IFIC Bank to issue TK 500cr bond

The International Finance Investment and Commerce (IFIC) Bank has decided to issue non-convertible subordinate bonds worth Tk 500 crore to increase its capital base as per Basel-III, an international banking rule.

The publicly traded bank made the disclosure through a news filing with the Dhaka Stock Exchange on Tuesday.

It said that the bank’s board of directors decided to issue the bond to construct Tier 2 capital base, subject to approval of Bangladesh Securities and Exchange Commission (BSEC) and Bangladesh Bank (BB).

Basel III is a 2009 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 in hand, which named as Capital Adequacy Ratio (CAR).

In Bangladesh, under the Basel-III, a bank should maintain a 12.5 per cent CAR, where 10 per cent core capital and 2.5 per cent buffer
capital. 

Under the Tier-1 capital base, a bank should maintain 6 per cent capital adequacy and it should maintain 4 per cent when it comes to Tier-2. This 10 per cent is mandatory for all banks.

According to the Bangladesh Bank data, IFIC Bank’s CAR was 11.70 per cent on December 31, 2020. It increased in the first quarter (March) of this year and stood at 12.1 per cent.

The central bank publishes the CAR in every quarter of a year. 

Normally, banks have two main silos of capital that are qualitatively different from one another. The Tier-1 refers to a bank's core capital, equity, and the disclosed reserves that appear on the bank's financial statements.

When a bank experiences significant losses, the Tier-1 capital provides a cushion that allows it to weather stress and maintain a continuity of operations.

By contrast, Tier 2 refers to a bank's supplementary capital, such as undisclosed reserves and unsecured subordinated debt instruments that must have an original maturity of at least five years.