Internship Report on Asset and liability management of HSBC

Introduction
This internship report is prepared on ‘The HongKong and Shanghai Banking Corporation’- HSBC, in Bangladesh. With its symbol of a Hexagon and the illustrative theme ‘The world’s local bank’ –HSBC is known to a lot of countries and territories of the world as a leading financial service institution.
Although the history of its operation in our country is relatively new, yet HSBC already commands a great deal of respect and reputation in our banking community. I consider myself privileged as an intern student from Stamford University Bangladesh, to work with HSBC. During my internship, I was placed in its Personal Financial Services Department [PFS].
While working with different sections of Personal financial Services Department, I got the opportunity to observe various principles and procedures followed in this department. On completion of a period of two months in the internship, I decided to start compilation of a report on my works, side by side with my routine job assignments.

1.2.0 Background
Every Financial Institute irrespective of its size is generally exposed to market liquidity and interest rate risks in connection with the process of Asset Liability Management. Failure to identify the risks associated with business and failure to take timely measures in giving a sense of direction threatens the very existence of the institution. It is, therefore, important that the strategic decision makers of an organization assume special care with regard to the Balance Sheet Risk management and should ensure that the structure of the institute’s business and the level of Balance Sheet risk it assumes are effectively managed, appropriate policies and procedures are established to control the direction of the organization. The whole exercise is with the objective of limiting these risks against the resources that are available for evaluating and controlling liquidity and interest rate risk.

1.3.0 Objectives
HSBC is a well known fact that the function of Asset and Liability is very crucial for any bank. In Bangladesh, banking is relatively underdeveloped, and the practice of a prominent foreign bank like HSBC in its asset and liability management can be greatly enlightening.
Here high light some facts of this sector in the hope that it may serve as useful references for the local banks to observe. The process they employ to manage and analyze facts of their asset and liability gives them a clear picture of their strengths and weaknesses in operation. That enables HSBC to make better decisions and obtain greater strength.
The objectives of this paper are:
To assess and identify the possible sources of risk in connection with the funding and lending activities.
Ratio Analysis of the Financial statements
To assess the impact of risk on the business and financial performance.
To be familiarized with the qualitative and quantitative techniques needed to avert and or minimize risk.

1.4.0 Methodology
The method to do the analysis on HSBC is by observation. I also took the help of the officials of the Personal financial Services Department to clarify my queries and used secondary data to come up with a report on the topic. I had to discuss one to one on the topic with the people responsible for managing this section in HSBC
The general methodology of the work includes analyzing already followed practices of the Financial Institutions of South East Asia and local Financial Institutions to manage Balance Sheet Risk. Practices followed by Banks to the extent it matches with the activities of Financial Institutions have also been analyzed. Different reports, Bangladesh Bank Guidelines, web site information of different financial institutions were used as primary input for this paper.

1.5.0 Scope & Limitation
The initiative to write a detail procedure of how HSBC works in managing the asset and liability, in the time of internee there across a lot of limitations which slowed me down and in some cases changed my course to write it up. The department is an important department in HSBC Bangladesh, so deriving data from PFS in any form is a severe breach of rule in the HSBC code of conduct. As a result, the project could not be compiled on actual data of operation. Therefore, it is restricted to general principles and process of HSBC BD in respect of its asset and liability management.

2.0.0 Overview of Bank
Bank is a financial institution and intermediary, which collect deposits through its different deposit mechanism and provide loans and advances among the loan makers / investors with the view to earn profit. Thus a bank is a financial intermediary, a dealer in loans and debts. In financial concept, banking means safe custody of money and at the same time an institution for money transaction.
To regulate the banking business there followed some financial laws of the government the old one is British stamp Laws in 1981 and English Exchange Bill in 1982. Other laws are the English Financial act of 1915; ht e India Company’s Act of 1936 and Indian Banking Regulation Act of 1949 are worth mentioning.
The concept of banking is an old as civilization itself. Banking activities in its earliest crude form of lending and exchange prevailed during the ancient period. The legend of huge treasure of the Great King Solomon, the man of great wisdom, son of David (Alaihee-aas-Salam) and the activities of taxation and banking during his reign in 1005 B.C. The Indus Valley Civilization, the Roman Civilization, the Greek Civilization, the Egyptian Civilization, the Mesopotamian, the Babylonian Civilization, the Vedic Indian Civilization, the Muslim Civilization played important roles in giving birth to and flourishing of bank.

2.1.0 Origin of Bank
The trace of banking has been discovered in Saudi Arabia in ancient period eight thousand years ago. In middle age in Italian Republics some. Jews dealt in money exchanging activities sitting on ‘Bonca’ (Italian word), ‘Banque’ (France word), meaning a long bench, which now converted to English as Bank meaning a financial institution. The earliest known bank started in China in 600 B.C., which was followed in Greece. With the advancement of urbanization people found it difficult to exchange goods against goods (Barter). The medium of exchange was thus a necessity and to control the exchange market the idea of a financial institution i.e. bank came into being.

3.0.0 HSBC Group at a glance

HSBC Group

Corporate directors Safra Catz • Vincent Cheng • Marvin Cheung • John Coombe • José Durán • Rona Fairhead • Douglas Flint • Sandy Flockhart • William Fung • Michael Geoghegan (CEO) • Stephen Green (Chairman) • Stuart Gulliver • James Hughes-Hallett • William Laidlaw • Rachel Lomax • Sir Mark Moody-Stuart • Gwyn Morgan • Narayana Murthy • Simon Robertson • John Thornton • Sir Brian Williamson

Brands Bank of Bermuda • first direct • Hang Seng Bank • HSBC • HSBC Bank International • HSBC Direct • HSBC Halbis Partners • HSBC Insurance • HSBC Insurance Brokers • HSBC Investments • HSBC Premier • HSBC Private Bank • HSBC Rail • HSBC Trinkaus • M&S Money • Proa • SABB

Principal local banks Argentina • Australia • Bermuda • Brazil • Canada • China • Egypt • El Salvador • France • Germany • Hong Kong • Malaysia • Middle East • Malta • Mexico • Panama • Poland • Turkey • United Kingdom • United States

Minority stakes and joint ventures Bank of Communications (19%) • HSBC Saudi Arabia (60%) • British Arab Commercial Bank (47%) • SABB (40%) • Wells Fargo HSBC Trade Bank (20%) • Ping An (19.9%) • Techcombank (15%) • Bank of Shanghai (8%) • Axis Bank (4.99%)

Annual group revenue: $88.6 billion USD (1% FY 2008)
Employees: 335,000
Stock symbols: LSE: HSBA, HKEX: 005, NYSE: HBC, Euronext: HSBC, BSX: 1077223879
Group website: www.hsbc.com
Group Headquarters: 8 Canada Square, London, E14 5HQ, United Kingdom

3.1.0 Foundation & Growth of HSBC
The HSBC Group has a remarkable history in banking and financial services. That history has left its mark and helped to make one of the leading organizations in the modern financial world. HSBC’s pride in its history is not a matter of nostalgia. The experiences have shaped the Group’s character and business approach.
Headquartered in London, HSBC Holdings plc is one of the largest banking and financial services organizations in the world. HSBC’s international network comprises over 9,500 offices in 79 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. Through an international network linked by advanced technology, including a rapidly growing e-commerce capability, HSBC provides a comprehensive range of financial services: personal financial services; consumer finance; commercial banking; corporate, investment banking and markets; and private banking. At 30 June 2003, the Group’s total assets amounted to US$983 billion (£595 billion, HK$7,663 billion). It has 218,000 employees and nearly 200,000 shareholders around the world. Although the Group’s holding company, HSBC Holdings plc, was formed as recently as 1991, many of its principal constituent companies opened for business over a century ago and have long experience in their home and international markets. The story of the growth and development of these companies is rich in variety and achievement, with an international pedigree that is unique in banking history. This brief history describes the origins and evolution of the companies that make up the HSBC Group. The history concludes with a summary of the far-reaching changes in recent years that have given HSBC its special place in today’s major financial markets.

3.2.0 The HSBC Group in the Asia-Pacific region
Beginnings, 1865
The HSBC Group’s name is derived from The Hongkong and Shanghai Banking Corporation Limited, the founding member of the modern Group. The bank owed its origins to the business communities of the China coast in the 1860s. At that time, the finance of trade in the region was not well developed and most transactions were still handled by the European trading houses, or hongs, rather than by professional banks. By the early 1860s, local businessmen needed larger and more sophisticated facilities. In Hong Kong, in particular, business leaders required specialist banking services — preferably from a bank that was locally owned and managed.
The founding of the bank in 1865 answered this need. The new company was the inspiration of Thomas Sutherland, then the Hong Kong Superintendent of the Peninsular and Oriental Steam Navigation Company, who produced a prospectus for a locally based bank operating on sound ‘Scottish banking principles’. The prospectus attracted the support of a broad spectrum of Hong Kong interests, including American and Indian trading houses as well as European firms, and the initial capital of HK $5 million was quickly taken up in Hong Kong, Shanghai and Calcutta. On this basis, the bank opened for business in Hong Kong on 3 March1865. Then, as now, the bank’s headquarters were at 1 Queen’s Road. One month later, on 3 April 1865, the bank’s Shanghai office opened for business. Initial response from customers in the two cities was favorable, both from the foreign business community and from the compradors, the influential Chinese intermediaries in charge of local staff and business dealings in the Chinese community.
The new bank’s commitment to local ownership and management required a special arrangement for incorporation. Rather than operate under existing British or colonial regulations — which would have required a London head office — the bank’s directors persuaded the Treasury in London to accept incorporation under a special Hong Kong ordinance. This allowed the bank to maintain a head office in Hong Kong without losing the privilege of issuing banknotes and holding government funds. In this way, the bank (which had started life under a local Companies Ordinance as the Hongkong and Shanghai Banking Company Limited) assumed the name The Hongkong and Shanghai Banking Corporation in December 1866. Thereafter, the bank’s statutory framework remained basically unchanged until 1989, when registration under the Hong Kong Companies Ordinance was completed. Early business and development soon after its formation in Hong Kong and Shanghai, the bank established a network of agents and branches around the world. Although that network reached as far as Europe and North America, the emphasis was placed on building up representation in China and the rest of the Asia- Pacific region. In many of its branches and agencies in Asia, The HongKong and Shanghai Banking Corporation was the pioneer of modern banking practices. From the outset, trade finance was a strong feature of its local and international business, an expertise that has been recognized throughout its history. Bullion and exchange businesses were also important in the early years. In Japan, where a branch was opened at Yokohama in 1866, the bank acted as an adviser to the government on banking and currency. In 1888, it was the first bank to be established in Thailand, where it printed the country’s first banknotes. By 1900, the branch network in Asia extended to India (1867), the Philippines (1875) and Singapore (1877), and to cities in what are now Malaysia, Myanmar, Srilanka and Vietnam.
In the 19th century, international banking of this kind required innovation and high levels of risk. The bank had its share of setbacks in its early years, including over-commitment to a number of local industrial ventures. From the mid-1870s, however, the bank renewed its focus on trade finance. Thomas Jackson, Chief Manager on three occasions between 1876 and 1902, dominated this period of the bank’s growth and led it to become the foremost financial institution in Asia. In achieving this reputation, Jackson and his successors were supported by a distinctive cadre of managers and staff. These officers, many of whom had begun their careers with English or Scottish joint-stock banks, were trained in London before taking up appointments in Asia.

3.2.1 Business in the early 20th century

After the shock and disruption that the First World War brought to international trade, The Hongkong and Shanghai Banking Corporation looked forward to expansion in its Asian markets.
The new head office at 1 Queen’s Road (1935) and the new buildings at major branches such as Bangkok (1921), Manila (1922) and Shanghai (1923) reflected this confidence. In contrast, the political outlook in China grew increasingly uncertain and, in South-East Asia, the bank faced heavier competition from Dutch and French banks. Throughout the 1930s, in keeping with its long-standing connections with government finance in China, the bank took a leading part in efforts to stabilize the Chinese national currency.

