By Moazzem Hossain BBC correspondent in Dhaka

The central bank in Bangladesh has disclosed a plan to close down 500 branches of state owned commercial banks which were incurring losses over the last five years.

Dr Ahmad has identified 800 unprofitable banks

The decision came in the backdrop of growing pressure from the World Bank and other multilateral agencies to speed up reform in the banking sector.

World Bank officials say the country's bad debt and inefficient surplus workforce were the two main problems that crippled its nationalised commercial banks.

Bangladesh's state owned commercial banks have been facing a tough time since private sector and foreign banks entered the market with an efficient work-force to offer better service.

Six state owned commercial banks have a network of 5,000 branches throughout the country, but unplanned expansion of the network has led to inefficiency and huge losses.

No profit

The governor of Bangladesh's central bank, Dr Farkhruddin Ahmed, has identified 800 branches of six state owned commercial banks which have failed to make any profit over the last five years.

He announced that 500 of these branches would be closed down in phases by the end of this year.

Dr Fakhruddin Ahmad said they were not closing down those rural branches where no other bank were offering service within five kilometre.

Top executives of these state owned banks said that despite the downsizing of the network there would be no job losses in their banks.

They said the redundant workforce would be deployed in other branches where there had been no recruitment over the last three years.

External pressure

The World Bank has been insisting that the Bangladesh government should downsize the state owned banking sector since it stepped in with a financial sector reform plan during the middle of the 1990s.

World Bank officials say the sector lacks the efficiency to revive Bangladesh's sluggish economy.

The latest available figures show that six state owned commercial banks have a cumulative bad debt of $2.78bn.

Analysts said the government's attempt to recover default loans through lawsuits failed due to political interference.