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  • 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