Investment banks, Banking, Scopes and Future

in Bangladesh
 Term Paper

On

Investment banks, banking, scopes and future in

Bangladesh
Course Name: Investment Banking & Lease Finance course
Course Code: FIN-4103

Prepared for:

Md. Khaled Bin Amir

Lecturer

Faculty of Business Studies

Bangladesh University of Professionals

Prepared by:

Syeda Mishma Shawkat ID – 16221019

Md. Mehadi Hassan Bappy ID – 16221021

Debanik Chakraborty ID – 16221025

Syed Ishtiaque Uddin Ahmed ID – 16221031

Tahsin Fariha ID - 16221043

Section: A

Department of Business Administration in Finance & Banking.

Date of Submission: 2nd May, 2019

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 Letter of Transmittal

2nd May, 2019

Lecturer
Md. Khaled Bin Amir
Department of Business Administration in Finance & Banking
Faculty of Business studies
Bangladesh University of Professionals

Subject: Submission of term paper on “Investment banks, banking, scopes and future in
Bangladesh”

Respected sir,

With due respect, we would like to present you our term paper on “Investment banks, banking,
scopes & future in Bangladesh” for Investment Banking & Lease Finance course (Course Code:
FIN4103). It was a learning experience as it has developed our analytical ability and extended our
knowledge. We have provided our sincere effort to create this term paper with all the information
we thought to be significant. We have tried to comply with all the prerequisites of making this
report.

We earnestly hope that this term paper will meet your specifications and satisfy you.

Sincerely Yours,
Signature Date
Syeda Mishma Shawkat (ID:16221019)
Md. Mehadi Hassan Bappy (ID:16221021)
Debanik Chakraborty (ID:16221025)
Syed Istiaque Uddin Ahmed (ID:16221031)
Tahsin Fariha(ID:16221043)

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 Acknowledgement

It gives us immense pleasure and satisfaction in submitting this report on “Investment banks,
banking, scopes & future in Bangladesh” as a part of Investment Banking & Lease Finance course.
This paper was very knowledgeable and helped us in so many ways.

We wish to express our sincere gratitude to Lecturer Md Khaled Bin Amir, our course instructor,
who never denied in lending his helping hand to prepare this term paper. His proper guidance and
lecture on the related topics allowed us to work more easily. It would not be possible without his
proper direction and specifications.

We would like to thank our families who helped me a lot in gathering different information,
collecting data and guiding us from time to time in making this term paper a success and for
encouraging and supporting us.

Lastly, we also express our sense of gratitude to everyone, who directly or indirectly, has lent
his/her helping hand while preparing this term paper. We are really grateful to all of them for
supporting and helping us.

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 Executive Summary

Bangladesh is a developing country. To develop economically and to fulfill the aim to promote
to developed countries we need to get strong economically. Banks and Investment banks play
vital role to develop our economy. Bangladesh is introducing the use of investment banks but the
area of functions is narrower. In this paper we will discuss about the banking system of
Bangladesh, along with the situation and performance of Investment Banking industry and scope
of innovation new strategies in the future. In chapter 1, a brief introduction along with research
questions and objective is stated. Chapter 2 is deigned with literature review. In chapter 3, we
have stated the methodology section and after that total section is divided into 3 sub section as
data collection, data sourcing and data analysis. The findings are described in chapter 4. Further
fields of research are described in chapter 5 and lastly the conclusion is at chapter 6.

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 Table of Contents
Chapter – 1 ...................................................................................................................................... 7

Introduction ................................................................................................................................. 7

1.1. Justification of the Study ...................................................................................................... 8

1.2. Research Question ................................................................................................................ 8

1.3. Research Objective ............................................................................................................... 8

1.4. Limitation of the study ......................................................................................................... 8

Chapter - 2....................................................................................................................................... 9

Literature Review ........................................................................................................................ 9

Chapter - 3..................................................................................................................................... 11

Methodology ............................................................................................................................. 11

Data Collection .......................................................................................................................... 12

List of Merchant/Investment Banks in Bangladesh (according to BSEC) ................................ 15

Current laws, Rules and Regulations for Investments banks .................................................... 19

Established Guidelines .............................................................................................................. 19

A few Recent Rules and Amendments:..................................................................................... 20

Role of Investment Banking in the Economic Development of Bangladesh ............................ 21

Examples of Investment Banks in Bangladesh ......................................................................... 23

Data Analysis ................................................................................................................................ 26

Scope of Investment Banking: .................................................................................................. 26

Investment Banking in Other Developing Countries versus Investment Banking in Bangladesh:

................................................................................................................................................... 28

Obstacles towards the development full-fledged investment banks in Bangladesh: ................ 31

Developed country’s Investment banks as role model .............................................................. 33

Investment banking segment is composed of ............................................................................ 33

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 Innovation and New Scope for Investment Bank in Bangladesh .............................................. 34

Chapter – 4 .................................................................................................................................... 37

Findings………………………………………………………………………………………33

Chapter – 5 .................................................................................................................................... 39

Further Scope of the study ........................................................................................................ 39

Chapter – 6 .................................................................................................................................... 40

Conclusion................................................................................................................................. 40

References ..................................................................................................................................... 41

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 Chapter – 1
Introduction

Bangladesh Bank the central bank as well as chief authority to regulate the state's monetary and
financial system, was established in Dhaka 1972 with effect from 16th December, 1971.
Bangladesh Bank started functioning with all capital and liabilities of Dhaka branch of State
Bank of Pakistan. At present, there are 57 banks in Bangladesh: 40 local private banks, nine
foreign and eight state-owned.

