4.31. Capital Conservation Buffer

(1) A Bank whose risk-based capital requirement is higher than its base capital requirement must maintain a minimum Capital Conservation Buffer of:

1. (a) 2.5% of the Bank’s total risk-weighted assets; or
2. (b) a higher amount that the AFSA may, by written notice, set from time to time.

(2) A Bank’s capital conservation buffer must be made up of CET 1 Capital above the amounts used to meet the Bank’s CET 1 Capital ratio, T1 Capital ratio and Total Capital ratio in Rule 4.12.

4.32. Capital conservation ratios

(1) If a Bank’s capital conservation buffer falls below the required minimum, the Bank must immediately conserve its capital by restricting its distributions.

(2) This rule sets out, in column 3 of table 4A below, the minimum capital conservation ratios for Banks that are required to maintain a capital conservation buffer. Capital conservation ratio is the percentage of earnings that a Bank must not distribute if its CET 1 capital ratio falls within the corresponding ratio in column 2 of that table.

(3) A Bank must have adequate systems and controls to ensure that the amount of distributable profits and maximum distributable amount are calculated accurately. The Bank must be able to demonstrate that accuracy if directed by the AFSA.

(4) If the Bank is a member of a financial group, the capital conservation buffer applies at group level

Table 4A Minimum capital conservation ratios

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4.33. Powers of the AFSA

(1) The AFSA may impose a restriction on capital distributions by a Bank even if the amount of the Bank’s CET 1 Capital is greater than its CET 1 Capital ratio and required capital conservation buffer.

(2) The AFSA may, by written notice, impose a limit on the period during which a Bank may operate within a specified capital conservation ratio.

(3) A Bank may apply to the AFSA to make a distribution in excess of a limit imposed by this Chapter. The AFSA will grant approval only if it is satisfied that the Bank has appropriate measures to raise capital equal to, or greater than, the amount the Bank wishes to distribute above the limit.

4.34. Capital reductions

(1) A Bank must not reduce its capital and reserves without the AFSA’s written approval.

(2) A Bank planning a reduction must prepare a forecast (for at least 2 years) showing its projected capital after the reduction. The Bank must satisfy the AFSA that the Bank’s capital will still comply with these rules after the reduction.

4.35. The AFSA can require other matters

Despite anything in these rules, the AFSA may require a Bank to have capital resources, comply with any other capital requirement or use a different approach to, or method for, capital management. The AFSA may also require a Bank to carry out stress- testing at any time.