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The HSBC group is one of the largest banking and financial services organization in the world with well-established business in Europe, the Asia-Pacific region, the Americas, The Middle east and Africa. The HSBC Holdings is incorporated in England with its Head Office in London, amount of asset US$ 1,034 billion at 31 December 2003 with over 9,700 offices in 79 countries and territories, is one of the world's largest banking and financial services organizations. HSBC has 110 million customers worldwide. The establishment in 1999 of HSBC as a uniform, international brand name ensured that the Group’s corporate symbol has become an increasingly familiar sight across the world. HSBC differentiates its brand from those of its competitors by describing the unique characteristics that distinguish HSBC, summarized by the words “The World’s local bank”. HSBC’s commitment to service excellence, reputation for stability and understanding of the region has repeatedly been recognized through citations by major business publications. 1.1 HSBC in Bangladesh In Bangladesh, HSBC started in 1996 and currently has a network of 5 offices as the 2 nd largest foreign commercial bank in the country. HSBC Bangladesh also has a network of 11 ATMs in the country, 4 Sales and Service Centre (includes ATM Machines, Easy Pay Machines, Phone banking, Access to the HSBC Website and a dedicated officer at the premises, all together comprises the HSBC Customer Service Centre.) ‘Easy Pay’ is a sophisticated ‘bill payment’ machine developed with a ‘Touch Screen’ formula enabling both HSBC and Non-HSBC customers to pay their utility bills, deposits, HSBC Credit Card payments etc.
Our global expertise blended with the local knowledge and excellent relationship with the regulatory authorities has made us one of the leading banks for development organization in Bangladesh. 1.2 Awards & Recognition HSBC’s commitment to service excellence, reputation for stability, and knowledge of the Asia Pacific Region have been recognised through citations by major business publications. These include BEST Global Bank of the Year Asia Pacific Bank of the Year (2002) BEST Bank in Asia - Cash Management (1999, 2000, 2001 & 2002) BEST Bank in Risk Mgt & Treasury Services in Asia (2001 & 2002) Debt House – Hong Kong (2000-2002) Bank – Hong Kong (2000-2002) Trade Finance in Asia (2000) BEST Bank in Hong Kong for regional and local Cash Management (2000, 2001& 2002) BEST Domestic Commercial Bank in Hong Kong (2000 & 2001) Foreign Bank – China, India, Indonesia, Malaysia (2002) Trade Finance House (2002) Foreign Exchange House (2002)
BEST Cash Management Bank – Local currency (2002) Cash Management Bank in Hong Kong (2000) Foreign Bank in Hong Kong, China, India (2000)
Chapter 2 Overview of HSBC Group
Headquartered in London, HSBC Holdings plc is one of the largest banking and financial services organizations in the world. It began operations in Hong Kong more than 130 years ago. The HSBC Group's international network comprises some 7,000 offices in 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With listings on the London, Hong Kong, New York and Paris stock exchanges, around 190,000 shareholders in some 100 countries and territories hold shares in HSBC Holdings plc. The shares are traded on the New York Stock Exchange in the form of American Depositary Receipts. Through a global network linked by advanced technology, including a rapidly growing ecommerce capability, HSBC provides a comprehensive range of financial services: personal, commercial, corporate, investment and private banking; trade services; cash management; treasury and capital markets services; insurance; consumer and business finance; pension and investment fund management; trustee services; and securities and custody services. 2.1 HSBC Group at a glance Assets US $ 746,335 million at 30 June 2002. Profit (pre-tax) Staff Share listings US $ 5067 million in 2002 Some 170,000 employees in 81 countries and territories. HSBC Holdings is listed on the London, Hong Kong, New York, and Paris stock exchanges. Trading of the company's shares on the stock exchanges is conducted in London, Hong Kong and Paris in the US$ 0.50 ordinary shares, and
4 . consumer and business finance. which was founded in 1865 in Hong Kong with offices in Shanghai and London and an agency in San Francisco.in New York in the form of American Depository Shares. insurance. trade services. treasury and capital market services. trustee services. pension and investment fund management. interactive TV. corporate. Technology HSBC maintains one of the world's largest private data communication networks and is reconfiguring its business for the e-age. Product range Personal. This strategy culminated in 1992 with one of the largest bank acquisitions in history when HSBC Holdings acquired Midland Bank plc (now called HSBC Bank plc). commercial. The Group expanded primarily through offices established in the bank's name until the mid-1950s when it began to create or acquire subsidiaries. each of which represents five ordinary shares. Its rapidly growing e-commerce capability includes the use of the Internet. investment and private banking. and fixed and mobile telephones. and securities and custody services. cash management. Key events The HSBC Group evolved from the Hong Kong and Shanghai Banking Corporation Limited. which was founded in UK in 1836. PC banking over a private network.
Europe and North America. a Scot who was then working as the Hong Kong Superintendent of the Peninsular and Oriental Steam Navigation Company. The inspiration behind the founding of the bank was Thomas Sutherland. This strategy culminated in 1992 with one of the largest bank acquisitions in history when HSBC holdings acquired Midland Bank plc. Throughout the late nineteenth and the early twentieth centuries.2 Foundation and growth of HSBC The HSBC Group is named after its founding member. the bank issued notes in many countries throughout the Far East. However. as now. which was founded in UK in 1836. the bank's headquarters were at 1 Queen's Road Central in Hong Kong and a branch was opened one month later in Shanghai.2. which was established in 1865 in Hong Kong and Shanghai to finance the growing trade between China and Europe. exchange and merchant banking also playing an important part. The Hong Kong and Shanghai Banking Corporation Limited (HSBC). The group expanded primarily through offices established in the banks name until the mid 1950s when it began to create or acquire subsidiaries. Additionally. after the war the bank played a key role in the reconstruction of the Hong Kong economy and began to further diversify the geographical spread of the bank. trade finance was a strong feature of the bank's business with bullion. During the Second World War the bank was forced to close many branches and its head office was temporarily moved to London. He realized that there was considerable demand for local banking facilities both in Hong Kong and along the China coast and he helped to establish the bank in March 1865. Then. Japan. From the outset. the bank established a network of agencies and branches based mainly in China and South East Asia but also with representation in the Indian sub-continent. The following are some key developments in the group since 1955: 5 . In many of its branches the bank was the pioneer of modern banking practices.
Midland Bank acquires a shareholding in UBAF Bank Limited (now known as British Arab Commercial Bank Limitd). The Saudi British Bank is established under local control to take over The British Bank of the Middle East's branches in Saudi Arabia. London & China). now the second-largest bank incorporated in Hong Kong. 1960 Wayfoong Finance Limited. Limited (soon to be renamed HSBC Republic Bank (UK) Limited). 1965 The Hong Kong and Shanghai Banking Corporation acquires a majority shareholding in Hang Seng Bank Limited. now called HSBC Bank Middle East) and The Mercantile Bank (originally the Chartered Mercantile Bank of India. 1967 Midland Bank purchases a one-third share in the parent of London Merchant bank Samuel Montagu & Co. Wardley Limited (now called HSBC Investment Bank Asia Limited).1955 1959 The Hong Kong and Shanghai Banking Corporation of California was founded. 6 . 1971 The Cyprus Popular Bank Limited (now Laiki Bank) becomes an associated company of the Group. a Hong Kong hire-purchase and personal finance subsidiary. The Hong Kong and Shanghai Banking Corporation acquires The British Bank of the Middle East (formerly the Imperial Bank of Persia. 1974 1978 Samuel Montagu becomes a wholly owned subsidiary of Midland. 1972 The Hong Kong and Shanghai Banking Corporation forms merchant banking subsidiary. is established.
with a controlling interest in Concord Leasing.A. Limited. (now called HSBC Bank USA). UK-based merchant bank Antony Gibbs becomes a wholly owned subsidiary.).1980 The Hongkong and Shanghai Banking Corporation acquires 51% of New York State's Marine Midland Bank.A. 7 . The Hong Kong and Shanghai Banking Corporation establishes Hong Kong Bank of Australia Limited (now HSBC Bank Australia Limited) and acquires James Capel & Co. a New York based primary dealer in US government securities. is formed. with the Group holding a 40% interest. Marine Midland Bank acquires Carroll McEntee & McGinley (now HSBC Securities (USA) Inc. N. Midland acquires a controlling interest in leading German private bank Trinkaus & Burkhardt KgaA (now HSBC Trinkaus & Burkhardt KgaA). The Group acquires a controlling interest in Equator Holdings Limited. 1981 Hongkong Bank of Canada (Now HSBC Bank Canada) is established in Vancouver. 1987 The Hong Kong and Shanghai Banking Corporation acquires the remaining shares of Marine Midland and a 14. 1985 1986 New Head office building opened at Hong Kong.9% equity interest in Midland Bank. 1989 A strategic alliance is entered into between The Hong Kong and Shanghai Banking Corporation and California-based Wells Fargo Bank.E. 1982 1983 Egyptian British Bank S. a leading London-based international securities company.
HSBC Investment Bank plc is formed. acquires Swan National Leasing. In Latin America. 1992 HSBC Holdings purchases the remaining equity in Midland Bank. Banco HSBC 8 . its shares are traded on the London and Hong Kong stock exchanges. 1996 HSBC Holdings and Wachovia Corporation of the United States form a non-equity alliance to market corporate financial services worldwide. establishing the UK's third largest vehicle contract hire company. a rail rolling-stock leasing company and the largest owner of electric trains operating on the UK mainline network. Forward Trust acquires Eversholt (now HSBC Rail (UK) Limited). the UK's first 24-hour telephone banking service. Forward Trust Group Limited (now HSBC Asset Finance (UK) Limited).A. 1995 Wells Fargo & Co. in California to provide customers of both companies with trade finance and international banking services. N. 1991 HSBC Holdings is established. the Group establishes a new subsidiary in Brazil. Marine Midland Bank acquires First Federal Savings and Loan Association of Rochester in New York. 1993 The HSBC Group's Head Office moves to London. a Midland subsidiary. and HSBC Holdings establish Wells Fargo HSBC Trade Bank.Midland Bank Launches First Direct. forming Hong Kong Bank Malaysia Berhad (now HSBC Bank Malaysia Berhad). 1994 The Hong Kong and Shanghai Banking Corporation is the first foreign bank to incorporate locally in Malaysia.
(Now called HSBC Bank Malta p.l.000 offices in 80 countries.3 HSBC International Network The HSBC Group's international network comprises of some 7. Shares in HSBC Holdings are listed on a fourth stock exchange. 2. and completes the acquisition of Roberts 01S. HSBC Holdings acquires Republic New York Corporation (now integreted with HSBC USA Inc.03% interest in Mid-Med Bank p.A.A. New York. a major French banking group. Midland Bank acquires a 70.).A. the eighth largest bank in Thailand.c. A brief list is presented below: 9 . Malta's largest commercial bank.A.A.).).) and its sister company Safra Republic Holdings S.Bamerindus S. HSBC acquires Credit Commercial de France (CCF).c. 1999 Shares in HSBC Holdings begin trading on a third stock exchange.l. New 44floor Headquarter building at London’s Canary Wharf is due to be ready for occupation. HSBC reaches an agreement in principle to acquire 75% of the issued shares of Bangkok Metropolitan Bank. de Inversiones in Argentina (now HSBC Argentina Holdings S. 2001 Agreement is reached for HSBC to acquire Barclays Bank’s branches and fund Management Company in Greece. 2000 HSBC and Merrill Lynch form a joint venture to launch the first international online banking and investment services company. (now HSBC Republic Holdings (Luxembourg) S. in Paris.
attributable earnings. capital. 2. It would be difficult to list them all individually so the name of the major entities are shown on the following page along with their region and volume of operation.4 Country Classifications To ensure that key resources (management time. the group has classified the countries where it operates into 3 categories: the large. A brief presentation of this classification is shown below: 2. the major and the international. balance sheet and size of operation.7 HSBC Group Values Long term ethical client service. Balance Group earnings between OECD and Emerging Markets. Human resources and information technology) are correctly allocated and that the exchange of best practice is accelerated between entities. 11 .2. the number of retail clients. These classifications are a function of sustainable. 2.6 HSBC Group Vision • • • Become the world’s leading financial services company.5 HSBC Principal Business Entities The group is represent by different business entities in over 80 countries and territories around the world.
Conservative lending policy. Strong capital liquidity. Hand-on management at all levels. International character. Openly esteemed commitment to quality and competence. Fast decisions and implementation. Commitment to truth and fair dealing. Fair and objective employer.8 HSBC Governing Objective We will beat the mean Total Shareholder Return performance of a peer group of financial institutions over a three-year rolling average. conservative orientation. A merit approach to recruitment/selection/promotion.9 HSBC’s Business Principal and Values The HSBC Group is committed to five Business Principles: • • • • • Outstanding customer service. Capable of creativity and strong marketing 2. Confident and ambitious sense of excellence. 12 . A minimum of bureaucracy. and target to double shareholder returns in five years. Effective and efficient operations. Strict expense discipline. Putting the Group's interests ahead of the individual's. 2.• • • • High productivity through team work. The appropriate delegation of authority with accountability. HSBC also operates according to certain Key Business Values: • • • • • • • • • • The highest personal standards of integrity at all levels.
10 HSBC Brand & Corporate Identity The Hexagon logo of HSBC derives from HSBC’s traditionally flag. a white rectangle divided diagonally. Andrew. value to investors & comfort to colleagues. trustworthy international builder of long-term customer relationships. development and commitment to the welfare and development of each local community. Team Orientation. 13 . Creative Organization & Customer Orientation. Basic Drives Higher productivity. 2. ethically grounded. cost conscious. The Patron Saint of Scotland. HSBC brand & corporate identity represents what HSBC wants its brand to mean to its customer. Vision To be the world’s leading financial company. It is derived from the groups: Corporate Character HSBC is a prudent. It gives confidence to customers. trust and excellent customer service. the design of the flag was based on the cross of ST. conservative. The essence of HSBC brand is integrity. Like many other Hong Kong company flags in the last century.• • A commitment to complying with the spirit and letter of all laws The promotion of good environmental practice and sustainable and regulations.
HSBC Bangladesh is under the strict of supervision of HSBC Asia Pacific Group. HSBC extended it’s operation to the personal banking sector in Bangladesh and within a very short span of time it was able to build up a huge client base. 1996 to provide personal banking services. securities and safe custody. jute and consumer products. etc. etc.g. and custodial service. Other services include cash management. The Hong Kong and Shanghai Banking Corporation Bangladesh Ltd. securities. car loans. HSBC opened it’s first branch in Dhaka in 17th December. it is extended to pharmaceuticals. The Chief Executive Officer of HSBC Bangladesh manages the whole banking operation of HSBC in Bangladesh. Extending its operation further. primarily limited its operations to help garments industry and to commercial banking. which cover trade services. Another branch has been opened at Dhanmondi on 1st of March 2003. Hexagon and all personal banking. Realizing the huge potential and growth in person banking industry in Bangladesh. corporate banking. and custody services. The Bank was awarded ISO9002 accreditation for its personal and business banking services. This ISO9002 designation is the first of its kind for a bank in Bangladesh. the number of employees of this bank in Bangladesh was 175. Recently the bank 14 . Hong Kong. HSBC opened a branch at Chittagong. Under the CEO there are heads of departments who manage specific banking functions e.Chapter 3 HSBC in Bangladesh The HSBC Asia Pacific group represents HSBC in Bangladesh. In 2000 the bank launched a wide array of personal banking products designed for all kinds of (middle and higher middle income) individual customers. At 28th February 2003. Some such products were Personal loans. Latter. treasury. corporate banking. two branch offices at Dhaka (Gulshan and Mothijheel) and an offshore banking unit on November’1998. Currently HSBC Bangladesh is providing a wide range of services both two individual and corporate level customers. Personal banking. trade and corporate services.
