Banks may be given more time to raise paid-up capital

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Siddique Islam
The commercial banks are likely to be allowed time to raise their total capital - paid up and reserve capital - to Tk 2.0 billion from the existing Tk 1.0 billion until June 2009, official sources said.
The banks will have to enhance 50 per cent of their new capital requirement by June 2008 and rest of the amount will have to be raised by the end of June 2009, according to the central bank's plan.
The Bangladesh Bank (BB) will issue a circular in this connection shortly allowing the timeframe to meet the capital requirement in line with the existing the Bank Companies (Amendment) Ordinance 2007, published October 8 last.
"We are now working to implement the ordinance," a BB senior official told the FE Monday, adding that at least six commercial banks may face problems to raise their capital as per the new requirement.
The central bank earlier recommended to the government for doubling the amount of capital of the commercial banks in line with the BASEL-II, the sources added.
Besides, the BB has already has increased the amount of the required minimum capital for commercial banks to 10 per cent of their risk-weighted assets from the existing requirement of nine per cent.
The new provisions for capital adequacy will come into effect from December 31, 2007.
The banks are now maintaining a ratio of capital to risk weighted assets at not less than 9.0 per cent of which at least 4.50 per cent in the form of core capital.
Three-types of risks - credit risk, market risk and operational risk - have to be considered under the minimum capital requirement.
Currently, Bangladesh is following Basel-1 for bank's capital adequacy requirement. Risk-based capital ratio was 8.0 per cent when it was first adopted in 1996. Later in 2002, the ratio was increased to 9.0 per cent.
"The central bank increased the capital adequacy of the banks in preparing for the implementation of the Basel-II framework," another BB official said, adding that the capital adequacy may increase further in the near future in line with the Basel-II requirements.
The central bank took the move to strengthen the financial base of the country's banking industry and ensure management efficiency in the long run through maintenance of the global standard of banking practices.
The latest move of the BB will help improve the financial health of the commercial banks that will be required for the implementation of the Basel-II accord, the bankers felt.
"Most of the commercial banks may raise their capital base issuing rights or bonus shares," a senior official of a private commercial bank told the FE Monday.
The listed bank companies will not face any problem to increase their capital base, the official observed.