North South University: Establishing A Subsidiary of Bank of America in Bangladesh

NORTH SOUTH UNIVERSITY
REPORT ON
Establishing a Subsidiary of Bank of America in Bangladesh
SUBMITTED TO
Rushdy MD Bakth (RMB)
Department of Accounting & Finance
Course: FIN444
Section: 06
Submitted by:
Group Name: Finosapiens
[1631498630] Fariha Alam Nijhum
[1631848030] Shafiqul Islam
[1620132030] Rajesh Paul
[1612437030] Sohel Ahmed

Letter of Transmittal
DATE: 11th December, 2019
Rushdy MD Bakth
Lecturer
Department of Accounting and Finance
School of Business and Economics
North South University
Subject: Submission of the group project.
Sir,
We are pleased to present you our report on “Establishing a subsidiary of Bank of America in
Bangladesh”, in accordance with the course guidelines. We have prepared the project
meticulously, implementing the various concepts learned in the course. The project helped us to
exert these concepts in a practical scenario by applying the skills and strategies which certainly
worked as an aid, while at the same time, helped us develop our knowledge on international
investment and finance as well.
We sincerely hope that you will find this report appropriate as per the requirements. We have
tried our best to make the report meaningful, and relevant to the topic. However, we would
appreciate you contacting us if you have any further queries.
We thank you for your advice and guidance.

Executive Summary
The project discusses the establishment of the subsidiary of Bank of America in Bangladesh in
competition with HSBC Bangladesh along with their respective strengths and weaknesses. It
portrays a business plan representing the investment of Bank of America in Bangladesh which
mentions the entry strategy of the organization stating the plans to set up the operations, the ways
of financing them, the considerable government facilities/restrictions and the method of
international business.
The paper consists of brief discussions of the operational plans, which emphasizes the methods
and location of operation, and the short marketing plan, which includes the 4P analysis of the
subsidiary. Moreover, a forecasted Income Statement and Balance Sheet of Bank of America for
the years 2020, 2021 and 2022 in BDT is provided for a clear vision of the target. A forecasted
Income Statement for the respective years is also prepared in USD using the current exchange
rate in order to determine the net income when the fund is remitted to the parent company.
In addition, the report explains the profit of the three years in both the scenarios of currency
appreciation and depreciation by forecasting the exchange rate. It also talks about the
opportunities to reduce loss in case of unfavorable situations due to exchange rate fluctuations
over the three years. Lastly, it concludes the opinion and explains the feasibility of Bank of
America to invest in Bangladesh.
Table of Content
Introduction ................................................................................................................1
Company Description ................................................................................................2
SWOT Analysis .........................................................................................................4
Entry Strategy ............................................................................................................8
Operational Plan .......................................................................................................10
Marketing Plan .........................................................................................................12
Forecasted Financial Statement ...............................................................................14
Hedging Technique ..................................................................................................22
Conclusion ...............................................................................................................24
Appendix ..................................................................................................................25
Introduction
The project consists of an overall plan to establish a subsidiary of Bank of America in

