Moreover syndicated loan market is very competitive in Bangladesh now
Collection of required information limited time period hampered the data collection and analysis. Besides secondary information in the relevant area acted as major constraint to the report preparation. For this reason local banks maintain so much confidentiality for their syndicated loan information. In addition, there is no aggregate record in Bangladesh Bank too. However, I tried my best effort to manage with the limitations and to successfully finish the report writing.
Although the contract is the same for all banks in the lending syndicate1, they do not necessarily receive the same return on their loans
A number of available research papers have been studied to the backdoor of doing this study. The main findings of those researches have been summarized in this part of study.
Loan syndication in Bangladesh is getting popular among financial institutions because of its structure. But lack of expertise about the product is one of the major problems faced by the loan syndication practice in our country. Syndicated facilities bring businesses the best prices in aggregate and spare companies the time and effort of negotiating individually with each bank. Syndicated credit requires more approval stages than bilateral loan agreements, which makes it more transparent. And it leads to a sound credit approval. Less default rate in syndicated loan compare to stand-alone credit facility in Bangladesh. If default rate in stand-alone loan is 100%, default rate in syndicated loan is 1-2%. Easy and more acceptable documentation procedure for participating financial institutions and borrower. Sometimes transfer of loan to secondary market cannot done by lead arranger because of lack of adequate information of borrower, negative mentality of participating financial institutions. Regulatory constraint of providing loan more than 15% sometimes increases the number of financial institutions in syndicate
One of the lead banks acts as the agent bank and administers the loan after execution, disbursing funds to the borrower, collecting and distributing interest payments and principal repayments among lead banks, etc
A syndicated loan is a single facility financed by a group of lenders under the same contractual conditions. Besides periodical interest payments, banks also receive up-front fees at the time the contract is signed. These upfront fees can differ across banks. In our sample of sovereign syndicated loans, the average difference between the top and bottom upfront fees is 16 basis points. This up-front fees differential is substantial seen that the average lifetime of sovereign syndicated loans is typically quite short. In fact, the “annualized” up-front fee differential is on average 10 basis points, i.e. just over 10 percent of the interest spread. This means in a typical bank syndicate, some banks earn on average 10 percent more than some others, while the loan conditions are the same. (Rhodes, T., Arkansas car loan and title (2004)),
Traditionally, loan syndication was practiced in Europe. Euro syndicated loan is usually a floating rate loan with fixed maturity, a fixed draw down period and a specified repayment schedule. One, two or even three banks ong themselves and other participating banks. A typical Euro credit would have maturity between 5 to 10 years, amortization in semi-annual installments, and interest rate reset every three or six months with reference to LIBOR. Syndicated loans can be structured to incorporate various options, e.g., a drop lock feature converts the floating rate loan into a fixed rate loan if the benchmark index hits a specified floor. A multi-currency option allows the borrower to switch the currency of denomination on a roll-over date. Security in the form of government guarantee or mortgage on assets is required for borrowers in developing countries like India. ( Subrata Kumar Bhowmick FCA And Ratna Dutta ACA).