| (5) | Matters related to adjustments to or deductions from capital and reserve funds |
| (a) | Subject to the provisions of paragraph (b) and (c), based on the relevant requirements specified in sections 70 and 70A of the Act, a bank or controlling company shall deduct— |
[Words preceding regulation 38(5)(a)(i) substituted by section 9(b) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (i) | from its common equity tier 1 capital and reserve funds— |
| (A) | the relevant amount, net of any associated deferred tax liability which would be extinguished if the relevant intangible asset becomes impaired or is derecognised in terms of the relevant requirements specified in Financial Reporting Standards issued from time to time, related to goodwill, including any goodwill included in the valuation of significant investments in the capital of banks, financial entities or insurance entities that fall outside the scope of consolidation in terms of the provisions of these Regulations; |
| (B) | the relevant amount related to intangible assets other than goodwill, excluding any relevant amount related to mortgage servicing rights, net of any associated deferred tax liability which would be extinguished if the relevant intangible asset becomes impaired or is derecognised in terms of the relevant requirements specified in Financial Reporting Standards issued from time to time; |
| (C) | the relevant amount related to deferred tax assets that rely on future profitability of the bank to be realised, provided that— |
| (i) | the bank shall distinguish between the component of deferred tax assets that relates to temporary differences, such as an allowance for credit losses, and other deferred tax assets; |
| (ii) | deferred tax assets that relate to temporary differences shall be treated in accordance with the relevant requirements specified in paragraph (b) below; |
| (iii) | a deferred tax asset may be netted against an associated deferred tax liability only if the said asset and liability relate to taxes levied by the same taxation authority and offsetting is explicitly permitted by that relevant taxation authority, provided that the said deferred tax liabilities that may be netted against the relevant amount of deferred tax assets shall exclude any amount that has been netted against the deduction of goodwill, intangible assets other than goodwill and defined benefit pension assets; |
| (iv) | the bank shall, on a pro-rata basis, allocate deferred tax liabilities between deferred tax assets subject to the threshold deduction treatment specified in paragraph (b) below, and deferred tax assets to be deducted in full from capital and reserve funds; |
| (v) | any relevant amount related to current year tax losses that gives rise to a claim or receivable amount from the government or local tax authority, typically classified as a current tax assets, shall be assigned the relevant sovereign risk weight; |
| (D) | any relevant positive amount related to a cash flow hedge reserve that relates to the hedging of items that are not fair valued on the balance sheet, including any relevant amount related to projected cash flows, provided that any relevant negative amount related to a cash flow hedge reserve shall also be derecognised, that is, added back to common equity tier 1 capital and reserve funds; |
[Regulation 38(5)(a)(i)(D) substituted by regulation 22(a) of Notice No. 297, GG 40002, dated 20 May 2016]
| (E) | the gross amount by which the aggregate amount of expected loss of a bank that adopted the IRB approach for the measurement of the bank's exposure to credit risk, calculated in accordance with the relevant requirements specified in regulation 23(21) of these Regulations, exceeds the bank's eligible provisions, which gross amount shall not be reduced by any tax effects that may occur if provisions were to rise to the level of expected losses; |
| (F) | any relevant increase in equity capital or common equity tier 1 capital and reserve funds resulting from a securitisation or resecuritisation transaction, such as an increase associated with expected future margin income resulting in a gain-on-sale; |
[Regulation 38(5)(a)(i)(D) substituted by regulation 22(b) of Notice No. 297, GG 40002, dated 20 May 2016]
| (G) | any unrealised gain resulting from changes in the fair value of liabilities due to changes in the bank or controlling company's own credit risk, provided that— |
| (i) | the bank or controlling company shall also derecognise from its common equity tier 1 capital and reserve funds any relevant amount related to any unrealised loss due to changes in the fair value of the bank or controlling company’s own credit risk; |
[Regulation 38(5)(a)(i)(G)(i) substituted by regulation 22(c) of Notice No. 297, GG 40002, dated 20 May 2016]
| (ii) | with regard to any relevant derivative liability, the bank or controlling company shall derecognise all relevant accounting valuation adjustments arising from the bank or controlling company's own credit risk; |
| (iii) | the bank or controlling company shall in no case apply any netting or offsetting between valuation adjustments arising from the bank or controlling company's own credit risk and those arising from its counterparties' credit risk; |
