22.Articles 3.2 of the Capital Adequacy Regulation, AT1 capital consists of the sum of the following elements:

1. i.Instruments issued by a bank which are eligible for inclusion in AT1 and are not included in CET1 (e.g. perpetual equity instruments, not included in CET1);
2. ii.Stock surplus, or share premium, resulting from the issue of instruments included in AT1;
3. iii.Instruments issued by consolidated subsidiaries of the bank and held by third parties which are eligible for inclusion in AT1 and are not included in CET1;
4. iv.Regulatory adjustments applied in the calculation of AT1.

23.The treatment of instruments issued out of consolidated subsidiaries of the bank and the regulatory deductions applied in the calculation of AT1 capital are addressed in the Tier Capital Instruments Standard.

Instruments issued by the bank that meet the Additional Tier 1 criteria

24.The following is the minimum set of criteria for an instrument issued by the bank to meet or exceed in order for it to be included in Additional Tier 1 capital:

1. i.Issued and paid-in
2. ii.Subordinated to depositors, general creditors and subordinated debt of the bank
3. iii.Is neither secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-à-vis bank creditors
4. iv.Is perpetual, i.e. there is no maturity date and there are no step-ups or other incentives to redeem
5. v.May be callable at the initiative of the issuer only after a minimum of five years:
   1. a.To exercise a call option a bank must receive prior Central Bank approval; and
   2. b.A bank must not do anything which creates an expectation that the call will be exercised; and
   3. c.Banks must not exercise a call unless:
      1. 1)They replace the called instrument with capital of the same or better quality and the replacement of this capital is done at conditions which are sustainable for the income capacity of the bank; or
      2. 2)The bank demonstrates that its capital position is well above the minimum capital requirements after the call option is exercised.
6. vi.Any repayment of principal (e.g. through repurchase or redemption) must be with prior Central Bank’s approval and banks should not assume or create market expectations that Central Bank’s approval will be given.
7. vii.Dividend/coupon discretion:
   1. a.the Central Bank and the bank must have full discretion at all times to cancel distributions/payments
   2. b.cancellation of discretionary payments must not be an event of default
   3. c.banks must have full access to cancelled payments to meet obligations as they fall due
   4. d.Cancellation of distributions/payments must not impose restrictions on the bank except in relation to distributions to common stockholders.
8. viii.Dividends/coupons must be paid out of distributable items
9. ix.The instrument cannot have a credit-sensitive dividend feature, that is a dividend/coupon that is reset periodically based in whole or in part on the banking organization’s credit standing.
10. x.The instrument cannot contribute to liabilities exceeding assets in the required balance sheet test to determine insolvency.
11. xi.Instruments classified as liabilities for accounting purposes must have principal loss absorption through a write-down mechanism which allocates losses to the instrument at a pre-specified trigger point. The loss absorption trigger must be set at a level of 7.625% of CET1. The write-down will have the following effects:
    1. 1.Reduce the claim of the instrument in liquidation;
    2. 2.Reduce the amount re-paid when a call is exercised; and
    3. 3.Partially or fully reduce coupon/dividend payments on the instrument.
12. xii.Neither the bank nor a related party over which the bank exercises control or significant influence can have purchased the instrument or otherwise come into possession of the instrument, such as through receipt of collateral or a reverse repurchase agreement, nor can the bank directly or indirectly have funded the purchase of the instrument.
13. xiii.The instrument cannot have any features that hinder recapitalization, such as provisions that require the issuer to compensate investors if a new instrument is issued at a lower price during a specified time frame.
14. xiv.[Applicable for Islamic banks only] If the instrument is not issued out of an operating entity or the holding company in the consolidated group (e.g. a special purpose vehicle – “SPV”), proceeds must be immediately available without limitation to an operating entity or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in AT1 capital (Refer to the Capital Instruments Standards).
15. xv.In addition to the criteria outlined above, the instrument must meet criteria for minimum requirements to ensure loss absorbency at the point of non-viability. Please refer to the Capital Instruments Standards.

Share premium resulting from the issue of instruments included in Additional Tier 1 capital;

25.Share premium that is not eligible for inclusion in CET1, will only be permitted to be included in AT1 capital if the shares giving rise to the stock surplus are permitted to be included in AT1 capital.