The Bangladesh Bank (BB) has instructed the commercial banks for doubling their paid-up capital and reserve to Tk 4.0 billion from the existing Tk 2.0 billion by August 11, 2011.
Of the amount, the paid-up capital must worth a minimum of Tk 2.0 billion, officials said Thursday.
The central bank issued a circular in this connection on the day and asked the chief executives of all commercial banks to meet the capital requirement in line with the new instructions.
Under the new instructions, the banks are required to have the capital by increasing its reserve or issuing rights shares or floating initial public offerings (IPOs). But no bank will be allowed to offer cash dividends so long there is a deficit in capital.
In case of foreign banks, they have to meet the capital requirement by injecting fresh funds from overseas sources or stopping expatriation of post-tax profits, the central bank said in its circular.
Besides, the banks, as an option, may consider merging with other banks or non-banking financial institutions (NBFIs) to meet the capital requirement within the timeframe, the circular noted.
The BB earlier introduced a policy of merger and acquisition for banks and NBFIs in order to make them operationally sound.
On November 5 last, the central bank directed the banks to raise their total capital - paid-up and reserve - to Tk 2.0 billion from Tk 1.0 billion in two phases by June 2009.
Under that directive, the banks were required to enhance 50 per cent of their new capital requirement by June 2008 and the balance amount by the end of June 2009.
The central bank took the move on capital requirement in line with Basel-II framework, which has to be implemented from the year 2010.
The new Basel accord has been prepared on the basis of three fundamentals: minimum capital requirement, supervisory review process and market discipline.
"We've instructed the banks to raise their total capital to Tk 4.0 billion over the next three years as part of the preparations to implement the Basel-II framework," a BB senior official told the FE.
He also said the new capital requirement will help consolidate the country's financial sector through protecting the interest of depositors.
"The general investors will be benefited from the new measures that no bank will be allowed to offer cash dividends so long there is capital deficit," the official observed.
The bankers welcomed the BB's latest move saying that it would consolidate the capital base of the banks needed to meet the Basel-II requirements.
"Most of the banks will be able to raise their total capital to Tk 4.0 billion within the timeframe, set by the central bank," Vice Chairman of the Bangladesh Association of Banks (BAB) Muhammad A (Rumee) Ali told the FE.
Mr. Rumee Ali, who is also chairman of the BRAC Bank Limited, said that the restriction on offering cash dividends by banks having capital inadequacy would encourage the banks to raise their paid up capital.
Currently, a total of 48 banks are operating across the country. Of which, four are government-owned commercial banks, five specialised, 30 private banks and nine foreign banks.