Bangladesh in competition of HSBC Bangladesh as the main actor. The bank is expected to
initiate its operation officially from 1st January 2020 in the region of Gulshan 1 within the capital
of Bangladesh through foreign direct investment.
The establishment has a clear purpose to help make financial lives better through the power of
every connection, fulfilling the purpose through the commitment to responsible growth, which
includes a focus on environmental, social and governance leadership. The bank is expected to
serve its clients through operations with the modern technology of banking system. It is also
going to start a long-term commitment in helping communities thrive and prosper, both
economically and socially.
The principal purpose of the project is to analyze the performance of Bank of America with
respect to HSBC Bangladesh in order to compare and forecast the future position of Bank of
America in next three years.
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Company Description
Bank of America
The Bank of America Corporation is an American multinational investment bank and financial
services company founded in San Francisco, California and based in Charlotte, North Carolina,
with central hubs in New York City, London, Hong Kong, Minneapolis, and Toronto. Bank of
America was formed through NationsBank's acquisition of Bank America in 1998. It is the
second largest banking institution in the United States, after JPMorgan Chase. As a part of the
Big Four, it services approximately 10.73% of all American bank deposits, in direct competition
with Citigroup, Wells Fargo, and JPMorgan Chase. Its primary financial services revolve around
commercial banking, wealth management, and investment banking.
It was founded in February 1784 as Massachusetts Bank, as Bank of Italy in October 1904 and as
Bank of America through NationsBank’s acquisition in September 1998. It has 4,600 retail
financial centers and approximately 15,900 automated teller machines. The areas it serves for
international service products are consumer banking, corporate banking, insurance, investment
banking, mortgage loans, private banking, private equity, wealth management, credit cards.
Berkshire Hathaway is the 10% shareholder of the bank. It consists of 205,000 employees with a
rating Moody's: Baa1 S&P: BBB Fitch: A
The Bank of America name first appeared in 1923, with the formation of Bank of America, Los
Angeles. In 1928, it was acquired by Bank of Italy of San Francisco, which took the Bank of
America name two years later.
Mission Statement: “To offer lending and investment products that: Serve low- and moderate-
income individuals and families, improve underserved low-income and moderate-income
communities, and create sustainable practices for the long haul.”
Vision Statement: “Vision is to continue to help their customers grow and demonstrate how they
can turn opportunities into reality.” The statement shows the influence Bank of America has
when it comes to helping its customers achieve their needs.
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HSBC
HSBC is a British multinational investment bank and financial services holding company. It was
the 7th largest bank in the world by 2018, and the largest in Europe, with total assets of
US$2.558 trillion in 2018. HSBC traces its origin to a Hong in Hong Kong, and its present form
was established in London by the Hong Kong and Shanghai Banking Corporation to act as a new
group holding company in 1991. The origins of the bank lie mainly in Hong Kong and to a lesser
extent in Shanghai, where branches were first opened in 1865. The HSBC name is derived from
the initials of the Hong Kong and Shanghai Banking Corporation. The company was first
formally incorporated in 1866.
HSBC has around 3,900 offices in 65 countries and territories across Africa, Asia, Oceania,
Europe, North America, and South America, and around 38 million customers. As of 2014, it
was the world's sixth-largest public company. It is organized within four business groups:
Commercial Banking, Global Banking and Markets (investment banking), Retail Banking and
Wealth Management, and Global Private Banking. The company has a dual primary listing on
the Hong Kong Stock Exchange and London Stock Exchange and is a constituent of the Hang
Seng Index and the FTSE 100 Index.
HSBC was founded by Scotsman Thomas Sutherland in the then-British colony of Hong Kong
on 3 March 1865, and in Shanghai a month later, benefiting from the start of trading into China,
including opium trading. It was formally incorporated as The Hong Kong and Shanghai Banking
Corporation by an Ordinance of the Legislative Council of Hong Kong on 14 August 1866.
Mission Statement: "Provide Customers with the Best Value in Energy and Related Services".
We are focused on the energy business in regulated and non-regulated sectors".
Vision Statement: “HSBC Bank will be the bank of choice for organizations and businesses that
aim to create community, social and environmental benefits”.
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SWOT Analysis
HSBC Bangladesh:
Here, we see a clear idea about the positon of this bank in the market place through the present
strength, weakness and future opportunities and threats of the bank.
Strengths:
• The bank is considered to be well capitalized, which indicates that it has been able to protect
the economic volatility and others credit crises
• The bank has commenced many cost-cutting measures to make its operations more efficient
and effective in order to increase its long-term profitability
• It recently established itself in a number of evolving markets over its competitors, creating a
strong position prior to other bank entrants
• It has entered some new financial markets recently and added new financial goods and
instruments that helped to increase revenue streams to offset losses
• It does not rely on government assistance when crisis arise because of being well
capitalized.
• It has diversified portfolio on locations and financial products that means it can reduce risk
more than other banks
Weakness:
• The bank has focused on branding itself as a global bank, which caused it to lose its
connection with local audiences, due to the homogenized image, that does not recognize
local needs
• HSBC connotation with the small business sector has made it weak to more risk, which
could lead to profit decline
• The company has announced downsizings as part of some of its cost-cutting items, which
has spread a negative opinion of the bank
• The bank was involved with sub-prime markets in the US in 2012, which has somewhat
damaged the brand’s reputation and cannot able to recover completely from those slips.
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Recently, it was also declared that HSBC is being scrutinized into possible foreign exchange
trade market action, which may not help its challenges to fix its reputation
Opportunities:
• It is one of the leading bank, so the solid capitalization position will help it to gain
additional assets to further boost the bank and stand its business model
• The growing global position of HSBC can help reduce the impact of external forces like
financial and credit issues that tend to further growth, providing the chance to position its
brand as a reliable and safe place to capitalize money
• Bad press coverage of competitors has minimized its own growth opportunity, providing the
opportunity to focus on further serious up its own brand image and putting any dishonors out
of the customers’ minds
• It has the opportunity to get advance of market share through acquisitions
Threats:
• It has the threat of financial losses, unethical behavior and credit losses among the world’s
banks which means it can be treated by forecasts and customers’ fears of losses that lead to
create a bad image on customer’s mind
• Recently, it is noticed that economy goes under defaults in the housing industry because
of reduced home value and also by the rising interest rate that also can further threaten
profitability of the bank
• Further inquiries and rumors about the bank can cause to weaken confidence in the bank
and also in the customers’ mind
• Some future changes in the countries, mostly where HSBC do business can also threaten the
company’s profitability because of place, position, market place and environment. The
company may also have to change its recording procedure and provide more data of its
lending, banking, and investment practices
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Bank of America:
The Bank of America is one of the leading firms in its industry and the management of the bank
require to make its operation in Bangladesh because of its economic growth condition. It decides
the abilities or inability of the company to operate and achieve its goals.
Strength:
• High brand value of Bank of America, as its corporate culture is used as a factor in the
quality of services
• Loyal distribution network of the bank will help them to reach majority of its potential
market
• It provides highly workforce environment for successful training and studying programs,
investing huge resources in training and development of its employees, making the
employees more skillful and productive
• It has a strong distribution network, so they are able to take majority of its potential
market.
• It uses competitive and intensive strategies for growth, with a goal of gaining more
customers
• It has a wide scope of banking and financial service, which includes loan, asset
management, portfolio investment etc.
Weakness:
• Bank of America depend mostly on information and technologies

