Mercantile Bank to issue Tk800cr bond

Mercantile Bank, a private sector lender, has decided to raise Tk800 crore through issuing bonds, aiming to enhance its capital base.

According to its price-sensitive statement filed on the Dhaka Stock Exchange (DSE), the coupon-bearing floating rate non-convertible subordinate bond aimed at raising regulatory capital (tier-2) is expected to help the bank fulfil its Basel-III requirements.

The decision to issue the bond was approved by the bank's board of directors at a meeting on Sunday, reads the statement.

The issuance of the bond is subject to approval from the BSEC and the Bangladesh Bank.

Currently, the local bond market is dominated by subordinated bonds, mainly issued by banks. The bonds help lenders construct their mandatory tier-2 capital base through proceeding within a specific tenure.

The Bangladesh Bank is implementing Basel-III in the local banking industry to ensure that banks have adequate capital to avert systemic risk.

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.

However, following the bond issuance decision, Trust Bank's share price remained unchanged, which stood at Tk7.70.

Earlier, Mercantile Bank had decided not to declare any dividend for 2024 after reporting a provision shortfall of Tk1,700 crore against non-performing loans as of 31 December last year.

In 2023, it paid a 10% cash dividend to its shareholders.

The bank, in its financial statement, said Bangladesh Bank's assessment revealed a Tk2,121.19 crore provision shortfall as of 31 December 2024, with only Tk220.33 crore maintained, leaving an initial deficit of Tk1,900.86 crore.

Following a 22 May directive, the bank allocated Tk200 crore from 2024 pre-provision profits, reducing the gap to Tk1,700.86 crore.

According to the audited statement of the bank for 2024, its classified investments surged 199% year-on-year to Tk5,176 crore, making up 17.25% of its total loan portfolio.

This rise in bad loans led to a net loss of Tk272 crore in the October-December quarter last year.

As a result, the bank's consolidated net profit dropped by 68% to Tk64.95 crore for the year, with earnings per share (EPS) falling to Tk0.58 from Tk1.86 the year before.

Meanwhile, in the first quarter of 2025 (January-March), the bank posted a 14% growth in the consolidated net profit to Tk92.74 crore, while its earnings per share were Tk0.84.