Non-innovative Residual Tier 1 capitalNon-innovative Residual Tier 1 capital

Non-innovative Residual Tier 1 capital

4. To qualify as Non-innovative Residual Tier 1 capital at Level 1 and Level 2, perpetual non-cumulative preference shares, in addition to the criteria set out in paragraph 1 of this Attachment, must also satisfy the following criteria:

(a) the preference shares have not been issued indirectly through an SPV. An indirect issue is not eligible for inclusion in Non-innovative Residual Tier 1 capital although the preference shares may be included in Innovative Tier 1 capital provided they also satisfy the criteria set out in Attachment C and the relevant criteria in this Attachment;

(b) the preference shares do not provide for any step-up in dividends. A conversion from fixed to floating rate (or vice-versa) or a switch in index basis, where there is no change in the effective margin included in the rate of dividend, is not considered a step-up;

(c) conversion of the preference shares into ordinary shares is permitted, subject to the following criteria:

(i) conversion cannot occur at the option of the holder;

(ii) the conversion formula for determining the number of ordinary shares received upon conversion of a preference share must be fixed in the issue documentation and must include a cap on the maximum number of ordinary shares that holders will receive upon conversion;

(iii) for the purposes of paragraph 4(c)(ii) of this Attachment, the maximum number of ordinary shares received upon conversion of each preference share must not exceed the ratio of the price of the preference share at issue divided by 50 per cent of the price of the ordinary share at time of issue of the preference shares. For these purposes, in calculating the ordinary share price at time of issue, adjustments may be made for subsequent ordinary share splits, bonus issues and similar transactions;

(iv) the conversion is not structured in a way that would effectively provide for a return of capital or compensation for unpaid dividends; and

(v) any exercise of the conversion option by the issuer is subject to APRA’s prior written approval. Approval is not required for any mandatory conversions whose terms were agreed to by APRA prior to issuance of the preference shares;

(d) perpetual non-cumulative preference shares issued through “stapled” structures are permitted at both Level 1 and Level 2, subject to the following conditions:

(i) the preference shares are issued directly by an ADI and are “stapled” to securities (stapled securities) issued directly by an overseas branch of the ADI. The stapled structure must not involve any use of SPVs and must be simple and transparent;

(ii) either or both of the preference shares and the stapled securities are paid up. Any partly paid preference shares or stapled securities are eligible only to the extent that they have been paid up;