In the Second World War, the majority of the bank’s European staff became prisoners of war as the Japanese advanced through Asia. Those in Manchuria, Japan and Indo-China were repatriated, but most of those who failed to escape were interned. The Chief Manager, Sir Vandeleur Grayburn, and his designated successor, D C Edmondston, died while prisoners in Hong Kong. Meanwhile, in 1941, British regulators required that Arthur Morse, as Chairman of the bank’s London Advisory Committee, should act as Chairman of the bank. Two years later, the London Committee was empowered to act as a Board of Directors and Morse was appointed to the dual role of Chairman and Chief Manager.

3.2.2 Post-war recovery

After the Second World War, in June 1946, the bank was able to restore its head office powers and functions to Hong Kong. In the immediate postwar period, the bank quickly took on a key role in the reconstruction of the Hong Kong economy. Its support for the skills and experience of newcomers to Hong Kong was especially vital to the upsurge in manufacturing in this period. As a result, the bank’s total assets tripled to HK$3.6 billion between 1940 and 1954.

3.5.0 New alliances in Asian banking

The changes of the post-war period — the concentration on Hong Kong and the closure of the branches in mainland China — carried the risk that the bank was growing too narrow in its sphere of interests. Under Michael Turner’s leadership between 1953 and 1962, the bank avoided the risk by diversifying its business in a series of acquisitions and alliances. These additions, which included the formation of The Hong Kong and Shanghai Banking Corporation of California and the purchase of The British Bank of the Middle East, were to be the bank’s first experience of working as a ‘group’ of companies.

In the Asia-Pacific region, key additions were the Mercantile Bank in 1959, a controlling interest in Hang Seng Bank Limited in 1965, and the formation of Wardley Limited in 1972. The Mercantile Bank, originally established as the Mercantile Bank of Bombay as early as 1853, had its own distinguished history in Asian banking.

When its acquisition by The Hongkong and Shanghai Banking Corporation was completed in 1959, the Mercantile Bank was operating 35 branches, with an especially strong presence in the Indian sub-continent and Malaysia. The Mercantile’s head office was transferred to Hong Kong in 1966, and its business was then gradually integrated into the larger Group.

Hang Seng Bank, in contrast, was a local Hong Kong bank established in 1933. The Hongkong and Shanghai Banking Corporation obtained a controlling interest in 1965, shortly after banks in Hong Kong had faced a brief period of crisis.

Hang Seng, under its own name and management, has since emerged with great success as the second largest bank incorporated in the Hong Kong Special Administrative Region. Not all these alliances were in commercial banking. In 1972, a new wholly owned company, named Wardley Limited after the bank’s original headquarters in Wardley House, was created to serve as a merchant banking subsidiary. Wardley later developed its own series of subsidiaries in financial centers throughout Asia. In 1981, it also acquired a controlling interest in Equator Holdings Limited, whose subsidiaries offer merchant and investment banking, trade and advisory services in Africa. In 1995, as part of the Group’s strategy of adopting a unified identity for its investment banking and capital markets activities, the principal Wardley businesses were renamed and brought together as HSBC Investment Bank Asia Limited.

The Hongkong and Shanghai Banking Corporation continued to seek new opportunities for diversification in the emerging markets of the Asia-Pacific region. The globalization of the economy in the 1980s and 1990s opened up financial markets that had previously been closed to foreign banks. In 1985, the bank obtained a banking licence in Australia and then established Hongkong Bank of Australia Limited in the following year (now HSBC Bank Australia Limited).

3.3.0 New directions in Asia-Pacific

The Group has extended its services on the mainland since the late 1970s, following the introduction of China’s ‘open door’ economic policy and in support of the country’s growing international trade. In 1980, The Hongkong and Shanghai Banking Corporation opened a representative office in Beijing. More offices followed in China’s other major cities and, in 1984, it became the first foreign bank since 1949 to be granted a banking license, allowing the Shenzhen office to be upgraded to a full branch. In 1997 (the year in which the People’s Republic of China resumed sovereignty over Hong Kong), HSBC was one of the first international banks to be given permission to conduct renminbi business in mainland China. By the beginning of 2008, the Group had the largest network of any foreign bank in China with 62 outlets. This network has been supplemented by a series of strategic partnerships. In 2001, an 8 per cent share in the Bank of Shanghai was purchased and, in the following year, HSBC acquired a 10 per cent share in Ping An Insurance Company of China, the second largest life insurance operator in the country.

There has been major business growth in India. 2001 saw the opening of the only branch in the HSBC network that is open 365 days a year in Pune, western India, and, in the same year, HSBC was able to enter the insurance market in India for the first time. The Group has also pioneered the use of global resourcing centers to achieve a competitive advantage. India’s pool of skilled workers has made it an ideal location for such operations and it now boasts seven of the Group’s 15 centers. These centers have allowed HSBC to utilize its worldwide reach and to improve services by conducting back office functions on an international basis.
In addition to investing in the emerging markets of China and India, the Group has also strengthened its businesses in other parts of the Asia-Pacific region.

3.4.0 HSBC’s International Network

The HSBC Group’s international network comprises of some 10,500 offices in 81 countries. It would be difficult to list them all individually, so I have the names of the major entities on the following pages along with their region and number of operations as of 2004:

Region Number of offices
Americas
5,673
Asia-Pacific
1,013
Europe
2,559
Middle East & Africa
275

3.4.1 Country Classification

To ensure that key resources (management time, capital, Human resources and information technology) are correctly allocated and that the exchange of best practice is accelerated between entities, the group has classified the countries where it operates 3 categories: the large, the major and the international.
These classifications are a function of sustainable, attributable earnings, the number of retail clients, balance sheet and size of operation. A brief presentation of this classification is shown below:

3.5.0 Group Identity

Group Vision
To
• Become the world’s leading financial services company
• Balance group earnings between the OECD and the Emerging markets

Group Values
Long term, ethical client service
High productivity through team work
Confident and ambitious sense of excellence
International character, conservative orientation
Capable of creativity and strong marketing

3.5.1 HSBC’S Governing Objectives
“We will beat the mean Total shareholder return performance of a peer group of financial institutions over a three year rolling average; and target to double share holder returns in five years.”

3.5.2 HSBC’S Business principles & Values
The HSBC Group is committed to five Business Principles:
• Outstanding customer service;
• Effective and efficient operations;
• Strong capital liquidity;
• Conservative lending policy;
• Strict expense discipline;

HSBC also operates according to certain Key Business Values:
• The highest personal standards of integrity at all levels;
• Commitment to truth and fair dealing;
• Hand-on management at all levels;
• Openly esteemed commitment to quality and competence;
• A minimum of bureaucracy;
• Fast decisions and implementation;
• Putting the Group’s interests ahead of the individual’s;
• The appropriate delegation of authority with accountability;
• Fair and objective employer;
• A merit approach to recruitment/selection/promotion;
• A commitment to complying with the spirit and letter of all laws and regulations;
• The promotion of good environmental practice and sustainable development and commitment to the welfare and development of each local community.

3.5.3 The Brand “HSBC” & Its Corporate Identity
The Hexagon logo of HSBC derives from HSBC’s traditionally flag, a white rectangle divided diagonally. Like many other Hong Kong company flags in the last century, the design of the flag was based on the cross of ST.Andrew, The Patron Saint of Scotland.
HSBC brand & corporate identity represents what HSBC wants its brand to mean to its customer. The essence of HSBC brand is integrity, trust and excellent customer service. It gives confidence to customers, value to investors & comfort to colleagues.

3.5.4 Corporate Character
HSBC is a prudent, cost conscious, ethically grounded, conservative, trustworthy international builder of long-term customer relationships.

4.0.0 HSBC Bank Bangladesh

HSBC Bangladesh Pvt. Ltd started operations in 1996. It is part of the HSBC Group. The Bank was awarded ISO9002 accreditation for its personal and business banking services, which cover trade services, securities and safe custody, corporate banking, Hexagon and all personal banking. This ISO9002 designation is the first of its kind for a bank in Bangladesh. The bank primarily focuses on urban areas have branches in most areas of the capital city of Dhaka; it also has branches in the cities of Chittagong and Sylhet. The bank also has a good number of ATM booths in the cities present; it also has booths in most five star hotels.

The HongKong and Shanghai Banking Corporation Bangladesh Ltd. primarily limited its operations to help garments industry and to commercial banking. Latter, it is extended to pharmaceuticals, jute and consumer products. Other services include cash management, treasury, securities, and custodial service. Realizing the huge potential and growth in person banking industry in Bangladesh, HSBC extended its 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.

HSBC Bangladesh is rated ‘AAA’ in the Long-term and ST-1 rating in the Short-term, which are the highest level of ratings for any bank or financial institution in Bangladesh.

HSBC Bangladesh offers a comprehensive range of financial services such as commercial banking, consumer banking, payments and cash management, trade services, treasury, and custody and clearing. The bank also offers offshore banking in the Export Processing Zones, this is only limited to investors in the EPZs. A special service called NRB Services is also available for non resident Bangladeshis; this service allows consumers to maintain accounts in US Dollars, Pound Sterling and Euros. People using this service can freely remit money from Bangladesh to any part of the world and can access their money from any HSBC booth around the world.

HSBC in Bangladesh also specializes in self-service banking through providing 24-hour ATM services. Currently HSBC Bangladesh is offering five off-site ATM booths and five Branches, along with ATM booths, for better satisfying those geographic segments, located at various geographical areas of Dhaka & Chittagong. HSBC Bangladesh has a help center which operates on daily basics. It is one of the very few banks in the country to offer day night banking.

4.1.0 HSBC Bangladesh at a glance

HSBC Bank Bangladesh Pvt. Ltd

Type
subsidiary
Founded 1996
Headquarters Dhaka, Bangladesh

Key people Sanjay Prakash (CEO)

Industry
Finance

Products
Financial Services

Revenue
$58 million (2009)

Parent
HSBC Holdings plc

Website
www.hsbc.com.bd

4.2.0 Technology

Offers full online banking from branch to branch and also from Dhaka, Chittagong & Sylhet through their own networking solution call HUB.

4.3.0 Customer

Serves individual and corporate customers within Dhaka, Chittagong & Sylhet region.

5.0.0 Functional Departments of HSBC
In the banking sector, HSBC is expending through out Bangladesh. It is one of such multinational company which has captured the market share by providing good service and introducing lucrative product for their customers.

In this organization the leadership role is mainly played by CEO himself but all the department head of the organization also contribute individual leadership skills for the company. To maintain a close touch with in the organization, each man works in separate cubicles in a floor with easy communication facilities. The working environment is very friendly and the open communication between the seniors and the juniors makes the whole working environment easy to resolve the problems.

The HSBC culture of doing a job with every one contribution created a strong management team that fells integrated and work as “one bank one team” strategy. Each and every employee of HSBC takes pride of being a part of HSBC and his or her pride comes from the freedom of direct communication with the top management.

The management of HSBC willingly accepts suggestions, ideas, and innovations of the officers and junior officers’ level. There are awards, incentives, and status for innovative ideas and hard works in HSBC, to encourage employee participation to encounter in the management process.

Again the management style can also be termed as Collegial as high amounts of team work and participation exists between the top and bottom parts of HSBC.

According to my perspective, the management at HSBC Bangladesh falls between supportive and collegial. A table below shows the four segments of character:

Management of HSBC Bangladesh

AUTOCRATIC
– Power
– Authority
– Obedience
– Dependence on Boss

CUSTODIAL
– Economic Resources
– Money
– Security and benefits
– Dependence on organization

SUPPORTIVE
– Leadership
– Support
– Job performance
– Participation
COLLEGIAL
– Participation
– Teamwork
– Responsible Behavior
– Self -discipline

In Bangladesh HSBC follows a 4-layer management philosophy. These are Managers, Executives, officers & Assistant officers. The top most authority of all the levels is the CEO. All Managers are the departmental heads who are responsible for the activities of their departments. They are the heads of their respective department and formulate strategies for that department. The Executives have the authority next to managers. They are ultimately responsible for certain activities & organizational functions.
After these two layers, represent the management level of HSBC Bangladesh. Officers are the next persons to stand in the hierarchy list. They are the typical mid-level employees of HSBC organizational hierarchy. These officers are responsible for managing the operational activities and operating level employees. The operating level employees of HSBC who are ranked as Assistant Officer (AO’s) fill the last layer of this hierarchy; this is the entry-level position in HSBC Bangladesh.

