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July 26, 2017

APRA proposed revisions to the capital framework for mutually owned authorized deposit-taking institutions (ADIs) to enable them to directly issue common equity tier 1 (CET1) capital instruments. The proposed changes are intended to give mutually owned ADIs more flexibility in their capital management. APRA is also releasing for consultation draft revisions to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111).

The consultation is about the proposed amendments to the Mutual Equity Interest (MEI) framework to allow mutually owned ADIs to issue CET1-eligible capital instruments directly. The proposed CET1-eligible capital instruments would share many of the same characteristics as ordinary shares and would, for example, be perpetual, subject to discretionary dividends and accounted for as equity. However, because these instruments are untested, APRA is proposing some restrictions on the amount that may be included in CET1 and, to accommodate the mutual corporate structure of issuing ADIs, proposes limits on MEI holders’ share of residual assets. Following the consideration of submissions received through this consultation, APRA anticipates it will release the final revised APS 111 in late 2017 for commencement as soon as practicable thereafter.

 

In 2014, APRA developed a Mutual Equity Interest (MEI) framework for mutually owned ADIs that enables them to issue additional tier 1 and tier 2 capital instruments that meet requirements for conversion into CET1 capital in certain circumstances. Because of their structure, mutually owned ADIs have traditionally not been able to issue ordinary shares that could qualify as CET1 capital.

 

Related Links

Discussion Paper (PDF)

Draft Revisions to APS 111 (PDF)

Comment Due Date: September 08, 2017

Keywords: Asia Pacific, Australia, Banking, CET1, Capital Framework, APS 111, APRA

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