Bangladesh should develop a benchmark interest rate that will work as a reference rate to determine interest rates in syndicated financing, officials of banks and other financial institutions said on Wednesday.
“Although the Dhaka inter-bank offered rate (DIBOR) was launched earlier, it is not in use at present. We all should agree to rejuvenate DIBOR to make syndicated financing popular,” said Maroof ur Rahman Mazumder, director and head of capital markets at Standard Chartered Bank.
As the syndication market is maturing, the standards of information memorandum (IM) are still not in line with international standards, Mazumder said.
“This will decrease paper use and make circulation of IM faster.”
He proposed instead of circulating paper IM, a common platform like, debt domain, can be launched where every participating lender can access and use the IM for their purpose.
Mazumder spoke at a seminar on syndication financing in Bangladesh, past, present and beyond, organised by IDLC Finance in association with The Daily Star at Radisson Blu Water Garden Hotel Dhaka.
Although project financing is supposed to be based on cash flow, it is still not in practice in Bangladesh, said Mesbah Uddin Ahmed, head of structured finance of IDLC Finance.
Project proposals are sometimes rejected by some lenders for security concerns, even though the project is impressive, Ahmed said.
“At present, lead arranger makes an agreement with the borrower and then asks other financial institutions to participate in the lending. But participating banks may have different risks and credit appetites.”
A provision should be incorporated to add or modify the terms and conditions of syndicated financing, Ahmed said.
A syndicated loan is one in which two or more banks (the syndicate of lenders) contract with a borrower to provide loans on common terms and conditions governed by a common document or set of documents.
Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels.
“Lenders' security requirement may decrease gradually as corporate houses improve their corporate governance practice and make a good credit history,” said ASM Arif, senior vice president and head of structured finance division of United Commercial Bank.
Lenders should come up with more innovative solutions for project financing, Arif said, adding convertible bonds, for example, may be a good syndication option.
In many organisations, the agency unit is separated from the marketing unit, which sometimes disrupts services, said Mohammad Jahangir Alam, head of structured finance of The City Bank.
It has been observed that after the marketing unit sign a deal with a client, the agency unit sometimes does not cooperate like before, which delays fund disbursement, Alam added.
Development financial institutions require high standards of due diligence and IM, said Parvez Akhter, senior investment manager of DEG-KFW Office Dhaka, a German development financer.
“In order to bring international development financial institutions in local syndication, lead arrangers need to incorporate in-depth analysis of the business model and business prospect in the IM.”
The investment promotion and financing facility cell at Bangladesh Bank has promised to extend their regulatory support in syndication financing, said Hosne Ara Shikha, deputy general manger of the central bank.
Public private partnership projects will bolster the syndication industry, but these require large funds, Shikha added.
Selim RF Hussain, managing director of IDLC Finance, said: “Risk sharing and meeting financial requirements in diversified sectors have been possible due to loan syndication.”
“We at IDLC believe that there is more to loan syndication than just fund agreements and participations.”
Organising the seminar is IDLC's endeavour to contribute to overall loan syndication and discover effective ways and processes that could lead to better management of the various syndication deals, he added.