Tier 1 capital is a bank's core capital — the most critical measure of its financial strength and ability to absorb losses.
Under Basel III, Tier 1 capital has two main components:
Common Equity Tier 1 (CET1): The highest quality capital, consisting of common shares, retained earnings, and other comprehensive income. Basel III requires a minimum CET1 of 4.5% of risk-weighted assets.
Additional Tier 1 Capital (AT1): Includes special instruments like perpetual bonds that can be converted into equity under specific conditions.
In Bangladesh, Bangladesh Bank mandates a minimum Tier 1 capital ratio of 6%, higher than the international minimum, ensuring banks maintain a strong capital base.