1 HSBC Bangladesh Overview Name of the Organization: The Hong Kong Shanghai Banking Corporation Bangladesh LTD Year of Establishment: Head Office: 1996 Anchor Tower. Trade services Hexagon 15 .755 million Shareholders: Products: HSBC group shareholders Savings & deposit services.985 million Advance: BDT 2. Capital: Asset: BDT 4380 million Deposit: BDT 3. Corporate and Institutional services. 1/1-B Sonargaon Road Dhaka 1205. These products are designed to meet the diverse customer needs more completely. Recently it opened two new ATM’s at Shantinagar & Banani to better satisfy those geographic segments. 3.launched three of its personal banking products – Tax loan. In total the branch currently has 9 ATM’s (5 on-site & 4 offsite) located at various geographical areas of Dhaka & Chittagong. Personal secured loan & Automated Tele Banking (ATB) service. HSBC in Bangladesh also specializes in self-service banking through providing 24-hour ATM services. Loan products. Bangladesh Nature of the organization: Multinational company with subsidiary group in Bangladesh.
Besides these offices there are two personal banking Booth offices located at Gulshan & Motijheel.Number of Offices: 8 (Dhaka. Sonargaon Road – Dhaka Gulshan Office (Personal Banking Booth with one ATM) Gulshan Avenue. Dhanmondi. There is currently 8 ATM’s operating in Dhaka and 1 in Chittagong. Dhaka 16 . 27. Dhaka Motijheel Office (Personal Banking & Remittance office with 1 ATM) Rajuk Avenue. Service Coverage & Customers: Serves individual and corporate customers within Dhaka & Chittagong. The list of these offices are shown below along with there their addresses: Branches & Booths: • • • • • Dhaka Main Office (Full service branch with two ATM’s) Anchor Tower.Dhaka Chittagong office (Full service branch with one ATM) Osman Court. Motijheel. Agrabad – Chittagong Dhanmondi Office (Full service branch with one ATM) Rd. Gulshan. HSBC Bangladesh currently provides services from two of its full service branches one in Dhaka and the other one in Chittagong. Motijheel. Dhanmondi Chittagong and Sylhet) Number of ATM’s: Number of employees: Technology: 10 700 Offers full online banking from branch to branch and also from Dhaka to Chittagong.
Mr.Chapter 4 Functional Areas of HSBC Bangladesh 4. Mr. The management of HSBC is supportive in the sense that the top management deliberately supports the suggestions. Bangladesh is one such company that has to over come a lot of hurdles to reach the position it now holds. Each and every employee of HSBC takes pride of being an employee at HSBC and his or her pride comes from the freedom of direct communication with the top management. incentives. cohesive & energetic. ideas. They equally contributed to HSBC’s superior leadership. Mr. These five men at the top carried out their management roles exhaustively. & arguing openly & without any rancor when they disagreed. Arjun R Fernando COO. Again the management style can also be termed as 17 . and Mr. Steve Banner is the CEO. There are no Specialized cabins for top management and executives and also no executive dining rooms. This has created a management team that is unified. values.1 Management of HSBC Bangladesh HSBC. To maintain a close touch with the organization each man works in separate area of HSBC’s complex. and status for innovative ideas and hard works. innovation and hard work of the employees and officer. At present. There are no office walls in HSBC and all the staff starting from the CEO to the lower operating level employee share the same premises under one roof. There are also systems for awards. by carrying out their unique roles. They worked well together. Syed Akhtar Hossain is the Human Resource Manager at HSBC Bangladesh. Shafquat Hossain is the Chief of Personal Banking. respecting each other’s abilities. Again high amount of employee participation is encountered in the management process. Their offices are indistinguishable from all other cubicles where HSBC’s junior executives & secretaries work in. Mr. Mahboob-urRahman is the chief of Corporate Banking.
These two layers represent the management level of HSBC Bangladesh.Collegial as high amounts of team work and participation exists between the top and bottom parts of HSBC. Managers are the departmental heads who are responsible for the activities of their departments. e. Thus according to my perspective of management style at HSBC Bangladesh falls somewhere between supportive and collegial. Admin Executive. Officers are the next persons to stand in the hierarchy list. The CEO is the top most authority of all the levels. Human Resources Manger. The operating level employees of HSBC who are ranked as Assistant Officer fill the last layer of this hierarchy.g. They perform they 18 . officers & Assistant officers. Executives have the authority next to managers. Executives.g. A graphical presentation is shown below: AUTOCRATIC Power Authority Obedience Dependence on Boss Subsistence SUPPORTIVE Minimum Leadership Support Job performance Participation Status and recognition Awakened drives CUSTODIAL Economic Resources Money Security and benefits Dependence on organization Security COLLEGIAL Passive cooperation Participation Teamwork Responsible Behavior Self -discipline Self actualization Moderate enthusiasm HSBC HSBC follows a 4-layer management philosophy in Bangladesh. They are basically responsible for certain activities & organizational functions. These are Managers. e. They are the typical mid-level employees of HSBC organizational hierarchy. They are the heads of the department and formulate strategies for that department.
He is responsible for the all the activities of HSBC Bangladesh and all its consequences.1 Chief Executive Committee The organizational structure of HSBC Bangladesh is designed according to the various service and functional departments. He administers all the functional departments and communicates with the department heads for smooth functioning of the organization. The HSBC Chief Executive Committee is formed with the heads of all departments along with the CEO. The Chief Executive Officer (CEO) heads the chief executive committee. which decides on all the strategic aspect of HSBC. The structure of this top-most authority is shown in the following figure.day-to-day operational activities of HSBC. Besides the CEO the CEC is staffed with 6 more managers: Manager of Human 19 . An organizational hierarchy chart is shown below: Managers Executives Officers Assistant Officers 4. The CEO is the person who supervises the heads of all the departments and also is the ultimate authority of HSBC Bangladesh.1.
Chief of Personal Banking.Resources. Chief of Corporate Banking and Manager of Marketing. All these major personnel functions are integrated in the best possible way at HSBC. Training and developments. The HR department is very are very much concerned with the discipline that is set up by the HSBC group. Manager of Services. The Dress Code. Personnel Services and Security.e. 4. even for non-banking purposes. HSBC group has got strict rules and regulations for each and every aspect of banking. The Human resource officer monitors the employee staffing and administration activities. which results in its higher productivity. The major functions of this department are Recruitment. Manager of Financial Control Department. The structure of the HR department is shown below: 20 .1. i. The Training officer supervises Training.2 Functional Departments of HSBC Human Resource Department The Human resource Manager currently heads this department. development & rotation activities.
V Step –VI Initial Screening: Screening by Departmental Heads: Filling of the HSBC Job Application Form (HJAF) Screening on the basis of SAF: Initial Interviewed: Selection for written test 21 .IV Step.III Step.I Step. The steps areStep. if any vacancy is created due to (1) Retirement. However there is no set time period when this recruitment and selection takes place.II Step. Each Departmental head places the requisition for recruitment to the Human resource officer. The process for the recruitment of personnel for managerial and non-managerial level differs slightly but the basic steps are same in both the cases. (2) Resignation (3) Death. or (4) Extra work load. Training and Development: HSBC Bangladesh limited follows a standard procedure for recruitment and selection.Structure of Human Resource Department Recruitment.
Performance Appraisal The company follows both rating and descriptive systems for the performance appraisal.Step.VII Step –VIII Step –IX Step –X Step.(1) skill development (2) motivation through counseling and persuasion to change value system. Rating is mainly done on the following factorsi) ii) iii) iv) v) vi) vii) viii) Knowledge of work Accuracy and Reliability Speed General intelligence Sense of responsibility and duty Diligence Initiative and self confidence Readiness to work for and with others. For the top management or senior Managers there is provision for overseeing training arranged by HSBC group. HSBC gives emphasis on the both theoretical and practical training for its personnel. For the mid-level manager or other managerial level there is provision for regional training courses. Although the appraisal system is non-participative but the employees are annually assessed with a joint consultation with their immediate supervisor and departmental head.XI Step – XII Step – XIII Step.XIV Written test Evaluation of test papers Selection of Final interviewees Final interview Documentation Check Medical Examination Probationary Appointment: confirmation In order to enhance the efficiency of the employees. 22 . All the training and development programs are aimed at two basic reasons .
e.Welfare Activities: HSBC has many well-structured welfare policies for its employees. This includesa. c. The major deciding factors area) b) c) d) e) Profitability of the company Average cost of living in the country due to year to year basis inflationary trend Status of wage earners in similar organization Restrictive conditions given by the government from time to time Financial benefits status in the company Components of existing wage structure: a) b) c) Base basic structure Home rent Conveyance allowance Allowances & Benefits Besides the regular wage and salary HSBC provides other financial benefits to the employees. These include wellstructured wage & salary policy. Provident fund Group Insurance Scheme Core Leave facilities (27 days annually) Core Leave allowance Medical allowance (up to 20. d. provision for loans. The wage structure is updated periodically (Two years terms) by the management.000 annually) 23 . The brief description of the major welfare policies are stated below: Wages and Salary Administration HSBC follows a well-defined wage structure and fringe benefits for its employees. Gratuity: 30days basic wage for each completed year of service. free uniform etc. These welfare policies aim at strengthening the relationship of the employees to the organizations and make them more responsible in their respective positions. medical facility. b. f. sports & cultural facilities.
So. i. j.2 Operations of HSBC Bangladesh HSBC activities are performed through functional departmentalization. The departments under PLB credit is shown in the following diagram: 24 . Within a span of only five year HSBC PLB has grown tremendously and is still growing with its innovative products and service offerings. h. Hospitalization allowances (up to 25. k. This department basically deals with the management of products and services offered to the in individual consumers. 13month bonus) Lower rate employee loans. JOE B. Chief of PLB. Within the major departments there are some other subsidiary departments that allow smooth operation of their own major departmental function.1 Personal Banking Division (PLB) PLB is the most flourishing department of HSBC Bangladesh. 4. The 4 branches of HSBC basically deal with the personal banking activities and provide various accounts services to individual customers. Bennett a British national. the departments are separated according to the functions they perform. manages this department. 4.2.g. He is the person behind the astounding growth of PLB department in HSBC Bangladesh.000 annually) Marriage Leave Maternity leave Bonus: (Festival bonus. Chief of PLB manages and supervises the Personal Banking activities of the branch network of HSBC Bangladesh.
He is staffed with one 25 . providing cash. 3 situated at different Dhaka and 1 at Chittagong. etc. personal secured loan. which are tailored to meet the demand of individual customers. The manager of PLB credit who approves and administers all the activities heads this department. sale of various PLB products. Education loan. Car loan. Credit Department The personal banking credit department deals with the consumer credit schemes such as the Personal loan. the branches are quite decentralized for better delivery of services to customer and have their own premises and facilities. tax loan. There functions are to provide various financial services to the consumers. remittance and other teller services. Only the Dhaka office (head office) branch & Chittagong branch deals with both corporate and personal banking. opening new accounts. These include customer services.Branch network There are four branches of HSBC. etc.
ATB blocking and troubleshooting of all ATB problems. After being checked by the approval officer. and ATB security management. The ATM center also deals with issuance. The ATM center is responsible for regular replenishment of the off-site ATM’s and servicing of all the ATMs. This department is basically responsible for the activation of ATB. This department deals with the back office servicing of the HSBC phone banking services provided to customers. the credit requests go to the processing officer for further processing of the application. This department is fairly new and was constructed on January’2001. two assistant officers and one MIS clerk. Currently a total 8 ATMs are in operation.loan approval officer. ATB pin generation. the ATM center is the department that is solely responsible for all the activities related to ATM and is the facilitating department that enables customers 24 hour banking support. The approval officer mainly rejects or approves the credit requests. Some Other Individual Loan Facilities provided by Personal Financial Services Department(PFS) of HSBC 26 . one loan processing officer. termination and servicing of the ATM cards. On an whole. ATB center ATB refers to Automated Tele Banking. ATM Center The ATM center ensures smooth operation of the ATM machines that are located at Dhaka and Chittagong.
Personal Installment Loan: HSBC offers a low cost Personal Installment Loan solution to meet your lifestyle and professional needs backed by local knowledge and global expertise. Festival Loan: to maximize the purchasing power during various festivals. it is categorized by: • • • • Professional Loan: to meet the professional needs. HSBC put together a loan facility to assist in purchasing new apartment or to help you during renovation of home. Now with car loan from HSBC. 27 . Motorbike Loan: With a motorbike loan from HSBC. Wedding Loan: to fulfill the dream of a perfect wedding and a good beginning of a new life. Car Loan : Every people have a dream to buy a car for a long time. For the customers’ convenience. overcome all the obstacles and realize the dream. any one can realize that dream. You can now get your mind at ease by making HSBC a part of your life Personal Installment loan is any purpose loan. Student Loan: to secure the future or getting the Graduate or Post Graduate degree or completing the professional degrees while you are still working. Lifestyle Loan: to add comfort to your personal life. The following loans with different benefits are also available under personal installment loan : • • • Travel Loan: to fulfill the dreams to take an overseas vacation or travel to an exotic place of one’s choice. Home Loan : The decision to buy or renovate a home is probably the most important investment decision any body will ever make.
HSBC offers a comprehensive range of services that can be tailored to the individual needs of the company. He is also the Vice-CEO of HSBC Bangladesh.2 Corporate Banking Division This division if HSBC provides financial services to organizational clients.2. These subdivisions are discussed briefly in the following sections along with a structure chart of Corporate Banking division of HSBC Bangladesh. The chief of CB manages the activities of corporate banking of HSBC Bangladesh. Corporate Banking of HSBC Bangladesh includes Corporate Institutional Banking (CIB) Trade Service (HTV).4. 28 . The Head of this department is the Chief of Corporate Banking. HSBC is a worldwide leader in banking and financial services whose success is based on its relationships with its corporate clients. and Hexagon. Whether it is locally or around the world.
However. Corporate and Institutional Banking provides the full range of the Group's capabilities at local and global levels. The group’s presence in 81 countries of the world gives a good opportunity to control both ends of a trade transaction and keep the business within the Group.Corporate Institutional Banking (CIB) As their major customers operate internationally. Operating through the major centers and in close liaison with HSBC Investment Bank. this department is involved in facilitating trade. The various awards it has won from the leading publications of the world acknowledge HSBC’s excellence in trade. Trade is considered a core business of the group. or even an account with us. • Export Services: To benefit from HSBC's export services. both international & within Bangladesh. the functions are the same. HSBC also offers local financial institutions and banks access to wide range of financial services available on an international basis. you do not need to have special facilities. e. The services are tailored to suit the needs of the companies. Trade Finance Foreign Exchange. Foreign Trade etc. with a particular focus on payments and cash management.g. trade and securities custody. HSBC is the leading provider of trade finance and related services to importers and exporters in Asia. HSBC services them internationally. As the name suggests. HSBC Trade Services (HTV) Trade service is known by various names in other banks. Simply request your buyers to advise your documentary credits 29 .
