Private sector commercial lender National Bank, which is suffering from a severe financial crisis, wants to raise nearly Tk1,000 crore from foreign sources by issuing foreign bonds aiming to meet its regulatory capital requirements.
The board of the bank has decided to issue seven-year foreign currency denominated subordinated bonds worth $100 million subject to consent of the regulatory authorities, according to a disclosure posted on the Dhaka Stock Exchange (DSE) website on Sunday.
With this, National Bank is going to be the country's first private bank to issue foreign currency bonds to raise funds from foreign investors.
The listed bank posted a loss of Tk190 crore in the first half (H1) of the current year amid pressure of rising provision shortfall and capital erosion.
The financial health of National Bank has been deteriorating for the past two years even after the Bangladesh Bank posted an observer on the board of the bank in 2014.
When contacted, Md Mehmood Husain, managing director of the bank told The Business Standard that the bank needs to raise funds as high non-performing loans have eroded its capital.
He said they are trying to raise funds from the US-and UK-based investors and that foreign funds will be good for the bank and country as well.
"The board of the bank approved the foreign currency bond as we got primary hope from foreign investors even after sharing the high non-performing loan and financial situation," he said.
Asked why investors would invest in the financially troubled bank, he said they would do so because the asset base of the bank is very strong.
He also said that he wants to re-model the business strategy of the bank by focusing on the SME sector coming out from corporate lending dependency.
As part of that, the bank is planning to strengthen its capital base from both domestic and foreign sources
Previously in May, the bank announced to raise Tk500 crore from domestic sources by issuing subordinated bonds to meet its regulatory capital requirements.
The capital adequacy ratio, which refers to a bank's risk-weighted credit exposures, of National Bank stood at 9.38% this June, less than the regulatory requirement of 10%.
The capital shortfall of the bank stood at Tk300 crore at the end of June, according to the Bangladesh Bank's data.
Rising default loans caused by huge loan anomalies eroded the capital of the bank.
The default loan rate of the bank stood at 23.24% in June which was second highest among private banks.
The bank also faced a whopping provision shortfall of Tk7,115 crore this June as a consequence of the 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 profit.
Rising provision shortfall puts banks in capital erosion that shrinks the lending capacity of banks and the ultimate outcome is that public money will be at risk.
The share price of National Bank on DSE has remained below its face value of Tk10 for the last two years due to the erosion of financial indicators.
The bank was identified as one of the 10 weak banks by the Bangladesh Bank after new governor Abdur Rouf Talukder took charge.
The governor at a recent press conference made a disclosure about identifying the 10 weak banks and said the central bank would sit with them one-to-one to improve their health.
The banks have been categorised based on their capital shortages, default loan rates, provisioning, and loan-deposit ratio.
The governor has already held a meeting with the owners and top management of National Bank over its financial performance.
The central bank is now planning to appoint an administrator in the bank, said a source with the Bangladesh Bank.
The Bangladesh Bank suspended loan activities of the bank in May last year against the backdrop of a liquidity crisis caused by huge loan irregularities.
Later, the suspension was withdrawn in December 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 this year. However, this time, the suspension was partial, limiting the lending sector for the bank.