Investment banking is a specific division of banking related to the creation of capital for other
companies, governments and other entities. Investment banks underwrite new debt and equity
securities for all types of corporations, aid in the sale of securities, and help to facilitate mergers
and acquisitions, reorganizations and broker trades for both institutions and private investors.
Investment banks also provide guidance to issuers regarding the issue and placement of stock.

Investment bankers help their clients raise money in capital markets by issuing debt or selling
equity in the companies.

Investment banking is one of the most important organ of a countries financial structure and play
crucial role in the development of a country. In this capitalist world a countries development
depends upon the amount of investment it’s creates to develop its economy. Bangladesh
economic development also depends greatly on it. As Bangladesh is a developing country and its
want to be a middle-income country within year 2021 it needs a great support from investment
banking.

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1.1. Justification of the Study

This study will help us to know about the true nature of our banking sector as well as investment
banks. This study of discussion will give us through knowledge about the banking industry
performace. It will also tell us the condition of investment banks and their role of those banks in
the economic development of our country. we will find scope and further innovation ideas to
improve. All the above-mentioned things to be done in this paper seems very important. Thus,
this paper is very justified to be done on this topic.

1.2. Research Question

What is the present condition of investment banking sector and their contribution in bangladesh?

Performance evaluation with respect to developing countries, scope and future prospects in
Bangladesh.

1.3. Research Objective

❖ To find out the performance of banking industry

❖ To find out the present condition if investment banking sector
❖ To find out the contribution of investment banks in economic development of Bangladesh
❖ To find out the comparison with other developing country’s investment banks.
❖ To find out the countries need to be followed
❖ To find out scope of innovation to develop in future.

1.4. Limitation of the study

Though we have provided our utmost effort & the topic itself was pretty interesting, due to time
constraint and data unavailability, we faced some limitation during preparation of this report.

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 Chapter - 2
Literature Review
Bank - A bank is a financial institution licensed to receive deposits and make loans. Banks may
also provide financial services, such as wealth management, currency exchange, and safe deposit
boxes. There are two types of banks: commercial/retail banks and investment banks. In most
countries, banks are regulated by the national government or central bank. (Investopedia, 2018)

Investment Bank - Investment banking is a category of financial services that specializes

primarily in selling securities and underwriting the issuance of new equity shares to help
companies raise capital. Investment banking is different from commercial banking, which
specializes in deposits and commercial loans. (answers, 2019)

Role of Investment Banks - Investment bankers help their clients raise money in capital markets
by issuing debt or selling equity in the companies. Other job duties include assisting clients with
mergers and acquisitions (M&As) and advising them on unique investment opportunities such as
derivatives. (Investopedia, 2018)

Commercial Bank - A commercial bank is a financial institution which performs the functions
of accepting deposits from the general public and giving loans for investment with the aim of
earning profit. ... They generally finance trade and commerce with short-term loans. (Singh,
2018)

Merchant Bank - A merchant bank is a company that conducts underwriting, loan services,
financial advising, and fundraising services for large corporations and high net worth individuals.
Unlike retail or commercial banks, merchant banks do not provide services to the general public.
They do not provide regular banking services like checking accounts and do not take deposits

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Investment Banking vs. Commercial Banking

The main difference between investment banking and commercial banking is that investment
banking typically deals with purchasing and selling bonds and stocks for companies, and also
helping them issue IPOs, while commercial banks primarily deal with deposits or loans for
companies or individuals.

So, basically, investment banks deal with trading securities, whereas commercial banks do not.

However, there are still several other key differences between investment banking and
commercial banking that have to do with regulation, risk level, and benefits. (answers, 2019)

Merchant Banking vs. Investment Banking

BASIS FOR MERCHANT BANK INVESTMENT BANK

COMPARISON
Meaning Merchant Bank implies a banking Investment Banks are the middleman
institution, that fulfills capital between the issuer of securities and
requirements of the companies in the investing public, and also
the form of share ownership, rather provides various financial services to
than granting loans. the clients.
Deals with International financing activities Underwriting and issuance of
securities
Based on Fee based Fee based and fund based
Trade financing Offered to the clients Rarely provided
Deals with Small companies Large companies
(S, 2018)

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 Chapter - 3
Methodology

As we had been assigned to conduct a research regarding “Investment banks, banking, scope and
future in Bangladesh”, we conducted this research in the following way.

It is compulsory to collect and analyze data to prepare a report. The data that are needed to prepare
a report can be collected from either primary sources or secondary sources. Again, these data can
be either qualitative or quantitative. This report is mostly prepared by the secondary sources of
evidence and some rare primary sources of information. The research was an empirical approach
and data gathering and study are qualitative in nature. Internet has been widely used since we are
living an age of technology and internet is a full of information which help us in an effective
manner to prepare our report efficiently.

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 Data Collection
Merchant Banks/ Investment Banks are operating in Bangladesh under license from Bangladesh
Securities and Exchange Commission (BSEC). The main functions are mainly:

(i) Underwriting IPOs:

(ii) Managing new issues

(iii) Right issue

(iv) Corporate advisory

(v) Structured finance

(vi) Portfolio management

Bangladesh Merchant Bankers Association:

Bangladesh Merchant Bankers has an Association (Bangladesh Merchant Bankers Association)

which was formed under the companies’ Act 1994 and registered with the Registrar of Joint
Stock Companies on 9th November’ 2004. Association is a member of the Federation of the
Bangladesh Chamber of Commerce & Industry (FBCCI).

