Pubali, Jamuna Bank to raise Tk 13b through subordinated bonds

Pubali Bank and Jamuna Bank have received regulatory approval to raise Tk 13 billion through subordinated bonds in order to strengthen their capital base under Basel-III compliance, as per Bangladesh Bank's December 2014 guidelines on risk-based capital adequacy.

The approval was granted on Tuesday at a meeting of the Bangladesh Securities and Exchange Commission (BSEC).

Pubali Bank

Pubali Bank has been permitted to raise Tk 5 billion through subordinated bonds to reinforce its capital base.

The bonds will be issued through private placements. Each unit will be an unsecured, non-convertible, redeemable, floating-rate subordinated bond with a face value of Tk 0.5 million.

The coupon rate will be the reference rate plus a 3 per cent margin.

DBH Finance will act as trustee, while UCB Investment, Prime Bank Investment Limited, and IDLC Investments Limited will serve as arrangers.

Jamuna Bank

Jamuna Bank has been allowed to raise Tk 8 billion.

Like Pubali Bank, these bonds will be issued through private placements. Each unit will be an unsecured, non-convertible, fully redeemable, floating-rate subordinated bond, also with a face value of Tk 0.5 million.

The coupon rate will be the reference rate plus a 3 per cent margin.

DBH Finance will serve as trustee, while UCB Investment will act as arranger.

Both bonds will be listed on the Alternative Trading Board.

Regulatory Context

Banks are required to maintain a certain level of capital to ensure financial stability and protect depositors. Proceeds from these bonds will be treated as capital, helping the banks expand their loan and investment portfolios.

Basel III is an international regulatory framework that introduced reforms to mitigate risks in the banking sector by requiring proper leverage ratios and adequate reserve capital.

According to Bangladesh Bank's Basel III guidelines, each bank must maintain capital equivalent to 10 per cent of its risk-weighted assets or Tk 5 billion, whichever is higher. Failure to meet this standard is treated as a capital shortfall.

A subordinated bond is an unsecured debt instrument that ranks below senior loans or securities in terms of claims on assets or earnings. For this reason, subordinated bonds are also referred to as junior securities.

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