C B T P C B B: Tamford Niversity Anglades H

STAMFORD
CAPITAL BUDGETING TECHNIQUES OF

UNIVERSITY
PRIVATE COMMERCIAL BANKS IN
BANGLADES
BANGLADESH
H
Dept. of Business Administration
Stamford University Bangladesh
Dept. of Business Administration

LETTER OF TRANSMITTAL
December, 2012
Assistant Professor, Dept. of Business Administration
Subject: Submission of Thesis report

Dear Sir,
I am very glad to inform you that I have finally completed the Thesis study
successfully, which was a partial fulfillment of the requirement for the Master of
Business Administration program.
The topic of my thesis study is “Capital budgeting techniques of private

commercial banks in Bangladesh.” I enjoyed very much by preparing this study as
well as it was a worthwhile experience for me to obtain knowledge about private
Commercial Bank. I am undeniably thankful to you & my Department for giving me
the opportunity to obtain practical skills as well as to learn how to cope with the
practical situations, which is very much valuable for my future career.
Finally I assure you that I have tried my best to make a systematic and informative
summary based on my practical work. If you need further clarification, I am always
ready to answer your questions.
Thanking You
Yours Sincerely
_______________
Department of Business Administration
I here announce that the extensive study entitled
“A Study on Capital Budgeting Techniques”
(In the context of Private Commercial Banks in Bangladesh)

Prepared in partial accomplishment of the Requirement for the award of the
degree
Master of Business Administration

From
STAMFORD UNIVERSITY BANGLADESH
Is my original work and not put forward for

The award of any other degree / diploma / fellowship
Or other similar term or honor
_______________
Supervisor’s Declaration
STAMFORD UNIVERSITY BANGLADESH
To Whom It May Concern
This is to certify that the Thesis Paper on “ Capital budgeting techniques of

private commercial banks in Bangladesh” For the degree Master of Business
Administration (MBA) major in Finance from Stamford University
Bangladesh carried out by Md. Saiful Islam, Student ID # MBA 04713480
under my supervision. No part of the Thesis Paper has been submitted for
any degree diploma, title, or recognition before.
Department of Business Administration

Stamford University Bangladesh.
ACKNOWLEDGEMENT
First of all I would like to thanks all mighty Allah for giving me the patience
and proper time to complete the Thesis Paper study successfully. It is pleasure
to take this occasion to thank a few people who have, assisted, encouraged,
directed and supported throughout completed to the program.
Finally, I want to give my special thanks to the Academic supervisor

(Assistant Professor, Stamford University Bangladesh) for his support and
enormous help throughout this Internship program, especially his guidelines
throughout the period of preparing the report.
EXECUTIVE SUMMERY
Capital budgeting is one of the most important areas of financial management. There
are several techniques commonly used to evaluate capital budgeting projects namely
the payback period, accounting rate of return, present value and internal rate of return
and profitability index. Recent studies highlight that financial managers worldwide
favor methods such as the internal rate of return (IRR) or non-discounted payback
period (PP) models over the net present value (NPV), which is the model academics
consider superior. In particular this research focused on small, medium and large
businesses and investigated a number of variables and associations relating to capital
budgeting practices in businesses in the Bank of Bangladesh.
The results revealed that payback period, followed by net present value, appears to be
the most used method across the different sizes and sectors of business. It was also
found that 64% of businesses surveyed used only one technique, while 32% of the
respondents used between two to three different types of techniques to evaluate
capital budgeting decisions. The findings show that the more complicated methods
such as IRR and NPV are most favored by the large businesses as compared to the
small businesses. The majority of the respondents believed that project definition was
the most important stage in the capital budgeting process. Implementation stage
appeared to be the most difficult stage for the manufacturing sector whereas Project
definition, Analysis and selection and Implementation were generally rated as being
the difficult stages by the retail sector. Project definition and Analysis and selection
were found to be the most difficult stages by the service sector. Most businesses used
the cost of bank loan as a basis in capital budgeting and more than two thirds of
respondents used non-quantitative techniques to consider risk when making a decision
on investing in fixed assets.
Table of Content
Headings Page
Chapter-1: Introduction
1.1 Rationale of the study
1.2 Objectives of the report
1.3 Scope of the report
1.4 Methodology
1.5 Limitation of the repot
Chapter-2: Overview of Banking System

2.1 Bangladesh scenario
2.2 The implication of the Banking System
2.3 Mitigating action
2.4 History of banking industry in Bangladesh
2.5 List of Bank in Bangladesh
Capter-3: Goal of capital Budgeting

Literature review on Capital budgeting technique:
Capital budgeting
Capter-4: Profile of the Private Banks
4.1 Dutch-Bangla Bank Ltd.
4.2 IFIC Bank Ltd.
4.3 National Bank Ltd.
4.4 AB Bank Ltd.
4.5 BRAC Bank Ltd.
4.6 Eastern Bank Ltd.
4.7 Dhaka Bank Ltd.
4.8 Pubali Bank Ltd.
4.9 Uttara Bank limited
4.10 United Commercial bank Ltd.
4.11 One Bank Ltd.
4.12 NCC Bank Ltd.
4.13 City Bank Ltd.
4.14 HSBC Bank
4.15 EXIM Bank Ltd.
Chapter-5:Background of the capital budgeting techniques

5.1 Overview of the topic
5.2 Nature of Investment decision
5.3 Importance of Investment Decisions
Chapter-6: Analysis & Findings

* Questioner analysis
*Graphical Analysis
Chapter-7:
7.1 Recommendation
7.2 Conclusion
Reference
Appendix:
Chapter: 01
INTRODUCTION
Introduction
The investment decision of a firm is generally known as the capital budgeting
decision or capital expenditure decision. A capital expenditure is an outlay of cash for
a project that is expected to produce a cash inflow over a period of time exceeding
one year. Examples of projects include investments in property, plant, and equipment,
research and development projects, large advertising campaigns, or any other project
that requires a capital expenditure and generates a future cash flow. Because capital
expenditures can be very large and have a significant impact on the financial
performance of the firm, great importance is placed on project selection. This process
is called capital budgeting.
1.1: Rationale of the Study

The study helps to knowledge in Capital Budgeting Technique of Private Commercial
Bank of Bangladesh such as NCC Bank Limited, BRAC Bank Limited, Eastern Bank
Limited ,Dutch Bangla Bank Limited, Dhaka Bank Limited, Pubali Bank Limited,
Uttara Bank Limited, IFIC Bank Limited, National Bank Limited, The City Bank
Limited, United Commercial Bank Limited, AB Bank Ltd, The City Bank Ltd,
,HSBC Bank Ltd,, Dutch Bangla Bank Ltd, , Dhaka Bank Ltd.The study has
enormous implication to develop Capital Budgeting Technique. The management of
these banks can use the findings and recommendation for their policy making and
organizational development purpose. It will help them to introduce a new dimension
of Capital Budgeting Technique in banking sector.
1.2: Objective of the Study

 To know the reasons for Capital Budgeting decision
 To be familiar with what type of capital decision they take
 To identify the type of capital budgeting technique they use.
 To make out the basis of cost capital
 To discern the problem they face in capital budgeting decision.
 To be acquainted with the importance of capital budgeting decision.
 To find out what technique they frequently use.
 To overview what type of action they take for remove the problem.
1.3: Scope of the Report
This is the thesis paper based on the thesis program. The topic covers mainly
the Capital Budgeting Technique of Private Commercial Bank of Bangladesh and
its different types of Technique use by among the fifteen Private Commercial
Bank of Bangladesh. This is divided paper into seven chapters. The first chapter
is comprised by introduction, origin of the report, scope, objectives,
methodology and limitations of the report. The second chapter includes
Overview of Banking System, Bangladesh Scenario, The implications for the banking
system, Mitigating actions, History of Banking Industry in Bangladesh, List of banks
in Bangladesh. The third chapter focuses Article on Capital budgeting technique,
Literature review of article. The fourth chapter mentions overview of the
sampling 15 commercial bank of Bangladesh. The fifth chapter contains
overview of the topics, nature of the investment decision, and importance of the
investment decision. The sixth chapter includes findings and analysis of capital
budgeting technique of the sampling bank. And the final chapter includes
conclusion, recommendation of the report.
1.4: Methodology
Research design
This study aims to “Practice of Capital Budgeting Techniques in Banks of
Bangladesh” To gather the information, we have done the interview and the
questionnaire. The interview is taken from the respected authorities of three banks of
Bangladesh- IFIC Bank Limited, Datch Bangla Bank Limited, and National Bank
Limited. Thorpe and Lowe (1993) argued that questionnaires are a useful tool for
investigating patterns in data and are frequently used with success in management,
marketing and research. As it is a descriptive study on management, the questionnaire
will be better fitted according the stated researchers.
Data collection
For preparation of a comprehensive report on any articles the procurement of data and
the sources of data are very important. Duration preparation of this research paper we
have gone through the different booklets, use different mechanics utilize different
techniques which are offended below shortly. We are taken fifteen commercial bank
as our field to find out the necessary information for this report. But there were a hard
work for us because we could not go every institution to collect the primary data. As
the limitation of the resource we collected our data from two sources .These are-
1. Primary Data.
2. Secondary data.
Primary Sources Secondary Sources

1. Face to face conversation with 1. Different books and periodicals
the employees related to the banking sector
2. Questionnaire Survey 2. Bank’s Annual Report
3. Online resources
1.5: Limitation
There are many limitations in the study. Such as-
 We have a limited time period, but this work is large.

 The institute did not give actual data due to secrecy.
 We have low opportunity to contract with the institute.
 We have lack of experience and efficiency to collect data.
Chapter: 02
Overview of Banking System

Overview of Banking System:
The management of the banking system has emerged as a top priority issue on the
policy agenda of many countries in the wake of the global financial crisis that rapidly
engulfed many countries. The crisis originated in the housing and credit bubble in the
United States. During several years preceding the first signs of crisis in August 2007,
the United States saw the emergence of what Paul Volker, the former Chairman of the
Federal Reserve System called “bright new financial system”. Under this so-called
new system, the banks securitized their future receipts against loans to investors and
consumers. These securitized assets were then pooled, divided into risk trenches and
sold to other institutions. The process was repeated several times giving rise to a
complicated set of debt products which came to be known as collateralized debt
obligations (CDOs) and credit default swaps (CSOs). The phenomenal growth of debt
products was fuelled by bubble in asset prices under loose monetary policy regimes
which provided wide access to borrowing at low interest rates. This enabled
consumers to live beyond their means and investors to buy assets with borrowed
funds. Banks avoided capital and other regulatory requirements by treating securitized
assets as off-balance sheet items.
Eventually many borrowers failed to meet their obligations, leading to fall in asset
values (both houses and other securitized financial assets) and credit squeeze. The
credit squeeze translated into reduced demand for consumption and lower investment
with devastating impact on the real economy. The United States, most European
countries as well some heavily export dependent Asian economies will have negative
growth in 2009. Practically all countries of the world will suffer deceleration in
growth rates, even if positive.
2.1: Bangladesh Scenario

