China blacklists five local private banks

A good number of Bangladeshi banks are facing difficulties in settling their letters of credit (LCs) after being blacklisted by China, officials said.

The Economic and Commercial Counsellor's Office of the embassy of China in Dhaka on its website has recently published notices regarding the blacklisting of five Bangladeshi banks and cautioned its financial institutions over conducting transactions.

Not only the new-generation banks, but also the first and second generation lenders are facing similar problems, according to the officials.

Experts and bankers have identified weak financial state, rising non-performing loans, and sudden changes in the ownership of several banks as reasons behind the lenders' travails.

Foreign banks are refusing to accept LCs opened by their Bangladeshi counterparts, thus hurting trade and investment, they said.

In a recent letter to the central bank governor, president of the Bangladesh Garment Buying House Association Kazi Iftaquer Hossain said the Chinese government has blacklisted some Bangladeshi banks and published their names on its official website.

The Chinese authority has issued a warning asking its financial institutions to take extra caution while dealing with the Bangladeshi banks, he said.

Mr Hossain wrote that Bangladeshi garment factories import fabrics and raw materials from China by opening LCs for their overseas buyers.

But the restrictions imposed by the Chinese authority are threatening business, he said.

Mr Hossain told the FE over telephone on Friday Bangladesh has around US$12 billion trade with China.

"Unless the issue is resolved immediately, the large bilateral trade will be hampered and Bangladesh's exports to other countries will also face troubles," he said.

While cautioning its financial institutions over a fourth generation Bangladeshi bank, the Chinese embassy on its website said, "The bank was established in 2013 and violations and loan frauds have occurred frequently since its inception."

Since the last year, the bank has witnessed a relatively frequent vicious breach of credit, which has caused huge losses to Chinese companies doing business with Bangladesh, it said.

The Economic and Commercial Counsellor's Office of the Chinese embassy in Bangladesh has once again reminded all Chinese-funded enterprises to strengthen risk prevention and control, and avoid accepting the letter of credit issued by the bank to eliminate trade risks, it added.

Contacted over telephone chairman of the Association of Bankers, Bangladesh (ABB) Syed Mahbubur Rahman told the FE China is large trading partner for both the country and its banking sector.

"Sometimes some banks delay making trade payment, thus face such actions," he said.

Mr Rahman said there will be adverse impacts of such blacklisting by countries like China on the banking sector.

The banks should immediately contact the Chinese authority to resolve the dispute, he suggested.

Prof Shah Md Ahsan Habib of the Bangladesh Institute of Bank Management (BIBM) said the LC is an undertaking by a financial institution to pursue trade.

"If the authority of a country finds the strength of a financial institution below the mark, it can cancel any LC," he said.

The reputation of a financial institution is also taken into consideration in this case, he added.

But Mr Habib noted that only the financial strength of a bank should not be evaluated in case of taking measures for lowering trade risk.

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