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  • CA-2.2 CA-2.2 Limits and Minima on the Use of Different Forms of Capital

    • Consolidated T1 Capital and Total Capital

      • CA-2.2.1

        CAR components and CARs outlined in Paragraph CA-B.2.1 must meet or exceed the following minimum ratios on a consolidated basis relative to total risk-weighted assets:

        (a) CET1 must be at least 6.5% of risk-weighted assets at all times;
        (b) T1 Capital must be at least 8% of risk-weighted assets at all times;
        (c) Total Capital (T1 Capital plus T2 Capital) must be at least 10% of risk-weighted assets at all times;
        (d) In addition, Islamic bank licensees must meet the minimum Capital Conservation Buffer (CCB) requirement of 2.5% of risk-weighted assets. The CCB must be composed of CET1 and so this gives an aggregate 9% CET1 including the CCB minimum capital requirement;
        (e) A minimum 10.5% T1 Capital Adequacy Ratio including the above CCB requirement; and
        (f) A 12.5% minimum Total Capital Adequacy Ratio including the above CCB requirement.
        January 2015

    • Solo Tier 1 Capital and Total Capital

      • CA-2.2.1A

        CAR components and CARs outlined in Paragraph CA-B.2.1 must meet or exceed the following minimum ratios on a solo basis relative to total risk-weighted assets:

        (a) CET1 must be at least 4.5% of risk-weighted assets at all times;
        (b) T1 Capital must be at least 6% of risk-weighted assets at all times;
        (c) Total Capital (T1 Capital plus T2 Capital) must be at least 8% of risk-weighted assets at all times; and
        (d) The minimum Capital Conservation Buffer (CCB) requirement of 2.5% of risk-weighted assets does not apply on a solo basis.
        January 2015

      • CA-2.2.2

        CET1 must be the predominant form of capital. Accordingly, the contribution of AT1 instruments towards the Minimum T1 Capital Ratios mentioned in Paragraphs CA-2.2.1 and CA-2.2.1A is limited to 1.5%.

        January 2015

      • CA-2.2.3

        The limits on AT1 instruments and T2 instruments are based on the amount of CET1 after deductions pursuant to CA-2.4 (see Appendices CA-11 and CA-12 for examples of the threshold deduction effects and the caps).

        January 2015

    • Tier 2: Supplementary Capital

      • CA-2.2.4

        The contribution of T2 capital towards the Minimum Total Capital Ratios and Minimum Total Capital plus Capital Conservation Buffer Ratios mentioned in Paragraphs CA-2.2.1 (consolidated) and CA-2.2.1A (solo) is limited to 2.0%.

        January 2015

      • CA-2.2.5

        To explain the limits outlined in Paragraph CA-2.2.4 on the contributions of AT1 and T2 Capital to T1 and Total Capital, a simple example is given below where an Islamic bank licensee on a consolidated basis has BD650mn of Core Equity Tier One Capital and BD200mn of AT1 and BD300mn of T1 Capital and BD10,000 mn of total risk-weighted assets:

        (a) 6.5% CET1 = BD650mn;
        (b) 8.0% T1 = BD800mn (i.e. only BD150mn of the AT1 may be included in the T1 minimum requirement;
        (c) 10% Total Capital = BD1,000 mn (i.e. only BD200mn of the T2 Capital may be included in the Total Capital requirement.

        This means that if the Islamic bank licensee only has BD650mn of CET1, it cannot comply with the additional Capital Conservation Buffer Requirement of 2.5% nor can it use excess AT1 or T2 Capital to meet this requirement. Although it would appear that the Islamic bank licensee has BD1,150mn of total capital, only BD1,000mn can be used to meet the minimum ratios. This example serves to underline the importance of CET1. Unless an Islamic bank licensee can meet the CET1 minimum CARs of 6.5% and 9.0% mentioned above, it may not be able to meet any of the other minimum capital adequacy ratios outlined in Paragraph CA-2.2.1. A separate example of the effect of the T2 cap is given in Appendix CA-12.

        January 2015