Regulatory Alerts2013-06-14
Loss Absorbency Requirements for Additional Tier 1 and Tier 2 Capital Instruments
The South African Reserve Bank requires banks to embed loss absorbency mechanisms into Additional Tier 1 and Tier 2 capital instruments to satisfy Basel III implementation standards. These instruments must convert to the most subordinated equity or be permanently written off upon a trigger event, which occurs when the Common Equity Tier 1 ratio drops to 5.875 percent or at the Registrar’s discretion. The guidance details conversion formulas, permanent write-off consequences, consolidated subsidiary treatment, and notes that existing contractual terms will likely prevail over upcoming statutory bail-in laws.
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