| (iv) | the bank or controlling company shall derecognise its debit valuation adjustment in full, irrespective of whether or not the bank or controlling company has adopted any funding valuation type adjustment, that is, the bank or controlling company's adoption of any funding valuation type adjustment shall in no case offset or reduce the "own credit" adjustment envisaged in this item (G); |
[Regulation 38(5)(a)(i)(G)(iv) inserted by regulation 22(d) of Notice No. 297, GG 40002, dated 20 May 2016]
| (H) | any relevant amount related to a defined benefit pension fund constituting an asset on the balance sheet, net of any associated deferred tax liability which would be extinguished if the asset should become impaired or derecognised in terms of the relevant requirements specified in Financial Reporting Standards, provided that— |
| (i) | subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, assets in the said fund to which the bank has unrestricted and unfettered access may offset the relevant deduction; |
| (ii) | offsetting assets as envisaged in sub-item (i) above shall be assigned the risk weight that would have applied were the assets owned directly by the bank; and |
| (iii) | any amount related to a defined benefit pension fund liability, as included on the balance sheet, shall be fully recognised in the calculation of the bank’s net asset value, including in particular in the calculation of the bank’s common equity tier 1 capital and reserve funds, that is, common equity tier 1 capital and reserve funds shall not be increased through the derecognition of any defined benefit pension fund liability; |
[Regulation 38(5)(a)(i)(H)(iii) substituted by regulation 22(e) of Notice No. 297, GG 40002, dated 20 May 2016]
| (I) | the relevant amount related to any direct or indirect investment in or direct or indirect funding provided for direct or indirect investment in the bank or controlling company’s own shares qualifying as common equity tier 1 capital, provided that— |
| (i) | any relevant gross long position may be deducted net of any relevant short position in the same underlying exposure only if the relevant short position involves no counterparty risk; |
| (ii) | the bank shall look through holdings of index securities to deduct any relevant exposure to own shares qualifying as common equity tier 1 capital, provided that any gross long position in own shares resulting from holdings of index securities may be netted against short positions in own shares resulting from short positions in the same underlying index, even when the short positions may involve counterparty risk, which counterparty risk shall be subject to the relevant requirement specified in these Regulations for counterparty credit risk; |
Regulation 38(5)(a)(i)(l)(ii) substituted by section 9(c) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (J) | the relevant amount related to any reciprocal cross holding of instruments or shares qualifying as capital of any other bank, controlling company, other financial entity or insurance entity, provided that the reporting bank or controlling company shall apply a corresponding deduction approach, that is, deductions shall be applied to the same component of capital for which the capital would qualify if it was issued by the bank itself; |
[Regulation 38(5)(a)(i)(J) substituted by regulation 22(h) of Notice No. 297, GG 40002, dated 20 May 2016]
| (K) | the higher amount of either the investment in the foreign branch or any capital requirement imposed by either the home country or host country supervisor in respect of any foreign branch of the bank, provided that— |
| (i) | this deduction shall not apply when the assets and liabilities of a foreign branch of a bank are combined with the assets and liabilities of the locally incorporated parent bank in order to calculate a consolidated required amount of capital and reserve funds in respect of the said consolidated bank and branch of a bank; |
| (ii) | when the host supervisor imposes a minimum capital requirement in respect of the said foreign branch notwithstanding the consolidation of the assets and liabilities of the said branch with the assets and liabilities of the said parent bank, the amount to be deducted shall be equal to any shortfall in the amount of capital held by the said branch in respect of the said host capital requirement; |
[Regulation 38(5)(a)(i)(K) substituted by regulation 22(i) of Notice No. 297, GG 40002, dated 20 May 2016]
| (L) | the relevant net positive amount, that is, the gross long position net of any relevant short position in the same underlying instrument where the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least one year , determined in terms of the provisions of this item (L), related to any direct or indirect investment, including any relevant synthetic investment or underwriting position held for longer than five working days, in instruments qualifying as capital of any bank, financial or insurance entity that falls outside the scope of consolidation in terms of the provisions of these Regulations, and where the reporting bank or controlling company does not own more than 10 per cent of the issued common share capital of that entity, irrespective of whether the relevant investment is held in the banking book or trading book, provided that— |
