Jamuna Bank plans to issue subordinated debt bonds worth Tk2bn to strengthen its capital base, which aligns with the regulatory requirement.

Subordinated debt is a hybrid (debt and equity) financial instrument which is treated as a component of capital.

The board of directors of the company has decided to raise funds through placement as part of the tier-II regulatory capital under the guideline of risk based capital adequacy for banks, said the company in a statement.

However, the subordinated debt of Tk2bn is subject to the approval of regulatory bodies and by the shareholders.

In 2009, the central bank had issued a guideline allowing the commercial banks to raise capital by issuing subordinated debt in order to meet the Basel-II requirement.

The banks can raise their capital through issuing such debt instrument, generally known as subordinated bonds, instead of issuing right and bonus shares, according to the guideline.

The subordinated debt eligible to be considered as tier-2 capital if have a maturity period more than five years, said Bangladesh Bank (BB).

The option of such financial instrument can be exercised by a bank once it has composite CAMELS rating at least two and BB rating grade at least two, as mentioned in the guidelines on risk-based capital adequacy for banks.

The Basel-II accord came into effect in Bangladesh on January 1, 2009 alongside Basel-I to consolidate capital base of the banks.

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. 

News:Dhaka Tribune/02-Dec-2013