Minority Interest held by third parties in financial subsidiary of a bank is composed of two portions - Minority Interest contribution to the Bank's financial subsidiary risk capital and rest of the minority interest.
The portion of minority interest in Bank's financial subsidiary belonging to third party is deducted. Tthe portion of minority interest that does not contributes to minimum capital of Bank's financial subsidiary is NOT deducted.
What does this means? Suppose, third-party shareholders hold 10% in Financial subsidiary of a bank which is equivalent to $100 Mn. If the total risk weighted asset(RWA) of financial subsidiary is $10000 mn then minimum CET1 risk capital will be $10000*.07 = $700 mn.
Out of total minimum risk capital of CET1, third party should contribute 10% of their holding i.e. $70 Mn. This means third party minority interest excluding risk contribution is $100Mn - $70 Mn = $30 Mn. This amount does not belong to bank which controls the financial subsidiary and hence should be removed from the bank risk capital.
The portion of minority interest in Bank's financial subsidiary belonging to third party is deducted. Tthe portion of minority interest that does not contributes to minimum capital of Bank's financial subsidiary is NOT deducted.
What does this means? Suppose, third-party shareholders hold 10% in Financial subsidiary of a bank which is equivalent to $100 Mn. If the total risk weighted asset(RWA) of financial subsidiary is $10000 mn then minimum CET1 risk capital will be $10000*.07 = $700 mn.
Out of total minimum risk capital of CET1, third party should contribute 10% of their holding i.e. $70 Mn. This means third party minority interest excluding risk contribution is $100Mn - $70 Mn = $30 Mn. This amount does not belong to bank which controls the financial subsidiary and hence should be removed from the bank risk capital.
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