• It is exposed to risk and strategic issues only based on American financial services market.
• In relation, the company suffers from a low degree of diversification, as the business
focuses mainly on financial service
• The bank might not be able to hold the challenges by the new entrants and has lost small
market share in the niche categories
6|Page
Opportunities:
• The acceptance of new technology and government free trade agreement has provided the
bank with an opportunity to enter a new emerging market
• The company can improve or add new products (financial services) to rise its revenues
• New customers from online channel. Over the past few years, the company has invested vast
sum of money into the online platform. This investment has opened new sales channel for
Bank of America
• As the bank is more concerned with the training session, new trends in consumer behavior
sometimes open up new market, building new revenue streams
• Bank of America can increase its competitiveness rather than the other competitors by
market development
Threats:
• Competition is a major threat for Bank of America, eventually reducing the market shares of
the company
• The pay level fluctuates and in future the rising of pay level can be big threat for the bank
• Imitation of the fake and low quality product is also a threat to the products of Bank of
America, especially in the developing markets and low income markets
• New technologies developed by the opponents or market competitors could be a serious
threat to the industry in the long run
• As the company is operating in various developing countries, it is highly subject to currency
fluctuations especially in the volatile political situation
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Entry Strategy
Bank of America has its operation throughout the world. It is mostly done by establishing
subsidiary in other countries which were directly invested by the company. Here, we also follow
the same strategy to run operation in Bangladesh.
Though to open a new subsidiary in foreign countries requires a large investment, but that will
not be a problem for the Bank of America because it is one of the leading bank in the banking
sector all over the world and in Bangladesh, it is expected that it will turn out to be a tough
competitor in the market.
The advantages we expect to get from this subsidiary are:
• Limiting Liability (possible to limit losses by using subsidiary as a liability shield)

