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FY 1999: Bangladesh |
VIII. TRADE AND PROJECT FINANCING Brief Description of Banking System The Bangladesh banking sector is made up of nine government-owned banks, 20 domestic private banks, and 13 foreign banks. The government banks and many local private banks have a high percentage of non-performing loans estimated at 35 percent in FY98. At the government banks, this resulted from directed lending, mostly to money-losing parastatals, diverting credit from the private sector. The banking system is impaired by a web of weak balance sheets, weak demand from creditworthy borrowers, and heavy reliance on liquid asset-based lending. Despite market reforms, such as the liberalization of interest rates, the BDG continues to encourage its own banks to lend to "sick" industries, both parastatal and privatized, and all banks to increase term lending. Donor institutions are assisting with financial sector reforms. Part of the reform effort is to upgrade regulations and accounting standards to international standards as far as possible. The Bangladesh Bank regulates all banking institutions, including the nationalized commercial banks (NCBs), other government banks (development finance institutions and agricultural banks), domestic private banks and foreign banks. Collectively, these banks make up the "scheduled" banking system. As in many countries, the central bank is controlled by the Ministry of Finance; it is not independent. The Bangladesh Bank is headed by a Governor, who reports to the Secretary, Finance Division of the Ministry of Finance. Overall banking activity is dominated by the four NCBs--Sonali Bank, Janata Bank, Agrani Bank, and Rupali Bank. There are six financial institutions: Bangaldesh Krishi Bank, Bangladesh Shilpa Bank, Rajshahi Krishi Unnyan Bank, Bangladesh Shilpa Rin Sangstha, House Building Finance Corporation and Investment Corporation of Bangladesh. Local private banks are noted for having to offer higher rates than private foreign banks and the NCBs in order to attract depositors. Local private banks include Pubali Bank, Uttara Bank, Arab Bangladesh Bank, Islami Bank, Eastern Bank, National Bank, National Credit and Commerce Bank, City Bank, IFIC Bank, United Commercial Bank, Bank of Small Industries and Commerce, Ansar VDP Bank, Prime Bank, South East Bank, Dhaka Bank, Al-Arafa Bank, Social Investment Bank, and Al-Baraka Bank, Dutch Bangla Bank and Grameen Bank. The thirteen private foreign bank branches are American Express Bank, Citibank, ANZ Grindlays Bank, Credit Agricole Indosuez, Standard Chartered Bank, State Bank of India, Muslim Commercial Bank, Hanil Bank, National Bank of Pakistan, Societe Generale, Hong Kong Shanghai Bank, Al Faisal Islamic Bank and Habib Bank. Foreign Exchange Controls Affecting Trade Provided a local importer can obtain trade financing, which is widely available and competitive, from a local bank, foreign exchange availability has not been an issue. The taka is almost without exception freely convertible for current account transactions. Foreign exchange availability may become an issue in the future, if projected outpayments for oil/gas and electricity providers are greater than export growth. General Financing Availability Trade finance, working capital, and term loans are generally available from local banks, particularly to multinational companies. Foreign companies involved in manufacturing commonly obtain trade financing and working capital loans from the foreign bank branches. The foreign bank branches are also generally interested in project lending for foreign investments in Bangladesh and can arrange offshore syndicated loans. How to Finance Exports/Methods of Payment Unless the importer is either a multinational company operating in Bangladesh or a reliable, long-standing Bangladeshi customer, the Embassy strongly recommends all U.S. exporters to require irrevocable, confirmed letters of credit to secure payment, preferably from a U.S. bank. This is true whether the importer is private or part of the Bangladesh Government (BDG), and whether or not the importer is being financed by a multilateral institution or bilateral donor agency or government. U.S. exporters should also be aware that it is a normal business practice for Bangladesh Government procurement agencies to require exporters to post performance bonds. Performance bonds can be arranged with any of the local banks, including the two U.S. banks, American Express Bank (fax 880-2-9561722, tel. 880-2-9568351, 9561805, or 9561751-2) and Citibank (fax 880-2-9562236, tel. 880-2-9550062 to 9550069). Types of Available Export Financing and Insurance Trade financing for private sector importers is widely available. There are no multilateral or local sources for directly financing U.S. exporters for sales to Bangladesh. There are significant export sales opportunities in the government procurement market. These opportunities can either be in the context of straightforward procurement of goods by BDG agencies and parastatals, increasingly financed by the BDG itself, or in the context of projects, which are usually donor-financed. Although BDG ministries and agencies from time to time encourage companies interested in promoting projects and making sales to approach donors directly, until the BDG has gone through its internal process of approving and making a request for assistance, such approaches are of minimal value. U.S. ExIm Bank facilities are available for U.S. exporters; initial inquiries should be made directly to ExIm Bank. Project Financing Availabilty The BDG procurement market is large, and a great deal of procurement is in the context of a wide range of projects, which are usually financed by donors, although from time to time the BDG may finance its own projects or ask bidders to propose financing. In the latter cases, donor financing is usually not available or not preferred for some reason. The market for government procurement for which U.S. firms are eligible to compete is approximately $ 1 billion per year. The U.S. Agency for International Development (USAID), the Japanese government's development aid program(JICA), the World Bank, and the Asian Development Bank(ADB) are important sources of development project financing in Bangladesh. The Asian Development Bank , headquartered in Manila, is an international financial development institution owned by 56 member countries of which the United States and Japan are the largest shareholders. The ADB lends a significant amount of money to Bangladesh to promote economic and social progress. The Bank's medium-term strategy focuses on poverty reduction, improving the status of women, population planning and environmental protection. The bank has also assumed a new role as a catalyst for development. In implementing this policy, the bank will leverage its own financial resources through co-financing and other techniques to attract additional private capital in funding the development needs of its member countries. A commercial liaison office, which reports directly to the Office of Multilateral Development Banks at the Commerce Department in Washington, assists U.S. suppliers and consultants in winning contracts on projects and activities funded by the bank. The office includes a senior commercial officer and two commercial specialists. One of the specialists represents the United States-Asia Environmental Partnership (US-AEP) at the bank. The liaison works closely with the U.S. Executive Director who represents the United States on the bank's board of directors. Since 1967, the U.S. has won $ 2.8 billion in overall procurement. In1995, the United States won $333 million in procurement contracts and consulting services. This represents 9.36 percent of overal procurement from donor member countries. The U.S. has consistently ranked first in consulting services awards, capturing about 20 percent of total awards every year. Interested parties should contact Cantwell Walsh, U.S. commercial liaison to the Asian Development Bank; fax: (632) 890-9713, e-mail: cwalsh@doc.gov List of Banks with Correspondent U.S. Banking Arrangements U.S. banks maintaining correspondent relationships in Bangladesh include: --American Express Bank (full service branches in Dhaka and Chittagong) --Citibank (full service branch in Dhaka) --Chase Manhattan Bank --Bank of America --Bankers Trust Company --Bank of Boston --Bank of New York --Marine Midland Bank --Morgan Guarantee Trust Co. --Security Pacific Int'l Bank --Texas Commerce Bank --US Bank of Washington Of the government banks and local private banks, the following have arrangements with U.S. correspondent banks: --Sonali Bank --Agrani Bank --Janata Bank --Rupali Bank Ltd. --Arab Bangladesh Bank --IFIC Bank Ltd. --National Bank Ltd. --City Bank Ltd. --Uttara Bank Ltd. --Islami Bank --Pubali Bank --United Commercial Bank --Dhaka Bank --South East Bank --Prime Bank --Eastern Bank[end of document]
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