The hope for launching perpetual bonds by seven banks get deflated as the central bank disapproves of the securities regulator's consent letter over their requisite capital position, sources say.
In its response to the bond move--meant for raising capital--Bangladesh Bank has said it cannot consider the banks' perpetual bonds since their 'Additional Tier-I' capital, as mentioned in the Bangladesh Securities and Exchange Commission's consent letter, contradicts the BB guidelines.
The central bank's response was sent in a letter to the banks concerned.
"…your perpetual bond will not be taken into account as Additional Tier-I capital as the characteristics of such bond do not comply with the RBCA's guidelines," the BB letter to one of the private commercial banks reads.
The bank's total regulatory capital comprises some components that include Additional Tier-I.
The BSEC initially allowed 11 banks for issuing perpetual bonds to strengthen their capital bases as part of Additional Tier-I requirement.
Meanwhile, the representatives of these banks Tuesday held a meeting with the securities regulator to project their problems that surfaced after getting the central bank's response. The officials of Mutual Trust Bank, One Bank, Premier Bank, Jamuna Bank Pubali Bank and EXIM Bank, were present at the meeting.
"At the meeting we requested the BSEC to take initiative for resolving the problems. The regulator has said the banks themselves should also talk to the central bank," said a senior official of one private bank who attended Tuesday's meeting.
Another participant said the BSEC issued two types of consent letters to some banks for issuing bonds. "We have requested the BSEC to issue identical consent letters."
The BSEC official concerned could not be reached to speak their opinion regarding the decision of the central bank.
Perpetual bonds are fixed-income securities with no maturity date and investors receive interest in the form of coupon payments.
In its directive issued in May last, the securities regulator had included a provision requiring subscription of 10 per cent of a perpetual bond through public offer.
And the listing of such bond with bourses will be conducted under direct- listing method.
The central bank's decision regarding consideration of perpetual bond came at a moment when Dhaka Stock Exchange (DSE) approved the listings of five perpetual bonds by five banks.
DSE officials say trading in the perpetual bonds of Al-Arafa Islami Bank, Islami Bank Bangladesh, Shahjalal Islami Bank, Premier Bank AB Bank and Pubali Bank can be started anytime on completion of a few formalities.
Talking to the FE, Managing Director of Mutual Trust Bank Syed Mahbubur Rahman said the banks would face problems in fulfilling capital- adequacy requirement if the perpetual bond issue is not resolved.
"We hope the central bank and the securities regulator will try to find a solution. We are talking to both the regulators," says the banker.
Asked, a senior official of the central bank said the banks were aware of the guidelines on the risk-based capital adequacy (RBCA).
"They should be more conscious regarding the regulatory consent which contradicts with BB's existing guidelines on the perpetual bond," says the BB official.
In its letter sent to the banks which issued perpetual bonds, the central bank said issuers are required to comply with all conditions mentioned in the guidelines on risk-based capital adequacy.
RBCA's annexure-4 regarding dividend discretion says the bank must have full discretion at all time to cancel distribution payments.
On the other hand, the securities regulator's consent letter issued for bond says that the bank shall not have full discretion at all times to cancel distributions/payments to the bondholder.
The central bank finds BSEC's condition contradictory to the condition mentioned in the guidelines of RBCA.
"Under such a situation, your bond perpetual bond will not be taken into account as Additional Tier-I capital as the characteristics of such bond do not comply with RBCA's guidelines," the BB said in its letter to one bank.
The RBCA guidelines also say the cancellation of discretionary payments must not be an event of default.
"Banks must have full access to cancellation of payments to obligations as they fall due," says the annexure of the BB guidelines on RBCA.
The guidelines have it that the cancellation of distributions/payments must not impose restrictions on the bank in relation to distribution to common stakeholders.
"When dividend is paid at a rate lesser than the prescribed rate, the unpaid amount will not be in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum," it is stated in the BB guidelines on RBCA.
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