Subordinated bond issuance to take time

Dhaka,  Sun,  24 September 2017
Published : 18 Aug 2017, 00:49:49 | Updated : 18 Aug 2017, 12:17:53

Subordinated bond issuance to take time

Recapitalisation of Rupali Bank
Rezaul Karim
State-owned Rupali Bank is unlikely to be able to overcome its liquidity problem anytime soon as necessary approval to its proposal for issuance of subordinated bond worth Tk 5.0 billion would take time, officials said.

"It will take time to finalise the decision in this regard," a senior official at the Finance Division told the FE.

"We sought approval from the finance ministry in favour of the state-owned bank," a high official at the Bank and Financial Institutions Division (BFID) of the ministry said.

After receiving the proposal from the cash-strapped bank in June last, he said, the BFID had done primary scrutiny and forwarded it to the Finance Division for its opinion.

The bank had a capital shortfall of Tk 6.38 billion as of March last. Around Tk 1.0 billion was provided to the bank from a budgetary allocation of Tk 20 billion earmarked in 2016-17 for recapitalisation of the government-owned banks.

"The amount proved to be very insufficient as compared to the capital shortage of the banks," said a senior official of Rupali Bank.

Rupali Bank proposed to issue the subordinated bond, with 07 years of its tenor at floating rate, to meet its capital shortfall in Tier-2 under Basel-III guideline.

Officials said the bank management had sought approval for the proposal several times and a tripartite meeting was also held this regard in the meantime.

The bond will be issued subject to the approval of the Ministry of finance (MoF).   

"We want to keep our capital base stronger than the minimum requirement under Basel-III accord and eager to support business growth," said a senior official of Rupali Bank having well knowledge about the issue.

The fund to be collected through subordinated bond from the banks and financial institutions will be considered tier-2 capital, according to the bank's sources.

Subordinated bonds are debentures for which banks and companies are comprehensively liable with their capital assets. The holders of such bonds forgo the option of being treated as preferred creditors.
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