1. Case Study: Default Corporate Borrower: Financed by Multiple Banks ( Given case is Based on Bangladesh)

ABC Fashion is a 100% export oriented Garments manufacturing company located in an EPZ. The company has been banking with Bank C since 2012. The relationship started with Bank C after sanctioning of a Composite Credit Limit of Tk.129.50 crore and a Sale & Leaseback Facility of Tk. 40.00 crore to facilitate Working Capital requirement against security of Tk. 114.64 crore (Land and Building: Tk. 58.69 crore and Machinery: Tk. 55.95 crore). ABC Fashion also had credit facilities with two other commercial banks.

However, after disbursement of all the facilities, it was learnt that their liabilities with other banks were actually stuck-up and part of the Sale & Leaseback Facility was used for adjustment of part of one of the Banks liability. Eventually, they became Classified with those two banks and the Bank C had been compelled to continue with the existing facilities through repeated time-extension hoping that the customer will regularize classified liabilities sometimes soon.

The only solace to the Bank C was that the customers factory was running and export was continuing. But ultimately, the Bank C discovered with much worry that the customers business margin had been diminishing sharply as on one hand export figure got stuck at one point and on the other hand operating cost, especially, the wages & salary expenses, soared.

To worsen the situation, following the two devastating mishaps- the fire in Tazreen Fashion in 2012 followed with the collapse of Rana Plaza in 2013, struck and that changed the shape of RMG sector of the country altogether, ABC Fashion was inspected in 2014 by Accord (a regulatory body representing mainly the European Union buyers overseeing Fire and Building Safety) and Alliance (a regulatory body overseeing the interest of North American buyers overseeing Worker Safety), where they fared badly and was told to take a long list of major corrective measures involving huge financial expense.

Predictably, ABC Fashion approached Bank C for a Remediation Finance as well as additional finance to adjust the Classified liabilities with other Banks but was denied outright due to their having Classified liability as well as the visible shortfall in their debt serviceability. Also there was no question of seeking finance from their other two Banks.

At the moment, the Bank C (and of course the other two banks) is completely stuck, as if, in a quicksand. At this juncture, a thorough study of the account reveals the following reasons behind the account being non-performing:

• Bank C had lapses in doing due-diligence at the time of financing ABC Fashion.
• Multiple bank finance without a common credit assessment and mutual agreement among the banks allows the borrower to evade control mechanism and in worst case, to siphon the money.
• Considering the entire financing from different banks, ABC Fashion, actually, turns out to be hughly leveraged.
• By managing to get the credit facilities from Bank C, ABC Fashion has, effectively, forced the bank to keep the factory operation alive in the its own interest.
• ABC Fashion did not keep their commitments throughout the tenure with Bank C. Rather, they probably used Banks fund for some other purpose.

ABC Fashion lost all the major buyers due to their failing to take corrective actions. Thus, they had to resort to other buyers at a lower price. However, their operating cost kept soaring for financial mismanagement as well as unusual hike in wages & salaries.

1.a) Mention and explain the problems and the causes of problem found in the above case study.

b) Mention and explain the solution for the problem found in the above case study.