Attachment B – Constraints on capital distributions

1. Capital distribution constraints apply when an ADI’s Common Equity Tier 1 Capital ratio is within the capital buffer (CB) range (consisting of the capital conservation buffer plus any countercyclical capital buffer). The CB range is divided into four quartiles for the purposes of determining the minimum capital conservation ratios, as set out in Table 1.

Table 1: Minimum capital conservation ratios

1. The minimum capital conservation ratios in Table 1 represent the percentage of earnings that an ADI must not distribute if its Common Equity Tier 1 Capital ratio falls within the corresponding quartile. If the Common Equity Tier 1 Capital ratio falls within the first quartile, the ADI must also cease all Tier 1 Capital distributions.
2. Earnings are defined for the purposes of this Attachment as distributable profits calculated prior to the deduction of elements subject to the restriction on distributions. Earnings are calculated after the tax that would have been reported had none of the distributable items been paid. As such, any tax impact of making such distributions is reversed out. An ADI that does not have positive earnings and has a Common Equity Tier 1 Capital ratio less than the sum of its Common Equity Tier 1 PCR plus the capital conservation buffer must not make positive net distributions.
3. Payments made by an ADI that do not result in a depletion of Common Equity Tier 1 Capital are not considered to be distributions for the purposes of this Attachment. APRA may impose restrictions on capital distributions even where an ADI’s Common Equity Tier 1 Capital ratio is above the capital conservation buffer.
4. APRA may impose limits on the period in which an ADI may operate within the capital conservation buffer range, on a case-by-case basis.