Shahjalal Islami Bank wants to raise Tk 6 billion through 4th Mudaraba subordinated bonds to strengthen its capital base under Basel-III compliance as per the Bangladesh Bank's December 2014 guidelines on risk-based capital adequacy.
The bond issuance is subject to the approval of the regulatory authorities concerned -- Bangladesh Bank and Bangladesh Securities and Exchange Commission, according to a stock exchange filing on Thursday.
The bonds will be fully redeemable, unsecured and non-convertible and will have floating rate with a 7- year maturity period.
Banks are required to maintain a certain level of capital to ensure their financial stability and protect depositors. The bond proceeds will be treated as capital and it will help the bank grow its investment and loan portfolio.
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.
As per Bangladesh Bank's Basel III guidelines, each bank must hold capital equivalent to 10 percent of its risk-weighted assets or Tk 5 billion, whichever is higher. Failure to meet this requirement is considered a capital shortfall.
Subordinated bond is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings. Subordinated bonds are thus also known as junior securities.
Financial performance
Shahjalal Bank's consolidated net profit dropped drastically by 52 per cent year-on-year to Tk 1.69 billion in 2024, due mainly to increased provision for classified loans, and provision for diminution in value of investments in shares.
Despite a lower profit, the board of directors declared a 10 per cent cash dividend for 2024, while half of the 36 listed banks failed to declare any dividend due to the strict regulation of the Bangladesh Bank over provisioning shortfall.
The private lender's first quarter profit also dropped 4 per cent year-on-year to Tk 1.16 billion for January-March for the same reasons.
Meanwhile, the stock closed at Tk 16.1 per share on the Dhaka bourse on Thursday, having lost 3.59 per cent from the previous day.
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