Dhaka, Bangladesh (BBN) – The central bank of Bangladesh gave permission on Monday to the Farmers Bank Limited (FBL) to float subordinated bonds worth BDT 5.0 billion to raise their capital base, officials said.

“We’ve given permission on issuance of the bonds to the bank to help in strengthening their capital base in line with Basel-III framework,” a senior official of the Bangladesh Bank (BB) said while explaining main objective of the policy support.

He also said the bonds will also help the fourth generation bank resolve its capital-related problem.

A total nine banks including the FBL suffered an aggregate capital shortfall worth over BDT 177 billion in the third quarter (Q3) of this calendar year due to higher growth of their default loans.

The BB’s latest initiative to give the permission on issuance of bonds came against the backdrop of higher credit growth than deposit that created liquidity problem for the private commercial bank.

The bank’s advance-deposit ratio, generally known as ADR, has been crossed 85 per cent for several months, which contravenes central bank’s rules, according to the BB officials.

The central bank of Bangladesh had earlier set the safe limit of ADR at 85 per cent for conventional banks and at 90 per cent for shariah-based Islamic banks.

The subordinated bonds will be treated as tier-II capital under the Basel-III benchmark, they added.

Bangladesh started implementation of the Basel-III framework on July 2014. It will be implemented fully by January 2020.

Basel-III is a new global regulatory standard on banks’ capital adequacy and liquidity as agreed by the members of the Basel Committee on Banking Supervision.

The third of the Basel Accords was developed in response to deficiencies in financial regulation revealed by the financial crisis in the late 2000s.

The Basel-III is set to strengthen bank capital requirements and introduce new regulatory requirements on bank liquidity and bank leverage.