As per Directives 1 issued by the NRB. Source of capital fund of a commercial bank is classified into 2 categories which are as follows;
(1) Tier 1 Capital (Core capital): Sum of Common equity Tier 1 capital and Additional Tier 1 capital is Tier 1 capital.
Common equity tier 1 capital
Common share issued by the bank that meet criteria for classification as common share
Stock surplus resulting from issuance of instruments
Statutory general reserve
Retain earning available for distribution for shareholders
Un-audited current year cumulative profit after provisions including staff bonus and taxes adjusted
Capital redemption reserve created in lieu of redeemable instruments
Capital adjustment reserve
Dividend equalization reserve
Other free reserve if any
Additional tier 1 capital
Perpetual non –cumulative preference share & perpetual dept instruments Stock surplus resulting from perpetual non-cumulative preference share
(2)Tier 2 (Supplementary) Capital
Preference share capital instruments, redeemable non-cumulative preference share, redeemable preference share with maturity of 5 years
Subordinates term debt fully paid up with maturity of 5 years
Hybrid capital instruments combine certain characteristics of debt and equity
Stock surplus from resulting from the issue of instruments
Exchange equalization reserve
Investment adjust reserve to the extend created out of retained earning Any other type of instruments notified by NRB.