30 . therefore should consult with the Bank before considering import collections. However.through us and benefit immediately from our international network. payment can be refused. If these are found to be unacceptable. Using these instruments. A full range of import services handled by experienced staff is available. the importer only effects payment in exchange for the documents of title for the goods shipped. Documentary Credits Import Collections Import Finance Shipping Guarantee • Import Collections Collections offer a cost-effective but secure means of trading internationally. the above is subject to Central Bank rules. and we can begin handling your imports immediately. ensuring that your import documents are processed without delay. HSBC is well positioned to fulfil your trading needs. Simply apply to us for import facilities. Pre-shipment Post-shipment Documentary • Finance Finance Credit Advising Import Services : With over 130 years of experience supporting importers globally. giving the buyer peace of mind.
designed to provide tailored solutions for our priority customers from the convenience of their own office remote banking. With this product you can now execute all your trade transactions faster. In these circumstances.• Import Finance Whether the client import using documentary credits or collections. • Shipping Guarantee In certain situations your goods may arrive in port before the shipping documents have been processed through the banking system. and 31 . cheaper. allowing you to take control of the goods from the shipping company without the bill of lading. both loans granted to an importer for payment of import bills. document delivery services. The advantages of using HSBC for this are as follows: Rapid Issuance Shipping guarantees are only of value if they are issued immediately. HSBC are prepared to consider providing import finance for the client. HSBC can issue a shipping guarantee. which combines traditional trade products. Financial Strength HSBC issued shipping guarantees are universally accepted by shipping companies. HSBC can offer the customers Import Loan or a Trust Receipt. HSBC can issue shipping guarantees as soon as the application is made. meaning you can release your goods from the carrier immediately. This means you can always be assured that you will get your goods on time. • Trade Express: Trade Express is an umbrella service. reinforced by HSBC's proprietary state of the art e-banking (Hexagon and Electronic DC Advising).
etc. documentation. The trade service department has two separate subsidiaries: Credit Administration & Foreign Exchange Division.with more accuracy than ever before and most importantly.4 Finance Department of HSBC Bangladesh This is considered as the most powerful department of HSBC. The For-ex division of trade service in relation with NSC and FCD manages the foreign currency traffic of HSBC that originates from Corporate Banking and trade services. guarantees. OD facilities. 4. The functions of FCD are briefly discussed below along with an organ gram of the department: 32 . administration and disbursement of the import-export services provided to corporate clients. It keeps tracks of each and every transaction made within HSBC Bangladesh. Some important aspects of this department are LC advising.2. It is headed by Manager of FCD who ensures that all the transactions are made according to rules and regulation of HSBC group. processing. from the convenience of your own office. The For-ex division of trade services is solely concerned with the management of Foreign exchange inflow and outflow. Violation of such rules can bring serious consequences for the lawbreaker. Credit Administration department basically deals with all the documentation. This department is known to be the heart of HSBC trade services that administers and manages all the trade tools and facilities provided by HSBC Corporate Banking.
PCM strategies are designed to ensure efficiency. It also deals with the returns that are submitted to the Central Bank on regular interval. through maintaining effective relationship with other banks and following the Government rules and foreign exchange regulations Payment and cash Management (PCM): PCM deals with the inter-bank payment. FC also prepares the financial statements for the banks and decided upon banks assets and liabilities. profitably and comprehensive support. ( 33 . advices and transaction reports of the branches are sent to FC for record keeping purposes. The purpose of Treasury's operations is to utilize the funds effectively and arrange funds at a lowest possible rate of interest. All the vouchers. Their main job is to take decisions regarding purchase and sell of foreign Currency.Foreign Correspondence (FC): FC keeps records of all the accounts of HSBC. notes. Treasury: This department works under FCD.
which include: • • • • • Reduction in payment time. resulting in better management. resulting in greater earnings. we have developed products for you to efficiently manage your requirements and reduce cost. We provide you with benefits. This will take effect instantly. Network coverage of almost 200 locations nation-wide. Availability of payment details through Hexagon. Account reconciliation done through Hexagon. Centralization of control of payments. Country-wide Collection: As receivable management is crucial to your financial cycle. Centralization of control of all your cash and instruments.Country-wide Payments: Most corporate treasurers cannot afford to spend time worrying about routine payments. This provides you timely and accurate account information and gives you total control over your finances. 34 . Easy reconciliation of payments/receipts through Hexagon statement. Quicker cash collection into a central account. Detailed MIS on cash collection. So no more signature and fax hassle for an instruction. The services and benefits include: • • • • • • Cost reduction through efficient fund management. Hexagon offers comprehensive cash management services in an easy-to-use and highly secure system. You can pay to third parties at ease and can effect instant fund transfer between your own accounts. Network coverage of almost 200 locations nation-wide. HSBC in Bangladesh has the technology to put you in better control of routine operations and has been successfully handling payment requirements throughout the nation for its corporate clients.
There are a total of more than 50 mobile sales officers (MSO) employed in the cities of Dhaka and Chittagong. consumer loan. The DS executive sets sales strategies & targets for the Sales officers and manages the whole team of MSO’s in Bangladesh. Promotion & Marketing Administration. A manager is assigned to this department who looks after the overall marketing operation of HSBC in Bangladesh.5 Marketing Department The sixth major department of HSBC is the marketing department. A MSO’s are assigned to specific branches for making sales activities more smoothly. This department is basically concerned about marketing the company’s products. savings accounts. services and building a strong corporate image. The marketing department of HSBC has three subdivisions: Direct Sales.2. This division are discussed below: Direct Sales (DS): An executive is assigned to this part of the marketing department. etc outside the banking premises. The Direct Sales division coordinate & manages the sales activities of all the Mobile Sales Officers (MSO) of HSBC Bangladesh. The MSO’s basically makes sales of the company various Personal Banking products such as. The marketing department of HSBC play a vital role in fostering the continuos growth HSBC in Bangladesh. The direct sales 35 .4.
Dhanmondi. Prime responsibilities of this department are: Maintaining strong public relations with various media intermediaries.department also decides upon the commission and remuneration of the mobile sales officers as their salary structure is based on sales performances. Baridhara. Maintaining strong relationship with news media is another major duty of this department. Promotion This part of the marketing department deals with all the promotional activities of HSBC Bangladesh. Advertising the companies products and services. Gulshan. 36 . These billboards emphasize on the needs of customers and shows HSBC logo as solution to their needs. Public Relations The promotion department organizes various environmental and social activities in order to build a strong corporate image of HSBC in the minds of customers as well as in the media. Thus this part of the marketing division is very important for the overall growth of the Personal Banking Division. d) Mailers: various product updates and new product information are regularly sent to existing customers of HSBC. Motijheel. c) Road Side Signposts: Medium sized multi colour signposts focusing on various products of HSBC are found on the roadsides of various posh areas such as. building a strong corporate image of HSBC in Bangladesh. b) Billboards: Huge colourful billboards with HSBC logo are found in various major areas of Dhaka and Chittagong. etc. Advertising The promotion also coordinates all the advertising of HSBC products within Bangladesh. Some of the advertising tools that are frequently used by the company are as follows: a) Newspapers Advertising: Regular advertisements of various products and services of HSBC are given in some of the countries most renowned daily newspapers.
Some such research activities are: mystery shopping. Kawran Bazar. But to deal with customers more completely. Internal Control (IC). Services Department of HSBC This is an integral and vital part of the bank. Except the branches all other departments are situated at HSBC Bangladesh head offices located at Anchor Tower. The services department is considered as the backbone of all other departments. It also provides continuous support to the core banking activities of HSBC. IT. The services department ensures smooth operation and functioning within and between all the departments of HSBC. customer suggestion surveys. etc. critical incident surveys. The Manager of Services heads this department who formulates and manages various critical issues of the services function of HSBC. and HUB. In these are the major departments of HSBC Bangladesh.e) Broachers: Various colourful broachers featuring specific products of HSBC are being displayed and distributed to existing and potential customers via branch offices and Mobile sales officers. A structure of the services department is presented below followed by a briefing of the subsidiary divisions: 37 . Most of HSBC’s operation and activities are operated centrally from the head office. Marketing Administration This department formulates & executes various marketing strategies of HSBC Bangladesh. He is followed by a group of executives who are the heads of various subsidiary divisions that operate within the services department. This department also deals with the billing and invoicing of various marketing & advertising costs of HSBC Bangladesh. Network Services Center (NSC). This department also administers various marketing research activities on the existing and potential customers of HSBC. the branches are given considerable authority and they operate in a more decentralized manner but subject to verification of the respective departments. The results of these surveys are integrated while formulating various marketing strategies. The various subsidiary division within this department are Administration.
The business support services provide supports to the departments during employee leaves and sudden terminations so that the department can function without problems. IT This department gives the software and hardware supports to different departments of the bank. The admin department has two divisions – general administration and Business support services. The general admin division is pretty much similar to the admin departments of other companies that ensure discipline and regulatory concerns. As HSBC is engaged in online banking. The managers and executives of IT division work continuously to develop the total IT system of HSBC so that it can be operated with ease.Administration Like that of any other organizations. the role of IT is very crucial for the bank. accuracy and speed. the Admin department of HSBC makes sure that the organizations moves on with all its departments and staffs operating according to all the rules and regulations of the company. 38 . It also prevents any bottlenecks within the work process and ensures smooth functioning. This department is the most active department of HSBC where employees always stand by to solve any problems in the system.
it is termed as outward remittance.Internal Control HSBC has internal auditors who visit on regular basis and submit the report to the higher authority for audit purposes. Again. Demand Draft (DD) & Cashier’s Order. The following are the methods that NSC used to remit money for customers: Telegraphic Transfer (TT). 39 . The main four jobs that are performed by NSC are Clearing. Network Services Centre (NSC) This department can be described as the ‘Power House of HSBC Bangladesh. ‘Remittance’ is a banking term. HSBC universal banking (HUB) The HSBC banking system is called HUB. when the bank receives the remittance on behalf of the bank. HSBC does the online banking and it is HUB. When a bank remits on behalf of its customers. which sets up the parameter for that. This HUB is linked with the HSBC group via satellite and each and every transaction made by HSBC within Bangladesh is being recorded at the HSBC Asia-pacific headquarters at Hong Kong via HUB. This gives different departments the chance to know their mistakes and take necessary corrective actions. NSC also issues checkbook for new and old accounts based on requisition from various branches. NSC looks after the clearing process of HSBC and makes necessary contact with the central bank for maintaining account flows. All the customer signatures are scanned in this department and are entered into the system. issuing checkbooks and sending & receiving Remittances. the Bank annually administers a company wide audit program to evaluate the overall performance of the bank in Bangladesh. On the other hand. it is inward remittance. Scanning of signature cards. NSC does the back office job for the bank. Thus the HUB is the most powerful and important equipment of HSBC Bangladesh that monitors and tracks any fraud and faults made with HSBC Bangladesh. which means ‘Transfer of funds through banks’.
40 . In the process of making a SWOT marketer identifies the strength and weakness of the company and also the opportunities and threat to the company.CHAPTER-5 SWOT ANALYSIS SWOT Analysis In order to develop marketing strategy SWOT analysis is very vital. The SWOT analysis of HSBC has given below.
Strength Strong corporate identity Distinct operating Procedure Distinct schedule Strong employee bonding and belongings Efficient Performance Young enthusiastic Workforce Empowered Work force Companionable Environment Equalization MBO One-to-one" meeting Modern equipment & technology Visually appealing facilities Opportunity Acquisition Distinct operating procedures Country wide network Experienced Managers Huge population Weak marketing massage by local & foreign banks Weakness Narrow operating span Absence of strong Marketing Activities More Innovative products must be offered Lack of customer confidence Too many contract workers Low remuneration Package Diversification International Credit Cards High Cost for Maintaining an Account Lack of employees Training facility Threat Upcoming Banks Default Culture Similar Products are offered by other Banks Industrial downward trend due to recession. inflation & Unemployment 41 .
SWOT ANALYSIS 5. This image has helped HSBC grab the personal banking sector of Bangladesh very rapidly. The employees of HSBC have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards HSBC. Efficient Performance HSBC provides hassle free customer service to its client base comparing to the other financial institutions of Bangladesh. With its strong corporate image and identity it can better position in the minds of customers. Distinct schedule Everyone in HSBC from the appraiser to the top management has to work to the same schedule towards a different aspect of the same goal. The company's Managing for Value strategy satisfies customers needs better and also keeps the firm profitable. Distinct operating Procedure HSBC in known worldwide for its distinct operating Procedures procedure. Personalized approach to the needs of customers is its motto.1 Strengths Strong corporate identity HSBC is the leading provider of financial services Identity worldwide. The strong organizational culture of HSBC is the main reason behind this strength. interfacing simultaneously at all level over quite a long period of time. Strong employee bonding and belongings HSBC employees are one of the major assets of the company. 42 .
The employees are not suffocated with authority but are able to grow as the organization matures. Each person has multiple objectives. all people participate as equals. MBO HSBC also has Management by Objectives (MBO) everywhere. Later they review as how well they have performed their job with their management as well as the peer group. All the employees must have to get the approval of their bosses on what they are going to do. with new members free to openly challenge top managers. You feel a real part of things". This empowered environment makes HSBC a better place for the employees. Equalization At HSBC workshops are conducted periodically. the top management believed in empowered employees. Companionable Environment All office walls in HSBC are only shoulder high partitions & there is no executive dining room. Any of the executives is likely to plop down at a table in its cafeteria & join in a lunch chat with whoever is there. One of the employees has said. On the workshops. "Its exciting to know you may see & talk to the top management at any time. & this type young & fresh workforce stimulates the whole working environment of HSBC. As from the very first. 43 . where they refused to put their finger in every part of the pie. Empowered Work force The human resource of HSBC is extremely well thought & perfectly managed.Young enthusiastic Workforce The selection & recruitment of HSBC emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that HSBC wants to avoid the problem of 'garbage in & garbage out'.
Television. Various geographic segments are currently not availing the services of HSBC due to inconvenient branch location or absence of neighborhood branches. the problems in dealing with customers are put forward first & everyone dug it to solve them.One-to-one" meeting The MBO makes the review a communication device among various groups. It ultra modern banking systems starting from terminal pc's to HUB's are based on the international HSBC group standards and are the latest.2 Weaknesses Narrow operating span HSBC has a very narrow operating span in Bangladesh.g. 44 . It has only 2 full service branches in Bangladesh situated only at Dhaka and Chittagong. The Hexagon product is one of the best examples in this context. 5. TV ads playa vital role in awareness building. HSBC has no such TV ad campaign. Visually appealing facilities HSBC has some of the best visually appealing branches and office premises in Dhaka & Chittagong that highly attracts customers attentions and customers also feel the international environment while banking with HSBC. The key to the system is a "one-to-one" meeting between a supervisor & a subordinate. Absence of strong Marketing Activities HSBC currently don't have any strong marketing activities through mass media e. In the meeting. Modern equipment & technology HSBC owns the best banking and information technology in Bangladesh.
As HSBC is one of the leading providers of all financial services. International Credit Cards This is one of the most popular and emerging product in Bangladesh which offers customers total financial mobility. Since other foreign and local banks offer a more lucrative salary package. HSBC can also take advantage of this product and grab the market share. The management can consider options of starting merchant banking or diversify in to leasing and insurance. This one of the weakness that HSBC is currently passing through. This hampers the bank's service quality as a whole. Lack of customer confidence AS HSBC is fairly new to the banking industry of Bangladesh average customers lack the confidence in HSBC and judge the bank as an average new bank. it will be difficult for HSBC to attract MBA ' s in future with its current salary package. Too many contract workers HSBC has contract workers who lack the commitment with superior quality service and also are pretty dissatisfied as being a contract worker. 45 .More Innovative products must be offered In order to be more competitive in the market HSBC should come up with more new attractive products. in Bangladesh it can also offer these services. Various other banks and institutions are currently offering this product. Diversification HSBC can peruse a diversification strategy in expanding its current line of business. Low remuneration Package The remuneration package for the entry-level officers are considerable low.
