Syndicate:
As per encyclopedia of banking and finance “syndicate means a temporary association of parties for the financing and execution of some specific business project”
Syndicate is a group of financial institutions participating in a single investment facility.
Syndicated financing:
Syndicate financing menas joint financing by a more than one bank or NBFIs to the same customer against a common security. The entire security remains charged to all these banks for the total loans. All the participating banks have a pari passu charge (a charge ranking equally in priority) on the syndicate finance. In other words, syndicate financing means the gathering of more than one bank or NBFIs to finance in aproject jointly, arranging a leader among them, against a common security.
Characteristics of Syndicated Investment:
1. Single/one customer
2. More than one investor/bank
3. Set of common documents with common terms & conditions
4. The borrower could be a corporation, a large project, or government.
5. The investment may involve fixed amounts, a credit line, or a combination of two.
6. Profit/rent rate can be fixed for the term of the investment or floating based on a benchmark rate such as Dhaka Interbank offered rate (DIBOR).
II. What are the advantages and disadvantages?
Advantages:
I. It accommodate large loan project among different banks
II. It shares spreads risk among two or more banks
III. It examines/ analysis the project feasibility reports byn the experts of syndicate members from different angels
IV. It comply the BB’s instruction regarding single borrower exposer limit and to maintain deposit advance liquidity ratio properly.
V. It creates opportunity for the entrepreneurs of high potential to undertake big ventures
VI. it industrializes and creates employment opportunity in the country
VII. it enhances in return on assets