How does this AT1CS raise Affin Bank’s Total Capital Ratio?

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Affin Bank's AT1CS Issuance Enhances Total Capital Ratio by Over 130 Basis Points

Affin Bank Bhd's recent issuance of RM500 million in Additional Tier 1 Capital Securities (AT1CS) is set to significantly bolster its financial standing, primarily by increasing its Total Capital Ratio by over 130 basis points. This move is in direct alignment with regulatory frameworks designed to ensure the stability and resilience of financial institutions. The AT1CS issuance represents a key component in the bank's strategy to strengthen its capital base and enhance its capacity for future growth and operational needs.
Understanding Basel III and Additional Tier 1 Capital

Basel III is a comprehensive set of international banking regulations developed by the Basel Committee on Banking Supervision in response to the 2008 financial crisis. Its primary objective is to strengthen the regulation, supervision, and risk management of banks globally. A core element of Basel III is the enhancement of capital requirements, mandating that banks hold higher quality and quantity of capital. Additional Tier 1 (AT1) capital, under Basel III, refers to instruments that are perpetual, can absorb losses on a gone-concern basis, and have no incentive for the issuer to redeem them. These securities are crucial as they provide a buffer against unexpected losses, ensuring that a bank can continue to operate even under severe financial stress.
Contribution of AT1CS to Total Capital Ratio

Additional Tier 1 Capital Securities, such as those issued by Affin Bank, are specifically designed to qualify as AT1 capital under Basel III regulations. When a bank issues these securities, the capital raised is incorporated into its Tier 1 capital, which is a primary measure of a bank's financial strength. Tier 1 capital consists of common equity and disclosed reserves (like share surplus and retained earnings), along with other disclosed capital instruments that meet strict criteria. The AT1CS issuance directly increases the numerator in the calculation of the Total Capital Ratio, which is the sum of Tier 1 and Tier 2 capital divided by risk-weighted assets. Therefore, by successfully issuing RM500 million in AT1CS, Affin Bank is adding a substantial amount of qualifying capital that directly contributes to a higher Total Capital Ratio.
Significance of a 130 Basis Point Increase

An increase of over 130 basis points in a bank's Total Capital Ratio signifies a notable enhancement in its capital adequacy. This boost strengthens Affin Bank's capacity to absorb potential losses, thereby reducing its risk profile and increasing its resilience to economic downturns. A higher Total Capital Ratio is generally viewed favourably by regulators, investors, and rating agencies, as it indicates a more robust financial position. This improved capital standing can translate into greater financial flexibility, enabling the bank to pursue strategic initiatives, such as expanding its loan portfolio, investing in technology, or undertaking mergers and acquisitions, with a stronger foundation. For Affin Bank, this increase is particularly important as it aims to catalyse expansion and create value for stakeholders under its A25 Plan.

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How does this AT1CS raise Affin Bank’s Total Capital Ratio?

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