Experienced Managers One of the key opportunities for HSBC is its efficient managers. These managers have already triggered the business for HSBC as being new in the market. As the whole lending process is based on a client's repayment capacity.3 Opportunities Acquisition HSBC is one of the experts in acquiring various firms and organizations. Countrywide network The ultimate goal of HSBC is to expand its operations to whole Bangladesh. In the long run this might turn out to be a negative issue for HSBC. This provides HSBC financial stability & gears up HSBC to be remaining in the business for the long run. 5. HSBC has employed experienced managers to facilitate its operation.High Cost for Maintaining Account The account maintenance cost for HSBC is comparatively high. In Bangladesh it can also diversify quickly by acquiring various local established banks and increase it's total operation within Bangladesh rapidly. Nurturing this type of vision & mission & to act as required. This is very often highlighted by other banks. Distinct operating procedures Repayment capacity as assessed by HSBC of individual client helps to decide how much one can borrow. 46 . the recovery rate of HSBC is close to 100%. will not only increase HSBC's profitability but also will secure its existence in the log run.
Huge Population Bangladesh is a developing country, to satisfy the needs of the huge population, a large amount of investment is required. On the other hand building EPZ areas and some Govt. policies easing foreign investment in our country made it attractive to the foreigners to invest in our country. So, HSBC has a large opportunity here. Weak marketing massage by local & foreign banks The basic assumption of trade business is that customer will come to the bank and ask for service that is why local & foreign banks are not that much enthusiastic about letting know their service features. This an opportunity for HSBC to develop massages regarding their services. 5.4 Threats Upcoming Banks The upcoming private local & multinational banks posses a serious threat to the existing banking network of HSBC: it is expected that in the next few years more commercial banks will emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks. Similar Products are offered by other Banks Now day’s different foreign and private banks are also offering similar type of product with an almost similar profit margin. So, if all competitors fight with the same weapon, the natural result is declining profit. Default Culture This is a major problem in Bangladesh. As HSBC is a very new organization the problem of non-performing loans or default loans is very minimum or insignificant. However, as the bank becomes older this problem will arise enormously and the bank may find itself in a more threatening environment. Thus 47
HSBC has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem. Industrial downward trend due to recession, inflation & Unemployment Bangladesh is economically unstable country. Flood, draught, cyclone, and newly added terrorism have become an identity of our country. Along with inflation, unemployment also creates industry wide recession. These caused downward pressure on the capital demand for investment.
Chapter 6 Performance Analysis of HSBC
6.1 Performance of HSBC in the Community
Each year, employees select charities to focus fundraising and donation activities. HSBC further supports employees and their chosen charities by making corporate donations. Some of the charities that the Bank are involved in this year include: 2004 Charity Concert Warm clothes to the poor Chittagong Lions Foundation The Children Leukaemia and Support Services The Friendship The Seid Trust charity 2003 Charity Golf Tournament Warm clothes to the poor International Federation of Red Cross and Red Crescent Societies (IFRC) Shishu Polli Plus
2004 World Environment Day photography competition 2003 World Environment Day photography competition 2002 Investing in Nature 6. believing that the needs of today's society should not be fulfilled at the expense of future generations.2 Economic Performance of HSBC 50 . in particular for the underprivileged.Blood donation drive with Sandhani and Red Crescent Society SAARC Women's Association Out of Focus 2002 Charity Golf Tournament Acid Survivors Foundation Centre for the Rehabilitation of the Paralysed (CRP) Others HSBC believes that support for primary and secondary education. and that sustainability is paramount. is crucial to the future development and prosperity of every country. School of Hope is an example of this support. 2004 School of Hope 2002 School Environment Fair 2003 in Gazipur School of Hope HSBC is deeply conscious of its responsibilities to the environment.
The performance of HSBC is mentioned below: 51 .HSBC is continuing their business all over the world. By analysis their financial statement of their Annual Report it is seen that the Bank is going to be profitable and dynamic financial institutions day by day by expanding their business and providing the improved services to the customers.
1 2.967 % 31.57 90.70 2 1.129 109.24 91. principally in the AsiaPacific region.704 2.012 138.741 1.486* 1.5 13.797 2002 HKDm 33.496 % 29.635 26.2 1.636 25.171 1.797 25. savings and other deposit accounts Total assets Risk-weighted assets Ratios Return on average shareholders' funds Post-tax return on average total assets Cost : income ratio Net interest margin Capital adequacy ratios total capital tier 1 capital 12.2 Principal Activities The Hongkong and Shanghai Banking Corporation Limited (“the Bank”) and its subsidiary and associated companies (“the group”) provide a comprehensive range of domestic and international banking and related financial services.8 1.55 * Figures for 2002 have been restated to reflect the adoption of Hong Kong Statement of Standard Accounting Practice 12 (revised) on 'Income taxes'.6 2.97 0 817.134* 126.661 25.700* 895.539 1.473.395.812 108.2 2.54 83.761.741 836.The Hongkong and Shanghai Banking Corporation Limited 2003 For the year Profit on ordinary activities before tax Profit attributable to shareholders HKDm 34.1 10.965 At year-end Shareholder's funds Total capital Current.2.824 % 27. 52 .378.167* 2001 HKDm 34.237 2000 HKDm 34.858 1.2 2.742.73 38.8 13. 6.008.61* 38.2 9.7 9.0 9.148.669.868.4 1.2* 1.244 1.46 39.3 12.119 1.77 37.946 % 32.4 110.
are set out in note 31 to the financial statements.000 comprising 500. The Directors do not recommend the payment of a final dividend.797 million have been transferred to reserves. a deficit of HK$1.200 million ordinary shares of HK$2.174. arising from professional valuations of premises and investment properties held by the Bank and the group was debited to reserves.2.911 115.000 million divided into 12.500. (In HK$ million) Group Total Reserves at December 2005 Total Reserves at December 2004 49.500.198 Associated Companies 822 781 (Source: Annual Report 2005) 6.959 42. of HK$25.4 Share Capital The authorised ordinary share capital of the Bank at 31 December 2003 is HK$30.397 million.254 35.349 2004 HK$m 16.50 each (2002: HK$18.3 Reserves Profits attributable to shareholders.694 Bank 145. Issued and fully paid Bank and Group 2005 HK$m Ordinary share capital Preference share capital 16.2. including appropriations there from.000 million divided into 7. During the year. before dividends.000 cumulative redeemable preference shares of US$1 each and 7.174 million non-cumulative irredeemable preference shares of US$1 each).50 each).686 53 . The authorised preference share capital of the Bank at 31 December 2003 is US$7.254 28.000 million ordinary shares of HK$2.6.500.500 million non-cumulative irredeemable preference shares of US$1 each (2002: US$4.000 comprising 500. Details of the movements in reserves.000 cumulative redeemable preference shares of US$1 each and 4. net of the related deferred taxation effect.
2.500 17.000 2000 33. Personal Financial Services provides financial services to individuals. or 2.51. to HK$25.136 million or 3.500 18. a measure which compares the return on the amount of capital invested in the group by its immediate holding company with the cost of that capital. Economic profit is used by management as one of the measures to decide where to allocate resources so that they will be most productive. Attributable profit for 2003 reported by The Hongkong and Shanghai Banking Corporation Limited (‘the Bank’) and its subsidiary and associated companies (‘the group’) increased by HK$630 million.797 million.636 34.2. including self employed individuals 54 .000 18.000 2000 2001 2002 Economic Profit 2003 Group Profit 2001 2002 2003 18869 34797 17880 (in HK$ million) 6.635 34.500 33631 33.000 17. Profit on ordinary activities before taxation increased by HK$1.5 Group Profit & Economic Profit of HSBC The group’s internal performance measures include economic profit. 19.603 44.940 Share Capital 2005 Ordinary Preference 6.5 per cent. to HK$34.807 17.6 Department wise Pretax profit The group comprises five major customer groups.794 34.797 million in 2003.500 34.000 35.4 per cent.000 17.
8 billion.862 14. Long-term investments increased by HK$49. or 11. since the end of 2002 against a background of continued subdued loan demand and fierce market competition. Advances in Hong Kong grew by HK$25. reflecting the increase in customer deposits in the Bank in Hong Kong. with increases in lending relating to stock borrowing.(but excluding individuals managed by Private Banking).7 per cent during 2003. advances to customers grew by HK$20.305 2001 455. Commercial Banking manages middle and smaller corporate relationships.4 per cent.773 13. or 14.414 13.965 24 14 171 553 (494) (832) 1. other propertyrelated lending and trade finance.598 34.3 Assets Position Total assets increased by HK$280.022 13.582 12.797 33.2 billion. At constant exchange rates. or 4.976 13.269 7. who have complex financial affairs.874 10. In the Bank in Hong Kong.137 55 2002 322.635 34. Advances to customers increased by HK$93. Investment Banking and Markets includes the relationships with large corporate and institutional customers together with the group’s treasury and investment banking operations.0 billion. Corporate. Cash and short-term funds increased by HK$36.0 per cent.0 billion or 9.5 billion. advances to customers grew by HK$70.9 per cent.637 . with increases in Hang Seng Bank reflecting the redeployment of funds from interbank placing and as a result of increased customer deposits. since December 2002.8 per cent.1 per cent.661 34. Private Banking provides financial services to high net worth individuals.296 7. and in the Bank in Hong Kong due to deployment of funds in higher yielding debt securities in the low interest rate environment. Figure in HK$ million Cash & Short term Funds 2003 359.483 6. or 6.5 billion.636 Personal Financial Services Commercial Banking Corporate Investment Banking & Markets Private Banking Other Total 6.658 7. since 31 December 2002. 2003 2002 2001 2000 13.7 per cent. or 12.193 2000 344.6 billion. or 15.521 1.
503 222.397 Asset Position of HSBC 2.447 1.449 2.397 6.500.557 239.046 1.447 350.775 256.000 1.000 1.000.675.910 Current accounts Savings accounts 56 . The information given below from the annual report tells that from commencing of their business in Bangladesh (from 1996.500.215 144.946 674.000 2.166 721.000 500.066 266.176 174.063.642 815.000 0 2000 2001 Asset 2002 2003 2.314 652.Placing with banks maturing after one month and certificates of deposits Long-term investments Advances to customers Other Total 170.3.698.046 193.000. 2003 211.55 4 2000 96.066 1.004 319. Savings and Other Deposit Accounts HSBC is leading the Banking Industry by its excellence.till now) there is an appreciable growth in the deposit of HSBC.1 Current.063.749 682.698.170 399.624 1.231 2001 122.795.629 1.795.427 150.412 2002 150.749 528.087 1.63 8 469.675.965 397.
000 800. which resulted in Return on Assets on providing a sound asset base for the bank.92 7 900.000 200.000 600.000.000 0 2000 Current Accounts 2001 Savings Accounts 2002 Deposit Accounts 2003 Deposit Mix 2003 Current Savings Deposit 6.543 794. if the company's net income increases the profitable ratios of the company increases.000 400.827 1. we can say that the managerial efficiency is pretty much satisfactory compared to the banking industry. which indicates of good yielding of results. The higher the ROA.5 0 2000 2001 2002 2003 57 Return on Assets . Although the ROA decreased in 2002 and was stable in 2003 . But in the years 1999 through 2004. HSBC is giving continued emphasis (%) quality assets.2 Return on Assets (ROA) Return on assets (ROA) is measured by the ratio of net income and total assets.5 1 0.559 785.3. 2 1.Total Deposits accounts (Call + Time + Debt Securities) 775. By the returning assets. the better the company is attaining. they have maintained a positive ROA.
6.4 Comparison with the other Bank regarding Level of Satisfaction of Services: (Customers’ View Point) Ranking of The Banks Name of the Banks HSBC SCB Amex Frequency 9 11 6 Percent 18% 22% 12% 58 .3 Return On Equity (ROE) The ROE (net income divided by equity capital) is the most important measurement of banking returns as well as a company's returns because it is influenced by how well the bank has performed on all other categories and indicates whether a bank can compete for private sources of capital in the economy.6. HSBC has maintained significantly high ROE throughout the years of its operations. the better for the Return on Equity (% ) 40 30 20 10 0 2000 2001 2002 2003 Return on Equity company.3. as they are getting higher amount of net income over the equity. The higher the ROE.
raising standard of living of limited income group and overall sustainable socio-economic development of the country. Credit Operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it. accelerating the pace of industrialization. maximum risk is centered in it and even the very existence of Bank depends on prudent management of its credit 59 . creating employment opportunity for the youth. boosting up export. In achieving the aforesaid objectives of the Bank.1 Introduction Bank is committed to provide high quality financial services/products to contribute to the growth of the country through stimulating trade and commerce.CA Igricole Bank Asia CItibank NA Nationalized Commercial Banks Other Private Commercial Banks Total 8 3 4 4 5 50 16% 6% 8% 8% 10% 100 2% 5 2% 0 1% 5 1% 0 5 % 0 % HB SC A e mx B n A ia ak s N t n liz dC m e ia B n s a io a e o m rc l a k SB C C Ig o A ric le C a kN Itib n A O e P a e C m e ia B n s th r riv t o m rc l a k 1% 8 1% 2 6 % 8 % 8 % 2% 2 1% 6 1% 0 Chapter-7 Introduction of Credit Administration/Risk Management Department of HSBC 7. poverty alleviation.
trade express. HSBC in Bangladesh issues a full range of Performance Guarantees. import loans. At HSBC. documents tracker. 7. Advance Payment Guarantees. export bill discounting. it is crucially importance to the success of the Bank also. Long term loans • To finance fixed asset purchase (such as land. which include: Over Draft (O/D) and Short term working capital Loan: • For financing trading assets (raw materials & receivables).2 Products and Services of Credit Risk Management Department of HSBC When you choose a bank to help support your business you want to be sure that it can tailor solutions to meet your specific finance needs. Import Facilities Sight and deferred documentary credit (DC). packing credit. Financial Guarantees and Bid bonds for supporting the underlying business of our customers. shipping guarantee. Machinery). credit portfolio not only features dominant in the assets structure of the Bank. routine operating expenses and overheads. DC advising. Export Facilities • Export loan. Amanah Finance 60 .portfolio. • Guarantees & Bond • USD Facilities • Through the bank’s off-shore banking unit (OBU) it offer all types of corporate and trade service products in USD. The failure of a commercial Bank is usually associated with the problem in credit portfolio and its less often the result of shrinkage in the value of other assets. etc. equipment and To finance Greenfield project and to support the expansion of ongoing operation. we have a full range of products and services. As such. new premises. Hexagon electronic DC issuance.
4 Major Job Responsibility of the Department 7. 5. Coordinate legal matters with lawyers.4. 61 . Creation of Legal and Equitable mortgage of Land. 7. etc. Debt Finance and Advisory. Treasury Operation • Corporate Finance • Syndicated BDT Loans. 6. Preparation and dispatch of security documents. Preparations of Facility Offer Letters 2.• Amanah Import Finance to accommodate Shariah compliant trade activities Forward Exchange Contract: To obtain forward cover against imports and hedge the foreign exchange risk against depreciation of BDT. Guarantee Supervisor Assistant Officer Assistant Officer Assistant Officer 7. Credit Admin Manager. Security Section Supervisor Assistant Officer Officer. 4. Financial Analysis Manager. Credit Control Officer.3 Organ-gram of Credit and Risk Management Manager. Processing security documents. Charge creation with Registrar of Joint Stock Companies (RJSC).1 Security & Facility Offer Letter (FOL) 1. Syndicated international USD Loans in association with other offices worldwide. CRM Manager. 3.
