Bangladesh has long been considered a frontier trade finance market, but a flurry of deals reported recently inspired us to take a closer look. Finbarr Bermingham reports.


Bangladesh is the most densely populated large country on earth. The estimated population of 168 million grew from just 44 million people in 1951. The population boom was one of the most remarkable in Asia through the 20th century (no mean feat, considering the period ushered in huge urban centres around the continent).

Its vibrant economy is dominated by the ready-made garments sector, which accounts for around 80% of Bangladesh’s exports. The volumes have been rising year on year, as it absorbs a huge portion of the erstwhile garment trade of China. As the Chinese economy moves up the value chain, it has become too expensive to manufacture textiles there. Along with Vietnam and Cambodia, Bangladesh has been one of the big beneficiaries of this shift in the Chinese economy.

The garment industry has led a huge drive in the Bangladeshi economy, spurring the 5 to 6% GDP growth that has stretched back for two decades, and helping lead millions out of poverty: before independence 40 years ago, 80% of the country lived below the poverty line, compared to under 30% now.

“Bangladesh’s trade and exports have come a long way since the country’s independence. Trade volume has almost doubled every five years for the past two decades. Apparel remains the largest contributor to the export basket. Efforts are being made to diversify the export into other products like jute, IT and software, medicine, ship building, footwear, furniture and agri-products. But scalability in these sectors is yet to be achieved,” says Muhammad Shohiduzzaman, country head of global trade and receivables finance at HSBC Bangladesh. “At the same time, the apparel sector itself has experienced diversification in terms of new market penetration and products diversification.”

The saturation in the banking sector mimics that of the country at large. There are thought to be around 47 banks active in trade in Bangladesh, including six state-owned banks and nine foreign banks. On top of this, there’s a complex, if diminishing, corresponding banking network, with a large volume of development finance going towards the trade and projects sectors as well.

Edward Faber, who runs the Asian Development Bank (ADB)’s trade finance programme (TFP) in Bangladesh, says that he has noticed an even more competitive market over the last couple of years.

“We’ve seen partner banks looking to issue risk in Bangladesh and grow their presence here. Across Asia there’s been a fall in pricing over the last couple of years. Bangladesh has some high yields available, and it’s a very vibrant market. So that’s been attracting some new foreign banks that weren’t here before. But as a result, pricing has also fallen and you’ve also got Middle Eastern banks that tend to be quite aggressive and have quite large lines on the Bangladeshi banks,” he tells GTR.

A flurry of international deals in the trade and project finance space have been signed in the past few months, and covered by GTR. These deals, involving development finance institutions (DFIs), export credit agencies (ECAs), commercial and local banks, help create a thumbnail sketch of what is considered one of Asia’s frontier trade markets.

The importance of international banks was demonstrated by HSBC’s recent US$46mn loan to local apparel exporter Viyellatex Group, for the purchase of a new spinning mill. The finance is guaranteed by Swiss Export Risk Insurance (Serv), marking its first private sector deal with HSBC Bangladesh.

The mill will cost US$121mn to purchase, with goods, equipment and technology coming from exporters in Germany, India, Japan, Switzerland and the UK. The remaining US$75mn will come in equity from Viyellatax.

The loan is US dollar-denominated and, according to a release from Viyellatax, competitively priced. The mill, which has already been constructed, will produce 50 tonnes of yarn each day, using 92,000 spindles.

According to Nazrul Islam, a joint director in the policy section of Bangladesh Bank, the presence of international banks is essential to the flow of foreign currency. He tells GTR: “International banks are the major source of foreign exchange funding in Bangladesh. All settlement of trade finance payments are conducted through international banks. Due to recent changes in the banking sector, the role of international banks has been enhanced, especially in regard to corresponding banking relationships.”

However, as is commonly the case in markets such as these, the presence of an ECA or DFI is often a prerequisite for large commercial financings. Faber says the ADB have ramped up their TFP funding this year and last, after a tricky political situation in 2015.

“The Bangladeshi market was a bit fragile over recent years because going back to 2013, there was a lot of political unrest. That affected a lot of companies. There was a lot of commodity market swings, which impacted hedging. There was a build-up of non-performing loans in the sector and the rate is now 10%. It’s higher for the state-owned banks, and that has made some banks a little cautious in recent years in expanding their loan books,” he says.

The ADB has supported US$350mn in trade finance this year, including a US$5mn loan to City Bank in May. In August, the International Finance Corporation (IFC) signed a US$40mn working capital loan with Bank Asia, a local lender.

Often on the trade side, the DFIs act as a guarantor, supporting import letter of credit transactions that subsequently go towards exports or large project and infrastructure deals.

These have been increasing in frequency over the past couple of years, as the country attempts to improve its trade, power and transport infrastructure. Also in August, the ADB approved a US$200mn loan package to improve Bangladesh’s urban infrastructure. The finance will fund 600km of road builds and improvements, 300km of drains, and install 180km of pipes for water supply, with 60,000 metered household connections. It will fund priority infrastructure in the pourashava (municipalities) of Bangladesh, where populations are dense and facilities are generally basic and overstretched.

Earlier in the year, meanwhile, GTR reported on a couple of huge power project financings in Bangladesh. Standard Chartered arranged a financing package of US$197mn for a power plant in Bangladesh, co-financed by Siemens. The debt accounted for 80% of the required capital for North-West Power Generation Company’s combined-cycle dual-fuel power plant near Sirajganj. The Multilateral Investment Guarantee Agency (Miga – the World Bank’s insurance arm), provided a guarantee for US$69.5mn of the finance as part of its efforts to stimulate private investment in low-income countries.

This followed a US$409mn project financing by the IFC, Clifford Capital – a Singapore-based project financier – and CDC Group – a development bank owned by the UK government – for a dual-fuel combined cycle power plant in Bangladesh.

The borrower was Sembcorp, a Singaporean utility, and, at the time, a spokesperson from the company told GTR that the local banking market “does not have the depth and tenor to match multilateral financing”.

This is a challenge faced by other sectors of the funding space, according to Shohiduzzaman at HSBC, who says that “a lack of depth in the financial market makes it difficult to offer sophisticated products or propositions for customers”.

These deals combine to show a sector cast in its country’s image: busy, volatile and getting bigger. With elections next year, some disruption is to be expected, but if trade and exports continue to grow in the manner they have in recent years, interest in Bangladesh will continue to be piqued.