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Investment Bank

& Economic Growth


[Bangladesh]

Role of Investment Banking in Bangladesh

A REPORT
InfluencesON
of Investment
Banks Role
In Economic Development of

Bangladesh
PREPARED FOR:
Shaikh Masrick Hasan
Assistant Professor
Department of Finance
Jagannath University, Dhaka.
REPORT PREPARED BY:

Group:
Department of Finance,
7th batch
Jagannath University, Dhaka
DATE OF SUBMMISSION:
9th January, 2016

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Role of Investment Banking in Bangladesh

Letter of Transmittal

09th January, 2016


Shaikh Masrick Hasan
Assistant Professor,
Department of Finance,
Jagannath University, Dhaka.
Dear Sir,
With great pleasure we have submitted this research paper that we have been
assigned to us as an important requirement of BBA program at Jagannath University.
We have found the study to be quite interesting, beneficial and knowledgeable. We
have tried our level best to prepare an effective & creditable report.
This report is about the role of Investment banking in the economic growth of
Bangladesh. The report was completed on the basis of Theoretical & Analysis
learning.
We also want to thank you for your support and patience with us and we appreciate
the opportunity provided by Jagannath University and Department of Finance to
work on this wonderful project.
Yours sincerely,
The members of Group
..

ACKNOWLEDGEMENT
We would like to express our gratitude to all the people that were
involved both directly and indirectly in the preparation of this report. We

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Role of Investment Banking in Bangladesh


apologize to the people whose names that we have not mentioned, and their
contribution is highly appreciated by us.

At first, we would like to thank our academic supervisor, Shaikh


Masrick Hasan, Assistant Professor, Jagannath University; for guiding us and
for giving us the opportunity to initiate this report. More specifically, we
would like to thank him for imparting her time and wisdom.

Finally, we would like to thank our parents and friends whose


influence and inspiration have enabled us to complete this report.

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Role of Investment Banking in Bangladesh

GROUP MEMBERS

SL No.

ID

Name

01

B 120203025

AZMIR HOSSEN

02

03

04

05

06

B 120203051

SHARIF ASRAFUL HAQUE

B 120203056

SADDAM HOSSAIN

B 120203073

SAILA ALAM

B 120203111

MD. JASIM UDDIN

B 120203113

ABIR AHMED

ABSTRACT
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Role of Investment Banking in Bangladesh


The core objective of the report is to find out the present
performance of Investment banking, how it affects to the current GDP & how
to improve this financial sector to accelerate the development in economic
growth or GDP. Investment bank plays a multifunctional role in our economy.
And as USA term, it is locally known as Merchant Bank. The role & function
of investment banking has changed with the changing of world economy. At
first we have discussed the History of Investment banking in USA &
Bangladesh. We also discussed the origin, Limitations of this research paper.
Then we have discussed the methodology process- Data collection & data
analysis process.
In this report, we have found out different roles played by
investment bank (Merchant bank).Various types of data are examined here to
illustrate the relationship between Investment banking & GDP. Various roles
are briefly discussed performed by various Investment banks in Bangladesh.
As our merchant banking sector isnt well established, we put some
recommendation to improve this sector during our findings.
Key words: Investment Bank, Economic Growth.

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Role of Investment Banking in Bangladesh

INTRODUCTION

Ever since the passage of the Glass-Steagall Act, investment


banking has been narrowly defined as financial services associated with the
issuance of new securities. Investment bank is a financial institution that
helps individuals, organizations and governments to raise capital and money
by underwriting and acting as agent of clients issuing of securities. Unlike
commercial and retail bank, investment bank does not take deposits. This
banking system is concerned with the allocation of financial resources,
basically, how & why money is moved from those who have it (investors) to
those who need it (issuers). Thus, it plays an important intermediary role in
resource allocation.
Background:

In USA, the Glass Stegall Act (1933) imposed a legal definition of


investment banking for the perseverance of strict legal separation between
the activities of investment and commercial banking. The definition of
investment banking has not been significantly changed since then though
the GlassStegall Act has been modified by the GrammLeachBliley Act
(1999). This last Act (1999) weakened the strict legal separation of activities.
In the year of 2008; it marks the bottom of the development of the
exceptional banking system since, in the course of the financial crisis, all
investment banks in US had to change into commercial banks. In general, in
the US definition activities of investment banks are closely tangled with
services relating to money market activities. This definition has been
implemented in the prevailing universal definition of this banking system in
academic literature.

