Perpetual bond complications likely to end soon for banks

Bank executives are expecting an end to the complications that have been created recently regarding mandatory interest payments against their issued perpetual bonds. 

The central bank will recommend withdrawing the Bangladesh Securities and Exchange Commission's (BSEC) condition for mandatory interest payments against perpetual bonds of some banks, top bank officials told The Business Standard (TBS) after their meeting with Bangladesh Bank Governor Fazle Kabir, on Tuesday.

Earlier this month, senior BSEC officials expressed their readiness to amend the bond approval letters by withdrawing the condition of mandatory interest payments, if recommended by the central bank.

Previously, BSEC in its approval letters to seven banks regarding perpetual bonds said the issuing bank would not enjoy any discretion in interest payments to investors.

Meanwhile, the central bank in its recent letters to the banks said it was unable to treat the perpetual bond proceeds as Additional Tier-I capital if interest payments remained an obligation, as its definition of Additional Tier-I Capital does not include debt instruments with a mandatory interest payment clause.

The contradictions between the two regulatory bodies created complications for banks issuing perpetual bonds to strengthen their Additional Tier-I capital base to comply with Basel-III guidelines.

However, the purpose of issuing perpetual bonds is likely to be served finally, as both the regulators assured bankers of a solution.