Decade of Prime Bank's loan
Tuesday, 20 April 2010
Continued from page 9
BB Governor pointed that positive ratings by the top global agencies would enable the local institutions to bargain for lower interest charges in case of foreign borrowings for loan syndications.
The central bank governor also warned the local financial institutions of excessive leveraging, which he identified as the root cause for the collapse of many financial giants in developed economies during the recent economic downturn.
"Syndication partner banks need to bear in mind the risks in excessive leveraging that has brought numerous major corporate and financial markets to their knees in the recent global financial crisis", Atiur said.
"In Bangladesh too, syndication arrangers and partners need to limit their lending to cautiously conservative levels of debt equity ratios with careful eye on any overvaluation of owner's equity", The Governor said.
"The loan agreements should include covenants requiring the borrower projects to go for public issue of equity after pre-specified periods, with appropriate penal clauses to be activated on default", he added.
Noting the lack of risk management mechanisms for loan syndication in the domestic financial market, Atiur urged the local banks to adopt these advanced mechanisms while assuring of policy support from the regulator.
"Although, in the advanced markets, trading in loans mitigates liquidity risks for syndication partners and floating rather than fixed lending interest rate mitigate the interest rate risk, none of these devices are yet in significant use in the Bangladeshi market", the Governor said.
"This is important that the banks here adopt these risk management options for sound and surefooted growth in loan syndication" he said, adding, "BB will provide such policy and technical support as may be needed in this regard".
Atiur also urged the banks to obtain independent credit ratings for their syndicated loans, which he says, could decrease the risk and capital charge to free up substantial capital resources for other rating.
"While the BASEL II capital regime assigns 125 per cent risk weight on unrated syndicated loans, favorable rating by independent raters can bring the risk weight and capital charge down to as low as 20 per cent", he said, adding, "syndication partner banks will therefore be well advised to obtain independent rating on syndicated loans to bring down the risk weight and capital charge".
Earlier, Prime Bank Chairman Azam J Chowdhury in his speech said that large scale financing through syndication is an effective way to channel the much needed funding in the country's power and energy sector.
"Together, all the private commercial banks of the country can also raise the necessary funding for the government to invest in large infrastructure financing", he said.
On the occasion, a number of projects, which were financed by Prime Bank syndications over the decades as well as the participating banks in those syndications were also awarded.
Some of the landmark syndicated transactions that the bank has arranged includes- Tk. 850.0 million for Sea Pearl Beach Resort & Spa Ltd. in 2010, which was the first five-star resort hotel in Bangladesh, Tk. 530.0 million for M&H Telecom Ltd. in 2009, which was one of the first two interconnection exchange licensees to operate in the private sector, Tk. 2000.0 million for BRAC in 2005, which was the largest micro finance deal during the year in micro credit, Tk. 1120.0 million for Nasir Glass Industries Limited in 2003, which was the first float glass manufacturing project in the country, and Tk. 520.0 million in two phases for Mir Ceramic Ltd. in 2002.
Apart from that, the bank has also played pioneering role by successfully raising syndication loans for the first vacuum evaporated salt re-crystallization plant and the first hydrogen peroxide project in the country.
"Since 1999, Prime Bank has tapped the local debt market 21 times as lead arranger to raise Tk. 11.5 billion for various projects", Prime Bank Managing Director M Ehsanul Haque said.
BB Governor pointed that positive ratings by the top global agencies would enable the local institutions to bargain for lower interest charges in case of foreign borrowings for loan syndications.
The central bank governor also warned the local financial institutions of excessive leveraging, which he identified as the root cause for the collapse of many financial giants in developed economies during the recent economic downturn.
"Syndication partner banks need to bear in mind the risks in excessive leveraging that has brought numerous major corporate and financial markets to their knees in the recent global financial crisis", Atiur said.
"In Bangladesh too, syndication arrangers and partners need to limit their lending to cautiously conservative levels of debt equity ratios with careful eye on any overvaluation of owner's equity", The Governor said.
"The loan agreements should include covenants requiring the borrower projects to go for public issue of equity after pre-specified periods, with appropriate penal clauses to be activated on default", he added.
Noting the lack of risk management mechanisms for loan syndication in the domestic financial market, Atiur urged the local banks to adopt these advanced mechanisms while assuring of policy support from the regulator.
"Although, in the advanced markets, trading in loans mitigates liquidity risks for syndication partners and floating rather than fixed lending interest rate mitigate the interest rate risk, none of these devices are yet in significant use in the Bangladeshi market", the Governor said.
"This is important that the banks here adopt these risk management options for sound and surefooted growth in loan syndication" he said, adding, "BB will provide such policy and technical support as may be needed in this regard".
Atiur also urged the banks to obtain independent credit ratings for their syndicated loans, which he says, could decrease the risk and capital charge to free up substantial capital resources for other rating.
"While the BASEL II capital regime assigns 125 per cent risk weight on unrated syndicated loans, favorable rating by independent raters can bring the risk weight and capital charge down to as low as 20 per cent", he said, adding, "syndication partner banks will therefore be well advised to obtain independent rating on syndicated loans to bring down the risk weight and capital charge".
Earlier, Prime Bank Chairman Azam J Chowdhury in his speech said that large scale financing through syndication is an effective way to channel the much needed funding in the country's power and energy sector.
"Together, all the private commercial banks of the country can also raise the necessary funding for the government to invest in large infrastructure financing", he said.
On the occasion, a number of projects, which were financed by Prime Bank syndications over the decades as well as the participating banks in those syndications were also awarded.
Some of the landmark syndicated transactions that the bank has arranged includes- Tk. 850.0 million for Sea Pearl Beach Resort & Spa Ltd. in 2010, which was the first five-star resort hotel in Bangladesh, Tk. 530.0 million for M&H Telecom Ltd. in 2009, which was one of the first two interconnection exchange licensees to operate in the private sector, Tk. 2000.0 million for BRAC in 2005, which was the largest micro finance deal during the year in micro credit, Tk. 1120.0 million for Nasir Glass Industries Limited in 2003, which was the first float glass manufacturing project in the country, and Tk. 520.0 million in two phases for Mir Ceramic Ltd. in 2002.
Apart from that, the bank has also played pioneering role by successfully raising syndication loans for the first vacuum evaporated salt re-crystallization plant and the first hydrogen peroxide project in the country.
"Since 1999, Prime Bank has tapped the local debt market 21 times as lead arranger to raise Tk. 11.5 billion for various projects", Prime Bank Managing Director M Ehsanul Haque said.