The banking system of Bangladesh is not significantly integrated with the
international financial markets. This lack of integration has ensured that our banking
system is not exposed to toxic assets and therefore remains immune to the global
financial crisis per se. Nevertheless, the impact on the real economy poses some
threats. These threats emanate from the following sources:
1. At the macro level, growth rate in 2009-10 is likely to be slower than in the
preceding fiscal year.
2. Export growth in the first quarter of the current fiscal year turned substantially
negative.
3. Even the exports of ready made garments sector which showed tremendous
resilience against global recession experienced negative growth of about 5 per
cent in the first quarter of the current fiscal year. This sector accounts for over
three-fourths of our total exports and a large part of our industrial output.
4. Parallel, the growth of imports has also turned negative encompassing all
categories – raw materials, intermediate goods, capital goods as well as
consumption goods.
5. The remittances have so far held up strongly. However, unfavorable

developments in the major destinations of our migrant labor e.g. Dubai, Saudi
Arabia and Malaysia cast doubt over medium – term sustainability.
2.2: The implications for the banking system

The above scenario is likely to have considerable negative implications for the income
of the banking sector because of the following reasons.
1. The slow-down of growth of GDP and industrial production and negative

growth of exports and imports would imply reduced demand for credit. Our
banks are largely dependent on interest income. The reduced demand for
credit is likely to have an adverse impact on interest income. That there has
been a significant decline in demand for credit is evidenced by the huge
accumulation of excess liquidity which, according to the latest available data,
amounted to Tk. 40,000 crores.
2. The shrinkage in foreign trade and potentially remittances is likely to reduce
fee-based income of the banks.
3. The slow-down of industrial production would cause a reduction in demand

for term loan adversely affecting traditional asset base.
4. It is understood that because of slow implementation of both revenue and

development budget, the Government also did not borrow from the banking
system in the first quarter of the, current fiscal year. This implies that bank’s
income from lending to the Government has also become constrained. In fact,
the Government reportedly repaid previous loans.
2.3: Mitigating actions

In order to minimize the potentially negative impact, the banking system has to adopt
a number of measures. These are briefly noted below:
1. The banks should make determined efforts to increase income. They can do so
by diversifying their asset base. In this context, they should consider
expansion of loan to the un-banked or under banked sectors such as
agriculture, small and medium industries and small scale domestic traders.
2. With a view to diversifying asset base as suggested above, the banks must
depart from the traditional practice of collateral-based lending. They should
aggressively seek out new borrowers with high income potentials and viable
project proposals.
3. Banks should also consider offering new products such as swaps, options and
derivative products. However, they must make sure that they do not assume
unsustainable risk from such operations. The Central Bank needs to issue
guidelines in this regard.
4. All out efforts should be made to recover non-performing loans (NPL). It is
understood that the state-owned banks have been able to reduce their NPL to
total loan ratio, but mostly by rescheduling rather than cash recovery. On the
other hand, NPL ratios of the privately owned banks have recently gone up.
5. In order to increase profitability, the banks need to focus on the volume of

business and total profit, not per unit profit.This implies that they should
reduce the prevailing high spread between deposit and lending rate,
particularly by reducing the lending rate. Some progress has been achieved in
this respect, but not enough. Moreover, the banks have considerably reduced
deposit rates. This poses the risk that depositors will shift into non-bank assets
such as stocks, real estate etc. The price increases of these assets suggest some
movement in this direction.
6. The banks should also look at their expenditure side to improve income-
expenditure ratios. In particular, salaries and perks of employees and directors
and ostentatious expenses on branch decorations should be reduced.
7. Finally, banks should strengthen their risk management and early warning
systems so that they are not caught off-guard by developments in the real
economy
2.4: History of Banking Industry in Bangladesh

Although there is no formal evidence of the existence of banks in Bengal during the
period before 400 BC, traders of this period were known to have carried out activities
to provide financial assistance among them selves. The wealthy people of that period
used to put their surplus money and valuables under the soil in brass-made pitchers
and maintained accounts for them by writing on the body of dishes made of gold or
silver. The Vedas mentions the practice of informal banking in the form of borrowing
and lending during the Vedic period. Such activities, however, were centered in
temples and other religious places. Borrowing and lending gave way to banking
during the period of Manu, who believed that wise men should deposit money with a
person bearing good moral character, having respectable and rich relatives, and well
conversant with law. Outlay’s Artha Shastra also suggests the existence of banking
and payment of interest on deposits in the Vedic period.
During the Mughal period, there were different types of gold coins in circulation that
encouraged people to engage in monetary transactions and profit-motivated financial
activities. Many individuals and some families attained special reputation in trading
and in finance. One such family, that of jagat sheth, had branches of its monetary
business in dhaka, Hughli and murshidabad. Mughal rulers patronised the banking
business of Jagat Sheth family and others, and also used to borrow money from them
when needed. People could convert their valuables, mostly gold and silver, into
currency with minimum cost at Mughal mints. Monetary transactions and transfer
through hundi, along with cash transaction, was in vogue during the Mughal period.
The revenue received from zamindars and dues there from were sent to the
government treasury through family-based financial or banking institutions. People
from different classes were also involved in monetary trading which helped the
evolution of banking in that period. A major landmark was the establishment of the
Hindustan Bank in 1700 AD at Calcutta. After the stewardship of Bengal, Bihar and
Urissha was assumed by the east India company, Jagat Sheth's family and other
traders in money and finance suffered great losses in their business because of the
activities of a new elite subservient to British rulers. The decline in banking brought
some instability in the economy of that time and, upon quick realisation of the fact,
the British set up the English Agency House.
Established in 1784, the Bengal Bank was the first British-patronised modern bank in
India. Dhaka Bank started to operate as a commercial bank in 1806. The Bengal Bank
opened its first branch in Dhaka by purchasing Dhaka Bank in 1862. In 1873, it
opened its two branches in sirajganj and Chittagong. Another branch of Bengal Bank
was opened in chandpur in 1900. Six branches of Bengal Bank were in operation in
the Bangladesh region until the partition of Bengal in 1947 and these branches were
located at Dhaka, Chittagong, mymensingh, rangpur, Chandpur and narayanganj.
The three Presidential banks that followed the establishment of the Bengal Bank were
the Bank of Calcutta (1806), Bank of Bombay (1840) and Bank of Madras (1843).
Combining these three banks, the Imperial Bank of India was set up in 1921. The
Reserve Bank of India came into being in 1935.
In addition to the above, there were other banking and financial institutions
throughout British India, including the territory of Bengal. Other banking institutions
established in East Bengal during the British period were the loan offices at
faridpur(1865), bogra (1872), barisal (1873), Mymensingh (1873), Nasirabad (1875),
jessore (1876), munshiganj (1876), Dhaka (1878), sylhet (1881), pabna (1882),
kishoreganj (1883), noakhali (1885), khulna (1887), madaripur (1887), tangail (1887),
nilphamari (1894) and Rangpur (1894). Banks established in this period included the
Kurigram Bank (1887), Kumarkhali Bank (1896), Mahaluxmi Bank, Chittagong
(1910), Dinajpur Bank (1914), Comilla Banking Corporation (1914) and Comilla
Union Bank (1922). Major Indian banks of the period having branches in the territory
were the National Bank of India (1864), Bengal Central Bank (1918), New Standard
Bank (1920), Imperial Bank of India (1921), Pioneer Bank (1923), Bank of
Commerce (1929), United Industrial Bank (1940), Habib Bank (1941) and United
Commercial Bank (1942).
After the birth of Pakistan in 1947, the State Bank of Pakistan, the central bank of the
country, came into being in 1948. Later, the National Bank of Pakistan, a commercial
bank was set up in 1949. In all, 36 scheduled commercial banks were in operation
throughout Pakistan. Most of these banks were owned by Pakistanis.
Only three of them, namely, National Bank of Pakistan, Habib Bank, and the
Australasia Bank had a branch in East Pakistan in 1949. During 1950-58, three other
Pakistani-owned banks, the Premier Bank, Bank of Bawalpur and Muslim
Commercial Bank had opened branch offices in East Pakistan. Four Pakistani-owned
banks, the United Bank, Union Bank, Standard Bank and Commerce Bank conducted
business in the province during 1959 - 1965. The province had only two banks owned
by local business groups and with headquarters at Dhaka, the Eastern Mercantile
Bank and Eastern Banking Corporation (now uttara bank), established in 1959 and
1965 respectively.
The banking system in the territory of Bangladesh grew slowly during the British and
Pakistan periods. There were only 25 bank branches in 1901 and the number grew to
668 in 1946. Creation of Pakistan was a deterrent in the sector as was evidenced by
the closure of bank branches, which came down to 148 in 1950. In 1965, the number
rose again to 545. Subsequent years, however, showed dramatic changes in the
situation and the number of bank branches increased to 1,025 in 1970.
The banking system in Bangladesh started functioning with 1,130 branches of 12

banks inherited from Pakistan. Subsequently, these banks were nationalised and
renamed after being merged into six banks. The new names of the banks were the
sonali bank (The National Bank of Pakistan, The Bank of Bawalpur, The Premier
Bank), agrani bank (Habib Bank, Commerce Bank), janata bank (United Bank, Union
Bank), rupali bank (Muslim Commercial Bank, Standard Bank), pubali bank
(Australasia Bank, Eastern Mercantile Bank) and uttara bank (Eastern Banking
Corporation).
Bangladesh bank, the central bank of the country, was set up on 16 December 1971
by the Bangladesh Bank Order 1972. The government accepted the assets and
liabilities of the Deputy Governor's office of the State Bank of Pakistan in Dhaka and
declared the Bangladesh Bank as a fully effective and permanent central bank.
Bangladesh Bank is empowered to regulate the issue of currency, maintain reserves,

and manage the monetary and credit system with a view to stabilising domestic
currency, maintaining a high level of production, reducing unemployment, and
increasing real income. It is also responsible for fostering the growth and
development of the country's productive resources.
The bank has the responsibility of overseeing and regulating the country's banking
system. In addition, the head office at Dhaka, Bangladesh Bank has nine branch
offices, two in Dhaka city (Motijheel and Sadarghat) and one each in Chittagong,
Khulna, rajshahi, Sylhet, Bogra, Rangpur and Barisal. The paid up capital of
Bangladesh Bank is Tk 30 million divided into 300,000 shares of Tk 100 each. The
total share capital is fully paid by the government. A nine-member board of directors
headed by a Governor as the chief executive oversees the affairs of the bank. To
conduct banking in Bangladesh, all banks have to have licenses from the Bangladesh
Bank under the Bank Companies Act 1991. To be able to get a license, all intending
banks have to be registered with the Registrar of Joint Stock Companies under the
company’s act 1994, and collect Certificate of Incorporation. Moreover, to collect
capital through public offerings of shares, intending banks have to obtain permission
from the country's Securities and Exchange Commission.
Banking institutions in Bangladesh can be classified under different groups. Most