The functions of merchant banking are listed as follows:

1. Raising Finance for Clients: Merchant Banking helps its clients to raise finance through
issue of shares, debentures, bank loans, etc. This finance is used for starting a new business or
project or for modernization or expansion of the business.

2. Giving Advice on Expansion and Modernization: Merchant bankers give advice to their
clients for expansion and modernization of the business units. They help their clients through
giving expert advice on mergers and consolidations, acquisition and takeovers, diversification of
business, foreign collaborations and joint-ventures, technology up-gradation, etc.

3. Helping in Project Management: Merchant bankers help their clients in the many ways.
Like advising about facility location although it is rare in our country, preparing a project report,

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conducting feasibility studies, making a plan for financing the project, finding out sources of
finance, advising about concessions and incentives from the government

4. Special Assistance to Small Companies and Entrepreneurs: Merchant banks help their
clients by giving advise small companies about business opportunities, government policies,
incentives and concessions available. It also helps them to take advantage of these opportunities,
concessions, etc.

5. Managing Public Issue of Companies: Merchant bank advice and manage the public issue of
companies.

• They provide following services:

• Advise on the timing of the public issue.
• Advise on the size and price of the issue.
• Acting as manager to the issue, and helping in accepting applications and allotment of
securities.
• Help in appointing underwriters and brokers to the issue.
• Listing of shares on the stock exchange, etc.

6. Handling Government Permission for Industrial Projects: A businessman has to get

government permission for starting of the project. Similarly, a company requires permission for
expansion or modernization activities. For this, many formalities have to be completed.
Merchant banks do all this work for their clients.

7. Provide Services to Public Sector Units: Merchant banks offer many services to public
sector units. They help in raising long-term capital, marketing of securities, foreign
collaborations and arranging long-term finance from term lending institutions.

8. Corporate Restructuring: It includes mergers or acquisitions of existing business units, sale

of existing unit or disinvestment. This requires proper negotiations, preparation of documents
and completion of legal formalities. Merchant bankers offer all these services to their clients

9. Portfolio Management: A merchant bank manages the portfolios (investments) of its clients.
This makes investments safe, liquid and profitable for the client. It offers expert guidance to its
clients for taking investment decisions.

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10. Leasing Services: Merchant bankers also help in leasing services. Lease is a contract
between the lessor and lessee, whereby the lessor allows the use of his specific asset such as
equipment by the lessee for a certain period. The lessor charges a fee called rentals.

11. Money Market Operation: Merchant bankers also helps in dealing with and underwrite
short-term money market instruments, such as:

♠ Government Bonds.
♠ Certificate of deposit issued by banks and financial institutions.
♠ Commercial paper issued by large corporate firms.
♠ Treasury bills issued by the Government.

12. Management of Interest and Dividend: Merchant bankers help their clients in the
management of interest on debentures / loans, and dividend on shares. They also advise their
client about the timing (interim / yearly) and rate of dividend.

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 Data Sourcing
List of Merchant/Investment Banks in Bangladesh (according to BSEC):

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Current laws, Rules and Regulations for Investments banks:

The capital market of Bangladesh is going through a period of transition. Its eco-system is
gradually developing. The main key reason of having a regulator is to keep the field fair for the
issuers, brokers, investors and other relevant parties. As such, a new rule is enacted or an
amendment of the older rule is prescribed every other day. BSEC (Bangladesh Securities and
Exchange Commission) generally makes and regulates these rules and regulations in Bangladesh.
Some rules are enacted with a view to strengthening the existing environment of the capital
market, while the others are enacted as an immediate response to the market condition.

Being the overall guardian of the financial system, Bangladesh Bank also passes laws and rules,
which generally holds utmost importance in the market. In the most recent times, some rules and
guidelines have dramatically changed the nature of game.

Established Guidelines:

There are a series of past guidelines, rules and ordinances which needs to be examined and re-
examined in light of the prevailing environment of the market:

i) Asset-backed Security Issue Rule – 2004

ii) SEC (Mutual Fund Ordinance) – 2001

iii) SEC (Stock-dealer, stock-broker and authorized representative) Ordinance – 2000, SEC
(Market maker) Ordinance – 2000

iv) SEC (Merchant Bank and Portfolio Manager) Ordinance – 1996

v) Margin rules – 1999

vi) SEC (Prohibition of insider-trading) Regulation – 1995

vii) SEC (Security Custodial Service) Ordinance – 2003

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A few Recent Rules and Amendments:
Alternative Investment rule (2015):

Set up the foundation for establishing venture capital fund, private equity fund and impact fund
in our country, this rule seems adequately detailed right now. But, it will require amendments
with the pace of time in order to fit into the real business model.

Amendment of Public issue rule (2006):

The Public Issue Rule has been amended and it has set the basic guideline for properly pricing
IPOs and the allocation of IPOs to the respective parties. Namely

i). The provision under para (5) of sub-clause (b) of Clause (16) of the sub rule "B" under rule 8
shall be replaced by the following new provision, namely: "Provided that premium on public
offering shall not exceed the amount of premium charged on shares issued (excluding the bonus
share) within immediately preceding one year" (notification was given on 24th July, 2008.)