They perform day-to-day operational activities of HSBC. They belongs closure relationship with the end customers of HSBC. An organizational hierarchy chart is shown below:

The organizational structure of HSBC Bangladesh is designed according to the various service and functional departments. The Chief Executive Officer (CEO) heads the chief executive committee, which decides on all the strategic aspect of HSBC. The CEO is the person who supervises the heads of all the departments and is the ultimate authority of HSBC Bangladesh. He is responsible for the all the activities of HSBC Bangladesh and all its consequences. 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 structure of this top-most authority is shown in the following figure. Besides the CEO the Chief Executive Committee is staffed with 8 more managers: Chief Operating Officer, Manager Human Resources, Manager Credit Risk Management, Manager Personal Financial Services, Manager Treasury, Senior Corporate Banking Manger and Manager Compliance & Control, and Manager Group & Public Affairs.

5.1.0 Human Resource Department
The Human resource Manager currently heads this department. The major functions of this department are Recruitment, Training and developments, Personnel Services and Security. The HR department is very much concerned with the discipline that is set up by the HSBC group. HSBC group has got strict rules and regulations for each and every aspect of banking, even for non-banking purposes; i.e. The Dress Code. All these major personnel functions are integrated in the best possible way at HSBC, which ensure higher productivity. The Human resource officer monitors the employee staffing and administration activities.
The Training officers supervise and monitor Training, development & rotation activities. To keep control on timely presence of the employee, the employee has to punch their card in the office premises within 8.45am everyday. Late comers are highly discouraged. The structure of the HR department is shown below:

HSBC Bangladesh limited follows a standard procedure for recruitment and selection. However, there is no set time period when this recruitment and selection takes place. Each Departmental head places the requisition for recruitment to the Human resource officer, if any vacancy is created due to (1) Retirement, (2) Resignation (3) Death, or (4) Extra work load.
In order to enhance the efficiency of the employees, HSBC gives emphasis on the both theoretical and practical training for its personnel. All the training and development programs are aimed at two basic reasons –
Skill development
Motivation through counseling and persuasion to change value system.
For the top management or senior Managers there is provision for overseeing training arranged by HSBC group. For the mid-level manager or other managerial level there is provision for regional training courses. Besides, for non-management level there are training programs arranged in different institution and also with in the organization. For the operatives, various on the job-training program are conducted within the company.

5.1.1 Performance Appraisal
The company follows both rating and descriptive systems for the performance appraisal. Although the appraisal system is non-participative but the employees are annually assessed with a joint consultation with their immediate supervisor and departmental head of the bank. The Rating of the employee is mainly done on the basis of the following factors-
Knowledge of work
Accuracy and Reliability
Speed
General intelligence
Sense of responsibility and duty
Diligence
Initiative and self confidence
HSBC activities are performed through functional departmentalization. Therefore, the departments are separated according to the functions they perform. Within the major departments there are some other subsidiary departments that allow smooth operation of their own major departmental functions.
5.2.0 Personal Financial Services (PFS)
The Hongkong and Shanghai Banking Corporation Limited offers a full range of personal banking products and services designed to take care of its customers’ growing needs and requirements. This department basically deals with the management of products and services offered to the in individual consumers.

**Hierarchy of PFS department

The diagram above shows the departments under PFS credit. PFS is the most flourishing department of HSBC Bangladesh. Within a span of only five year HSBC PFS has grown tremendously and is still growing with its innovative products and service offerings. Chief of PFS manages and supervises the Personal Banking activities of the branch network of HSBC Bangladesh. The 11 branches of HSBC deal with the personal banking activities and provide various accounts services to individual customers.

5.2.1 Branch Network
There are eleven branches of HSBC, 8 situated at different Dhaka, 2 at Chittagong & 1 at Sylhet. There functions are to provide various financial services to the consumers. These include customer services, sale of various PLB products, opening new accounts, providing cash, remittance and other teller services, etc. the branches are quite decentralized for better delivery of services to customer and have their own premises and facilities. These branches are headed by branch managers. Each branch is staffed with its own team of employees. A great deal of teamwork is seen within these branches. ATM’s are situated with each branch premises.

5.2.2 Credit Department
The personal banking credit department deals with the consumer credit schemes such as the Personal Loan, Car loan. Education loan, tax loan, Personal Secured Loan, etc. 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. He is staffed with one loan approval officer, one loan processing officer, two assistant officers and one MIS clerk. The approval officer mainly rejects or approves the credit requests. After being checked by the approval officer, the credit requests go to the processing officer for further processing of the application.

5.2.3 ATM Center
The ATM center ensures smooth operation of the ATM machines that are located at Dhaka and Chittagong. The ATM center is responsible for regular replenishment of the off-site ATM’s and servicing of all the ATMs. Currently a total 14 ATMs are in operation. The ATM center also deals with issuance, termination and servicing of the ATM cards. On a whole, 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. Now day and night banking started in HSBC. The easy pay machine is providing 24 hours services to the HSBC customers as well non HSBC customers. These machines are situated in the ATM booths only.

5.2.4 ATB Center
ATB refers to Automated Tele Banking. This department deals with the back office servicing of the HSBC phone banking services provided to customers. This department is basically responsible for the activation of ATB, ATB pin generation, and ATB security management, ATB blocking and troubleshooting of all ATB problems. This department is fairly new and was constructed on January’2001. Currently this department is staffed with one executive and one officer

5.3.0 Corporate Banking
This division if HSBC provides financial services to organizational clients. HSBC is a worldwide leader in banking and financial services whose success is based on its relationships with its corporate clients. Whether it is locally or around the world, HSBC offers a comprehensive range of services that can be tailored to the individual needs of the company. The Head of this department is the Chief of Corporate Banking. He is also the Vice-CEO of HSBC Bangladesh. The chief of CB manages the activities of corporate banking of HSBC Bangladesh. Two offices of HSBC Bangladesh offer corporate banking services to corporate clients. These are the Dhaka Head Office and Chittagong office. Corporate Banking of HSBC Bangladesh includes Corporate Institutional Banking (CIB) Trade Service (HTV), and Hexagon. These sub-divisions are discussed briefly in the following sections along with a structure chart of Corporate Banking division of HSBC Bangladesh.

**Hierarchy of Corporate Banking Department of HSBC

5.3.1 Corporate Institutional Banking (CIB)
As their major customers operate internationally, HSBC services them internationally. Operating through the major centers and in close liaison with HSBC Investment Bank, Corporate and Institutional Banking provides the full range of the Group’s capabilities at local and global levels, with a particular focus on payments and cash management, trade and securities custody. HSBC also offers local financial institutions and banks access to wide range of financial services available on an international basis. The services are tailored to suit the needs of the companies. CIB has two separate wings: Relationship Management Department and Hexagon. These are discussed below:

5.3.2 Relationship Management Department
The RM department consists of various relationship managers who are assigned to different corporate client to better satisfy their needs. These RM’s communicate with the clients and are solely responsible for the companies they deal in. Any information regarding a corporate client must be communicated through the respective RM assigned to that corporate client. A Relationship Manager may be assigned more than one company and this decision depends on the chief of Corporate Banking.

5.3.3 Hexagon
The Hexagon department deals with all aspects related to HSBC’s Unique Banking software product – Hexagon. It is the global Electronic Banking system of HSBC, which offers the customers more convenient and efficient banking than ever before. It is an innovative desktop banking system developed by the HSBC group, which operates via the group’s proprietary worldwide communications network.

5.3.4 HSBC Trade Services (HTV)
Trade service is known by various names in other banks, e.g. Trade Finance Foreign Exchange, Foreign Trade etc. However, the functions are the same. As the name suggests, this department is involved in facilitating trade, both international & within Bangladesh.
HSBC is the leading provider of trade finance and related services to importers and exporters in Asia. Trade is considered a core business of the group. 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. The various awards it has won from the leading publications of the world acknowledge HSBC’s excellence in Trade. The trade service department has two separate subsidiaries:

5.3.5 Credit Administration
Credit Administration department basically deals with all the documentation, processing, administration and disbursement of the import-export services provided to corporate clients. 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. Some important aspects of this department are LC advising, documentation, OD facilities, guarantees, etc.

5.3.6 Foreign Exchange Division
The For-ex division of trade services is solely concerned with the management of Foreign exchange inflow and outflow. The For-ex division of trade service in relation with Network Services Center and Financial Control Department manages the foreign currency traffic of HSBC that originates from Corporate Banking and trade services.

5.4 Finance Department of HSBC Bangladesh
The HSBC’s finance department is denoted by Financial Control Department. The department is under direct supervision of Chief Operating Officer (COO). Along with Financial Control Department, The COO has other departments under his supervision they are Network service center (NSC), Administration, HSBC Universal Banking (HUB), Information Technology (IT), Management Internal Control (MIC), Group public Affairs (GPA) etc.
In the financial control department, there are five departments, in the following; the five departments of FCD are briefly discussed.
Five Departments of FCD

5.4.1 Treasury
The treasury department of FCD is the treasury back office. It acts as a support function of treasury front office, which is the Capital market dealing room. The treasury back office calculates the (CRR) Cash reserve Ratio, (SLR) Statutory Liquidity ratio and that is analyzed by the front office, and treasury deals are done, the cash reserve ratio is in BDT amount. The bank has to maintain a minimum amount of 4% of demand and time liability. The customer deposits and demand liabilities are taken into account for calculation. Statutory Liquidity ratio is set as 16% as minimum to be maintained. The back office of FCD processes both the local currency and the foreign currency deals made by front office. The treasury back office of FCD also checks the deals and authenticates the dealing. Then the information is inputted in the HSBC Universal Banking (HUB). The treasury back office also makes conformations with local counterparts and sends swift messages to foreign counterparts for deals made by the front office.

5.4.2 Return
The Return section acts as an important support function of financial control department. The department works to maintain proper Bangladesh Bank Regulatory policy. The department maintains proper financial reports and also looks after the bank compliance with tax and company laws. By this way the return section overviews the different sections of FCD which as a result give optimum level of performance.

5.4.3 Payments
The payments section of Financial Control Department looks after the cost of operation aspects HSBC Bangladesh. The payments department deals with appropriate bills under their proper payments. The department allocates proper bills under the proper cost centers of the bank. The payment section also verifies the authenticity of the bill as per bank’s policy.

5.4.4 Reconciliation
The Reconciliation section of Financial Control Department deals with the Nostro and Vostro Balances with other banks and entities. The section deals with HSBC’s accounts in other banks (Nostro) and other banks account in HSBC (Vostro). The section checks the transfer of fund with different accounts. This department settles payable and receivable balances in different accounts and informs treasury about different account positions.

5.4.5 ALCO
The word ALCO stands for Asset and Liability Committee. This section of Financial Control Department acts as an Management Information System of the bank. The department cosines all the data in a manageable form for the authority to look into. These data helps to make managerial decision for the top level of the bank. The asset and Liability management section segregates all the business lines of the bank. This helps the top level to understand the different business lines performance in specific terms. The ALCO also sets the targets to be met to the departments as per the Group Head office and Intermediate Head office. The department reports various information to group Head Office in England and Intermediate Head Office in Hongkong as per bank policy. The department also calculates various ratios related to bank’s performance. That is why the section maintains a high degree of secrecy, so that there is zero level of information drainage out side the section. The section uses software like HMI, Sarasen etc. for performing their job.

5.4.6 Foreign Correspondence (FC)
FC keeps records of all the accounts of HSBC. All the vouchers, notes, advices and transaction reports of the branches are sent to FC for record keeping purposes. FC also prepares the financial statements for the banks and decided upon banks assets and liabilities. It also deals with the returns that are submitted to the Central Bank on regular interval.