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Role of Investment Banking in Bangladesh


At birth, Bangladesh came into an interest based banking
system, which was introduced here before when the nation was a part of
British Colony. Since its beginning Bangladesh saw a new tendency in
banking both at home and abroad. Investment banking was successfully
established in Egypt. After the Mit Ghamar Model, Naser Social Bank (NCB)
was in the process of establishment. During 1970s, Merchant Development
Bank (MDB) and a number of Merchant Banks at national levels were
recognized in the Merchant world. At home, the Merchant groups were
dynamically working for adoption of Islam as the complete code of life. They
found Investment banking in ready form of immediate opening. Two
professional bodies Merchant Economics Research Bureau (IERB) and
Bangladesh Merchant Bankers Association (BIBA) were taking practical
steps for completing training on Merchant Economics & banking to a group of
bankers and organizing some national & international seminars/workshops to
assemble local and foreign participants & attract investors to come forward
to establish Investment bank in Bangladesh.
There are several Investment (Merchant) Banks in Bangladesh

AB Bank

Eastern Bank

Agrani Bank

First Security Bank

AL- Arafah bank

HSBC

BDBL

IIDFC

Bank Al-falah

ICB

Bank Asia

Mercantile Bank

BASIC Bank

Mutual Trust Bank

City Bank

NCC Bank

Dhaka Bank

One Bank

DBBL

Social Islami Bank

EXIM Bank

Standard Chartered

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Role of Investment Banking in Bangladesh

Trust Bank

SIML

UCB

LBF LTD.

Uttara Bank

BRAC EPL

Fidelity Assets & Securities

GCML

Bay Leasing & Investment

IDLC

Origin of the Study:

The report has been prepared as a contentment of the part of the


BBA program as authorized by Department of Finance, Jagannath
University. The primary objective of this prospectus is to offer on the
job coverage to the student and an opportunity for alteration of
theoretical conceptions in real life condition. Students are positioned
in enterprises, organizations, institutions as well as development
projects.

Purpose of the Study:

As a financial sector, Real Estate has been contributing towards


the development of any economy for a long time and at the moment
it is considered as an important service industry in modern world.
Due to globalization and free market economy the industry is facing
saver competition. Most of the financial banks fail due to lack of
proper strategic planning. Thats why it is very necessary for
understanding how investment bank plays a role in economic growth.
Basically the study is conducted to expose the way of development in
this sector.

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Role of Investment Banking in Bangladesh

The goal of this study is to evaluate the contributions of


investment banking to the economy with a specific focus on the BD
economy. We study both the monetary benefits and the costs
stemming from investment banking.

The report emphases on investment banks as this part of


banking is mostly linked with financing companies as well as the
expansion and use of precise products to support the requirements of
private and professional clients. The calculation of benefits and costs
of investment banking has been directed from Asian perspective.

Objectives of the Report:

Broad Objective

Specific Objective

To complete my BBA degree it is a must.


To match my academic knowledge with the real industrial set up.
To enhance my adaptive quality with the real life situation.

To
To
To
To

know about Investment Banking (Merchant Banking).


analysis the overall economic growth in BD.
find out how investment banking plays important role on GDP.
have knowledge about investment banking services in BD.

Limitations of the Study:

During completing the report we have faced some limitations


that interrupt our goals. And these limitations are-

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Role of Investment Banking in Bangladesh

Basically investment bank is an American term that isnt introduced in

Bangladesh. So, appropriate information cant be found.


It is difficult to make a rich- information based report in a short time.
As Merchant banking isnt well established, proper empirical evidence
cannot be shown.

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Role of Investment Banking in Bangladesh

METHODOLOGY

The main aim of the research paper is to gain field level


experience in accordance with the theoretical knowledge from our
course instructor. But the bookish knowledge isnt enough to make
such a research paper. Thats why we have analyzed relevant data
from personal & secondary sources. In methodology process, the
data were collected from two sources.

