Dhaka, Bangladesh (BBN)- Mutual Trust Bank Limited (MTBL) is going to issue subordinated bond worth BDT 2.50 billion shortly to consolidate its capital base in line with the Basel-II framework.
"We want to keep our capital base strong over and above the minimum requirement under Basel-II accord and also to support business growth," an executive of the private commercial bank told the Financial Express (FE), a local newspaper, on Monday.
The central bank of Bangladesh gave approval to the bank on Monday to issue the bond on private placement basis to meet its capital requirement under Basel-II framework.
"We've allowed the bank for issuing the bond to meet their capital requirement in line with the Basel-II accord," a senior official of the Bangladesh Bank (BB) said, adding that at least three more private commercial banks have submitted their applications to the central bank seeking permission to issue such bonds.
The bonds will be amortized and have a tenure of seven years. The coupon rate has been fixed at 12 per cent annually.
Each bond will be for BDT 10 million and will be private-placed among institutions like banks, insurance companies, non-banking financial institutions in the country.
On October 18 last year, the central bank issued a guideline allowing the commercial banks to raise their capital through issuing subordinated debt to meet the Basel-II requirement.
Under the existing regulations, the banks can raise their capital through issuing such debt instruments, generally known as subordinated bond, instead of issuing right and bonus shares.
Subordinated debt is a hybrid (debt and equity) financial instrument, which is treated as a supplementary capital, generally known as tier-2 or additional supplementary capital, widely known as tier-3, the central bank officials said.
The BB earlier amended guidelines on risk-based capital adequacy for banks under Basel-II framework considering the overall financial position in the country's banking sector.
Under the amended guidelines, the banks will have to comply with the minimum capital required (MCR) at 8.0 per cent from January 1, 2010 to June 30, 2010 while a rate of 9.0 per cent will be maintained from July 1, 2010 to June 30, 2011.
The banks, however, must comply with the MCR at 10 per cent from July 1 next year and onwards, the BB officials added.
The MCR had been set at 9.0 per cent with the risk-weighted assets of the banks or Tk 4.0 billion of total capital, whichever is higher, that would be treated as MCR of the banks under the Basel-II accord.
The Basel-II accord came into force in Bangladesh from January 1 this year to consolidate capital base of the banks in line with the international standard.
The new Basel accord has been prepared on the basis of three pillars: minimum capital requirement, supervisory review process and market discipline.
Three types of risks -- credit risk, market risk and operational risk -- have to be considered under the minimum capital requirement.
BBN/SI/AD-31Aug10-11:54 am (BST)
