View with images and charts Merchant Banking Activities-in Context of AB Bank Limited CAPITAL MARKET OPERATIONS AND BANGLADESH 1.1 INTRODUCTION The economy of a county functions on the fundamental mechanism of saving and investment of financial capital into economic activities that help in the creation of economic wealth. Economic wealth in turn creates conductive atmosphere for the consumption that creates economic demand for goods and services thereby stimulating production and further investment. Therefore this continuous economic cycle leads to grow in the economy which is usually measured by the gross domestic product or GDP. Economic growth when channelized optimally leads to economic development which is measured y the standard of living of the people and other parameters such as the availability of developed capital and money markets, the exchange value of country’s domestic currency and the level of infrastructural development to sustain economic activity. 1.2 INSTITUTIONAL INTERMEDIATION IN CAPITAL FLOW Institutional intermediation is required in the capital movement as only savings do not generate economic wealth unless they are channelized into productive uses. Two paramount issues for sustained economic activities are- adequate domestic savings in the economy and the movement of such capital saved to productive investment in the economy. Capital movement is extremely critical since real growth in a economy is achieved only if real investment are made leading to increased supply of goods and services. Institutional intervention in the economy not only channelizes savings to investments but helps in moving investments from financial asset into real assets as well. One of the biggest contributions of institutional intervention in the economy is in the allocation of available capital. This function is also vital importance since the available capital may not be sufficient to meet all envisaged investment requirements. The movement of capital in the economy from the savings pool to the investment pool is performed by two main platforms of institutional intervention•
The financial institution and banking framework and
•
The capital market
•
framework.
2.1THE FINANCIAL INSTITUTION AND BANKING FRAMEWORK Banks mobilize funds by rising deposits from domestic investors and other sources of savings and help re-deployment of these resources productivity in the economy by advancing loans and other financial assistance to borrowers. Thus banks perform the role of intermediation primarily through mobilization and deployment of debt capital in the economy.
Table 2.1: Capital Flow in Economy and Institutional Intermediation Banks and Financial/ Investment Institutions Capital Market/ Money Market Investors (generate savings)
Business
Activity Foreign Exchange Market
Production of Goods and Services
Commodity market/ Real estate/ Gold etc
Source: Subramanyam, 2007
2.2.2 | CAPITAL MARKET FRAMEWORK Capital market deals with raising finance through issue of publicly traded financial instruments in equity and debt which can be bought and sold at any time through dedicated market places called stock exchange. Notwithstanding the clear roles played by banks and capital market in the economy, capital market also offers wide scope for raising long term debt capital through debt securities as distinguished from loans provided by banks and financial institutions. 2.3 | CAPITAL MARKET CONSTITUENTS To understand the capital market and its role it is important to know about the basic constituents of it. Subramanyam (2007) identified five ‘I’s as basic components of capital market which areIssuer: Issuers of securities are basically companies incorporated under the Company Act, 1956. These companies can be privately owned or owned by the governments. Thus both government and companies can raise finance from the capital market using long-term debt route. Investors: Investors in securities can be either wholesale investors or retail investors. The wholesale segment primarily comprises of institutional investors such as mutual
funds, investment institutions and other. The retail segment consists of household and other small investors. Table 2.2 : Constituents of Capital Market
Source: Subramanyam, 2007
Intermediaries: Intermediaries and service providers help in the mobilization of resources from the investors and provide other support services. Capital market intermediaries consist of brokers, merchant bankers and market makers. Support service providers include underwriters, custodians, depository participants, registrars and share transfer agents. Instruments: Instruments are floated in the capital market for the purpose of raising capital both in debt and equity. These include equity instruments such as equity shares, preference shares, convertible debenture and purely debt instruments such as bonds. Debt instruments carry interests whereas equity instruments is more like ownership underlying business of the company that issues such shares. Infrastructure: Another vital constituent of capital market is infrastructure which is required for the efficient functioning of the capital market. It consists of stock exchanges (eg. Dhaka Stock Exchange, Chittagong Stock Exchange), Depositories (eg. Central Depository Bangladesh Limited- CDBL), the regulators (Securities and Exchange Commission- SEC). 2.4 | CAPITAL MARKET IN BANGLADESH The capital markets of Bangladesh were undeveloped during the sixties, seventies, and the early part of the eighties. During this period, few companies accessed the capital market, institutional investors did not exist yet, and no retail investor culture existed, nor did the government of the day see fit to promote the capital markets, such as they were. This changed over time, particularly from the late eighties to the mid-nineties. In this period, market capitalization and index showed a marked rise. The SEC was set up in 1993 to regulate the development of the market and to enhance the degree of investors’ protection. (www.secbd.org) After the general election in June 1996, the market experienced an enormous boom, which inevitably led to a bubble. Large numbers of investors entered the capital market, mostly novices who took to curb trading outside the DSE premises, causing an entire city block to be closed on a daily basis due to the investor throngs. New issues multiplied and speculative fever gripped the market. Foreign brokers and investors were active for the first time. Trading volume rose sharply and the index reached 3648 points. (www.dsebd.org) In November 1996, the inevitable crash occurred, accentuated by forged scrip issues and settlement failure.
When the market finally settled at around the 500 index level, fingers were pointed, brokers accused of manipulation, and legal cases were filed by the government – which are still to be resolved ten years later. Over the past five years, the Asian Development Bank (ADB), along with the Securities and Exchange Commission, has developed new trading rules, public issue rules, settlements systems, and bond issuance rules to govern the market and introduce transparency. (http://www.adb.org) As the market has gone through a process of prolonged consolidation, regulations have become more comprehensive. The capital markets of Bangladesh are now poised to achieve higher degree of stability, maturity, and regulation. And, as the market matures, a more meaningful risk return parity will emerge. Table 2.3: Historical Development (1954- 1998) of Capital Market of Bangladesh Year Events 1954
The first ever stock exchange came into existence in Bangladesh (then East Pakistan) in the name of East Pakistan Stock Exchange Association Ltd. It took two years more to launch its formal operation.
1956
Formal trading in the stock exchange begins this year.
1962
The stock exchange got renamed as East Pakistan Stock Exchange Ltd.
1964
The stock exchange is again renamed as Dacca Stock Exchange ltd.
1966
Investment Corporation of Pakistan is formed this year in the public sector. With Its arrival in the country, Investment-banking services in the country got their first Institutionalization, It should not be mistaken that the present Invent Corporation of Bangladesh (ICB) is a direct descendant of this ICP.
Year Event 1969
Securities & Exchange Ordinance, 1969 is set forth. With the introduction of this ordinance the capital market operation of the country starts to have the guidelines of the policy makers. In other words policy makers and the capital market players get the ground to interact with each other.
1976
Investment Corporation of Bangladesh (ICB) is formed. It is the pioneer organization in the country that has been performing with a strong reputation In the country's capital market spreading its activities In all the segments of capital market. ICB launches its first Unit Certificate.
1977
ICB launches the first Unit Fund
1986
For years the activities in the capital market of .the country was nothing remarkable. There was no reliable indicator of performance of the Stock Exchange itself that could reflect the market condition. After so many years in this year DSE started All Share Price Index calculation.
1987
The Bangladesh Government prepares and presents the Securities and Exchange Rules, 1987.
1993
DSE took a step ahead to update its All Share price Index. It adopted the All Share Price Index on the basis of the design suggested International Finance Corporation (IFC). The government also showed some Improvements. It intrudes two more acts: Securities & Exchange Commission Act. 1993 and Financial Institution Act. 1993. These legislations at that time demonstrate that the capital market of Bangladesh needs to be regulated. In other words, it gives the hint the capital market has become !able to attract both the players in the capital market and the government
1994
SEC published rules regarding the activities of dealers and brokers. The title of the rules is set (Stock-dealers, Stock-brokers and sub-brokers; 1994.For professional operation In the capital market it was a long desired set of rules.
1996
SEC introduces SEC (Merchant Banker & Portfolio Manager) Regulations, 1996 along with SEC (Mutual Funds) Regulations, 1996.
1996
So far, except the activities of ICB, merchant banking In Bangladesh had the gray picture or infrequent issue underwriting by banks, Insurance companies etc. there were no legal obligation of the issuer companies to engage an issue manager at the time security Issue.
Firms start applying for SEC registration to merchant bankers. Few commercial Banks also applied for the license or merchant banker and Portfolio Manager 1997
The applications from two local banks were rejected due to loan default of the directors of these banks, one foreign bank declined the SEC's requirement to form a subsidiary organization to operate as a merchant banker and another seek time to meet the requirements of the SEC. Prime Bank Ltd. was also instructed to form a subsidiary.
1998
DSE introduced automated trading. It is a great breakthrough both for the country and Stock Exchange.
IDLC of Bangladesh got license from SEC as a full-fledged merchant banker. It is the country's' first licensed full-fledged merchant banker.
Source: www.secbd.org, www.dsebd.org, Bangladesh Bank Annual Report 2007, Brochure ICB, Brochure AB Bank (MBW).
2.5 | Bangladesh Capital Market Activities in 2007 As already discussed above capital market can be divided in two segments- primary market and secondary market. According to the Bangladesh Bank Annual Report 2006-7 major activities of the capital market is given below: 2.5.1 | Primary Market Activity Twelve companies raised new equity of Taka 3.1 billion in the primary market in FY07, higher than the Taka 1.7 billion raised by fourteen companies in FY06. Of the new equity issues, Taka 0.04 billion raised through private placements and Taka 3.1 billion through public offerings in FY07 as against Taka 0.2 billion raised through private placements and Taka 1.5 billion through public offerings in FY06. Table 2.4: DSE Activities in 2007
DSE Activities in 2007
CSE Activities in 2007
Source: Bangladesh Bank Annual Report-2007
The volume of public offerings in FY07 was predictably oversubscribed more than seven times indicating the high demand of new securities in the primary market. Bonus shares valued at Taka 6.8 billion were issued in FY07 by fifty companies against retained profits, higher than the Taka 4.6R billion issued in FY06 by fifty-three companies. 2.5.2 | Secondary Market Market capitalization inclusive of new issues increased remarkably by 118.2 percent in Dhaka Stock Exchange and 103.7 percent in Chittagong Stock Exchange in FY07 than that of FY06 (Tables 6.8 and 6.9). In FY07, the amount of market turnovers in the secondary market
also increased by 258.0 percent and 200.0 percent respectively at the Dhaka and Chittagong stock exchanges.