Amendment of Capital Issue Rule (2001):

According to the Securities and Exchange Commission, the issue of capital in Bangladesh by the
listed companies should be subject to certain further conditions in the interest of the investors
and the capital and securities market. The following are the further conditions to the consent
already accorded by it to the listed companies:

The security (except debt security without conversion feature, including the equity security)
issued in part or in full against any convertible security by a listed company. shall be subject to a
lock in of:

(a) 3 years in case of directors and those who hold 5% or more shares

(b) 1 year in case of others, from the date of issuance of such security, or from the date of
issuance of consent, whichever is later. (given on July 9th, 2009.)

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Role of Investment Banking in the Economic Development of Bangladesh

Investment banking is one of the most important organs of a countries financial structure and plays
a crucial role in the development of a country. In this capitalist world a countries development
depends upon the amount of investment it creates to develop its economy. As Bangladesh is a
developing country and it wants to be a middle-income country within year 2021, it needs a great
support from investment banking.

• GDP Growth and Investment banking:

Gross Domestic Product (GDP) is the market value of total production of goods and services within
a country in a specific time period. 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 accumulate fund for the
business corporations as well as government through IPO which is used in production and
development works and that accelerates the GDP growth. Investment banks are also helping the
business organization in borrowing from the financial institutions by channeling and advising the
cheapest sources which also contribute big volume production, thus increasing GDP growth.
Bangladesh ranks 33rd in terms of GDP purchasing power parity and 44th in terms of nominal
GDP. With the attainment of self-sufficiency in food by way of contribution, the exports doing
well from our RMG sector and remittances from our non-resident Bangladeshi workers abroad;
the major area of investment is infrastructural development. There is a vast requirement of funds
which can be raised from the domestic sources. Capital market can play a pivotal role.

• Infrastructure development and Investment Banking:

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. Investment banks help the government to accumulate
fund from capital market to finance the infrastructural activities. Establishment of world-class
infrastructure is essential to accelerate the growth motion of Bangladesh. Bangladesh’s current
capital is gradually maturing and has the potential to address the current infrastructure project
financing limitation. By taking careful long-term planning, it’s possible to provide an exit method

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for infrastructure project promoters and ensure substitute financing channel through Bangladesh’s
capital market. However, to reach that level, Bangladesh’s regulators need to take initiatives.

• Employment and Investment Banking:

The field of investment banking is largely related to make a suitable market for the firm who
collects fund through selling securities in the respective market. And undoubtedly it has a great
effect in generating employment. 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%, from
2012 to 2014 is 4.3%. As of 2018, the unemployment rate is 4.8%. As investment banks have
increased over time in Bangladesh and contributed to capitalization thus facilitating in higher
production activities in the economy which are creating higher employment opportunity.

• Loan Syndication and Investment banking:

Syndicated 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. Because of loan syndication, activities such as risk sharing, innovative financial
structuring and meeting large financing requirement in diversified development sectors have now
become possible. A common lender group involving procedure also results in better assessment 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.

• SME Sector and Investment banking:

At present, economic growth in Bangladesh SMEs sector plays a crucial part. Investment banks
are disbursing notable amount of credit under various programs such as Small Enterprise
Development Project, Self-help Credit Program, and Projects for Small Entrepreneurs, Special
Investment Program and Agro-based Supervisory Industrial Credit etc. for the promotion and
development of SMEs. During year 2011-12, Small industry’s portion of GDP at constant price
was 5.26 percent which was 4.60 percent in 2001-2002. It was found that small scale industry’s
portion of GDP at constant price was growing from the year 1999-2000 to 2011-2012 except the
year 2010-2011. It can contribute more in upcoming years. Its predicted that it will contribute a

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greater role in achieving vision 2021and investment bank play vital role in the development of this
sector.

Though Bangladesh is not very developed in investment banking, it’s doing well and contributing
to our country’s economic growth. It will contribute more if government take necessary initiative
and establish specialized investment banks to operate such activities with more importance.
Investment banking activities also need to be monitored closely by a regulatory body and
Bangladesh needs to use this sector to generate more sustainable investment for economic welfare.

Examples of Investment Banks in Bangladesh

An investment bank plays a vital role in any capital market of the developed world and it has a lot
of activities. But in Bangladesh, it is still in the stage of development. In Bangladesh, investment
bank mainly performs four kinds of activities. They are-(i) Issue management (ii) Underwriting
(iii) Portfolio management and (iv) Corporate advising. A few of the leading investment banks of
our country are mentioned here.

• IDLC Investments Limited:

IDLC Investments Limited is a separate subsidiary of IDLC Finance Limited. IDLC Investments
Limited helps the corporation seeking for funds and individuals seeking opportunities to invest
their fund in different securities. As an issue manager and underwriter, IDLC is assisting large
companies to issue share in to the market which increase the supply of the securities. It is also
imparting order placement service which helps the investor to take quick decision and execute the
trade. With remarkable growth in its business and profit over the last few years, IDLCIL has
consistently demonstrated exemplary corporate governance and strict statutory compliance and is
a standard representative in this regard in the financial sector of Bangladesh. Their products and
services include-

(a) Issue management: Under this activity, IDLCIL plans, coordinates and control the
entire issue activity of clients and direct other agencies for successful marketing of
securities.

