Treatment of Specified Minority Interests in Shares and Instruments Qualifying as Capital

[Logo: South African Reserve Bank] South African Reserve Bank From the Office of the Registrar of Banks

C2/2013

2013-01-28

To banks, branches of foreign institutions, controlling companies, eligible institutions and auditors of banks or controlling companies

Circular 2/2013 issued in terms of section 6(4) of the Banks Act, 1990:

Matters related to specified minority interests, that is, non-controlling interests, in shares and/or instruments qualifying as capital

Executive summary

The Office of the Registrar of Banks (this Office) hereby informs all relevant persons of matters related to the prescribed treatment for the calculation of surplus capital relating to minority interests, to determine the portion of minority interests that may qualify as capital at a consolidated level.

1. Introduction

1.1 The Regulations relating to Banks (the Regulations) that became effective on 1 January 2013 contain, among other things, specific requirements related to the treatment of minority interests arising from the issue of shares or instruments by a fully consolidated subsidiary of the reporting bank or controlling company (hereafter referred to as banks) qualifying as capital, including specific requirements related to the surplus capital relating to the subsidiary attributable to third parties (minority shareholders), which has to be excluded from the relevant consolidated amount of qualifying capital.

1.2 Regulations 38(16)(a), 38(16)(b) and 38(16)(c) of the Regulations prescribe, among other things, the manner in which the relevant surplus amounts of common equity tier 1 capital (CET1), additional tier 1 capital (AT1) and tier 2 capital (T2) shall be calculated. In this regard, the capital requirement of the subsidiary shall be based on the relevant minimum requirement for CET1, AT1 and T2 of the bank for which the consolidation is performed plus the relevant capital conservation buffer.

---

2

2. Relevant minimum requirement relating to minority interests and other matters

2.1 The relevant minimum requirement referred to in paragraph 1.2 above for CET1, AT1 and T2 shall be the relevant South African minima specified from time to time, including the capital conservation buffer, countercyclical buffer and domestic systemically important bank (D-SIB) capital add-on, that is imposed on the registered controlling company or registered local bank (please refer to Guidance Note 9/2012 for further details in this regard).

2.2 For the purposes of determining the qualifying capital of subsidiaries, net of deductions, banks shall include reserve funds and retained earnings in accordance with the requirements specified in regulation 38(10) of the Regulations.

2.3 Furthermore, the calculation of surplus capital of the subsidiary attributable to third parties shall be based on the net amount, that is, the amount after any relevant haircut or limit, for the AT1 and T2 instruments in terms of regulation 38(13) and regulation 38(14) of the Regulations.

2.4 During the transitional phase-in period of the South African minimum requirement, the relevant percentage referred to in paragraph 2.1 above shall be the minimum requirements as at 1 January 2019, while changes to requirements such as Pillar 2B and D-SIB shall be applied as and when they are communicated by this Office.

3. Acknowledgement of receipt

3.1 Two additional copies of this circular are enclosed for the use of your institution’s independent auditors. The attached acknowledgement of receipt, duly completed and signed by both the chief executive officer and the said auditors, must be returned to this Office at the earliest convenience of the aforementioned signatories.

[Signature]

René van Wyk Registrar of Banks

The previous circular issued was Banks Act Circular 1/2013, dated 10 January 2013.