Planned reductions in capitalPlanned reductions in capital

Planned reductions in capital

1. For the purposes of this Prudential Standard, a planned reduction in an ADI’s capital, whether at Level 1, 2 or 3, includes:

(a) 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 Level 3 capital adequacy;

(b) trading in the ADI’s own shares or capital instruments outside of any arrangement agreed with APRA in accordance with APS 111;

(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 to APS 111); and

(d) dividend or interest payments (whether whole or partial) on Upper Tier 2 capital, Innovative Tier 1 capital 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 to APS 111).[5]

2. An ADI or authorised NOHC (as applicable) proposing a capital reduction (whether at Level 1, 2 or 3) must provide APRA a forecast showing, at the respective Levels, the projected future capital position (including PCR) after the proposed capital reductions. The forecast should extend for at least two years.

3. An ADI must satisfy APRA that the ADI’s capital, at Level 1, 2 and 3 as appropriate, after the proposed reduction, will remain adequate for its future needs.