Loan Rollover. 14. Responding to auditors of Customers. 8. 13. 7. Loan disbursement.7. 10. Update open insurance policies in HUB 7. 3. Receive approval for CARM (Credit And Risk Management) application through Lotus Notes.1 Preparation and Dispatch of Facility Offer Letter 1. Circulating Security tracking List to Senior Management on a monthly basis after having RM’s comments. Limit / security loading. 2. 8. 3. 12. Limits and interest related queries. Renewal of Hold covers. 62 . Attending customer queries regarding FOL. Cancellation of facilities. Update and monitor one off facilities of Trade Services. Issuance of Bank Certificate.4. Loan Repayment. 4. 6. 7. 2. Review the approval terms of CRM. securities. Coordinate Search and Inspection Report. Interest Adjustment. 5. Canceling securities & limits from HUB. 9. 11. Updating & Circulating Preferential Pricing.2 Limit & HUB (HSBC Universal Banking) 1. Monitoring exception reports and taking necessary action. 9.5 Workflow of Fulfillment the Responsibilities 7.5. Check whether the facilities are in line with Bangladesh Bank and Banking Companies Act directives.
Prepare the certificate as the standard format. 12. Receive approval for CARM application through Lotus Notes. 8. Take signature from authorized signatories of the Bank. Take HUB printout. 4. 63 . Finalize the FOL.2 Preparation and dispatch of Security Documents 1. 5. security-tracking list.4. 9. Update SLA tracking. Discuss with RM regarding different issues (Terms & Conditions) of the FOL. Prepare FOL in standard format as per set up Service Level Agreement (SLA). 10. Realize charges and VAT. 7. Verify the signature. take signature form the concerned RM/SRM and the MGR CDT ADM (Manager Credit Administration). 5. take two copies of FOL printed on Bank’s Letterhead.5. 3. 6. Review fees will be finalized according to the FOL terms. 4. Receive the signed security documents from their customer. security-tracking list. 7. Receive request from the customer or from the auditor of the customer for issuance of Bank’s certificate. 2. 5. 7. Prepare security documents as per CARM and FOL as per SLA. Mail the security papers to the client for signing. Check the CIB (Credit Information Bureau) Report from Bangladesh Bank. Mail the FOL long with security papers to the client for their signing. Receive the duplicate FOL duly signed by the customer as an indication of the acceptance of the offer. 3. Hand over the draft FOL to the respective RM (Relationship Manager) for checking. 11.5. 2. Memorandum of Articles & Association and Search report. Update SLA tracking.3 Issuance of Bank Certificate 1. 6. amendment and conformation.
File the documents after final checking. Cross the letter with red ink and write “entry passed on ----------(dated)’. Send Lotus Notes (L/N) to related departments and RM for “no claim” confirmation. 4. 5. 5. Upon recipient confirmation from concern departments.5. delete securities.7 Loan Repayment 1.4 Cancellation of Facilities 1. Disburse the loan through A5 Debit /Credit vouchers. Check FOL for terms and conditions 3. Check FOL for terms and conditions.5. Process the Loan. 6. 3. limits & pre facility from HUB.7. 2. 64 . Cancel the securities and transfer them to central store. 2. Send the customer’s advice through courier. 6.5 Loan Disbursement 1. 7. 7. 4. Receive customer’s request letter and verify the signature 2. Advise lawyer for preparing the Deed of Redemption for mortgage. File the documents after final checking in credit file. 7. Check the invoices 4. 7.5. Receive customer’s request letter and verify the signature. Prepare Memorandum of Satisfaction for vacation of Charges. 7. 3. Receive customer’s request letter and verify the signature Check FOL for terms and conditions Process the Rollover.5.6 Loan Rollover 1. Check the CARM approval for cancellation of facility. Keep a copy of the certificate in credit file. 2. 3.
3. 4. 5. Check and confirm that all securities are in place.10 Preferential Pricing 1. Send a copy to HTV (Trade Services) with acknowledgement. Receive approval copy of the preferential pricing from RM. 7. 2.5. 5. 4. Obtain original open insurance policy from HTV. 5. File the exception in clearing exception file. 4. In case of pending security. 2. Maintenance to be raised and approval to be obtained. Process the repayment through A5 debit/credit. File the documents after final checking in repayment file.5. File the maintenance in limit/security maintenance file. Respective RM/RO (Relationship Officer) are informed for decision for corporate customers and inform PCM for non-facility customers. Release limits and pre facility.8 Limit / Security Loading 1.4. Send a copy of the policy to HTV (Trade Services) with acknowledgement. Keep the original policy in fireproof cabinet. Update HUB. 2. 3. 4. 7. 3. 2. Update HUB. Receive telephone call from NSC. 65 . 7.9 Clearing Exception 1. Update credit and preferential pricing files.5. Obtain decisions from RM /RO/PCM and checked by Senior Manager of Credit Administration (CDT ADM).5.11 Open Insurance Policies 1. As and when exception generates for renewals send a L/N to HTV for renewal. 3. 7. check dispensation in CARM and/or file note.
Identifying and assessing credit risk is essentially a first step in managing it effectively. Bangladesh Bank as suggested by Financial Sector Reform Project (FSRP) first introduced and directed to use Credit Risk Grading system in the Banking Sector of Bangladesh under the caption 66 .Chapter-8 Guidelines on Credit Risk Management Credit risk is the primary financial risk in the banking system. In 1993.
“Lending Risk Analysis (LRA)”. This manual has also been able to address the limitations prevailed in the Lending Risk Analysis Manual. the Lending Risk Analysis Manual (under FSRP) of Bangladesh Bank has been amended. Credit Risk Grading system is a dynamic process and various models are followed in different countries & different organizations for measuring credit risk. CREDIT RISK GRADING (CRG): Credit risk grading is an important tool for credit risk management as it helps the Banks & financial institutions to understand various dimensions of risk involved in different credit transactions. activities and the lines of business can provide better assessment of the quality of credit portfolio of a bank or a branch. 67 . The aggregation of such grading across the borrowers. A more effective credit risk grading process needs to be introduced in the Banking Sector of Bangladesh to make the credit risk grading mechanism easier to implement. developed and re-produced in the name of “Credit Risk Grading Manual”. The risk grading system changes in line with business complexities. Keeping the above objective in mind. The Credit Risk Grading Manual has taken into consideration the necessary changes required in order to correctly assess the credit risk environment in the Banking industry. The credit risk grading system is vital to take decisions both at the presanction stage as well as post-sanction stage. The Banking sector since then has changed a lot as credit culture has been shifting towards a more professional and standardized Credit Risk Management approach.
Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. and other precautions to be taken. 8. At the post-sanction stage. This allows bank management and examiners to monitor changes and trends in risk levels. what are the various risk mitigation tools to put a cap on the risk level. Having considered the significance of credit risk grading. what should be the appropriate credit facility. 8.At the pre-sanction stage. Credit Risk Grading is the basic module for developing a Credit Risk Management system. credit grading helps the sanctioning authority to decide whether to lend or not to lend. periodicity of the grading.1 Definition of Credit Risk Grading: • • • The Credit Risk Grading (CRG) is a collective definition based on the prespecified scale and reflects the underlying credit-risk for a given exposure.3 Use of Credit Risk Grading: 68 . what should be the extent of exposure. frequency of review.2 Functions of Credit Risk Grading: Well-managed credit risk grading systems promote bank safety and soundness by facilitating informed decision-making. what are the various facilities. what should be the loan price. The process also allows bank management to manage risk to optimize returns. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. the bank can decide about the depth of the review or renewal. it becomes imperative for the banking system to carefully develop a credit risk-grading model that meets the objective outlined above 8.
⇒ The company demonstrates consistently strong earnings and cash flow. the CRG outputs would be relevant for individual credit selection.4 Numbers and Short Name of Grades Used in the CRG: • The proposed CRG scale consists of 8 categories with Short names and Numbers are provided as follows: GRADING Superior Good Acceptable Marginal/Watchlist Special Mention Sub standard Doubtful Bad & Loss SHORT NAME SUP GD ACCPT MG/WL SM SS DF BL NUMBER 1 2 3 4 5 6 7 8 8.(GD) .e. ⇒ Credit facilities fully covered by the guarantee of a top tier international Bank. It is also relevant for portfolio level analysis. the branch or the Bank as a whole. fully cash covered. The other decisions would be related to pricing (credit-spread) and specific features of the credit facility. • Risk grading would also be relevant for surveillance and monitoring. 8. Good . which are fully secured i. These would largely constitute obligor level analysis. • 69 .5 Credit Risk Grading Definitions: A clear definition of the different categories of Credit Risk Grading is given as follows: • Superior . internal MIS and assessing the aggregate risk profile of a Bank. wherein either a borrower or a particular exposure/facility is rated. ⇒ Credit facilities fully covered by government guarantee. line of business.(SUP) .• The Credit Risk Grading matrix allows application of uniform standards to credits to ensure a common standardized approach to assess the quality of individual obligor. • As evident.1 ⇒ Credit facilities. credit portfolio of a unit.2 ⇒ Strong repayment capacity of the borrower ⇒ The borrower has excellent liquidity and low leverage.
⇒ Severe management problems exist. ⇒ An Aggregate Score of 55-64 based on the Risk Grade Score Sheet.(ACCPT) . thin cash flow and/or inconsistent earnings. negative net worth. but still demonstrate consistent earnings. higher than normal leverage.• • • • • ⇒ Borrower has well established. ⇒ All security documentation should be in place. cash flow and earnings. 70 .4 ⇒ This grade warrants greater attention due to conditions affecting the borrower. ⇒ Bangladesh Bank criteria for sub-standard credit shall apply. ⇒ These weaknesses jeopardize the full settlement of loans.7 ⇒ Full repayment of principal and interest is unlikely and the possibility of loss is extremely high. If left uncorrected. ⇒ Aggregate Score of 85 or greater based on the Risk Grade Score Sheet Acceptable . ⇒ The borrower incurs a loss ⇒ Loan repayments routinely fall past due ⇒ Account conduct is poor. ⇒ An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.3 ⇒ These borrowers are not as strong as GOOD Grade borrowers. ⇒ Borrowers have adequate liquidity. Substandard . strong market share. the industry or the economic environment. or other untoward factors are present.(MG/WL) .5 ⇒ This grade has potential weaknesses that deserve management’s close attention. ⇒ Credit requires attention ⇒ Aggregate Score of 65-74 based on the Risk Grade Score Sheet Special Mention . ⇒ Credit in this grade would normally be secured by acceptable collateral (1st charge over inventory / receivables / equipment / property). ⇒ Acceptable management ⇒ Acceptable parent/sister company guarantee ⇒ Aggregate Score of 75-84 based on the Risk Grade Score Sheet Marginal/Watchlist . ⇒ Credit facilities fully covered by the guarantee of a top tier local Bank. ⇒ These borrowers have an above average risk due to strained liquidity. these weaknesses may result in a deterioration of the repayment prospects of the borrower. cash flow and have a good track record.(SS) .6 ⇒ Financial condition is weak and capacity or inclination to repay is in doubt. ⇒ Very good management skill & expertise. excessive leverage). ⇒ Facilities should be downgraded to this grade if sustained deterioration in financial condition is noted (consecutive losses.(SM) . Doubtful . ⇒ Weaker business credit & early warning signals of emerging business credit detected.(DF) .
The continuance of the loan as a bankable asset is not warranted.6 How to Compute Credit Risk Grading: The following step-wise activities outline the process for arriving at credit risk grading. the asset is not yet classified as Bad & Loss. ⇒ Bangladesh Bank criteria for bad & loss credit shall apply.8 ⇒ Credit of this grade has long outstanding with no progress in obtaining repayment or on the verge of wind up/liquidation. due to specifically identifiable pending factors. and the anticipated loss should have been provided for. This will be guided by the criterion mentioned for superior grade account i.• ⇒ However.7 Credit Risk Grading Process: Credit Risk Grading should be completed by a Bank for all exposures (irrespective of amount) other than those covered under Consumer and Small Enterprises Financing Prudential Guidelines and also under the Short-Term Agricultural and Micro . ⇒ Prospect of recovery is poor and legal options have been pursued. Bad & Loss .Credit. covered by government & bank guarantee. ⇒ Bangladesh Bank criteria for doubtful credit shall apply. Bangladesh Bank guidelines for timely write off of bad loans must be adhered to. For Superior Risk Grading (SUP-1) the score sheet is not applicable. 8. ⇒ This classification reflects that it is not practical or desirable to defer writing off this basically valueless asset even though partial recovery may be affected in the future. ⇒ An Aggregate Score of 35-44 based on the Risk Grade Score Sheet. ⇒ An Aggregate Score of less than 35 based on the Risk Grade Score Sheet. ⇒ Proceeds expected from the liquidation or realization of security may be awaited. Step I Step II Step III Step IV Step V Step VI : Identify all the Principal Risk Components : Allocate weightages to Principal Risk Components : Establish the Key Parameters : Assign weightages to each of the key parameters. 100% cash covered. such as litigation.e. liquidation procedures or capital injection. Legal procedures/suit initiated.(BL) . : Input data to arrive at the score on the key parameters : Arrive at the Credit Risk Grading based on total score obtained 8. 71 .
The credit officers then would pass the approved Credit Risk Grading Form to Credit Administration Department and Corporate Banking/Line of Business/Recovery Unit for updating their MIS/record. Credit risk grading matrix would be useful in analyzing credit proposal. which shall then be concurred by the Credit Officer in consultation with a Senior Credit Officer. Risk factors are to be evaluated and weighted very carefully. Relationship manager should ensure to correctly fill up the Limit Utilization Form in order to arrive at a realistic earning status for the borrower. renewal or specific facility should consist of a) Data Collection Checklist. Relationship Manager shall complete the Credit Risk Grading Score Sheet and shall arrive at a risk grading in consultation with a Senior Relationship Manager and document it as per Credit Risk Grading Form. new or renewal for regular limits or specific transactions. All credit proposals whether new. In such event. upgrade or downgrade in credit risk grade. on the basis of most up-to-date and reliable data and complete objectivity must be ensured to assign the correct grading.8 Exceptions to Credit Risk Grading: Head of Credit Risk Management may also downgrade/classify an account in the normal course of inspection of a Branch or during the periodic portfolio review. 8. The appropriate approving authority through the same Credit Risk Grading Form shall approve any subsequent change/revision i. b) Limit Utilization Form c) Credit Risk Grading Score Sheet. c) dependable. and d) Credit Risk Grading Form. the Credit Risk Grading Form will then be filled up by Credit Risk 72 . and d) parameters/risk factors are assessed judiciously and objectively. Credit risk grading exercise should be originated by Relationship Manager and should be an on-going and continuous process. if basic information on a borrowing client to determine the degree of each factor is a) readily available. b) current. Actual parameter should be inputted in the Credit Risk Grading Score Sheet.e.
8.Management Department and will be referred to Corporate Banking/Line of Business/Credit Administration Department/Recovery Unit for updating their MIS/records. then they will have the option to continue with their own risk grading system. special mention or unacceptable credit risk as per the risk grading score sheet. Whenever required an independent assessment of the credit risk grading of an individual account may be conducted by the Head of Credit Risk Management or by the Internal Auditor documenting as to why the credit deteriorated and also pointing out the lapses. Essentially complete removal of the reasons for downgrade should be the basis of any upgrading. These are exceptions and should be exceptionally approved by the appropriate approving authority. this may be substantiated and credit risk may be accepted if the exposure is additionally collateralized through cash collateral. good tangible collaterals and strong guarantees. If a Bank has its own well-established risk grading system equivalent to the proposed credit risk grading or stricter. Recommendation for upgrading of an account has to be well justified by the recommending officers. In case an account is rated marginal. Frequencies of the review of the credit risk grading are mentioned below: Number 1 2 3 4 5 6 7 8 Risk Grading Superior Good Acceptable Marginal/Watchlist Special Mention Sub-standard Doubtful Bad & Loss Short SUP GD ACCPT MG/WL SM SS DF BL Review frequency (at least) Annually Annually Annually Half yearly Quarterly Quarterly Quarterly Quarterly 73 .9 Credit Risk Grading Review: Credit Risk Grading for each borrower should be assigned at the inception of lending and should be periodically updated.