Secondary Sources:

Due to shortage of data from primary sources, we have


prepared the report greatly based on the data from secondary
sources. We have collected data (Research Papers, Annual Report, &
Statistical Data) from various sources such as-

World Bank:

The World Bank provides several research papers on BD

economy which refers the different aspects, parameters & findings


on economic growth.

Bangladesh bank:

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Role of Investment Banking in Bangladesh


Bangladesh bank publishes some annual reports, research
papers, analysis paper related to GDP. These articles are used to
make the research paper.
Bangladesh Merchant bankers Association (BMBA):
It is an organization of the Merchant bankers in Bangladesh. The
main function of this organization is to control the overall merchant
banks according to Bangladesh Bank.
The Financial Express:
It is the leading financial analyst newspaper in Bangladesh. It
provides financial relevant articles, reports, research paper & so on.

Investment corporation of Bangladesh


Bangladesh bureau of Statistics (BBS)
Center for Policy Dialogue (CDP)
Wikipedia
Investopedia
Different Financial Newspaper articles such as The independent,

The Daily Star etc.


Webpage of different Investment banks such as BRAC epl, Mutual Trust
Bank, IIDFC, NDB etc.

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Role of Investment Banking in Bangladesh

INFLUENCES OF INVESTMENT BANKs Role

IN ECONOMIC DEVELOPMENT OF
BANGLADESH
(MERCHANT BANK)

Investment bank is one of the financial intermediaries which


basically sell securities & underwrite to issue the new equity share to
raise capital. Generally there are three types of services providing by
investment bank. At first it marks investment banks activities in
primary money markets which used by investors to collect financial
source by issuing shares & bonds. Secondly, it describes their trading
performance including buying & selling of securities. Finally, it
specifies the roles that investment banks play in monetary market
transportation, & in markets where financial institutions borrow and
lend cash or securities in transactions.

Investment banks play many roles in primary & secondary


markets, basically in three categories -

Underwriting Stocks & bonds

Equity debt financing

Mergers & acquisitions Advisory

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Role of Investment Banking in Bangladesh

Economic growth can be influenced by different parameters

which are known as Economic Determiners. They are

Gross

Domestic

Product(GDP)

Inflation
Employment
Infrastructure

Industrial Development
Political Economy etc.
Foreign Currency Reserve
Technology
Women Empowerment
Per Capita Income
Export

The economic determiners that is affected by


Investment Banks are-

Infrastructural Development & role of Investment Bank

Infrastructural improvement helps a country boost up its

economy by providing facility to use the public infrastructure by the business


organization thus enhancing productivity. Not only infrastructure itself
enhances the efficient production, transportation, and communication, but it
also helps providing economic incentives to public and private sector
applicants. The accessibility and quality of infrastructure of helps shape local
firms' investment decisions and determines the countrys attractiveness to
foreign investors. The developing world faces the more challenging task of
creating new transportation, communication, water, and energy networks to
accelerate economic growth, improvement in public health systems, and
reduce poverty. The investment bank helps the government to raise fund
from capital market to finance the infrastructural activities.

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Role of Investment Banking in Bangladesh

Construction of world-class infrastructure has been renowned as


a key importance essential condition to accelerate the growth
motion of Bangladesh. Though Bangladeshs current capital
market is not in an opposite state to support infrastructure
financing but this market is gradually maturing and has the
potential to address the current infrastructure project financing
limitation. By taking careful long term planning, its possible to
provide an exit method for infrastructure project promoters and
ensure

substitute

financing

channel

through

Bangladeshs

capital market. However, to reach that level, Bangladeshs


regulators need to take initiatives.

For improving energy efficiency of the country's industries the Asian


Development Bank (ADB) has signed a deal with the Industrial and
Infrastructure Development Finance Company Limited (IIDFC) to lend
US$ 6.0 million as loan. The agreement will pave the way for
improving energy efficiency and reducing greenhouse gas (GHG)
emissions in seven broad industrial sectors include steel, cement,
brick-making,

ceramics,

textiles,

chemicals

and

agricultural

industries in Bangladesh.

