Loan and Credit Facility Offered by PFS

INTRODUCTION

Loan and Credit Facility Offered by PFS

Introduction:
As a mandatory requirement of the Bachelor of the Business Administration (BBA) program under School of Business at North South University this report entitled - " Loan & Credit Facility Offered by PFS." - is a connived depiction of the three month long internship program at the Customer Relation Department in HongKong and Shanghai Banking Corporation Ltd.

The organization attachment started on June 07, 2005 and finished on September 07, 2005. My organization supervisor Mr. Mr. Moniruzzaman (Manager, Customer Service Department, Anchor Tower, HSBC) institution supervisor at North South University Mr. Riad Mahmud, duly approved it.

Overview of HSBC Group:

The HSBC Group is named after its founding member, The Hongkong and Shanghai Banking Corporation Limited, which was established in 1865 in Hong Kong and Shanghai to finance the growing trade between China and Europe. Thomas Sutherland, a Hong Kong Superintendent of the Peninsular and Oriental Steam Navigation Company helped to establish this bank in March 1865. Throughout the late nineteenth and the early twentieth centuries, the bank established a network of agencies and branches based mainly in China and South East Asia but also with representation in the Indian sub-continent, Japan, Europe and North America. The post-war political and economic changes in the world forced the bank to analyze its strategy for continued growth in the 1950s. The bank diversified both its business and its geographical spread through acquisitions and alliances. HSBC Holdings plc, the parent company of the HSBC Group, was established in 1991 with its shares quoted on both the London and Hong Kong stock exchanges. The HSBC 2

Loan and Credit Facility Offered by PFS Group now comprises a unique range of banks and financial service providers around the globe. HSBC maintains one of the worlds largest private data communication networks and is reconfiguring its business for the e-age. Its rapidly growing e-commerce capability includes the use of the internet, PC banking over a private network, interactive TV, and fixed and mobile, including wireless application protocol or WAP-enabled mobile, telephones.

Overview of HSBC Bangladesh:

The HSBC Group is represented in Bangladesh by its Head Office in Dhaka (Sonargaon Road), a second full-service branch in Chittagong (Agrabad) and three branches in Gulshan, Motijheel and Dhanmondi in Dhaka with a vision to satisfy its customer with high quality service that reflects its global image as the premier International Bank. The Bank has been serving customers in Bangladesh since 1996. It has also an Offshore Banking Unit, which provides banking services for foreign companies based in the Export Processing Zones in Dhaka and Chittagong. In September 1999, it introduced ATM and telephone banking for Personal Banking. The five ATMs located at the five branches, there are five off-site ATMs located in Uttara, Dhanmondi, Banani, Shantinagar and GEC (Chittagong).

HSBC Bangladesh Overview:

Name of the Organization Year of Establishment Head Office The Hong Kong Shanghai Banking Corporation Bangladesh LTD 1996 Anchor Tower, 1/1-B Sonargaon Road Dhaka 1205, Bangladesh

Loan and Credit Facility Offered by PFS Nature of the organization Shareholders Products Multinational company with subsidiary group in Bangladesh HSBC group shareholders Savings & deposit services Loan products Corporate and Institutional services Trade services Hexagon

Loan and Credit Facility Offered by PFS

Management

Mr. Steve Banner Chief Executive Officer Mr. Mamoon Mahmood Shah Head of Personal Financial Services Mr. Mahbub Ur Rahman Head of Corporate Banking Mr. Syed Akhtar Hossain Uddin Human Resource Manager Mr. Munir Hussain Marketing Manager Mr. Wasim Adnan Wahed Chief Operating Officer 5 (Dhaka, Motijheel,

Number of Offices Number of ATMs Number of employees Technology Service Coverage & Customers

Gulshan,

Dhanmondi

&

Chittagong) 10 250+ Offers full online banking from branch to branch and also from Dhaka to Chittagong. Serves individual and corporate customers within Dhaka & Chittagong.

HSBC Bangladesh currently provides services from two of its full service branches one in Dhaka and the other one in Chittagong. Besides these offices there are two personal banking Booth offices located at Gulshan & Motijheel, and a new branch opened at Dhanmondi. There is currently nine ATMs operating in Dhaka and 1 in Chittagong. The list of these offices is shown below along with there their addresses: Branches & Booths Dhaka Main Office (Full service branch with one ATM) Anchor Tower, Sonargaon Road Dhaka

Loan and Credit Facility Offered by PFS Gulshan Office (Personal Banking Booth with one ATM) Gulshan Avenue, Dhaka Motijheel Office (Personal Banking & Remittance office with one ATM) Rajuk Avenue, Motijheel- Dhaka Chittagong office (Full service branch with one ATM) Osman Court, Agrabad Chittagong Dhanmondi Office (Full service branch with one ATM) Rd. 27 Dhanmondi Dhaka
Offsite ATMs

Uttara Model Town, Uttara - Dhaka Mumtaz Plaza, Dhanmondi - Dhaha Kemal Ataturk Avenue, Banani - Dhaka Concord Twin Towers, Shantinagar Dhaka Nasirabad - Chittagong

Different Activities in Bangladesh:

As one of the largest international banks in Bangladesh, HSBC has a long-term commitment to its customers and provides a comprehensive range of financial services: personal, commercial and corporate banking; trade services; cash management; treasury; consumer & business finance; and securities and custody services.

Personal Banking Services

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 6

Loan and Credit Facility Offered by PFS requirements. HSBC in Bangladesh has launched a number of loan products during 2000. Personal Installment Loan is an unsecured loan that does not require any personal guarantee or cash security; Car Loan, also, does not require any down payment or personal guarantee. The Bank has already launched Phone banking, a state-of-the-art automated telephone banking service available 24 hours a day, 7 days a week, and 365 days a year, which allows customers to access their account from the comfort of the office or home. HSBC is the market leader in the local Auto pay service with which the company can initiate bulk Taka payments to, or Taka collections from, any HSBC current or savings accounts of counterparts for a specified sum at a specified date, regardless of the branch. HSBC also offers Power vantage, a unique all-in-one package of products and services designed to give total financial control to the customer; a unique savings account, which allows the customer to do any number of transactions without any charges being incurred or credit interest lost. To satisfy the growing needs of real estate HSBC Bangladesh recently launched Home Loan Scheme and a special type of deposit product named Bangladesh International for non-resident Bangladeshi. Details of these products and more will be discussed later.

