Common shares issued by consolidated subsidiaries (that is within the scope of regulatory consolidation)

36.Minority interest arising from the issue of common shares by a fully consolidated subsidiary of the bank may receive recognition in CET1 only if:

1. i.The instrument giving rise to the minority interest would, if issued by the bank, meet all of the criteria for classification as common shares for regulatory capital purposes; and
2. ii.The subsidiary that issued the instrument is itself a bank. (It is noted that minority interest in a subsidiary that is a bank is strictly excluded from the parent bank’s common equity if the parent bank or affiliate has entered into any arrangements to fund directly or indirectly minority investment in the subsidiary whether through an SPV or through another vehicle or arrangement. The treatment outlined here, thus, is strictly available where all minority investments in the bank subsidiary solely represent genuine third party common equity contributions to the subsidiary.)

37.The amount of capital meeting the above criteria that will be recognized in consolidated CET1 is calculated as follows

Total minority interest meeting the two criteria above minus the amount of the surplus CET1 of the subsidiary attributable to the minority shareholders.

1. i.Surplus CET1 of the subsidiary is calculated as the CET1 (after the application of regulatory deductions) of the subsidiary minus the lower of:
   1. a.the minimum CET1 requirement of the subsidiary plus the capital conservation buffer (i.e. 9.5% of risk weighted assets) and
   2. b.the portion of the parent’s consolidated minimum CET1 requirement plus the capital conservation buffer (i.e. 9.5% of consolidated risk weighted assets) that relates to the subsidiary.
2. ii.The amount of the surplus CET1 that is attributable to the minority shareholders is calculated by multiplying the surplus CET1 by the percentage of CET1 that is held by minority shareholders.

Tier 1 qualifying capital issued by consolidated subsidiaries (that is within the scope of regulatory consolidation)

38.Tier 1 capital instruments issued by a fully consolidated subsidiary of the bank to third party investors (including amounts under paragraph 37) may receive recognition in Tier 1 capital only if the instruments would, if issued by the bank meet all of the criteria for classification as Tier 1 capital.
 

39.The amount of this capital that will be recognized in Tier 1 will be calculated as follows:

Total Tier 1 of the subsidiary issued to third parties minus the amount of the surplus Tier 1 of the subsidiary attributable to the third party investors.

1. i.Surplus Tier 1 of the subsidiary is calculated as the Tier 1 of the subsidiary (after the application of regulatory deductions) minus the lower of:
   1. a.the minimum Tier 1 requirement of the subsidiary plus the capital conservation buffer (i.e. 11% of risk weighted assets) and
   2. b.the portion of the parent’s consolidated minimum Tier 1 requirement plus the capital conservation buffer (i.e. 11% of consolidated risk weighted assets) that relates to the subsidiary.
2. ii.The amount of the surplus Tier 1 that is attributable to the third party investors is calculated by multiplying the surplus Tier 1 by the percentage of Tier 1 that is held by third party investors.

The amount of this Tier 1 capital that will be recognized in Additional Tier 1 will exclude amounts recognized in CET1 under paragraph 37.

Tier 1 and Tier 2 qualifying capital issued by consolidated subsidiaries (that is within the scope of regulatory consolidation)

40.Total capital instruments (i.e. Tier 1 and Tier 2 capital instruments) issued by a fully consolidated subsidiary of the bank to third party investors (including amounts under paragraph 37 and 39) may receive recognition in Total Capital only if the instruments would, if issued by the bank, meet all of the criteria for classification as Tier 1 or Tier 2 capital
 

41.The amount of this capital that will be recognized in consolidated Total Capital will be calculated as follows:

Total capital instruments of the subsidiary issued to third parties minus the amount of the surplus Total Capital of the subsidiary attributable to the third party investors.

1. i.Surplus Total Capital of the subsidiary is calculated as the Total Capital of the subsidiary (after the application of regulatory deductions) minus the lower of:
   1. a.the minimum Total Capital requirement of the subsidiary plus the capital conservation buffer (i.e. 13% of risk weighted assets) and
   2. b.the portion of the parent’s consolidated minimum Total Capital requirement plus the capital conservation buffer (i.e.13% of consolidated risk weighted assets) that relates to the subsidiary.
2. ii.The amount of the surplus Total Capital that is attributable to the third party investors is calculated by multiplying the surplus Total Capital by the percentage of Total Capital that is held by third party investors.

The amount of this Total Capital that will be recognized in Tier 2 will exclude amounts recognized in CET1 under paragraph 37 and amounts recognized in AT1 under paragraph 39 above.

42.An illustrative example for calculation of minority interest and other capital issued out of consolidated subsidiaries that is held by the third parties is furnished as Appendix 4 in Guidance for Capital Adequacy of Banks in the UAE.

Other Instructions relating to the calculation of the amount of minority interest

43.All calculations must be undertaken in respect of the subsidiary on a sub-consolidated basis (i.e. the subsidiary must consolidate all of its subsidiaries that are also included in the wider consolidated group). However, the bank may elect to give no recognition (in consolidated capital of the group) to the capital issued by the subsidiary to third parties.

44.Where capital has been issued to third parties out of an SPV, none of this capital can be included in CET1. However, such capital can be included in consolidated AT1 or Tier 2 capital and treated as if the bank itself had issued the capital directly to the third-parties only if:

1. i.it meets all the relevant entry criteria; and
2. ii.the only asset of the SPV is its investment in the capital of the bank in a form that meets or exceeds all the relevant entry criteria (as required by criterion xiv for Additional Tier 1 and criterion ix for Tier 2 capital)

In cases where the capital has been issued to third parties through an SPV via a fully consolidated subsidiary of the bank, such capital may, subject to the requirements of this paragraph, be treated as if the subsidiary itself had issued it directly to the third parties and may be included in the bank’s consolidated AT1 or Tier 2 in accordance with the treatment outlined in paragraphs 39 and 41.