified trigger event. The write-down will reduce the claim of the instrument in liquidation and reduce the amount that will be re-paid when a call is exercised and partially or fully reduce coupon/dividend payments on the instrument;
        Amended: January 2016
        January 2015

      • CA-2.1.11

        [This paragraph has been left blank.]

        January 2015

      • CA-2.1.11A

        The issuance of any new shares as a result of a trigger event must occur prior to any public sector injection of capital so that the capital provided by the public sector is not diluted.

        January 2015

      • CA-2.1.11B

        Where an issuing bank or SPV is part of a banking group and the issuer wishes the instrument to be included in the capital base of the group (in addition to its solo capital where applicable), the terms and conditions must specify an additional trigger event.

        January 2015

      • CA-2.1.11C

        Any common stock paid as compensation to the holders of the instrument must be common stock of either the issuing bank or the parent bank of the group (including any successor in resolution).

        January 2015

    • Write Down or Conversion of Tier 2 Instruments

      • CA-2.1.11D

        For the purposes of Subparagraph CA-2.1.10(j), the following provisions apply to T2 instruments accounted for as liabilities:

        (a) A trigger event occurs when the CET1 capital ratio of the conventional bank licensee institution referred to in Subparagraph CA-B.2.1(a) falls below either of the following:
        (i) 7.0%; or
        (ii) A level higher than 7.0 %, where determined by the conventional bank licensee and specified in the provisions governing the instrument; and
        (b) Conventional bank licensees may specify in the provisions governing the instrument one or more trigger events in addition to that referred to in Subparagraph (a).
        January 2015

      • CA-2.1.11E

        Where the provisions governing T2 instruments require them to be converted into CET1 instruments upon the occurrence of a trigger event, those provisions must specify either of the following:

        (a) The rate of such conversion and a limit on the permitted amount of conversion; or
        (b) A range within which the instruments will convert into CET1 instruments.
        January 2015

      • CA-2.1.11F

        Where the provisions governing T2 instruments require their principal amount to be written down upon the occurrence of a trigger event, the write down must reduce all the following:

        (a) The claim of the holder of the instrument in the insolvency or liquidation of the conventional bank licensee;
        (b) The amount required to be paid in the event of the call or redemption of the instrument; and
        (c) The distributions made on the instrument.
        January 2015

      • CA-2.1.11G

        Write down or conversion of a T2 instrument must, under the applicable accounting framework, generate items that qualify as CET1 items.

        January 2015

      • CA-2.1.11H

        The amount of T2 instruments recognised in T2 items is limited to the minimum amount of CET1 items that would be generated if the principal amount of the T2 instruments were fully written down or converted into CET1 instruments.

        January 2015

      • CA-2.1.11I

        The aggregate amount of T2 instruments that is required to be written down or converted upon the occurrence of a trigger event must be no less than the lower of the following:

        (a) The amount required to restore fully the CET1 ratio of the conventional bank licensee to 7.0 %; and
        (b) The full principal amount of the instrument.
        January 2015

      • CA-2.1.11J

        When a trigger event occurs conventional bank licensees must do the following:

        (a)Immediately inform the CBB;
        (b)Inform the holders of the T2 instruments; and
        (c)Write down the principal amount of the T2 instruments, or convert the instruments into CET1 instruments without delay, but no later than within one month, in accordance with the requirement laid down in this Section.
        January 2015

      • CA-2.1.11K

        A conventional bank licensee issuing T2 instruments that convert to CET1 on the occurrence of a trigger event must ensure that its authorised share capital is at all times sufficient, for converting all such convertible T2 instruments into shares if a trigger event occurs.

        January 2015

      • CA-2.1.11L

        All necessary authorisations must be obtained at the date of issuance of such convertible T2 instruments. The conventional bank licensee must maintain at all times the necessary prior authorisation from the CBB to issue the CET1 instruments into which such T2 instruments would convert upon occurrence of a trigger event.

        January 2015

      • CA-2.1.11M

        A conventional bank licensee issuing T2 instruments that convert to CET1 on the occurrence of a trigger event must ensure that there are no procedural impediments to that conversion by virtue of its incorporation or statutes or contractual arrangements.

        January 2015

    • Consequences of the Conditions for T2 Instruments Ceasing to be Met

      • CA-2.1.11N

        The following must apply where, in the case of a T2 instrument, the conditions laid down in CA-2.1.10 cease to be met:

        (a) That instrument must immediately cease to qualify as a T2 instrument; and
        (b) The part of the share premium accounts that relates to that instrument must immediately cease to qualify as a T2 item.
        January 2015