Upper Tier 2 capitalUpper Tier 2 capital

Upper Tier 2 capital

Asset revaluation reserves

1. For the purposes of this Prudential Standard, only revaluation reserves arising from the revaluation of property, securities and investments in subsidiaries, other than subsidiaries that APRA deems part of an ELE and associates referred to in paragraphs 2 to 5 of this Attachment can be included in the capital of an ADI.[25]

2. Reserves arising from the revaluation of property can only be included in Upper Tier 2 capital if:

(a) the property is owned by an ADI or one of the entities at Level 2;

(b) the property represents only land and buildings;

(c) the property is readily available to be sold. A property need not be scheduled for sale, nor need a sale be intended. However, such a property must be capable of being readily sold within six months were a decision made to sell the property;

(d) the reserves are shown as a component of equity in the audited published financial accounts of the ADI (and the group which it heads);

(e) the revaluations are prudent, in accordance with Australian accounting standards, and subject to audit or review consistent with Australian auditing and assurance standards. An investment property must be measured at fair value in accordance with Australian accounting standards; and

(f) the amount of reserves incorporates the full effect of any fair value gains and losses and any gains or losses on hedges offsetting revaluations of property (owner-occupied property and investment property) included in the reserves.

3. Reserves arising from the revaluation of readily marketable securities[26] can only be included in Upper Tier 2 capital if:

(a) the securities are designated as “available for sale” assets in the audited published financial accounts of the ADI (or the group which it heads);

(b) the securities are held directly by an ADI or a Level 2 entity;

(c) the securities are listed or traded on a regulated exchange, or an ADI can otherwise demonstrate to APRA that there is a market for the securities and prices for the securities can be readily and reliably derived;

(d) the reserves are shown as a component of equity in the audited published financial accounts of the ADI (or the group which it heads);

(e) the revaluations are prudent, in accordance with Australian accounting standards, and subject to audit or review consistent with Australian auditing and assurance standards; and

(f) the amount of reserves incorporates the full effect of any fair value gains and losses and any gains or losses on hedges offsetting revaluations of securities included in the reserves.