Bank-firm Relationship in Bangladesh:Present State and Some Lessons

The objective of this study is to critically analyze the banking system of Bangladesh with special aim of tracing out the major banking problems of the economy underneath and suggest remedies to solve the problems. In doing so the study revealed that huge loan-default, inadequacy of capital, higher transaction costs, lack of long-term financing and lack of close bank-firm relationship are the key problems of the banking sector of Bangladesh. Among these problems bank-firm relationship has been singled out as the key problem for discussion. Accordingly, it has been observed that bank-firm relationship in Bangladesh is mainly limited to financing aspects. The study concludes that, making bank-firm relationship closer can be beneficial for both the bank and the firm. It can work as remedy towards solving problems such as loan default; information asymmetry and finally interest-spread problem for the banks.Also for the client firms, closer bank-firm relationship can reduce transaction costs, delay in loan decisions, and interest expense of borrowings. Finally, the study suggests that, by following Japanese experience of loan syndication in the pattern of 'reciprocal delegated monitoring', supply of management resources and stockholding of firms by banks, can also become effective for the banking system of Bangladesh to promote close bank-firm relationship