Bangladesh's trade finance sector is facing mounting risks due to a sharp rise in default loans and limited access to finance for small and medium enterprises (SMEs), according to a study presented at a review workshop at the Bangladesh Institute of Bank Management (BIBM) in Mirpur on Wednesday.
Presenting the keynote paper at the workshop on trade services operations of banks, the researchers said trade-backed non-performing loans (NPLs) have exceeded 80 per cent in some financially distressed banks, mainly due to unpaid back-to-back letters of credit without legally enforceable contractual safeguards.
The study also found that SMEs account for only around 9.0 per cent of total trade finance, as many are unable to meet collateral requirements of up to 150 per cent, limiting their access to formal financing.
The researchers recommended introducing dedicated guarantee schemes for SME trade finance, strengthening the legal framework governing trade contracts, and accelerating the adoption of digital trade platforms to improve efficiency and reduce risks in trade finance operations.
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