Minimum capital adequacy requirementsMinimum capital adequacy requirements

Minimum capital adequacy requirements

14. An ADI is subject to a prudential capital ratio (PCR) as determined by APRA. Subject to paragraphs 15 and 16, an ADI’s PCR is eight per cent of its total risk-weighted assets, half of which must be held in the form of Tier 1 capital. An ADI must, at all times, maintain a risk-based capital ratio in excess of its PCR. For the definition of total risk-weighted assets and risk-based capital ratio, refer to Attachment D.

15. APRA may, in writing, increase an ADI’s PCR to a specified level above eight per cent where APRA believes there are prudential reasons for doing so (refer to Attachment F). In doing so, APRA may specify the same or different PCRs at Level 1 and Level 2, or increase the PCR at only one level. Where APRA requires an ADI to maintain a PCR above eight per cent, a minimum of half the capital required to meet the PCR must be held in the form of Tier 1 capital, unless APRA determines otherwise.

16. APRA may, in writing, require an ADI to hold:

(a) more than 50 per cent of its required PCR in the form of Tier 1 capital; or

(b) a greater proportion of its Tier 1 capital in the form of Fundamental Tier 1 capital than the proportion required by Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111).[1]

17. An ADI must, as part of its ICAAP, establish and maintain in the normal course of business risk-based capital ratios (refer to Attachment D) for both Tier 1 capital and the capital base,[2] above the PCR (or PCRs) prescribed under this Prudential Standard.

18. An ADI subject to Level 3 capital adequacy assessment must meet the minimum group-wide capital adequacy benchmarks, approved by APRA, on a continuous basis. APRA may, under paragraph 15, impose higher capital requirements on an ADI in a conglomerate group if it is not satisfied with the group’s capital adequacy at Level 3.