Table 2.5: Trends of Market Behavior of Dhaka Stock Exchange 2007
Source: Bangladesh Bank Annual Report-2007
The securities market got a momentum during the year under report when both local and foreign investors took part in the trading of securities in wide scale. As a result , all indicators of the stock market increased remarkably in FY 07. In FY07, all-share price index in Dhaka and Chittagong exchanges also increased by 31.7 percent and 80.4 percent respectively. Day to day changes in price indices and market capitalization in FY07 mainly reflected local conditions with a momentous sentiment during the year under report. 2.6 | Reforms of Capital Market (2007-2008) Year 2007- 2008 is looking very positive as the performance analysis is indicating great prospect of the capital market. Reforms of capital market are summarized in the table below: Table 2.6: Reforms of Capital Market 2007-08 New Investment
During July 2007 to March 2008 the Commission accorded consent to four companies for raising Tk.42.56 crore as capital through Initial Public Offering (IPO). The subscription money received against the said companies was Tk. 926.74 crore, which was 21.77 times higher than the amount of public issues. During the period Islami Bank Bangladesh Ltd. issued Mudaraba Perpetual Bond amounting to Tk. 1500 million obtaining consent from SEC. The consent was accorded on 10 July, 2007.
Changes in Up to March 2008, 13,21,319 BO accounts were activated under Infrastructure Central Depository Bangladesh Ltd. and the number of companies under CDBL raised to 147. During July 2007 to March 2008 3,04,000 BO accounts were opened and 29 companies came under CDS. After the introduction of CDS transparency in securities issuance, trading and settlement have been increased significantly and settlement period of securities transactions has also been reduced. Merchant Banking Certification
The Securities and Exchange Commission issued merchant banking registration certificates in favor of City Group Global Markets Bangladesh Private Limited and Trust Bank Limited during the period. Now the number of merchant banks is raised to 30.
Improvement of Capital Market Governance Program
To strengthen surveillance systems and to improve the governance scenario of Bangladesh capital market, a project named ‘Improvement of Capital Market Governance’ funded by Asian Development Bank (ADB) and Government of Bangladesh has started from July 2006.
Source: www.secbd.org CHAPTER 3: ORGANIZATIONAL OVERVIEW 3.1 | Introduction AB Bank Limited, the first private sector bank under Joint Venture with Dubai Bank Limited, UAE incorporated in Bangladesh on 31st December 1981 and started its operation with effect from April 12, 1982.Dubai Bank Limited (name subsequently changed to Union Bank of the Middle-east Limited) decided to off-load their investment in AB Bank Limited with a view to concentrate their activities in the UAE in early part of 1987 and in terms of Articles 23A and 23B of the Articles of Association of the Company and with the necessary approval of the relevant authorities, the shares held by them in the Bank were sold and transferred to Group "A" Shareholders, i.e. Bangladeshi Sponsors. As of December 31, 2006; the Authorized Capital and the Equity (Paid up Capital and Reserve) of the Bank are BDT 2000 million and BDT 2582.76 million respectively. The Sponsor-Shareholders hold 50% of the Share Capital, the General Public Shareholders hold 49.43% and the rest 0.57% Shares are held by the Government of the People's Republic of Bangladesh. However, no individual sponsor share holder of AB Bank holds more than 10% of its total shares. Table 3.1: Ownership Structure of AB Bank Ltd.
Source: www.abbank.com.bd During the last 26 years, AB Bank Limited has opened 70 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India, two Representative Offices in London and Yangon, Myanmar respectively and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World. 3.2 | Corporate Information Corporate information of AB Bank Ltd is given in the table below: Table 3.2: Corporate information of AB Bank Ltd. Registered Name
AB Bank Limited
Legal Form
A public limited company incorporated on 31st December, 1981 under the Companies Act, 1913 and listed in the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd.
Commencement Business
of
February 27, 1982
Registered Office
BCIC Bhaban, 30-31, Dilkusha C/A Dhaka 1000, Bangladesh. Tel: +88-02-9560312 Fax: +88-02-9564122, 23 SWIFT: ABBLBDDH E-mail: info@abbank.com.bd Web: www.abbank.com.bd
Auditors
S.F. Ahmed Chartered Accountants
&
Co.
Tax Consultant
K.M.
&
Co.
Hassan
Chartered Accountants Logo Vision Statement
"To be the trendsetter for innovative banking with excellence & perfection"
Mission Statement
"To be the best performing bank in the country"
Local Branches
70 online Branches
Overseas Branch
Subsidiary Company
Mumbai Branch Liberty Building 41-42, Sir Vithaldas, Thackerse Marg New Marine Lines, Mumbai 400-020, India Tel: 2005392-3 (0091) SWIFT: ABBLINBB E-mail: mumbai@abbank.com.bd AB International Finance Ltd Hongkong Unit 1201-B, 12/F, Admiralty Centre Tower One, 18 Harcourt Road, Hongkong Tel: 2866 8094 (00852) SWIFT: ABFLNKHH E-mail: aomrashed@abbank.com.bd
Source : www.abbank.com.bd 3.3 |
Development over Time
Being committed to innovation and quality AB Bank Limited went up to the ladder of success over last 26 years. Major development of AB Bank Ltd. is shown in the time chart below: Table 3.3: Major Development Phases of AB Bank Ltd (1982-2008)
3.4 | Financial Performance of AB Bank Ltd. (2004-2007) AB Bank has shown tremendous financial performance in year 2007 comparatively to previous years. The disclosed financial data of year 2007 is given below: Table 3.4: AB Bank’s Financial Performances in Year 2004- 2007
2007 4,511,589,265
2006 2,582,762,912
2005 1,526,879,837
2004 1,243,576,775
743,261,800
571,740,000
519,763,600
495,012,900
63,549,864,403
47,989,337,222
33,065,402,555
32,513,473,426
Total Operating 4,656,581,245 Income Total Loans 40,915,352,218
2,650,166,074
1,577,498,269
1,460,357,491
31,289,251,217
21,384,633,900
17,008,497,469
Net Profit EPS NAV
532,186,349 93 452
162,453,608 31 294
90,066,599 18 251
Shareholder's equity Paid up Capital Total Assets
1,903,493,845 256 607
Source: www.abbank.com.bd/reports.html In the table 3.4 we can clearly see that the share holder’s equity rose almost double and asset has increased significantly in 2007 comparatively to previous years. Bank could also manage to increase its income tremendously in the year 2007. Net profit also rose dramatically in year
2007 with 190 cr. BDT whereas the net profit was 53 cr. in 2006 and even lower in previous years. Bank also managed to improved its net asset value to 607 Tk. from 452 Tk. in year 2006 and 294 Tk. in year 2005. Bank has also increased its shareholder’s wealth by increasing earnings per share (EPS). 3.4.1 | Diversified Income Sources AB Bank Ltd has Diversified income sources to manage credit risks. It is distributed in four segments which are interest income, brokerage commission income, investment income and other income. Distribution of income source of the Bank is shown below: Table 3.5: Distribution of Income
Net Interest Income
1,439,281,171
Investment Income
1,734,306,446
Commission, Exchange Brokerage Other Income
& 1,305,338,988
177,654,705
Source: Annual Report 2007, AB Bank Ltd 3.4.2 | Rise in Earnings per Share and Net Asset Value With reference to table 3.4, AB Bank has shown steady rise in earnings per share. In year 2007 EPS was Tk. 256 whereas it was Tk. 18, 31 and 93 respectively in year 2004, 2005 and 2006. On the other hand Net Asset Value (NAV) also rose significantly. In year 2007 NAV of AB Bank Ltd. was Tk. 607 where as it was Tk. 452 in year 2006 and steady increase in previous years. Table 3.7 shows the steady upward trends of EPS and NAV of AB Bank Ltd. from year 2004 to 2007.
Table 3.6: EPS and NAV of AB Bank (2004-2007)
Source: Annual Report 2007, AB Bank Ltd 3.4.3 | Return on Asset and Return of Equity Return on Asset measures how well an organization uses its assets and return on equity refers to the profit that shareholders get against their investment. ROA and ROE were also improved significantly in year 2007 for AB Bank Ltd. Based on the 2007 financial data ROA and ROE of the Bank is shown in the table 3.8 below:
Table 3.7: Return on Asset (ROA) and Return on Equity (ROE)
Source: Annual Report 2007, AB Bank Ltd 3.4.4 | Maximization of Shareholder’s Wealth Stock’s market price determines the shareholders wealth. In this regard year 2007 and 2008 price data is lucrative to the shareholders or investors. Based on the market data the stock price graph is shown in the table 3.9.
Table 3.8: AB Bank’s Stock Price Growth
Source: DSEBD.org &
MetaStock Data, AB Bank Ltd 3.5 | Products and Services AB Bank Ltd. provides almost every modern commercial and investment banking services to its clients. Services can be categorized in different segments which areTable 3.9: Products and Service Segment
Source : www.abbank.com.bd The table below shows the services under service segments of AB Bank Ltd.
Table 3.10: Services of AB Bank Ltd.
