Dhaka, Bangladesh (BBN)- The central bank has sought the Ministry of Finance’s (MoF) opinion for a 100 per cent increase of the total capital of non-banking financial institutions (NBFIs), officials said Sunday.

The Bangladesh Bank (BB) has taken the latest move to consolidate the capital base of the country’s NBFIs in line with the Basel-II framework that would come into effect from 2010.

Under the BB’s proposal, the NBFIs will have to raise their individual total capital – paid-up and reserve – to BDT 500 million from existing BDT 250 million.

“We’ve sent a letter to the finance ministry seeking their opinion for doubling the total capital of NBFIs,” a BB senior official said, adding that at least seven NBFIs already have raised their total capital to over BDT 500 million.

The central bank will complete all official formalities including fixation of timeframe to implement the new capital requirement after receiving the opinion from the ministry, the BB official added.

The central bank officials said the capital of BDT 250 million of the financial institutions is inadequate and so the NBFIs will have to increase their capital to avoid any financial risks.

On June 2003, the BB raised the minimum ceiling of the capital of the NBFIs to BDT 250 million from the previous amount of BDT 100 million with a view to making the financial institutions operationally sound.

The market operators have supported the BB’s latest move, saying that the total capital of NBFIs would be increased in phases and not overnight.

“It’s necessary to increase the total capital of NBFIs. But they should be given enough time to meet the capital requirement to ease the pressure for implementation of new capital requirement,” Chairman of the Bangladesh Leasing and Finance Companies Association (BLFCA) Mafizuddin Sarker told BBN in Dhaka.

Mr. Sarker also said some NBFIs will face difficulties to implement the new capital requirement if sufficient time was not given.

Currently, 29 NBFIs are running their business across the country.

The central bank is expected to implement the Basel-II framework for NBFIs by the end of 2010 in keeping with the global standard, the BB officials added.

“We’ve sought six names from the BLFCA to form a working group to prepare a draft report on the Basel-II considering the country’s overall economic performance,” another BB official said.

He also said the working group will work under the high-powered committee that has been formed earlier.

“We may conduct a quantitative impact study (QIS) to assess probable impact on the sector for implementation of the new framework,” BB official added.

Under the Basel-II, the minimum capital requirement and the risk weighted assets for the NBFIs will be fixed considering the overall performance of the sector, they added.

BBN/SS/SI/AD-24August09-1:02 am (BST)