• Separate management (dividing a business into discrete entities with separate management)
• Identity and branding (providing a diversifying corporate identity)
• Tax management (foreign subsidiary to take advantage of lower tax rate in another
countries)
• Salability (attract additional investors, reduce regulatory requirement for certain
transactions)
We will hire a building in Gulshan 1 to operate all the functions of this bank. Initially, we will
start the operation through one building and within one or two years, we expect to open several
branches under its head office. It will require some initial amount to provide new banking
services in Bangladesh and this rule was created by the government to reduce the risk of default.
It requires BDT420 million in total. We need around BDT 600 million to complete all the
procedure such as to maintain reserve requirement, rent fee, services fee and so on.
However, the management will be taking a long-term loan of 20% of the investment amount of
600 million from Bangladesh. So, we will have around BDT720 million in total to open the
subsidiary in Bangladesh. After a couple of years, the management will issue IPO that help to
collect a large portion of their investment amount, without any regulatory restrictions.
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Bangladesh is a developing country with an impoverished banking system, particularly in terms
of the services and customer care provided by the government banks. In recent times, private
banks are trying to imitate the banking structure from the developed countries. In addition,
Bangladesh government also want multinational corporations to invest so that there is a rapid
boost in the GDP of Bangladesh.
Furthermore, the government is willingly providing many opportunities. They are not setting
high barriers to enter into the market for foreign companies. In addition, the political situation of
the country is stable from past 10 years, providing a great facility for the subsidiaries to run the
business. Though they have some requirements to fulfil, however, that should not be an issue for
such giant company in the banking sector, with a good reputation on public’s mind.
Bank of America always look for areas to serve their clients in a better way that upholds the
highest ethical standard. The main business will be based on consumer banking, corporate
banking and investment banking as well. Since, Bank of America is an international bank and
hold a position in the banking sector, the investment banking under their assistance will be much
beneficial for the people of Bangladesh.
It will enable them to act as one of the main competitors in the Bangladeshi market. In order to
target the potential customers, it will separate the guidebook. We will hire local employees to run
the operational activities with the local atmosphere. Cultural adaptation is important to grab the
attention of the local customer. Thus, we will be operating the business in such a way that culture
will approve us to be a trustworthy organization in Bangladesh.
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Operational Plan
As the Bank of America is an overseas banking group it wishes to combine within the social
economic system device of Bangladesh. The operational plan for putting in place a department of
Bank of America could be on the premise of the best vicinity. This is appropriate for the
offerings that are to be supplied by means of the bank. For this reason, we have decided on the
region called Gulshan 1 within the capital metropolis (Dhaka) of Bangladesh. Gulshan is an area
which have the most state-of-the-art and steeply-priced organizations of Bangladesh along with a
large wide variety of wealthy commercial enterprise organizations. Besides, the place is also
crowded with the embassy of foreign nations and plenty of foreigners. That is why the offerings
which might be supplied by using Bank of America can be able to draw a great number of
customers.
We may lead via a supervisor along with 13 different divisions. These staffs should be recruited
from Bangladesh. It is going to be difficult to address the banking lifestyle in Bangladesh. The
staffs ought to be recruited and educated under the direct supervision of human resource control
division of Bank of America and are to be paid consistent with the rules of the bank regarding
the foreign branches.
At gift, Bank of America is supplying nearly every banking associated offerings such as the
investment centers through its personal company named Merrill Edge. It also does the job of
underwriting like many different banks in Bangladesh. The department should begin its
operation through offering the following:
• Saving Accounts:
In this class, branch will provide commercial enterprise investment account (money market
financial savings for the Start-U.S.A. and businesses with growing balances) and business
CD products.
• Checking Accounts:
The service will provide convenient business checking answers to healthy a customers’
particular desires. The carrier can even encompass enterprise and employee debit playing
cards.
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• Credit Cards
Bank of America has unique varieties of credit score playing cards which can be designed in
accordance to the consumer alternatives consisting of cash praise cards, decrease interest
charge cards.
• Loans
Initially the department can offer loans including secured line of credit, car loans, secured
loans, business actual property loans.
The bank has a pupil banking gadget which is popular all over America. With some studies and
changings, the provider can also be implemented in Bangladesh. Besides, the financial institution
has a complicated online and cell banking device that may enable customers receiving banking
offerings unexpectedly and with none problem.
The department may be adorned in accordance with the clients’ appreciation. It will have some
of tellers so that the customers do not have to wait too long to get hold of offerings. For account
commencing, there could be a separate segment of 3 contributors so that the customers can sense
the hospitality of the bank from inner.
As the place is pricey one and populated with the wealthy commercial enterprise tycoons, the
competition of drawing funds is difficult, so the department must keep on doing surveys on other
banks and discover their missing by means of evaluating their services with others. Thus, it will
be clean to maintain the customers’ present wishes.
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Marketing Plan
A marketing plan offers the roadmap for product improvements and advertising efforts. A small
monetary group has many advertising tools it can use in a marketing software, together with
income and cross-promoting, promoting in the field, media advertising and marketing, point-of-
sale advertising, direct marketing, and promotions. Savings institutions outline techniques to
encourage present day and ability clients to apply all the products offered via the institution.
These Product Development and Marketing: Meeting the Local Demand strategies may be based
totally on image, first-rate of provider, charges of return, or a mixture of those and other
strategies. Branching enables an organization to provide comfort to customers and to cowl the
widest geographical place feasible on a price-powerful foundation.
Product
Bank of America will offer customer banking, global wealth and securities control, global
banking, legacy assents and servicing, finance and insurance, investment banking,
mortgaging of loans, personal banking, credit playing cards, and so forth in its advertising and
marketing mix product method. It will be given excellent service to the clients, and considered
to build up the item methodology quality and expanded administration.
Price
The pricing strategy of the Bank of America will focus on setting the list price, credit terms,
payment period and discounts. We want to set the price of our product using the competitive
pricing strategy. The bank market, more specifically highlight checking, lines of credits, loans,
and online banking tools. As a result, pricing a product without paying attention to competitor’s
price is extremely difficult. So, we have to follow competitive pricing strategy.
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Place
Bank of America will make sure that our banking services are accessible to the customers with
ease on multiple platforms & will setup tablets on bank premises to make use of banking services
easy. It will also have the option of videoconferencing to connect with bank professionals within
minutes to resolve issue. Initially, we will open our branch in Gulshan 1.
Promotion
This is one of the most important elements of Bank of America Marketing Strategy. Bank of
America can blend above and below the line promotional strategies to achieve its marketing
objectives. The above the line promotion options for Bank of America are television, radio and
print advertising, whereas, below the line promotion options can be catalogues, tradeshows
and direct mail campaigns.
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Forecasted Financial Statement
Pro Forma Income Statement of 2020:
Growth Rate 6% Current Year 2020 2020 Appreciated Currency Depreciated Currency
Exchange Rate ( USD 1 = Tk. 87.20) Tk. 1 = USD 0.0115 (BDT) (BDT) (USD) (USD) (USD)
6% Tk. 1 = USD 0.0111 Tk. 1 = USD 0.0118
Interest Income 75% 7,076,229,753 7,500,803,538.18 86,259,240.69 83,258,919.27 88,509,481.75

Interest paid on deposits and borrowing -24% (2,242,405,469) (2,408,636,193.59) (27,699,316.23) (26,735,861.75) (28,421,907.08)
Net Interest Income 51% 4,833,824,284 5,118,351,911.38 58,861,046.98 56,813,706.22 60,396,552.55
Income from investment 12% 1,136,268,380 1,204,318,096.80 13,849,658.11 13,367,930.87 14,210,953.54
Commission, exchange & brokerage 37% 3,462,492,646 3,713,314,131.79 42,703,112.52 41,217,786.86 43,817,106.76
Other operating income 0.4% 35,324,256 40,143,936.56 461,655.27 445,597.70 473,698.45
Total operating income 100% 9,467,909,566 10,035,984,139.96 115,413,817.61 111,399,423.95 118,424,612.85
Salaries and allowance 27% 2,588,251,877 2,743,546,989.62 31,550,790.38 30,453,371.58 32,373,854.48