| (i) | in order to determine the appropriate amount to be deducted the bank or controlling company shall look through holdings of index securities to determine the actual underlying holdings of capital in the relevant entity. provided that when a bank or controlling company finds it operationally burdensome to look through and monitor its exact exposure to the capital of other financial institutions as a result of its holdings of index securities, the bank or controlling company may obtain the prior written approval of the Authority to use a conservative estimate, which estimate shall be well founded and duly motivated by the relevant applicant; |
| (ii) | subject to the prior written approval of and such conditions as may be specified in writing by the Authority, a bank or controlling company may exclude from this deduction investments made to resolve or provide financial assistance to reorganise a distressed institution; |
| (iii) | for the purposes of determining the relevant deduction in terms of the provisions of this item (L), any investment in a capital instrument that does not meet the criteria for or is not equivalent to common equity tier 1 capital or additional tier 1 capital or tier 2 capital shall be deemed to constitute common equity or common equity tier 1 capital; |
| (iv) | when the aggregate amount calculated on a net long basis, of— |
| (aa) | investments in shares or other capital instruments envisaged in this item (L), plus |
| (bb) | investment in or holding of other TLAC instruments or liabilities, |
exceeds 10 per cent of the bank or controlling company 's common equity tier 1 capital and reserve funds after applying all other relevant regulatory adjustments or deductions prior to this deduction , the relevant amount in excess of 10 per cent shall be deducted, applying a corresponding deduction approach in respect of capital instruments, that is, the deduction in respect of capital instruments shall be made against the same component of capital for which the capital would qualify if it was issued by the bank itself, and the amount related to investment in or holding of other TLAC instruments or liabilities shall be deducted from tier 2 capital and reserve funds, as envisaged in and in accordance with the relevant provisions of subparagraph (iii)(G) below.
Accordingly, the amount to be deducted from common equity tier 1 capital and reserve funds shall be the relevant total of all holdings of capital instruments and investment in or holding of other TLAC instruments or liabilities that in aggregate exceeds 10 per cent of the relevant bank or controlling company's common equity tier 1 capital and reserve funds multiplied by the common equity holdings or common equity tier 1 capital as a percentage of the total holdings of capital instruments and other TLAC instruments or liabilities below, that is, the relevant portion of total capital holdings held in common equity or common equity tier 1 capital.
| (v) | any relevant amount below the relevant specified threshold, which is not required to be deducted in accordance with the relevant requirements specified in this subregulation (5), shall be appropriately risk weighted. that is, instruments held in the trading book shall be subject to the relevant requirements specified in these Regulations for market risk, and instruments held in the banking book shall be subject to the relevant requirements specified in these Regulations for the standardised approach or internal ratings-based approach for credit risk , provided that for the application of risk weights, the amount of the relevant holdings shall be allocated on a pro-rata basis between those below and those above the relevant specified threshold; |
Regulation 38(5)(a)(i)(L) substituted by section 9(d) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (M) | the relevant net positive amount, that is, the gross long position net of any relevant short position in the same underlying instrument where the maturity of the short position either matches the maturity of the long position or has a residual maturity of at least one year, determined in terms of the provisions of this item (M), related to any direct or indirect investment, including any relevant synthetic investment, in instruments qualifying as capital of a bank, financial or insurance entity that falls outside the scope of consolidation in terms of the provisions of these Regulations where the bank or controlling company owns more than 10 per cent of the issued common share capital of the issuing entity or where the entity is an affiliate or associate of the bank or controlling company, irrespective whether the relevant investment is held in the banking book or trading book, provided that— |