banks fall under the category of branch banking ie, the banks operate through
branches at home and abroad under the control of their head offices. Foreign branches
of Bangladeshi banks have to abide by home country regulations. Under the
ownership-based classification, banks in Bangladesh are classified as
government/nationalised, private, foreign, and joint ownership banks. The country
had 6 nationalised commercial banks (NCB) until 1983, when one of them, the Rupali
Bank was denationalised. Another government bank, the Pubali Bank, was
denationalised in 1986.
Domestic private banks are the International Finance and Investment Bank (ific bank,
estd. 1976), Islamic bank Bangladesh (1983), united commercial bank (1983), city
bank (1983), national bank (1983), Arab Bangladesh bank (1985), al Baraka bank
(1987), eastern bank (1992), national credit and commerce bank (1993), prime bank
(1995), south-east bank (1995), Dhaka bank (1995), al-arafah Islamic bank (1995),
social investment bank 1995), premier bank (1996), dutch-bangla bank (1996),
mercantile bank (1999), standard bank (1999), one bank (1999), export import bank
(1999), Bangladesh commerce bank (1999), mutual trust bank (1999), trust bank
(1999), bank Asia (1999) and first security bank (1999).
The three NCBs now operating in the country are the Sonali Bank, Janata Bank and
Agrani Bank. There is a special group of nationalised banks known as specialized or
development financial institutions to support specific economic purposes of the
country. These include two for agricultural development, the Bangladesh krishi bank
(estd. 1973) and rajshahi krishi unnayan bank (estd. in 1987 with branches of
Bangladesh Krishi Bank in Rajshahi division), one for industrial development, the
bangladesh shilpa bank (estd. 1972) and one for supporting unemployed youths in
their self-employment activities, the employment bank (estd.1997). The country has a
Co-operative Bank established in 1948, as the apex institution of all co-operative
societies in Bangladesh. The main function of this bank is to mobilise small savings
and assist members of co-operative societies to build up capital and provide them with
loan/financial assistance for the development of agriculture, commerce, fisheries,
urban and rural cottage industries, etc. It also provides loan to promote other income
generating activities in the society.
Foreign private banks which have branches in Bangladesh are the, standard chartered
bank, state bank of India, credit Agricola indosuez, Hong Kong and Shanghai
Banking Corporation (hsbc), national bank of Pakistan, habib bank, and hanvit bank.
There is no independent merchant bank, investment bank or exchange bank in

Bangladesh. However, some commercial banks carry out merchant banking in
addition to their usual banking activities. Recently, the Securities and Exchange
Commission of the country issued permission to 25 financial institutions to do
merchant banking. Commercial and specialized banks invest their funds in different
sectors of the economy. A total of 22 private leasing companies and financial
institutions were given permission to conduct investment activities in various sectors
of the economy. Some branches of both nationalised and private commercial banks
have been permitted to conduct foreign exchange business under the Foreign
Exchange Regulation Act 1947. Such banks are called authorised dealers and their
club or association bears the name BAFEDA - Bangladesh Foreign Exchange Dealers
Association. Apart from the authorised dealers, more than 400 Money Changers
throughout the country are engaged in buying and selling of foreign exchange.
Depending upon the relationship with and the degree of control of the Bangladesh
Bank banks in Bangladesh are divided into scheduled and non-scheduled banks.
Scheduled banks are enlisted by the Bangladesh Bank under the provisions of section
37 of the Bangladesh Bank Order 1972. They are promise bound to obey central bank
instructions, rules and regulations especially, those relating to required capital and
provisions, statutory liquidity reserves, audited returns etc. Through scheduling, banks
gain special status and enjoy some special facilities from the central bank such as re-
discounting, participation in the money market, membership of the clearing house and
deposit insurance scheme. Non-scheduled banks do not enjoy such privilege. The list
of non-scheduled banks in Bangladesh includes the Eden Bank, Saidpur Commercial
Bank, Comilla Co-operative Bank, Dinajpur Industrial Bank, Rajshahi Bank, Shankar
Bank, Faridpur Banking Corporation and Madaripur Commercial Bank.
2.5: List of banks in Bangladesh:

Although there is no formal evidence of the existence of banks in Bengal during the
period before 400 BC, traders of this period were known to have carried out activities
to provide financial assistance among them selves. The wealthy people of that period
used to put their surplus money and valuables under the soil in brass-made pitchers
and maintained accounts for them by writing on the body of dishes made of gold or
silver. The Vedas mentions the practice of informal banking in the form of borrowing
and lending during the Vedic period. Such activities, however, were centered in
temples and other religious places. Borrowing and lending gave way to banking
during the period of Manu, who believed that wise men should deposit money with a
person bearing good moral character, having respectable and rich relatives, and well
conversant with law. Outlay’s Artha Shastra also suggests the existence of banking
and payment of interest on deposits in the Vedic period.
During the Mughal period, there were different types of gold coins in circulation that
encouraged people to engage in monetary transactions and profit-motivated financial
activities. Many individuals and some families attained special reputation in trading
and in finance. One such family, that of jagat sheth, had branches of its monetary
business in dhaka, Hughli and murshidabad. Mughal rulers patronised the banking
business of Jagat Sheth family and others, and also used to borrow money from them
when needed. People could convert their valuables, mostly gold and silver, into
currency with minimum cost at Mughal mints. Monetary transactions and transfer
through hundi, along with cash transaction, was in vogue during the Mughal period.
The revenue received from zamindars and dues there from were sent to the
government treasury through family-based financial or banking institutions. People
from different classes were also involved in monetary trading which helped the
evolution of banking in that period. A major landmark was the establishment of the
Hindustan Bank in 1700 AD at Calcutta. After the stewardship of Bengal, Bihar and
Urissha was assumed by the east India company, Jagat Sheth's family and other
traders in money and finance suffered great losses in their business because of the
activities of a new elite subservient to British rulers. The decline in banking brought
some instability in the economy of that time and, upon quick realisation of the fact,
the British set up the English Agency House.
Established in 1784, the Bengal Bank was the first British-patronised modern bank in
India. Dhaka Bank started to operate as a commercial bank in 1806. The Bengal Bank
opened its first branch in Dhaka by purchasing Dhaka Bank in 1862. In 1873, it
opened its two branches in sirajganj and Chittagong. Another branch of Bengal Bank
was opened in chandpur in 1900. Six branches of Bengal Bank were in operation in
the Bangladesh region until the partition of Bengal in 1947 and these branches were
located at Dhaka, Chittagong, mymensingh, rangpur, Chandpur and narayanganj.
The three Presidential banks that followed the establishment of the Bengal Bank were
the Bank of Calcutta (1806), Bank of Bombay (1840) and Bank of Madras (1843).
Combining these three banks, the Imperial Bank of India was set up in 1921. The
Reserve Bank of India came into being in 1935.
In addition to the above, there were other banking and financial institutions
throughout British India, including the territory of Bengal. Other banking institutions
established in East Bengal during the British period were the loan offices at
faridpur(1865), bogra (1872), barisal (1873), Mymensingh (1873), Nasirabad (1875),
jessore (1876), munshiganj (1876), Dhaka (1878), sylhet (1881), pabna (1882),
kishoreganj (1883), noakhali (1885), khulna (1887), madaripur (1887), tangail (1887),
nilphamari (1894) and Rangpur (1894). Banks established in this period included the
Kurigram Bank (1887), Kumarkhali Bank (1896), Mahaluxmi Bank, Chittagong
(1910), Dinajpur Bank (1914), Comilla Banking Corporation (1914) and Comilla
Union Bank (1922). Major Indian banks of the period having branches in the territory
were the National Bank of India (1864), Bengal Central Bank (1918), New Standard
Bank (1920), Imperial Bank of India (1921), Pioneer Bank (1923), Bank of
Commerce (1929), United Industrial Bank (1940), Habib Bank (1941) and United
Commercial Bank (1942).
After the birth of Pakistan in 1947, the State Bank of Pakistan, the central bank of the
country, came into being in 1948. Later, the National Bank of Pakistan, a commercial
bank was set up in 1949. In all, 36 scheduled commercial banks were in operation
throughout Pakistan. Most of these banks were owned by Pakistanis.
Only three of them, namely, National Bank of Pakistan, Habib Bank, and the
Australasia Bank had a branch in East Pakistan in 1949. During 1950-58, three other
Pakistani-owned banks, the Premier Bank, Bank of Bawalpur and Muslim
Commercial Bank had opened branch offices in East Pakistan. Four Pakistani-owned
banks, the United Bank, Union Bank, Standard Bank and Commerce Bank conducted
business in the province during 1959 - 1965. The province had only two banks owned
by local business groups and with headquarters at Dhaka, the Eastern Mercantile
Bank and Eastern Banking Corporation (now uttara bank), established in 1959 and
1965 respectively.
The banking system in the territory of Bangladesh grew slowly during the British and
Pakistan periods. There were only 25 bank branches in 1901 and the number grew to
668 in 1946. Creation of Pakistan was a deterrent in the sector as was evidenced by
the closure of bank branches, which came down to 148 in 1950. In 1965, the number
rose again to 545. Subsequent years, however, showed dramatic changes in the
situation and the number of bank branches increased to 1,025 in 1970.
The banking system in Bangladesh started functioning with 1,130 branches of 12

banks inherited from Pakistan. Subsequently, these banks were nationalised and
renamed after being merged into six banks. The new names of the banks were the
sonali bank (The National Bank of Pakistan, The Bank of Bawalpur, The Premier
Bank), agrani bank (Habib Bank, Commerce Bank), janata bank (United Bank, Union
Bank), rupali bank (Muslim Commercial Bank, Standard Bank), pubali bank
(Australasia Bank, Eastern Mercantile Bank) and uttara bank (Eastern Banking
Corporation).
Bangladesh bank, the central bank of the country, was set up on 16 December 1971
by the Bangladesh Bank Order 1972. The government accepted the assets and
liabilities of the Deputy Governor's office of the State Bank of Pakistan in Dhaka and
declared the Bangladesh Bank as a fully effective and permanent central bank.
Bangladesh Bank is empowered to regulate the issue of currency, maintain reserves,

and manage the monetary and credit system with a view to stabilising domestic
currency, maintaining a high level of production, reducing unemployment, and
increasing real income. It is also responsible for fostering the growth and
development of the country's productive resources.
The bank has the responsibility of overseeing and regulating the country's banking
system. In addition, the head office at Dhaka, Bangladesh Bank has nine branch
offices, two in Dhaka city (Motijheel and Sadarghat) and one each in Chittagong,
Khulna, rajshahi, Sylhet, Bogra, Rangpur and Barisal. The paid up capital of
Bangladesh Bank is Tk 30 million divided into 300,000 shares of Tk
100 each. The total share capital is fully paid by the government. A nine-member
board of directors headed by a Governor as the chief executive oversees the affairs of
the bank. To conduct banking in Bangladesh, all banks have to have licenses from the
Bangladesh Bank under the Bank Companies Act 1991. To be able to get a license, all
intending banks have to be registered with the Registrar of Joint Stock Companies
under the companies act 1994, and collect Certificate of Incorporation. Moreover, to
collect capital through public offerings of shares, intending banks have to obtain
permission from the country's securities and exchange commission.
Banking institutions in Bangladesh can be classified under different groups. Most