Corporate Banking Services

The Hongkong and Shanghai Banking Corporation Limited offers a wide range of cash financing, working capital, short and medium-term loans and guarantee facilities from its Head Office and Chittagong branch. The Offshore Banking Unit (OBU) provides US Dollar denominated working capital as well as short-term finance for capital imports to eligible businesses. Using high-speed communication links, HSBC connects customers to international payment systems.

Trade Services
As the leading provider of trade finance and related services to importers and exporters in Asia, HSBC in Bangladesh operates a highly automated trade-processing network and offer an Electronic Data Interchange (EDI) capability through Hexagon. The Bank also uses SWIFT, an efficient and secure mechanism for bank-to-bank global communications

Loan and Credit Facility Offered by PFS used for all trade related activities including fund transfers and issuance of DCs (Documentary Credit).

Financial Institutions
HSBC provides global trade services and cash management services to local banks. HSBCs worldwide network strength, with over 7000 offices in 81 countries and territories, coupled with a world class reputation in Trade Finance (Best Trade Documentation Bank Euro money) and an unparalleled presence in Asia (Best Bank in Asia Euro money), places HSBC in an ideal position to render unmatched correspondent banking services. HSBCs commanding presence in the USA (5th largest USD clearing bank globally), UK (largest GBP clearing bank globally), and the Euro land (largest Euro clearing bank in the UK) both in terms of network strength and clearing ability allows the Bank to also provide first class cash management solutions in 3 major global currencies; the US dollar, Pound sterling and the Euro.

Payments and Cash Management

HSBC was the pioneer in introducing electronic cash management solutions in Bangladesh, by introducing its state-of-the-art proprietary software, Hexagon, back in 1997. This was initially made available to corporate clients only but has since been expanded to include banks and retail clients. With Hexagon, the Banks proprietary cash management system, corporate customers can access banking services from anywhere in the world to view account balances and statements, make transfers and international payments, and to open documentary credits, by using only a PC, a modem and a telephone line.

Loan and Credit Facility Offered by PFS

Loan & Credit Facility Offered by PFS

Loan and Credit Facility Offered by PFS

Loans and Credit:

Personal Credit offered by HSBC are: 1. Personal Instalment Loan 2. Car Loan 3. Home Loan 4. Personal Secured Loan 5. Personal Secured Credit 6. Credit card

Personal Instalment Loan:

Any purpose loan no cash security Eligibility: o Minimum monthly income BDT 15,000/o 2 years service in a well reputed, stable company o Minimum age 25 and Maximum 56 Valid income proof documents must be furnished Unsecured loan & no personal guarantee required Minimum loan amount is BDT 50,000/ Maximum loan amount is BDT 20,00,000 or 4 times of salary Interest rate will be 18% per annum Maximum loan tenure is 36 months. If loan amount it BDT 4, 00,000/- or above then maximum tenure is 48 months. Loan processing fee is 1% of the loan amount or BDT 1,000/- whichever is higher + stamps BDT 170/ For customers maintaining relationship less than 3 months (except confirmed CEPS A/C), processing fee will be 2.5% of approved amount

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Loan and Credit Facility Offered by PFS Auto Pay customers will get discounted interest rate: 14.5% and loan amount: 6 times of salary or 2 million whichever is lower CEPS customers will get discounted interest rate: 14.5% and loan amount: 10 times of salary or 2 million whichever is lower PVA customers will get discounted interest rate: 14.5% If CEPS and PVA together then the rate will be 13.5% Personal loans will be granted at discounted rates to employees of blue chip companies against assignment of terminal benefits as per agreement with employer. Loan tenure will be up to 5 years. For salaried individuals additional income including rent, will be considered, provided these are substantiated with requisite documentation / evidence. For businessmen more emphasis on bank statements will be given, although the TIN certificate will remain a mandatory document for income verification. Bank may ask for the tax return paper on a case-to-case basis to assess the customers profile. A current account needs to be opened by the customer before applying for Personal Installment loan Equivalent deposit of at least one EMI needs to be held in customers account prior to loan disbursement for all non Auto Pay / non CEPS customers. Personal Instalment Loan is an any purpose loan. It has been categorized into the following: i) ii) iii) iv) v) Professional Loan Lifestyle Loan Furniture Loan Wedding Loan Festival Loan

The following loans with different benefits are also available under Personal Instalment Loan:

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Loan and Credit Facility Offered by PFS vi) vii) viii) ix) Travel Loan Motorbike Loan Student Loan CNG Conversion Loan

Professional Loan to meet the professional needs: Features: No personal guarantee or cash security. The loan amount ranges from BDT50,000 to BDT1,000,000 or a maximum of four times of the monthly income, whichever is lower. If it is an AutoPay customer, he can get six times or if he is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT2,000,000. Competitive interest rates. Low processing fees. One can repay the loan in 12, 24, 36, 48 or 60 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Loan against partial security is also available

Lifestyle Loan to add comfort to personal life: Features: No personal guarantee or cash security. The loan amount ranges from BDT50,000 to BDT1,000,000 or a maximum of four times of your monthly income, whichever is lower. If one is an AutoPay customer, he can get six times or if he is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT2,000,000. 12

Loan and Credit Facility Offered by PFS Competitive interest rates. Low processing fees. One can repay the loan in 12, 24, 36, 48 or 60 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Loan against partial security is also available.

Furniture Loan to decorate home with right furniture: Features: No personal guarantee or cash security. The loan amount ranges from BDT50,000 to BDT1,000,000 or a maximum of four times of your monthly income, whichever is lower. If one is an AutoPay customer, he get six times or if one is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT2,000,000. Competitive interest rates. Low processing fees. One can repay the loan in 12, 24, 36, 48 or 60 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Loan against partial security is also available.