| (i) | in order to determine the appropriate amount to be deducted a bank or controlling company shall look through holdings of index securities to determine the actual underlying holdings of capital in the relevant entity, provided that when a bank or controlling company finds it operationally burdensome to look through and monitor their exact exposure to the capital of other financial institutions as a result of their holdings of index securities , the bank or controlling company may obtain the prior written approval of the Authority to use a conservative estimate, which estimate shall be well founded and duly motivated by the relevant applicant; |
| (ii) | subject to the prior written approval of and such conditions as may be specified in writing by the Authority a bank or controlling company may exclude from this deduction investments made to resolve or provide financial assistance to reorganise a distressed institution; |
| (iii) | for the purposes of determining the relevant deduction in terms of the provisions of this item (M), any investment in a capital instrument that does not meet the criteria for or is not equivalent to common equity tier 1 capital or additional tier 1 capital or tier 2 capital shall be deemed to constitute common equity or common equity tier 1 capital; |
| (iv) | the relevant deduction shall be the aggregate amount of all relevant investments in capital instruments other than common shares or instruments qualifying as common equity tier 1 capital, following a corresponding deduction approach, that is, the deduction shall be made against the same category of capital for which the capital would qualify if it was issued by the bank itself, provided that, instead of a full deduction, specified investments in common shares qualifying as common equity tier 1 capital shall be treated in accordance with the relevant requirements specified in paragraph (b) below; |
| (v) | the bank or controlling company shall, in accordance with the relevant requirements specified in subregulation (10)(b) read with subparagraph (iii)(G) below, deduct from its tier 2 capital and reserve funds the relevant aggregate amount related to any investment in or holding of other TLAC instruments or liabilities in that relevant bank, financial or insurance entity that falls outside the scope of consolidation in terms of the provisions of these Regulations; |
Regulation 38(5)(a)(i)(M) substituted by section 9(e) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (N) | the value of assets lodged or pledged to secure liabilities incurred under any other law when the effect of such lodging or pledging is that such assets are not available for the purpose of meeting the liabilities of the bank in terms of the Banks Act, 1990, provided that, subject to such conditions and treatment as may be specified in writing by the Registrar, the Registrar may determine cases in which the value of assets lodged or pledged to secure liabilities of the bank do not constitute a deduction against the common equity tier 1 capital and reserve funds of the said bank; |
| (O) | the net present value of acknowledgements of debt outstanding issued to directly or indirectly fund shares that rank as qualifying common equity tier 1 capital, which net present value shall be deducted from the issuer's common equity tier 1 capital and reserve funds, unless such acknowledgements of debt are subordinated in a manner similar to the shares that rank as qualifying common equity tier 1 capital; |
[Regulation 38(5)(a)(i)(O) substituted by regulation 22(n) of Notice No. 297, GG 40002, dated 20 May 2016]
| (P) | any share that qualifies as common equity tier 1 capital of the reporting bank and for which the reporting bank has received no value; |
[Regulation 38(5)(a)(i)(P) substituted by regulation 22(o) of Notice No. 297, GG 40002, dated 20 May 2016]
| (ii) | from its additional tier 1 capital and reserve funds— |
| (A) | the relevant amount related to any direct or indirect investment in or direct or indirect funding provided for direct or indirect investment in the bank or controlling company's own shares or instruments qualifying as additional tier 1 capital, provided that— |
| (i) | any gross long position may be deducted net of any relevant short positions in the same underlying exposure only if the relevant short positions involve no counterparty risk; |
| (ii) | the bank shall look through holdings of index securities to deduct any relevant exposure to own shares or instruments qualifying as additional tier 1 capital, provided that any gross long position in own shares resulting from holdings of index securities may be netted against short position in own shares resulting from short positions in the same underlying index, even when the short positions may involve counterparty risk, which shall be subject to the relevant requirement specified in these Regulations for counterparty credit risk; |
Regulation 38(5)(a)(ii)(A)(ii) substituted by section 9(f) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (B) | the relevant amount related to any reciprocal cross holding of instruments or shares qualifying as capital of any other bank, controlling company, other financial entity or insurance entity, provided that the reporting bank or controlling company shall apply a corresponding deduction approach, that is, deductions shall be applied to the same component of capital for which the capital would qualify if it was issued by the bank itself; |
