Mercantile Bank on Sunday announced its plan to issue a Tk 500 crore coupon-bearing non-convertible subordinated bond to strengthen its Tier 11 capital base under the BaselIII guidelines.
Under Basel III, a bank's tier 1 and tier 2 assets must be at least 10.5 per cent of its risk-weighted assets, up from 8 per cent under Basel II.
Tier 1 capital is a bank's core capital and includes disclosed reserves -- that appears on the bank's financial statements -- and equity capital.This money is the funds a bank uses to function on a regular basis and forms the basis of a financial institution's strength.
Tier 2 capital is a bank's supplementary capital. Undisclosed reserves, subordinated term debts, hybrid financial products, and other items make up these funds.
Subordinated debt, also known as a subordinated debenture, is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings. They are thus also known as junior securities.
In the case of borrower default, creditors who own subordinated debt will not be paid out until after senior bondholders are paid in full.
Shares of Mercantile Bank, which was listed in 2004, closed at Tk 11.7 yesterday, down 0.85 per cent from the previous day.
