17 banks raise Tk 9,600cr thru bonds in 2018

DOT Desk
Seventeen listed banks have issued subordinated bonds worth Tk 9,600 crore in total in the outgoing year of 2018 to raise their capital base in line with the Basel III requirements as the banks have found the debt instrument cost-effective than issuing more shares or rights shares on the stock market, reports The New Age.
Issuance of subordinated debt by banks has been rising as 13 listed banks floated bonds worth Tk 5,500 crore in total in 2017, seven banks Tk 3,100 crore in 2016 and six banks Tk 2,350 crore in 2015.
Subordinated debt has become the favourite form of capital raising instrument for banks in recent years as they now realise the benefits of the supplementary capital raising instrument, bankers said.
NRBC Bank chief financial officer Harunur Rashid told New Age that banks required to keep at least 11.817 per cent capital adequacy ratio, also known as capital to risk assets ratio, including capital conservation buffer as per the roadmap set by Bangladesh Bank to implement Basel III.
Banks will have to maintain capital at fixed rate of 12.50 per cent of risk-weighted assets from 2019, according to the Basel III framework.
Harunur said that a rise in the amount of non-performing loans also increased risk assets of banks and some of the banks failed to keep enough provisions against the NPLs that forced the banks to maintain higher amount of capital.
In 2018, Eastern Bank floated bonds worth Tk 500 crore, United Commercial Bank Tk 800 crore, Shahjalal Islami Bank Tk 600 crore, Trust Bank Tk 500 crore, Islami Bank Bangladesh Tk 700 crore, Social Islami Bank Tk 500 crore, Dutch-Bangla Bank Tk 500 crore.
One Bank issued bonds worth Tk 800 crore, Al-Arafah Islami Bank Tk 500 crore, City Bank Tk 700 crore, Mercantile Bank Tk 300 crore, Rupali Bank Tk 600 crore, Prime Bank Tk 700 crore, Dhaka Bank Tk 500 crore, Jamuna Bank Tk 500 crore, Southeast Bank Tk 500 crore and NCC Bank Tk 400 crore.
CAR, which determines the adequacy of banks’ capital keeping in their risk exposures, stood at 10 per cent in June, 2018 against the requirement of 11.817 per cent, BB data showed.
The banking sector’s capital base remained weak on the back of deteriorating asset quality of banks in 2018.
Pubali Bank director Syed Moazzem Hussain said that the banks issued bonds to mitigate capital shortfall and provision shortfall.
Bonds are more cost-effective and time-efficient than other means of capital raising, he said, adding that the interest expense paid on subordinated debt was tax-deductible.
The central bank in October, 2009 issued guidelines, allowing banks to raise their capital through issuing subordinated debt to meet the Basel-II requirement.
Newly issued subordinated debt can enable banks to reduce debt service requirements, increase regulatory capital, and preserve current ownership interests that otherwise could be diluted by raising common equity.
CRAR is calculated by taking eligible regulatory capital as numerator and total RWA as denominator. Banks are required to calculate their RWA on the basis of credit, market, and operational risks.
A subordinated bond is a debt that is ranked below other debt in terms of claims on assets.
In case of a default, the holder of a subordinated debt cannot satisfy claims on the borrower’s assets until the claims of the holders of senior debt are met.
Therefore, only corporate bodies, financial institutions, eligible investors and funds are allowed to subscribe the bonds through private placement.
Subordinated bonds are non-convertible and redeemable, having tenure of more than five years.