Source: CSE Fair Presentation of AB Bank Ltd 2008 3.6 | AB Bank’s Network AB Bank Ltd. has already established a strong local network with its 70 online branches located all over this country. It also has ATM booths of AB Bank Ltd. are also located in the prime business and convenient places. AB Bank has an International Branch in Mumbai, India. In London AB Bank Ltd has Foreign Representative office along with 14 money transfer remittance houses located all over the globe. In Hong Kong, AB Bank Ltd. has established its another foreign subsidiary named AB International Finance Limited.
Table 3.11: AB Bank’s Network
Source: www.abbank.com.bd
3.7 | Focus In – Investment Banking Division (IBD) Investment Banking Division (IBD) of AB Bank Ltd. has already gained enormous reputation for providing quality services through its efficient wings. It comprise with five different wings to provide diversified services to clients. The capital market of Bangladesh is very dynamic and different clients have different needs. Currently IBD has five wings dedicated to serve these needs of the client with its vast differentiated services. These wings are shown below:
Table 3.12: Five wings of Investment Banking Division
Source: CSE Fair Presentation of AB Bank Ltd 2008
3.7.1 | AB INVESTMENT BANKING SERVICES INVESTMENT BANKING DIVISION (IBD) is committed to meet diversified needs of the Capital Market participants. Our services are rendered through Merchant Banking Wing (MBW), AB Bank Foundation (Brokerage), AB Custodian and Research Wing as explained below:
Table 3.13: Investment Banking Services of AB Bank Ltd.
Services Provided by IBD (Source: IBD Brochure, 2008)
3.7.2 | Merchant Banking Wing In the backdrop of the stagnant condition in our capital market due to lack of trustworthy institutional service providers, AB Bank Ltd., launched its full-fledged merchant banking services in November 2002 as a pioneer among all the commercial banks to step in the Capital Market of Bangladesh. This capital market operation opened a new avenue to the investors which in turn has been conducive to restore investors’ confidence as well as to the growth of Bangladesh capital market. MBW’s relentless efforts to develop the capital market through modern investment banking services have made the market more vibrant and ensured investors’ enhanced participation which in turn expanded the market significantly and in particular the Merchant Banking and Portfolio Management business to reach at its present status.
Table 3.14: MBW’s Turnover Against DSE Turnover Source: IBD Brochure, 2008 The graph above shows the percentage of Merchant Banking Wing’s turnover in total turnover of Dhaka Stock Exchange Ltd. turnover. In 2003, when MBW just had started its operation in capital market, the turnover was below 3% whereas in 2004 it rose dramatically around 12%. MBW has successfully maintained the steady turnover rate respectively in the following years of 2005-2007. 3.7.2.1 | Merchant Banking Wing Organogram Merchant Banking Wing Organogram is shown in the next page 3.7.2.2 | Major Products and Services MBW has distinctive services to meet the needs of the participants of the capital market of Bangladesh. The services of MBW includes-
Table 3.16 | Services of MBW
3.7.2.2.1 | Portfolio Management
IBD have already gained an excellent reputation on the Merchant Banking services which resulted in a large number of customer base of over 2000 customers of MBW availing portfolio management services across the country. Portfolio Management services can be distinctively categorized into the following 3 types of accounts which are INVESTORS’ DISCRETIONARY ACCOUNTS (IDA) The IDA clients of MBW has obtained approximately 197% return on an average on their investment in 2007 which is much higher than return on any other savings instruments. Moreover, investment in capital market is liquid which allows investors to reap capital gain (i.e. sell value of shares – cost of shares) at any time. Capital gain from investment is absolutely tax free income while there is only 10% tax deducted at source on dividend income. KEY FEATURES OF IDA IDA can be opened individually or jointly to make investment in the Capital Market Each person can open maximum 2 IDA accounts, one individually & one jointly Account can also be managed by an authorized operator
Stock trading facility at both the Dhaka and Chittagong Stock Exchange
Instant stock trading facility through our exclusive stock broking houses, ABBF and 5 other designated brokers
Telephone trading facility
Instant purchase facility upon cash deposit
Updated portfolio statements are provided on demand
BANKS’ DISCRETIONARY ACCOUNTS (BDA) BDA clients obtained approximately 155% return on an average on their investment in 2007 whereas the total returns has been 228% since opening of BDA with us. KEY FEATURES OF BDA: BDA can be opened individually or jointly to make investment in the Capital Market
Each person can open maximum 2 BDA accounts, one individually & one jointly
Research based professional portfolio management services
NON-RESIDENT BANGLADESHIS INVESTORS DISCRETIONARY ACCOUNTS (NRBIDA) NRB-IDA offers the opportunity to investment in the Bangladesh capital market while staying abroad. KEY FEATURES NRB-IDA: Non-Resident Bangladeshis (NRBs) investors may open a Non-Resident Investors’ Individual Discretionary Account (NRB-IDA)
Account can also be managed by an authorized operator
Stock trading facility at both the Dhaka and Chittagong Stock Exchange
Telephone trading facility
Prompt customer services over Phone, Fax, SMS and E-mail
Updated portfolio statements are provided on demand
Table 3.17: Common features of Portfolio Services COMMON FEATURES OF IDA, BDA & NRB-IDA Margin loan facility is offered to construct the desired portfolio Verification, ownership transfer and safe-keeping of shares for the clients Quality Private Placements are offered to the clients Preparation of all type of necessary certificates for the clients on demand Fund Withdrawal and Fund Transfer services Interest is paid to the clients on credit balance at a higher than normal saving accounts rate Prompt customer services over Phone, Fax, SMS and E-mail Research and Advisory services for investment Delivery of Half Yearly account statements by post Source: IBD Brochures, 2008 ISSUE MANAGEMENT SERVICES • • • • • •
A Professional team provides Issue Management services ranging from fund raising in the form of Equity and Debt Advisory Services for determination of capital structure and listing shares with the stock exchanges Acts as Issue Manager for right share offering / bonus share issue Preparation of prospectus, completing necessary formalities at the SEC, RJSC, Stock Exchanges and other regulatory bodies for fund raising services Provides legal advice on fund raising Conduct marketing of the issue on behalf of the clients
UNDERWRITING
MBW is able to subscribe the IPOs & Right Share Issues in case of Undersubscription by the general public MBW eased the listing of many quality IPOs in the past like Trust Bank, IPDC, Jamuna Bank, S. Alam Cold Rolled Steels, MIDAS Finance, Lafarge Surma Cement, Standard Bank, One Bank, First Lease etc. MBW can underwrite as much as Tk. 3.72 billion at a time
PRIVATE PLACEMENT
Due to our wide professional connection with high net worth individual and institutional investors, we can negotiate and arrange investors on behalf of the companies intending to raise capital through issuing shares. Having a large pool of portfolio investors, we are capable of managing large Private Placements
BANKERS TO THE ISSUE Having a wide network of 70 on-line branches across the country, AB Bank has been successfully participating as the Bankers to the Issue in many IPOs and already gained an excellent reputation with this service. 3.7.3 | Brokerage Services (Arab Bangladesh Bank Foundation- ABBF) In way to serve investors’ needs, AB Bank added fully fledged stock brokerage house in 2006 which is managed by Arab Bangladesh Bank Foundation (ABBF), a fully owned subsidiary of AB Bank Ltd. Since its inception it has proved its efficiency in operation and maintained its leadership position in this business while managing over 2000 satisfied clients. ABBF provides full-fledged stock broking services to its clients having seats on both the Dhaka and Chittagong Stock Exchange to offer you a range of opportunities to help build and preserve good investments. Table: 3.18: ABBF’s Core Service and Work Flow
ABBF ‘S CORE SERVICES
Work Flow of ABBF
Reap capital gain / return / continue Investment
3.7.3.1 | ABBF SERVICES Services BO Opening
Brief Description Account If any investor want to participate in the capital market (Buy, sell and of shares), need to open an account with ABBF and CDBL
Brokerage Account Trading
(Central Depository Bangladesh Limited) known as Beneficiary Owner’s (BO) Account. ABBF Assists to open client’s BO Account ABBF has membership of both Dhaka Stock Exchange Ltd (DSE) and Chittagong Stock Exchange (CSE). ABBF Clients can trade through both bourses DSE and CSE of ABBF Assist on the safe keeping of shares for its clients
Safe Keeping Shares Share DEMAT& ABBF Provides share dematerialization and dematerialization REMAT services of shares One Stop Service ABBF provides one desk service Foreign investors for Foreign Clients 3.7.3.2 | STOCK BROKING COVERAGE OF ABBF
Along with AB Bank Foundation (ABBF), our valued clients can trade through five other leading stock brokerage houses located at different important places across Dhaka and Chittagong. Following are the details of our stock broking coverage: 3.7.3.3 | KEY STRENGTH OF ABBF
Corporate Entity backed by AB Bank’s strong footing in financial sector Real time trading opportunities in two bourses (DSE & CSE) Operating excellence from highly professional team Transparency in transactions Prompt settlement and reporting One stop prioritized services for foreigners and NRBs Effective public and corporate relationship Customer service with Financial, technological and Banking support
3.7.4 | AB Bank Custodian Service AB Bank Ltd. has obtained the security Custodial Services license from the Securities and Exchange Commission (SEC) on 22nd January 2007. They are now providing custodial services to the individual and institutional clients. 3.7.4.1 | SERVICES UNDER CUSTODIAN BUSINESS
Safe custody of client securities Foreign Trade Execution and Settlement Share transfer in the name of client Complete the Dematerialization process as per client request IPO , Private Placement & Right share subscription as per clients’ instruction All types of corporate action that includes cash dividend, bonus share and right share collection Opening BO account Instant information regarding client securities position upon request
Quarterly reporting to the client
3.7.5| Research Wing of IBD Very recently IBD of AB Bank Ltd. has decided to establish a full-fledged research wing to support both internal and external development to serve capital market related activities. Business today has became more competitive than ever before and to sustain the success story of AB Bank’s most valued strategic unit the “Investment Banking Division”, establishment of research wing was the most correct solution. Table: 3.19: The Structure of Research Wing
Research wing of IBD has again five distinctive units to facilitate different services. These are briefly discussed below:
Corporate Advisory Team: This team of IBD research wing deals with corporate services that includes providing IPO (Initial Public Offering) Services to the institutions. Most recently (April, 2008) this team have been the issue manager for “First Security Bank Ltd” that worth 115 core BDT which is the biggest IPO among any Bank. The other planned works includes bond issue, business plan development; facilitate merger and acquisition and private equity finance for corporations.
