Preference shares to banks with less primary capital

Aiming at such banks, the National Bank has introduced a new concept of unredeemable unreserved preference shares. The central bank is going to allow the banks that have sufficient primary capital to issue debentures and preference shares in the nature of dividends only in the year of profit.

In the unified instructions issued by the National Bank on Wednesday, it is mentioned that the banks which are under pressure in capital funds can issue unredeemable unreserved preference shares. According to the instructions of the National Bank, 12 different criteria have been prescribed regarding the issuance of irredeemable unreserved preference shares. Generally such preference shares are not converted into shares. But in the event that the bank is unable to operate, the National Bank has given the facility to convert it into ordinary shares.

Based on the risk assets of a bank, the primary capital fund ratio is 5.125 percent, such preference shares can be changed as shares. When such ratio reaches 5.125 percent, such shares shall be converted into ordinary shares for the purpose of calculating losses.

Redeemable non-cumulative preference shares are called Perpetual Noncumulative Preference Shares in English. Perpetual means that the maturity period is not fixed. Non-cumulative means that even if no dividend has been distributed in a year, there is no obligation to pay dividends in other years as that year's dividend.

It has been arranged that only institutional investors can invest in such preference shares, while distributing dividends, it should be done only from the profits of the current financial year through the profit and loss sharing account, and no accumulated profit account or any fund can be spent for this.