5.4.7 Treasury Front Office
This department works under FCD. Their main job is to take decisions regarding purchase and sell of foreign Currency. The purpose of Treasury’s operations is to utilize the funds effectively and arrange funds at a lowest possible rate of interest, through maintaining effective relationship with other banks and following the Government rules and foreign exchange regulations

5.4.8 Payments & Cash Management (PCM)
PCM deals with the Inter-Bank payment. PCM strategies are designed to ensure efficiency, profitably and comprehensive support.

5.5.0 Group Public Affairs (GPA)
This is one of the major departments of HSBC called Group Public Affairs. This is the marketing department of HSBC. The marketing department of HSBC plays a vital role in fostering the continues growth of HSBC in Bangladesh. The Marketing Manager is assigned to this department who looks after the overall Marketing Operation and Public Relation of HSBC in Bangladesh. This department is basically concerned about Marketing the company’s products, services and building a strong Corporate Image. The marketing department of HSBC has three subdivisions: Direct Sales, Promotion & Marketing Administration.

***Hierarchy of Marketing Department

5.5.1 Direct Sales (DS)
An executive is assigned to this part of the Marketing Department. The Direct Sales division coordinates & manages the sales activities of all the Mobile sales officers (MSO) of HSBC Bangladesh. The MSOs’ basically make sales of various Personal Banking Products such as, Savings Accounts, various Consumer Loans outside the bank premises. There are a total of more than 300 mobile sales officers (MSO) employed in the cities of Dhaka and Chittagong. A MSO’s are assigned to specific Branches for making sales activities more smoothly. The DS executive sets sales strategies & targets for the Sales officers and manages the whole team of MSO’s in Bangladesh.
The direct sales department also decides upon the commission and remuneration of the mobile sales officers as their salary structure is based on sales performances. Thus this part of the marketing division is very important for the overall growth of the Personal Banking Division in HSBC.

5.5.2 Promotion
This part of the marketing department deals with all the promotional activities of HSBC Bangladesh. Major responsibilities of this department including:
• Maintaining strong public relations with various media intermediaries.
• Advertising the company’s products and services.
• Building a strong corporate image of HSBC in Bangladesh.
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 world wide.

5.5.3 Public Relations
Maintaining strong relationship with news media is another major duty of public relations department. In every year employees are selected for different social events and give them the opportunity to travel through the world.

5.5.4 Advertising
The promotion also coordinates all the advertising of HSBC products within Bangladesh. Some of the advertising tools that are frequently used by this Bank 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.
b) Billboards: Huge colourful billboards with HSBC logo are found in various major areas of Dhaka and Chittagong. These billboards emphasize on the needs of customers and shows HSBC logo as solution to their needs.
c) Road Side Signposts: Medium sized multi color signposts focusing on various products of HSBC are found on the roadsides of various posh areas such as, Gulshan, Dhanmondi, Baridhara, Motijheel, Banani etc.
d) Mailers: various product updates and new product information are regularly sent to existing customers of HSBC.
e) Broachers: Various colorful broachers featuring specific products of HSBC are being displayed and distributed to existing and potential customers via branch offices and Mobile sales officers.
f) Call Center : Tele Sales Officer are continuously follow up exiting customer as well as non exiting customer by giving them phone calls about new product and services.

5.5.5 Marketing Administration
This department formulates & executes various marketing strategies of HSBC Bangladesh. This department also administers various marketing research activities on the existing and potential customers of HSBC. Some such research activities are: Mystery Shopping, Critical Incident Surveys, Customer Suggestion Surveys, etc.
The results of these surveys are integrated while formulating various marketing Strategies. This department also deals with the billing and invoicing of various Marketing & Advertising costs of HSBC Bangladesh. Except the branches all other departments are situated at HSBC Bangladesh head offices located at Anchor Tower, Kawran Bazar. Most of HSBC’s operation and activities are operated centrally from the head office. But to deal with customers more completely, the branches are given considerable authority and they operate in a more decentralized manner but subject to verification of the respective departments.

5.6.0 Services Department
This is an integral and vital part of the bank. The services department ensures smooth operation and functioning within and between all the departments of HSBC. It also provides continuous support to the core banking activities of HSBC. The chief of services department is the Chief Operating Officer, who formulates and manages various critical issues of the services function of HSBC. He is followed by a group of executives who are the heads of various subsidiary divisions that operate within the services department. The services department is considered as the backbone of all other departments. The various subsidiary divisions within this department are Administration, IT, Internal Control (IC), Network Services Center (NSC), and HUB. A structure of the services department is presented below followed by a briefing of the subsidiary divisions:

5.6.1 Administration
Like any other organizations, 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. It also prevents any bottlenecks within the work process and ensures smooth functioning. 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. The business support services provide supports to the departments during employee leaves and sudden terminations so that the department can function without problems.

5.6.2 Information Technology (IT)
This department gives the software and hardware supports to different departments of the bank. As HSBC is engaged in online banking, the role of IT is very crucial for the bank. This department is the most active department of HSBC, where the staffs remain stand- by to solve any problems in the system.
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, accuracy and speed.

5.6.3 Management Internal Control (MIC)
The manager of internal controller is like auditors who visit on regular basis and submit the report to the higher authority for audit purposes. This gives different departments the chance to know their mistakes and take necessary corrective actions.
Again, the Bank annually administers a company wide audit program to evaluate the overall performance of the bank in Bangladesh. The department also looks after the Bangladesh bank return and the regulatory policies to be maintained properly.

5.6.4 HSBC Universal Banking (HUB)
The HSBC banking system is called HUB. HSBC does the online banking and it is HUB, 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. 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.

5.6.5 Network Services Center (NSC)
This department can be described as the ‘Power House of HSBC Bangladesh. NSC does the back office job for the bank. The main four jobs that are performed by NSC are Clearing, Scanning of signature cards, issuing checkbooks and sending & receiving Remittances. 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. NSC also issues checkbook for new and old accounts based on requisition from various branches. ‘Remittance’ is a banking term, which means ‘Transfer of funds through banks’. When a bank remits on behalf of its customers, it is termed as outward remittance. On the other hand, when the bank receives the remittance on behalf of the bank, it is inward remittance. The following are the methods that NSC used to remit money for customers: Telegraphic Transfer (TT), Demand Draft (DD) & Cashier’s Order. In this department there is part of the Payments and Cash Management (PCM). The PCM deals with the Inter-Bank payments and designed strategies to ensure efficiency in managing cash of various corporate clients and give comprehensive support to the bank by managing salary accounts of various corporate clients, which helps the bank to have large amount of deposit.

6.0.0 Product & Services
HSBC Bangladesh carries out all traditional functions, which a commercial Bank performs such as Mobilization of deposit, disbursement of loan, investment of funds, financing export & import business, trade & commerce & so on. Besides it also offers some specialized services to its customers. Products & services offered by HSBC can be categorized according to the customers they serve. Thus two major groups can be identified. They are – individual customers or consumers & corporate customers or organizations. An in-depth analysis of HSBC’s product and services in Bangladesh is presented in this section.

The summary of all the products and services of HSBC Bangladesh is displayed with the help of a diagram. The liability products of the bank are discussed. After that the various products and services of personal banking division will be presented, followed by a brief discussion of the corporate banking services offered to corporate clients will be given.

6.1.0 Accounts

6.1.1 Savings Accounts
Savings Account is a secure, rewarding and accessible way to manage your routine money matters effectively. Our Savings Account allows you to complete any number of transactions without charge, penalties or a reduction in credit interest.
Features
No ledger fees
No matter how many transactions you make in your savings account, there is no charge involved and no loss on interest earned.
Being able to access your account through an ATM card, without having to visit a branch! You can access your savings account via ATM 24-hours a day, seven days a week.
Wherever you are in the world, you’re just a phone call away. Our PhoneBanking Service lets you conduct your banking transactions – 24-hours a day, seven days a week, 365 days a year.
Interest rate structure encourages you to save. Interest is calculated daily and credited to your account every 6 months.
The Customer will receive a free personalized chequebook when they open a savings account.
Maintain a balance of BDT 50,000 to receive daily interest.

6.1.2 Current Account
This is also a depository account basically designed for various customers. This is a non interest bearing account and the features of this account are as follows:
Opening balance TK 50,000
Average balance that should be maintained: TK 50,000
No restrictions on number of Transactions
No yearly ledger fee
Non interest bearing
Free ATM card and phone banking service

6.1.3 Power Vantage Account
PowerVantage Account (PVA) is a unique customer proposition that is designed to meet your financial needs with a range of exclusive services.
Features
• Enjoy customized services from a dedicated Relationship Officer who will assist you with your banking requirements through a dedicated service desk and a cash counter
• Fast track service for credit applications
• Dedicated desk at Call Centre
• Free endorsement of foreign currency against yearly travel quota
• Customized cheque book
• Specially designed ATM card with enhanced cash withdrawal limit
• Composite account statement on a quarterly basis
• Clean Overdraft Facility up to a maximum limit of BDT 50,000* (Fifty Thousand Taka only)
• Preferential interest rates and discounts for lending products
• As a PowerVantage customer, you will enjoy free personal accident insurance coverage.
• You can issue standing instructions to have funds transferred between your current account and savings accounts, enabling you to better manage your funds and obtain a higher rate of interest, free of charge.
• You can set up standing instructions of any fixed amount to be paid to selected parties’ accounts with HSBC, free of charge.
• To enjoy the benefits of PowerVantage, you need to maintain an average deposit balance of BDT1M (One million Taka only) or minimum gross monthly salary income of BDT150,000 (One Hundred Fifty Thousand Taka only) processed through HSBC. The annual membership fee is just BDT500 (Five Hundred Taka only)+15% VAT.
• The Bank will levy a charge of BDT 200 (Two Hundred Taka only)+15% VAT per month if the average deposit balance falls below BDT1M (One million Taka only) or if monthly salary of BDT150,000 (One Hundred Fifty Thousand Taka only) is not being processed through HSBC on any given month. The service charge will be debited from your PowerVantage Account.

6.1.4 HSBC Select
HSBC is pleased to offer you HSBC Select – a customized banking proposition offering exclusive privileges and unrivalled personal attention. HSBC Select is designed to provide you with a superior service offering, access to exclusive facilities, preferential pricing, convenient services and personal attention, allowing you greater personal and financial freedom.
Features
Dedicated relationship managers: One-on-one assistance from a personal relationship manager to manage all your financial requirements.
Privileged access: Exclusive HSBC Select Centers offer a private lounge, reserved car parking for your convenience and priority service.
International credit card: HSBC’s International credit card (MasterCard) allows you flexibility and convenience when you travel internationally. The credit card entitles you to exclusive discounts worldwide.
Pre-approved overdraft facility: HSBC Select customers receive a pre approved, unsecured overdraft facility* to give you flexibility and help you meet any emergency financing needs.
A free HSBC global Select ATM card: This card is issued against your resident foreign currency deposit. It allows you to access cash from over 800,000 ATMs around the world, 24 hours a day (subject to foreign exchange regulations).
Improved pricing: You can avail improved pricing on loan products, credit facilities, remittance and other services.
An integrated account statement: This will provide you with a consolidated update on your total financial position.
Emergency cash disbursement: You will be able to receive emergency cash at any HSBC branch worldwide (subject to foreign exchange regulations).
Waiver of fees: There will be no fees on purchase or sale of foreign currency, required for travel purposes (limits apply).
Commission free endorsement: There will be no commission charge on the endorsement of foreign currency for self and spouse.
Higher ATM limits: You can enjoy a higher ATM withdrawal limit up to BDT 150,000 each day.

6.1.5 Amanah Current Account
At HSBC Amanah, our unique combination of local experience and global resources enable us to understand your needs and concerns and this is precisely why we have designed a current account, in full compliance with the Shariah principles, for you. The HSBC Amanah Current Account is a relationship checking account, designed to comply with Shariah (Islamic Law) guidelines while also providing the regular convenience and security of a current account. The HSBC Amanah Current Account offers you:
• An interest free deposit, where no interest is paid or received for your funds. Separate books of accounts are kept for all current account Amanah Deposits, this is to ensure that these deposits are used only in a Shariah compliant manner.
• Our on-line, real-time branch banking service allows you to use any of our five branches in Bangladesh to conduct full branch banking transactions. While a HSBC Amanah Current Account will be resident in the HSBC Amanah Branch, you can use any of our other HSBC branches in Dhaka and Chittagong.
6.2.0 Fixed Deposit
It is also known as term deposits. These deposits are made in the bank for a fixed period of time. This period of time should be specified in advance. The bank needs not maintain cash reserves against these deposits & therefore, it offers interest rates that are higher than the savings accounts.

