United Commercial Bank (UCB) has decided to increase its authorised capital from Tk 15 billion to Tk 25 billion, as it sees expanding business potential.
The first generation private commercial bank's loan and advances have risen at a rate of 15 per cent on an average every year since 2020. Its paid-up capital has climbed up at an annual average rate of 7.5 per cent for the last four years to reach Tk 14.77 billion already. For a further expansion of paid-up capital, the authorised capital has to be bigger than what it is now - Tk 15 billion.
"The bank needs to broaden its business further. Hence, it is increasing it authorised capital," said Jayed Ahmed, a senior official of the bank.
A bank's business horizon is limited to its capital base. When the size of its capital is bigger, it can invest more in the capital market and lend more money to customers.
A bank may need to increase its authorised share capital before issuing new equity shares, said Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank.
Authorised share capital is the total value of shares a company is allowed to float. The paid-up capital is the value of total outstanding shares.
UCB provided stock dividends every year for the last five years.
Stock dividends have no impact on the total amount of stockholders' equity or on net assets, but they decrease retained earnings and increase paid-in capital by an equal amount.
So, if the bank wants to declare stock dividends this year, it has to increase the authorised capital prior to that.
Among the 36 banks listed on the Dhaka Stock Exchange (DSE), only seven have authorised capital of Tk 25 billion or more. BRAC Bank and National Bank have the highest authorised capital -- Tk 50 billion - among all banks.
After increasing the authorised capital, UCB will be the 8th largest bank in terms of its allowable capital size.
Meanwhile, the stock of UCB remained unchanged on Thursday at Tk 12.5 per share from the day before.
It reported a profit of Tk 3.3 billion for 2022 and paid 5 per cent cash dividends and 5 per cent bonus shares to shareholders for the year.
For the nine months through September 2023, it disclosed a profit of Tk 1.8 billion, a 9.10 percent decline from the same period of the previous year.
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