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 (b) Underwriting: When the existing shareholders or the general public do not subscribe to the
securities offered to them by an issuing company, IDLCIL makes an absolute commitment
with the issuing company to subscribe to their securities.
(c) Private placement: IDLC places the shares/debenture with both domestic and overseas
investors on private placement basis
(d) Trusteeship management: They act as trustee for the debenture holders by accepting
security created by the company and taking action to safeguard their interest and enforce
their rights.
(e) Initial Public offering: (IPO) of common stock, preferred stock, debentures etc.
(f) Bridge loan financing: This refers to short-term finance in anticipation of immediate long-
term financing such as public issue, private placement, syndication, loan, lease, debenture,
etc.

• EBL Investments Limited:

Eastern Bank Limited’s capital market operations are conducted by EBL Investments. It is a fully
owned subsidiary of Eastern Bank. EBL Investment capitalizes the huge growth potential therein
and diversifies the business to maximize the risk adjusted return. They make investment in the
capital markets and contributes towards fee-based income and capital gains by taking acceptable
level of risk. EBLIL, within a very short span of time, has been active in doing the followings:

(a) Managing own portfolio

(b)Participation in Pre-IPO Placements

(c)Participation in Book-Building Process

(d)Sponsoring Mutual Funds

(e)Trustee Services

(f)Acting as Main Banker for IPO

(g)Acting as Banker to the Issue

(h)Participation in IPO Underwriting.

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The team of treasury and investment banking operations of EBL has been functioning
independently to render high quality services of product solutions related with treasury, investment
banking and other wholesale operations, e.g., syndication, corporate and SME refinancing
activities etc. A noteworthy fact is that EBL is one of the most active participants in the securities
market operations in Bangladesh.

• LankaBangla Investments Limited:

LankaBangla Investments Limited (LBIL) is a fully owned subsidiary of LankaBangla Finance

Limited which is one of the leading NBFIs in Bangladesh. LBIL is involved in providing
investment banking services and investment management services for its clients. LBIL has
positioned itself prominently in investment banking through its wide range of investment banking
product services and broad client base. Their services include:

(a) Bond Issuance: They provide debt financing arrangement through issue management and
subscription arrangement of wide range of fixed income securities such as coupon bond,
zero coupon bond, asset backed securities, listed/non-listed debt instruments and other
modes of debt instruments.
(b) Corporate advisory services: They work to serve clients on a broad range of corporate
finance issues and structured solutions.
(c) Mergers and Acquisitions: They extend advice on a thorough range of transactions,
including mergers, sells, acquisitions, leveraged buyouts, raid defenses, spin-offs,
divestitures and other restructuring.
(d) Alternative financing: The investment banking team of LBIL helps its clients to identify,
evaluate and tap investment and exit opportunities, while leading all aspects of deal
structuring and negotiations. The team also gives independent advisory services to unlisted
& listed companies looking to raise capital from funds.

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 Data Analysis
Scope of Investment Banking:

In the Bangladesh context, financial institutions that carry out some distinct activities are being
addressed as merchant banks. The core functions of merchant banks in Bangladesh include issue
management, underwriting and Portfolio management services. The securities and exchange
commission, based on SRO No 59 of 24 April 1996, and a decision taken by it on 17 August 1997,
invited letters of intent from 14 institutions for registration of merchant banks. Presently, a total of
50 merchant banks are operating in the country, and their aggregate paid-up capital amounts to
about Tk 36 billion. Among them 43 are full-fledged merchant banks. Merchant banks in
Bangladesh are actively governed by the Securities and Exchange Commission (SEC) and
submissively by the Bangladesh Bank. Investment banks act as intermediaries between issuers and
investors. The issuer sells securities to investment bankers who in turn sell the securities to
investors. The investment banks own the securities until they are resold. For firms seeking to raise
long-term funds, investment banks in Bangladesh provide assistance through a number of
functions that involves.

Issue Management function of merchant Banking helps capital market to increase the supply of
securities and companies to raise money from the market in order to expand their operations. A
Issue Manager provides assistance when a Private Limited Company intended to be converted into
Public Limited Company by way of obtaining necessary permission from the relevant authorities,
preparing prospectus for public issue of shares and money, inspection of applications, arranging
for lottery relating to allotment and so forth. The other important function of Merchant Bank is
underwriting operation. It is an arrangement whereby the underwriter undertakes to subscribe the
unsubscribed portion of shares/debentures offered by any Public Limited Company. This
encourages the prospective issuers to offer shares/debentures to the public for subscription and
they can raise fund from the public for implementation of their industrial undertakings.
Underwriters take on the risk of distributing the securities. If they fail to find enough investors,
they will have to hold some securities themselves. Underwriters make their income from the price

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difference between the price they pay the issuer and what they collect from investors or from
broker-dealers who buy portions of the offering.

A prime function of Merchant Banks is providing portfolio management services. Management of

a portfolio is the process of selecting asset classes and their weights in the portfolio, maintaining
diversification, executing trades, keeping records, researching, borrowing for leveraging return
etc. This process is quite dynamic and requires instant adjustments when the market patterns shift
to new directions. Merchant banks also performs other important services, like- Corporate
Advisory.