Wedding Loan to fulfill dream of a perfect wedding and a good beginning of a new life: Features: No personal guarantee or cash security. The loan amount ranges from BDT50,000 to BDT1,000,000 or a maximum of four times of your monthly income, whichever is lower.

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Loan and Credit Facility Offered by PFS If one is an AutoPay customer, he can get six times or if one is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT2,000,000. Competitive interest rates. Low processing fees. One can repay the loan in 12, 24, 36, 48 or 60 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Loan against partial security is also available. Festival Loan to maximize purchasing power during various festivals: A festival loan is going to be introduced shortly

Travel Loan: Documentation: o Travel quotation o Valid income proof documents o Last six months bank statement Features: No personal guarantee or cash security. The loan amount ranges from BDT50,000 to BDT500,000 or a maximum of four times of monthly income, whichever is lower. If one is an AutoPay customer, he can get six times or if one is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT 500,000. Competitive interest rates. Low processing fees. One can repay the loan in 12, 24, 36 or 48 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. 14

Loan and Credit Facility Offered by PFS Loan against partial security is also available. Documentation-travel quotation along with other documents.

Motorbike Loan: Features: No personal guarantee or cash security. Loan amount ranging from BDT50,000 to BDT200,000 or a maximum of four times of monthly income, whichever is lower. If one is an AutoPay customer, he can get six times or if one is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT200,000. Competitive interest rates. Low processing fees. One can repay the loan in 12, 24 & 36 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Documentation-quotation of the motorbike along with other documents. * The loan does not cover registration, insurance and other costs. Student Loan: Features: No personal guarantee or cash security. Loan amount ranging from BDT50,000 to BDT750,000 or a maximum of four times of monthly income, whichever is lower. If one is an AutoPay customer, he can get six times or if one is a CEPS customer he can get ten times of his monthly income up to a maximum of BDT750,000. Competitive interest rates. Low processing fees.

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Loan and Credit Facility Offered by PFS One can repay the loan in 12, 24, 36, 48 & 60 months. The loan products are based on floating interest rates which are subject to change at the Bank's discretion. The installment amounts may vary during the life of the loan. Loan against partial security is also available. Facility for opening Student File is also available. Documentation-copy of college/university admission paper and proof of formal acceptance by student along with other documents. CNG Conversion Loan: Features: Competitive interest rates Maximum loan tenure 2 years No personal guarantee or cash security required Loan amount ranging from BDT30,000 to BDT50,000

Car Loan:
Drive a good bargain before you drive a good car Eligibility o Minimum monthly income BDT 20,000/o 2 years service in a well reputed, stable company o Minimum age 25 and Maximum 56 Valid income proof documents must be furnished No personal guarantee is required Minimum loan amount is BDT 50,000/ Maximum loan amount is 4,000,000/ For both reconditioned car and new car loan amount will be maximum 70% of the car value The loan will be paid to the Car Dealer by Cashier Order 16

Loan and Credit Facility Offered by PFS Interest rate will be 13.0% per annum Maximum loan tenure is 60 months (at the discretion of PFS Credit) Loan processing fee is 1% of the loan amount or BDT 1,000/- whichever is higher + stamps BDT 170/ Car will be registered in Banks name (no joint registration) Comprehensive insurance in discounted rate from selected insurance company in Banks name is mandatory and automatically debited from customers account every year. All fees will be borne by customer CEPS salaried customers will get 0.5% discount in loan processing fee, i.e. 14% If a customer is both CEPS and PVA then processing fee is 0.5% of loan amount. For salaried individuals additional income including rent, will be considered, provided these are substantiated with requisite documentation / evidence. For businessmen more emphasis on bank statements will be given, although the TIN certificate will remain a mandatory document for income verification Bank may ask for the tax return paper on a case-to-case basis to assess the customers profile A current account needs to be opened by the customer before applying for Car Loan Equivalent deposit of at least one EMI and processing fee need to be held in customers account prior to loan disbursement for all non Auto Pay / non CEPS customers. Following Parameters are common for above loans Business persons can also apply by furnishing proven income source. Customers can choose the loan tenure (12, 24, 36, 48 or 60 installments) A current account needs to be opened by customer before applying for loan Prepayment is allowed and fee for prepayment is BDT 1,000/ If paid in the first 3 months of the facility offered, the charge is 1% on the outstanding amount or BDT 1,000/- whichever is higher. 17

Loan and Credit Facility Offered by PFS Partial prepayment (at least 30% of outstanding loan) is also allowed with a fee of BDT 1,000/ Default fee for each missed installments is @ 24% on delinquent amount In the event of three consecutive missed installments the account will be handed over to collections for full recovery.

Home Loan:
Its easier than ever to own your dream home Eligibility o Minimum monthly income BDT 40,000/o 2 years service in a well reputed, stable company. If the applicant has less than 2 years experience in his / her current job, previous employment record will be considered. o Minimum age 25. The loan must end before borrowers age reaching 57 years or retirement date, which ever is earlier. This loan is provided for completed flats / apartments less than 20 years of age Valid income proof documents must be furnished Income of the spouse can be combined and s/he can apply as joint applicant No personal guarantee is required Minimum loan amount is BDT 7,50,000/ Maximum loan amount is 100,00,000/ Maximum loan tenure is 15 years, loan must be repaid prior to 57 years of age A maximum loan amount of 70% of the total value of the apartment costing up to BDT 50,00,000/- and 60% of the total value for the apartments over BDT 50,00,000/-. The total loan value is inclusive of the registration cost. Financing for the registration cost The loan will be paid to the Developer / previous owner by Cashier Order Interest rate is 13% per annum 18