Role of Investment Bank in Primary Market

The primary market deals with issuing of new financial


securities. Companies, governments or public sector institutions
obtain funds through the sale of new securities like stock or
bond issues through primary market. These fund raising

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Role of Investment Banking in Bangladesh


activities are typically done through an investment bank or
merchant bank. The process of selling new issues to investors is
underwriting. For a new stock issue, this sale is an initial public
offering (IPO). Investment banks as dealers earn a commission
which is made into the price of the security offering, however it
can be found in the brochure. Primary markets create long term
instruments through which corporate entities borrow from
capital market.

Primary market issues securities for new companies to fund their

activities thus facilitating new entrepreneurs to innovate the new business


plan and creating employment opportunity. Government sometimes funds
their development projects through primary market by issuing securities
which

contributes

to

economic

development,

generation.

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GDP

and

employment

Role of Investment Banking in Bangladesh

Formation of capital in Bangladesh through the market is

insignificant compared to bank loans. Most businesses in Bangladesh fund


their activities bank borrowing and equity financing. The total fund collected
from the market is very low compared to bank financing.

Even though market activity has increased, the contribution of


the

capital

market

in

channeling

capital

for

industrial

development has been very low. But no of listed companies and


capital formation from primary market is increasing over times
and now government is trying to increase the activity of capital
market by providing incentives like 10% tax benefit in 2016 for
investment in primary market.
GDP Growth & Role of Investment Bank

Gross Domestic Product (GDP) is the market value of total


production of goods and services within a country in a specific
time period. It is usually calculated on a yearly basis. GDP is the
sum of all public and private consumption, government outlays,
investments and exports minus imports that occur within a
defined territory. It measures the overall economic activity of a
country.

Investment banks raise fund for the business corporations and


government through IPO which is used in production and
development

works

which

accelerate

the

GDP

growth.

Investment banks are also helping the business organization in


borrowing from the financial institutions by channeling and

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Role of Investment Banking in Bangladesh


advising the cheapest sources which also contribute big volume
production thus increasing GDP growth.

Bangladesh has recorded GDP growth in excess of 6 per cent for


almost 10 consecutive years. The country ranks 33rd in terms of
GDP Purchasing Power Parity and 44th in terms of nominal GDP.
The broad secretarial contribution to GDP is agriculture (19 per
cent), industry (30 per cent) and service (51 per cent). With the
attainment of self-sufficiency in food by way of contribution, the
exports doing well from our RMG sector and remittances from
our hard working Non Resident Bangladeshi workers abroad; the
major area of investment is infrastructural development. There
is a huge requirement of funds which can be raised from the
domestic sources. Capital market can play a pivotal role.

Debt-equity Financing & Role of Investment Bank

Business organizations often need to raise fund from debt or


equity financing for their expansion. Debt financing means
borrowing of fund that is to be repaid with interest. Equity
financing refers to collect funds by selling the interests of the
firm.

Investment banks provide advisory service whether the business


organization should go for debt or equity financing. It also
provides channel for debt or equity financing. They provide
advisory service based on the debt or equity ratio. Different
industry maintains different standard of debt equity ratio. Some
companies maintain more debt than equity. Debt equity ratio
affects the security of an investment.

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Role of Investment Banking in Bangladesh

Relation between Capital Market & Investment Bank

In this regard capital market acts as an intermediary to transfer


fund from people to who need the fund. This task is performed
by investment banks through selling securities in the capital
market after setting a price considering potential buyers.

In Bangladesh in 2015 DSE general index decreased 15.99


points or 0.35% to 4596.81 on December 2015 from 4592.33 in
the previous session. Looking back Bangladesh DSE general
index lost 231.2 points or 4.79%

during the last 12 months

from 4823.57 points in December of 2014. Historically the


Bangladesh stock market reached an all-time high of 891.51 in
December 2010 and a record low of 282.43 in October of 1991.

Market capitalization of listed companies (% of GDP) in


Bangladesh was last measured at 15.06% in 2012, according to
the World Bank. Market capitalization (also known as market
value) means the share price times the number of shares
outstanding.

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Role of Investment Banking in Bangladesh

No of listed companies and amount of fund raised from capital


market have increased over time. This fund raising activity was
executed with the help of investment bank which contributes the
higher productivity and higher GDP.

Generation

of

Employment

&

Role

of

Investment

Banking

The field of investment banking is mainly related to make a


suitable market for the firm who collects fund through selling
securities in the respective market. And no doubt it has a great
effect

in

generating

employment.

