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A breakthrough has apparently come about in the discord between Bangladesh Bank and the Bangladesh Securities and Exchange Commission (BSEC), with both reaching common grounds over perpetual bonds.
The stock market regulator decided to honour a central bank request to lift a condition stipulating that banks cannot stop paying interests against perpetual bonds, BSEC Chairman Prof Shibli Rubayat-Ul-Islam told The Daily Star yesterday.
Having no maturity date, perpetual bonds pay a steady stream of interest forever but are not redeemable. For this, they are often viewed as a type of equity and not a debt.
Earlier, eight lenders, namely Mutual Trust Bank, Jamuna Bank, Premier Bank, EXIM Bank, ONE Bank, Pubali Bank, Standard Bank and AB Bank, received the BSEC’s permission to issue perpetual bonds.
The condition was mentioned in the permission letters.
Right afterwards, Bangladesh Bank sent letters to the banks, warning that if they abided by the condition, the bond proceeds would not be allowed to be shown as additional tier-I capital.
This is because perpetual bonds also acted almost like shares. When a company issues shares, it does not give the guarantee that it would pay dividends every year.
In other words, the banks should have full discretion over the perpetual bonds.
AB Bank and EXIM Bank were to raise Tk 600 crore each, Pubali and Standard Tk 500 crore each, ONE, Jamuna and Mutual Trust Tk 400 crore each while Premier was to raise Tk 200 crore.
The banks backed the BB logic, pointing out that they had taken up the perpetual bonds solely to strengthen their capital base.
Their top officials informed of this meeting with the BSEC chairman on Monday. The stock market regulator agreed to consider lifting the condition, but only if the central bank requested it.
The bankers conveyed this meeting with Bangladesh Bank on Tuesday. And the BB made the request though a letter sent to the BSEC yesterday.
The BB’s letter is a positive move, said a top official of a private bank, preferring anonymity.
“We were in a real trouble for the two regulators being at odds. We told the BSEC that the condition was contrary to international practices and the Basel guideline,” he said.
The BB in yesterday’s letter stated that the BSEC’s condition was in conflict with the nature of perpetual bonds, international practices and the central bank’s guideline.
“In this situation, we are requesting to consider lifting the condition,” it added.
Tension had already been prevailing between the BB and BSEC over two other issues.
One was over the BSEC ordering all listed companies, including banks and non-bank financial institutions (NBFIs), to deposit their unclaimed dividends to a stock market stabilisation fund.
The other was over the BSEC allowing the banks and NBFIs to declare dividends from the current year’s profits even if there were cumulative losses.
The central bank was against the moves, going as far as telling the banks and NBFIs not to abide by the BSEC orders, leaving them in a quandary.
A top official of another private bank, requesting not to be named, said the discrepancies in stances of the BB and BSEC were not a good sign for the financial sector, especially the stock market.
“We suffered for their differences, which was not expected,” he said, adding that stock investors were also apprehensive seeing the rift.
They should resolve their differences, he added.
(TDS)
