Non-performing loans (NPLs) in banks with significantly higher trade-finance exposure range between 40 per cent and 50 per cent, according to a study of the Bangladesh Institute of Bank Management (BIBM).
And the rate exceeds 80 per cent in banks having both high overall NPLs and substantial trade-finance exposure, it revealed.
The study paper titled 'Trader Services Operations of Banks' was presented at a review workshop organised by the BIBM at its campus at the city's Mirpur area on Wednesday.
Presenting the findings, he said discussions with banks having significant trade finance exposure indicate that asset quality pressure has already become evident in trade-related portfolios.
The BIBM also identified the conversion of non-funded liabilities into forced loans as one of the principal drivers of trade finance-related Non-Performing Loans (NPLs).
Besides, financing associated with imports of capital machinery, raw materials such as cotton, commodities including sugar and fertiliser, fuel, and scrap vessels has significantly contributed to the deterioration of asset quality, it revealed.
The workshop brought together senior bankers, policymakers, regulators, academics, and researchers to deliberate on the emerging challenges and future direction of trade finance in Bangladesh.
Dr. Md. Ezazul Islam, Director General of BIBM presided over the workshop while the keynote paper was presented by Dr. Shah Md. Ahsan Habib, Professor (Selection Grade), BIBM, on behalf of the research team.
The research further identified structural weaknesses in export finance. Findings from the opinion survey showed that nearly all bankers considered the use of back-to-back letters of credit (LCs) without legally enforceable sale-purchase contracts to be a major cause of NPL formation.
According to the study, while back-to-back LC arrangements are designed to support export production by linking input procurement with confirmed export orders, weak or disputed underlying contracts can undermine the financing chain.
Delays or failures in realising export proceeds may quickly transform transaction-based trade finance facilities into forced loans, eliminating their self-liquidating nature and leaving banks exposed to significant credit risk.
In his address, Ezazul Islam emphasised the need for modernising the legal and digital infrastructure for electronic trade documents to facilitate faster, more secure, and paperless trade transactions.
He also stressed the importance of strengthening Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) measures and reinforcing controls against Trade-Based Money Laundering (TBML), while ensuring efficient and customer-friendly banking services.
Dr. Ezazul Islam further highlighted the importance of expanding the access of Small and Medium Enterprise (SME) to trade finance through innovative financial products and risk-sharing mechanisms.
He also underscored the need for improving product-level data, strengthening risk management practices, and enhancing asset quality monitoring.
He also called for stronger coordination among Bangladesh Bank, commercial banks, customs authorities, and other relevant stakeholders to develop a resilient, transparent, and efficient trade finance ecosystem capable of supporting Bangladesh's growing international trade.
The keynote paper was jointly prepared by Dr. Shah Md. Ahsan Habib, Professor (Selection Grade), BIBM; Tofayel Ahmed, Assistant Professor, BIBM; Rahat Banu, Assistant Professor, BIBM; Rajib Kumar Das, Lecturer, BIBM; Mohammad Arafat Ali, Additional Director, Foreign Exchange Policy Department-1, Bangladesh Bank; and A.T.M. Nesarul Hoque, Executive Vice President, Mutual Trust Bank PLC. All members of the research team were present at the workshop.
The workshop also featured comments from distinguished panellists, including Md. Ali Hossain Prodhania, Supernumerary Professor, BIBM and Chairman, NRBC Bank PLC; Mahmudur Rahman, CDCS, Deputy Managing Director, Islami Bank Bangladesh PLC; . Syed Sazzad Haider Chowdhury, Deputy Managing Director, Prime Bank PLC; and Faruk Ahmed, Deputy Managing Director, City Bank PLC.
The event concluded with an interactive open-floor discussion, where senior executives from commercial banks, Bangladesh Bank, and other stakeholders exchanged their views on strengthening trade finance operations and improving asset quality in the banking sector.
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