[Regulation 38(5)(a)(ii)(B) substituted by regulation 22(p) of Notice No. 297, GG 40002, dated 20 May 2016]
| (C) | the relevant amount, based on the requirements specified in paragraph (a)(i)(L) above, that is, the provisions of paragraph (a)(i)(L) above, insofar as they relate to the relevant portion of additional tier 1 capital, shall mutatis mutandis apply to the deduction to be made against additional tier 1 capital and reserve funds, provided that the amount to be deducted from additional tier 1 capital and reserve funds shall be calculated as the total of all holdings which in aggregate exceed 10 per cent of the relevant bank or controlling company’s common equity or common equity tier 1 capital multiplied by the additional tier 1 capital holdings as a percentage of the total capital holdings; |
[Regulation 38(5)(a)(ii)(C) substituted by regulation 22(q) of Notice No. 297, GG 40002, dated 20 May 2016]
| (D) | the relevant amount, based on the requirements specified in paragraph (a)(i)(M) above, that is, the provisions of paragraph (a)(i)(M) above, insofar as they relate to the relevant portion of additional tier 1 capital, shall mutatis mutandis apply to the deduction to be made against additional tier 1 capital and reserve funds; |
[Regulation 38(5)(a)(ii)(D) substituted by regulation 22(r) of Notice No. 297, GG 40002, dated 20 May 2016]
| (E) | any instrument or share that qualifies as additional tier 1 capital of the reporting bank and for which the reporting bank has received no value; |
Provided that when a bank or controlling company is required to make a deduction from its additional tier 1 capital and reserve funds in terms of the corresponding deduction approach envisaged hereinbefore and it does not have sufficient additional tier 1 capital and reserve funds to allow that deduction, the shortfall shall be deducted from the next higher category of capital, that is, when a bank, for example, does not have sufficient additional tier 1 capital and reserve funds to allow the relevant deduction , the shortfall shall be deducted from its common equity tier 1 capital and reserve funds.
Regulation 38(5)(a)(ii) proviso inserted by section 9(g) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (iii) | from its tier 2 capital and reserve funds— |
| (A) | the relevant amount related to any direct or indirect investment in or direct or indirect funding provided for direct or indirect investment in the bank or controlling company's own shares or instruments qualifying as tier 2 capital, provided that— |
| (i) | any gross long position may be deducted net of any relevant short positions in the same underlying exposure only if the relevant short positions involve no counterparty risk; |
| (ii) | the bank shall look through holdings of index securities to deduct any relevant exposure to own shares or instruments qualifying as tier 2 capital, provided that any gross long position in own shares or instruments resulting from holdings of index securities may be netted against short position in own shares or instruments resulting from short positions in the same underlying index, even when the short positions may involve counterparty risk, which shall be subject to the relevant requirement specified in these Regulations for counterparty credit risk; |
Regulation 38(5)(a)(iii)(A)(ii) substituted by section 9(h) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (B) | the relevant amount related to any reciprocal cross holding of instruments or shares qualifying as capital of any other bank, controlling company, other financial entity or insurance entity, provided that the reporting bank or controlling company shall apply a corresponding deduction approach, that is, deductions shall be applied to the same component of capital for which the capital would qualify if it was issued by the bank itself; |
[Regulation 38(5)(a)(iii)(B) substituted by regulation 22(s) of Notice No. 297, GG 40002, dated 20 May 2016]
| (C) | the relevant amount, based on the requirements specified in paragraph (a)(i)(L) above, that is, the provisions of paragraph (a)(i)(L) above, insofar as they relate to the relevant portion of tier 2 capital, shall mutatis mutandis apply to the deduction to be made against tier 2 capital, provided that the amount to be deducted from tier 2 capital and reserve funds shall be calculated as the total of all holdings which in aggregate exceed 10 per cent of the relevant bank or controlling company’s common equity or common equity tier 1 capital multiplied by the tier 2 capital holdings as a percentage of the total capital holdings; |
[Regulation 38(5)(a)(iii)(C) substituted by regulation 22(t) of Notice No. 297, GG 40002, dated 20 May 2016]
| (D) | the relevant amount, based on the requirements specified in paragraph (a)(i)(M) above, that is, the provisions of paragraph (a)(i)(M) above, insofar as they relate to the relevant portion of tier 2 capital, shall mutatis mutandis apply to the deduction to be made against tier 2 capital and reserve funds; |
