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  • 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