Loan amounts are typically small with limits imposed by Bangladesh Bank on single party exposure
- Investment banks are relatively new entrants into the commercial lending business and lend to less profitable, more leveraged firms than do commercial banks.
- The presence of a dual market maker is found to increase liquidity in the secondary market for syndicated bank loans. (Jahan, A. and Akter, B., (2006))
Local commercial banks are largely limited to making loans with a maximum tenor of 5-7 years and generally require equity of 25 % – 35% of total project cost. Syndications and club financing are the favoured means to increase pooled finance, but it has been estimated that projects in excess of $70 – 100 million are difficult to finance locally (largest syndication to date has been $57 million). As such, local banks are unlikely to provide significant amounts of long-term financing for large projects. Inexperience with large scale new infrastructure projects requiring consortium lending – on a non-recourse basis – pose difficulties which local banks are unlikely to overcome in the short-term. Currently, interest rates are high and stand at about 12.5% (base rates of around 8% + margin of 4.5%). Importantly, beyond supply side issues, demand side factors – the impact on investor returns of competitively bid projects, suggest that sponsors have an advantage in opting for international finance sources at lower interest cost and longer tenors.
A syndicated loan is one that is provided by a group of lenders and is structured, arranged and administered by one or several commercial or investment Banks known as arrangers. Arrangers may appoint co-arrangers as and when required for stronger knitting of the loan syndication. Starting with the large leveraged buyout loans of the mid 1980’s, the syndicated market has become the dominant way to top banks and other institutional capital providers for such loans.
A syndicated loan may be compared with a ship moored with several anchors, which disseminate threats in an idiosyncratic rhythm and therefore make the loan portfolio more secure and hence more performing than a conventional loan. The mammoth loans required now a day towards large infrastructure or industrial projects including heavily capitalized power plants, commercial purposes and etc, need to be syndicated since no single bank would be prudent to risk such loan alone.
Syndications efforts put forth by the Bank have been painstaking and proved instrumental in adding buoyancy in most of the important sectors of the economy covering microfinance, glass and ceramics, minerals mining (salt), textiles, chemicals, pharmaceuticals, telecommunications, physical infrastructure (inland container depot), tourism hospitality, etc
Bangladesh is fast marching forward to become a mid economy country due to achievement of about 6% GDP growth during last decade through rapid industrialization, almost self sufficiency in food and fantastic earnings from exports and overseas workers remittances. Bangladeshi entrepreneurs therefore are in dire need for syndicated loans from financial institutions to keep pace with this race of development.
All the members of Prime Bank Limited for their accomplishments and am eagerly looking forward to achieving more success, bringing in more innovations and leaving stronger impact in country’s economic growth and prosperity. (Source: Bangladesh Bank, “Decade of Loan Syndications”
Prime Bank’s professional syndication team will always take this challenge shoulder to shoulder with different discipline of entrepreneurs
Bangladesh is now poised to achieve rapid industrialization, economic growth and respectable GDP growth. We believe that loan syndication has a great role to play in supporting initiatives in this respect. The extensive use and reliance on syndicated loan market will surely help generate financial innovations and provide large projects with more convenient, professional and custom-made services. Syndicated loan business, based on the mechanism of sharing both risk and return, and pooling of resources and expertise, add depth and breadth to financial markets in various ways.
Prime Bank has worked to the satisfaction of its co-lenders in all the projects it has taken the lead. Our syndication initiatives accommodated financing for many groundbreaking projects, some of which are import substitutes, have created huge employment opportunities, and are saving as well as earning scarce foreign currency through exporting project outputs.