Rent, taxes, insurance, etectricity etc 7% 625,660,862 663,200,513.72 7,626,805.91 7,361,525.70 7,825,766.06
Legal and professional expenses 0.3% 31,614,344 33,511,204.64 385,378.85 371,974.37 395,432.21
Postage, stamp, telecommunication etc 1% 92,230,721 97,764,564.26 1,124,292.49 1,085,186.66 1,153,621.86
Auditor's fee 0% 1,200,000 1,272,000.00 14,628.00 14,119.20 15,009.60
Stationary, printings and advertisement etc 1% 132,974,922 140,953,417.32 1,620,964.30 1,564,582.93 1,663,250.32
Chief executive officer's salary and allowance 1% 67,714,020 71,776,861.20 825,433.90 796,723.16 846,966.96
Depreciation, impairments and repair of bank's asset 4% 372,300,872 394,638,924.32 4,538,347.63 4,380,492.06 4,656,739.31
Other operating expenses 6% 561,924,056 595,639,499.36 6,849,854.24 6,611,598.44 7,028,546.09
Expense allocation to offshore Banking Unit -8% (736,107,046) (780,273,468.76) (8,973,144.89) (8,661,035.50) (9,207,226.93)
Total operating expense 39% 3,737,764,628 3,962,030,505.68 45,563,350.82 43,978,538.61 46,751,959.97
Profit before provision 61% 5,730,144,938 6,073,953,634.28 69,850,466.79 67,420,885.34 71,672,652.88
Specific provision for classified loans and advances 1% 105,939,150 112,295,499.00 1,291,398.24 1,246,480.04 1,325,086.89
General provision for unclassified loans and advancement3% 326,133,407 345,701,411.42 3,975,566.23 3,837,285.67 4,079,276.65
Other Provision
Total Provision 5% 432,072,557 457,996,910.42 5,266,964.47 5,083,765.71 5,404,363.54
Profit before tax 56% 5,298,072,381 5,615,956,723.86 64,583,502.32 62,337,119.63 66,268,289.34
Tax 23% 2,222,022,903 2,355,344,277.18 27,086,459.19 26,144,321.48 27,793,062.47

Current Year 25% 2,375,688,268 2,518,229,564.08 28,959,639.99 27,952,348.16 29,715,108.86
Prior Year -2% (153,439,571) (162,645,945.26) (1,870,428.37) (1,805,369.99) (1,919,222.15)
Deferred tax -0.002% (225,794) (239,341.64) (2,752.43) (2,656.69) (2,824.23)
Profit after tax on the Year 32% 3,076,049,478 3,260,612,446.68 37,497,043.14 36,192,798.16 38,475,226.87
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6% Tk. 1 = 0.0115 USD Tk. 1 = USD 0.0111 Tk. 1 = USD 0.0118
Interest Income 75% 7,076,229,753 7,950,851,750.47 91,434,795.13 88,254,454.43 93,820,050.66


Auditor's fee 0% 1,200,000 1,348,320.00 15,505.68 14,966.35 15,910.18
General provision for unclassified loans and advancement 3% 326,133,407 366,443,496.11 4,214,100.21 4,067,522.81 4,324,033.25
Other Provision
Total Provision 5% 432,072,557 485,476,725.05 5,582,982.34 5,388,791.65 5,728,625.36
Tax 23% 2,222,022,903 2,496,664,933.81 28,711,646.74 27,712,980.77 29,460,646.22

Current Year 25% 2,375,688,268 2,669,323,337.92 30,697,218.39 29,629,489.05 31,498,015.39
Prior Year -2% (153,439,571) (172,404,701.98) (1,982,654.07) (1,913,692.19) (2,034,375.48)
Deferred tax -0.002% (225,794) (253,702.14) (2,917.57) (2,816.09) (2,993.69)
Profit after tax on the Year 32% 3,076,049,478 3,456,249,193.48 39,746,865.73 38364366.05 40783740.48
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6% Tk. 1 = 0.0115 USD Tk. 1 = USD 0.0111 Tk. 1 = USD 0.0118
Interest Income 75% 7,076,229,753 8,427,902,855.50 96,920,882.84 93,549,721.70 99,449,253.69


Auditor's fee 0% 1,200,000 1,429,219.20 16,436.02 15,864.33 16,864.79
General provision for unclassified loans and advancement 3% 326,133,407 388,430,105.87 4,466,946.22 4,311,574.18 4,583,475.25
Other Provision
Total Provision 5% 432,072,557 514,605,328.55 5,917,961.28 5,712,119.15 6,072,342.88
Tax 23% 2,222,022,903 2,646,464,829.84 30,434,345.54 29,375,759.61 31,228,284.99

