Banks, NBFIs should be cautious about loan syndication: experts

Staff Correspondent | Published: 00:56, Oct 07,2016 | Updated: 01:17, Oct 07,2016

 
 

Bangladesh Bank deputy governor SK Sur Chowdhury, Bangladesh Institute of Bank Management Director general Toufic Ahmad Choudhury, BIBM professor and former Pubali Bank managing director Helal Ahmed Chowdhury, NCC Bank managing director Golam Hafiz Ahmed, Agrani Bank managing director and chief executive officer Mohammad Shams-ul-Islam and IDLC Finance Ltd managing director Arif Khan are seen at a research workshop on ‘Loan Syndication in Bangladesh : Status and Challenges’ organised by BIBM in Dhaka on Thursday. — New Age photo

Experts and bankers on Thursday gave opinions that the banks and non-bank financial institutions should maintain cautious policy to select clients for loan syndication as the credit volume of the projects are usually larger than the ordinary ventures.
Their opinions and recommendations came from a research workshop on ‘Loan Syndication in Bangladesh : Status and Challenges’ organised by Bangladesh Institute of Bank Management at its auditorium in the capital.
BIBM professor and former Pubali Bank managing director Helal Ahmed Chowdhury presented the keynote paper at the workshop saying that loan syndication is a widely used structured finance product offered by banks and NBFIs for providing financial support to set up large-sized projects.
Syndicated loans are deals where a group of two or more lenders extend credit to a borrower, governed by one loan contract, he said.
NCC Bank Ltd managing director Golam Hafiz Ahmed said that his bank had earlier faced problems involving loan syndication.
He said, ‘We observed that some clients received huge amount of loan through the loan syndication, but they failed later to start production in due time.’
Under the circumstances, the banks and NBFIs jointly faced a difficult situation as the credit volume of the syndication loan is usually Tk 1,500 crore to Tk 3,000 crore, he said.
He said that the banks might face hurdle to disburse large amount of long-term credit in the future like syndication loan as it (long-term credit disbursement) might create liquidity crunch.
Under the syndicated loan, the banks and NBFIs financed Tk 76,528.73 crore against 398 projects between 1995 and 2016, according to the BIBM research paper.
The ratio of defaulted loan in the syndication credit stood at 0.64 per cent compared with that of 10.06 per cent non-performing loan in the overall banking industry.
The ratio of rescheduled loan in the syndicated credit stood at 0.52 per cent compared with that of 4.50 per cent rescheduled loans in the financial sector.
BIBM professor Md Yasin Ali said that the lead arranger bank of a syndicated loan had not played role properly after disbursing the loan in many cases which put an adverse impact on the repayment process of the loan.
Under the syndicated loan, the lead arranger bank obtains a commission for arranging the loan to a client.
He said that the lead arranger bank would be more active if it had a significant stake in the syndicated loan.
He, however, said that the companies should go to the capital market to raise fund on long-term basis not to depend only on the banks.
BB deputy governor SK Sur Chowdhury inaugurating the workshop said that one of the most critical challenges for banks was to utilize their excess liquidity.
‘If the banks fail to use their excess liquidity then economic growth will not be as we expect in the coming years. In the present context of slow growth of investment in our economy, syndicated loan products can be a better solution to increase higher GDP growth and use of our excess liquidity’, he said.
He said that the ratio of defaulted loan in the syndicated portfolio was significantly low and it mitigated the credit risk for the banks and NBFIs.
‘Banks have provided syndicated loans to diverse sectors such as power, textile, steel, telecommunication, food, ceramic and IT. Furthermore, with the introduction of PPP by the government for implementation of mega infrastructure projects, there will be always greater urge for syndicated loan by banks and NBFIs for meeting the matching fund requirement’, Sur said.
IDLC Finance Ltd managing director Arif Khan said that the central bank should prepare a comprehensive guideline on syndicated loans.
‘A number of mega projects like Padma Bridge, Karnaphuli tunnel and deep sea port will be implemented in the coming days. Will the banks be able to finance fully to the large projects? So, the companies should go to capital market to raise their fund’, he said.
The companies should give their attention more on the capital market to implement their long-term investment, he said.

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