Loan and Credit Facility Offered by PFS Interest is calculated on a monthly reducing balance as opposed to an annual reducing balance, giving customer a lower monthly installment amount Loan processing fee is 1.5% of the loan amount or BDT 20,000/- whichever is higher + stamp charge Security: Registered mortgage and original title deed Insurance: Fire, earthquake, flood, cyclone There is option of disbursing funds, up to 50% of the loan amount prior to registration subject to the property being complete, as evidenced by suitable representation by a reputable developer of a qualified third party surveyor. In such cases Tri-partite Agreement between the Bank, Developer, and Borrower will be taken as security in the interim prior to registration. More emphasis on bank statements for businessmen will be given. Although submission of tax papers remain mandatory. For salaried individuals additional income including rent, will be considered, provided these are substantiated with requisite documentation / evidence. Exception of accepting Equitable Mortgage rather than Legal Mortgage for properties developed by the more reputable companies and as advised by our lawyers. Partial or full prepayment allowed CEPS salaried customers will get 0.5% discount in interest rate, i.e. 13.5% A current account needs to be opened by the customer before applying for Home Loan

Personal Secured Loan:

Personal Secured Loan is a simple stand by loan against the Time Deposit and NRB Bonds and the loan is repayable in equal monthly installment o Standby loan against TMD and NRB bonds (WEDB/USD Bonds) o WEDB or USDBs issued from HSBC and other multinational banks are considered.

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Loan and Credit Facility Offered by PFS o Interest rate 12.5% for loan amount below BDT 5,00,000/- and 12% for loan amount of BDT 5,00,000/- and above o Interest rate against LCY TMD is TMD rate 13% o Minimum loan amount BDT 90,000/o Maximum loan amount 90% of LCY TMD amount or WEDB and 80% of FCY TMD or USDBs. o Option of bullet repayment with quarterly interest payment is available. Partial prepayment is not allowed for this facility. Bullet repayment facility allows no monthly repayment option. The quarterly interest has to be paid by the customer. o 10.5% interest rate for bullet repayment PSL facility o Processing fee against certificate issued from HSBC is BDT 1,000/- + stamps BDT 170/o Processing fee against certificate issued from other banks is BDT 1,5000/- + stamps BDT 170/o Flexible tenure, maximum loan tenure is 5 years, customers can choose the loan tenure (12, 24, 36, 48, or 60 installments) o Default fee for each missed installment is @ 24% on delinquent amount o In the event of three consecutive missed installments the security will be encashed & outstanding loan amount will be realized o Set off fee for liquidation of 3 consecutive delinquent amount is BDT 1,000/o Partial prepayment fee is BDT 1,000/Early settlement fee is BDT 1,000/- (if within 3 months 1% of the outstanding or BDT 1,000/- whichever is higher.

Personal Secured Credit:

Credit facility against your investments Personal Secured Credit is a credit facility against Time Deposits and NRB Bonds that enables customers to have the flexibility to meet short-term commitments without unlocking their long-term investments

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Loan and Credit Facility Offered by PFS o Customers can borrow up to 90% of their LCY TMDs and WEDB value o WEDB and USDBs issued from HSBC and other multinational banks are considered o Minimum loan amount is BDT 90,000/o Maximum loan amount 90% of LCY TMD amount or WEDB and 80% of FCY TMD or USDBs. o Processing fee against WEDB and USDBs issued from HSBC is BDT 1,000/- + stamps BDT 170/o Processing fee against WEDB and USDBs issued from other banks is BDT 1,500/- + stamps BDT 170/o Interest rate against LCY TMD is TMD rate + 3% and FCY TMD is 12.5% for loan amount below 5,00,000/- and 12% for loan amount of BDT 5,00,000/- and above o Interest rate against NRB bonds 13% *Customer needs to have a current account with us to avail this facility

Credit cards:
HSBC's co-branded credit card with Prime Bank gives you the freedom to pay for goods and services without the hassle of carrying cash. The card is accepted at shops, restaurants, hotels, airlines and travel agents, departmental stores, hospitals and diagnostic centers, practically anywhere in Bangladesh displaying the MasterCard logo. Product Name: HSBC Prime Bank Co-branded Master Card Gold Card Card Type: Local Master Card Gold Card Card Limit: Staff Card: BDT 15,000/- to 1, 00,000/Master Card Gold Normal: BDT 50,000/- to 1, 00,000/Master Card VIP: BDT 1, 00,000/- to 2, 00,000/Higher credit limit will be granted on exceptional basis

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Loan and Credit Facility Offered by PFS Eligibility: Primary Eligibility: Minimum BDT 25,000/- gross income from regular sources. Bangladeshi Citizen 21-65 years of age and has account with HSBC For Supplementary card the person has to be at least 18 years of age Card Life: By default 2 years for all cards new and renewed Billing Cycle: 7th day of the month Repayment Period: 26th day of every month. Maximum 50 days interest free period Minimum Payment Calculation 8% of the current balance shown on the statement or BDT 500/- which ever is higher. If current balance is less than BDT 500/-, then full payment For over limit account: 8% of the credit limit plus exceeded amount For overdue account: minimum of the previous statement plus 8% of the billed amount. Fees and Charges: (VAT applicable) Annual Fee First Supplementary Annual Fee 2nd-9th Supplementary Annual Fee Card Replacement Fee Late Payment Fee Excess Limit Fee Statement Retrieval Fee Sales Slip Retrieval Fee BDT 2,000/Free BDT 1,000/BDT 500/BDT 300/BDT 500/BDT 50/- per statement BDT 250/-

Figure 1: Fees and charges for Credit Card

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Loan and Credit Facility Offered by PFS Supplementary Card: Total 9 cards can be availed. There will be no annual fee for the first supplementary card. Interest: 2.5%s monthly. Interest is calculated on daily basis on card accounts from posting date. If payment is paid within the payment date in full, no interest is charged. This present a cardholder the option to enjoy a maximum of 50 days free credit facility Penalty for Late Payment: The billed amount needs to be repaid or the minimum as shown on the Statement of Card Account within the Payment Due Date to avoid Late Payment Fee. If payment received late for two months, the card account may be suspended. Penalty for Excess Limit: Minimum as prescribed. Any excess limit must be paid immediately otherwise fees may be charged twice. Interest, Excess Limit Fee shall be debited to Card Account on the Payment Due Date. Any discrepancy is the statement should be reported to Prime Bank Limited, Card Division within 10 days from the Statement Date. Else the billed amount shall be considered correct.