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Employment

and

Role of Investment Banking in Bangladesh


unemployment rate data is collected by the bureau of

statistics

of a country.

From the experiment we have noticed that In Bangladesh the


unemployment rate from 2004 to 2006 is 4.3%, from 2006 to
2008 is 5.1%, from 2008 to 2010 is 4.5%, from 2010 to 2012 is
4.5%, and from 2012 to 2014 is 4.3%. This rate decreased as
follows 4%, 4.5%, 4.1%, 4.15% &4.25% correspondingly. As
investment banks have increased over time in Bangladesh and
also contributed to capitalization thus facilitating in higher
production activities in the economy which are creating higher
employment opportunity.

Political Economy & Investment Banking

Political economy is the interplay between economics, law and


politics, and how institutions develop in various social and
economic

systems,

such

as

capitalism,

socialism

and

communism. Political economy investigates how public policy is


created and implemented in an economy. Though there exist
many political problems in developing Investment Banking in
Bangladesh but being some lucrative amenities of investment
banking in the economic development it is becoming more
popular day by day.

According to CPD report in FY 2014-2015 we find that about 60%


of the entrants made new investment though financial year
while the rest did not so because of being political instability.
Bank loan was not available. Yet they made immense progress in
the field of readymade garments, pharmaceuticals, medical
services, IT, jute, printing and publishing, light engineering,

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Role of Investment Banking in Bangladesh


plastic and construction sectors. Furthermore production growth
in FY wasnt very impressive with only 30% but mentioned 50%
and the rest 20% is regarded production slumped the respective
enterprises because of suitable finance source. The analysts
termed the existing 6% GDP is deliberated as Bangla Growth &
it considered Bangladesh needed Super Bangla Growth from 8%
to 10s%.
The

Small

&

Medium

Enterprise

(SME)

Sector

Development and Investment Banking

Small and Medium Enterprise (SMEs) sector is performing as


strong drivers of national economic growth through balanced
development in urban and rural areas. In Bangladesh SMEs
provide a satisfactory record over 98% of the industrial
establishments, 80% of total industrial employment, 25-30% of
gross

domestic

product

(GDP),

and

close

to

15%

of

manufacturing GDP. According to the provisional employment


figures (18.25 million) available from the 2013 Economic Census
of the BBS, the non-farm economic activities currently employ
over 30% of the country's total civilian labor force (56.4 million
as per 2010 labor Force Survey).

The Cooperation Agreement between National Small Industries


Corporation, Government of India and Industrial and Infrastructure
Development Finance Company Limited (IIDFC), Bangladesh has been
renewed for further 3 years at a simple ceremony held at IIDFC Office
in Dhaka on March 24, 2013. The agreement deals with learning and
sharing best practices in SME sector both in Bangladesh & India.
These include creating business incubation centers, demonstration &

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Role of Investment Banking in Bangladesh


training on technologies, sustainable business alliances between
enterprises in India and Bangladesh, setting up of technology parks
for SMEs. Such share of knowledge and experience will help
establishing direct linkage of SME entrepreneurs of both the countries
which will ultimately boost total trade and commerce.

Within a span of 7 years, MTB has secured two highly prestigious


awards: Women Entrepreneur Friendly Bank of the Year 2014 and
SME Bank of the Year 2014 at the SME Financing Fair-2014 organized
for the first time by Bangladesh Bank and SME Foundation jointly.

Role of Investment Banks in Loan Syndication

Syndicated Loan means loan offered by a group of lenders called


a syndicate who work together to provide funds for a single
borrower. The borrower may be a corporation, a large project, or
government.

Due to loan syndication risk sharing, innovative financial structuring


and meeting large financing requirement in diversified development
sectors have become possible. A common lender group involving
process also results in better appraisal of projects. Identifying the
demand and requirement of large funding, IDLC has been involved in
different loan syndication deals of various sectors since the year
2000. IDLC has risen around BDT 41.2 billion for 31 projects in
diverse sectors.

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Role of Investment Banking in Bangladesh

RECOMMENDATION

As it is not an emerged sector in Bangladesh, we have found out


some gaps & provided some recommendations for developing
this sector -

At present, there is no deposit insurance coverage for the depositors of


Investment Banks and it is recommended that the depositors be
brought under the umbrella of insurance coverage. The deposit
insurance system should aim at minimizing the risk of loss of
depositors funds with Investment Banks.