Service Marketing Team: This team exclusively deals with core service marketing that includes Advertising support, Publication support and project presentations.
Sector Analysis & Database Management: This team/unit of research wing deals with economic and sector analysis. With quality updated research on economy of the country and the capital market, this team adds value to the organization and team up with the service marketing team for the publication of the research. All researches are also maintained and stored by sophisticated database.
Product and Service Development: This unit of the research wing engaged with the product and service development for investment banking division. This team facilitate new service development as well as improvise existing service according to the client’s need and demand. They also do feasibility analysis and marketing research for the overall development of services.
Training and Development: This team/ unit develop and maintain customer relation and communicate feedbacks form the customers to the IBD. They are also engaged in arranging such training and development programs, various workshops both internally and externally. They also arrange customer awareness programs for sharing experiences, and knowledge about the capital market. Most recently, in March 6, 2008 this unit arranged the first customer awareness program of this year.
3.8 | SWOT Analysis of ABBL SWOT Analysis is an important tool for evaluating the company's Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify how to evaluate its performance and scan the macro environment, which in turn would help the organization to navigate in the turbulent ocean of competition. 3.8.1 | STRENGTHS Company Reputation ABBL has already established a favorable reputation in the banking industry of the country. With in a period of over 26 years, ABBL has established a firm footing in the banking sector having tremendous growth in the profits and deposits. All these have leaded them to earn a reputation in the banking field. Leadership At ABBL, eminent banker Kaiser A. Chowdhury as the managing director of the bank heads the management team. His years of banking experience at AB Bank and others have enabled him to navigate the organization in the turbulent ocean of fierce competition and taking
ABBL to a new millennium. He was awarded as the best banker of the country in 2003 (The Industry, June 2003). Like the managing director, the top management of the bank is also a major strength for the ABBL and has contributed heavily towards the growth and development of the bank. Facilities and Equipment ABBL has adequate physical facilities and equipment's to provide better service to the customers. The bank has computerized banking operations under the software called kapati / Mysis and Bexibank bank. Counting machines in the teller counters have been installed for speedy service at the cash counters. Computerized statements for the customers as well as for the internal use of the banks are also available. All the branches of ABBL are equipped with telex or fax facilities. The head office and the Principal Branch also have Internet facilities. Branch Network ABBL has earned a reputation in the banking sector for establishing impressive branches. The Kawran Bazar Branch and the Motijeel Branch are the most lavish and impressive branches of ABBL. This creates a positive image in the minds of the potential customers and many people get attracted to the bank. This is also an indirect marketing campaign for the bank for attracting customers. The other branches of the bank are also impressive and are compatible to foreign banks. Interactive Corporate Culture ABBL has an interactive corporate culture. Unlike other local organization, ABBL's work environment is very friendly, interactive and informal. There are no hidden barriers or boundaries while interacting among the superior or the subordinate. The environment is also lively and since the nature of the banking job itself is monotonous and routine, ABBL'S lively work environment boosts up the spirit and motivation of the employees. At the same time, music system in the office also plays a key role in making the environment lively. Team Work at Mid Level and Lower Level At ABBL's mid level and lower level management, there are often team works. Many jobs are performed in-groups of two or three in order to reduce the burden of the workload and enhance the process of completion of the job. People are eager to help each other and people in general are devoted to work. On-line Banking ABBL move towards the on line banking operations. It is high time that they go for this because the foreign banks as well as some local banks are already in to the on line banking operations. 3.8.2 | WEAKNESSES Advertising and Promotion This is a major set back for ABBL and one of its weakest areas. ABBL does not pursue an aggressive marketing campaign. It does not expose itself to the general public and are not in the lime light unlike other banks. Other than the neon sign at Farm Gate Over Bridge, ABBL
does not have neon sign or any advertisement in the city. As a result people are not aware of the existence of this bank. Poor Recruitment During its inception, ABBL has not recruited competent people in filling up its lower and some mid level positions. Other than the recruitment of the Probationary Officers, people who were recruited from other banks for the lower management are not competent enough to provide the best output. As a result the services of the bank are being jeopardized. The external search of the bank in attracting people from other banks had flaws in it and the right people were not taken from the right bank. Reference Appointment This is one of the set backs of ABBL and will have a long-term repercussion on the quality of Human resource. Many people have been recruited under the reference or the recommendation of the Board of Directors, which has become a chronic disease in the PCB'S. As a result, people having inadequate qualifications and experience have been recruited only because of their ties with the sponsors. The practice must be stopped considering the future of the bank and it is very important to have a competent workforce. Disguised Employment This has also become growing problem at ABBL. Currently there are "Too many heads but few hands". Again this is related to the problem of reference appointment. There are people who are only drawing salaries at the end of the month but making a minimum or no contribution towards the organization. On the other hand there are officers who work hard but are not apprised accordingly. Poor Service Quality This has become a major problem for the bank. The customer service quality in all the departments and in most of the branches is very low. The quality of the service at ABBL is lower than those in the contemporary banks such as Dhaka Bank, Prime or Dutch-Bangla. Where as ABBL was suppose to provide services compared to those in the FCB'S, they are not being able to compete with its contemporary rivals in terms of service quality. If this trend continues, ABBL will soon fall into the category of the traditional banks. The service quality is worst in the General banking division, as there are several system errors. Low Remuneration Package The remuneration package for the entry and the- mid level management is considerably low. The compensation package for ABBL entry-level positions is even lower than the contemporary banks. Under the existing low pay structure, it will be very difficult to attract and retain MBA's at ABBL. Since foreign banks pay double that of ABBL, it will be very difficult to attract competent MBA's in future for ABBL. Therefore ABBL will fall to attract competent NOA's and retain them if they do not revise their pay structure. Centralized Decision-Making At ABBL, corporate decisions, the CEO, DMD and other top management officials craft policies and strategies and then they are cascaded down. At times the Board of Directors are also engaged in making corporate decisions. As a result of this practice there is only a top
down flow of communication at ABBL. The scope for bottom up communication is very limited and many bright ideas or opinions are not being able to climb up the ladder to the top management. Ideas remain there forever. 3.8.3 | OPPORTUNITIES Diversification ABBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify in to leasing and insurance. By expanding their business portfolio, ABBL can reduce their business risk. Product Line Proliferation There are several opportunities for ABBL to expand its product line. In this competitive environment ABBL must expand its product line to enhance its Sustainable Competitive Advantage (SCA). As a part of its product line proliferation, ABBL can introduce the following products. Credit Cards and Tele-banking These are the new retail banking services provided by the foreign banks. ABBL can evaluate the option of launching credit cards and Tele-banking system. These are the recent developments in the banking sector and ABBL should also evaluate the option of doing it. Introduction of ABBL's Own Savings Scheme This can be another new retail product for ABBL. They can start introducing their own savings scheme or pension scheme for different professions. Foe example, Standard Chartered Grindlays has SYFANZ and PLANZ and Standard Chartered also has similar offers. Therefore for attracting more depositors, the management should consider the option of its own savings scheme. Introduction of Corporate Scheme This is an innovative way of attracting corporate clients to the bank. In stead of providing CCS to executives of various companies, ABBL can introduce a special scheme for corporate officers for the purchase of consumer durable at an attractive interest rate. In this way, the bank will be able to attract a lot of corporate clients and in the long run the bank would be benefited by getting business for the bank from the corporate clients in terms of L/C, Loans and advances etc. Separate Schemes for Service Holders The bank as a part of expanding its loan portfolio can provide assistance in terms of giving loans to service holders under various professions under a separate scheme. The bank can provide assistance to Engineers, Doctors, Lawyers and other professions under a separate scheme. Standard Chartered Grindlays has already introduced such a scheme for different professions.
3.8.4 | THREATS
Multinational Banks The emergence of the multinational banks and their rapid expansion poses a potential threat to the new PCB'S. Due to the booming energy sector, more foreign banks are expected to arrive in Bangladesh. Moreover, the already existing foreign banks such as Standard Chartered are now pursuing an aggressive branch expansion strategy. This bank is establishing more branches countrywide and is expected to get into for operation soon. Since the foreign banks have tremendous financial strength, it will pose a threat to local banks to a certain extent in terms of grabbing the lucrative clients. Upcoming Banks The upcoming private local banks can also pose a threat to the existing PCB'S. It Is expected that in the next few years more local private banks may emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slaughter of foreign banks. Contemporary Banks The contemporary banks of ABBL such as Dhaka Bank, Prime Bank and Dutch Bangla are its major rivals. Prime Bank and others are carrying out aggressive campaign to attract lucrative corporate clients as well as big time depositors. ABBL should remain vigilant about the steps taken by these banks as these will in turn affect ABBL" strategies. No New Deposit Creation This is a problem and a threat faced by the whole banking sector of Bangladesh. Due to the current economic slowdown, there is hardly any new deposit creation as there few investments and savings accompanied by a galloping inflation. As a result the new banks are not being able to attract absolutely new depositors but rather they have to hunt or snatch away depositors from other banks. Moreover, due to the financial turmoil in AB Asia, foreign remittance of Bangladeshis is also decreasing due to the massive retrenchment. Therefore all these adversaries are blocking the creation of new deposits and banks are operating by snatching away depositors from one to another. Default Culture This is a major problem in Bangladesh. As ABBL is a very new organization the problem of non-performing loans or default loans is very minimum or insignificant. However, as the bank becomes older this problem arises and the whole community suffers from this chronic disease. ABBL has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.