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Loan and Credit Facility Offered by PFS

Lending Guidelines in Personal Banking:

The Lending Guidelines set out the lending parameters that govern the lending activities to personal customers. Their direction derives from the approved Strategic and Operating Plans and they are compatible with group lending guidelines. They are updated halfyearly and approved by Customer Relation Manager (CRM), after recommended by CEO Bangladesh and by the Head of Asia Pacific PFS. The guidelines are to be distinguished from Credit Policies, which are fundamental standards and that are applied generally to ensure compliance with Head Office and regulatory requirements. Credit Policies are amended relatively infrequently and are expected to be compiled with in all but exceptional instances. Lending Guidelines address more detailed matters and, in conjunction with Risk Reward Programmes required for each product, reflect the effort of HSBC to monitor Operating Plan objectives in light of evolving market conditions in order to ensure maintenance of high credit standards and asset quality.

BUSINESS STRATEGY Strategic and Operating Plans for PLB Lending HSBC launched personal credit product and key part of their strategy to develop a profitable personal banking business. The merged Standard Chartered (SCB) and SCB Grindlays is the leading foreign bank in Bangladesh and have an established line of products. The product range HSBC offers competes with their product range and been packaged to be better and differentiate themselves from the competition. HSBC initially

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Loan and Credit Facility Offered by PFS focused on loans and overdrafts against government bonds. Subsequently they launched PIL, Education Loan, and Car Loan products. The PIL has proven most successful, while Car and Education Loans have been less successful in the initial stages.

Delinquency rates to date have been negligible and HSBC intend to more aggressively push asset sales, with particular focus on the Investment Loan (IL), which is a secured product.

HSBC launched PVA in December 2000 for a particular segment of the market. HSBC expect this customer base to boost IL and Car Loan sales. Their target market is the salaried employees of reputed companies in Bangladesh, as it is easier to prove their income. Private businessmen, the politically and socially connected are less attractive to HSBC. However businessmen may be granted ILs and PSCs.

The main aim of HSBC is to maximize economic profit by significantly increasing their customer base and cross sell rates, positioning HSBC as the leading provider of personal banking services to the upper and middle markets in Bangladesh. This will be done by focusing on service and sales through the use of training and monitoring service and alternative distributions channels, such as Mobile Sales Officers, Offsite ATMs, ATB and the development of a Call Centre.

Targets in Annual Operating Plan for Personal Banking (PLB) lending a. Strengthen and increase the direct sales team.

b. Increase awareness of PLB products and services through advertising, promotions and research and training of staff. c. d. Develop alternative distribution channels; a Call Centre for generating leads. To improve service standards and develop a sales orientated environment.

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Loan and Credit Facility Offered by PFS HSBC continue to enhance their customer service levels to a level unmatched by their competitors and to reinforce their reputation for service delivery among the target market segments through active management of queues, the launch of ATMs and ATB and monitoring service standards. Service standards are generally poor in Bangladesh and in particular those of the local banks. Foreign banks service standards are also poor by international standards, which gives HSBC an opportunity to make them the first choice service provider.

Wins and Losses Wins Growth in customer base after the establishment of the direct sales team. Lack of price competition in the personal loan market, which is a relatively new idea in Bangladesh. Poor quality of technology and service at competitor banks both local and foreign. Poor packaging of loan products by competitors; few benefits. Other banks are focusing on security rather than repayment ability. Losses Being late into the market; new and small customer base. Relatively poor Name recognition in the market (although this is rapidly improving) and name recognition of ANZ/SCB products. Lack of personal credit experience (Improving). Limited competition other than SCB/ANZ.

MANAGING FOR VALUE Lending activities targeted for growth to Create Value. The target market mainly comprises professionals, managers, executives (PMEs), and the new emerging middle income group with salaries of not less than BDT15,000 per month. As personal credit is relatively new to Bangladesh, margins are wide. This group of 26

Loan and Credit Facility Offered by PFS people mainly lives and works in Dhaka and Chittagong, where HSBC has its offices. The country is going through a wave of modernization with more business and employment opportunities being created with various multinationals, NGOs, charities and local companies, which imply that the target customer base of HSBC should increase. This population is being targeted through CEPS for the range of asset products.

The Investment Loan (3/5th of the book) and PIL (1/5th of the book) have been the most successful asset products and both have exceeded expectations both in volumes and lack of delinquencies. The Education Loan, which is basically a PIL has not done so well, but this is in part a reflection of it being launched just after the beginning of the academic year. The Car Loan has also underachieved, partly as result of recent changes to the tax on cars, making them expensive when compared to average incomes.

HSBC is negotiating with ALICO for a creditor insurance scheme for all their loan products, particularly for the Personal Installment Loans, Education Loans, and Car loans. Many of the activities done by HSBC to improve sales of assets have been focused on developing the front line staffs selling skills; training; product knowledge and quizzes; presentation skills; improving the knowledge of competitor products and adapting to them; simple sales competitions and products champions. The appointment of a Marketing Executive in late 2000 has led to better advertisements in identifying customer needs and benefits, which is leading to better results. HSBC is primarily focusing on the IL and the PIL as they are the easiest products to sell and will be developing strategies and marketing campaigns later in the year to boost the Education and Car Loan sales. Having Government Bond Loans and Overdrafts, Car Loans, Education Loans and PILs enables HSBC to offer one of the broadest ranges of asset products in the market.

Preferred Terms and Conditions: Repayment ability 27

Loan and Credit Facility Offered by PFS Debt to Income Ratio should not exceed 70%. This figure is high compared to developed countries (50%). However most people in Bangladesh have some undeclared income, which is typical of the sub continent. This has proven to be the case from lending experience, other income often being significantly more than declared salary income. For secured loans it is extremely hard to get customers to provide income proof as the product is secured. If the bank insisted upon it as a condition of the loan HSBC would lose a larger percentage of their IL business. As a result they rely on income statements, which are assessed at the time of approval.

