Dhaka, Bangladesh (BBN) – Syndication mode helps easing credit risk along with reduction of non-performing loans (NPLs) in the country’s banking sector, according to senior bankers and experts.
The observations came during discussions at a research workshop on ‘Loan Syndication in Bangladesh: Status and Challenges’ held at the Bangladesh Institute of Bank Management (BIBM) in Dhaka on Thursday with Dr. Toufic Ahmed Chowdhury, Director General of the BIBM, in the chair.
A total of BDT 765.29 billion was invested by 47 commercial banks and non-banking financial instructions (NBFIs) through loan syndication against 398 projects during the period starting from 1995 to June 2016, according to a research paper, which was presented by Helal Ahmed Chowdhury, Supernumerary Professor of the BIBM, at the workshop.
“The benefit of syndication process is that it splits and spreads the credit risk to sizes manageable by individual syndication partner institutions” SK Sur Chowdhury, Deputy Governor of the Bangladesh Bank (BB), said while addressing as chief guest at the workshop.
While the bankers are striving hard to reduce their NPL, the syndication mode can be a way out of this situation, the deputy governor added.
He also said syndication partner banks also need to bear in mind the risks in excessive leveraging that can bring even a major corporate down during a financial crisis.
“Syndication arrangers and partners thus need to limit their lending to cautiously conservative levels of debt equity ratios; with careful eye on any overvaluation of owners’ equity,” Mr. Sur Chowdhury noted.
Syndication minimises risk due to the involvement of different banks and NBFIs, for proper analysis by different participant banks, batter monitoring of the loans, reducing the chances of diversion of funds, vigilance by the lenders and good prospect for recovery of loans and thus paving the way for reduction of NPLs, Helal Ahmed Chowdhury explained.
Golam Hafiz Ahmed, Managing Director and Chief Executive Officer (CEO) of the NCC Bank Limited, said the banks and NBFIs should maintain cautious policy to select borrowers for loan syndications.
“Long-term lending with short-term fund may create fund mismatch in future,” the senior banker hinted.
Mohammad Shams-Ul Islam, MD and CEO of Agrani Bank Limited, said his bank has already provided a large number of syndication loans for power, infrastructure and industrial projects.
He, however, stressed for a specific regulatory guideline for syndication loan like prudential guidelines.
Arif Khan, MD and CEO of IDLC Finance Limited, said equity, bond and capital markets need to be developed for long term financing to cater the growing demand of the economy.
BIBM Supernumerary Professor Muhammad Yasin Ali warned that onslaught may come to the banking sector for failure of a group. “We can avoid the risk through syndication.”
He also suggested better coordination between the central bank and Bangladesh Securities and Exchange Commission.
However, the research team also indentified a number of challenges including cumbersome and time consuming process, lack of skilled human resources and key person dependency and lack of corporate governance that the banks and NBFIs are facing in loan syndication.