3.9 | SWOT Analysis of Merchant Banking Wing (MBW) SWOT Analysis for Merchant Banking Wing is shown below
Table 3.20: SWOT Analysis of MBW Strength
Huge loyal Customer Base (over 2000) Financial Backup by AB Bank Ltd. Financially strength Capital Market Experiences Corporate Identity Expanding Service Network Corporate Relationship Business Reputation Better infrastructure facilities Experienced and efficient management team. Sound profitability and growth with good internal capital generation
Opportunity
Service Diversification Foreign Investment Fee Based Corporate Service Growing interest and confidence of investors on capital market New IPOs Acquisition of Banks/NBFI Automation of transaction processes and online branch banking. Government’s policy of encouraging heavy inflow of foreign investment.
Weakness
Legal Compliance Service Delivery pace (slower) Less effort on New Service Development Lack of Specific job description Inadequate Human Resource Less Advertising effort Lack of adequate training and development initiative Higher Turnover Lack of full-scale automation.
Threat
New Local Entrants (i.e. Trust bank) Possible intense competition from foreign Banks (i.e. Citi Group) Unproductive regulation from SEC New Asset Management Companies (i.e. Aims Ltd) Political Unrest
CHAPTER 4: LEARNING PART 4.1| INTRODUCTION In Bangladesh, Merchant Banks facilitate public and private corporations to raise funds from the Capital Market, as well as to provide underwriting, strategic advisory services for mergers, acquisitions, corporate advisory in financial management, and management restructuring. The Securities and Exchange Commission (SEC) has issued license to 23 fullfledged Merchant Banks, 6 Issue Managers and 1 Portfolio Manager totaling 30 participants in this sector.
AB Bank Merchant Banking operation was launched in early 2003 to satisfy various needs of the investors in the Capital Market of Bangladesh. AB Bank possesses a full-fledged Merchant Banking license from the SEC which primarily allows us to offer the following services to our valued clients:
Portfolio Management Issue Management Underwriting Other Services
4.1.1| PORTFOLIO MANAGEMENT SERVICE AB Bank have already gained an excellent reputation among the investors with our Portfolio Management service which includes managing Investor’s Discretionary Account (IDA) and Bank’s Discretionary Account (BDA). IDA: This leveraged account is managed by the accountholder through us and the investor bears the risk of investment as well as its gain or loss.
BDA: With this account, the Bank uses its discretion in managing the account on behalf of the accountholder. The investor lays down his/her investment objectives and the Bank designs a portfolio aligning the investor’s risk return profile.
4.1.2| ISSUE MANAGEMENT SERVICE In order to cater the fund raising needs of various business entities through issuing securities in the Capital Market, AB Bank are capable of managing the following means of raising capital:
Initial Public Offering (IPO) / Repeat Public Offering (RPO) Right Share Offering Preference Share Issue
4.1.3| UNDERWRITING SERVICE AB Bank participates frequently in the underwriting of many institutions intending to raise fund through issuance of securities and thereby undertake to purchase those securities in the event of under subscription. Having necessary permission from the SEC, AB Bank acts as an underwriter in Initial Public Offering and Right Share Offering. 4.1.4| OTHER SERVICES In addition to the aforementioned services, AB Bank also offers the following services to our clients. 4.1.4.1| PRIVATE PLACEMENT SERVICE
Due to our wide professional connection with high net worth individual and institutional investors, AB Bank can negotiate and arrange investors on behalf of the companies intending to raise capital through issuing shares. 4.1.4.2| CORPORATE ADVISORY SERVICE Having the required human resources and expertise, AB Bank can also provide necessary advisory services in the following areas:
Corporate / financial restructuring Merger & acquisition Business / project financing
4.1.4.3| STOCK BROKING SERVICE Render stock broking services to the clients through AB Bank Foundation (ABBF), a subsidiary of AB Bank and member of both the Dhaka and Chittagong Stock Exchanges. Bank service in this area includes:
Opening stock brokerage account Real time screen based stock trading facilities Margin lending facilities for stock trading Settlement of shares with the stock exchanges Safe keeping of shares
4.1.4.1| CDBL SERVICE Being a Depository Participant (DP) of the Central Depository Bangladesh Limited (CDBL), AB Bank extends the following services:
Opening Beneficiary Owner (BO) Account with the CDBL Providing necessary settlement services for CDBL shares Processing conversion requests of paper share certificates into electronic format or Dematerialization (DEMAT) and Rematerialization (REMAT)
4.2| CONTROL AND SUPERVISION OF THE FUNCTION OF MERCHANT BANKING WING In order to establish a smooth and effective system of management and supervision of the key functional areas, clarity and transparency in the designated roles and responsibilities, maintenance of required quality of services at all levels of operations, the activities of Merchant Banking Wing (MBW), as mentioned above, have been divided into two broad functional areas as mentioned follows: 4.2.1| FRONT OFFICE The Front Office forms the hub of Investment Operations and Portfolio Management functions of the Merchant Banking Wing (MBW) of AB Bank. All the activities of this section are aimed at generation of revenue streams through a series of activities viz.
Receive sale/purchase orders Check the order to see whether the orders are executable or not Place the order to broker for execution
Verify the order & Execution Place the order in MBW software Keep the client order properly Counseling the clients on investment decision Co-ordinate with the custodian for transfer, verification, registration works. Marketing of MBW product Undertake Sales call Keep liaison with the big clients, other market players and Merchant Bankers Operate and monitor BDA accounts Monitor the listed company situation Monitor the corporate entitlement As per recently approved Organogram, the functions of Front Office therefore include the following Key activities: a. b. c. d.
Customer Service Underwriting Public Issue Management Portfolio Management
4.2.1.1| CUSTOMER SERVICES This section is the fore front of the Front Office. The principal responsibility of this section is to undertake the following tasks: •
Marketing for the different products of MBW
•
Opening of portfolio accounts of clients
•
Check fund position/ share position of IDA clients’ portfolios and pass on the same to the transaction section of the brokerage houses for execution.
4.2.1.2| UNDERWRITING MBW acts as an Underwriter in Public Issue having sound fundamentals. For acquiring underwriting jobs, the personnel responsible for Issue Management Jobs should keep constant liaison with the Issue Managers.
4.2.1.3| PUBLIC ISSUE MANAGEMENT/ POST ISSUE MANAGEMENT JOBS The bank offers one-stop service for all the issue management tasks with our experienced and efficient team of experts.
4.2.1.4| PORTFOLIO MANAGEMENT Under the Portfolio Management operations two types of Portfolio Management Schemes are being offered by the MBW. These are:
(a) Investors’ Discretionary Account (IDA) (b) Bank’s Discretionary Account (BDA). 4.2.2| BACK OFFICE The functions of BACK OFFICE include the following Key activities: a. Settlement b. Custodian Service c. Accounts 4.2.2.1| SETTLEMENT DIVISION This division deals with receiving and delivering share certificates, arrangement relating to transfer and verification of ownership of share certificate etc. 4.2.2.2| CUSTODIAN DIVISION Main activity of this division is to safeguard the share certificate. 4.2.2.3| ACCOUNTS DIVISION This division is liable for keeping records related to merchant banking activities. It maintains books and records, registers related to financial statements. 4.2.2.4| BACK OFFICE RESPONSIBILITIES
Preservation of documentation sets, Account Opening Forms, Sale-Purchase orders, vouchers, cheque books etc. and other related papers in a proper manner. Recoding collection of all types of corporate entitlements i.e. dividend, bonus etc. from different companies in time. Reconciliation of client-wise share holding, corporate entitlements on regular basis. Preparation of Financial Statements, vouchers, Cheques etc. Submission of periodical statements to the regulatory bodies as and when required.
4.2.3| MBW FRONT OFFICE AND BACK OFFICE SETUP MBW front office and back office setup is given below: Table 4.1: MBW Front Office and Back Office Setup
MBW MBW
4.2. 4| FLOW CHARTS OF DIFFERENT DEPARTMENT
4.2.2.1| FLOW CHART OF ACCOUNTS AND IT DEPARTMENT
Table 4.2: Flow Chart of Accounts and IT Department Reconciliation
Accounts / Budget & Management
Reporting
Payment & Salary Allowances
Trade Settlement
Software Develop & Trouble shooting
Cash/ Cheque
Monthly Accounts
Monthly Salary & Allowances
Daily Trade Settlement
Development & Upgrade of software
Trade
Various Management Reporting
Payment to broker/CDBL
Reconcile with broker statement
Trouble shooting
Corporate Entitlements
SEC Compliance Report
Client /Other Payment
Clients Dispute
Approved by Head of Back Office
Report to Head of MBW
Settlement
4.2.2.2| FLOW CHART OF SETTLEMENT DEPARTMENT
Table 4.3: Flow Chart of Settlement Department
Receipt of Share
Receipt of Physical share from broker
Reconciliatio n MBW & Broker
Deliver To Custodian Department
Delivery of Share
Receipt of share from custodian department
Deliver To Broker
Report to CO
CDBL Operation
Pay in Approve
4.2.2.3| FLOW CHART OF CUSTODIAN DEPARTMENT
Table 4.4: Flow Chart of Custodian Department
Receipt Receipt of of physical physical Share Share from from Settlement Settlement Dept
Reconcile with PSDR Entry
Safe Safe keeping keeping of of Shares Shares in the vault room in the vault room
Daily Daily Report Report Print Print out out of of PSDR PSDR entry entry
Deliver share out from Vault as per settlement sheet
Entry Entry in in software software for for delivery delivery of of share share
CDBL CDBL Operation Operation
Complete Complete Dematerializatio Dematerializatio nn Process Process
certificate certificate
Deliver Deliver share share certificate certificate to to Settlement Settlement Dept. Dept.