Fluctuating Interest Rates

HSBC aim to achieve a minimum spread of 10% over cost of funds on unsecured borrowings, and currently having a spread of between 12 to 13% depending on the product. Cash secured borrowings generate a spread of 4%, while on the Investment Loan they are seeking a minimum spread of 6%, and are achieving 7%. Capital CORA is 1.8% in Bangladesh. Cost of PLB funds is now around 5.6% and decreasing. Though flat interest rates are given in their product briefs they will fluctuate according to market interest rates and this is incorporated into the products terms and conditions. This enables HSBC to protect themselves from changes in market interest rates and market practice in view of the relatively unsophisticated treasury market. Loan and interest repayments are based on flat monthly installments; i.e., the principle portion in each installment will increase with each installment paid.

Launching PLB Credit Products

HSBCs Government Bonds Investment Loan product was launched in June 2000, as Government Bonds are required for the end of the tax year by 30 June. Government Bonds are also a popular investment as other personal investment channels, except for TMDs in Bangladesh are limited, as the stock market is moribund and weakly regulated and currency restrictions prevent people investing abroad.

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Loan and Credit Facility Offered by PFS In October 2000 HSBC launched the Car Loan, which is secured by the car. They also launched the unsecured Education Loan and PIL. Through packaging and unique features HSBC expect that these products will stand out from their competitors products. These products are being sold through the branches Customer Service personnel and the Mobile Sales Officers. HSBC is building a Customer Needs Database from their existing customers to better target customers. Training has been given before the launch of the products. A Marketing Executive has been recruited, and it is hoped that he will be instrumental in expanding sales of the asset products. The initial target customers are the existing customer base and targets have been set for the branches. HSBC is also focusing on attracting Autopay and CEPS salary accounts, which are good targets for personal loans. The Credit Manager has now been in position since May 2000 and the Credit Department is now fully staffed and operational and does not have any capacity constraints.

Lending structure targeted to Create Value. HSBCs credit products are aimed at existing customers as the Bank has more information on their account behavior. In view of their position in the market (new operations, lack of customers and no credit track record) HSBC also lend to customers, who do not have existing relationships with the Bank, subject to their meeting the banks parameters, but they are much more selective.

Value Destroyers HSBC require strong credit skills to judge the borrowers creditworthiness, in terms of his/her ability and intention to repay. Due to lack of knowledge/experience of the market, the focus is conservative and focuses on PMEs, with regular salary payments. HSBC has centralized the approval and credit operations functions at Credit Department to concentrate expertise and control costs. Where they have less knowledge on the customer they do have the option to either run quick and inexpensive background checks or to use Bangladesh Banks Credit Information Bureau (CIB), which should have details on all

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Loan and Credit Facility Offered by PFS loans above BDT 50,000. However they have found that the CIB route is a lengthy process and it is not a definitive record.

The key factors to assessing credit are: (a) (b) To establish creditworthiness of a customer (ability and willingness to repay); To support the above with a qualitative evaluation of the borrower including: Character of the borrower Capacity to repay Socio-economic status Assets owned Stability of cash-flows Time in current job and address

The documentation is being verified by the Bank, although in some cases HSBC asks for a 3rd Party agent (who has been appointed) to run background checks to double check the validity of the submitted documents. This is a standard practice of all banks in Bangladesh and costs BDT 500 per customer (this will come down to around BDT25O as volumes increase). About 15% of these verifications have shown unsatisfactory information leading to rejected credits. The verification is carried out within 2 days. The cost is covered by the arrangement fee and applicable to new customers of whom the bank has little knowledge. HSBC recently raised the unsecured loan arrangement fee to 2.5 % for new customers.

An efficient centralized approval function has been established in Dhaka Main Office. This has the following benefits:

1. Improves the quality of credit assessment, as more qualified credit managers can control the credit decision making process; and divorces the approval from other staff, who may personally know the customer, thus ensuring consistency and integrity.

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Loan and Credit Facility Offered by PFS 2. This gives the bank greater knowledge of their lending history so that changes can be quickly made to the Area Lending Guidelines and product parameters as is necessary. 3. Greater control and improved performance over credit operations. Skill levels are limited and they can better standardize documentation and control external agents assisting in the registration of vehicles and collection agents. 4. Cuts down the staffing costs as it will avoid duplication.

DOMESTIC MARKET ISSUES: Specific market practices: Personal Credit products are relatively new to the market. Products are not well packaged and it seems that banks focus more upon the ability to secure the loan rather than the repayment ability of the borrower. As a result goods purchased with these loans tend to be hypothecated, including TV sets and VCRs. This is cumbersome and it is in any case difficult to realize in the event of default. The focus on security means that many good credit opportunities are excluded. Each bank that offers a loan product has a minimum income requirement and runs financial and credibility checks according to it own procedures. Normally the checks on residence and offices are done through an external agency. The income proof has to be authenticated by the employer or by a person considered to have social credibility e.g. a gazette officer of the government. Cash security is often taken to cover the risk. The degree of risk is directly proportional to the interest rate charged and the cash security taken. On the other hand, if a fixed asset is financed, the asset itself is hypothecated in the banks name and a certain amount of cash or government bonds collateral is required. The market practice is to finance 100% of the quotation value of the asset being purchased and then security is taken. The market practice regarding a new customer is very similar. A new customer has to normally provide 100% cash collateral for any loan taken. Collateral typically includes Bangladesh savings certificates, and defense savings certificates. The focus on security is changing as some of the local private banks are starting to lend money for cars, which are granted as a percentage of the car value and do not require full collateral security. 31

Loan and Credit Facility Offered by PFS

Industry Trends The consumer lending business is becoming increasingly popular amongst both foreign and private banks as it is seen as a profitable and growing market. It is still in its early days and it seems banks are not aggressively targeting this market. There is strong demand for loans as people are increasingly looking to purchase consumer products, such as cars and TVs. Education, and in particular overseas education, is increasingly important for parents and their childrens long term opportunities.