Current Year 25% 2,375,688,268 2,829,482,738.20 32,539,051.49 31,407,258.39 33,387,896.31
Prior Year -2% (153,439,571) (182,748,984.09) (2,101,613.32) (2,028,513.72) (2,156,438.01)
Deferred tax -0.002% (225,794) (268,924.27) (3,092.63) (2,985.06) (3,173.31)
Profit after tax on the Year 32% 3,076,049,478 3,663,624,145.09 42,131,677.67 40666228.01 43230764.91
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Assumptions of Pro Forma Income Statement for the 3 years:
The financial statement analysis of HSBC Bangladesh came out to be around 8% growth, thus we took
a growth of 6% for the Bank of America for the first three years. This is because we will have a
number of promotions initially, which will include the new offerings, discounts on opening accounts,
short term loan with lesser interest rate and issuance of bond and shares. As the subsidiary is new, so it
is important to let people know about the new presence of Bank of America in local market.
In order to make the assumptions on the growth rate, we required a benchmark value, based on which
we can forecast. Therefore, we took the total operating income as 100% as it is a banking industry, and
thus, different from other merchandising companies. We showed the growth of 6% in the total
operating income only, then calculated the percentage change of each item based on the original total
operating income and forecasted accordingly.
Once the forecasting is done, we had to remit the profit to the parent company which is situated in the
United States of America, thus, we converted the profit made in BDT to USD using the current
exchange rate which has been taken from the money exchange market.
The exchange rate in the market was Tk.1=USD 0.0115 or USD 1=Tk.87.20, so we can see that when
the US dollar value appreciated against Bangladeshi Taka (Tk.1=USD 0.0111 or USD 1=Tk.90), the
profit margin decreased after converting to USD, as it required more taka to make up 1 US Dollar. On
the contrary, when the US dollar depreciated against Bangladeshi Taka (TK.1=USD 0.0118 or USD
1=Tk. 85), the profit margin after conversion increased as the requirement of Taka per USD decreased.
17 | P a g e
Pro Forma Balance Sheet of 2020:
% of Growth Current Year 2020

(BDT) (BDT)
Growth Rate = 6% 6%
Property and Assets

Cash 27% 45,752,716,160.00 48,497,879,129.60
Balance with other banks and financial instituion
In Bangladesh 0% 154,562,977.00 163,836,755.62
Outside Bangladesh 3% 4,649,897,315.00 4,928,891,153.90
3% 4,804,460,292.00 5,092,727,909.52
Money at call on short notice
Investment
Government securities 17% 28,492,063,133.00 30,201,586,920.98
Others 0% 6,000,000.00 6,360,000.00
17% 28,498,063,133.00 30,207,946,920.98
Loans and Advance
Loans, cash credits, overdrafts etc 49% 82,051,052,546.00 86,974,115,698.76
Bills purchased and discounted 1% 1,194,585,309.00 1,266,260,427.54
50% 83,245,637,855.00 88,240,376,126.30
Fixed assets including premises, furnitures and fixtures 0% 292,843,266.00 310,413,861.96
Other asset 3% 5,187,906,865.00 5,499,181,276.90
Non-banking assets
Total Assets 100% 167,781,627,571.00 177,848,525,225.26
Liabilities and Capital
Borrowings from other banks, financial institution and agents 6% 9,259,657,680.00 9,815,237,140.80
Deposits and other account
Current account and other account 24% 39,874,092,710.00 42,266,538,272.60
Bills Payables 1% 2,455,678,768.00 2,603,019,494.08
Saving deposits 12% 19,871,514,757.00 21,063,805,642.42
Term deposits 33% 55,619,240,613.00 58,956,395,049.78
70% 117,820,526,848.00 124,889,758,458.88
Other liabilities 6% 9,994,651,202.00 10,594,330,274.12
Total Liabilities 82% 137,074,835,730.00 145,299,325,873.80
Capital/ Shareholder's equity

Fund deposited with Bangladesh Bank 2% 3,099,690,272.00 3,285,671,688.32
Other reserve 0% (51,848,810.00) (54,959,738.60)
Profit and loss account 16% 27,658,950,379.00 29,318,487,401.74
Total shareholders' equity 18% 30,706,791,841.00 32,549,199,351.46
Total liability and shareholders' equity 100% 167,781,627,571.00 177,848,525,225.26
Off Balance Sheet Item
Contingent Liabilities
Acceptance and endorsements 52% 87,675,262,477.00 92,935,778,225.62
Letters of guarantee 34% 56,719,420,056.00 60,122,585,259.36
Irrevocabale letters of credit 39% 65,888,926,453.00 69,842,262,040.18
Foreign exchange contracts- Spot and forward 3% 5,094,357,828.00 5,400,019,297.68
Total off balance sheet items 128% 215,377,966,814.00 228,300,644,822.84
18 | P a g e