In Bangladesh a Merchant bank is said to be a full-fledged merchant bank that performs all the
aforementioned activities covering Issue Management, Underwriting, and Portfolio Management
and providing Corporate Advisory Services. BRAC EPL Investments Limited is one of the full-
fledged merchant Banks of Bangladesh that delivers a whole range of Investment Banking services
including traditional merchant banking activities such as Issue Management, Corporate Advisory,
Corporate Finance, Underwriting and Portfolio Management. IDLC Finance is another leading
full-fledged merchant Bank of Bangladesh commencing its Merchant Banking operations backs in
1999.

One of the major investment banks in Bangladesh, the Investment Corporation of Bangladesh
(ICB), plays a leading role in developing the capital market in the country. Major functions of ICB
include Merchant Banking operations and operations of unit funds and mutual fund. They are
contributing a lot for the development of investment banks in BD. But still, the investment bank
industry of Bangladesh is not that much developed like the same industry of other developing
countries. Why our industry is less developed or under-performing than the investment bank
industry of other underdeveloped-developing countries, whom we should follow to develop our
own industry & future prospects of our investment bank industry will be discussed later.

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Investment Banking in Other Developing Countries versus Investment
Banking in Bangladesh:

There are many developing countries who have investment banks. Bangladesh being a developing
country, has a lot of investment banks but almost none or very few of them are full-fledged. Most
of them are either merchant banks or branch of Non-bank financial institutions or advisory
institutions. We badly are in need of pure investment banks.

Pakistan being one of our neighboring countries, and being close to us on economic performance,
has almost 8 full-fledged investment banks currently. There are many commercial & specialized
banks in Pakistan like- ABN AMRO, Askari Bank Ltd, Bank AL Habib Ltd., Bank Alfalah, Bank
of Tokyo-Mitsubishi Ltd., BMA Capital Management Limited, Citibank, Emirates Bank etc. who
have their investment banking branches all over the country. But there are 8 banks currently in
Pakistan who are completely investment banks (only perform investment banking activities), these
are,

Domestic:

1) Al Towfeek Investment Bank Ltd

2) Ammar Investment Bank Ltd

3) AMZ Securities

4) Atlas Investment Bank Ltd

5) Jehangir Siddique Investment Ltd.

Foreign:

6) Deutsche bank

7) Escorts Investment Bank Ltd

8) Fidelity Investment Bank Ltd

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The stock market of Pakistan is better than that of Bangladesh. Pakistan Stock Exchange (PSX)
has a total market capitalization of 72 billion USD, whereas Dhaka Stock Exchange (DSE) has
47.34 billion USD. In the following graph we can see the growth of the number of full-fledged
investment banks year to year with the growth of stock market (Market Cap & Number of stock)
in Pakistan.

Relation between Stock Market Growth & Investment Bank

Growth in Pakistan
80

70

60

50

40

30

20

10

0
1990 2000 2010 2019

Market Cap (In Billion) No of Stocks (In decimals) No of Investment Banks

From here we can understand that how much the capital market can influence the growth of full-
fledged investment banks. We can see here year to year Pakistani stock exchange’s “market cap”
& “no of stock enlisted” increased & with that “the number of investment banks” also kept
increasing. So growth & expansion of capital market highly impacts the growth of investment
banking.

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This is one of the major reasons why we don’t have a minimum number of full-fledged investment
bank in our country, as our stock market is not that much developed one, efficient one, organized
one or focused one.

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Obstacles towards the development full-fledged investment banks in
Bangladesh:

1) Ineffective Capital Market:

The most vital reason is that our capital market or stock market is very inefficient,
unorganized, narrow and vulnerable. More company participation is necessary in stock
exchange, or public limited companies are necessary. When the stock market of a country
is inefficient, the investment banking cannot develop in that country.
2) Reluctance of the corporations to go for IPOs:
The Bangladeshi corporations are more depended on the money market, financial
institutions for financing rather than capital market. They reluctant towards publicly
issuing securities. There are many reasons for that, like ease in money market financing,
ease in private financing than public, complicacy of public issue, creation of liability to the
public, ease in defaulting loans on money market, reluctance to share internal information
publicly etc. So as the corporations has reluctance towards IPO, the investment banks,
whose main purpose is underwriting securities, are not developing to the expectation.
3) Bad Influence of the Underwriter Syndicates:
Bangladesh Stock Market does not follow a logical pattern. The prices of the stock, market
index is highly influenced by the underwriter syndicates. It’s a union of personal
underwriters, who creating fake or excess demand & supply pressure in the market can
highly influence the stock price. Due to their influence, autonomy the investment banking
cannot develop a lot.
4) Lack of the Development of Venture Capital Investment:
Unlike developed countries or many other developing countries, Bangladesh does not have
many venture capital fund available. Even in Pakistan, their investment banks are
performing venture capital in big scale where-as in Bangladesh a few institution introduced
it in a small scale. Venture capital is a vital part of investment bank, without development
of venture capital industry, the investment banking can also not flourish a lot in an
economy.

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 5) Lack of a Developed Derivative market:
Bangladesh Capital Market is very vulnerable. We already faced two big crashes of capital
markets in the last two decades. These crashes are not very usual in other developed
countries. We know that derivative market is very sensitive. The stock market of
Bangladesh is not yet ready to welcome derivatives, as it is very vulnerable. In addition to
that, the stock market experts in Bangladesh are not yet that expert on derivatives.
Derivatives is a significant tool played by investment banks. Lack of development of
derivative market can also be termed as another reason of weak industry in Bangladesh.
6) Lack of Emphasis on the Capital Market Research:
Bangladesh Government, Finance Ministry, Corporations, Brokers and Investors no one is
at all interested on the research of capital market in Bangladesh. When a company goes for
IPO, they do not look for very expert research rather they focus on their initial stock price
to be placed properly & subscription of their stocks. So, need for expert investment banks
are not that much available in Bangladesh. Because investment bank is very good at doing
capital market research, emphasis of capital market research can develop the need for
expert investment banks.

