NTB announces convertible bonds to raise Rs.3.5bn

Nations Trust Bank PLC (NTB) last week resolved to raise fresh capital from a corporate debt issuance as the mid-size lender plans to ramp up capital to stay in line with the new BASEL III regulations on capital, which came into effect from July 1, 2017.
NTB, the banking arm of the blue-chip conglomerate John Keells Holdings PLC, has announced the issuance of 35 million debentures, which have characteristics similar to that of Sampath Bank’s, which are in subordinate in nature and convertible into equity at a future date by the management if deemed necessary. Therefore, NTB, with an asset base of Rs.247 billion, will raise Rs.3.5 billion, subject to regulatory clearance and will list the debenture afterwards.  In a similar development, Sampath Bank PLC in July announced to raise up to Rs.6.0 billion in view of the BASEL III capital rules. According to the BASEL III accord, the banks with core capital less than Rs.500 billion must maintain their Common Equity Tier I capital adequacy ratio (CAR) at 5.75 percent, Tier I CAR at 7.25 percent and Total or Tier II CAR at 11.25 percent, latest by December 31, 2017.

However, the minimum requirement rises by 0.625 percent under the three minimum capital adequacies by January 1, 2018.

The minimum CARs for larger banks or banks with assets over Rs.500 billion are even higher.

At NTB, the Tier I CAR stood at 10.05 percent and Tier II CAR at 13.39 percent by June 30, 2017.

But the loans and receivables grew by 13.1 percent or little under Rs.20.0 billion during 1H17. But the bank may want to grow at least a bit more aggressively during its 2H17, which could result in depleting of CARs.  

Loans weaken the CARs of banks as each loan is mandated to make a capital charge against equity and the total capital based on the liquidity and market risk.

NTB during 1H17 increased its net profit by 12 percent year-on-year (YoY) to Rs.1.43 billion or Rs.6.19 cents a share on a net interest income of Rs.5.48 billion, up 19 percent YoY.