The New Nation - Internet Edition

UNB, Dhaka

Small investors of share market have been cautioned to respond carefully to the Bangladesh Bank's order to raise commercial banks' capital to Tk 4.0 billion in next three years.

"There is no reason to be elated until the banks come up with specific declaration. Rather there is every reason for concern," a stock market expert who preferred not to be quoted told UNB on Sunday.

The small investors started assessing their investment strategy in the banking stocks immediately after the central bank's order to the commercial banks on Thursday. They might be considering that the banks would have to declare stock dividends or rights shares to meet the capital requirement.

Stockbrokers cautioned the small investors on apprehension that the investors are likely to be desperate to take position out of the BB order. They, however, admitted that the investors are now showing maturity in stock trading.

They said the decision was good for the banks as well as for the depositors as the capital base of the banks would be strengthened. But the benefit of the shareholders would depend on how the commercial banks perform with their additional capital.

A stockbroker said the banks would have to double their capital by 2011, but he wondered if the banks are capable to efficiently utilise the additional capital and increase earnings per share (EPS) amid the existing condition of the economy.

"If the EPS does not increase consistent with the increase in capital, shareholders won't get the desired benefit," he said.

In addition, he added, the investors are required to check bank-by-bank capital whether some of them have already reached the minimum paid up capital requirement of Tk 2.0 billion.

The stockbroker, however, expected that the banks would better their performance while few others would go for mergers or big ones would go for acquisition of the small ones.

Of the total capital of Tk 4.0 billion, the paid-up capital must be worth a minimum Tk 2.0 billion. The banks are required to raise the capital by issuing rights shares or through initial public offerings (IPOs). They are not allowed to offer cash dividends until they meet the capital requirement.

The bankers welcomed the BB instruction on consideration that it would consolidate the capital base of the total 48 banks operating in the country.