INSTITUTE OF BUSINESS ADMINISTRATION

JAHANGIRNAGAR UNIVERSITY

Assignment on: Loan syndication

Submitted To: Md. Alamgir hossen

Course Instructor

Bank Management (FIN-303)

Submitted By: Md. Shahabuddin

Class ID: 2253

Batch: 27

Date of Submission: 24-05-2020

What is loan syndication?

Loan syndication is the process of involving a group of lenders in funding various portions of a
loan for a single borrower. Loan syndication most often occurs when a borrower requires an
amount too large for a single lender to provide or when the loan is outside the scope of a lender's
risk-exposure levels. Thus, multiple lenders form a syndicate to provide the borrower with the
requested capital.

Advantages and disadvantages of loan syndication.

Advantage

 Best prices are available for business

 You have the option of reducing your term loans
 The syndicate banks will also share feedback on issues related to your business
 Loan syndication allows the lenders to have a greater visibility of the borrowers in the
open market
 Borrowers have the option of choosing among multi-currency options, prepayment rights,
and risk management techniques

Disadvantage

 Negotiating with one bank can take several days, which is a time-consuming process.

 Managing multiple ban relationships is an ardent task and requires investment both
regarding money and time.

Procedures of loan syndication

Syndicated loans are an essential source of debt financing for corporate. Procedure of loan
syndication is given below :
  Appointment of investment bankers
 Preparation of detailed documents
 Approaching different banks
 Document circulation and execution
 Fulfillment of other condition of the loan
 Security trustee
 Free distribution

Stage 1

The first stage of the loan syndication process is the pre-mandate stage which is initiated by the
borrower. The stage involves the borrower either liaison with a single lender or inviting
competitor bids from multiple lenders. The borrower has to mandate to the lead bank. After the
lead lender has been chosen, they will start the appraisal process. The lead bank will see to the
needs of the borrower and will design a loan structure for the borrower and develop a credit
proposal.

Stage 2

The next stage involves the lender placing the loan and disbursement. The lead lender initiates
selling the loan at the marketplace for which it will prepare an information memorandum, term
sheet, and a legal documentation. The lead bank will then approach other banks for participation.
Once the loan contract is finalized, the loan amount is disbursed.

Stage 3

The final stage is the post-closure stage which involves monitoring through an escrow account.
Escrow account is nothing but the account in which the borrower will deposit the revenue. It’s
the agent’s responsibility to ensure that the repayment of loan is the top priority and the payment
is done before making payments to any other parties. In the post-closure stage, it’s the job of the
agent to manage the operating and running of the loan facility on a regular basis.
Present and future of loan syndication in Bangladesh.

Risk sharing, innovative financial structuring and meeting large financing requirement in
diversified sectors have become possible due to loan syndication. Term loan syndication is the
most popular form of syndication in Bangladesh. Now a day’s working capital financing, foreign
currency financing & LC facility are also common in deal structure.
In 90's, some investors started undertaking comparatively large sized projects in our country.
Considering the risks potential of such large financing, Bangladesh Bank asked financial
institutions to introduce the idea of syndication. At present, deal size has become much bigger,
transactions have become more complex, number of participants has increased, hybrid products
have been launched and new & nontraditional avenues for investment like tourism, aviation, etc.
have been explored. In the future, syndication deals are expected to be more complicated,
competition will be fierce, new sectors of investment will emerge and new funds will be
available. At the same time, adoption of global practices, prioritization of environmentally &
socially responsible projects and energy efficiency will be an important part of loan syndication.
We are facing various hurdles in loan syndication process. Some of these hurdles are failure in
risk identification & diversification, weakness in equity management, lack of human resource in
both lender and borrower, weakness in selection of equipment suppliers, preparation of
feasibility studies of complex projects, inadequate monitoring of project implementation, lack of
industry information and political turmoil.
Loan syndication will play a crucial role in the coming days. That's why multilateral agencies,
foreign financiers, local lenders and other stakeholders should work together to expedite the loan
syndication process. We need to share our experiences with each other so that we can manage
syndication deals successfully. We need to create a common platform where we can discuss
different issues and find effective processes that will result in better management of loan
syndication. Foreign banks controlled the syndicated loan market as lead arrangers until 2000.
Bangladesh’s syndicated loan market is growing fast, as more private local banks in a group have
come forward to lend different organizations because of the less risk in such banking product,
according to bankers. The market is also being diversified as the lenders are no more an
exclusive club of well-capitalized foreign banks. As a lead arranger, Prime Bank alone has raised
Tk 1,100 core in less than 10 years in syndication market Eastern Bank has arranged Tk 380 core
through five syndication deals in 2008. The figure was only Tk 80 core involving only two deals
in 2007. AB Bank arranged a syndicated loan worth Tk 216 core in just two deals in 2008. Of the
other major local banks, Dhaka Bank, BRAC Bank and Mutual Trust bank also raised around Tk
100 core each in 2008.

For most loan syndications, a lead financial institution is used to coordinate the transaction. The
lead financial institution is often known as the syndicate agent. This agent is also often
responsible for the initial transaction, fees, compliance reports, and repayments throughout the
duration of the loan, loan monitoring, and overall reporting for all lending parties.

A third party or additional specialists may be used throughout various points of the loan
syndication or repayment process to assist with various aspects of reporting and monitoring.
Loan syndications often require high fees because of the vast reporting and coordination required
to complete and maintain the loan processing. Loan syndication is often used in corporate
financing. Firms seek corporate loans for a variety of business reasons that include funding
for mergers, acquisitions, buyouts, and other capital expenditure projects.