6.2.1 Monthly Interest Bearing Time Deposit
Features
A simple, safe and convenient way to make your money grow, providing you with the benefits of attractive interest rates, security, convenience and flexibility.
Earn interest on a monthly basis with the security of a fixed deposit account.
Option of keeping the Time Deposit for a maximum period of 2 years, which will be renewed automatically every year.
A minimum deposit balance of BDT 500,000 (Taka five lacs) to open the account.
Benefits
Monthly interest earned can be transferred to another nominated account
Better rates than normal savings account
Higher rate than 1- month time deposit account’s rate
Free ATM Card for new accounts.

6.2.2 Time Deposit
Features
• Minimum BDT100,000
• Flexible deposit periods to suit your needs
• You can place Term Deposits with HSBC, for varying periods of time, 1, 3, 6 or 12 months. Just choose whichever suits your needs.
• High interest with your deposits
• You can earn higher interest on your term deposits with our attractive rates. Interest is calculated from the date of the deposit until maturity, at the rate applicable when the deposit is first placed or renewed, and is paid when the deposit matures. Larger amounts attract extra interest, so the more you deposit, the more you earn
• Renewal, transfer or withdrawal facilities
• On maturity of your Term Deposit, we will automatically renew it with the interest earned. Alternatively, you can transfer it to any of your accounts with us, or withdraw the Term Deposit and interest.

6.3.0 Bangladesh International (BI)
The HSBC Group is one of the world’s largest banking and financial services organizations and comprises over 9,500 offices in 85 countries and territories, serving over 100 million customers worldwide.
Bangladesh International offers an exclusive range of banking services for non-resident Bangladeshis and foreign currency account services for resident Bangladeshis.
6.3.1 Foreign Currency Current Account
A choice of currencies – US Dollar, Pound Sterling and Euro
An ATM card for US Dollar, Pound Sterling and Euro accounts that gives you access to your funds in local currency of the respective country from around the world through 800,000 ATMs, 24 hours a day
The balance of the account is freely remittable, i.e. you may transfer funds overseas subject to foreign exchange regulation of the recipient country
Cheque book facility
6.3.2 Foreign Currency Time Deposit Account (NFCD)
Interest bearing time deposit account
A choice of currencies – US Dollar, Pound Sterling and Euro
Competitive interest rates
A choice of tenures of one, three, six and twelve months with auto renewal facility
Interest is tax free within Bangladesh
Both interest and principal are fully repairable, i.e. you may transfer any outstanding fund of your account to your country of residence/overseas subject to foreign exchange regulation of the recipient country
6.3.3 Non-resident taka account
Local currency account
Can be opened as either a local currency interest bearing savings or non-interest bearing current account
Not freely remittable
Cheque book facility.
6.4.0 Loan Products

6.4.1 Travel Loan
Travel Loan is offered within the existing Personal Installment loan structure. The purpose of launching this product is to attract and aid customers with their travel related services.
Features
No personal guarantee or cash security.
The loan amount ranges from BDT 50,000 to BDT1,000,000 or a maximum of four times of your monthly income, whichever is lower.
If you are an AutoPay customer, you can get six times or if you are a CEPS customer you can get ten times of your monthly income.
Competitive interest rates.
Low processing fees.
You can repay the loan in 12, 24, 36 or 48 months.
Loan against partial security is also available.
Documentation-travel quotation along with other documents.

6.4.2 Car Loan
So you’ve found that new car you’ve always wanted. Now comes the difficult part – arranging the funding. You approach banks and financial companies who want guarantees and securities against loans and you feel your dream slipping away. Now with a car loan from HSBC, you can realize your dream.
Benefits
No personal guarantee or cash security.
Wide range of loan amounts- the scheme covers loans ranging from BDT100,000 to BDT2,000,000 (up to a maximum of 75% for brand new car or 70% for reconditioned car value)*
No hidden costs with low processing fees.
Competitive interest rates
Loan against partial security is also available.
You can repay the loan in 12, 24, 36, 48 or 60 months. Your monthly instalment will be debited from your personal account held with us.
*The loan does not cover registration, insurance and other costs.
Eligibility
• At least 25 years of age
• Employed for at least two years by a well established company*
• Minimum monthly income of BDT20,000

6.4.3 Home Equity Loan
Introducing HSBC’s Home equity loan – an opportunity for you to release some of the value tied up in the home. Whether you want to renovate your home or expand the own business, you can potentially receive cash loans against the equity in your house. Let your home work for you with HSBC’s Home equity loan.
Benefits
Loan facility against your fixed asset, a residential house or apartment, not more than 15 years old
More flexibility with a loan tenure of maximum 7 years
Loan amount of BDT 500,000 – 6,000,000
A maximum of 60% of the property valuation would be offered as loan with 25% cash security
A wide range of loan purposes – purchase of land, apartments, office space, renovation, extension or construction of houses, shops etc, education expenses for children and many more
Clubbing of income amongst spouse, father and son/daughter, mother and son/daughter is possible
Partial prepayment and early settlement facilities
Competitive interest rates on a monthly reducing balance.
Who can apply?
Any salaried individual or self-employed individual with a minimum monthly income of BDT 50,000 can apply for the loan facility. The salaried individual must be employed in a well-established organization for at least two years (only last two employers would be considered). Self-employed individuals should have at least two years professional experience or business establishment.
Requirements
Registered Mortgage and original title deed
Irrevocable General Power of Attorney (IGPA)
Property insurance covering fire, earthquake, flood and cyclone
Partial cash security is required for a loan facility of above 20% against your property valuation.

6.4.4 Personal Secured Loan
A Personal Secured Loan is a fixed loan secured by your time deposit held with HSBC. The loan will provide you with the flexibility to meet any emergency cash needs you may have, so you don’t have to encash your high yield investments.
Benefits
Loan amount is up to 90% of the value of your taka time deposit or WEDBs or 80% of the value of your foreign currency time deposit or USDBs with minimum loan amount of BDT90,000
Competitive interest rates
Processing fee – BDT1,000
Flexible repayment schedules ranging from 12 to 60 equal monthly instalments
Partial prepayment and early settlement facilities
Automatic and free transfer of monthly instalments from your savings account without affecting the interest earned on that account.
Option of one time repayment at the end of loan tenure with discounted interest rate is available.

6.5.0 Corporate Banking Services
HSBC offers wide range of cash financing, working capital, short and medium-term loans and guarantee facilities to its corporate customers. Its offshore banking Unit (OBU) provides US dollar denominated working capital as ell as short tem finance for capital imports to eligible businesses. HSBC is a worldwide leader in banking and financial services whose success is based on its relationships with its clients. Whether locally or around the world, HSBC offers a comprehensive range of services that can be tailored to the company’s needs. Some major services provided by HSBC corporate division are Custody services, Global payment & cash management, Trade services & Hexagon.

6.5.1 Custody Services
A full range of custody and clearing services are available to foreign institutional investors. Tariffs are tailored to individual requirements.

6.5.2 Global Payments & cash Management (PCM)
HSBC’s Global Payments and Cash Management services are designed to help its clients to operate efficiently, profitably and with comprehensive support.
The aim is to provide a service that takes full account of the customers local needs as well as regional and international requirements using our the expertise and the unrivalled global resources of the HSBC Group. PCM provides the following services to its clients:
•Accounts & transaction management services: Structuring of bank accounts to optimize the management and flow of funds within or across national borders.
•Cash & Liquidity management services: Cash is a company’s most volatile asset and HSBC provides the best service to manage its client’s cash efficiently.

6.5.3 HSBC Trade Services (HTV)
HSBC is the leading provider of trade finance and related services to importers and exporters in Asia. The bank operates a highly automated trade-processing network and offers an electronic data interchange (EDI) capability through Hexagon. Some services provided by HTV are as follows:

6.5.4 Import Services
A full range of import services handled by experienced staff is available, ensuring that clients import documents are processed without delay. Some import related services are:
• Import collection services
• Import financing services
• Import documentary advising
• Processing and advising on shipping guarantees.

6.5.5 Export Services
HSBC provides advices on any aspect of export document preparation. It also provides working capital finance to help the sourcing of raw materials. Some other export services are;
• Pre-shipment Financing
• Post shipment Financing
• Purchase of Export bills
• Back-to-Back credit & Back-to-Back L/C
• Documentary credit advising
• Documentary checking

6.5.6 Risk management
HSBC has developed a unique range of specialized products aimed specifically at reducing a company’s exposure to international trade risk. The services in this area are:
Trade Collect Service: A dedicated US dollar export bill collection service from HSBC.
Trade Safe Service: A major concern for many exporters is the reliability of the LC issuing bank, particularly if shipments are going to less familiar markets. If these banks get into difficulties, the exporter may not get paid. That’s where HSBC comes in. Under the Trade Safe Service, HSBC absorb the bank and country risk, allowing its client to concentrate on growing business
So these were some of the services provided by HSBC trade services.

7.0.0 Financial Analysis Part

7.1.0 Introduction
To evaluate a bank its financial condition particularly it’s Report of condition and Report of Income is needed to evaluate.
The first step in analyzing any bank’s financial statements is to decide what objectives the bank is seeking for. The bank’s performance must be directed towards specific objectives. A fair evaluation of a bank’s performance may start by evaluating whether it has been able to achieve the objectives its management and Shareholders have desired.

7.1.1 Value of the bank’s stocks
One of the key objectives of a bank to perform is to raise the value of their stocks. Basic principles of financial management say that attempting to maximize the bank’s stock value is the key objective that should have priority over all others. But the bank I have worked in is not enlisted in the local stock market; as a result I could not calculate the value of the bank’s stock price.

7.2.0 Profitability Ratios
The profitability Ratios are one of the most difficult attributes of a firm’s performance as it reflects the market evaluation of the firm’s performance. This indicator is often not reliable in banking. The reason is that most bank stocks especially stocks issued by smaller banks are not actively traded in international or national stock markets. That’s why to analyze through market –value indicators in the form of various profitability ratios’ are a better option.

7.2.1 Return on Asset

ROA
One of the common measure of managerial performance is the ratio of income to average total assets after tax. It primarily indicates the management efficiency; it also shows how efficiently the management of the bank has been converting the institutions assets into net earnings.
ROA= Net Income after Tax / Total Asset
Year 2005 2006 2007 2008
Value of ROA 0.0276 0.029 0.031 0.03

Explanation
Here we can observe an increase in trend of ROA over the 3 years. Though there is a decline in ROA in year 2008 as the assets were far greater then its return as income from it.

7.2.2 Return on Equity

ROE
On the other hand ROE measures the rate of return flowing to shareholders. It is the net benefit that the shareholders have received from investing their capital in the bank.
ROE= Net Income after Tax / Total Equity Capital
Year 2005 2006 2007 2008
Value of ROE 0.2112 0.2421 0.2530 0.2446

Explanation
The above statistics shows that the banks operations have grown significantly. The operation is giving the HSBC group a good business through efficiency in the tax management, resulting in higher net income after tax. Moreover, the equity to total asset ratio has also improved over the years that has boosted the earning of HSBC Bangladesh.

7.2.3 Efficiency

Net Operating Margin
The net operating margin is efficiency measure and profitability measures. It indicates how management and staff have been able to keep the growth of revenue which comes primarily from the bank’s loans, investments and service fees. Ahead of rising costs principally the interest on deposits and money market borrowings and employee salaries and benefits.
NOM= (Total Operating Revenue – Total Operating Expense) / Total Asset
Year 2005 2006 2007 2008
Value of NOM 0.057 0.062 0.06 0.064

Explanation
Here we can understand that there is an upward trend over the years of the banks Net Operating Margin. The trend shows how well the management has kept a growth in the revenue generation with respect to their cost.

