BB asks NBFIs to double their paid-up capital by June 30

Express (July 25, 2011)

The central bank has asked the non-banking financial institutions (NBFIs) to double their paid-up capital by June 30 next year to help consolidate their capital base for minimising risks, officials said.

Under the latest directives of Bangladesh Bank (BB), the NBFIs will have to raise their paid-up capital up to a minimum of Tk 1.0 billion (100 crore) by June 30, 2012 from the existing Tk 500 million (50 crore).

"We've taken the latest move to enable the country's NBFIs consolidate their capital base, in line with the Basel-II framework. This compliance with Basel-II requirement will be mandatory from begging of the next calendar year," a senior BB official told the FE Sunday.

The NBFIs have been asked to meet the required capital through issuing rights or bonus shares or floating initial public offerings (IPOs). But no NBFI will be allowed to offer cash dividends as long as they run capital deficit, according to a central bank circular, issued on Sunday.

"At least 18 NBFIs will have to issue rights or bonus shares to comply with the latest circular of the BB relating to capital base, the central bank official said, adding that paid-up capital of two NBFIs have already exceeded Tk 1.0 billion..

Presently, 30 NBFIs are running their businesses in the country.

Market operators, welcomed the BB's latest move, saying that it will able to bring a positive impact on the country's NBFIs sector.

"It will help to strengthen and consolidate the capital base of the NBFIs and will also help to implement the Basel-II framework," Managing Director of the Industrial and Infrastructure Development Finance Company Limited (IIFDC) Assaduzzaman Khan told the FE.

He also said some NBFIs may face some problems to meet the enhanced capital requirement within the stipulated time-frame.

The central bank has taken the latest move to strengthen the capital base of the NBFIs in line with the Basel-II framework that has already been implemented on a trial basis, its officials said.

"The NBFIs will have to implement the Basel-II framework from January 1, 2012," another BB official said, adding that the minimum capital requirement and the risk weighted assets for the NBFIs will be fixed after an extensive review of the overall performance of the sector.

The fundamentals of Basel-II accord are mainly based on three factors: minimum capital requirement, supervisory review process, and market discipline.

Three types of risks - credit risk, market risk, and operational risk - have to be considered for the purpose of deciding the minimum capital requirement.