The Dutch Bangla Bank Ltd is going to issue a bond worth Tk500 crore and use its proceeds to increase the bank's Tier 2 capital base.
Issuing a non-convertible unsecured subordinated bond is expected to help the commercial bank fulfil its Basel III requirements.
The decision was taken at its board meeting on 24 October.
The tenure of the bond will be seven years subject to the approval of the Bangladesh Securities and Exchange Commission and the Bangladesh Bank.
A new product to fulfil Basel III requirements
Currently, the local bond market is dominated by redeemable subordinated bonds mainly issued by commercial banks. These help them construct their mandatory secondary capital base through the bond proceeds within a specific tenure.
The Bangladesh Bank is implementing Basel III in the local banking industry so that banks have adequate capital to avert a systematic risk.
Basel III is an international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital in hand.
The capital adequacy has two parts. The first part is equity that is perpetual in nature and regarded as Tier 1 capital base. The second tier is a capital base formed through debt securities, which is repayable at maturity but helps strengthen a bank in the interim.
Meanwhile, in the first three quarters of this year, Dutch Bangla Bank posted consolidated earnings per share (EPS) of Tk6.29, which was 3% higher than that in the previous year at the same time.
Its consolidated net asset value (NAV) per share stood at Tk54.78 and net operating cash flow per share was Tk6.27 at the end of three quarters.
The bank has maintained its profitability despite the Covid-19 pandemic due to the central bank's policy support, said a bank official.
The bank was listed on the Dhaka Stock Exchange (DSE) in 2001. Its paid-up capital is Tk550 crore.
It also paid a 15% cash and 10% stock dividends to its shareholders in the 2019 financial year.
Its shares closed at Tk64.70 at the DSE on Sunday.
Sponsors and directors hold 86.99% of the bank's shares, while institutional investors hold 4.29%, foreign investors 0.01%, and general investors 8.71% of its shares.