banks fall under the category of branch banking ie, the banks operate through
branches at home and abroad under the control of their head offices. Foreign branches
of Bangladeshi banks have to abide by home country regulations. Under the
ownership-based classification, banks in Bangladesh are classified as
government/nationalised, private, foreign, and joint ownership banks. The country
had 6 nationalised commercial banks (NCB) until 1983, when one of them, the Rupali
Bank was denationalised. Another government bank, the Pubali Bank, was
denationalised in 1986.
Domestic private banks are the International Finance and Investment Bank (ific bank,
estd. 1976), Islamic bank Bangladesh (1983), united commercial bank (1983), city
bank (1983), national bank (1983), Arab Bangladesh bank (1985), al Baraka bank
(1987), eastern bank (1992), national credit and commerce bank (1993), prime bank
(1995), south-east bank (1995), Dhaka bank (1995), al-arafah Islamic bank (1995),
social investment bank 1995), premier bank (1996), dutch-bangla bank (1996),
mercantile bank (1999), standard bank (1999), one bank (1999), export import bank
(1999), Bangladesh commerce bank (1999), mutual trust bank (1999), trust bank
(1999), bank Asia (1999) and first security bank (1999).
The three NCBs now operating in the country are the Sonali Bank, Janata Bank and
Agrani Bank. There is a special group of nationalised banks known as specialized or
development financial institutions to support specific economic purposes of the
country. These include two for agricultural development, the Bangladesh krishi bank
(estd. 1973) and rajshahi krishi unnayan bank (estd. in 1987 with branches of
Bangladesh Krishi Bank in Rajshahi division), one for industrial development, the
bangladesh shilpa bank (estd. 1972) and one for supporting unemployed youths in
their self-employment activities, the employment bank (estd.1997). The country has a
Co-operative Bank established in 1948, as the apex institution of all co-operative
societies in Bangladesh. The main function of this bank is to mobilise small savings
and assist members of co-operative societies to build up capital and provide them with
loan/financial assistance for the development of agriculture, commerce, fisheries,
urban and rural cottage industries, etc. It also provides loan to promote other income
generating activities in the society.
Foreign private banks which have branches in Bangladesh are the, standard chartered
bank, state bank of India, credit Agricola indosuez, Hong Kong and Shanghai
Banking Corporation (hsbc), national bank of Pakistan, habib bank, and hanvit bank.
There is no independent merchant bank, investment bank or exchange bank in

Bangladesh. However, some commercial banks carry out merchant banking in
addition to their usual banking activities. Recently, the Securities and Exchange
Commission of the country issued permission to 25 financial institutions to do
merchant banking. Commercial and specialized banks invest their funds in different
sectors of the economy. A total of 22 private leasing companies and financial
institutions were given permission to conduct investment activities in various sectors
of the economy. Some branches of both nationalised and private commercial banks
have been permitted to conduct foreign exchange business under the Foreign
Exchange Regulation Act 1947. Such banks are called authorised dealers and their
club or association bears the name BAFEDA - Bangladesh Foreign Exchange Dealers
Association. Apart from the authorised dealers, more than 400 Money Changers
throughout the country are engaged in buying and selling of foreign exchange.
Depending upon the relationship with and the degree of control of the Bangladesh
Bank banks in Bangladesh are divided into scheduled and non-scheduled banks.
Scheduled banks are enlisted by the Bangladesh Bank under the provisions of section
37 of the Bangladesh Bank Order 1972. They are promise bound to obey central bank
instructions, rules and regulations especially, those relating to required capital and
provisions, statutory liquidity
Central Bank:
1. Bangladesh Bank
State-owned Commercial Banks:

1. Karmosangesthan Bank
2. Bangladesh Krishi Bank
3. Sonali Bank
4. Janata Bank
5. Agrani Bank
6. Rupali Bank
Private Commercial Banks:

1. AB Bank Ltd
2. BRAC Bank Limited
3. Eastern Bank Limited
4. Dutch Bangla Bank Limited
5. Dhaka Bank Limited
6. Islami Bank Bangladesh Ltd
7. Pubali Bank Limited
8. Uttara Bank Limited
9. IFIC Bank Limited
10. National Bank Limited
11. The City Bank Limited
12. United Commercial Bank Limited
13. NCC Bank Limited
14. Prime Bank Limited
15. SouthEast Bank Limited
16. Al-Arafah Islami Bank Limited
17. Social Islami Bank Limited
18. Standard Bank Limited
19. One Bank Limited
20. Exim Bank Limited
21. Mercantile Bank Limited
22. Bangladesh Commerce Bank Limited
23. Mutual Trust Bank Limited
24. First Security Islami Bank Limited
25. The Premier Bank Limited
26. Bank Asia Limited
27. Trust Bank Limited
28. Shahjalal Islami Bank Limited
29. Jamuna Bank Limited
30. ICB Islami Bank
31. Moon Bank Limited
32. Bank Limited
Foreign Commercial Banks:

1. Citibank
2. HSBC
3. Standard Chartered Bank
4. Commercial Bank of Ceylon
5. State Bank of India
6. Habib Bank
7. National Bank of Pakistan
8. Wo Bank
9. Bank Alfalah
Specialized Development Banks:

1. Grameen Bank
2. The Dhaka Mercantile Co-operative Bank ltd
3. Bangladesh Krishi Bank
4. Bangladesh Development Bank Ltd
5. Rajshahi Krishi Unnayan Bank
6. Basic Bank Ltd (Bank of Small Industries and Commerce)
7. Bangladesh Somobay Bank Limited(Cooperative Bank)
8. Ansar VDP Unnyan Bank
Chapter: 03
Goal of Capital Budgeting

Literature review on Capital budgeting technique:
the most important stage in the capital budgeting process.
Implementation stage appeared to be the most difficult stage for the manufacturing
sector whereas Project definition, Analysis and selection and Implementation were
generally rated as being the difficult stages by the retail sector. Project definition and
Analysis and selection were found to be the most difficult stages by the service sector.
Most businesses used the cost of bank loan as a basis in capital budgeting and more
than two thirds of respondents used non-quantitative techniques to consider risk when
making a decision on investing in fixed assets.
the most important stage in the capital budgeting process. Implementation stage
appeared to be the most difficult stage for the manufacturing sector whereas Project
definition, Analysis and selection and Implementation were generally rated as being
the difficult stages by the retail sector. Project definition and Analysis and selection
were found to be the most difficult stages by the service sector. Most businesses used
the cost of bank loan as a basis in capital budgeting and more than two thirds of
respondents used non-quantitative techniques to consider risk when making a decision
on investing in fixed assets.
Many scholars and researchers agree that capital budgeting decisions are crucial to a
business’s performance (Swain & Haka, 2000; Arya, Fellingham & Glover, 1998).
Capital budgeting plays a crucial role in a business’s competitive model. This
explains why Kwak, Shi, Lee & Lee (1996) state that capital budgeting is not a trivial
task. A business whose ability to effectively develop a feasible mechanism for capital
budgeting may gain a better competitive advantage to its rivalries in an environment
characterized by change and volatility (Louw, 2007; Lazaridis, 2004).
Literature on capital budgeting practices in Bangladesh is rare. However there are a

number of researches that have been conducted internationally that provide interesting
insight on the subject of capital budgeting practices in general for example: Hermes,
Smid & Yao (2007); Lazaridis (2004); Sandahl & Sjogren (2002); Kester et al (1999);
Drury & Tayles (1996) and Jog & Srivastava (1995). A closer look at the major
international researches show that the majority of them concentrated on capital
budgeting practices in large businesses. A few included small to medium enterprises.
The point of departure from other researches is that this research included small,
medium and large businesses in a South in Asia context.
There are variety of methods and techniques that managers can use to facilitate capital
budgeting procedures. In practice capital budgeting techniques show divergence from
business to business and in some instances from manager to manager. In some
instances, theory seems to be ignored by managers in the process of decision-making.
It will be beneficial to find out the nature of capital budgeting practices in
Bangladesh. Such knowledge will help to further develop theories on modern
practice while at the same time will be of great benefit to policy makers and
academics in the areas such as financial management, banking , education and
training.
In the last three decades, empirical research involving Bank has been conducted
extensively on the use of capital budgeting techniques. Hermes, Smid & Yao (2007);
Lazaridis (2004); Sandahl & Sjogren (2002); George & Chong (2001); Kester &
Chong (1999); Drury & Tayles (1996) and Jog & Srivastava (1995) provide details of
empirical studies on capital budgeting practices in Asia, Cyprus, Netherlands &
China, Sweden, Canada, Singapore and the UK respectively.
These surveys, which have focused on methods of evaluating project profitability and
risk, have shown that the sophistication of the analytical techniques used by United
States executives has increased over time. Discounted cash flow (DCF) techniques,
such as Net Present Value (NPV) and Internal Rate of Retum (IRR), have become the
dominant method of evaluating and ranking proposed capital investment (Kester et al
(1999).
Hatfield, Horvath, and Webster (1998) as cited by Lazaridus (2004) investigated the
importance of payback period (PP), average rate of return (ARR), internal rate of
return (IRR) and net present value (NPV) capital budgeting techniques on the
performance and value measures of businesses. They found out that businesses
analyzing all projects had higher share prices on average as compared to those that did
not. In addition to this, they also found, in contrast to the theory of finance, that the
NPV technique did not maximize the value of the business. Their results thus
suggested that businesses should not use single capital budgeting technique but
instead should apply as many methods as possible for a project evaluation.
Chapter: 04
Profile of the Private Commercial Banks
Background of Private Commercial Bank:
A commercial bank is a privately owned, for-profit entity that is licensed by the

federal or state banking authorities to conduct overall banking activities. These
activities include deposit taking, lending business, bank-owned securities and various
banking services for its clientele. Commercial banks, if properly licensed, may also
conduct trust, insurance and portfolio management business. We are taken here 15
commercial banks in Bangladesh as a sample and discuses these banks in brief way in
below-
4.1:
Dutch-Bangla Bank Limited (the Bank, DBBL) is a scheduled joint venture
commercial bank between local Bangladeshi parties spearheaded by M Sahabuddin
Ahmed (Founder & Chairman) and the Dutch company FMO. DBBL was established
under the Bank Companies Act 1991 and incorporated as a public limited company
under the Companies Act 1994 in Bangladesh with the primary objective to carry on
all kinds of banking business in Bangladesh. DBBL commenced formal operation
from June 3, 1996. The Bank is listed with the Dhaka Stock Exchange Limited and
Chittagong Stock Exchange Limited.
Dutch-Bangla Bank Limited