These are few reasons why; Bangladesh is lagging behind the other developing countries in case
of investment banking. Mitigation of these issues can thrive the development of investment
banking in our country.

Annex: Table-1.1

Year Market Cap (in billion No of Stocks Enlisted No of Full-fledged

USD) Investment Banks
1990 38 310 0
2000 51 320 2
2010 67 490 5
2019 72 545 8

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Developed country’s Investment banks as role model

According to Glass-Steagall Act 1933 till 1999 (Gramm–Leach–Bliley Act) the USA maintained
a separation between investment bank and commercial banks. Investment banks are non-
depository institute. They are a lot of doubtless consulting institute for big non-public institutes.
Also, investment banks in USA have ability to perform proprietary mercantilism however
commercial banks are not entitled to this right. Top investment banks in USA are as follows- JP
Morgan Chase, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Citigroup etc.

Advisor of Investment banks in USA must be regulated by U.S Securities & Exchange
Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regulation.

The investment banks provide a broad range of investment banking services to a diverse group of
corporations, financial institutions, investment funds and governments. Services embrace
strategic advisory assignments with regard to mergers and acquisitions, divestitures, company
defense activities, risk management, restructurings and spin-offs, and debt and equity
underwriting of public offerings and private placements, including domestic and cross border
transactions, as well as derivative transactions directly related to these activities.

Investment banking segment is composed of

Financial Advisory: all the strategic advisory compliments are given by them to any
corporation. Based on the underwriting they provide information to their clients and helps to take
investment decision. They allow different sectors of investments with different functions.

Underwriting: Includes public offerings and personal placements, together with domestic and
cross-border transactions, of a large vary of securities, loans and alternative money instruments,
and by-product transactions directly associated with these client underwriting activities.

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Innovation and New Scope for Investment Bank in Bangladesh

We came to know that investment banks in the USA have rather wider varieties of functions.
More than forty-ninth of their voters’ square measure directly or indirectly concerned in the
market. This creates more scope for banks. Mortgage finance had a nice impact, before the
monetary meltdown in 2008. But it’s not stopped them to do business in real estate sectors.
Bangladeshi Investment banks will focus their workspace on property finance for socio-
economic class. This should be long term period financing. For instance, fifteen years to thirty
years loan policy for socio-economic class family. The fixed installation payment per month will
be lowered and the middle-class family can easily bear the amount. Such a system would create a
mortgage finance market. These sorts of mortgage finance agreement may be listed between
monetary establishments. But creator should hold bound % of the issued mortgage finance
agreement for securitization method.

Securities Research

Lots of brokerage corporations square measure already doing that in Bangladesh to draw in
investors available market. Securities include equities, bonds, and various other financial
instruments, and can be categorized by the security type or whether they are buy-side or sell-
side. Equity analysis is conducted by sell-side analysts at investment banks and freelance equity
analysis boutiques. Investors also perform buy-side research; however, this is often not published
and is inconsistent. Professional researchers specialize in specific industries and frequently
attend quarterly earnings conference calls. The sell-side analysis is obtainable as a part of a broad
set of economic services as well as broking and company finance. The sell-side analysis is
extremely big-ticket for retail investors to get. It is generally purchased by institutional investors
through Thomson Reuter’s subscription services or Bloomberg terminals. Consultancy service in
investment deciding isn't widely used nonetheless. This can be a major new innovation.

Proprietary Trading

This should be limited to certain types of banks. BSEC (Bangladesh Securities and Exchange
Commission) must closely monitor the activity of banks and guide them through Basel accords.
Commodity market commercialism is often a difficult job for banks. One of the most methods of
commercialism, historically related to banks, is arbitrage. In the most elementary sense, arbitrage

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is outlined as taking advantage of a value discrepancy through the purchase or sale of bound
combos of securities to lock during a profit. Many people confuse arbitrage with what's basically
a standard investment. The distinction between arbitrage and a typical investment is that the
quantity of reward: the danger in what's referred to as arbitrage these days (to clarify it from
theoretical arbitrage, it doesn’t effectively exist) is market neutral. From the moment all legs of
an arbitrage trade are executed, a profit is locked in. The trade can stay subject to varied non-
market risks, such as settlement risk and other operational risks. Investment banks, that square
measure typically active in several markets around the world, perpetually anticipate arbitrage
opportunities.

