Capital Budgeting and Project Appraisal Practices: A Case Study on Prime Bank PLC

Abstract

This internship report examines the capital budgeting and project appraisal practices of Prime Bank Limited, one of the leading third-generation private commercial banks in Bangladesh. The report was prepared based on three months of practical experience at Prime Bank's Motijheel Branch, Dhaka, supplemented by an extensive review of the bank's internal documents, annual reports, Bangladesh Bank guidelines, and relevant academic literature. Capital budgeting is a critical financial management function that involves evaluating, selecting, and managing long-term investment projects that shape an organization's strategic direction and financial health. For commercial banks in Bangladesh, capital budgeting decisions encompass both internal investment decisions—such as branch expansion, technology upgrades, and human resource development—and external project financing decisions involving loan appraisals for corporate and SME borrowers.The report explores Prime Bank's organizational background, its financial performance indicators, and the institutional framework governing its capital allocation decisions. It discusses the theoretical foundations of capital budgeting techniques, including Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Profitability Index (PI), and Modified IRR (MIRR), and analyses how these methods are applied in Prime Bank's actual operations. Key findings of this report indicate that Prime Bank primarily relies on the Discounted Cash Flow (DCF) methods—particularly NPV and IRR—for major investment decisions. The bank has established a robust Project Appraisal Cell (PAC) that systematically evaluates loan proposals from corporate clients using internationally recognized financial analysis tools, including feasibility studies, sensitivity analysis, and risk assessment matrices. The report also highlights the influence of Bangladesh Bank's prudential regulations on the bank's capital deployment decisions and credit risk management framework. Overall, Prime Bank's capital budgeting and project appraisal practices are broadly consistent with international standards, though there remains significant scope for improvement in areas of risk quantification and technology integration. The findings of this report are expected to be valuable for banking practitioners, regulators, and researchers interested in the financial management practices of Bangladeshi commercial banks.