Interest margins are wide and not subject to much price competition and nor are banks required to publish their rates. Unsecured loans and car loans are often charged at 20% plus. It is likely that this area of personal lending will become a more important part of the personal lending market, and HSBC is already very much at the forefront of the market. Investment Loan type products represents about 60% to 70% of all personal assets for Banks in Bangladesh. Local banks are increasingly offering the product and the main way HSBC can differentiate themselves from the competition is through flexibility in repayment and service. The product also enables them to build up an attractive and secured asset portfolio in a short period of time.

DOMESTIC LEGAL AND REGULATORY CONSTRAINTS Legal Constraints Due to inadequacies of the legal administration, enforcement of security in Bangladesh can be slow, time-consuming and not very effective in terms of amounts ultimately recovered for unsecured borrowings. However, cash or government bonds can be quickly and easily en-cashed if held by the Bank, without legal action being taken. The cases HSBC has encountered with Government Bond loans where borrowers wanted to cash the loan/bonds have shown that it is quick and simple process to refund the bond.

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Loan and Credit Facility Offered by PFS Discussions with finance and leasing companies about their lending experience with car loans reveal that if documentation is correctly taken then cars can be repossessed relatively quickly. If cars are registered in the banks/finance companies name (which has now become normal practice) they can be repossessed without undue difficulty and sold to recover the outstanding loan amount.

For unsecured borrowings, taking legal action is much harder and time consuming. As is practiced in other Banks HSBC take undated cheques as security towards loan repayments. To have a cheque returned unpaid is a criminal offence in Bangladesh and can be enforced through the courts, though this can be expensive. HSBC therefore takes undated cheques for all their unsecured asset products.

Regulatory Constraints Bangladesh Bank (BB) requires banks to report to the CIB (Credit Information Bureau) all loans above BDT 50,000. The bank is required to obtain a CIB report for all loans above BDT 5 Million. The bank only uses CIB reports on a case- by-case basis, because of problems with their accuracy.

DUE DELIGENCE AND CUSTOMER DISCLOSURE STANDARDS Identification: The bank identifies and verifies customer information as listed below and retains copies of previous statements, employment letters etc. these copies confirm that the original documents have been sighted. For the new customers the bank may use the contracted 3 rd party field investigator to double check customer details and take note of personal circumstances. Verification costs are covered by the arrangement fee and used more with new customers of whom the bank has little knowledge as opposed to AutoPay customers.

Credit Checking:

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Loan and Credit Facility Offered by PFS Existing customers: check account details, account conduct/cheque returns, and customer disclosures. New customers: original copies of past statements.

Verification: Employment letters and evidence of regular salary. Value of security, if offered. Income proof and time in job. References. Use of external agents to do verification. Policy Decline: Overdue account Black list Minimum criteria not met Unsatisfactory CIB report Income not sufficient On negative list Non-Bangladeshi citizens Non-resident Bangladeshis, except secured credit, as allowed by Bangladesh Bank regulations. Risk Grading: All Personal Loans are graded in accordance with the Banks risk grading system. This enables the Bank to monitor the overall quality of the portfolio and to take the remedial measures as appropriate. The grading system that is followed is given below: Cycle no Definition for Definition for Definition for Overdrafts Facility products with regular products with and Revolving Credits Grade repayment each irregular payment month schedule At the booking time of At the booking time of At the time of booking Grade 2

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Loan and Credit Facility Offered by PFS 1 2 3 4 5 6 7 8 1 payment overdue 2 payments overdue 3 payments overdue 4 payments overdue 5 payments overdue 6 payments overdue 7 payments overdue 8 payments overdue 1-29 days past due 30-59 days past due 60-89 days past due A/C in excess for 1-29 Grade 3 days A/C in excess for 30-59 Grade 4 days A/C in excess for 60-89 Grade 5 days

90-119 days past A/C in excess for 90-119 Grade 6 due days 120-149 days past A/C in excess for 120-149 Grade 6 due days 150-179 days past A/C in excess for 150-179 Grade 6 due days 180-209 days past A/C in excess for 180-209 Grade 6 due days 210+ days past due A/C in excess for 210+ Grade 7 until write off days

SECURITY ARRANGEMENTS When lending, it must always be kept in mind that security is of secondary comfort. CREDIT PROCESS AND PROCEDURES OVERVIEW: HSBC Bangladesh has a centralized approval and control function. Applications are forwarded to PLB credit for approval. The Credit manager assesses the credits and if necessary discusses is further with the Customer Service Managers/Officers/Representatives in the branches and when required with the customers. If necessary, additional documentation/information may be requested from the customer. Dhaka Credit Operations is overseen by the Credit Operations Officer. Under him he has two Assistant Officers who do the operations and one Assistant Officer who covers collections.

Processing of a normal application for approval within lending guidelines Receipt of application in branch. The application is forwarded to PLB Credit Manager

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Loan and Credit Facility Offered by PFS When received the application is checked to determine whether it meets parameters and passes assessment. Blacklists and restricted lists are also checked. Those applications which do not meet the parameters are reviewed by PLB Credit Manager in case the application has some merit. PLB Credit will recommend many loans not meeting the parameters which would need Manager PLB or CEOs approval within their respective SLA limits. HSBC will be more flexible with the Personal Investment Loan because of the security held. For those rejected applications a letter is sent to the customer, copied to the branch of application. PLB Credit Manager reviews the application to ensure issues are addressed before making a decision. For those customers whom the Bank doesnt know well, verification is done by third party surveyors. The Bank will take a letter of introduction from the employers.

The daily lists of approved and rejected applications are circulated to Manager PLB for his review. Credit Operations will obtain the required documentation. Loans will not be disbursed until documentation has been perfected and completed. Exception Approvals Applications which are outside parameters are approved within the SLA limits of Manager PLB and CEO. Records will be maintained to determine the quality of such loans versus those within the parameters.

