CDC Group has inked a US$30mn trade finance loan for City Bank in Bangladesh, in a bid to inject liquidity into the country’s banking system and expand funding for importers and exporters.

London-headquartered CDC, the UK’s development finance institution, says the facility will bolster Bangladesh’s economic growth by supporting continued import and export activities.

City Bank will use the loan to extend foreign currency trade credit to local banks as well as local importing and exporting businesses, with the deal expected to generate up to US$100mn in additional trade annually.

Key sectors set to benefit from the agreement include Bangladesh’s ready-made garment (RMG), manufacturing, and food processing and production industries.

“Trade is an essential driver of Bangladesh’s export-oriented market. With almost all trade imports denominated in US dollar, stable sources of short-term funding are essential to ensure that demand for financing trade can be met. Local banks often face a difficulty in accessing short-term funding and, in recent months, the Covid-19 pandemic has further tightened access to foreign currency funding on appropriate terms,” CDC says in a statement.

CDC adds that the loan facility will “provide much-needed dollar supply” to stimulate Bangladeshi trade and help the country’s economy recover following the Covid-19 crisis.

Bangladesh saw its GDP growth decelerate “sharply” down to an estimated 2.4% last year in the wake of Covid, according to an April report from the World Bank.

In 2020, exports fell by 16.8% due to supply chain disruptions and depressed external demand for RMG products, which made up 83% of the country’s merchandise exports, says the World Bank report.

“This loan to City Bank, which marks CDC’s first direct trade finance loan to a local issuing bank, will further enhance the supply of trade finance in the region,” says Rehan Rashid, CDC country director for Bangladesh.

Mohammad Maroof, additional managing director at City Bank, says that the agreement will facilitate trade finance through Usance Paid At Sight (UPAS) letters of credit, which in turn “will enable corporates and SMEs to optimise working capital management at competitive rates during such unprecedented times”.