7.2.4 Earning Spread

Earning Spread
Another traditional measure of evaluating a bank is the earnings efficiency with which a bank is managed, that is called earning spread. It measures the efficiencies of a bank’s intermediation function in borrowing and lending money and also the intensity of competition in the bank’s market area. Greater competition tends to squeeze the difference between average asset yields and average liability costs. If other factors are held constant, the bank’s spread will decline as competition increases.
Earning Spread= Total Interest Income / Total Asset
Year 2005 2006 2007 2008
Earning Spread 0.044 0.0397 0.039 0.042

Explanation
There is a decrease trend in the Earning Spread of the bank. As the bank try to grow over the years, it has offered more products and services for the customers. They had recovered it on year 2008 by offering various product and services.

7.2.5 Net Profit Margin

Net Profit Margin
The bank’s Net profit margin reflects the effectiveness of expense management and service pricing policies.
NPM= (Net Income after Taxes / Total operating Revenue)
Year 2005 2006 2007 2008
Value of NPM 0.351 0.371 0.406 0.369

Explanation
This trend shows a mixed reaction over the years. As there has been a sudden decline in the trend though it had a stable growth, but it came up sharply in the year 2007. The profit margin of a bank or the ratio of net income to total revenue is a subject to some degree of management control and direction. The bank’s can increase their earnings and their return to shareholders by successfully controlling expenses and maximizing revenues. That HSBC needs to look into, in this case.

7.2.6 Asset Utilization Ratio

Asset Utilization Ratio
The Portfolio management policies especially the mix and yield on the bank’s assets are called asset utilization ratio.
Asset Utilization Ratio= (Total operating Revenue / Total Asset)
Year 2005 2006 2007 2008
Asset Utilization Ratio 0.079 0.078 0.076 0.081

Explanation
The trend had an increasing flow till 2008 in the asset utilization ratio. This shows that the bank’s revenue generation has been perfect as of previous years in respect to its assets. By carefully allocating the bank’s assets to the highest yielding loans and investments while avoiding excessive risk, management can raise the bank’s average yield on its assets which I believe that HSBC could do properly in the recent year.

7.2.7 Equity Multiplier

Equity Multiplier
The Equity multiplier shows the leverage or financing policies, the banks source chosen to finance the bank’s operation. The multiplier is a direct measure of the bank’s degree of financial leverage, how many taka equivalent of asset must be supported by each taka equivalent of equity (owners’) capital and how much of the banks resources therefore must rest on debt.
Equity Multiplier= (Asset / Equity Capital)
Year 2005 2006 2007 2008
Equity Multiplier 7.65 8.31 8.25 8.15

Explanation
The above trend shows an increase in the Equity Multiplier ratio, the asset to equity capital ratio. The equity must absorb the losses on the bank’s assets, the larger the multiplier, the more exposed to failure the bank is. On the other hand the greater the multiplier the greater the bank’s potential for high return for its shareholders.
7.3.0 Liquidity Ratios
Liquidity refers to the ability of a firm to meet its short term financial obligations when and as they fall due.

7.3.1 Current Ratio

Current Ratio
Current Ratio= (Current Asset/Current Liability)
Year 2005 2006 2007 2008
Value 0.82 0.78 0.51 1.24

Explanation
The higher the ratio the higher the liquidity position of the company. We see the bank’s Liquidity position decrease in year of 2006 to 2007. But in 2008 it is in higher position.

7.3.2 Cash Position

Cash Position
Cash Position= (Cash / Current Liability)
Year 2005 2006 2007 2008
Cash Position 0.395 0.41 0.251 0.385

Explanation
The cash position ratio discussed captured one dimension of liquidity. . It measures how quickly a firm can pay it current debt. The higher the ratio the higher the cash position of the company. From 2005 to 2006 it has increased but in 2007 it decreased, which is recovered by the bank in 2008. In this case the firm has enough cash to pay its current debt in previous year & also the following year.

7.4.0 Leverage Ratios
Leverage ratios provide insight into the extent to which non equity capital is used to finance the assets of the firm. Which components to include in the numerator or denominator of the ratios depend on how one defines liabilities and shareholders’ equity.

7.4.1 Total Debt Ratio

Total Debt Ratio
Total Debt Ratio = (Total Asset-Total Equity) / Total asset
Year 2005 2006 2007 2008
Total Debt Ratio 0.869 0.88 0.879 0.877

Explanation
It measures the firm solvency. The Higher the ratio the higher the proportion of assets financed by nonshareholder parties. We can see that there is a nearly stable position of debt ratio from the year of 2007.
7.4.2 Time Interest Earned

Time Interest Earned
Time Interest Earned= (EBIT/Interest)
Year 2005 2006 2007 2008
Value 1.779 1.842 1.836 1.85

Explanation
The Higher the ratio the higher the proportion of assets financed by nonshareholder parties. We can see that the interest earning has increased in 2007 and 2008. In this case the firm was in better position in last year to pay its interest expenses than other years.

7.4.3 Cash Coverage

Cash Coverage
Cash Coverage= (EBIT+ Depreciation /Interest)
Year 2005 2006 2007 2008
Value 1.841 1.900 1.900 1.915

Explanation
The Higher the ratio the higher the proportion of assets financed by nonshareholder parties. The cash coverage ratio has in stable position in 2006 and 2007. In this case the firm has enough cash to pay its current debt in previous year & also the following year.

7.5.0 Efficiency Ratios
Efficiency ratios examine how the management uses its assets and capital measured by sales generated various asset or capital categories. The ratios are given below

7.5.1 Operating Efficiency

Operating Efficiency
Operating Efficiency = (Total Operating Expense/Total Operating Revenue)
Year 2005 2006 2007 2008
Value 0.265 0.215 0.207 0.218

Explanation
The higher the ratio the higher the operating efficiency of the company. There is a peak in the year of 2005, after that the ratio decreased and remain stable for the next two years. But in year 2008 it raised a slight in operating efficiency.

7.5.2 Net Fixed Asset Turnover Ratio

Net Fixed Asset Turnover Ratio
The net fixed asset turnover ratio reflects the firm’s utilization of fixed asset. An abnormally low turnover implies capital tied up in excessive fixed assets. An abnormally high asset turnover ratio can indicate a lack of productive capacity to meet sales demand.
Net Fixed Asset Turnover Ratio = (Total Operating Revenue / Net Fixed Asset)
Year 2005 2006 2007 2008
Value 17.633 14.393 16.47 18.72

Explanation
The higher the ratio the higher the firm’s utilization of fixed asset. It indicates that the firm utilization ratio has been peak in year 2006. But after that in has decreased slightly.

7.5.3 Total Asset Turnover

Total Asset Turnover Ratio
The total asset turnover indicates the effectiveness of the firm’s of its total asset base. This ratio must be compared to that of other firms within an industry because it varies substantially between industries.
Total Asset Turnover Ratio = (Total Operating Revenue / Total Asset)
Year 2005 2006 2007 2008
Value 0.0785 0.078 0.076 0.081

Explanation
The higher the ratio the higher the firm’s effectiveness of the company. It indicates that the firm effectiveness has been peak in year 2008. That the company was very effective in last year.

Asset and Liability Management process of HSBC (BD)

8.0.0 Asset and Liability Management

8.1.0 Objectives of ALM

To manage growth in the balance sheet with a view to achieving efficient allocation and utilization of all resources and to ensure that growth is financed with retained profits.

To enhance economic profit by improving net profits and promoting efficiency in the use of capital by enhancing return on risky assets, in the context of a clearly defined growth policy.

To understand the interaction between different portfolios in the balance sheet and the issues affected by them, such as transfer pricing, resource allocation etc.

8.2.0 Responsibilities & Roles of Group Head Quarter

The Group Executive Committee reviews asset and liability management issues on a monthly basis. The team is also responsible for ongoing development and support of the Asset and liability management process in the group. The different operation of HSBC consults on the format and structure of the asset and liability management process, on which the nature, content and emphasis will deviate in each areas. The instructions comes with a formal guideline to areas on management team that group have Group has implications.

8.2.1 Responsibilities- Role of Subsidiary Head Office and Area Offices

All Large and Major Subsidiaries and Principal Offices must have an Asset and Liability Management Committee (ALCO). CEO/Principal Office Managers have primary responsibility for ensuring efficient development of ALM and decides whether additional ALCO’s for other subsidiaries/branches or an intermediate head office ALM function are merited and their remit. Responsibilities for supporting the ALM process are rested in the Staff Financial Officer and the Head of Treasury. Staff Financial Officers are responsible for the ALCO support function.
Treasury department in subsidiaries/area takes an active role in the ALM process. Their key responsibilities are to;

Treasury also manages actual interest rate currency and Liquidity risk in the market on a day-to-day basis within parameters authorized by the local ALCO within limits approved by Group Head Quarter.

8.2.3 Role of ALCO’s

The ALCO is the primary vehicle for achieving the objectives of ALM. The main purposes of an ALCO are to;

8.2.4 ALCO – Terms of References

All ALCO’s has formal terms of Reference approved by the CEO of the subsidiary / branch ALCO’s review their Terms of Reference on an annual basis.

8.2.5 Membership

The ALCO are chaired by the CEO / Principal office Manager and are consisted of senior executives with responsibility for the following functions:

8.2.6 Meetings

The committee sits once a month and as soon as practicable after the month end and the agenda should include the following;
Matters arose in the previous meeting
Standard reports
Summary performance analysis (including analysis of economic profit).
Balance sheet and net interest income analysis.
Alternative strategies (simulation) sensitivity and risk analysis.
Liquidity analysis.
Divisional / product economic profit.
Market share and market sector profits.
Concentration report.
Leverage ratio.
Regulatory ratios and limits.

Reviews of market trends, rates projections, current and projected business volumes, current and projected liquidity capital adequacy positions.
Review of progress made in implementing strategic plans and the Group’s strategic imperatives.
Decisions and action plans / guidelines.

8.2.7 ALCO Minutes

Minutes are to be kept for all monthly meetings. These are approved by the Committee Chairman and preferably released within a week of the meeting. In Minutes it is state clearly the options discussed and the accepted recommend. Responsibilities for action are shown as an action point, in the minutes for ease of subsequent follow up. ALCO minutes reflect the agenda / reporting requirements.

All subsidiaries of the Hong Kong and Shanghai Banking Corporation and branches forwards copies of related agenda, reports and minutes to Asset Liability Management monthly.

8.2.8 ALCO Support function-responsibilities

Major subsidiaries / areas may have dedicated ALM support functions to:
Provide ALCO with concise, accurate and timely analysis of current and projected performance results in the form of the ALCO report;
Quantify the income risk arising from possible interest rate movements and changing market conditions; including if necessary supporting the balance sheet modeling efforts.

Establish likely interest rate trends, asset and liability volumes, distribution and maturity profiles
Evaluate alternative strategies and recommendations to ALCO.

8.2.9 ALCO Data requirements

A key requirement for the process is timely and reliable data which must be tailored to meet the requirements of each subsidiary / area.
Although control from a risk stand point is an integral part of ALCO, it must not dominate the process. Appropriate emphasis must be placed on economic profit and growth.
Information for ALCO should take the form of various reports, descriptive analysis and presentations, design to meet each area’s requirements. While most reports tend to show historical performance (an analysis of which can help to see major strengths and weaknesses) a primary responsibility for the ALCO support function or the Staff Financial Officer must be to provide an analysis of how certain actions or development in future can affect future risk and profitability.

Balance Sheet Risk Profile

In carrying out the business, every Financial Institution has to encounter several risks like, liquidity, interest rate, prepayment, credit, reinvestment and event risk etc. Among them, liquidity risk is associated with the Financial Institutes’ ability to meet its financial commitment and obligation, interest rate risk is associated with both funding and lending activities, prepayment risk is associated with early repayment of loans, credit risk is associated with default due to client’s failure to repay loan installment, reinvestment risk is associated with reinvestment of prepayment/regular repayment proceeds at less than the existing rate and event risk is associated with happening of an unforeseen event that may cause financial loss to the organization.

