An amount of Tk 40 crore will be saved from the purchase of aircraft for Biman Bangladesh Airlines, the national flag carrier, as it has moved to borrow funds in foreign currencies from a local bank, a monopoly that foreign banks had enjoyed previously.
Eastern Bank Limited (EBL) has recently won a bidding to finance Biman $117 million, beating Citibank, a foreign bank.
“Some Tk 40 crore ($7 million) will be saved from the deal with EBL instead of a foreign bank,” Muhammad Zakirul Islam, Biman's managing director told The Daily Star yesterday. Islam also found it much easier to deal with a local bank.
Both bank and Biman officials said savings would come from the lower interest rates and 'no price' for the country risk offered by the local bank.
“When a foreign bank lends in foreign currency it puts 2-3 percent of the loan for pricing country risk, which is not applicable for us,” said Mohammad Abdul Wadud, head of structured finance unit of EBL.
Interest rates for the loan will be LIBOR (London Inter-bank Offered Rate) plus 4 percent, Wadud said. “So the aggregate rate will be around 4.5 percent,” he added.
The central bank's recent lifting of restrictions on offshore banking or foreign currency loans for local banks has drawn a curtain on the monopoly foreign banks enjoyed earlier in case of such banking outside the country's export processing zones (EPZ). Merely foreign firms in the EPZ were entitled to forex loans before the central bank removes such a limitation.
“A Bangladeshi bank has made this type of deal for the first time in history. Earlier, it was done solely by foreign banks,” Ali Reza Iftekher, managing director and chief executive officer of EBL told The Daily Star.
Giving all credit to Bangladesh Bank, he said: “It has helped a lot. It has agreed to use its foreign exchange reserve for national interests.”
EBL will borrow foreign currency from Bangladesh Bank and lend it to Biman. The CEO said he is getting lot of interests from all local banks to be a part of the syndication.
Welcoming the deal, K Mahmood Sattar, managing director of The City Bank, said winning this offshore banking scope outside EPZ by a local bank is a very good sign for the banking industry.
Sattar, also the chairman of the Association of Bankers Bangladesh, thanked the BB for its decision.
Currently, there are nearly a dozen of local and foreign banks providing offshore banking services to investors and businessmen in EPZ and all its transactions are in foreign currencies, mainly in US dollar.
Biman operates with a fleet of nine aircraft, including Airbus A310-300, Fokker F28 Mk4000 and McDonnell Douglas DC-10-30. Officials said the loan for purchasing more carriers would strengthen the national flag carrier.
17 Nov 2009
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2009
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November
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- MARICO
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- GP makes history but downside remains
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