UCB to raise Tk 1,000cr via subordinated bond

United Commercial Bank (UCB) has decided to raise a Tk 1,000 crore fund from the capital market through subordinated bond, subject to regulatory approval.

The listed bank will use the proceeds to strengthen its Tier-2 capital base, under the international banking rule Basel-III, it said in a filing with the Dhaka Stock Exchange (DSE) on Wednesday.

It is unsecured and non-convertible subordinated bond that can be redeemed after 7 years.

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 on hand, which named as Capital Adequacy Ratio (CAR).

Under the Basel-III, a bank in Bangladesh should maintain the 12.5 per cent capital adequacy ratio (CAR), where 10 per cent core capital and 2.5 per cent buffer capital. Under the Tier-1 capital, a bank should maintain 6 per cent capital adequacy and Tier-2 it should maintain 4 per cent. This 10 per cent is mandatory for all banks.

According to the Bangladesh Bank data as on September 30, UCB’s CAR was 13.4 per cent. Central bank publishes the CAR in every quarter of a year.

Tier-1 refers to a bank’s core capital, equity, and the disclosed reserves that appear on the bank’s financial statements. In 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.