BSEC allows scam-hit National Bank to issue Tk500cr bond

The Bangladesh Securities and Exchange Commission (BSEC) has allowed the Sikder family dominated National Bank to issue a Tk500 crore bond at a time when the lender is facing a tough time due to loan scams and the absence of good governance.

The first-generation private lender said in a stock exchange filing on Sunday that it had received the regulator's nod to issue the subordinated bond to strengthen its capital base in order to meet the Basel III requirement.

But it has not disclosed the tenure of the bond and made no mention of the date of getting the commission's approval.

Dhaka Stock Exchange (DSE) on Sunday

Seeking anonymity, a DSE official said the National Bank has updated the financial information upon a query by the country's premier bourse. The lender had earlier declared in May last year that it had decided to issue Tk500 crore bond.

The Business Standard was unable to reach any officials of the lender on their mobile phones for comment to this end.

According to BSEC spokesperson Rezaul Karim, the commission approved the bank to issue the bond through a private placement in November last year, subject to regulatory requirements being met. 

"But we did not disclose it to the public," he added, without giving any reason for this.

According to the private placement of debt securities rules, the issuer should have maintained the capital adequacy ratio, which is determined by its primary regulator. The issuer needs to have a good track record of profitability and liquidity, or its forecasted financial position must indicate significant profitability, liquidity, and ability to pay back.

But for the National Bank, the capital adequacy ratio, which refers to a bank's risk-weighted credit exposures, stood at 9.38% at the end of June 2022, less than the regulatory requirement of 10% set by the Bangladesh Bank.

The capital shortfall of the bank stood at Tk300 crore at the end of June, according to the central bank's data. Rising default loans caused by huge loan anomalies eroded the capital of the lender.

The default loan rate of the bank stood at 23.24% in June, which was the second highest among private banks.

It also faced a whopping provision shortfall of Tk7,115 crore as a consequence of high default loans.

Provision is the fund set aside by banks to pay for anticipated future losses. High default loans require banks to maintain higher provisioning, which is kept from their profits.

Rising provision shortfalls cause banks' capital to erode, reducing lending capacity and, ultimately, putting public money at risk.

The listed bank posted a loss of Tk387 crore in the first nine months of 2022 amid pressure from rising provision shortfalls and capital erosion.

It was identified as one of the 10 weak banks by the Bangladesh Bank after Governor Abdur Rouf Talukder took charge.

The central bank suspended the lender's loan activities in May 2021 last year against the backdrop of a liquidity crisis caused by huge loan irregularities.

Later, the suspension was withdrawn in December 2021 in the wake of an improvement in the liquidity situation.

But, even after the long suspension, loan-related irregularities continued to take place in the bank, prompting the central bank to go for further suspension in May last year. However, this time, the suspension was partial, limiting its lending.

National Bank's managing director Md Mehmood Husain recently resigned, citing personal reasons. He was the fifth managing directors to have resigned from the lender in the last six years.

Its board of directors decided in September last year to issue $100 million in seven-year foreign currency denominated subordinated bonds, making it the country's first bank to do so. However, it has not yet received approval from the BSEC.

Mehmood said earlier that the bank needs to raise funds as high non-performing loans have eroded its capital.

He said they were trying to raise funds from US- and UK-based investors and that foreign funds would be good for the bank and the country as well.