Daily Daily
Reconciliatio Reconciliatio nn with with
broker broker statement statement
Approved Approved By Head Head of of MBW MBW
Pay in Setup With CDBL
Printout Printout reports reports for for CDBL CDBL operations operations each each day day
Corporate Entitlement
Share Transfer/ Registration
Dividend/ Bonus Collectio n
Verified By Accounts Dept
4.2.2.4| FLOW CHART OF CUSTOMER SERVICE DEPARTMENT Table 4.5: Flow Chart of Customer Service Department
Account Account Opening Opening
Client Client Deposit Deposit
Deposit
Trading Trading Order Order Buy/Sell Buy/Sell
Slip
Cash/Cheque
Customer Service
Copy Copy of of order order sent sent to: to:
Check A/c Opening Form/ Deed/ Introducer/Pic.etc
Obtain approval
Entry in software and deposit in to Bank
Checked Checked by by Accounts Accounts Dept. Dept.
Broker For Execution
Confirmation Confirmation Checked Checked with with client client order order
from SVP Buy/Sell Order Entry into software
Entry in Software Report to CO
Approved Approved By By Head Head of of MBW MBW
4.3| TARGET CLIENTS OF PORTFOLIO ACCOUNTS Any adult Bangladeshi national / NRB of any profession , having some savings and also desirous of investing the same in shares and securities of different public limited companies Listed with the stock exchanges, are eligible to open a Portfolio Account. 4.4| SALIENT FEATURES OF IDA AND BDA ACCOUNTS AND THE PROCEDURE OF OPENING PORTFOLIO ACCOUNTS Table 4.6: Features of IDA and BDA Accounts Sl. No. 1
Criteria
2
Photograph
3 4
5
6
Opening Portfolio Account
IDA
BDA
of Any two Bangladeshi national and NRB (Non Resident Bangladeshi) of sound mind having a minimum age of 18 years may open three IDA/BDA Accounts: on each in their single name and the other in their joint names.
Any two Bangladeshi national and NRB (Non Resident Bangladeshi) of sound mind having a minimum age of 18 years may open three IDA/BDA Accounts: on each in their single name and the other in their joint names.
Two copies of attested photograph of the account holders(s) and 1 copy of photograph of the authorized person (operator) as well as nominee(s) should be attached with the account opening form. Min. Deposit Tk. 10.00 ( Ten) lac for opening an account Mode of Crossed cheque/P.O./DD Deposit preferred. In case of Head Office, the account holder will deposit the sum with the Principal branch, Dhaka and at the counter of the Bank for other designated branches. Fill-in-the The Application Form must be Account completely filled-in and Opening Form signed by the account holder(s) and the operator (if any) and the nominee(s), if any. Loan @ 1:1, Max.Tk.5.00 (five) Facility/Bank crore. Participation for
Two copies of attested photograph of the account holders(s) and 1 copy of photograph of the authorized person (operator) as well as nominee(s) should be attached with the account opening form. Tk. 10.00 ( Ten) lac Crossed cheque/P.O./DD preferred. In case of Head Office, the account holder will deposit the sum with the Principal branch, Dhaka and at the counter of the Bank for other designated branches. The Application Form must be completely filled-in and signed by the account holder(s) and the operator (if any) and the nominee(s), if any. @ 1:1, Max.Tk.5.00 (five) crore.
investment 7 8 9 10 11 12
13 14
15
16
Rate of Interest for availing loan facility Documentation charge Composition of Portfolio Management of Portfolio Brokerage Commission Portfolio Management Commission Safe Custody of share Handling of share portfolio Transfer shares, collection corporate entitlement
of
Payment Interest
of
of
@ 14.75 % Qtly interest
@14.75% Qtly rest (subject to change from time to time)
Tk.500.00 ((subject to change from time to time) Diversified Portfolio through investment in IPO, Pre-IPO, secondary, market. By the Bank on the basis of instruction of clients @0.35% ( subject to change from time to time) @ 1.50% on the monthly average value of Portfolio charged Qtly or minimum of Tk. 250.00 / qtr. With Bank Vault separately for each client Bank will arrange collection/deposit of shares from the stock exchange on behalf of client. Bank will arrange transfer of shares in the name of account holders, collection of corporate entitlements; deposit the same to respective portfolio accounts of clients. @6.50% provided a minimum credit balance of Tk.25, 000.00 remain in the account for one full month i.e. from 1st to the last day of a particular month.
Tk.500.00 ((subject to change from time to time) Diversified Portfolio through investment in IPO, Pre-IPO, secondary, market. By the Bank on the basis of own judgment. @0.35% ( subject to change from time to time) @ 2.00% on the monthly average value of Portfolio charged Qtly or minimum of Tk. 250.00 / qtr. With Bank Vault separately for each client Bank will arrange collection/deposit of shares from the stock exchange on behalf of client. Bank will arrange transfer of shares in the name of account holders, collection of corporate entitlements; deposit the same to respective portfolio accounts of clients. @6.50% provided a minimum credit balance of Tk.25, 000.00 remain in the account one full month i.e. from 1st to the last day of a particular month.
4.5| DOCUMENTATION / POWER OF ATTORNEY The Portfolio Account holders are required to execute a documentation set empowering the MBW to act as Power of Attorney on behalf of them. By virtue of this Power of Attorney the Portfolio Manager shall undertake all steps for making application for subscription of shares through IPO / right share/ secondary market in the name of account holders, transfer and registration of shares in the name of portfolio account holders, collection of corporate entitlements, dematerialization of share certificates, giving input for buy/sale of CDBL shares etc. 4.6| OPERATION OF PORTFOLIO ACCOUNTS
Operation of Portfolio Accounts involves a series of steps. As the nature of IDA and BDA Portfolio accounts vary from each other, the operational procedure of IDA and BDA accounts also differs. 4.6.1| OPERATIONS OF IDA PORTFOLIO An IDA account holder/ or his/her authorized representative (through empowering in writing another IDA Account holder in prescribed form) will operate his/her account and also take decisions on behalf of account holder regarding IPO applications/ Pre-IPO application and also for sell/ purchase of shares from the secondary market, fund transfer/ withdrawal/closure of accounts etc. through their accounts as per their written instructions. 4.6.2| OPERATIONS OF BDA PORTFOLIO As per the nature of the account and on the basis of the authority given by the BDA account holders, the responsibility of managing BDA Portfolio accounts lie with the MBW. This responsibility covers making application in Pre-IPO/ IPO floatation, secondary market operations, reshuffling of accounts depending on the market conditions, CDBL operations, collection of corporate entitlements etc. 4.7|COLLECTION ACCOUNTS
OF
CORPORATE ENTITLEMENTS, SAFE CUSTODY
OF
IDA, BDA
The responsibility of collection of corporate entitlements of IDA and BDA accounts lies with the MBW. So MBW always keeps a track on the declarations, book closures and takes all necessary steps to collect corporate entitlements on behalf of all IDA and BDA clients, undertake all works relating to CDBL as well as provide safe custody of shares purchased through their portfolio accounts. 4.8|EXECUTION OF CLIENTS’ SELL/PURCHASE ORDER The procedure of execution of clients’ buy/ sell orders also differs from each other, as mentioned below: 4.8.1|EXECUTION OF IDA CLIENTS’ ORDER An IDA account holder takes decisions on his/her own regarding IPO applications/Pre-IPO placement, sell/purchase shares through his/her account through forwarding their written instructions at the Customer Services Section. 4.8.1.1|IPO APPLICATION/PRE-IPO PLACEMENT On receipt of the same, the Front Office personnel file the same and forward the orders to the Back Office for processing and application for the minimum lot on the basis of availability of fund on 1:1 basis. If the Issue has strong fundamentals, the MBW makes application for the IPO/Placement for the minimum lot, irrespective of fund position, for the sake of profit/ strengthen portfolio position. 4.8.1.2|SECONDARY MARKET OPERATION The IDA account holders would first collect the fund position/ salability position of share position from the Customers’ Service Section at the Front Office and on the basis of which they would fill-in- the Sell/Purchase Form and handover the same to the Counter beside the Brokerage house at the Front Office. This section would again verify the fund/share position
and handover the same to the Transaction Section of the Brokerage house for execution as per the instruction of the clients. 4.8.2|PROCEDURE OF TRANSACTION THROUGH BDA PORTFOLIO ACCOUNTS The decision on buy/sale through the BDA Portfolios as well as the tentative allocation is taken in the Merchant Banking Committee meetings mentioned above. After execution of trade, allocation of shares bought/sold is made in a judicious manner on the basis of deposit, return, composition portfolio, tenure of account, investment made etc. 4.8.3|CRITERIA FOR SELECTION OF SCRIPTS The bank always tries to select the companies having sound fundamentals. A number of factors are taken into consideration while selecting a script for inclusion in the Portfolio Account. These are:
Trend of market price Performance of companies Management of companies Declaration EPS P/E ratio Yield Composition of Portfolio/holding cost AGM date Over all economic conditions etc.