Founded Dhaka, Bangladesh (1995)
Headquarters Dhaka, Bangladesh
Key people M Sahabuddin Ahmed -Founder
Authorized capital 4000 (mn)
Paid-up Capital 2000 (mn)
Employees 1600
Website www.dbbl.com.bd
4.2:
IFIC Bank (International Finance, Investment and Commerce Bank Limited)

originally named as International Finance and Investment Company was formed in
October 1976. It obtained certificate of commencement on 28 February 1977 as an
INVESTMENT BANKING company. The company was established mainly to carry
out banking and other financial business outside Bangladesh (especially in the oil-rich
Middle-Eastern countries) either singly or in collaboration with other companies,
banks and financial institutions. BANGLADESH BANK allowed IFIC to transform
itself into a banking company and accordingly, it was renamed and after completion
of required legal formalities, it started full-fledged commercial banking operations on
24 June 1983.
IFIC Bank
Founded 1977
Paid –Up- capital Tk.1744 million
Authorized capital Tk. 5350 million
Branches 82
Employees 2193
M. J. Abedin & co.
Auditors
Chartered Accountants
Website www.ificbankbd.com
4.3:
National Bank Limited (NBL) established in 1983 with an authorized capital of Tk
100 million and paid up capital of Tk 44 million. It started banking operations on 23
March 1983. On 31 December 2000, the bank's authorized and paid up capital were
Tk 1,000 million and Tk 430 million respectively. The bank conducts commercial
banking activities including deposit mobilization, lending, servicing domestic and
foreign trade and remittance services. The bank introduced credit card and master
card for both internal and international use. It has a deposit insurance scheme and a
monthly deposit project to encourage the public to save more. The bank has a huge
amount of non-performing loans and advances and the total amount of classified loans
stood at Tk 5,796.2 million in 2000. The bank has to maintain large amount of
provision for the classified loans from its profits. On the other hand, non-recovery of
stuck-up loans and interest thereon inflated the interest suspense account of the bank.
Thus the interest income of the bank from loans and advances was largely squeezed to
affect the overall profitability of the bank.
National Bank Limited

Founded 1983
Paid up Capital in BDT*
4412.0
(mn)
Authorized capital in
7450.0
BDT* (mn)
Branches 66 (Dhaka)
Employees 1,878
Website www.nblbd.com
4.4:
AB Bank Limited, the first private sector bank was incorporated in Bangladesh on
31st December 1981 as Arab Bangladesh Bank Limited and started its operation with
effect from April 12, 1982. AB Bank is known as one of leading bank of the country
since its commencement 28 years ago. It continues to remain updated with the latest
products and services, considering consumer and client perspectives. AB Bank has
thus been able to keep their consumer’s and client’s trust while upholding their
reliability, across time. During the last 28 years, AB Bank Limited has opened 77
Branches in different Business Centers of the country, one foreign Branch in Mumbai,
India 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.
AB Bank Ltd
Type Private
Founded 1981
M.WahidulHaque
Key people
Chairman
Authorized capital in BDT*
6,000
(mn)
Branches 77
Paid-up Capital in BDT*
3205.32
(mn)
Website www.abbank.com.bd
4.5:
BRAC Bank (BRAC) is a commercial bank that was founded in 2001 by BRAC
NGO, one of the largest development finance institutions in the world. The bank’s
objectives include providing comprehensive commercial banking services, building a
profitable and modern, full-service financial institution, and pursuing profitable
market niches in the Small and Medium Enterprise (SME) business sector not
traditionally met by conventional banks.
The bank’s main portfolio products include loans for small and medium sized
entrepreneurs; personal loans, credit cards and multiple deposit accounts for retail
customers; and specialized retail products tailored to religious restrictions. The bank
also provides corporate deposit and loan products as well as non-resident Bangladeshi
remittance services. BRAC’s distribution network of 22 branches, 350 small and
medium enterprise unit offices, and 19 ATM sites span across Bangladesh and reach
more than 40,000 borrowers.
BRAC Bank Ltd
Founded 2001
Paid-up Capital in
2677.0
BDT* (mn)
4800.0
BDT* (mn)
Share Market Category A
Dr.Mohammad A (Rumme) Ali,
Key people
Chairman
Website www.bracbank.com
4.6:
Eastern Bank Limited (EBL) is one of the modern, fully online and technologically
superior private commercial Banks in Bangladesh. Eastern Bank markets a wide range
of depository, loan & card products. Eastern Bank Limited provides commercial
banking products and services to the corporate, mid-market, and retail segment in
Bangladesh and internationally. Its deposit products include savings deposit, EBL SB
insurance account, deposit–retail, EBL campus account, EBL interesting account,
EBL confidence, salary account deposits, monthly deposit plan, bearer certificate of
deposits, bills payable and fixed deposits comprising short term deposits, term
deposits, and non resident foreign currency deposits.. It also provides financial
products and services, including corporate deposit accounts, syndicated financing,
trustee and agency services, term loan, project finance, export-import financing,
working capital and other finance, bonds and guarantees, investment and business
counseling, infrastructure finance, and cash management services, as well as treasury,
syndication, securities, and custody services..
Eastern Bank Limited was founded in 1992 and is headquartered in Dhaka,

Bangladesh. Through a network of branches & centers countrywide. Eastern Bank has
its presence in major cities/towns of the country including Dhaka, Chittagong, Sylhet,
Khulna and Rajshahi. Tracing its origin back to 1992, EBL is serving the individual
and corporate clientele alike with remarkable success offering innovative banking
services since then.
Eastern Bank Ltd

Type Private-owned commercial Bank
Founded 1992
Paid-up Capital
2921.0 (mn)
in BDT
Authorized
12000(mn)
capital in BDT
Branches 6 in Dhaka
Key People Mr.Mohd.Noor Ali
Website http://www.ebl-bd.com
4.7:
Dhaka Bank Limited a private sector commercial bank. It was incorporated as a
public limited company on 6 April 1995 under the companies Act1994. It started
commercial banking operations on 5 July 1995 with an authorized capital of Tk 1000
million, divided into 10 million ordinary shares of Tk 100 each. The issued,
subscribed, and paid up capital of the bank in 1995 was Tk 100 million, which was
paid fully by the sponsors. In addition to all sorts of traditional banking activities,
Dhaka Bank provides on-line tele-banking services and a comprehensive range of
financial services to national and multinational companies in the country. It also
underwrites shares and debentures, works as issue manager, and participates in other
operations in money Market and Capital Market.
As a member of the Dhaka and Chittagong stock exchanges, the bank participates in
the day-to-day transactions of the stock exchanges. The bank has established a large
network of foreign correspondents covering important business centres in 107
countries around the world and now has 325 foreign correspondents in these
countries. The bank introduced Reuter's screen since 1998, which has accelerated its
foreign exchange dealings. Of its 12 branches, 10 are authorized to deal in foreign
exchange. The aggregate quantum of import business handled by the bank in 1999
stood at Tk 9,075 million while the export business handled by the bank that year was
worth Tk 3,299.30 million.
Management of the bank is vested in an 18-member board of directors that includes

the chairman and a vice-chairman. The managing director is the chief executive of the
bank. He is assisted by 3 executive vice presidents, 9 senior vice presidents, 7 vice
presidents, 8 senior assistant vice presidents, 12 first assistant vice presidents, and 9
assistant vice presidents. Total number of regular employees working in the bank is
247. The bank had 14 branches in December 2000.
Dhaka Bank Limited

Founded 1995
Paid-up Capital in BDT 2660.0 (mn)
Authorized capital in BDT 10000(mn)
Website http://www.dhakabank.com.bd
4.8:
Pubali Bank Limited was initially established in East Pakistan as Eastern
Mercantile Bank Limited in 1959, under the Bank Companies Act of 1913.
Bangladesh became independent in 1972 Eastern Mercantile Bank Limited was
nationalized and renamed as Pubali Bank. The bank was denationalized in 1983, and
was renamed as Pubali Bank Limited. The People's Republic of Bangladesh handed
over all assets and liabilities of Pubali Bank to Pubali Bank Limited. Since then
Pubali Bank Limited has been involved in Commercial Banking services as the largest
bank in the private sector of Bangladesh. The functions of the bank include deposit
mobilisation, financing productive activities, conducting foreign exchange business
and providing various types of banking services to the customers. Total deposits of
the bank on 31 December 1972 were Tk 767.98 million, which rose to Tk 5,409.11
million in December 1984.
Total loans and advances of the bank during these two reference periods were Tk
471.64 million and Tk 4,333.46 million respectively. Total liabilities (assets) of bank
were valued at Tk 7,233.64 million on 31 December 1984. Compared to these, the
value of total deposits, total loans and advances, and total liabilities (assets) on 31
December 2000 was Tk 29,590.1 million, Tk 21,572.2 million and Tk 33,436.9
million respectively. The deposits comprised savings deposits Tk 11,608.6 million,
fixed deposits Tk 5,557.3 million, current deposits Tk 3,933.1 million, and other
deposits Tk 8491.1 million.
Pubali Bank Limited

Founded 1959
Key people Mr.Hafiz Ahmed Mazumdar, Chairman
Authorized capital
10000(mn)
in BDT
Paid up Capital in
4969.0 (mn)
BDT
Website www.pubalibangla.com
4.9:
Uttara Bank formed in 1972 as a scheduled bank with assets and liabilities of the
Eastern Banking Corporation set up in East Pakistan on 28 January 1965. It started
banking business 22 June 1965 and became a member of the Dhaka Clearing House
on 17 September 1965. At the time of establishment, Eastern Banking Corporation
had a paid up capital of Tk 1.42 million and deposit resources of about Tk 10 million.
It was the only scheduled bank formed with capital raised entirely from the small
income group of people of East Pakistan.
Eastern Banking Corporation was nationalised under the Bangladesh Banks
Nationalisation Order 1972 and its name was changed to Uttara Bank. At that time,
the bank had 182 branches. The government retracted 95% of its share capital and
allowed it to operate as a private bank. It was transformed into a limited company on
15 September 1983. On 31 December 2000, the authorised capital of the bank was Tk
200 million divided into 2 million ordinary shares of Tk 100 each. Its issued and paid
up capital was Tk 100 million, of which Tk 5 million is subscribed by the
government. The bank is listed with both Dhaka and Chittagong Stock Exchanges.
The bank performs all traditional commercial banking functions. It renders agency
services to the government in food procurement and collection of government revenue
through the network of its branches all over the country. The total volume of foreign
exchange business handled by the bank during 1998-99 amounted to Tk 16,600
million which comprised exports servicing Tk 4,450 million, imports financing Tk
10,560 million and remittances facilities Tk 1,590 million. The bank has
correspondent relationships with 300 foreign banks/bank offices and exchange houses
in 72 countries. The bank had 198 branches (150 urban and 48 rural) and the number
of employees in all its branches 2,822 including 84 executives, 1,756 officers, 326
assistant officers, and 656 employees of non-officer grades. The bank's branch
banking is supervised through its 12 zonal offices in different parts of the country
Uttara Bank limited
Corporate Offices ( Corporate Branch & Local Office ) 2

Regional Office 12
Worldwide Affiliates 600
Total Branches ( Including Corporate Branch & Local Office ) 211
Authorized Dealer Branches 38
Treasury & Dealing Room 1
Training Institute 1
Man Power 3562
4.10:
United Commercial Bank Limited incorporated on 26 June 1983 as a public
company with limited liability under the Companies Act 1994. The bank obtained
permission to commence business with effect from 26 June 1983 and started banking
operations on 29 June 1983 with an authorized capital of Tk 100 million divided into
1 million ordinary shares of Tk 100 each. The paid up capital was Tk 35.5 million.
Later, both authorized and paid up capital were increased several times and on 31
December 2000, they stood at Tk 1,000 million and Tk 230.16 million respectively.
Of the total paid up capital, Tk 101.56 million was paid by its 37 sponsors; 3,048
members of general public shareholder paid Tk 114.54 million and the remaining Tk
14.06 million were subscribed by the government of the People's Republic of
Bangladesh. Reserve funds of the bank comprised statutory reserves and general
reserves of Tk 334.78 million in 1999 as against Tk 85.88 million in 1990. The bank
is listed with Dhaka and Chittagong Stock Exchanges. The management of the bank is
vested in a 20-member board of directors with the managing director as the chief
executive. In 2001, the bank had 81 branches and a total of 1,960 employees.
United Commercial Bank Limited
Type Private Oriented Bank

