Janata Bank to issue Tk 10b bonds to meet capital shortfall

State-owned Janata Bank has decided to issue subordinated bonds worth Tk 10 billion to meet its capital shortfall, officials said.
The second largest state-owned bank has recently sought approval from the ministry of finance (MoF) to issue the bonds, they added.
The bank has taken the decision at its 453rd board meeting. The bonds will be issued subject to the approval of the MoF, they also said.   
"We have sought approval from the finance ministry to issue subordinated bonds to meet capital shortfall to implement Basel-III," an official of the bank said.
Basel-III is being implemented from 2015. The rate of capital adequacy is being reserved at 10.62 per cent instead of 10 per cent in 2016. On the other hand, it will be increased to 12.50 per cent till 2019, he added.
The revaluation reserve of the bank is not being considered capital according to the provision of Basel-III. On the other hand, bank's Deferred Tax Assets has been exempted from the bank's capital list under Basel policy, according to a state bank data.
Presently, Risk Weighted Assets (RWA) of the bank has been increased due to raised loans and advances including non-performing loan. As a result, it is not possible to maintain required capital despite overall expected growth of the bank, a source concerned said.
Besides, it is quite impossible to raise the capital only by making profit. For this, they need government assistance to maintain necessary capital under Basel-III. The government gave Tk 8.14 billion as capital in 2013. No budget has been allocated as capital to the bank later, he said.
There is no possibility to get any fund as capital from the government. There is a scope to increase the capital by issuing the bonds.
The funds will be collected from the banks and financial institutions. The collected funds through subordinated bonds will be considered tier-2 capital, according the board meeting sources.
The amount of classified loans of the banks is 13.11 per cent of the total outstanding loans in September last.
The total amount of loans and advances was Tk 382 billion as of September 30 this year.
Until September last, the capital shortage of the bank stood at Tk 7.71 billion.
The capital shortfall of the state-run banks is not decreasing due to various irregularities in loan sanction by the banks, a high official of the central bank said.
Chief Executive Officer (CEO) and managing director of Janata Bank Md Abdus Salam could not be reached over phone for his comments in this regard.
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. In case of insolvency, senior creditors take preference in having their claims satisfied from the debtor's assets.
Banks issue subordinated bonds in order to create equity capital which they then put at the economy's disposal as medium or long-term credit.
rezamumu@gmail.com