Five Banks to Raise Tk3,500 Crore Through New Bonds to Shore Up Capital

Five private commercial banks are about to add Tk3,500 crore to their capital bases after the Bangladesh Securities and Exchange Commission approved a fresh round of subordinated bond issuances. One Bank, Southeast Bank, BRAC Bank, Al-Arafah Islami Bank and Bank Asia will each raise money through privately placed bonds aimed largely at strengthening Tier II capital under Basel III rules, though BRAC Bank's contribution stands apart from the rest as a green financing vehicle rather than a capital cushion.

Who Is Raising What

The breakdown shows a familiar structure repeated with small variations across four of the five banks, and one genuine outlier. One Bank will raise Tk400 crore through an unsecured, non-convertible, floating rate subordinated bond priced at the reference rate plus 3 percent, with units priced at Tk1 lakh and Green Delta Capital acting as trustee. Southeast Bank, Al-Arafah Islami Bank and Bank Asia are each issuing seven year subordinated bonds on similar terms, though at different sizes, Tk800 crore, Tk500 crore and Tk800 crore respectively, with unit prices of Tk5 lakh or Tk10 lakh aimed squarely at institutional and high net worth subscribers rather than retail investors. Bank Asia's issue carries a sustainability label, earmarked in part for green projects alongside its Tier II purpose.

Bank	Amount	Structure	Coupon or Discount
One Bank	Tk400 crore	Floating rate subordinated bond	Reference rate + 3%
Southeast Bank	Tk800 crore	7-year subordinated bond	Reference rate + 3%
BRAC Bank	Tk1,000 crore	3-year zero-coupon green bond	8.5% discount rate
Al-Arafah Islami Bank	Tk500 crore	7-year subordinated bond	Reference rate + 3%
Bank Asia	Tk800 crore	7-year sustainable subordinated bond	Reference rate + 3%

BRAC Bank's Tk1,000 crore issue, the largest of the five, works differently from the rest. Rather than paying periodic interest, it is a zero coupon bond issued at a discount rate of 8.5 percent, with a three year tenor and unit price of Tk10 lakh, and it is explicitly pitched at corporate entities, provident funds, gratuity funds and high net worth individuals looking to fund low cost green financing rather than shore up regulatory capital in the conventional sense. All five issues will be privately placed before eventually listing on the main boards of the stock exchanges, a structure that lets the banks raise money from a targeted pool of large investors before the bonds become tradable more broadly.

A Recurring Feature of Bangladesh's Banking Calendar

This is not the first time a cluster of banks has approached the market together for subordinated debt, and the pattern says something about how routinely Bangladeshi banks now lean on these instruments to meet capital rules. In November 2024, the BSEC approved a similar round covering five different banks, Dhaka Bank, Bank Asia, Islami Bank Bangladesh, Exim Bank and Trust Bank, for a combined Tk2,000 crore, also structured as subordinated bonds to strengthen Tier II capital under Basel III and also destined for the Alternative Trading Board before wider listing. Bank Asia's presence in both rounds, less than two years apart, illustrates how Tier II capital raised through a seven year bond eventually needs topping up again as it amortises toward maturity and loses its regulatory capital treatment.

Round	Banks Involved	Total Raised
November 2024	Dhaka Bank, Bank Asia, Islami Bank Bangladesh, Exim Bank, Trust Bank	Tk2,000 crore
September 2026	One Bank, Southeast Bank, BRAC Bank, Al-Arafah Islami Bank, Bank Asia	Tk3,500 crore

The roughly 75 percent jump in the combined size of the latest round, compared with the 2024 batch, reflects both a larger number of banks needing to refresh their capital cushions and the sheer scale of BRAC Bank's single green bond, which alone is half again as large as the entire 2024 round. It also reflects a banking sector under sustained pressure to keep capital ratios comfortably above regulatory minimums at a time when non-performing loans across the industry have been climbing to levels Bangladesh Financial Review has previously reported as the highest of any country in the world, a backdrop that makes healthy, well capitalised banks like these five look for opportunities to widen their buffer even further.

Why Tier II Capital Matters Right Now

Basel III rules split bank capital into tiers, with Tier I representing the core equity cushion that absorbs losses first and Tier II serving as a secondary buffer, made up substantially of exactly this kind of subordinated debt, that ranks below depositors and senior creditors but above ordinary shareholders in a wind down. Regulators favour a healthy Tier II layer because it gives a bank additional loss absorbing capacity without diluting existing shareholders the way a fresh equity issue would, and because subordinated bondholders, unlike depositors, have explicitly agreed to stand behind other creditors if a bank runs into trouble. For banks operating in a market where public confidence in weaker institutions has been shaken by the recent collapse of several non-bank financial institutions and the well documented distress at some politically licensed banks, both stories Bangladesh Financial Review has covered in detail this week, a strong capital position doubles as a signal of relative safety to depositors comparing where to park their money.

What Happens Next

With BSEC approval secured, the next steps are largely mechanical but still meaningful for the market: each bank will finalise subscription with its named institutional investors, the trustees, a mix of Green Delta Capital, DBH Finance and Prime Bank Investment across the five issues, will oversee compliance with the bond terms, and the securities will eventually move to the Alternative Trading Board before a possible move to full exchange listing. For depositors and retail shareholders, the practical effect is indirect but real, a better capitalised bank is a bank better positioned to keep lending through a downturn and less likely to need the kind of emergency intervention Bangladesh Bank has had to arrange for weaker institutions elsewhere in the sector this year.

The Investors on the Other Side of These Bonds

It is worth remembering who actually buys instruments like these, since none of the five issues is open to ordinary retail investors. Unit prices ranging from Tk1 lakh up to Tk10 lakh effectively restrict subscription to corporate treasuries, provident and gratuity funds, insurance companies and wealthy individuals who can absorb both the size of a single unit and the illiquidity that comes with a privately placed instrument before it eventually lists. For those institutional buyers, a seven year subordinated bond paying a reference rate plus 3 percent offers a yield pickup over safer government paper in exchange for standing behind depositors if the issuing bank ever runs into serious trouble, a trade off that becomes more attractive the more confidence the market has in a bank's underlying health. That two of the five banks in this round, BRAC Bank and Bank Asia, are among the more consistently well regarded names in Bangladesh's banking sector suggests institutional appetite for their paper is unlikely to be the constraint on how quickly these bonds get placed.