Reductions in Capital

1. For the purpose of Prudential Standard APS 110 Capital Adequacy, a reduction in an authorised deposit-taking institution's (ADI’s) capital (whether at Level 1, 2 or 3) includes:

(a) share buyback or the redemption, repurchase or repayment of any qualifying Tier 1 and Tier 2 capital instruments issued by the ADI or by other entities included in the calculation of the ADI’s Level 2 or 3 capital adequacy;

(b) trading in the ADI’s own shares or capital instruments (refer Guidance Note AGN 111.4 Capital Deductions);

(c) payment of dividends on ordinary shares that exceeds an ADI’s after-tax earnings, after including any payments on more senior capital instruments, in the financial year to which they relate (refer Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111)); and

(d) dividend or interest payments (whether whole or partial) on Upper Tier 2, Innovative Tier 1 and Non-innovative Residual Tier 1 capital that exceed an ADI’s after-tax earnings, including any payments made on more senior capital instruments, calculated before any such payments are applied in the financial year to which they relate (refer APS 111).

2. An ADI proposing a capital reduction (whether at Level 1, 2 or 3) should provide APRA with a relevant capital plan covering the respective level(s). The plan should extend for at least two years.

3. To obtain APRA’s approval for any proposed reduction in its capital (whether at Level 1, 2 or 3), an ADI will need to satisfy APRA that the ADI’s capital (at Level 1, 2 or 3 as appropriate) after the proposed reduction will remain adequate for its future needs.