Tier 1 and Upper Tier 2 instrumentsTier 1 and Upper Tier 2 instruments

Tier 1 and Upper Tier 2 instruments

35. For the purposes of subparagraphs 16(a) and 26(h) of this Attachment:

(a) a step-up in dividends or interest includes the following events:

(i) a change in margin on a floating rate instrument;

(ii) a change in rate on a fixed rate instrument;

(iii) a conversion from fixed to floating rate (or vice versa), with a change in the effective margin included in the rate of dividend or interest of the instrument; or

(iv) a switch in the index basis (e.g. from a 3-month to 6-month floating rate or from a 3-month LIBOR to a 3-month BBSW) with a change in the effective margin included in the rate of dividend or interest of the instrument;

(b) moderate step-up in the rate of dividends or interest is permitted, provided the increase in dividends or interest is no greater than either:

(i) 100 basis points, less the swap spread between the initial index basis and the stepped-up index basis; or

(ii) 50 per cent of the initial credit spread, less the swap spread between the initial index basis and the stepped-up index basis;

(c) the issue documentation specifies which of the two measures specified in subparagraph (b) is to apply to the instrument;

(d) switching between the two measures specified in subparagraph (b) is not allowed;

(e) where the step-up involves a conversion from fixed to floating rate (or vice versa), as set out in subparagraph (a) or a switch in index basis, the swap spread must be fixed as at the pricing date and reflect the differential in pricing on that date between the initial reference rate and the stepped-up reference rate;

(f) any step-up in dividends or interest must not be operative within the first 10 years from drawdown; and

(g) in principle, only one step-up in dividends or interest is permitted over the life of the instrument. Exceptions for step-ups to be undertaken on multiple occasions (or for variable amounts) may be approved by APRA in writing at the time of issuing the instrument.