Dhaka, Bangladesh (BBN)- Prime Bank Limited is going to issue subordinated bond, for the first time, worth BDT 2.50 billion this month to consolidate their capital base in line with the Basel-II framework.

“We expect that the bonds will be issued within January this year,” Deputy Managing Director and Chief Financial Officer of the bank Ahmed Kamal Khan Chowdhury told BNN in Dhaka on Saturday.

He also said: “We want to keep our capital base strong over and above the minimum requirement under Basel-II accord and also to support business growth.

The central bank has given approval to the bank to issue the bond on private placement basis to meet their capital requirement under Basel-II framework, officials said.

“We’ve allowed the bank for issuing the unsecured bond to meet their capital requirement in line with the Basel-II accord,” Deputy General Manager of the Banking Regulation and Policy Department of the central bank K M Abdul Wadood said.

The bonds will be amortized and have a tenure of seven years. The coupon rate has been fixed at 11.50 percent annually.

Each bond will be for BDT 10 million and will be private placed amongst institutions like banks, insurance companies, non-banking financial institutions in the country.

US banking giant Citibank, N.A’s Dhaka office is the placement agent and lead arranger for raising the funds.

Mr. Waddod, also Member-Secretary of Basel II coordination committee of the Bangladesh Bank (BB), said at least five more private commercial banks have submitted their applications to the central bank seeking permission to issue such bond.

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 new regulations, the banks can raise their capital through issuing such debt instrument, 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, generally known as tier-3, the BB officials said.

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 minimum capital required (MCR) has been set to 10 percent with the risk-weighted assets of the banks or BDT 4.0 billion of total capital which is higher that would be treated as MCR of the banks under the Basel-II accord.

Bangladesh is now following Basel-II for the banks’ capital adequacy requirement. Risk-based capital ratio was 8.0 percent when it was first adopted in 1996. Later in 2002, the ratio was increased to 9.0 percent.

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/SS/SI/AD-16January10-11:05 pm (BST)