Merchant Banking Activities-in Context of AB Bank Limited
Capital Market Operations And Bangladesh
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
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
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 are-
Issuer: 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.
|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.|
Table 2.3: Historical Development (1954- 1998) of Capital Market of Bangladesh
|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.|
|SEC introduces SEC (Merchant Banker & Portfolio Manager) Regulations, 1996 along with SEC (Mutual Funds) Regulations, 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.
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 Infrastructure||Up to March 2008, 13,21,319 BO accounts were activated under 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.|
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.
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 of Business||February 27, 1982|
|Registered Office||BCIC Bhaban, 30-31, Dilkusha C/A
Dhaka 1000, Bangladesh.
Fax: +88-02-9564122, 23
|Auditors||S.F. Ahmed & Co.
|Tax Consultant||K.M. Hassan & Co.
|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||Mumbai Branch
41-42, Sir Vithaldas, Thackerse Marg
New Marine Lines, Mumbai 400-020, India
Tel: 2005392-3 (0091)
|Subsidiary Company||AB International Finance Ltd
Unit 1201-B, 12/F, Admiralty Centre
Tower One, 18 Harcourt Road, Hongkong
Tel: 2866 8094 (00852)
Source : www.abbank.com.bd3.3 |
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
|Paid up Capital||743,261,800||571,740,000||519,763,600||495,012,900|
|Total Operating Income||4,656,581,245||2,650,166,074||1,577,498,269||1,460,357,491|
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
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 are-
Table 3.9: Products and Service Segment
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
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.
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. 220.127.116.11 | Merchant Banking Wing Organogram
Merchant Banking Wing Organogram is shown in the next page
18.104.22.168 | 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
22.214.171.124.1 | 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 (NRB- IDA)|
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
- MBW is able to subscribe the IPOs & Right Share Issues in case of Under-subscription 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
- 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
126.96.36.199 | ABBF Services
|BO Account Opening and Brokerage Account||If any investor want to participate in the capital market (Buy, sell of shares), need to open an account with ABBF and CDBL (Central Depository Bangladesh Limited) known as Beneficiary Owner’s (BO) Account. ABBF Assists to open client’s BO Account|
|Trading||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|
|Safe Keeping of Shares||ABBF Assist on the safe keeping of shares for its clients|
|Share DEMAT& REMAT||ABBF Provides share dematerialization and dematerialization services of shares|
|One Stop Service for Foreign Clients||ABBF provides one desk service Foreign investors|
188.8.131.52 | 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:
184.108.40.206 | 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.
220.127.116.11 | 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
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.
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.
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.
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.
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.
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.
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.
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
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
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