Founded 1983
2000 (mn)
BDT
Chairman Mr.M.A Hashem
Vice-Chairman Mr.Kazi Enamul Haque
Website www.ucbl.com
4.11:
ONE Bank Limited was incorporated in May, 1999 With the Registrar of Joint Stock
Companies under the Companies Act. 1994, as a commercial bank in the private
sector. The Bank is pledge-bound to serve the customers and the community with
utmost dedication. The prime focus is on efficiency, transparency, precision and
motivation with the spirit and conviction to excel as ONE Bank in both value and
image. The name 'ONE Bank' is derived from the insight and long nourished feelings
of the promoters to reach out to the people of all walks of life and progress together
towards prosperity in a spirit of oneness.OBL is a private sector commercial bank
dedicated in the business line of taking deposits from public through its various
saving schemes and lending the fund in various sectors at a higher margin.. OBL also
involved in cement construction and transport sector financing. In the investment
portfolio, OBL have substantial investment in quoted and non-quoted shares of
different organization including some very prospective financial institutions. The
bank has shown its acumen in reducing its exposure from ship scrapping sector, steel
re-rolling where the bank had investment earlier. With the increase in exposure to
RMG, the bank has increased its non-funded business income substantially. With an
age of only 8 years, the OBL has taken initiative to launch IT based banking products
like ATM facilities, E-banking etc that are praiseworthy.
ONE Bank Limited

Type Private Commercial Bank
Founded 1999
Headquarters Dhaka
Key people Mr.Zahir Ullah
Authorized capital in BDT 4150.0 (mn)
Website www.onebankbd.com
4.12:
National Credit and Commerce Bank Ltd. bears a unique history of its own. The
organization started its journey in the financial sector of the country as an investment
company back in 1985. The aim of the company was to mobilize resources from
within and invest them in such way so as to develop country's Industrial and Trade
Sector and playing a catalyst role in the formation of capital market as well. Its
membership with the browse helped the company to a great extent in this regard. The
company operated upto 1992 with 16 branches and thereafter with the permission of
the Central Bank converted in to a full fledged private commercial Bank in 1993 with
paid up capital of Tk. 39.00 corore to serve the nation from a broader platform.
NCC Bank ltd

Founded 1993
Headquarters Dhaka , Bangladesh
Mohammad Nurul Amin, Managing
Key people
Director
5000.0 (mn)
BDT
Website www.nccbank-bd.com
4.13:
Citibank, a major international bank, is the consumer banking arm of financial

services giant Citigroup. Citibank was founded in 1812 as the City Bank of New
York, later First National City Bank of New York. As of March 2010[update],
Citigroup is the third largest bank holding company in the United States by domestic
deposits, after Bank of America and JP Morgan Chase.Citibank has retail banking
operations in more than 100 countries and territories around the world. More than half
of its 1,400 offices are in the United States, mostly in New York City, Chicago, Los
Angeles, San Francisco/Silicon Valley, and Miami. More recently, Citibank has
expanded its operations in the Boston, Philadelphia, Houston, Dallas, and Washington
D.C. metropolitan areas, albeit with a mixed record of success.
It was reported that Citigroup executives were pleased with the performance of the
Boston branches, but were less impressed with the Philadelphia experiment, according
to a person familiar with the situation.. The article also noted that Citi could abandon
or scale back where it is an also-ran, including Boston, Philadelphia and parts of
Texas, according to people with knowledge of the discussions.
Citibank
Founded 1983
Total Asset Tk-764.66 core
Paid-up Capital Tk-157.12 core
SME Branches 14
Branches 87
Number of ATM 46
Website www.thecitybank.com
4.14:
HSBC Holdings was established in 1990 and became the parent company to The
Hongkong and Shanghai Banking Corporation in preparation for its purchase of
Midland Bank and a change of domicile for the transfer of sovereignty of Hong Kong.
Shares in HSBC Holdings, which gave HSBC a substantial presence in the UK, was
completed in 1992. HSBC then moved the headquarters of HSBC Holdings from
1Queens Road Central, Hong Kong to 10 Lower Thames Street, London in 1993.
Major acquisitions in South America started with the purchase of Banco Bamerindus
of Brazil for $1bn in March 1997 and the acquisition of Roberts SA de Inversiones of
Argentina for $600m in May 1997.In May 1999 HSBC embarked on a major
acquisition in the United States with the purchase of Republic National Bank of New
York for $10.3bn.[9] Expansion into Continental Europe took place in April 2000 with
the acquisition of Credits Commercial de France, a large French bank for £6.6bn.]
In July 2001 HSBC bought Demirbank, an insolvent Turkish bank. Then in August
2002 HSBC acquired Grupo Financiero Bital, SA de CV, Mexico's largest retail bank
for $1.1bn .The new headquarters of HSBC Holdings at 8 Canada Square, London
officially opened in April 2003.Then in September 2003 HSBC bought Polski Kredyt
Bank SA of Poland for $7.8m.[14] A terrorist attack took place in November 2003: a
bomb blast in Istanbul damaged the bank's head office in Turkey, causing several
deaths and hundreds of injuries.
HSBC
Type World Class Local Bank
Founded 1990
Headquarters Canada Squire in London
Number of ATM 27
Branches 09
Employees 830
Website www.hsbc.bd.com
4.15:
EXIM Bank Limited was established in 1999 under the leadership of Late Mr.
Shahjahan Kabir, founder chairman who had a long dream of floating a commercial
bank which would contribute to the socio-economic development of our country. He
had a long experience as a good banker. A group of highly qualified and successful
entrepreneurs joined their hands with the founder chairman to materialize his dream.
In deed, all of them proved themselves in their respective business as most successful
star with their endeavor, intelligence, hard working and talent entrepreneurship.
Among them, Mr. Nazrul Islam Mazumder became the honorable chairman This
bank starts functioning from 3rd August, 1999 with Mr. Alamgir Kabir, FCA as the
advisor and Mr. Mohammad Lakiotullah as the Managing Director. Both of them
have long experience in the financial sector of our country. By their pragmatic
decision and management directives in the operational activities, this bank has earned
a secured and distinctive position in the banking industry in terms of performance,
growth, and excellent management. The authorized capital and paid up capital of the
bank are Tk. 3500.00 million and Tk2677.80million respectively.
EXIM BANK LTD
Date of Incorporation June 02,1999
Inauguration of First August 03,1999

Branch
Authorized Capital TK.1000.00 corer
Paid –Up- capital TK.337.39 corer
Number of branches 52
Proposed branches 10
CREDIT RATING
Long Term ‘AA’
Short Term ‘ST-2’
Shareholders Equity 6717.21
Chapter: 05
Back Ground of Capital Budgeting Technique
Background of Capital Budgeting Technique:
5.1: Capital Budgeting Technique

 Capital Budgeting Decision: A capital budgeting decision may be defined as the
firm’s decision to invest its current funds most efficiently in the long-term assets in
anticipation of an expected flow of benefits over a series of years.
Steps of Capital budgeting:
 Identification of investment project

 Evaluation of alternative investment project
 Selection of the project
 Implemention of the project
 Continuous of evalution of the seleted project
Techniques of Capital budgeting: A number of capitals budgeting techniques are in

use in practice. The most common techniques are:
 Non-discounted Cash flow criteria: These techniques do not employ the time
value of money concepts.
 Payback Period (PB)

 Accounting Rate of Return (ARR)
 Discounted Payback Period
 Discounted Cash flow criteria

 Net Present Value (NPV)
 Internal Rate of Return (IRR)
 Profitability Index.
 Modified Internal Rate of Return (MIRR)
 Payback Period (PB): The payback period is the time required for a firm to
recover its original investment. If the payback period calculated for the project is less
than the maximum or standard payback period set by the management, it would be
accepted; if not, it would be rejected.
 Accounting Rate of Return (ARR): The accounting rate of return, also known as
the return on investment, uses accounting information, as revealed by financial
statements, to measure the profitability of an investment. The accounting rate of
return is found out by dividing the average after-tax profit by the average investment.
The average investment would be equal to half of the original investment if it is
depreciated constantly. Alternatively, it can be found out dividing the total of the
investment’s book values after depreciation by the life of the project.
 Net Present Value (NPV): Under the net present value method, the present value
of a project’s cash inflows is compared to the present value of the project’s cash
outflows. The difference between the present values of these cash flows, called the net
present value, determines whether or not the project is an acceptable investment. The
NPV acceptance rules are:
 Accept if NPV> 0.
 Reject if NPV< 0.
 May accept if NPV 0.
 Internal Rate of Return (IRR): The internal rate of return is the rate of return
promised by an investment project over its useful life. It is sometimes referred to
simply as the yield on a project. The internal rate of return is computed by finding the
discount rate that equates the present value of a project’s cash outflows with the
present value of its cash inflows. In other words, the internal rate of return is that
discount rate that will cause the present value of a project to be equal to zero.
 Profitability Index (P1): Profitability index is the ratio of the present value of
cash inflows, at the required rate of return, to the initial cash outflow of the
investment. The P1 acceptance rules are:
 Accept if P I>1.
 Reject if PI<1.
 May accept if PI= 1.
Where P1 is greater than 1, the project will have positive net present value.
 Discounted Payback Period (PB): In investment decisions, the number of years

it takes for an investment to recover its initial cost after accounting for inflation,
interest, and other matters affected by the time value of money, in order to be
worthwhile to the investor. It differs slightly from the payback period rule, which only
accounts for cash flows resulting from an investment and does not take into account
the time value of money. Each investor determines his/her own discounted payback
period rule and, as such, it is a highly subjective rule. In general, however, short-term
investors use a short number of years or even months for their discounted payback
period rules, while long-term investors measure their rules in years or even decades
 Modified Internal Rate of Return (MIRR): MIRR - Is basically the same as the
IRR, except it assumes that the revenue (cash flows) from the project are reinvested
back into the company, and are compounded by the company's cost of capital, but are
not directly invested back into the project from which they came.
 Expansion: a company may add capacity to its existing product lines to expand
existing operation. A firm may expand its activities in a new business.
 Cost reduction: Reduce cost by improving productivity. Cost is the main fact for
profit, if the firm able to reduce the cost the able to get more profit.
 Replacement: replace means, change the existence fixed assets for improving the
efficiency and cost reduction.
 Lease or Buy: The decisions in which the capital will be acquired that is are they
buy or lease the capital assets?
 Modernization: modernization means, improve the existence fixed assets for
improving the efficiency and get more profits.
 Mutual exclusive: mutual exclusive investments serve the same purpose and
compete with each other. If one investment decision will take another will be
excluded.
 Independent project: A project that is not part of or dependent on any other

project. Thus, the funding of an independent project does not depend on another
project receiving funding first. Independent project investment serve different purpose
and do not compete with each other
 Weighted average cost of Capital (WACC): A calculation of a firm's cost of

capital in which each category of capital is proportionately weighted. All capital
sources - common stock, preferred stock, bonds and any other long-term debt - are
included in a WACC calculation. All else help equal, the WACC of a firm increases
as the beta and rate of return on equity increases, as an increase in WACC notes a
decrease in valuation and a higher risk. .
5.2: Nature of Investment decision

A capital budgeting decision may be define as the firms decision to invest its current
funds most efficiently in the long-term assets in anticipation of an expected flow of
benefits over a series of year. The firm investment decision would generally include
expansion, acquisition, modernization and replacement of long-term assets.
Investment in fixed and current assets is one single activity. The following are the
features of the investment decision
1. The exchange of currents fund for future benefits.