Chapter-9 Corporate Credit Policies and Different Types of Credit Facilities Practiced in HSBC Introduction: Corporate lending policy is one of the most important aspects of modern banking system.11 Financial Spread Sheet (FSS): A Financial Spread Sheet (FSS) has been developed which may be used by the Banks while analyzing the credit risk elements of a credit proposal from financial point of view. industry and economic condition are essential to ensure high asset quality standards. which will then automatically generate the Output Sheets. a very careful analysis of the borrower. As lending to organizations involves various types of risk. Majority portion of the total profit of a bank is generated from this segment. The FSS is well designed and programmed software having two parts.10 MIS on Credit Risk Grading: Bank should have comprehensive MIS reports on credit risk grading to evaluate entire credit portfolio of the Bank. MIS reports as should be prepared and circulated at least on a quarterly basis. Input and Output Sheets. 8. 74 .8. The financial numbers of borrowers need to be inputted in the Input Sheets.
confusion or omission by personal dealing with credit issues. procedures and lending guidelines should provide a clear and consistent point of reference for all employees and prevent misunderstanding. help to avoid undue process and serve as an efficient mechanism in granting of facilities and the administration of the risk asset portfolio. Additionally. and maintain it in current form. policies and procedures in place to control and monitor all such risks. Credit risk is the risk that a customer or counterparty of the group will be unable or unwilling to meet a commitment that it has entered into. control of exposure including those to borrowers in financial difficulty. It arises from lending. This requires all Group members to be committed to soundness. The group has standards. credit policies help prevent deviation from the overall lending principles and credit culture.Apart from introducing various important aspect of corporate lending. 9. Lending guidelines should enhance marketing efficiency by enabling marketing and credit executives to focus their marketing approach and understand exactly the unit’s willingness to undertake different types of lending and term under which it should be done. Credit procedures support the delivery of credit products. this report will therefore focus on risk analysis techniques. All HSBC group members who undertake credit related business document their credit policies and procedures in a credit manual. The proper adherence to credit procedures reduces the possibility of loan losses. professionalism and discipline in applying high and consistent standards of credit skills. trade finance. HSBC group’s credit culture is dedicated to achieving and maintaining risk asset quality. and monitoring of exposure. treasury and leasing activities. This 75 . prudence. The group has a well-established corporate credit risk management process. which involves the delegation of approval authorities.1 Credit Risk Management Policies Credit policies.
legal and regulatory requirements. the study will mainly concentrate on the following three major area of corporate credit policy: i) ii) iii) Fundamentals of Lending Identifying borrowing cause Industry analysis i) Fundamentals of Corporate Lending: -Understanding Business Type: It is important that a lender understand the similarities and difference among the basic forms and operations of business entities. To achieve the project objectives. including S Corporation Limited liability Company (LLC) -Understanding Financial Statement: 76 . as well we the method of operating and means of control.should also contain statements and guidance on significant credit matters that are subject to local practice. These differences affect the analysis that must be performed on each type of business organization and the legal documents needed to document loan transaction properly. HSBC primarily analyze business under following category: The primary characteristics of the four basic forms of business operations: • • • • Sole proprietorship Partnership Corporate. Procedure for the implementation of credit polices should designate the responsibility for the functions of a particular policy.
Financial Analysis helps the banker to identify and quantify the customer’s financial risks (for example. the extent of the company’s gearing and leverage) and to prompt questions about possible operating risks (for example. -The role of financial analysis in lending The credit evaluation process for corporate customers involves an assessment of the customer’s business operations and strength in order to identify and understand the current and potential operating and financial risks. the bank gains a better sense of the “big picture” and an understanding of the results of accounting concepts and principles in practice. it’s important not only to understand the relationship between statements and the nature an importance of specific accounts. HSBC group financial analysis system enables us to carry out a thorough and meaningful financial analysis. consistent and meaningful way thereby aiding year-to-year comparison and.By focusing on the structure and composition of the balance sheet and income statement. industry and management decision). At the time of financial analysis. It enables us to present corporate customers’ financial statements in a concise. a financial analyst usually tries to solve the following question: . but also to appreciate the additional information contained in the footnotes and the quality of the statement themselves. the financial analysis department of HSBC spread it through using group designated financial analysis software. After receiving financial statements from the customer. To make good loans. comparisons between customers within the same industry.What is the nature of the customer’s industry and what are the conditions under which it operates? 77 .
34Bn..362 600.In it liquid? Is it solvent.000 95. Its operating cycle (Debtors + Stocks – Creditors) is between 5-6 months. to keep the customer information secret.500 DEC04 Audited 1.980 101.460 252 60 70.896 DEC02 Audited 1. instead of real name dummy names were used.000 60.749 90.500 200 70 50.Is the industry declining.947 491.108. sales for 2004 increased by 20% to BDT1. ltd.623 Income Statement: • Despite stiff competition and increase in the manufacture of generic products in the local market. 78 .What are its terms of trade on both sales and purchase? . or high risk/high return one. (NPCL) Industry: Pharmaceutical Industry.849 68. or somewhere in between? . exceeding projection by 5% mainly due to launching of new higher margin generic drugs and strong marketing efforts.819 698.266 650. Even though all data were extracted from companies’ respective financial statements.054 DEC03 Audited 1. Analysis: • • • Company name: National Pharmaceutical Co. growing or stable? . etc.How does its financial obligations compare with its net worth? . NPCL’s stock holding policy is to maintain 180 days stock at hand (in line with industry norm).245 75.244 188 80 111. BDT’000 Sales EBIT NPAT TNW Current ratio (%) Gearing (%) D/E ratio (%) Interest cover (x) NCFO DEC01 Audited 986.278 211 35 121.105.447 55. A financial analysis of a company is stated bellow.000 103.340.In it a low risk/low return enterprise.
3%) due to increase in retained earnings 79 . The turnover period of 50 days is within the maturity profile of the import bills. Major components of the current asset were BDT474M stock. • Stock turnover period improved by 20 days to 190 days and in line with the industry norms (around 6 months) owing to heavy reliance on imported raw materials products taking port congestion. NPCL was successful in achieving the above sales growth. despite the overall decrease in sales volume by 8% in 2004. • Tangible net worth strengthened (by 7. Trade creditor mainly represents payable to supplier against procurement of raw materials on deferred basis.• With the prudent utilization of the existing capacity and due to the increase in per unit price of some major products (Vials/Drops by 75% & Inhalers by 13%). Balance Sheet: • CR is acceptable at 188%. and various factors into consideration. tax liability decreased 46% to BDT15. • The cumulative impact of the above resulted in NPAT to increase by 21 to BDT90in 2004. strikes. • Trade debtor collection period remained low at 13 days as most (96%) of NPCL’s sales are on cash basis. BDT198M cash and BDT132M other debtor.5M due to payment of tax @20% instead of @30% on account of declaration of dividend more than 20% of paid up capital. Other debtor mainly represents advance from suppliers (BDT94M) and VAT (17M). • GPM and OPM remained stable around 28% and 7% respectively because of high value added items. • Despite the increase in PBT from BDT101M to BDT102M.
• Commensurate with the sales growth. investment in fixed assets (BDT70M) and dividend (BDT50M).resulted from long-term sales growth and retention of profit at an average rate of 40%. Without further research into the cause of the borrower’s need. and efficient working capital management. proper analysis of the company might reveal that it has just purchased a piece of machinery with cash and now does not have the cash to buy inventory. ii) Identifying Borrowing Cause: Why is it important to determine the borrowing cause? Why can’t bank just accept the borrower’s reasons for seeking loan? For example.21/-. NPCL has declared dividend @40% by reducing dividend payout ratio by 10% to 55%. a borrower asks for a loan to purchase inventory. DER. • NPCL has been following a stable dividend payout policy as reflected in growth in dividend payment at a stable rate by adjusting the dividend payout ratio with earning per share. NPCL’s cash balances increased significantly by BDT190M to BDT214M in 2004. moderate dividend payout policy. The request sound straightforward.5M). Cash Flow • NPCL is a cash rich company. • Gearing remained nil in absence of any funded bank borrowing. and the borrower may indeed use the money for that purpose. remained low at around 80%. However. one might approve a short-term loan. even though increased slightly due to increase in trade creditors to support the sales growth. despite the increase in EPS by 35% to BDT9. A very prudent strategy of supporting the business growth from retained profit instead of debt financing. NCFO was more than adequate to pay interest (BDT2. This problem is 80 . In 2004.
and market size of around BDT22. would allow MNC’s to produce certain types of drugs (antacids. HSBC carry out detailed analysis of different sector on a regular basis. paracetamol and certain antibiotics).a. The performance of an individual company largely depends on the performance of the industry in which it operates. The market is oligarchic in nature despite presence of 225 government approved/licensed firms. Until the debt is restructured. ‘Doha declaration’ on Trade Related Intellectual Property Right (TRIP) has extended the time frame for LDC’s (like Bangladesh) up to 2016 in order to comply with 81 . the company will probably continue to experience cash shortage. However.2Bn. As a result. and the foreign manufacturers controlled 75% of the market. HSBC set its strategy for a specific period Analysis of a prospective sector of Bangladesh is given bellow: The Pharmaceutical Industry: The pharmaceuticals sector in Bangladesh is recognized as on of the fastest growing industry and key contributor to the GDP with an annual average growth rate of 12% p. Depending on the growth rate and other pros and cons of an industry. iii) Industry analysis: Understanding the nature and pattern of an industry is very crucial aspect of corporate lending.not going to disappear in the short term. but this sector will have to be deregulated by the year 2005. of which 30 are large-scale units meeting 95% of the total local demand. there were 166 pharmaceuticals manufacturers. The industry is growing under protection. What the company really needs is long-term financing for the new fixed asset. local manufacturers including CIB names meet 96% of country’s drug demand. Presently. In the early eighties. Industry analysis assists the bank to identify the prospective sector of economy. which is right now prohibited by law. The top 10 companies’ control 62% of the market and 80% of the market is controlled by top 20 companies. among which 5 are MNC’s with less than one-fourth share of the pharmaceuticals business.
This is how they are able to dictate the prices. the buyers are not able to dictate the prices since the government sets a price. Therefore stiff competition is expected to be emerged after 2016. suppliers have immense power. especially for the aged people with cardiovascular diseases. Pharmaceutical products are necessity goods. Therefore the buyers are not too sensitive to the changes in price. The increasing number of urban population along with the increasing disposable income per capita has led to a growth in sales of pharmaceutical products. low leverage. Under such situations. Porter’s Model the Five Competitive Forces of Industry: • Bargaining power of Suppliers: Most of the raw materials are imported from abroad.patents for medicines. since they know they are selling essential raw materials to the manufacturing companies. enables local pharmaceuticals company to overriding patent law. strong extensive international supplier contacts major industry players have sufficient cushion to absorb price fluctuations • Bargaining power of Buyers: The market for pharmaceutical goods is growing. Fluctuation in the prices of raw materials in the international market poses a threat to industry margins. The non-availability of these important drugs like Delphid has mounted then suffering of patients. Regular medicines like Napa have also increased in price in the retail market across the country due to shortage of supply for the last few weeks. However. the number of buyers of medical products is growing rapidly. However. 82 . production of some essential drugs for complicated diseases like heart ailments is being hampered as the prices of raw materials have shot up in the international market over the last few months. with the average gross profit margin of 40%. Since Bangladesh is exposed to tropical diseases. But according to the latest updates of the industry.
Because of the government protection. fruits. They are relatively free from side effects. such as: Allopathic. and flowers. Companies that want to enter this market are cautious. the GATT deregulatory act is now acting as a deterrent for new entrants. the effect does not take place on a large-scale basis. Though there have been a lot of firms sprouting up. vying for market share. because they know that after 2005. fewer substitutes exist. Ayurbadhics etc. The existing forms on the other hand. since they will not have sufficient time to build up their core competency or customer loyalty in this market. trying to get as strong as they can before they face the foreign competitors. the industry will be open to foreign competition and they know that it will be difficult to stand up to that competition. Homeopathics. competing against one another. According to WHO. herbal medicines have developed from the ancient times and further developed through the ages of trials and reforms. research and development. This is especially true for new firms. Firms that have strong marketing. are prepared from plants. Therefore presently. There are rich verities of Herbal medicines worldwide. distribution. It has stood test and practiced all over the world. There are various types of medicines that are used in the world. herbs. So it is extremely rare to have such problems with substitutes and even if it does happen.• Threats of Substitutes: Threat for substitutes vary: for common products there are substitutes available but for high tech products protected by patents and licenses. but the top 10 firms control the major portion of the market. Homeopathic. There are a large number of small firms in the industry. Herbal/Unani and so on. there is not much threat of new entrants. the industry offers good prospects. the industry appears to be lucrative to investors. 83 . • Threats of New Entrants: The Pharmaceutical industry is one of the rapid growing industries in the country. Ayurbadhics.
• Rivalry between the Competitors: The competitors of the industry are fighting intensely to just maintain their current market share. With the growing development of the per capita income. The perpetual hazards of natural disasters provide opportunities to the pharmaceutical industry to boost its sales. The reason behind this is the limited size of the market segment where they operate. Most of the demand for healthcare is unfulfilled. Unhygienic conditions and poor health maintenance plans provide ample scope for the pharmaceutical firms to sell their products. but their competitors are not far from them. it has enormous growth potential. However. there has been a series of positive changes in the Pharmaceutical Industry in Bangladesh • Apart from the development rate of the pharmaceutical industry. I find out that Square is currently leading the market. Although the market is growing. From my sources. Some of the companies are just serving on regional level to serve a particular segment and stay away from the competition. As there are many big player are occupying the most of the market share. Comparatively. since these two are co-related. so is the demand for pharmaceutical goods. They are just breathing down their neck. This industrial sector is affected by the economic cycle. the growth of the pharmaceutical sector tends to be very slow in years of economic sluggishness and relatively high during economic growth. Furthermore. with increases in the urban population. Growth and Growth Potential: • According to the market share and turnover ratios. it can be expected that the demand for the medical products will rise. as per capita disposable income is increasing. the number of organizations in this market creates huge rivalry inside the industry. 84 . it has been calculated that the local pharmaceutical companies have an average growth rate of 12% per annum. the MNCs tend to have a lower growth rate within the industry.
With the development of healthcare infrastructure and increase of health awareness and purchasing capacity of the people.• Local pharmaceutical industry exports to 52 countries. • The industry has also a strong presence in the country’s capital market as evidenced by industry average earning per share of BDT73/.and price earning ratio of 17.2 Different Types of Credit Facility Different Types of Overdrafts Advance Against Import Bills (BLC) Advance Against Imported Non-Funded Business Letter of Credit Letter of Guarantee Merchandise (LIM) Advance Against Trust Receipt (TR) Advance Against Export Bills Purchased / Discounted Advance Against Work Order Advance Against Other 85 . this industry is expected to grow at a higher rate in the future. Credit Facility Industrial Finance and Other Project Loans Funded Business Consumer Credit Scheme (CCS) 9. Possible Future Growth: • The annual per capita drug consumption in Bangladesh is one of the lowest in the world. indicates strong ability the industry players to raise fund from the capital market. The Pharmaceutical Industry from that point of view is yet to go a long way forward.