Liquidity Risk

Asset Structure
Assets serve as a source of liquidity and must be framed in groups according to the nature of either “available for sale” or “held to maturity”. Status of liquidity is to be judged in terms of length of time it takes to dispose off the asset and the price the asset carries when it is sold. The following points are to be considered at the time of asset structuring:
a) Nature of business.
b) Tenure of lending.
c) Interest rate structure – fixed or floating.
d) Pattern of repayment – regular installment or bullet payment.
e) CRR and SLR requirement.
Liability Structure
Every organization meets its funding needs through liability management. Liability structuring must be made in such a way so that it matches with the tenure of asset structure. The following points are to be considered at the time of liability structuring:

Grouping of liability into two major categories according to the maturity namely, long term and short term.
Pricing option.
Exchange rate fluctuation in case of foreign currency transactions.
Early repayment option.

Capital Structure

Capital structure includes Equity, Preference share, long term Bond under both clean and securitization arrangement etc. The following points are to be considered at the time of capital
Structuring
Regulatory framework.
Favorable gearing ratio.
Capital adequacy ratio.
Value of the organization.

Interest Rate Risk

Interest rate risk affects spread from lending business. Interest rate risk arises due to change in overall market interest rate structure both on borrowing and lending.

Interest on borrowing
Interest on borrowing has a significant bearing on the pricing of lending. It affects profitability of an organization and desired margin to the shareholders.2.2.2 Interest on Lending Interest rate risk arises due to reduction of interest rate on lending from time to time on several occasions. The Company has to reduce interest rate on several occasions to attract more clients and to compete with the competitors.

Prepayment Risk

Prepayment risk arises due to early repayment either partial or entire loan portfolio, which result in loss of interest income.

Credit Risk

Credit risk can be classified into two categories as under:
Default Risk

Default risk arises due to client’s failure to repay loan installment in due time. Default risk analysis help identify the reason of default, customer group of making default in respect of their profession and income status. Default risk is quantified in terms of loan being classified as SS, DF, and BL etc.
Credit Spread Risk.

Credit spread risk arises due to non-recovery of regular installment repayment, which ultimately decreases the overall effective lending rate and erodes margin from lending business. Credit spread risk also arises due to stringent Income Recognition policy in respect of framing time for SS, DF, and BL.

Reinvestment risk

The risk that the amount of prepaid loans will be reinvested at less than the existing rate is reinvestment risk. Declining interest rate environment induces borrower to make prepayment and forces Financial Institutions to invest at comparatively lower rate.

Event Risk

Financial Institutions are prone to event risks, a few examples are as under:
Restriction regarding participation on money market transactions and accepting short-term
Customer deposit.
Introduction of VAT on the service charge of Lease and Housing Finance business.
Disallowing loan loss provision.
Highest Corporate tax bracket.

8.3.0 Capital Growth and Profitability

In 1988, The Bank for International Settlements (BIS) agreed common international standards for the measurement of capital, calculations of risk-weighted assets and determination of minimum capital adequacy ratios. All banks incorporated in the group of Ten countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, United Kingdom and United States) must meet these standards, as amended by subsequent pronouncements and implemented by local regulators. Now some 120 countries subscribe to similar standards. These guidelines allow credit risk to be measured according to internal grading or models and oblige banks to hold capital for “operational risk”.

8.3.1 Capital adequacy ratio

The measurement of capital adequacy is critical in calculating and reporting the Group’s capital position. Furthermore, the Banking Act requires that the Group maintain sufficient capital which is commensurate with the nature and scale of its operations.

The measurement of capital adequacy is measured in terms of two ratios:
The published ratio.
The supervisory ratio

These ratios are calculated by comparing the levels of capital requirement with the amount of regulatory capital. Moreover, the Financial Services Authority specifies the Group that is calculates these ratios.

These two ratios are extremely important. The published ratio is used as a gauge of the Group’s capital strength by external parties such as investors, shareholders and rating agencies while the financial service authority uses the supervisory ratio to asses the Group’s capital strength for supervisory purposes.

8.3.2 Capital Ratio calculation

The Group and any subsidiaries regulated directly by the financial services authority must calculate two capital ratios as set out

for public discloser

Risk Asset Ratio (%) = eligible capital / (banking book RWAs + trading book national RWA’s)* 100

Trading book national Risk Weighted Assets =
Trading book capital requirement * 12.5

 for supervisory purpose

Separate trigger ratios are set for the banking and trading books ands supervisory (cover) ratio is:

Supervisory capital adequacy (%) = Eligible capital / {(banking book RWA’s * banking book trigger ratio) + (trading book national RWA’s * trading book trigger ratio)} * 100

8.3.3 Risk-weighted Assets

Following the implementation of the Capital Adequacy Directive, risk assets are calculated separately for the Banking Book and Trading Book.

In the Banking Book, risk-weighted assets are the aggregate of:
• On-balance-sheet assets multiplied by the risk-weight appropriate to each category of asset, and
• Off-balance-sheet risks multiplied by a conversion factor to convert to on-balance-sheet equivalents and then by the appropriate risk weight.

In the Trading Book, the concept of notional risk weighted Assets apply. The Trading Book Capital requirement is first determined for the following types of risk using the CAD system.
• Foreign Exchange Position Risk.
• Equity Position Risk.
• Interest Rate Position Risk.
• Large Exposures.
• Trading Book Counterparty and Settlement Risk.

Notional of risk weighted assets are required from each Group office at the end of each quarter.

8.3.4 Economic Profit

The results from a particular activity or entity will be assessed on the basis of the economic profit generated by that area. The calculation to economic profit is described in detail in section 13 of this manual. Subsidiaries should to incorporate economic profit considerations at all levels of the ALCO process.

Self-capitalization

Self-capitalization is a measure of the degree to which actual risk asset growth has been financed by profit retentions while maintaining target capital ratio levels. It is Group policy that subsidiaries / areas should self-capitalize.
Profit retentions are made up of:
• Net profit of the proceeding 12 months.
• Movements through the reserves reflecting currency translation differences (the effect of which will also be reflected in the level of risk assets).
• A deduction for dividends in accordance with Group Capital Plan payout ratio’s for individual subsidiaries; and
• The profit retentions column may also include the impact of any issues of Tier 1 qualifying preference shares or innovative Tier 1 securities. The profit retentions figure divided by the entity’s target Tier 1 ratio gives the level of self-financed risk assets. Where self-financed risk assets are higher than the actual risk asset growth a self-capitalization ratio in access of one arises indicating that the entity has self capitalized. Self capitalization is expressed as a ratio there by allowing an assessment of the degree to which an entity has generated retained profits to support its risk asset growth. In some cases a ratio of less than 1 may indicate planned reduction of excess capital.
• It is possible that a product may have a low or even negative economic profit. The economic profit for the relationships- customers or customer segments –which use that product, will indicate whether the cost of its provision is compensated for other aspects of the relationships.
• In case of individual customers it is important to manage price on a relationship basis. In case of a corporate customer who has many banking relationships and tends to shop for the best but these will tend not to produce acceptable economic profit.
• The Asset liability management committee who reviews the economic profit & performance of various portfolio, products and relationships.
• In establishing economic profit guidelines for individual products and customers a factor may have to be added to cover the unabsorbed area over heads / costs.

8.3.5 Business Growth

It is group policy to encourage profitable growth. Growth has two dimensions, namely operational and capital.

8.3.6 Operational implication

Expansion of business will affect internal resources such as manpower, technology funding etc. Such expansion is characterized by the dollar value of the balance sheet and off-balance sheet business, as well as the number of accounts and transactions to be handled.
ALCO deliberation should include the effects of growth on liquidity and funding. Operating plans should consider the other aspects of growth. In some areas manpower, property and technology resources may not be fully utilized and thus represent idle capacity. In such cases a good strategy would be to increase business and account / transactions volumes to make use of idle capacity and thus increase revenue at minimal cost.

8.3.7 Capital implications

Risk Assets will influence capital adequacy ratios. Growth in Risk assets in encouraged provided that it generates additional economic profit. This will be the case if the increase in net profits arising from the growth exceeds the cost of the additional capacity required to support the risk assets generated by the new business.

8.4.0 Interest Rate Risk

Interest Rate Risk arises from holding assets and liabilities on-balance-sheet with different reprising dates, creating exposure to charges in the level of interest rates. An over-lent position- liability reprising later than liabilities benefits if interest rates fall and suffers if interest rates rise. An- over-borrowed position-liabilities reprising later than assets-benefits if interest rate rise and suffers if interest rate falls.

Discretionary and structural interest rate risk:
Interest rate risk can be divided into discretionary and structured (non discretionary) interest rate risk.
Discretionary interest risk is that which is managed in Group Treasury with the objective of profiting from movements in interest rates.
Structural interest rate risk is that which originates from the pricing characteristics of the banking assets and liabilities of the Group and from other balance sheet items such as share holders funds, net of fixed assets, investments and other participating interests. In accordance with the Group Transfer Pricing guidelines this structural interest rate risk should be transferred to treasury where it can be managed by treasury specialists within risk parameters approved by Group Executives Committee and delegated by the Group Treasurer.

Measurement of discretionary interest rate risk

Discretionary interest rate risk is measured in three ways by the HSBC Group:
Present value of a basis point (PUBP)
USD month millions limits.
Value at Risk amount.

In addition Basic Risk, Option Volatility Risk and Convexity Risk are measured and controlled in Group Treasury

8.4.1 Structural interest rate risk

Group Executive Committee has approved the Group Transfer Pricing Guidelines recommending that all structural interest rate risk should be transferred to Group Head Quarter for management within the approved limits framework.

Management of Structural interest rate risk and balance sheet Simulations / modeling role of ALCO:
In major subsidiaries / branches structural interest rate risk should be transferred to Treasury accrual books; these books must be monitored by ALCO’s which must fulfill specific responsibilities with regard to the use of off balance sheet instruments in accrual books.

8.4.2 Foreign Exchange Risk

Foreign Exchange Rate risk arises from a currency mismatch between assets and liabilities or off balance-sheet positions. Foreign Exchange Rate positions are referred to as long or short positions in each currency. Foreign Exchange risk arising from banking activities should be transferred to Group treasury or local treasury units in accordance with the Group Transfer Pricing Guidelines. ALCO’s should assume responsibility for ensuring that such a transfer of risk takes place. Foreign exchange risk can be divided into Foreign Exchange Trading risk, Structural Foreign Exchange risk and other Foreign Exchange risk.

8.4.3 Foreign exchange trading risk

Foreign exchange trading risk is that which is managed in Group Treasury or Local treasury unit with the objective of profiting from movement in foreign exchange rates.

8.4.4 Measurement of foreign exchange trading risk

Foreign exchange trading risk is measured by the use of out right limits expressed in USD terms on an over-night and intra-day basis. Limits are set for each subsidiary / branch by Group treasury on a regular basis.

8.4.5 Structural Foreign Exchange risk

A structural exposure arises when HSBC Holding Plc or one of its subsidiaries invests in a branch, subsidiary or associated undertaken whose local reporting currency is different from the reporting currency of the HSBC Group or the particular subsidiary. The investment can take the form of share capital retained profits, donation capital or loan capital.

Translation differences arising on such exposure, less those arising on borrowing or other transactions intended to hedge the exposures, affect share holders funds directly instead of through the profit and loss account. These exposures of share holder’s funds are, however not appropriately subject to trading limits owing to their relative permanence and long term growth.

8.4.6 Group Policy

The HSBC Group has therefore adopted a policy designed to minimize the impact of these exposures on the ability of the group to carry out banking businesses. The Group policy is to aim to stabilize the consolidate tier1 ratio by maintaining a suitable amount that is practicable. The capital in each currency has risk weighted assets.

Applicable group policies in subsidiaries

Subsidiary companies which are subject to banking regulation follow the Group policy in order to minimize the impact of exchange rate movements on their own capital adequacy positions. The general rule is subject to exceptions in two cases of certain major subsidiaries.
• Management of the subsidiary may exercise discretion in the management of their own exposures by closing to hedge by more or less than is suggested by group policy. This discretion is limited such that the accumulation effect over the last four quarters of the departures must not exceed a level which is set individually for the relevant subsidiaries by Group Executive Committee.
• Subsidiaries may by the nature of the items consulting the regulatory capital, find that their solo total capital ratios and not their consolidated Tier1 ratio, they are the operative constraint on their ability to do business. In such cases it may be appropriate to manage the structural exposures so as to minimize the impact of exchange rate movements on the solo total capital ratio.