2. The funds are invested in long-term assets.
3. The benefits will occur to the firm over a series of years.
It is significant to emphasize those expenditures and benefits of an investment should
be measured in cash. In the investment analysis, it is cash flow which is important, not
the accounting profit. It also may be pointed out that investment decision affects the
firm’s value. The firm values are increase if investment are profitable and add to the
shareholders wealth.
5.3: Importance of Investment Decisions

Investment decisions require special attention because of the following reasons:
1. They influence the firm’s growth in the long run

2. They affect the risk of the firm
3. They involve commitment of large amount of finds
4. They are irreversible, or reversible at substantial loss
5. They are among the most difficult decisions to make
Growth The effects of investment decisions extend into the future and have to be
endured for a longer period than the Consequences of the current operation
expenditure. A firm’s decision to invest in loin-term assets has a decisive influence on
the rate and direction of its growth. A wrong decision can prove disastrous for the
continued survival of the firm’s unexpected or unprofitable expansion of assets will
result in heavy operating costs to the firm. On the other hand, inadequate investment
in assets would make it difficult for the firm to compete successfully and maintain its
market share
Risk A long-term commitment of fund may also change the risk complexity of fire
firm. If the adoption of an investment increases average gain but causes frequent
fluctuations in its earning the firm will become more risky Thus, investment decisions
shape the basic character of a firm.
Funding Investment decisions generally involve large amount of funds, which make
it imperative for the firms to plan its investment program carefully and make an
advance arrangement for procuring finances internally or externally
Irreversibility Most investment decisions are irreversible It is difficult to find a
marker for such capital items once they have been acquired The firm will incurred
heavy losses if such assets are scrapped
Complexity Investment decisions are among firms most difficult decision. They are
an assessment of future events, which are difficult to predict. It is really a complex
problem to correctly estimate the future cash flows of an investment Economic,
political, social and technological forces cause the uncertainty in cash floss
estimation.
Chapter: 06
Analysis & Findings

Analysis & Findings:
Findings are the components that jewelry makers use to assemble their jewelry and
include items such as clasps, earring backs and hooks. We are tried to find the relative
of capital budgeting technique that are applying in banking sector by using some
question. For this purpose we use a questioner and fill it by the relative person of the
selected Bank. According to their answer we got the following criteria that they use
in their banking operation-
What types of
Why does
Bank What type of capital Assessing the
your bank What is the Evaluate Determining the
/ capital decision budgeting risk of the Imp
take capital basis for cost cash flow: cost of capital
Crite does your bank technique are project
budgeting of capital?
ria take? used by your
decisions?
bank?
DBB Expansion, Independent Discounted Cost of Medium Medium Medium A li
L project Bank Loan,
Cost Cash
Past
reduction, Experience
IFIC Expansion Mutually Discounted Past Medium Medium Medium A li
exclusive project
Cash Experience
NBL Expansion, Independent Discounted & Past Medium A little bit Medium Me
project Non-
Replacemen Experience
Discounted
t Cash- Flow
AB Cost Independent Discounted & Past A little bit Not at all Medium A li
BA reduction, project Non- Experience
NK Lease or Discounted
buy Cash- Flow
BRA Cost Independent Discounted Past Medium Medium Medium A li
C reduction, project Cash- Flow Experience
Expansion
EBL Cost Mutually Discounted & Weighted Medium A little bit Medium Me
reduction, exclusive project Non- average cost
Replacemen Discounted of capital
t Cash- Flow
DBL Cost Mutually Non- Weighted A little bit Medium A little bit A li
reduction, exclusive project Discounted average cost
Modernizati Cash- Flow of capital
on
PBL Expansion Independent Discounted & Past Medium A little bit Medium A li
project Non- Experience
Discounted
Cash- Flow
UBL Cost Independent Discounted Cost of Medium Medium A little bit Me
reduction, project Cash- Flow Bank Loan
Replacemen
t
UCB Expansion& Mutually Discounted Past A little bit Medium Medium Sev
L Cost exclusive Cash- Flow Experience
Reduction
NCC Cost Independent Discounted & Cost of Medium Severe A little bit Sev
reduction & project Non- Bank Loan
Replacemen Discounted & Past
t Cash- Flow Experience
OBL Expansion Independent Discounted Cost of Medium Severe A little bit Sev
project Cash- Flow Bank Loan
HSB Expansion& Independent Discounted Past A little bit A little bit Medium A li
C Cost project Cash- Flow Experience
Reduction
EXI Expansion& Independent Discounted & Cost of Medium Medium A little bit Me
M Cost project Non- Bank Loan
Reduction Discounted & Past
Cash- Flow Experience
CBL Expansion& Independent Discounted Cost of Medium Medium A little bit Sev
Cost project Cash- Flow Bank Loan
Reduction
Importance of capital They are irreve

The influence the bank’s The affect the risk of the The involve commitment
reversible at s
Budgeting Decision growth in long run Bank of large amount of fund
loss
DBBL Highly Important Moderately Important Moderately Important Highly Importan
IFIC Highly Important Moderately Important Neutral Neutral
NBL Highly Important Highly Important Slightly Important Neutral
AB BANK Highly Important Moderately Important Moderately Important Highly Importan
BRAC Highly Important Moderately Important Neutral Neutral
EBL Moderately Important Highly Important Slightly Important Neutral
DBL Highly Important Moderately Important Neutral Slightly Importa
PBL Moderately Important Slightly Important Highly Important Slightly Unimpo
UBL Moderately Important Slightly Important Moderately Important Moderately Imp
UCBL Moderately Important Highly Important Moderately Important Moderately Imp
NCC Moderately Important Slightly Important Moderately Important Neutral
OBL Moderately Important Slightly Important Moderately Important Highly Importan
HSBC Highly Important Highly Important Slightly Important Highly Importan
EXIM Highly Important Moderately Important Neutral Neutral
CBL Highly Important Slightly Important Highly Important Neutral
Techniques of
Net-present Modified
Internal Rate of Profitability Discounted
Capital value (NPV) Internal Rate of
Return (IRR) Index (PI) Payback Period
Return (MIRR)
Budgeting
DBBL Always Always Frequently Frequently Rarely
IFIC Always Always Frequently Frequently Rarely
NBL Always Frequently Frequently Frequently Rarely
AB BANK Always Always Always Sometimes Never
BRAC Frequently Frequently Sometimes Sometimes Never
EBL Frequently Frequently Sometimes Rarely Never
DBL Frequently Sometimes Rarely Never Rarely
PBL Sometimes Frequently Sometimes Always Rarely
UBL Frequently Frequently Frequently Sometimes Never
UCBL Frequently Frequently Sometimes Frequently Never
NCC Always Frequently Frequently Sometimes Never
OBL Frequently Frequently Always Sometimes Never
HSBC Always Frequently Sometimes Rarely Never
EXIM Always Frequently Sometimes Frequently Never
CBL Always Sometimes Sometimes Rarely Never
Techniques of
Net-present value Modified Internal
Internal Rate of Profitability Discounted
Capital (NPV) Rate of Return Payback Peri
Return (IRR) Index (PI) Payback Period
(MIRR)
Budgeting
DBBL Highly Satisfied Moderately Moderately Neutral Neutral Neutral
Satisfied Satisfied
IFIC Highly Satisfied Moderately Moderately Neutral Neutral Neutral
Satisfied Satisfied
NBL Highly Satisfied Moderately Moderately Slightly Neutral Neutral
Satisfied Satisfied Satisfied
AB BANK Highly Satisfied Highly Satisfied Highly Satisfied Slightly Neutral Neutral
Satisfied
BRAC Highly Satisfied Moderately Moderately Neutral Neutral Neutral
Satisfied Satisfied
EBL Moderately Slightly Neutral Neutral Neutral Moderately
DBL Highly Satisfied Moderately Moderately Neutral Highly Satisfied Neutral
Satisfied Satisfied
PBL Neutral Moderately Moderately Neutral Slightly Moderately
Satisfied Satisfied Dissatisfied Dissatisfied
UBL Highly Satisfied Moderately Moderately Slightly Neutral Neutral
UCBL Highly Satisfied Highly Satisfied Highly Satisfied Moderately Neutral Neutral
Satisfied
NCC Highly Satisfied Moderately Slightly Moderately Neutral Neutral
OBL Moderately Slightly Moderately Slightly Highly Satisfied Neutral
Satisfied Satisfied Satisfied Satisfied
HSBC Highly Satisfied Moderately Moderately Slightly Neutral Neutral
EXIM Highly Satisfied Highly Satisfied Highly Satisfied Moderately Neutral Neutral
Satisfied
CBL Highly Satisfied Moderately Slightly Moderately Neutral Neutral
Problem
implementing of Absence of relevant Lack of skilled Arbitrary capital Too much cost
and realize data
Capital Budgeting manpower budgeting decision concern
Decision
DBBL Moderate Slightly Important Neutral Moderate
Important Important
IFIC Neutral Highly Important Slightly Important Neutral
NBL Moderate Slightly Important Highly Important Neutral
Important
AB BANK Moderate Slightly Important Moderate Neutral
Important Important
BRAC Slightly Important Neutral Slightly Important Moderate
Important
EBL Moderate Slightly Important Neutral Moderate
Important Important
DBL Neutral Highly Important Slightly Important Neutral
PBL Moderate Slightly Important Highly Important Neutral
Important
UBL Moderate Highly Important Moderate Neutral
Important Important
UCBL Moderate Highly Important Neutral Neutral
Important
NCC Moderate Moderate Slightly Important Neutral
Important Important
OBL Slightly Important Highly Important Moderate Slightly Important
Important
HSBC Moderate Highly Important Moderate Neutral
Important Important
EXIM Moderate Highly Important Neutral Neutral
Important
CBL Moderate Moderate Slightly Important Neutral
Important Important
Recommendation of On the job

Support of top Recruit skil
Training Off the job training
solving problems management manpower
DBBL Highly Important Highly Important Highly Important Highly Important

