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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 Islamic 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 Islamic bank licensee (i.e. it is junior to depositors, general creditors, and subordinated capital instruments 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 Islamic 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 AAOIFI standards and disclosed separately in the financial statements;
(o) The Islamic bank licensee cannot directly or indirectly have funded the purchase of the instrument (i.e. treasury shares and shares purchased or funded by the Islamic 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 Islamic 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 Islamic bank licensee;
January 2015