[Regulation 38(5)(a)(iii)(D) substituted by regulation 22(u) of Notice No. 297, GG 40002, dated 20 May 2016]
| (E) | any instrument or share that qualifies as tier 2 capital of the reporting bank and for which the reporting bank has received no value, excluding instruments or shares issued in pursuance of the capitalisation of reserves resulting from a revaluation of assets, as may be prescribed in these Regulations; |
| (F) | the relevant amount related to any reciprocal cross holding of any other TLAC instrument or liability of— |
| (i) | any relevant G-SIB; and |
| (ii) | any relevant non-G-SIB, financial entity or Insurance entity |
Regulation 38(5)(a)(iii)(F) inserted by section 9(i) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (G) | the relevant amount related to any investment in or holding of other TLAC instruments or liabilities of any other bank, controlling company, other financial entity or insurance entity, other than a reciprocal cross holding envisaged hereinbefore, unless the reporting bank or controlling company owns less than or equal to 10 per cent of the issued common shares of that entity and the relevant aggregate amount envisaged in subparagraph (i)(L) above does not exceed 10 per cent of the bank or controlling company's common equity tier 1 capital and reserve funds, that is, when the bank or controlling company owns- |
| (i) | less than or equal to 10 per cent of the issued common shares of that entity, but the relevant aggregate amount envisaged in subparagraph (i)(L) above exceeds 10 per cent of the bank or controlling company's common equity tier 1 capital and reserve funds, the bank or controlling company shall deduct from its tier 2 capital and reserve funds only the relevant amount related to investment in or holding of other TLAC instruments or liabilities related to those entities that exceeds the aforementioned 10 per cent threshold amount; |
| (ii) | more than 10 per cent of the common shares of the issuer, then the bank or controlling company shall deduct from its tier 2 capital and reserve funds the relevant full amount of investments in or holding of other TLAC instruments or liabilities related to those entities |
Regulation 38(5)(a)(iii)(G) inserted by section 9(j) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
Provided that when a bank or controlling company is required to make a deduction from its tier 2 capital and reserve funds in terms of the corresponding deduction approach envisaged hereinbefore and it does not have sufficient tier 2 capital and reserve funds to allow that deduction, the shortfall shall be deducted from the next higher category of capital, that is, when a bank, for example, does not have sufficient tier 2 capital and reserve funds to allow the relevant deduction, the shortfall shall be deducted from its additional tier 1 capital and reserve funds
Regulation 38(5)(a)(ii) proviso inserted by section 9(k) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (b) | Subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, instead of a full deduction as envisaged in paragraph (a) above, the items specified below shall each receive limited recognition when a bank or controlling company calculates its common equity tier 1 capital and reserve funds, with recognition being capped at 10 per cent of the bank or controlling company's common equity or common equity tier 1 capital and reserve funds after the application of all specified adjustments and/ or deductions set out in paragraph (a) above: |
| (i) | Significant investments in the common shares or common equity tier 1 capital of unconsolidated financial institutions such as banks, insurance and other financial entities envisaged in paragraph (a)(i)(M) above. |
| (ii) | Any relevant amount related to mortgage servicing rights (MSRs). |
| (iii) | Any relevant amount related to deferred tax assets that arise from temporary differences. |
Provided that—
| (A) | as from 1 January 2013, a bank shall deduct from its common equity tier 1 capital and reserve funds the amount by which the aggregate amount of the three items specified above exceeds 15 per cent of its common equity tier 1 capital and reserve funds, calculated prior to the deduction of the specified items but after the application of all other relevant adjustments and/ or deductions applied in the calculation of common equity tier 1 capital and reserve funds in terms of these Regulations; |
[Proviso (A) of regulation 38(5)(b) substituted by regulation 22(v) of Notice No. 297, GG 40002, dated 20 May 2016]
| (B) | the respective items included in the 15 per cent aggregate limit shall be fully disclosed in all relevant disclosures to the public made in terms of the provisions of these Regulations; |
| (C) | the relevant amount related to the three specified items that is still recognised after the application of all regulatory adjustments shall not exceed 15 per cent of the common equity tier 1 capital and reserve funds of the relevant bank or controlling company. |
For example, a bank has common equity tier 1 capital and reserve funds of R850 million net of all relevant deductions, including any relevant deduction related to the specified three items.