The MBW always try their best to get the best bargain. They usually go slowly for picking up good shares at the lowest possible prices. They reshuffle the Portfolio as and when require to take advantage of market conditions, realize capital gains/ dividend incomes etc. This is a continuous process. 4.9|THE SETTLEMENT SYSTEM The Settlement System of the MBW is based on the stock exchange settlement cycle and also the operational flow of MBW as detailed below
4.9.1|DHAKA STOCK EXCHANGE SETTLEMENT PROCESS Table 4.7: Dhaka Stock Exchange Settlement Process
Trading Trading
Selling Selling Broker Broker
Buying Buying Broker Broker T+1
Securities to Broker
Cheques in favor of DSE to Clearing House DSE
Cheques in favor of DSE to
•
T+3
Securities to Broker
Buying Broker Trading ( T+0) Buying broker issue the cheque in favor of SE. Clearing house of SE arranges encashment of the Cheques Clearing house of the SE delivers the securities to the buying broker The broker delivers the share to the client.
•
Selling Broker Trading (T+0) Clearing house of SE issues cheque in favor of broker. Broker issues cheque in favor of client. After receiving the cheque client deliver the share to the broker. Broker delivers the share to SE.
4.9.2|MBW SETTLEMENT PROCESS Table 4.8: MBW Settlement Process
SALE
BUY
Charged into Client Account as Receivable on T+0
Charged into Client Account on T+0
Received post dated cheque (T+3) on T+1 and deliver the share to broker
Buy/Sell Net Amount Paid to Broker as per Settlement Rules
For A group Net amount paid to broker on T+3
For B group amount paid to broker on T+3
T+2
•
For Z group amount paid to broker on T+7
Credited into client account on receipt of sale proceed on T+4
Buy Trading (T+0) Charged into Client Account: T+0, through automated trade settlement process Cheque issue to Broker: For A, B and G (T+3), for Z group (T+7)
•
Sell Trading (T+0) Charged in to Client Account as receivable on T+0 and realized on T+4
4.10|SELECTION RESHUFFLING
OF
SCRIPTS
FOR INCLUSION IN THE
PORTFOLIO ACCOUNTS
AND
IT’S
4.10.1|BASIS OF DECISION Every day the share prices move up and down. It is possible to predict the prices to a large extent based on market information like performance of companies, management of companies, declarations, EPS, P/E ratio, yield, composition of portfolio/ holding cost, AGM date, economic conditions etc. 4.10.2|STRATEGIES There are three strategies for each company’s share they hold. Those are 1. Long Term- more than 1 year 2. Mid term- between 6 months and 1 year and 3. Short term- for trading purpose only with tenor ranging from few days to few months The bank only sales those shares keeping in mind the tenor and the saturation point. 4.10.3|BASIS OF ALLOCATION OF PURCHASE: BDA Buy Allocation The Buy Allocation is based on •
Purchase Power: Merchant Banking Software gives a report of the purchase power of each client. Purchase power is the BDT amount that is on hand of the client to buy securities. Without the purchase power the bank doesn’t allow the clients to buy.
•
Composition of the Portfolio: Existing portfolio condition also dictates whether the bank will allocate shares for an individual client. The bank usually doesn’t want one company to occupy more than 30% of the portfolio of the client.
•
Market trend: If the market trend is a bit shaky but the bank still thinks the share of the company is a good buy then they allocate the shares to their larger deposit holders namely the A & B Category share holders. The clients are distributed into 5 categories based on their deposited amount. The larger deposit clients usually get any new issues the bank chooses since the first few months are tryout time for those companies.
•
Rebalancing of the Portfolio- If the bank sells the share of one company of a client they usually try to balance the sale with a purchase on the same industry.
4.11|TREATMENT OF BONUS SHARES Bonus share will be shown as addition to the original shares at the market-adjusted price just after the record date and thereafter. But the bonus share adjusted portfolio will be available only for the viewing of the MBW staff to carry out their duties. It will not be available to the clients since the bonus adjusted portfolio enhances the Purchase power. 4.12|MARGIN CALL Margin Call will be triggered if the portfolio value falls below 80% of the acquisition cost. If additional deposit is not made and portfolio value falls to 75%, then AB Bank may sell,
without intimation to the account holder, an appropriate portion of the portfolio to cover the full margin with interest and other charges. 4.13|OPERATIONAL FLOW OF THE MBW The procedure to open Portfolio Account/make nominees, how to deposit fund in the accounts, how to place sale/purchase orders, the procedure of making decisions on buy/sale, preparation of settlement sheets, allocation of purchase/sale, calculation of purchasing power, how to receive/ delivery shares certificates to and from the brokers, how to record shares in the computer programme, how to enlist the brokerage houses, how to withdraw fund from the accounts, Accounting System , Settlement System etc. Table 4.9: Operational Flow of MBW
When a client makes a Deposit Client
Purchase Power 1: 1 loan basis
A Buy/ Sale Order is placed by a Customer
Order Order Execution Execution by by the the Broker Broker
Posted Posted into into the the client client a/c a/c on on T+O/T+5 T+O/T+5
Cash & Cheque Deposit voucher is prepared and posted into the MBW software.
Purchase Power of the clients is created on the basis of deposits, realized capital gains and dividend incomes.
Buy/ Sale orders are verified by our customer service department before execution of the order and also reconciled after trade settlement.
As per buy/ sale order of the customer the broker executes the order after obtaining clearance from our customers’ services Department.
Trade settlement occurs through automated trading system which reconciled with confirmation sheet prepared by the broker daily.
T+0/ T+5 Automated Automated Settlement Settlement through through the the MBW MBW software software
Cheque Cheque Payment/Receipt Payment/Receipt from from Broker Broker & & delivery delivery of Share Share
As per the trading & settlement rules, the buy/sale executed in a day is posted into clients’ accounts.
As per Clearing and Settlement rules cheques/shares are paid to/ and received from the broker.
4.14|MARKET AND CUSTOMERS OF MBW The market area of MBW is situated in Dhaka and Chittangong. The major customers of the company are the individuals and institutional investors both resident and non-resident. AB Bank Ltd is trying to expand its activities in other areas of the country. It is going to launch a branch at Mohakhali of Dhaka very soon.
4.15|COMPETITORS OF MBW At present there are several members of same types of companies carrying out the business in the capital market both in Dhaka and Chittagong Stock Exchange Limited. The major components of MBW are as follows: 1. Investment Corporation of Bangladesh (ICB) 2. IDLC 3. Uttara Finance & Investment 4. Prime Finance & Investment 5. The Prime Bank Limited 6. Bay Leasing Industry (BLI) 7. Rafique & Co. 8. Equity Resource Limited 9. Dhaka Bank Limited 10. Union Capital 11. Asia Securities Limited 12. Capital Market Services Limited (CMSL) 4.16|BANKERS OF MBW MBW maintains a number of accounts in AB Bank Principal Branch to deal with the customers. These accounts are approved by joint signatures of the executive a/officer of MBW 4.17|ACCOUNTING SYSTEM Merchant Banking Wing (MBW) invests in the stock market on behalf of client along with its own investment. Since MBW deals on behalf of client, a lot of MBW’s transactions are related with clients. A lot of MBW’s income and expenditure are related with client transaction such as:
Interest income from loan Portfolio management fee Brokerage commission Documentation charge Interest expense on client deposit etc
ACNABIN & Co. took the responsibility of counseling along with audit function. Here counseling involves assistance in preparation of account and audit function involves checking whether financial statements represent a true and fair view and free of any material misstatements. MBW uses integrated software to record transaction. Transactions, which are not involved with client, are easily recorded and journalized. So, it is need to focus on client transactions to assist MBW to journalize those transactions. An inadequate recording of client transaction will represent material misstatements on the financial statements. At the time of buy or sale of shares, brokers are entitled a commission @0.35% on the total transaction amount. But, MBW collects a portion of this commission as revenue. MBW’s portion of revenue on this percentage is not fixed; rather it varies according to the volume of transaction. At the time of purchase, MBW make payments to broker (purchase amount + broker’s portion of commission) at T+3 days and so at the year-end three-day payables arises. Again, at the time of sale, MBW receives sales proceed (sales proceed- broker’s portion of commission) from broker at T+6 days and so at the year-end a six day receivables do arise. Again, all the charges on client account are the revenue of MBW. Although MBW is not the owner of client’s stock, he is the custodian of those stocks and so those stocks should be shown as Off-Balance Sheet item. On the other hand, since the stock price fluctuates regularly the purchase price of the same stock differ dramatically and so in order to determine the capital gain weighted average cost method is used to determine cost price of stock and for this proper journalization of stock is also required. Again, if a client takes 1:1 loan on its deposited amount, then any sale proceeds will readjust the balance of loan first and remain (if any) will be credited in deposit account. MBW is maintaining a computerized accounting system through its Integrated Computer Software. Account’s dept. of the company consists of an accountant only. All other staff of the organization is well experienced in their respective field. The Accounting System of MBW has been developed in such a manner so as to provide a true reflection of all the transactions (i.e. deposit, withdrawal, buy, sale, dividend income, interest/ management fee etc) of the wing. The sequence-wise entries of different transactions are stated as below:
i) When any deposit is made by client Cash Deposit
Dr. Cr.
ii) When Purchase of share is made for client a. Deposit Dr. (Deposited amount) Investment to client Dr (Balancing figure) Payable to Brokers Cr. (Total Purchase amount) Brokerage Commission Cr. (Total Commission) b. Stock Stock in deposit
Dr. Cr.
(Total purchase price)
c.
Brokerage Commission Payable to Brokers Revenue
d.
Payable to Brokers Cash
Dr. Cr. Cr. Dr. Cr.
iii) When sale of share is made: a. Receivable from Broker Dr. Payable to client Brokerage Commission
(Total Commission) (Broker’s Commission) (Bank’s Commission Rev) (Total Payable)
(Gross Sale price) Cr. (Client’s Amount) Cr. (Total Commission)
b.
