Crisis pushes One Bank to raise capital thru bond

One Bank has decided to issue a Tk500-crore bond for a tenure of seven years to cope with the ongoing depression of the bank caused by a drop in profit and a rise in classified loans.

The board of the bank has decided to issue a subordinated bond to fulfil the Tier-II capital requirement, according to the Dhaka Stock Exchange (DSE).

Market insiders said subordinated bonds, mostly issued by banks, dominate the local bond market, which helps lenders construct their mandatory Tier-II capital base through bond proceeds within a specific tenure.

Banks issue subordinated debt for various reasons, including soaring up capital, funding investments, acquisitions or other opportunities, and replacing higher-cost capital, according to an analyst at a brokerage firm.

In the event of a debtor's bankruptcy, a subordinated bond is paid after the payment of other higher priority bonds, the so-called senior unsubordinated bonds. Subordinated bonds are unsecured and therefore riskier than older ones.

Since 2020, One Bank has raised Tk800 crore by issuing two bonds in the capital market, which were used to fulfil the capital requirements.

Currently, the bank is facing several crises caused by increasing non-performing loans, where the classified loan crosses double-digit percentage points of its total disbursed loans.

One Bank Managing Director Monzur Mofiz could not be reached over the phone to have his comment in this regard despite several attempts.

According to the bank's audited financial statement for 2022, its classified loan jumped by 23% year-on-year to Tk3,153 crore, which was 13.97% of its total disbursed loans.

However, the Bangladesh Bank data shows that its classified loan amounted to Tk2,248 crore at the end of 31 December last year, which was 40% lower than the audit report.

One Bank's audit report was prepared by the MABS and J partners— an audit firm and also a member of Nexia International.

The firm said as per the emphasis of matter, the bank was required to keep a provision of Tk2,146 crore against loans but it maintained Tk1,121 crore. To keep the remaining amount as a provision, the bank got a five-year deferral facility from the Bangladesh Bank. A central bank letter issued on 27 April this year said One Bank has to keep the remaining amount of Tk1,024 crore over the next five years.

The audit firm also noted that the bank failed to keep the minimum capital regulatory requirement of 12.50% on both a solo and consolidated basis but it maintained the capital regulatory requirement of 11.77% on a solo basis and 11.89% on a consolidated basis.

However, the bank said in the report, it has a surplus of Tk435 crore than the required capital.

Meanwhile, its net profit also dropped by 34% to Tk27.64 crore in the January-March quarter of this year due to a decrease in net interest income and an increase in administrative expenses.

The bank said in its first quarter report of 2023, the net profit decreased due to an increase in the cost of deposit and operating expenses.

Besides, its dividend pay-out gradually decreased in the last five years. In 2018, it had paid a 20% dividend, which came down to only 5% stock in 2022.