Investment management

Institutions often control huge shareholdings. In most cases, they're acting as fiduciary agents
instead of principals (direct owners). The homeowners of shares on paper have a notion to
change the businesses via the pick rights the shares carry and also have the ability to pressure
management, and if necessary, out-vote them at annual and other meetings. The different quality
category definitions square measure wide debated, but four common divisions are stocks, bonds,
real estate and commodities. The exercise of allocating funds among these qualities (and among
individual securities at intervals every asset class) is what investment management corporations
square measure got. Asset categories exhibit totally different market dynamics and totally
different interaction effects; so, the allocation of money among asset classes will have a
significant effect on the performance of the fund. Some analysis suggests that allocation among
quality categories has additional prophetic power than the selection of individual holdings in the
crucial portfolio come back. Arguably, the ability of a triple-crown investment manager resides
in constructing the quality allocation, and separately the individual holdings, so as to outperform
certain benchmarks

Global Banking: Correspondent bank

Bangladeshi banks are heavily dependent on Barclays and other European banks. Establishing an
international branch in major business location will build a distinction in the Asian zone.
Correspondent banks square measure utilized by domestic banks so as to service transactions
originating in foreign countries and act as a domestic bank's agent abroad. This is done as a
result of the domestic bank might have restricted access to foreign monetary markets, and cannot

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service its client accounts without opening up a branch in another country. Commonly,
correspondent accounts square measure the accounts of foreign banks that need the power to pay
and receive the domestic currency. The accounts enable them to pay others from the account or
receive cash from others into the account. This allows the bank to supply varied services to their
customers like an exchange and foreign currency denominated loans and deposits, despite them
not having a bank license for the foreign country in that country's currency.

Mergers and Acquisitions

There is no activity during this division for Bangladesh. A large company will acquire new or
tiny company so as to extend or add the worth to customers. A general term wants to ask the
consolidation of firms. A merger is a combination of two companies to form a new company,
while an acquisition is the purchase of one company by another in which no new company is
formed. Corporate acquisitions are often characterized for legal functions as either "asset
purchases" within which the vendor sells business assets to the customer, or "equity purchases"
in which the buyer purchases equity interests during a company from one or additional
commercialism shareholders. Asset purchases square measure common in technology
transactions wherever the customer is most curious about specific belongings rights, however,
doesn't need to amass liabilities or different written agreement relationships.

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 Chapter – 4
Findings

After conducting the whole study, we came across the following set of findings,

1) We almost do not have any full-fledged investment banks in our country. Even if we have
the number is almost close to 0.
2) There are any Non-Bank Financial Institutions in our country who perform investment
baking partially. There are many partial investment banks as well.
3) Maximum of the investment banks in our country are merchant banks, they perform a
specific purpose.
4) There is a positive relationship between the stock market growth & the growth of the
investment banking in a country. We analyzed the relation through Pakistan.
5) Bangladesh has Ineffective capital market, reluctance of corporations to IPOs, Bad
influence of Underwriter syndicates, lack of a developed derivative market, lack of focus
on research as major reasons behind the lagging behind in development of full-fledged
investment banks like other developing countries.
6) Developed countries who should followed as role model, has a very well-established
investment banking industry, as their investment banks perform multifarious functions
besides the preliminary ones. M&A, company defense activities, risk management,
restructurings and spin-offs, and debt and equity underwriting of public offerings and
private placements, including domestic and cross border transactions, as well as
derivative transactions are included in their activity lists.
7) Some innovative tools & strategies must be developed in the financial market of
Bangladesh for the development of investment banking in near future.
8) Brokerage corporations should research & try to develop diversified securities to attract
the domestic & foreign investors to the capital market of Bangladesh.

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9) The regulatory bodies of Bangladesh financial market (Bangladesh bank, BSEC) must get
ready for the arrival of BASEL-3 by conducting some preliminary actions before
handedly.
10) Famous & well performing banks in Bangladesh should try to establish their branches in
important business locations all around the world. So that dependency on the foreign
banks are eradicated & our banks can enter the foreign markets. Our popularity, expertise
& potentiality will be increased by doing so. Some financial institutions of Bangladesh
would know to use derivatives.
11) For vast economic development merger & consolidation of different low performing
banks & financial institutions is necessary for the proper development of financial
market. This is creating a proper field for the advancement of investment banking in
Bangladesh.

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 Chapter – 5
Further Scope of the study
During conducting this study, the knowledge & the issues we came to know, motivate us to
suggest the following further scope of studies,

1) A study on how the innovations & scope in field of investment banking discussed above
can be practically implemented in Bangladesh.
2) A research on the probable obstacles to be encountered while implementing these
innovations.
3) An analysis of how much effective & to what level efficient the investment banking will
be if these innovations are implemented.
4) A study on the contribution of Investment Banking in the process of Bangladesh being a
developed country from a developing one.
5) An evaluation on the potential contribution and influence of Investment bank in the
development of DSE & CSE.
6) A research on how the massive introduction of venture capital funding can enhance the
economic development of Bangladesh.
7) A study on how the corporations can be made interested in Public offerings.
8) A research on how the bad influence of Underwriter syndicate can be eradicated.
9) An evaluation on the degree to which the stock market will be broader after the
implementation of the innovations in the field of investment banking.

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 Chapter – 6
Conclusion
Not all monetary innovation is often benefited in perspective to economy of Bangladesh. This
will take long amount of time and regulation for Bangladesh Bank. To make it work properly,
this needs involvement of huge portion of individuals as client. Sometimes it's aforesaid that
investment bankers are "traveling cash salesperson." Trendy monetary innovations are referred to
as nothing but paper shuffling. But on the contrary, investment banks ought to act as supporting
pillars for public finance. The term ‘Finance’ not solely represent private sector however public
sector as well. Moral hazard in financial sectors does matter. New innovation comes with greater
risk. For that unforeseen future it's suggested to require in depth analysis before implementing
risky call. As the late, great Milton Friedman might have put it: there aren’t no such thing as a
free risk.

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