Refrigerator / Deep Freeze 86 . Construction of commercial / Residential Building / Warehousing etc. (B) Consumer Credit Scheme (CCS) Objectives The objective of this loan is to provide essential Household durables to the fixed income group (Service holders) and other eligible borrowers under the scheme. The abbreviated name of the scheme will be “consave”. Appraisal may be termed as assessment of viability over a period of time. As such it requires appraisals of those proposals to have a rational decision. These loans are usually made for: • • • Setting up of industries and to meet working capital Balancing. Items of Investment i.9.1 Funded Business (A) Industrial Finance and Other Project Loans Project loan normally has fixed maturity and it relates to term investment. Replacement and Expansion (BMRE) of existing industries.2. Modernization.
d) Banks & Insurance Companies. Any other item not specified above but considered essential. Amount of bank’s investment will be fixed in such a manner that the monthly 87 . Eligibility Television / VCR / VCP / Dish Antenna Music Center Motor Car / Motor Cycle Air –Cooler / Air – Conditioner Personal computer Washing Machine Household Furniture & Fixtures Sewing Machine Kitchen appliances like Oven. The borrower must be confirmed official of any of the following organizations: a) Government Organization. Blender etc. c) Multinational Organizations. vi. Eligibility borrower can avail the facility to purchase more than one article but the amount of total loan shall not exceed the maximum limit fixed by Head office from time to time. ii. iii. b) Semi-Government Organization / Autonomous body. e) Reputed Commercial Organizations.ii. The criteria to become eligible for availing the facility under the scheme are given below. v. Pressure Cooker. iii. viii. Further loan may be allowed to the same borrower if 50% of the previous loan is recovered from him but the same shall not exceed the maximum limit. f) Professions. iv. Entitlement i. ix. Toaster. vii. xi. x.
All papers / Cash memos etc. Wherever applicable. of the articles wherever necessary. acceptable to Bank. the ownership shall be transferred in the account of the client after full adjustment of Bank’s dues. Registration. The client shall have to bear the cost of Repair & maintenance of the acquired articles. The client shall have to bear all the expenses of license. d. 88 . Client’s Equity Prescribed margin as fixed by Head Office from time to time on the total value of the articles shall have to be deposited with the bank by the client as equity before disbursement of loan. Period of Investment: Maximum three years. but the first installment shall be payable by the 7th of the subsequent month of disbursement. Insurance etc. b. Client will procure the specified articles from dealer / agent / shops Mode of Recovery Dues shall be recoverable in the following manners: In equal monthly installments. Mode of Disbursement a. The borrower shall pay the premiums by debt to his account. The insurance will be with the Bank mortgage clause. Exceptional cases may be considered if the bank is satisfied about the repayment capacity if the client. c. b.deduction from borrower salary / income against payment of bank’s dues shall not normally exceed 50% of his net income. The monthly installment shall be payable by the 7th of every month. related to the procurement of the goods will be in the name of bank ensuring ownership of the goods.
plant & machinery’s etc. In case of default the bank can sell the goods on serving proper notice to the borrower and adjust the outstanding out of sell proceeds. Under this method facilities are extended to borrower on his signing a letter of hypothecation.c. The client can only revoke this authority with the concurrence of the bank. In this regard the concerned employee shall authorize irrevocably his employer to deduct the said amount from his monthly salary. These facilities are granting after the credit standing. The borrower signs a letter of pledge and surrenders the physical possession of the goods / produce under banks effective control but retains the ownership with himself. is retained by the borrower but binding himself to surrender 89 . the credit facility is granted to the borrower against the security of pledge of goods or produce in the form of raw materials or finished products subject to credit /margin restrictions. creating a charge against the goods / produce. The control / possession as well as the ownership of the hypothecated goods/produce etc. Through deduction from the monthly salary of the client wherever applicable. financial ability and status of the customer as well as the purpose have been established. hypothecated for the amount of agreed limit of the debt subject to credit / margin restrictions. by his employer. Sometimes collateral securities by way of legal or equitable mortgage of immovable properties are also obtained. Overdraft against Hypothecation of goods / stocks /plant & machinery. (C) Different Types of Overdrafts Arranged Overdraft In this case the customer is allowed on the basis of prior arrangements overdraw his current account by drawing checks for amounts exceeding the balance up to an agreed limit within certain period of time not exceeding one year. Overdraft against Pledge of Goods/Stocks Under this arrangement.
(F) Advance Against Trust Receipt (TR) Advance against Trust Receipt to the client are to release shipping documents for taking delivery of merchandise. which are accompanied by documents of title of goods such as bill of lading or railway receipts etc. (D) Advance Against Import Bills (BLC) Advance against Bills under Letter of Credit are originated from the lodgment of shipping documents received from foreign banks against letter of credit established by the bank. In this method. It is one type of forced loan. (E) Advance Against Imported Merchandise (LIM) Under loan against imported merchandise bank release the imported goods through the nominated clearing agent of the bank. In this case the bank becomes the purchaser / owner of such bill which are treated as 90 . The bank may ask for collateral securities by way of legal or equitable mortgage of immovable properties and or guarantees where deemed fit. the bank calculates and realizes the interest at a prefixed rate and credit the amount after deducting the interest from the amount of instrument. Purchase of bill Banks also make advances by purchasing bills.possession of the goods to the bank as and when called upon to do so. to the bank. (G) Advance Against Export Bills Purchased / Discounted Discount Banks allow advances to the clients by discounting Bill of Exchange/Promissory Notes that matures after a fixed tenor. The bank only acquires a right or interest over the goods hypothecated. which is hypothecated. In this case bank holds the possession of the goods. instead of discounting. Importer takes delivery of the goods from the bank's godown against payment.
If there is a provision for running bills for the work. a specific sum of money shall be paid by the bank to the third party upon claim in a particular manner. The following points are to be taken into consideration: The client’s management capability. Disbursement should be made only after completion of documentation formalities and fulfillment of arrangements by the client to undertake the contract. nature of the scheduled. The bank’s commitment essentially states that in the event of occurrence / non occurrence of a particular event. Work and feasibility study should be judiciously made to arrive at a logical decision.2. equity strength. (H) Advance Against Work Order Advance can be made to a client perform work order.security for the advance. additional collateral security may be insisted upon. within a particular date. This is allowed primarily relying on the credit worthiness of the client. As such liabilities against these types of credit facilities are termed as ‘contingent liability’ and do not affect the balance sheet of the bank at the time of commitment but contains the possibility. 9. The commitment itself constitutes facility but does not involve cash outflow from the bank. Though these types of facilities are primarily non-funded in nature but at times it may turn into funded facility. due to a particular reason or reasons.2 Non-Funded Business Non-funded credit facility to a customer refers to a bank’s commitment to a third party on behalf of the customer. appropriate amount to be deducted from each bill to ensure complete adjustment of the liability within the payment period of the final bill. The progress of work under contract be reviewed periodically. The non-funded facilities are: 91 . Besides assignment bills receivables.
3 Processing of Credit Appraisal Interviewing the client’s RFCF CIB Preparing the credit proposal 92 Landed property valuation by G. Letter of Credit: A banker’s documentary credit is an instrument or letter issued by a bank on behalf of and for the account of the buyer of the merchandise. or on another bank designated in the instrument.K.by eliminating the credit risk in the sale and the shipments of goods (b) Credit facilities. it is an irrevocable obligation of a bank to pay a certain sum of money in the event of non-performance of a contract by a third party.1. By this instrument the bank undertakes that the bill(s) of exchange of the beneficiary (the seller of the merchandise) drawn on the buyer. Guarantee: In banking. The basis of guarantee is always a contractual relationship between principal debtor (account holder) and creditor (beneficiary).by assuring him that the required amount is available to him under credit from the time he receives the buyer’s order and the time of shipment and presentation of shipping documents. 2. will be duly honored by acceptance and /or payment depending upon the issuance of the bill(s) of exchange in question. and (c) Exchange security. strictly according to the conditions stipulated in the instrument. A banker’s letter of credit gives the seller or the exporter: (a) Credit security. This relationship is referred to as the principal or underlying relationship or contract. or on the issuing bank. The contract of guarantee is independent of this underlying relationship. 9.adjusted . which is either a contract that has been definitely concluded or a relationship in its pre-contracted as is the case with the tender guarantee.by financing the sale when the goods are in transit.
Pre-disbursement Issuing Sanction letter Acceptance from the client Completion of all documentation formalities as per Head Office. Obtain various reports regarding client’s business. Repayment Installment realizes from the clients. It ensures recovery of loans and advances. Though now-a-days greater emphases are put on the purpose of the loan rather than securities. nevertheless the securities play an extremely important role to take a 93 . Physical visit. Disbursement Loan Input Voucher Monitoring Ensure adjustment as per repayment Communicate with the clients. 9.4 Security for Loans and Advances Security is a Cover against loans and advances.
bonds / share / assignment of Book debt / Bills receivable etc. Securities are classified into three broad categories Collateral Securities Guarantee Margin COLLATERAL SECURITIES The tangible securities pledged / assigned by the borrower to the bank and additionally held by the bank to secure a loan are called Collateral Securities. may be offered as securities. In case of advances against pledge / hypothecation of goods.decision. Security is an insurance or cushion to fall back upon in emergency if borrower fails to repay the loan amount. Good collateral security must have the following characteristics: 94 . it may be Govt.4. in the industrial area raw materials & finished goods etc. iv. Protection of Interest Ensuring the recovery of the money lent Provision against unexpected change Commitment of the borrower. whereas.1 Types of Security The types of securities offered vary from place to place. v. life insurance policy etc. 9. iii. as securities. bank may insist on immovable properties as collateral. In metropolitan cities. Further. Importance of charging security is: ii. Again agricultural produce is the principal securities in the agricultural centers. a bank also accepts moveable & immovable properties.
9. In case where minimum margin is specified. called the guarantor to be answerable to the bank for the debt of the borrower upon his default in repayment of the loan. salability / durability / storage capacity and inspection facility of the goods.• • • • • • • Tangible Transferable / negotiable Easily marketable Price stability Durability (not perishable) Ascertain ability of market value Genuineness of title (free from encumbrance) Guarantee At times when the personal security of the borrower is not considered sufficient or when the risk involved is a border line case and the borrower is not in a position to offer sufficient collateral to the loan. 95 . It should be remembered that such security for the loan depends on the continued solvency of the guarantor. which on placement may bind the parties answerable and liable to the court of law. Margin The difference between the market value / asset valued of the goods. To safeguard the bank’s interest a continuing guarantee in the bank’s standard form should be obtained. the percentage may be increased according to market conditions. merchandise and produces pledged / hypothecated to secure a loan / advances and the amount of the loan / advance (normally the drawing power) is known as MARGIN. the bank may ask for a guarantee of a third party whose financial ability and credit standing is acceptable to the bank. The margin to be retained for each type of loan / advances will be in accordance with instructions issued from time to time by Bangladesh bank / Head office of the bank. A guarantee is an undertaking given to the bank by a third party.5 Documentation Against Advances Document is the written statement of facts or evidence in regard to a particular transaction.
Importance of Documentation: Documentation formalities against loans and advances should be properly completed prior to extension of the facility to safeguard the Bank's interest. b. 96 . Purpose of Documentation: Documentation is necessary for acknowledgement of debt by the borrower and for charging of securities to the Bank against loans and advances. title to goods and property. legal deeds and power of attorney related to creation of charge on securities. borrowing power. Charge documents are preformatted and printed required to create charge on securities against loans and advances and the documents are provided by the Bank to the client for execution. Complete and correct documentation enables the Banker to take legal recourse against the borrower in case of non-realization of dues. Types of Documentation: Documents related to securing loans and advances are classified into the following 2 (Two) categories: a. Legal documents are legal papers provided by the client certifying the legal status of the borrower.
2. Notarized irrevocable power of attorney. Valuation certificate. Pari-passu Security sharing Agreement Trade finance General Agreement Letter of Lien Blanket Counter Indemnity Letter of disclaimer Tax Identification Certificate 97 . Resolution of the partners for availing of credit facility and for execution of security documents. City Corporation / Municipality Tax payment receipt. 12. Non .Documentation Charge Document Legal Document Memorandum and Articles of Association (Limited Company). 3. 4. 1. Memorandum of deposit of title deed (For Equitable mortgage). 11. 2. 10. For mortgage of property. plant.Encumbrance Certificate. to receive payments against bills receivables / other receivables. Letter of Personal Guarantee Letter of Corporate Guarantee Letter of hypothecation over stocks. Registered mortgage deed (For Registered / Legal mortgage). 5. Book Debts and Plant & machinery Loan Subordination Agreement Power of Attorney Registered mortgage over Land & Building Equitable mortgage over Land & Building Letter of Continuity & Revival Letter of Pledge Supplemental hypothecation over stocks. Board resolution covering corporate borrowing power and execution of security documents (Limited Company). Original title deed. Trade License. Certified copy of original title deed(in case of new purchase) 13. book debts. 1. Original money receipt duly endorsed in favor of the bank(in case of new purchase). Clearance from the Lawyer of the Bank (Legal vetting). Registered partnership deed (Partnership firm). to sell hypothecated stock in trade / machinery / equipment. Demand Promissory note Borrowing Resolutions.
5. even though it may be jointly owned and payable to either or survivor. They give the Bank the right to sell the securities without notice to them and adjust their outstanding and other expenses from the sale proceeds. Plant & Machinery A ‘hypothecation Agreement’ must be obtained when the collateral is in the name of a person other than the borrower. The borrowers agree to Hypothecate to the bank goods and merchandise or any other securities in consideration of credit facilities granted to them. It is taken for almost all the facility customers. c) Loan Subordination Agreement: “Letter of Subordination” is an agreement on the part of one party not to collect or enforce an indebtedness of a second party until certain obligations of such second party to a third party (bank) are fully met. b) Letter of hypothecation over stocks.9. Book Debts. 98 . If the securities are owned by more than one person all of them must sign the Hypothecation Agreement. In other words.1Charge Documents a) Demand Promissory Note It is an unconditional written promise of the borrower made to the Bank to repay debt(s) on demand or at a fixed or determinable future date along with interest at a stated rate. the claim of the third party (Bank) is considered as a primary lien. Bank should ensure the person executing the agreement owns that hypothecated commodities/ goods etc. The demand promissory note must be obtained while extending any type of credit facilities. are solely.
d) Power of Attorney This document authorities the bank to sign or endorse documents on behalf of the party executing the power. or as guarantor. This letter of Revival refers to and constitutes as an integral part of the loan documentation executed by the borrowers including the promissory notes. the borrower agrees to execute all relevant documents and to remain liable for repayment of all outstanding as principal debtor. these remain in possession of the Bank and can be sold in case of default and the sale proceeds be adjusted towards borrowers liabilities. The borrower undertakes to remain liable on the promissory note and other loan documentation notwithstanding that his liabilities may have been fully or partly adjusted during the period of the credit facilities and even though his overdrawn account may show credit balance from time to time. (g) Trust Receipt Two different types of trust receipts will be in use to cover the following area of credit lines: 99 . The letter is obtained in order to preclude any question of law of limitation. Other terms and conditions are similar to those under the letter of Hypothecation. e) Letter of Continuity& Revival In consideration of the bank allowing credit facilities. If a corporate body gives it it must be accompanied by a corresponding copy of a resolution of the board of Directors authorizing the execution. (f) Letter of Pledge When securities are pledge to the bank in consideration of credit facilities extended to the borrowers.
i) Letter of trust receipt (For Release of shipping Documents) This is executed by the borrowers to release shipping documents for taking delivery of merchandise which is hypothecated to the bank. Here who will take the first charge or second charge i. costs and legal actions that may arise from the guarantee. 100 . (j) Pari-passu Security Sharing Agreement If the borrower is taking the facilities on a specific business area from the different Banks and other financial institutions. then the question of this agreement arise. (i) Blanket Counter Indemnity In consideration of the bank issuing guarantees / indemnities from time to time.e. ii) Letter of Trust Receipt (For Pre-shipment Financing) The borrowers for availing pre-shipment finance execute this by creating lien on the original letter of credit. priority on the property of the borrowers if he fail to repay the loan amount. The borrower also undertakes that the credit facilities will be utilized to purchase / process the merchandise for shipment as per terms of the credit. This agreement is the situational. It describes the securities referred to in the above-mentioned documents. as Trustees until complete repayment of the debts to the bank. the borrower agrees to keep the bank indemnified from all liabilities. The Borrowers agree to take delivery of merchandise as the Bank’s agents and acknowledges that the ban remains owner of the goods and they will be holding the goods on behalf of the bank. (h) Supplemental Hypothecation This is an integral part of the letter of pledge / Hypothecation / Letter of Trust Receipt /Packaging Credit Trust Receipt / General Letter of Trust Receipt.