Stock in deposit Stock
Dr
(Cost price) Cr
c.
Cash
Dr.
(Sale less Broker’s Commission) Dr. (Total Commission) Cr. (Gross sale) Cr. (Bank’s Commission Revenue)
d.
Payable to client Deposit Investment to client
Dr.
(Client’s Amount) Cr. (Balancing figure) Cr. (Adjustment of loan)
Brokerage Commission Receivable from Broker Revenue
iv) When withdrawal is made by client. Deposit Dr. Cash Cr. v) When any amount is charged to client except commission Deposit Dr. Respective head of income Cr.
4.18| BROKERS OF MBW All trades of MBW are executed through the exclusive and enlisted brokerage houses. The broker’s license or Tk.10 lac FDR is kept as security deposit with the MBW by the brokers. The brokerage houses are 1. 2. 3. 4. 5. 6.
Kabir Ahmad & Co Country Stock (Bangladesh) Ltd Haji Ahmad Brothers Dragon Investment and Securities ARC Securities Limited Arab Bangladesh Bank Foundation
Among the above mentioned houses the first three houses trade securities for MBW establishing different set up at the MBW’s premise and they are not allowed to trade for others than MBW’s clients.
4.19|WITHDRAWAL OF MONEY The client can withdraw cash from his account on the basis of availably of withdraw able money. The withdrawal money is not more than 25% of the purchase power of the account. 4.20|MAJOR TYPES OF ORDERS EXECUTED BY MBW • •
Market Orders Buy or sell at the best current price Provides immediate liquidity Limit Orders Order specifies the buy or sell price Time specifications for order may vary Instantaneous - “fill or kill”, part of a day, a full day, several days, a week, a month, or good until canceled (GTC)
•
Stop loss Order Conditional order to sell stock if it drops to a given price Does not guarantee price you will get upon sale Market disruptions can cancel such orders
•
Stop buy order • Investor who sold short may want to limit loss if stock increases in price
4.21|SIGNIFICANT ACCOUNTING POLICIES •
Basis of presentation of Financial Statements
The financial statement of the AB Bank Merchant Banking Wing have been prepared on a going concern basis under the historical cost convention in accordance with International Accounting Standard as adopted in Bangladesh. •
Revenue recognition
Revenue is recognized as Accrual Basis, i,e when services to the clients is performed. •
Fixed Assets and Depreciation
Fixed assets are stated at cost less accumulated depreciation. The cost of the assets include the price paid and to the vendors along with all incidental expenses to install or construct the assets. •
Calculation of Purchasing Power
Purchase Power =(Initial Deposit Additional Deposit Realized Capital Gains Dividend received Bonus Shares/ Converted shares received Sale of Fraction Bonus
Shares Right shares received Interest received on Debentures) – (Charges – interest, management fees, unrealized loses, documentation charges etc.)
4.22|THE BASIS OF PROVIDING MARGIN LOAN FACILITY While calculating the margin loan facility to a particular portfolio account the MBW calculate the purchase power in the following manner: Total deposit made + Total Capital Gains realized + Total dividend income received – ( Charges ( i.e. interest, management fee, CDBL etc.) + Amount of loan lying in the account + Un-realised loss) 4.23|INTEREST SCHEME ON IDLE INVESTMENT MBW is giving interest at the rate of 6.5% on the unutilized investment of at least 25000 for at least one month. This is undoubtedly an attractive offer to keep quiet the customers who impose undue pressure to buy securities immediately after make a deposit. 4.25|CLOSING OF AN ACCOUNT A client can close his account when required, by submitting an application. The closing procedure generally takes one or two weeks depending on the salability of shares and receipt of sale proceed 4.26|FUTURE OF THE MBW The Bank has become a Depository Participant (DP) with the Central Depository of Bangladesh Limited (CDBL). They have been offering, free of cost service from the working desk, for the Dematerialized process of the scripts, enrolled with the CDBL. Their activities are limited to the scripts having sound fundamentals only and these are enrolled with the CDBL on a regular basis. Hence, the risk of physical handling of shares is mitigated to a large extent. CHAPTER 5: FINDINGS, RECOMMENDATION AND CONCLUSION 5.1| FINDINGS
Despite having full-fledged merchant banking license in 2002, AB Bank begins Issue management services in 2007.
Small team in the issue management service.
No target, objective or goal to strengthen the issue management service.
No schedule work in the issue management section.
Lack of monitoring, supervision and marketing.
Lower rate of issue management, underwriting service increase the expenditure in this sector in compare with the other Merchant banking services.
No capital Market news archive.
No comparative analysis with the competitor’s products & services.
Slow in the modification of the existing products & services, this could be a threat for future challenging competitive capital market environment.
Slow in implementation of new products or services of capital market.
Because of the shortage of manpower in the MBW sometimes there creates hassle to provide services to the IDA clients
5.2| RECOMMENDATION
A portfolio manager must have to know investment decision process, timing/allocation skill in order to construct a well diversified portfolio. To overcome the weaknesses of the Portfolio Management the following recommendations are made: • • • • • • •
•
• • • •
MBW must have a research cell to have an actual knowledge about companies’ securities and actual scenario of the capital market. Investors risk preferences must be kept in mind during the construction of a portfolio. Securities always should buy in the bear market. In this regard client’s request must not be honored in case of buying stocks. There should be no time limit regarding holding period. MBW should keep in mind that they are committed to make profit for their clients. So whatever the amount of profit may be earned should be realized immediately without taking any risk. In sanctioning the margin MBW must consider the market condition because the loan amount seriously affects the portfolio return in bear market condition. The management of MBW should take initiative to develop an operating guideline by an independent body to carry out its activities by keeping uniformity. In order to diversify its business this wing should add new schemes to the existing product range e.g. Profit Loss Account may immediately be launched to attract the religious people who are not interested to the traditional investment policy. Besides this scheme, MBW may also launch Islami Shariah Based products like Mudaraba and Murabaha. MBW may explore opportunities to undertake Issue Management/ Post Issue Management etc. on selective basis. Initially, efforts can be taken to take up one Public Issue/ Post Issue job, on joint venture basis with another reputed merchant banker. MBW may try to recover the accounts of negative return by carrying out short term trading on those accounts. Under these circumstances the bank might give them more loan than normal margin but this is a very short term issue. The portfolio managers should be trained on security valuation and portfolio construction process. The portfolio manager should avoid the tendency to earn abnormal return and so they should construct diversified portfolio for each BD account. MBW should include bonds and debentures in the portfolios to reduce portfolio risks.
• •
•
•
The Portfolio Statement provided by the bank should include the capital withdrawal amount to calculate portfolio returns which will reflect the actual return on the investment. In order to reduce risk, the portfolio should have to be diversified through inclusion of shares of at least three companies having sound fundamentals. If at any point of time, the number of securities in the portfolio falls below this number, efforts should be taken on urgent basis, to include the required number of companies. The ratio of holding of different companies in the portfolio should be more or less similar to each other in terms of market value. AB Bank limited has got many comparative advantages over other merchant banks. So, the Bank should go for aggressive marketing for the merchant banking products and services it is going to launch. It could be preemptive strategy for becoming the leader in the industry. To snatch the possible profit, Bank should go for segmented but extensive marketing for not only its proposed products like investors’ scheme but also existing operations of issue management and underwriting. MBW of AB Bank Ltd. is already treated as a leader in the capital market. To sustain this position the Bank immediately needs to open new Merchant Banking Branches over the country as early as possible to fulfill the demand of the investors.
Successful implementation of these recommendations will help Merchant Banking Wing (MBW) to improve their current operational activities and also will help the bank to make more profit for the clients as well as for themselves. 5.3| CONCLUSION The capital market of Bangladesh is an emerging market. So, there prevails extreme price volatility in the market. The external factors affects the market very frequently as political unrest and violence is everyday event of the country. Without prudent investment decision it is very difficult to make above average return from the market. Apart from ICB, AB Bank is the only bank undertaking Merchant Banking operations through obtaining a full-fledged merchant banking license from SEC. Despite having fullfledged merchant banking license, EXIM Bank and Prime Bank have not started operation till date. If they starts operation soon market will have more depth, clientele based financial support, confidence and operational control. Merchant Banking Wing (MBW) of ABBL being the first private sector merchant bank of Bangladesh is doing better no doubt. Towards the year 2004 MBW was covering 30% on an average of the market turnover of DSE. Since the nature of activities is new to them, it has some weaknesses in its operations. The continuous efforts can eliminate the difficulties. BIBLIOGRAPHY REFERENCES Journals � “Investment” sixth edition –Bodie, Kane, Marcus � “Fundamentals of Financial management”-Van Horne � “Portfolio Management”-S. Kevin
� Reviews of SEC, DSE, CSE � Major SEC published Rules & regulation, acts etc. Edwin J. Elton & Martin J. Gruber (2001) “Modern Portfolio Theory and Investment Analysis: Evaluation of Security Analysis” John Wiley & Sons, 5th Edition Frank K. Reilly & Keith C. Brown (2003) “Investment Analysis and Portfolio Management”: Effect of Margin on Return” 7th Edition Lawrence J. Gitman & Michael D. Joehnk (1998) “Fundamentals of Investing” Websites www.abbank.com.bd www.bangladeshbank.org www.bttb.net.bd www.csebd.org www.dsebd.org www.secbd.org www.stockbangladesh.com Annual Reports Bangladesh Bank Annual Report 2007, AB Bank Annual Report 2007 AB Bank Annual Report 2006 Annual Reports of SEC, DSE, & CSE Brochures and Others Brochure AB Bank Limited Brochure Investment Corporation Bangladesh Limited CSE Fair Presentation of AB Bank Ltd 2008