The maximum amount related to the specified items that may be recognised by the bank in its calculation of common equity tier 1 capital and reserve funds is R850 million x 17.65 per cent (that is, 15/85) = R150 million. Any excess amount above R150 million shall be deducted from the bank’s common equity tier 1 capital and reserve funds.
If the bank has specified items, excluding amounts deducted after applying the individual 10 per cent limits, that in aggregate is equal to the 15 per cent limit, common equity tier 1 capital and reserve funds after inclusion of the specified items shall amount to R850 million + R150 million = R1 billion, that is, the aggregate amount of items specified hereinbefore, expressed as a percentage of the total amount of common equity tier 1 capital and reserve funds, is equal to 15 per cent.
[Proviso (C) of regulation 38(5)(b) substituted by regulation 22(w) of Notice No. 297, GG 40002, dated 20 May 2016]
| (D) | any amount related to the three items specified hereinbefore that is not deducted in the calculation of common equity tier 1 capital and reserve funds shall be risk weighted at 250 per cent. |
[Proviso (D) of regulation 38(5)(b) substituted by regulation 22(x) of Notice No. 297, GG 40002, dated 20 May 2016]
| (c) | When any G-SIB is permitted to include in the calculation of its external TLAC instruments or liabilities, any instrument or liability ranking pari passu to excluded liabilities, the bank or controlling company shall deduct from its capital and reserve funds only the relevant specified portion of such instruments or liabilities held in that G-SIB, which portion shall be calculated as the funding issued by the G-SIB that ranks pari passu with excluded liabilities and that is include in the calculation of the G-SIB's external other TLAC instruments or liabilities, divided by the funding issued by the G-SIB that ranks pari passu with excluded liabilities and that would be recognised as external TLAC if the subordination requirement was not applied, provided that the bank or controlling company shall calculate its relevant holding of other TLAC instruments or liabilities of an issuing G-SIB resolution entity, and the relevant proportion to be used, based on the latest publicly available information provided by the relevant issuing G-SIBs. |
For example, when a G-SIB resolution entity has funding that ranks pari passu with excluded liabilities equal to 5% of risk-weighted assets or exposure, and the G-SIB receives partial recognition of these instruments as external other TLAC instruments or liabilities equivalent to 3.5% of risk-weighted assets or exposure, then the bank or controlling company investing in such instruments shall include only 70 per cent, that is 3.5 / 5, of such instruments in calculating its TLAC holdings, provided that the bank or controlling company shall apply that same proportion to any relevant indirect or synthetic investment in instruments ranking pari passu with excluded liabilities and eligible to be recognised as TLAC by virtue of the subordination exemptions.
Regulation 38(5)(c) inserted by section 9(l) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
| (d) | Assets or amounts representing deductions against the reporting bank or controlling company's capital and reserve funds, which assets or amounts, in terms of the provisions of section 70 of the Act shall be deducted from the respective categories of capital and unimpaired reserve funds, shall be recorded against the appropriate line items specified in the form BA 700. |
Regulation 38(5)(d) renumbering and substituted by section 9(m) of Notice No. 943, GG46159, dated 31 March 2022 : effective 1 April 2022]
