Sections 33-35 of the Non-bank Deposit Takers Act 2013 provide for the making of regulations prescribing minimum capital requirements and require licensed NBDTs and trustees to ensure they are included in trust deeds.

Capital represents the financial commitment of the owners to a business. It is absorbs unexpected and unplanned losses that a NBDT may be exposed to. As a consequence, NBDTs that hold higher amounts of capital tend to be more robust than those with lesser amounts. Capital consists primarily of shareholders' equity and retained earnings. Minimum capital ratio requirements aim to ensure that NBDTs, maintain a minimum ratio of capital relative to credit, operational and market risk that the NBDT assumes.

Capital adequacy ratio requirements

The Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 (the “capital regulations”) has been in force since 1 December 2010. These regulations require every licensed NBDT and its trustee to ensure that the trust deed includes a minimum capital ratio requirement that the licensed NBDT must maintain. Section 33 of the Act requires licensed NBDTs and trustees to comply with any requirement of the capital regulations.

The minimum capital ratio specified in the trust deed must be at least 8 percent for licensed NBDTs with a credit rating from an approved rating agency. For those without a credit rating from an approved rating agency, the minimum capital ratio specified in the trust deed must be at least 10 percent.

The capital regulations define capital as gross capital less deductions. Gross capital is ordinary shares, retained earnings, certain types of reserves and preference shares, and minority interests (shareholdings). Various items must be deducted from gross capital, such as shareholdings and subordinated loans to related parties, and future tax benefits.

The capital regulations also outline how a capital ratio must be calculated. NBDTs must calculate an aggregated risk-weighted amount for credit risk and an amount for market and operational risk. The capital ratio is the amount of capital of the NBDT as a ratio of the sum of the amount of aggregated credit, operational and market risk.

Licensed NBDTs must follow the rules in the capital regulations when calculating the ratio, including using the risk weights provided for particular types of assets.