NTB announces Rs.3.2bn rights issue eying aggressive growth

Nations Trust Bank PLC (NTB) yesterday announced a rights issue of non-voting shares convertible into voting rights, as the lender plans for aggressive growth in assets, ahead of the need for higher capital requirements under the new BASEL III accord. 

NTB said it would issue 40.1 million convertible non-voting shares in the proportion of four new shares for every 23 voting shares held at an issue price of Rs.80. 

The NTB share closed Rs.1.10 lower at Rs.81.90 after the announcement.

The rights issue will raise Rs.3.2 billion bringing the total stated capital up to Rs.8.3 billion. 
“Such issued convertible non-voting shares will have the option of convertible into ordinary voting shares at every calendar quarter at a conversion ratio of one ordinary voting share for every one convertible non-voting share,” NTB said. Sri Lankan private lenders have announced instruments ranging from convertible subordinated debt to convertible shares with a view to stay in line with the increasing capital adequacy requirements under the BASEL III rules.  The BASEL III rules came into effect on July 1, 2017 with transitional arrangements up to January 1, 2019, when the banks are required to fully comply. 

The September earnings reports of banks showed the BASEL III-compliant capital adequacy ratios and liquidity coverage ratios for the first time.  According to the new rules, by July 1, 2017, the banks with assets below Rs.500 billion should be maintaining a capital adequacy ratio under Common Equity Tier I (CET I) of 5.75 percent, in addition to the traditionally used Tier I and Tier II CARs, which are also higher than earlier. 

Under BASEL III, the traditional Tier I and Tier II CARs increase up to 7.25 percent and 11.25 percent, respectively from 5.0 percent and 10.0 percent each. 

By June 30, 2017, NTB, which had an asset base of Rs.246.5 billion, had 10.05 percent under Tier I CAR and 13.39 percent under Tier II CAR. 

While the two ratios currently stand well above the requirement, the rights issue is an indication that the lender is planning for an aggressive growth in loans during 2018. 

Calls for higher capital adequacy came after the failures of major banks in the US and Europe during the financial crisis in 2008 to ensure the banks operate with higher loss absorption capacity in times of systematic risk. 

Meanwhile, NTB said the rights issue would not breach the Colombo Stock Exchange listing rules, where the total value of all other classes of shares issued at any given time, including the announced rights issue, will not exceed 15 percent of the bank’s shareholder funds. 

“The bank’s shareholder funds as per the interim financials as at September 30, 2017, is Rs.18,664,284,846,” NTB said.