(BDT) (BDT)
Growth Rate = 6% 6%
Property and Assets

Cash 27% 45,752,716,160.00 51,407,751,877.38
In Bangladesh 0% 154,562,977.00 173,666,960.96
3% 4,804,460,292.00 5,398,291,584.09
Investment
Others 0% 6,000,000.00 6,741,600.00
17% 28,498,063,133.00 32,020,423,736.24
Loans and Advance
50% 83,245,637,855.00 93,534,798,693.88
Other asset 3% 5,187,906,865.00 5,829,132,153.51
Non-banking assets
Total Assets 100% 167,781,627,571.00 188,519,436,738.78
Bills Payables 1% 2,455,678,768.00 2,759,200,663.72
Saving deposits 12% 19,871,514,757.00 22,327,633,980.97
Term deposits 33% 55,619,240,613.00 62,493,778,752.77
70% 117,820,526,848.00 132,383,143,966.41

Other reserve 0% (51,848,810.00) (58,257,322.92)
19 | P a g e

(BDT) (BDT)
Growth Rate = 6% 6%
Property and Assets

Cash 27% 45,752,716,160.00 54,492,216,990.02
In Bangladesh 0% 154,562,977.00 184,086,978.61
3% 4,804,460,292.00 5,722,189,079.14
Investment
Others 0% 6,000,000.00 7,146,096.00
17% 28,498,063,133.00 33,941,649,160.41
Loans and Advance
50% 83,245,637,855.00 99,146,886,615.51
Other asset 3% 5,187,906,865.00 6,178,880,082.72
Non-banking assets
Total Assets 100% 167,781,627,571.00 199,830,602,943.10
Bills Payables 1% 2,455,678,768.00 2,924,752,703.55
Saving deposits 12% 19,871,514,757.00 23,667,292,019.82
Term deposits 33% 55,619,240,613.00 66,243,405,477.93
70% 117,820,526,848.00 140,326,132,604.40

Other reserve 0% (51,848,810.00) (61,752,762.29)
20 | P a g e
Assumptions of Pro Forma Balance Sheet for the 3 years:
The financial statement analysis of HSBC Bangladesh is noticed to have a growth of around
18%, which might be because it is already established in the market thus they know how much to
reserve. They have a set pattern of cash and short term investments in short term securities. Thus,
they have a significant growth in the asset. However, Bank of America being a new subsidiary in
Bangladesh do not have a specific pattern of keeping assets in different segments and in short
term investments.
Since we assumed the total operating income to grow by 6%, we continued the same growth in
the overall financial position of the Bank of America. The total operating income has direct
contribution to the retained earnings and the shareholders’ equity. As a new comer, we would
like to avoid liabilities, thus the 6% growth in the total operating income will enable us to make
6% increase in the total asset.
Therefore, we took the total asset as 100%, showing the growth of 6% in the total asset only,
then calculated the percentage change of each item based on the original total asset and
forecasted accordingly.
21 | P a g e
Hedging Technique
In International business, there are risk associated with many external factors such as exchange
rate, interest rate, income level and so on. Scholars and market researchers found out some
hedging techniques which will help to reduce the loss and sometimes to make profit as well if it
can be predicted properly. Since our parent company is “Bank of America”, they are going to
convert their profit into their currency after ending each of the period or a calendar timeframe.
They also need to convert US dollars to BDT for investing heavily in Bangladesh initially to
establish subsidiaries. Their currency are being converted twice before calculating the final
outcome of the income level. In order to reduce the risk and loss from exchange rate movements,
we will enter into currency markets and use hedging techniques to stay on the line or at least to
minimize the losses from unfavorable currency movements in future.
Bangladesh do not avail the derivative market, however, United State of America will privilege
us to enter into currency market and use hedging to make the protection of our unexpected loss.
Initially, we will require a huge amount of investments to establish a subsidiary. Therefore, we
will be converting US dollar into BDT to make our payments.
We will buy Put Option to make sure that we can sell our dollars at a good required rate where
we have minimum loss or make some gain if things go in favorable way. On the other hand,
when converting the profit from BDT to USD, we will be buying the Call Option to lock the
USD at a cheaper rate. If the currency goes up against BDT, we can cover that up with our
hedging. Call Option itself will give us the right to buy the currency at prior set price which
sometimes may save us from a huge amount of loss that was supposed to incur.
It can also be used to hedge future receivables as well. Since Bank of America is a giant
company in its sector, we can also have access to the forward contract where things can be
customized in our way. Forward contract will be suitable for large MNCs like Bank of America.
Since Bank of America will be doing banking business in Bangladesh, we can have a proper
estimation about currency exchange rate all over the year compared to other companies who are
doing different businesses in different sectors. Therefore, we believe that we can make a hedging
policy in a way that cost of our currency will be the minimized while converting from one to
another.
22 | P a g e
In addition, we can also see that the value of US dollar does not fluctuate much. It is always
between around $1=Tk.78 to $1=Tk.87+ for the last 5 years. The data of last one year says the
exchange rate to be between $1=Tk.83 to Tk.87+. Here, we can notice that, it is confined within
± 5 Bangladeshi Taka. Therefore, even if things do not go in our favor, we could make losses of
maximum 5 Bangladeshi Taka per US dollar.
In order to hedge this losses, we will make short term investment in securities and in other short
term treasury bills which will give us 5% to 7% return on our investment for a short period of
time. These 5% profit will help us to reduce the losses from currency fluctuations.
On the other hand, things might also go in our favor, so we will not keep all our profit to convert
at the year end. If we get a good rate to exchange the currency, we will convert some portion of
our profit at that rate in that instance, which were supposed to be converted at the year end. We
can apply these sort of techniques to overcome the unfavorable situation, hence reducing the
losses by applying proper speculation of currency movements.
23 | P a g e
Conclusion
The overall industry analysis of the banks in Bangladesh has relatively higher growth rate as per
the financial statements of the competitors of Bank of America. The industry average growth of
the banks is expected to be approximately 10%, however, we only assumed 6% as the new
subsidiary will require initial promotional expenses. After three years, the subsidiary will be
more established, so the growth expectation will also increase subsequently. As per the
forecasted value, the net income and profit margin is positive, even after the remittance, so it is a
good reason for Bank of America to invest in Bangladesh.
Moreover, Bangladesh consists of a handful number of corporate banks so it will be a good