Role of ALCO

Major subsidiary ALCO monitors on a regular basis the movements in the balance sheet structural exposure of the subsidiaries.

8.5.0 Other Foreign Exchange risks

There are other foreign exchange risks which arise in the course of business, the differences on which are accounted for through the profit and loss account. Such exposures are foreign currency assets and liability, future currency fees/ expenses/ expense recoveries and other transactions denominated in foreign currencies.

Group Policy

As a matter of Group policy such exposures are hedged unless hedging is uneconomic, impractical or it is decided by local ALCO that such exposures should remain unhedged.

Role of ALCO

Unhedged exposure are subject to foreign exchange limits approved by legal entity ALCO’s and should be subject to their regular review limits should be incorporated in the limits frame work over seen by CIBM.

8.5.1 Stress testing

Stress testing estimates the profit and loss account effects of certain scenarios taking into account the movements in exchange rates and in test rates which would be expected to occur in a given scenario. Certain scenarios are defined at HSBC Holding Plc. Level but subsidiaries may also wish to model additional scenarios which are relevant to local circumstances. ALCO’s monitor the profit and loss accounts exposure to the scenarios on a regular basis.

8.6.0 Liquidity

8.6.1 Objective of Liquidity

The objective of liquidity management is to ensure that a bank has ability to meet all legitimate demands for funds from depositors and all facilities committed to borrowers.

Liquidity management depends on three factors:
A banks expected cash flow,
Its capacity to borrow in the market and
Its stock of readily available high quality liquid assets.
The HSBC Group’s approach to liquidity management takes the following factors into account;
• Compliance with regulatory liquidity requirements in each location which the HSBC Group has activities.
• Reporting of projected future cash flows in major subsidiaries in major currencies and consideration of the level of liquid assets relative to the cash flow position.
• Maintenance of the balance sheet ratio’s (1st and 2nd line Liquidity) which are required by management.
• Monitoring of structural liquidity measures including balance sheet maturity analysis.
• Monitoring of depositor concentration both at the higher level of commercial / professional funding and at the lower level of reliance on large individual depositors.
• Maintenance of liquidity contingency plans for raising cash in an emergency.

The above mentioned issues are described below;
8.6.2 Regulatory liquidity measures

Compliance with local regulatory liquidity requirements in each location is the responsibility of local executive management and local Asset liability management committee. Regulatory requirements will usually differ from HGHQ requirement subsidiaries; subsidiaries and branches must comply with which ever is more stringent.

8.6.3 Cash flow reporting

The HSBC Group recognizes that the most accurate method for measuring refinancing risk of subsidiaries / branches is to project cash flows;

It is HSBC Group policy that all major subsidiaries / branches should progressively develop the ability to measure projected cash flows so as to monitor and manage the dynamic net refinancing risk of their business. Over time it is intended that cash flow reporting should become the day to day liquidity management process in all the Group’s major banking subsidiaries and branches.

Group ALM or the appropriate intermediate head office (IHO), will assist subsidiaries and branches and provide guidance on the steps required develop cash flow reporting. However, the uncertainties inherent in commercial deposit behavior are such that balance sheet ratios are also necessary and are provided by the Group’s 1st and 2nd line liquidity ratios.

8.6.4 HGHQ balance sheet ratios- 1st and 2nd line liquidity

1st line liquidity

1st line liquidity is the principal balance sheet measure of the Group’s ability to meet cash demands that may be made on it. The calculation can be summarized as follows-
Liquid Asset (as defined below) less
Negative Liquid assets (as defined below) as a %

Commercial Customer Deposits and Professional
Borrowing (Bank and Non Bank) over 1 month

2nd line liquidity

2nd line liquidity is calculated with a broader range of assets considered liquid (semi-liquid assets). The calculation of 2nd line liquidity is:

Liquid and Semi-Liquid Assets (as defined below)
Less Negative Liquid Assets as a %

Commercial Customer Deposits and Professional
Borrowing (Bank and Non-Bank) over 1 month

8.6.5 Liquid Assets

Liquid assets comprise-
Cash Balance with other banks and other companies of the Group up to 1 month (excluding core funding),
Committed facilities from other companies /branches,
Money at call and short Notice,
Settlement Balances,
Liquid Securities- as further defined below – (at 90% of market value, except Government treasury Bills at 100% of market value) Bills Discounted capable of being rediscounted and Bank’s CD’s purchased and positive mark to market balance on derivatives maturity within 1 month.
1-month maturity refers to residual maturity rather than the original maturity at inception of the lending or borrowing.
Liquid security are holdings of debt securities, irrespective of their accounting treatment an whether issued by governments or by other issuers, which can be sold or repo’d into deep and liquid markets. For the purpose of this definition, a “deep and liquid” market exists for debt securities holding. If it is reasonable to take the view that there is no doubt that the reporting entity’s position in that security can be disposed of within a month period, for a sale consideration which is more than 95% of the current market value of the position. Relevant factors to validate this viewpoint are set out below;

To avoid doubt it can be assumed that the following securities holdings (which should be reported as line “FA” in the monthly asset and liability statement) quality for inclusion as Liquid Securities.
For G7 countries (USA, UK, Germany, France, Japan, Italy and Canada.) Securities issued or guaranteed by the government or for which formal repo arrangements exist with the central bank.
For other countries: Securities denominated or settled in the domestic currency and issued or guaranteed by the government and securities for which formal repo arrangements for funding in the domestic currency exist with the central bank.
AAA rated asset-backed securities denominated in USD and issued into the US market.
Subject to the limits set out below, holdings of other securities, including non G-7 government securities, corporate and asset backed securities, may be included as liquid securities, corporate and asset backed securities, may be included as Liquid Securities (at line “FB” in the monthly asset and liability statement) if a deep and liquid market, as defined above, exists for the securities holding. These other securities may be included as Liquid Securities only if:
They are rated at least single –A or equivalent by Fitch, Moody’s or Standard & Poor’s;
Local ALCO confirms the existence of a deep and liquid market for the securities holding; and
IHO ALCO (where appropriate) and Head of Treasury concurs with this opinion.
The Group Finance Director gives approval.
Local ALCO should review the list of securities eligible for inclusion as Liquid Securities at least annually and should confirm that a deep and liquid market continues to exist for these securities and should establish procedures to identify promptly securities which cease to be eligible.
In forming the view that a “deep and liquid market” exists for particular securities holdings, local ALCO should take account of all relevant factors, including (but not limited to) the following:
The number of market makers for the securities;
The size of the holding relative to the recent daily average market turnover in the security;
The volatility of recent price movements for the security;
The existence of any price support mechanism, short of a formal repo arrangement, proved by the local central bank; and
Trading and price patterns in historical stress scenarios.
IHO ALCO (where appropriate) and Head of Treasury will also take account of the above considerations in evaluating the proposal from the local ALCO.
Holdings of securities for which the Group acts as the sole or main market maker will not be eligible for treatment as Liquid Securities during the primary marketing period (normally 90 days).
Liquid Securities, other than those issued by G7 governments or the government of the country in which the relevant entity operates or those for which formal repo arrangements exists with local central banks or AAA rated asset backed securities denominated in USD and issued into the US market. These are subject to the following limits:
They may constitute a maximum of 25% of an entity’s total Liquid Asset and
Such Liquid Securities of any single issuer may constitute a maximum of 5% of an entity’s total Liquid Assets.
Holding of Liquid Securities outside of these limits will be treated as Semi-Liquid Assets.
These are Assets that will comprise inter-bank placements from 1-12 months. Government securities not qualifying as Liquid Assets (at 90% of market value) and non-government Securities (at 90% of market value ) not included in Liquid Securities but which are judged to be liquid by the local ALCO, IHO Alco (where appropriate ) and approved by the Group Finance Director.
If portfolios of Liquid assets are very large as to be judged unrealizable in a 0-30 days time frame; then a cap on the absolute amount of the relevant Liquid Assets used in the 1st line ratio should be set by local ALCOs with approval of the IHO ALCO and Head of Treasury.

8.7.0 Portfolio and Concentration risk

8.7.1 Industry inter relationships

ALCO also gauge the true degree of diversification in the portfolio by evaluating industry inter relationships. There will be correlations between any single industry’s activity and the rest of the portfolio arising through a number of factors such as a dependence on common markets dependence on common input factors or a common vulnerability to an external event. The assessment of this degree of correlation is a process judgment. ALCO merely establishes a correlation between each sector and evaluate the degree of concentration risk accordingly.

8.7.2 Conglomerates

Areas which have significant exposure to conglomerates are not to rely completely on market sector reports in their analysis of sectoral risks because of this bias arising from inter company financing.

8.7.3 Evaluating of Industry prospects

On a six monthly basis industry segments to which an area is exposed and is being reviewed by each area for strength and weakness. A summary is presented to ALCO, based on this they (ALCO) attempts to rank industries as high, medium and low in case of taking risk. Current and targeted exposures are judged against these criteria. Here the regulatory authority establishes concentration risk parameter in certain areas that is ensured by ALCO to be compliant with such parameter.

8.7.4 Concentration risk sensitivity analysis

Cyclical factors make impact in the economy; fundamentals in the industry have an important bearing on delinquency rates. ALCO are therefore encouraged to gauge the sensitivity of area income to bad and doubtful debts under various scenarios.

8.7.5 Equity Risk

Many Subsidiaries of HSBC Holding PLC have on balance sheet or off balance sheet equity positions. As with any other assets types the holding of equities require a control frame work which ensures that equity risk is subject to adequate review at subsidiary and where appropriate Group level reporting and monitoring should be cover short as well as long positions.

• Trading portfolio (market to market)

All trading portfolios are subject to a limit framework approved by the Executive Committee of the legal entity. Here the equity transactions are recorded.

On regular basis utilization against such limits are reviewed by such committees.
• Investment Portfolios (not market to market)

All the investment portfolios are subject to regular review by the Executive Committee of the legal entity on whose books, the transaction are recorded.

The review covers the following

The current book value of investments.
Any acquisition or disposals during the review period and any profit or loss on disposal.
The market value of investments. Market value shall be determined by reference to quoted market bid price for listed investments and by reference to director’s valuation for other investments.
Portfolio hedging transactions which could protect the value of investment in a falling market.
The concentration and equity risks are reviewed annually and parameters are to be set to cover single stock sector and regional concentration. On a annual basis Group Executive Committee reviews the portfolio of the equity investment held through out the Group.

Role of ALCO

It is the responsibility of ALCO to ensure the requirements stated above are complied with that of both the on-balance sheet and off-balance sheet positions and also reported in the equity risk reporting of the bank.

9.0.0 Conclusion

HSBC is a global banking and financial services organization headquartered in London. The group’s international network comprises more than 10,000 offices in 82 countries and territories, operating the Asia Pacific region, Europe, USA, and Middle East & Africa. HSBC Group is represented in Bangladesh by its subsidiary bank HSBC, Bangladesh. I had the opportunity to work for this banking giant during my internship program. During this time I got an opportunity to observe the overall service process of HSBC personal banking division. I also got the scope to interact with customers and reveal their expectations and perceptions about the bank’s services.

In a well-managed bank, all of these management decisions must be coordinated across the whole bank to ensure that they do not clash with the each other, leading to inconsistent actions that damage the bank’s earnings and values. Today’s HSBC have learned to look at their asset and liability portfolios as an integrated whole, considering how the bank’s total portfolio contributes to its broad goals of adequate profitability and acceptable risk. This is how the bank HSBC manages their Asset and liability to stand as one of the leading banks in the banking sector in 80 countries and territories around the globe.

Finally, I would say that this internship at HSBC has increased my practical knowledge of Business Administration and made my BBA education more complete and applied. In this report I got the opportunity to apply various tools and concepts I learned in my BBA courses. Some such courses were Strategic Marketing, Strategic Management, Services marketing, Consumer behavior, etc. I look forward to work as a permanent employee of this world-class banking model.

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