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Bluetooth networks can be constructed as piconets or scatternets depending on the number of nodes in the network. Although piconet construction is a well-defined process specified in Bluetooth standards, scatternet formation policies and algorithms are not well specified. Among many solution proposals for this problem, only a few of them focus on efficient usage of bandwidth in the resulting scatternets. In this paper, we propose a distributed algorithm for the scatternet formation problem that dynamically constructs and maintains a scatternet based on estimated traffic flow rates between nodes. The algorithm is adaptive to changes and maintains a constructed scatternet for bandwidth-efficiency when nodes come and go or when traffic flow rates change. Based on simulations, the paper also presents the improvements in bandwidth-efficiency and reduction in energy consumption provided by the proposed algorithm. [ABSTRACT FROM AUTHOR]