IFIC Moderate Moderate Moderate Highly Important
Important Important Important
NBL Highly Important Highly Important Highly Important Highly Important
AB BANK Highly Important Highly Important Highly Important Highly Important
BRAC Moderate Moderate Moderate Highly Important
Important Important Important
EBL Highly Important Highly Important Highly Important Highly Important
DBL Highly Important Highly Important Moderate Slightly Unimporta
Important
PBL Slightly Slightly Important Moderate Highly Important
Important Important
UBL Moderate Highly Important Highly Important Moderate Importan
Important
UCBL Highly Important Highly Important Highly Important Highly Important
NCC Moderate Moderate Highly Important Highly Important
Important Important
OBL Moderate Highly Important Moderate Slightly Important
Important Important
HSBC Moderate Highly Important Highly Important Moderate Importan
Important
EXIM Highly Important Highly Important Highly Important Highly Important
CBL Moderate Highly Important Highly Important Moderate Importan
Important
GRAFICAL PRESENTATION
In the capital decision NPV is best among the three banks that is Datch Bangla Bank
Limited, IFIC Bank Limited, and National Bank Limited they always use NPV
technique but the budgeting technique like IRR are frequently used by DBBL, and
IFIC. And NBL always use this technique. Non-discounted cash flow criteria like
Payback period, Discounted Payback period, and Accounting rate of return which do
not consider the time value of money are always used by IFIC and NBL. So it is not
correct technique for bank for capital investment. For solving this problem the
authority should give emphasis on this matter.
On the satisfaction of this technique we can see that both NBL and IFIC are highly
satisfied in most of the technique. The DBBL, they are highly satisfied only by using
NPV some of the techniques they do not use, so they result those technique as neutral.
In our Analysis we find that 53% bank always used NPV, 40% frequently used NPV,
7% sometime used NPV, rarely and never used 0%.
In our analysis we find that 20% bank always used IRR, 67% frequently used IRR,
and 13% sometime used IRR, rarely and never used 0%.
In our analysis we find that 13% bank always used MIRR, 33% frequently used
MIRR, 47% sometime used MIRR, 7% sometime used rarely MIRR and MIRR 0%
used in never.
In our analysis we find that 7% bank always used PI, 33% frequently used PI, 33%
sometime used PI, 20% sometime used rarely PI and 7% used in never.
In our Analysis we find that 0% bank always used discounted payback period, 0%
frequently used discounted payback period, 0% sometime used discounted payback
period, 27% rarely and never used 73%.
Chapter: 07
Comparession, Recommendation&Conclusion
7.1: Comparession
Particular DBBL AB Bank Southeast Bank Prime Bank

Saving 8% 7.8% 7.5% 8%
Fixed Deposit 10% 11% 10.5% 11.25%
Home Loan 16.5% 17% 16.5% 16%
Auto Loan 17% 17.5% 18% 18%
Study Loan 20% 19.5% 20% 19.75%
Marriage Loan 17.5% 16% 15.5% 17%
Debit Card Charge 500 500 500 500
Credit Card 1200 1200 1200 1200
Personal Loan 18% 17.5% 18% 19%
Export Tk.2,000/- per Tk.2,200/- per Tk.2,000/- per Tk.2,100/- per
case/per bill. case/per bill. case/per bill. case/per bill.
Import Tk.2,000/- per Tk.2,200/- per Tk.2,000/- per Tk.2,100/- per
case/per bill. case/per bill. case/per bill. case/per bill.
Foreign Currency Tk. 500/- Tk. 750/- Tk. 800/- Tk. 650/-
Charge
7.2: Recommendation:
Businesses look for opportunities that increase their share holders’ value. In capital
budgeting, the managers try to figure out investment opportunities that are worth
more to the business than they cost to acquire. Ideally, firms should peruse all such
projects that have good potential to increase the business worth. Since the available
amount of capital at any given time is limited; therefore, it restricts the management
to pick out only certain projects by using capital budgeting techniques in order to
determine which project has potential to yield the most return over an applicable
period of time. Capital budgeting is the process which enables the management to
decide which, when and where to make long-term investments. With the help of
Capital Budgeting Techniques, management decide whether to accept or reject a
particular project by making analysis of the cash flows generated by the project over a
period of time and its cost. Management decides in favor of project if the value of
cash flows generated by the project exceeds the cost of undertaking that project.
According my opinion every manager should to maintain the following criteria in
Capital Budgeting Decision to ensure their proper capital uses.
 Must give consideration to all cash flows generated by the project.

 Must take into account Time Value of Money concept.
 Must always lead to the correct decision when choosing among mutually
exclusive projects.
 Time value of money is significant while considering the new project.
 The cash flow like inflow and outflow consider at perishable time.
7.3: Conclusion:
Capital budjeting is an outline of planned investments in fixed assets and it is the
whole process of analyzing projects and deciding which ones to include in the capital
budjet. Businesses look for opportunities that increase their share holders’ value. In
capital budgeting,the managers try to figure out investment opportunities that are
worth more to the business than they cost to acquire. Ideally, firms should peruse all
such projects that have good potential to increase the business worth. Since the
available amount of capital at any given time is limited; therefore,it restricts the
management to pick out only certain projects by using capital budgeting techniques in
order to determine which project has potential to yield the most return over an
applicable period of time.An efficient allocation of capital is the most important
finance function in the modern times. It involves decision to commit the firm’s funds
to the long-term assets. Capital budgeting or investment decisions are of considerable
importance to the firm since they tend to determine its value by influencing its
growth, profitability and risk.
Reference:
1. www.gogle.com
2. www.banglapedia.com
3. www.dbbl.com.bd
4. www.ificbankbd.com
5. www.nblbd.com
6. www.abbank.com.bd
7. www.bracbank.com
8. www.bracbank.com
9. www.primebank.com
10. www.pubalibank.com
11. www.ebl-bd.com
12. www.hsbc.bd.com
13. www.ucbl.com
Appendix:
Appendix:
Survey Questionnaire
Dear Sir/ Madam
This is to inform you that Golam Sarwar Hossain Khan Assistance professor
Department of business administration, Stamford University Bangladeshis requesting
you to answer the following questions related to “Capital Budgeting Technique in
Private Commercial Bank of Bangladesh”. This thesis paper is a partial requirement
to complete his MBA degree.
Name of the Organization:
1. Why does your bank take capital budgeting decision?

a) Expansion b) Cost reduction c) Replacement d) Lease or Buy
e)Modernization
1. What type of capital decision does your bank?
a) Mutually exclusive project b) Independent Project c) Contingent
projects
1. What types of capital budgeting techniques are used by your bank?
a) Discounted cash-flow b) Non- Discounted cash-flow c) Both
1. What is the basis for cost of capital?
a) Cost of Bank loan. b) weighted average cost of Capital c) past
experience d) Other
1. In which steps does your bank face problem?
a) Evaluate cash flow a) Severe b) Medium c) A little Bit d)
Not at all
b) Assessing the risk of the project: a) Severe b) Medium c) A little Bit d)
Not at all
c) Determining cost of capital: a) Severe b) Medium c) A little Bit d)
Not at all
d) Implementation: a) Severe b) Medium c) A little Bit d)
Not at all
e) Acceptance decision: a) Severe b) Medium c) A little Bit d)
Not at all
Importance of Highly Moderatel Slightly Neutral Slightly Moderately Highly

Capital Budgeting Important y Important Unimportant Unimportant Unimportant
Decision Important
They influence the

bank’s growth in
the long-run.
They affect the risk
of the Bank
They involve
commitment of
large amount of
funds
They are
irreversible or
reversible at losses
They are among
the most difficult
decision to make
Technique of Capital Budgeting

Always Frequently sometimes Rarely Never
Use
Net-Present Value (NPV)
Internal rate of return (IRR)
Modified Internal rate of return
(MIRR)
Profitability Index (PI)
Discounted payback period
Payback period
Accounting rate of return (ARR)
Technique of Capital Highly Moderatel Slightly Neutral Slightly Moderately Highly

Budgeting Satisfied y Satisfied Satisfied dissatisfied dissatisfied dissatisfied
Net-Present Value (NPV)
Internal rate of return
(IRR)
Modified Internal rate of
return (MIRR)
Profitability Index (PI)
Discounted payback period
Payback period
Accounting rate of return
(ARR)
Problems Highly Moderately Slightly Neutral Slightly Moderately Highly

implementing of Important Important Important Unimportant Unimportant Unimportant
Capital Budgeting
Decision
Absence of
relevant and realize
data
Lace of skilled
manpower
Arbitrary capital
budgeting decision
Too much cost
concern
Ignorance about
benefits
Lack of top
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of solving problems Important y Important Unimportant Unimportant Unimportan
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On the job training
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Support of top
management
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Setting library for
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others
Thank you for your time consideration

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STAMFORD

CAPITAL BUDGETING TECHNIQUES OF

Dept. of Business Administration

Subject: Submission of Thesis report

The topic of my thesis study is “Capital budgeting techniques of private

I here announce that the extensive study entitled

“A Study on Capital Budgeting Techniques”

(In the context of Private Commercial Banks in Bangladesh)

Master of Business Administration

STAMFORD UNIVERSITY BANGLADESH

Is my original work and not put forward for

To Whom It May Concern

This is to certify that the Thesis Paper on “ Capital budgeting techniques of

Department of Business Administration

Finally, I want to give my special thanks to the Academic supervisor

Chapter-2: Overview of Banking System

Capter-3: Goal of capital Budgeting

Chapter-5:Background of the capital budgeting techniques

Chapter-6: Analysis & Findings

1.1: Rationale of the Study

1.2: Objective of the Study

Primary Sources Secondary Sources

There are many limitations in the study. Such as-

 We have a limited time period, but this work is large.

Overview of Banking System

2.1: Bangladesh Scenario

5. The remittances have so far held up strongly. However, unfavorable

2.2: The implications for the banking system

1. The slow-down of growth of GDP and industrial production and negative

3. The slow-down of industrial production would cause a reduction in demand

4. It is understood that because of slow implementation of both revenue and

2.3: Mitigating actions

5. In order to increase profitability, the banks need to focus on the volume of

2.4: History of Banking Industry in Bangladesh

The banking system in Bangladesh started functioning with 1,130 branches of 12

Bangladesh Bank is empowered to regulate the issue of currency, maintain reserves,

Banking institutions in Bangladesh can be classified under different groups. Most

There is no independent merchant bank, investment bank or exchange bank in

2.5: List of banks in Bangladesh:

The banking system in Bangladesh started functioning with 1,130 branches of 12

Bangladesh Bank is empowered to regulate the issue of currency, maintain reserves,

Banking institutions in Bangladesh can be classified under different groups. Most

There is no independent merchant bank, investment bank or exchange bank in

State-owned Commercial Banks:

Private Commercial Banks:

Foreign Commercial Banks:

Specialized Development Banks:

Goal of Capital Budgeting

Literature on capital budgeting practices in Bangladesh is rare. However there are a

A commercial bank is a privately owned, for-profit entity that is licensed by the

Dutch-Bangla Bank Limited

IFIC Bank (International Finance, Investment and Commerce Bank Limited)

National Bank Limited

Eastern Bank Limited was founded in 1992 and is headquartered in Dhaka,

Eastern Bank Ltd

Management of the bank is vested in an 18-member board of directors that includes

Dhaka Bank Limited

Pubali Bank Limited