2 Application In this step the applicant formally applies for credit facility to the Bank. corporate branch (head office) usually follows the below-mentioned procedures and steps for sanctioning any kind of loans and advances as available in line with the Bank’s guidelines: 9. Business Houses apply on the printed company letterhead. the bank collects following documents from the business houses for preparing a credit proposal. Copy of Memorandum of Association duly attested by the authorized signatory. the bank officials analyze the applicants using their discretions and experiences. Copy of TIN (Tax Identification number) certificate. Copy of Trade License duly attested.1 Personal Analysis At the beginning of the process. an applicant is analyze on the following grounds: • • • • • Character Capital Capacity Collateral Economic Condition After the satisfaction of the Bank officials.3 Obtaining Required Documents After getting the application.6 Procedures for Giving Loans and Advances The Hongkong and Shanghai Banking Corporation Limited (HSBC). 9. 101 . the applicant is asked to submit a formal application for loan. They are: Project profile or the profile of business.6.9. 9.6. Generally.6.
102 . an export oriented company required to submit the following additional documents: Export License Bonded warehouse License Tax holiday approval from NBR EPB Registration 9. Copy of Articles of Association duly attested by the authorized Certificate of Incorporation Resolutions of Board of Directors. The importance of CIB Report to the Loan provider is: a) To ensure whether the Borrower’s have a sound economic condition.4 Collection of Credit Information Bureau (CIB) Report HSBC’s Credit Administration Department collects information on borrower’s liabilities to different banks from the CIB of Bangladesh Bank. Personal Net Worth Statement of the owners in Bank’s format Bank Statement for prior 12 months from previous Banks. The information is sought by filling up the specific CIB Inquiry Form.5 Search and Inspection Report Bank officials or their representatives’ makes a visit to the project/factory/godown sight to investigate the existing facilities and relevant securities offered by the Bank. Apart from the above-mentioned documents. on. and so signatory. 9. b) To ensure that the Borrower’s are not a loan defaulter. These reports are prepared by the visiting officers and attached with the Credit Proposal that is named in HSBC is CARM.6.6. c) To ensure about the repayment condition of the Borrower’s.
9. market risk. Doubtful or Loss as per policy of loan classification set by Bangladesh Bank or Head Office of the bank. But in true sense it is defined in terms of degree of risk associated with these loans. Unclassified Loans An unclassified loan or commitment is one that is set by Bangladesh Bank or the Head Office of the Bank. It is done to determine the level of reserves to be maintained by the Bank for the probable loss on that risky loan account. To calculate the required provision and the amount of interest suspense. Classified Loans A classified loan or commitment is one that is classified as substandard.7 Classification of Loans and Provisioning Loan classification is a process by which the risk or loss potential associated with the loan accounts of the Bank on a particular date is identified and quantified. 2. Loan Unclassified Classified 1. Various risks such as: industry risk.6 Lending Risk Analysis Lending risk analysis is a systematic procedure for analyzing and quantifying the potential risk of failure to repay the credit facilities. security risk.9. 103 . company risk have to be evaluated.6. Loan Classification means to categorize the debt information in a systematic manner. Unclassified loans are those loans in which repayment is regular. Strengthen credit discipline. To assess financial soundness of a bank. The objectives/importance of loan classification are: • • • • To find out Net Worth of a bank.
To improve loan recovery position and To put the bank on sound footing in order to develop sound banking practice in Bangladesh.
Position of classified loans and advances and other assets should be placed before the Board of directors of the bank. The following are the broad definitions of the classified categories: however instruction issued by Bangladesh bank / Head Office of the bank regarding basis of loan classification and provisioning should be followed:
Classifie d Loans
A well-defined weakness is present in loans f this category, which could affect the ability of the borrower to repay. This is clearly a troubled situation, for one reason or another that requires immediate and intensive effort to correct and reduce the possibility of loss. Doubtful
A serious doubt must exist that full repayment will not be forthcoming but the exact amount of the loss cannot be ascertained at the time of classification. Loss Advances, or portions of advances, which are determined to be uncollectible, based on presently known factors.
LEGAL ACTION Legal proceedings are lengthy and consuming and as such every effort must be made to settle a defaulter’s outstanding out of court. However, if situation compels the bank to take legal action for recovery of stuck up loans and advances, the same should be done with prior approval of Head office. All legal process should be conducted by the bank’s legal retainer, if necessary in consultation with Bank’s legal adviser. Provision for Classified Loan Bank should preserve following provisions for classified loans: Types of Classification Unclassified / Regular Substandard Doubtful Bad & Loss 9.8 Rate of Provision 1% 20% 50% 100%
Calculation of Interest and Provision on Advances a) Interest is calculated on a daily product basis but charged and accounted for quarterly on accrual basis. Interest on classified loans and advances is kept in suspense account as Bangladesh Account Instructions and such interest is not accounted for as income until realized from borrowers. b) Provision for loans and advances are made on the basis of period and review by the management and instructions contained in Bangladesh Bank Ordinance. Portfolio of Loans and Advances as on December 2005 Sl. No. 01 02 03 04 05 06 07 08 09 Sector Agriculture Large and Medium Scale Industry Working Capital Export Finance Commercial Lending House Building Loan Small and Medium Enterprises Consumer Credit Scheme Others % of Total Loans 0.46% 22.33% 12.64% 13.22% 33.45% 3.09% 0.90% 3.73% 10.18%
10.1 Major Findings of the Project With a view to improving the quality and soundness of loan portfolio, credit risk management methods were updated in 2003. The Bank is now applying a new system of credit assessment and lending procedures by stricter separation of responsibilities between risk assessment and lending decisions. From the analysis of Loans and Advances from the annual report 2005, it shows that the net advances to customers to HKD$816,004 million up by 14% compared to the year 2004. The employees of the Bank are young, energetic, cooperative and friendly. Their dealings with the client are cooperative and friendly which creates attractive perception about the client and interest to do business with the Bank. HSBC also gives preferences to local customer through its marketing efforts. HSBC started operation in Bangladesh in 1996. By following prudent corporate marketing and risk management policy, HSBC recognized as one of the leading bank in the country. HSBC group has well-established corporate lending and credit risk management process which involves analyzing customers’ need prudently and carefully, analyzing local culture and economy, periodic analysis of industry, offering products in line with customer’s needs and maintaining good asset portfolio. KYC, “Know Your Customer”, is a very important term that is gaining importance day by day. In lien with this principle, HSBC carry out a details analysis before entering onto a relationship. Understanding business type is therefore very important as it assist the bank to structure credit facilities in line with customer’s need. For example, Loan tenor and type for a manufacturing concern should be different from that of the retailers. HSBC Bangladesh has a full service capability for Corporate operating in Bangladesh. The HSBC group is proud to bring its global capabilities to the
project loan. HSBC also started Shariah compliant Islami Banking from 2004. The most common finance that the bank grants is for the short term working capital of a business. borrowing caused by purchase/replacement of fixed assets. the bank structure and offer the products to the customer. provide a means of tailoring facilities to specifically meet a customer's working capital requirement. However.customers in Bangladesh. HSBC’s credit evaluation process for corporate customers involves an assessment of the customer’s business operations and strength in order to identify and understand the current and potential operating and financial risks. by contrast. According the needs and on the basis of business cash cycle. This finance is usually provided by way of overdraft. Through analyzing the local market and industry. Before approving any credit proposal. in line with local needs. borrowing caused by slowdown in the operating cycle. which the original facility was not designed to meet. import & export loan. HSBC has a well-defined products structuring policy. Export finance and related products. long term loan. which move through company's trade cycle. A doctor whose patient complaint of a severe headache does not prescribe paracetamol on the theory that all headaches are the same. In report. etc. A doctor determines the cause of the headache and treats the ailment found. we have seen number of reasons for borrowing such as borrowing caused by sales growth (both short and long term). HSBC Bangladesh is currently offering full range of corporate products such as working capital loan. From the bank's viewpoint. Import. HSBC is known as one of the best trade banks in the world. by relating finance to the goods. trade finance facilities provide the bank with greater control over the use to which the company puts its facilities. 107 . In lending. treasury etc. banker plays the role of doctor when the customer complains of a “cash ache”. the bank carry out a very detailed financial analysis as it helps to identify and quantify the customer’s financial risks and prompt questions about possible operating risk. it is always difficult to identify precisely how funds are being used from an overdraft because the customer can easily divert them to take advantage of other opportunities.
FDI recorded a commendable growth of 72% from USD268 million to USD460 million in 2004. But the credit management activities suffer from some kinds of problems that are learnt from discussion with officers. With the growth of foreign direct investment (FDI) in the last couple of years. government policy. social aspect. Intention not to repay the loan: 108 . industry analysis also assist a bank in detecting opportunity and risk associated with specific borrower. HSBC fells more comfortable to expand its operations in Bangladesh. Economic conditions. 10. clients and also problems identified from the job observations. Bangladesh has advanced to the 122nd position from the previous 133rd in the World Investment Report (WIR) 2005 index on United Nations Conference of Trade and Development (UNCTAD). Bank can identify potential area of lending through analyzing various industries. it would be able to advance credit to more viable projects. The problems are as follows: 1. ethnic mixes are the major issues that mainly evaluated by HSBC. These changes are continuously monitored by HSBC and accordingly adjust their growth strategy in Bangladesh. Apart from identifying prospective sector. demographic statistics. Due to recent growth rate of GDP and improvement in investment conditions. Understanding industry is indeed a very crucial aspect of corporate lending.2 Identification Some Problems regarding Credit Management Proper Credit Management is the most important function of any Bank. regulatory framework. 2. HSBC’s corporate banking department carry out industry analysis on a regular basis and set strategy accordingly. In line with changes of these environmental issues the bank change its lending policy. political stability. Lack of Deposit for Credit Extensions: Discussion with officers of the Head Office revealed that if the Bank collects more deposit.
Irregularity in Providing Loan: Usually Banks are responsible to provide loan to those who are eligible for the loan. Defective Legal System: Existing bad legal system is another greatest blow and curse to the credit management system and alarming factor recovering loan from defaulter. Higher Rate of Interest for Credit: Clients generally complain that rate of interest for various type of credit is quite high. 6. They have to fulfill more terms and conditions than those who have greater influence in the business community. 3. Changes in Policies: Due to changes in the export. 8. In many cases productivity from loaned investment is inadequate that borrower become incapable in repaying loan. foreign exchange policy as well as monetary and fiscal long term financing suffer a lot. In reality it is very difficult. 7. small investors do not get the loan easily.A culture has been developed among the common people that Bank loans need not to be repaid. This is due to the cost of fund. But in reality. 109 . import. lengthy and expensive to have a verdict in favor of the Bank.1 Delay in Loan Sanction: Lengthy process of loan sanction or delay is a common problem of credit management. 4.
In practice. All commercial banks as well as HSBC should have a well-defined credit risk management system that delivers accurate and timely risk grading. 4. it is essential that grading is a robust process. 5. Risk grading is a key measurement of a Bank’s asset quality.CHAPTER-11 RECOMMENDATIONS 1. 110 . Diversification of the loan portfolio is. the key to lowering the overall credit risk. of course. 7. HSBC’s credit risk grading system should reflect the complexity of its lending activities and the overall level of risk involved. 3. HSBC should introduce distinguished rate for the best customers which will attract the good customers. HSBC should increase Marketing activities to be competitive in the marketplace. All Banks should adopt a credit risk grading system outlined in this manual. 6. Since the lending rate of HSBC is comparatively high. Lending policies in Bangladesh should be geared to growth potential. HSBC should be enforced to expand its activities and loan programs in the rural areas to serve the national interest. it can attract more customers by lowering the rate. 8. 2. and as such. 9.
it can stand with its own identity. So all the Financial Institutions must find their own method in order to sustain in the changing world. also has discovered new avenues to reach its goals. HSBC is the world’s local Bank in the sense that the activities or services of this Bank are operating in all the six Continents (the logo of HSBC represents that by the six sides). The success has been resulted from the dedication. During the short span of time of its operation. HSBC should diversify its credit portfolio so that in near future when competition among Banks will serve. sufficient expertise and above all very relaxed management to adopt new idea to update Credit Risk Management method. By proliferation of new advance services. commitment and dynamic leadership of its management. HSBC has successfully grabbed a position as a highly progressive and dynamic financial institution in the country. The Credit Risk Management method that may seem fit today may not work tomorrow. it is gone to people’s heart through updating various services. expanding use of automated equipment and electronic transfer of financial information. a bank of difference. For the brand name HSBC. Now HSBC is continuing business operation successfully in Bangladesh since 1996 through developing an image and goodwill among its clientele by offering its excellent services. 111 . Central focus in this regard would be to have a comprehensive Information Technology system.CHAPTER-12 CONCLUSION Most of the Banks in Bangladesh are offering a wide array of financial services including new types of loans and advances and some whole new services are being launched every year. HSBC. HSBC will be the world’s first largest institution in the near future.
especially the ideas of sharing the same meal under one roof. which in turn strengthen balance sheet position and ensure organic growth. During my career since March 2004. Its non-discriminatory HR policy. I got the opportunity to analyze and works on all above areas vary closely during the research period. through corporate lending bank also buildup its asset base. I came to know about the inimitable management style of HSBC. In fact. open space office set up for all. Being a member of HSBC Bangladesh Corporate Banking team. 112 . analyze and prepare credit proposals through carry out extensive industry and financial analysis. Corporate Banking is one of the most import segments of a bank. and the friendly and cozy work environment encouraged me the most for working here. In addition. This department is considered as the backbone of the bank as it generates majority portion of bank’s bottom line profit Apart from generating profit. I explored and analyzed above areas as part of my day-to-day job. I had keen interest of attaining the professional training in the field of banking from a bank like HSBC who has set up a milestone for the rests. Hence.WORK EXPERIENCE IN HSBC: A feeling of completeness runs through my veins when I identify myself working with the brilliant professionals of the country’s leading multinational financial institution The Hongkong and Shanghai Banking Corporation Limited (HSBC). my core job responsibility in HSBC is to explore and maintain relationship with corporate customers. selling products.
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