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Bank Hybrids Glossary

Term or phrase Definition
ADI An Authorised Deposit-taking Institution under the Banking Act.
APRA The Australian Prudential Regulation Authority.
ASX The Australian Securities Exchange.
BBSW BBSW is a key benchmark interest rate for the Australian money market that moves over time in line with market conditions and monetary policy. It is typically the 90 day bank bill swap rate.
Capital trigger event A capital trigger event occurs when the issuing bank determines (or is notified by APRA) that the bank’s common equity tier 1 ratio is equal to or less than 5.125%. See capital trigger event
Conversion conditions Conversion of some Bank Hybrids may be subject to conversion conditions set out in the prospectus for the particular Bank Hybrid. See Case Study 3, including a worked solution, for further detail.
Cumulative If interest is not paid in full, unpaid interest will accumulate and compound for payment at a later date if certain conditions are met.
Distribution payment conditions There are certain conditions that must be satisfied before distributions can be paid, including (i) that the payments are at the discretion of the bank, (ii) that the payments will not result in a breach of the bank’s regulatory capital requirements or in the bank becoming insolvent, and (iii) that APRA does not object to the payment.
Face value The face value is typically the issue price, which will be reduced by any partial conversion or write-off.
Financial Claims Scheme  A government guarantee for deposits up to an amount per account holder per ADI of $250,000.
Franking credits  Franking credits represent each holder’s share of tax paid by the issuing bank on the profits from which the distributions are paid.
Initial Face Value The issue price, usually $100 per Bank Hybrid.
Issue date VWAP Generally, the volume weighted average sale price (or VWAP) of the bank’s ordinary shares sold on the ASX over the 20 business days prior to the issue date of the Bank Hybrid.
Margin The margin is fixed at the time of issue and typically reflects the risk premium of a Bank Hybrid above a floating market rate (e.g., BBSW) at the time of issue.
Maximum conversion number The maximum conversion number is a limit or cap on the number of ordinary shares of the bank that may be issued on conversion.  For a scheduled or mandatory conversion, the maximum conversion number reflects 50% of the bank’s ordinary share price at the time of issue of the Bank Hybrid.  For conversion following a non-viability trigger event or a capital trigger event, the maximum conversion number reflects 20% of the bank’s ordinary share price at the time of issue of the Bank Hybrid.
Non-cumulative Unpaid distributions will not accumulate or be made up by the issuing bank.
Non-viability trigger event A non-viability trigger event occurs when APRA notifies a bank in writing that it believes (i) conversion of its Bank Hybrids, or conversion, write-off or write down of other capital instruments of the bank or (ii) a public sector injection of capital or equivalent support, is necessary to prevent the bank becoming non-viable. See non-viability trigger event
Perpetual If a security is perpetual, it does not have a fixed maturity date and could exist indefinitely.
Scheduled or mandatory conversion date A date on which conversion of a Tier 1 Bank Hybrid is expected to occur (subject to the conversion conditions being met) and set out in the prospectus for the particular Bank Hybrid. See Case Study 3.
Target Market Determination  The Target Market Determination made for each Bank Hybrid for the purposes of section 994B of the Corporations Act, which, amongst other things, describes the class of retail investors that comprise the target market for that Bank Hybrid.
VWAP Generally, the average of the daily volume weighted average sale price of the bank’s ordinary shares sold on ASX and Cboe over a relevant period.
Written-off/write-off/write them off If Bank Hybrids are written-off, investors will lose all of the value of their investment and they will not receive any compensation or unpaid distributions or interest.