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The securities regulator has decided to keep unchanged the banks’ ‘full discretion’ regarding cancellation of distributions or payments – to facilitate their capital formation through issuing perpetual bonds.
In a letter, sent to the Bangladesh Bank (BB) on Wednesday, the Bangladesh Securities and Exchange Commission (BSEC) said it would waive the banks from the mandatory compliance, as set in the consent letters – issued earlier for perpetual bonds.
The regulatory decision came following a request, made by the central bank on the same day.
Perpetual bonds are fixed-income securities with no maturity date, and investors receive interest in the form of coupon payments.
The securities regulator so far approved 19 banks’ proposals for issuing perpetual bonds as part of the Additional Tier-I requirement.
The BB recently turned down the consideration of seven banks’ funds, raised through perpetual bonds as Additional Tier-I capital, as the characteristics of such bonds do not comply with the Risk Based Capital Adequacy (RBCA) guidelines.
In its consent letters, issued for the perpetual bonds of seven banks, the securities regulator said the banks would not have ‘full discretion’ all the time to cancel distributions or payments to the bond holders.
On the other hand, the central bank’s RBCA guidelines said the bank would have ‘full discretion’ all the time to cancel distributions or payments to the bond holders.
As a result, the seven banks were in a fix following the central bank’s disapproval to the perpetual bonds, approved earlier by the securities regulator.
Subsequently, the banks’ high officials sat with the top officials of the securities regulator and the central bank to find out a solution.
The managing directors of the banks held a meeting with the BB governor on Tuesday, while another meeting was held with the BSEC chairman on Monday.
A senior official of the central bank said the way of approving seven banks’ perpetual bonds did not match with the international standards.
“Many of our banks take loans from international lenders, like the Asian Development Bank (ADB). The banks could face problems in taking loans from such lenders,” the BB official added.
The central bank blocked the perpetual bonds of seven banks, as the characteristics of such bonds did not comply with the RBCA guidelines.
The banks include Mutual Trust Bank, One Bank, Premier Bank, Jamuna Bank, Pubali Bank, and EXIM Bank.
Mohammad Rezaul Karim, the BSEC spokesperson, said the commission earlier issued consent letters to the seven banks, considering investors’ interest.
“Now, the commission has taken the decision of revising its consent letters following the central bank’s request. The BSEC has considered the BB’s request for development of the bond market,” Mr. Karim added.
Mutual Trust Bank (MTB) Managing Director Syed Mahbubur Rahman said both the regulators were very positive in solving the problems regarding the perpetual bonds.
“We are grateful to both of them.”
The relationship of the regulators indicates that both the stock market and the money market would be benefited in the days to come, he opined.
(FE)
