ANNEX D

Illustrative Sample

Computation of eligible minority interests to be included in parent bank's capital base

The case:

A banking group consists of two legal entities that are both banks – Bank P is the parent and Bank S is the subsidiary. Their individual balance sheets are set out below.

The consolidated balance sheet of the banking group is set out below:

Common Equity issued by subsidiary to third parties (i.e., minority interest)
Common Equity issued by parent

13

31

The balance sheet of Bank P shows that in addition to its loans to customers, it has investments in Bank S as follows:

1. 70% of common shares;

2. 82% of Additional Tier 1 capital; and

3. 25% of Tier 2 capital.

Step 1

Calculate the surplus CET1 of Bank S in excess of its 8.5% minimum CET1 plus conservation buffer requirement (i.e., 6.0% +2.5%). Bank S is assumed to have risk weighted assets of 100.

Calculate the eligible portion of minority interest (MI) arising from CET1 issued by Bank S that is allowed to be included in the consolidated capital of Bank P (i.e., item (e)).

The eligible amount of MI to be included in the consolidated CET1 Capital of Bank P is

2.6.

(B) Minority interests arising from ordinary shares and Additional Tier 1 capital instruments issued by a consolidated bank subsidiary

Step 1

Calculate the surplus Tier 1 Capital of Bank S in excess of its 10% minimum Tier 1 capital plus capital conservation buffer requirement (i.e., 7.5% + 2.5%). Bank S is assumed to have risk weighted assets of 100.

Calculate the eligible portion of MI arising from Tier 1 Capital issued by Bank S that is
allowed to be included in the consolidated capital of Bank P (i.e., item (e))

The eligible amount for inclusion in Bank P's consolidated AT1 Capital is 0.2, arrived
at by excluding from the eligible amount for inclusion as Tier 1 Capital (i.e., 2.8) the
amount that has already been recognized in CET1 (i.e., 2.6).

(C)

Minority interests arising from Tier 1 capital instruments and Tier 2 capital instruments issued by a consolidated bank subsidiary

Step 1

Calculate the surplus total capital of Bank S in excess of 12.5% minimum total capital plus conservation buffer requirement (i.e., 10% +2.5%). Bank S is assumed to have risk weighted assets of 100.

Calculate the eligible portion of MI arising from total capital by Bank S that is allowed to be included in the consolidated capital of Bank P (i.e., item (e)).

The eligible amount for inclusion in Bank P's consolidated capital is 2.0, arrived at by
excluding from the eligible amount for inclusion as total capital (i.e., 4.8) the amount
that has already been recognized in Tier 1 Capital (i.e., 2.8).