The decision was taken in a bid to reduce the risks different banks face as well as to bring international standard in the banking system, a high official of the BB said. He said commercial banks will be notified about the central bank's decision today.

"We will ask the banks to meet the minimum capital requirement by December 31," the official added.

According to existing regulations, each bank has to retain at least Tk 100 crore or nine percent of its risk-weighted assets, whichever is higher, as the minimum capital.

The BB sources said the central bank will also make a move to amend the Bank Company Act 1991 to increase the amount of the required minimum capital to Tk 200 crore from the existing requirement of Tk 100 crore.

The council of advisers to the caretaker government already approved a finance ministry proposal in this regard, which is currently being processed by the law ministry.

With the BB's latest decision to increase the amount of the required minimum capital for banks, the banking sector will have to mobilise more than Tk 1500 crore by the end of this year.

According to the existing rules, the banking sector should have had a total capital of Tk 13,788 crore in 2006 but the amount was Tk 12,288 crore, the BB data of December 2006 show. The data also show that overall capital deficit in the sector was Tk 1,500 crore that year.

According to the data, capital deficit of nationalised commercial banks (NCBs) was Tk 3,412 crore while specialised banks had a deficit of Tk 39 crore.

Local private banks and foreign banks operating in the country, however, as a whole showed a brighter performance as the private banks had a capital surplus of Tk 530 crore while the foreign banks' capital surplus was Tk 1,421 crore.

Among the private banks, Oriental Bank had a capital deficit of Tk 663 crore and Social Investment Bank Limited (SIBL) had a deficit of Tk 27 crore. Sources said SIBL recently got out of its capital deficiency by issuing right shares.

Ibrahim Khaled, a former deputy governor of the BB, welcomed the decision saying it will not be a problem for the banking sector, rather it will increase the financial strength of the banks. "It will also increase depositors' confidence in the banks," Ibrahim, a veteran banker who had held the top positions of different state-owned and private banks, said.

He also said the central bank made a commitment to international agencies such as the Basel Committee to bring international standard in the banking sector and for that it is necessary to increase the amount of the required minimum capital up to 12 percent of the banks' risk-weighted assets.

As a signatory, Bangladesh will start implementing the Basel Accord 2 in 2009, the BB's financial sector review of December 2006 says. The review also says the banks will have to mitigate their various risks to implement the accord.

The second Basel Accord was finalised in 2004 and it referred to capital adequacy, ensuring that financial institutions retain enough capital to protect themselves against unexpected losses.

Supporting the necessity for increasing the amount of the required minimum capital for banks, the BB review says international businesses are playing an active role in the domestic economy due to globalisation and the banks are increasingly being exposed to this process. It also states that since a bank's capital represents its risk status, international banks like to see a local bank's capital adequacy before engaging in any business with it.