A more Investment friendly policy of Bangladesh Bank for Investment


Banks, more organization with Bank financial institution, and easy
procedures of reporting to Bangladesh Bank etc. will help in the growth
of Investment Banks.

The Investment Banks need to streamline their loan disbursement


methods with focus on low risk industrial segments and adopt better
monitoring mechanisms in order to reduce risks associated with their
assets.

Investment Banks are permitted to undertake a wide array of activities


and should therefore not restrict themselves to a restricted number of
products only. Diversifying the product range is a strategic challenge
for Investment Banks in order to become competitive in the rapidly
growing market.

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Role of Investment Banking in Bangladesh

Dynamic participation of merchant banks is crucial to accelerate the


capital market activities that can accelerate the economic growth of
the country.

An integrated products

and services management system can

strengthen the role of FIs in developing, redesigning, offering and


marketing of existing as well as new financial products and services in
more prudent way.

Clientele protection can be enhanced by ensuring the availability of


information, proper understanding, and regular feedback.

Government should formulate investment banking friendly rules and


regulation to facilitate the industry to boost up to meet up the required
fund for productive sectors.

Innovative products should be introduced so that new investors are


interested to this sector.

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Role of Investment Banking in Bangladesh

CONCLUSION

Not all financial innovation can be benefited in perspective to


economy of Bangladesh. This will take long period of time and
regulation from Bangladesh Bank Investment bank plays an
important role in transferring or supplying the financial surplus
of the economy into productive investment sectors. Thus before
selecting an investment banker, one must decide financial
services for which he is being moved toward. Choosing the right
intermediary who has the essential skills to achieve the
requirements of the client will make sure success. It can be said
that this report helped us to understand every details about
Investment Banking and in future how its going to get wellsettled in Bangladesh economy. Thats why Investment Banking
can be considered as essential financial body in BDs financial
system. Market development is forecasted on a sound, fair and
transparent regulatory framework. To continue the growth of the
market and shape up the growing awareness & interest into a
committed, discerning sector, several steps is needed to remove
the trading malpractice and structural shortage prevailing in the
market & provide the investors an organized, well regulated
market in Bangladesh.

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Role of Investment Banking in Bangladesh

REFERENCE

John F. Marshall, M. E. (2013-14). Investment Banking & Brokerage.


McGraw-Hill

BRAC EPL. (2016). Retrieved from www.bracepl.com:


http://www.bracepl.com/investments/structured-finance/loansyndication

Bangladesh Bank. (n.d.). Retrieved from http://www.bb.org

Dialauge, C. F. (n.d.). Center for Policy Dialogue (CDP), Press report on


the media briefing on state of the Bangladesh Economy in fiscal year
2015, 3rd January 2015, the financial Express. The Financial Express.

Financial Express. (n.d.). Retrieved from http://old.thefinancialexpressbd.com/2014/08/02/48121#sthash.nyARejBv.dpuf

Financial Express. (n.d.). Retrieved from http://old.thefinancialexpressbd.com/2014/11/01/63882/print

IIFDC. (n.d.). Retrieved from http://www.iidfc.com/news

Investment Corporation of Bandladesh. (n.d.). Retrieved from


http://www.icb.com

Mutual Trust Bank. (n.d.). Retrieved from


http://www.mutualtrustbank.com/sme/

The Daily Star. (n.d.). Retrieved from


http://www.thedailystar.net/syndication-financing-in-bangladesh-pastpresent-and-beyond-16882

The Daily Star. (n.d.). Retrieved from


http://www.thedailystar.net/syndication-financing-in-bangladesh-pastpresent-and-beyond-16882

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Role of Investment Banking in Bangladesh

Trade Economics. (n.d.). Retrieved from


http://www.tradingeconomics.com/bangladesh/market-capitalization-oflisted-companies-percent-of-gdp-wb-data.html

Trade Economics. (n.d.). Retrieved from


http://www.tradingeconomics.com/bangladesh/market-capitalization-oflisted-companies-percent-of-gdp-wb-data.html

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