Hatton National Bank PLC (HNB) yesterday announced it would be raising Rs.7 billion in a corporate bond issue in a clear indication that the lender is getting ready to meet the higher capital ratios with the BASEL III final deadline approaching in January 2019.
The HNB board on Tuesday decided to issue 50 million BASEL III-compliant, Tier II debentures, at Rs.100 a share, with an option to issue further 20 million debentures.
The rated, unsecured, subordinated, redeemable debenture will have five and seven-year tenures and would be subject to market conditions, regulatory and shareholder approvals, a stock market disclosure by the bank said.
The recent market rout that has engulfed the emerging and frontier markets, including Sri Lanka, appears to have adversely impacted the corporate bond market as already a few issuers have fallen victim to the weakening rupee and the uncertain interest rates.
Singer Sri Lanka’s Rs.1.5 billion debenture issue had received lukewarm response from potential investors as the issue received only 13 applications for a total value of Rs.644.3 million. The issue closed yesterday.
However, the appetite could be different for bond issues by banks.
With higher capital requirements under the BASEL III regulations coming into full effect on January 1, 2019, the banks absorbed much of the capital from corporate debt issues since last year.
According to Fitch Ratings, Sri Lanka’s banking sector raised a whopping Rs.45 billion in Tier II capital since 2017, bridging much of the capital shortfall between the regulatory minimum.
HNB had a 15.22 percent Tier II capital ratio, as of June 30, 2018, when the minimum requirement was 12.875 percent.
However, by January 1, 2019, the minimum requirement goes up to 14 percent.
To maintain a total capital ratio above 14 percent while expanding the loan book demands more capital.
For the six months ended June 30, 2018, the bank reported earnings of Rs.18.49 a share or Rs.9.1 billion, up 16 percent from a year ago.
The bank gave Rs.59 billion in new loans during the six months and has a loan book of Rs.708.1 billion.