choice to enter the market as competition will be relatively lower and also the market is in
growth. The country is developing rapidly with an increasing GDP and income level, so it can
prove the situation to be in favor of Bank of America. In addition, the bank will be acquiring
cheaper employees in Bangladesh, compared to that of USA, thus, it is profitable for both the
countries as USA is making greater profit and Bangladesh is having higher employment rate.
Furthermore, Bangladesh has a stable political situation with a welcoming government which
encourages foreign direct investment in the country, therefore, the subsidiary of Bank of
America will have to face less government restrictions, having freedom and flexibility while
doing the business, and will not be facing any difficulties in terms of remitting the profit to the
parent company. In summary, the explained factors suggest it to be a good idea for Bank of
America to invest in Bangladesh.
24 | P a g e
Appendix
25 | P a g e

North South University: Establishing A Subsidiary of Bank of America in Bangladesh

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North South University: Establishing A Subsidiary of Bank of America in Bangladesh

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NORTH SOUTH UNIVERSITY

Establishing a Subsidiary of Bank of America in Bangladesh

Rushdy MD Bakth (RMB)

Department of Accounting & Finance

Group Name: Finosapiens

[1631498630] Fariha Alam Nijhum

[1631848030] Shafiqul Islam

[1620132030] Rajesh Paul

[1612437030] Sohel Ahmed

DATE: 11th December, 2019

Department of Accounting and Finance

School of Business and Economics

North South University

Subject: Submission of the group project.

We thank you for your advice and guidance.

Company Description ................................................................................................2

SWOT Analysis .........................................................................................................4

Entry Strategy ............................................................................................................8

Operational Plan .......................................................................................................10

Marketing Plan .........................................................................................................12

Forecasted Financial Statement ...............................................................................14

Hedging Technique ..................................................................................................22

The project consists of an overall plan to establish a subsidiary of Bank of America in

• Bank of America depend mostly on information and technologies

The advantages we expect to get from this subsidiary are:

• Limiting Liability (possible to limit losses by using subsidiary as a liability shield)

Pro Forma Income Statement of 2020:

Interest Income 75% 7,076,229,753 7,500,803,538.18 86,259,240.69 83,258,919.27 88,509,481.75

Salaries and allowance 27% 2,588,251,877 2,743,546,989.62 31,550,790.38 30,453,371.58 32,373,854.48

Tax 23% 2,222,022,903 2,355,344,277.18 27,086,459.19 26,144,321.48 27,793,062.47

Interest Income 75% 7,076,229,753 7,950,851,750.47 91,434,795.13 88,254,454.43 93,820,050.66

Salaries and allowance 27% 2,588,251,877 2,908,159,809.00 33,443,837.80 32,280,573.88 34,316,285.75

Tax 23% 2,222,022,903 2,496,664,933.81 28,711,646.74 27,712,980.77 29,460,646.22

Interest Income 75% 7,076,229,753 8,427,902,855.50 96,920,882.84 93,549,721.70 99,449,253.69

Salaries and allowance 27% 2,588,251,877 3,082,649,397.54 35,450,468.07 34,217,408.31 36,375,262.89

Tax 23% 2,222,022,903 2,646,464,829.84 30,434,345.54 29,375,759.61 31,228,284.99

% of Growth Current Year 2020

Property and Assets

Liabilities and Capital

Capital/ Shareholder's equity

Off Balance Sheet Item

% of Growth Current Year 2021

Property and Assets

Liabilities and Capital

Capital/ Shareholder's equity

Off Balance Sheet Item

% of Growth Current Year 2022

Property and Assets

Liabilities and Capital

Capital/ Shareholder's equity

Off Balance Sheet Item

Moreover, Bangladesh consists of a handful number of corporate banks so it will be a good

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