Disbursement Only when documentation has been perfected and completed are the loans drawn down. With all car loans, and where possible with education loans, the payment will be effected by the bank to the car retailer or the education establishment. PLB Credit will do this centrally. Credit Operations will ensure:

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Loan and Credit Facility Offered by PFS All security documents as per the approved REF are in place prior to disbursement Limits/interest rates are loaded on HUB as per the approved REF. Account maintenance forms are being raised by the PLB Credit Operations Assistant Officers, and approved by the Staff Officers of Credit Operations. Approval limits are given in writing by the CEO.

Rejected Applications All rejected applications are recorded with the reasons and filed separately for statistical purposes connected to future development of products. A regret letter is sent to the applicant. No reasons are given for the decline.

Restricted Sectors HSBC Bangladesh will not normally lend to the following types of self employed and salaried people, and any approvals will fall under Special Lending Authority (SLA). Self-employed: Astrologers Building/Civil Contractors. Cable TV Operators Collection Agents / DSA / Verification Agencies Consultants without Professional Qualifications Local Courier Companies Film Industry / TV / Serials Small time financiers Government and Railway Contractors Labor Contractors Motor Driving Schools Politicians or Politically connected Real Estate Broker / Consultants

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Loan and Credit Facility Offered by PFS Security Companies / Detectives Telephone or Xerox Booths Tour Operators / Ticketing Agents / Rentals Transporters Used Car Dealer Video Library Money Changer Salaried Staff: Clerical Employees in Public sector/Banks/Corporations/Government Computer Training/Education Institute Construction Company Other Bank employees, including Co-operatives Courier Companies who are not franchises of Multinationals Defence Forces (BAF,Navy, Army) Police, Enforcement and intelligence Agencies Finance Companies Plantation, Resorts and Time Share Co. Shop Floor Workers Yellow Pages (Directories) Journalists Non Bangladeshis and Foreign Aid Workers The above list will normally apply to unsecured loans only. Cash secured (government bond, time deposit) loans and overdrafts may be exempted from the list. Management of Facilities All facilities graded 1 to 3 will be handled by PLB Credit staff. This is done by regularly monitoring facilities and by checking exception reports and also by conducting annual reviews (where required) should deterioration be detected. An interim review will be promptly raised to record the situation and, if appropriate, amend the facility grade. Most of the facilities provided by HSBC are loans and thus action will be managed according to delinquency cycles.

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Loan and Credit Facility Offered by PFS All facilities graded 4 to 7 will be dealt with by Collections which comprises of the Credit Staff Officer and one Collection Assistant Officer (AO), who will in addition to the regular monitoring, conduct quarterly reviews, and downgrade further if necessary. It is intended that once a loan hits its 3rd delinquency cycle, i.e. 61 days that it will be liquidated (Government Bonds encashed), or the entire loan amount will be called up (Unsecured borrowings). Once it becomes grade 6 (91 days past due) then the bank will initiate repossession in the event of Car Loans through the Banks security agents/collection AOs. Unsecured loans will be passed to an external debt collector on 91 days, but Manager, PLB has the discretion to review the matter if a solution is expected. These cases will be reviewed on a monthly basis. All facilities graded 6 & 7 should be handled with a view to initiate legal actions and make necessary provisions according to given guidelines.

Management of facilities in Facility Grades 3-7 Documentation Obtaining legal advice and perfecting security documentation is the function of Credit operations Department. It is the responsibility of the credit Officers to ensure that appropriate security is requested and clearly stated in REFs and facility letters. Drawdown of newly granted facilities will not be allowed until execution of security. Product Reviews Formal RRP reviews will be performed annually. However, in the event of less than 25% deviation from the targets set out in the approved RRP, internal reviews will be conducted half yearly, to coincide with the half yearly updating of the lending guidelines.

APPROVAL PROCESS General Lending officers must bear in mind the following when considering the approving of new or enhanced facilities and where appropriate when reviewing facilities.

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Loan and Credit Facility Offered by PFS Where lending is based on fully cash backed security, facility amount should not exceed 90% of the deposit amount (same currency). Where lending is based primarily on the support provided by a personal guarantee, a net worth statement should be obtained and analyzed. Where tangible security is an important element of a facility, an evaluation should be made of its realistic value and any practical difficulties that will be encountered in enforcement under the circumstances that will exist should resort to the security for repayment become necessary. The loan purpose should be clearly understood. Repayment ability must be critically assessed.

Decision support System Facilities are approved on a criteria basis, though HSBC will attempt to build up a wider criterion based lending parameters as HSBCs experience grows. In addition, the following factors are taken into account when assessing the provision of credit to personal customers. Employment Accuracy and stability of applicants stated employment, income and service. If the applicant has been employed for less than two years by the current employer, applicants previous occupation should be of a similar nature. Residence An applicant is required to be living at his/her present address for a minimum of 12 months, unless the customer has banked with HSBC for more than 12 months. Authentication should be checked by verifying utility bills. Debt Burden Minimum monthly income levels should be applied. BDT 20,000 for Car loans and Education loans, and BDT 15,000 for PILs. Total monthly expenditures including loan repayment should not exceed 70% of disclosed income. Any application beyond the approval limits of personal lending officers should be referred to Manager PLB, the CEO or his delegate

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Loan and Credit Facility Offered by PFS

Unauthorized Excesses Unauthorized excesses on PLB facilities are approved by officers who hold delegated over limit approval limits given in writing by the CEO Manager, PLB: within GLA/SLA limits Manager, Credit: within GLA limits Anything inn excess of the above is referred to CEO. All excesses are charged at the penal rate of interest and should not be allowed for more than 1 month without reviewing the situation. Staff Facilities All staff advances falling within the approved standard package are recommended by the Human Resources Manager, which are then approved by PLB Manager, within approved limits. All exceptions to approved policy are approved by the CEO.

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Loan and Credit Facility Offered by PFS

CONCLUSION

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Loan and Credit Facility Offered by PFS

Conclusion:
HSBC has entered the new millennium in good shape, with a clear strategy and a broad spread of businesses able to pursue opportunities for profitable growth wherever they occur. The outlook for HSBC is encouraging. I got an opportunity to know the credit facilities offered by HSBC to its customers and how the department works. It gives loan to persons as well as to company or corporations. There are different types of personal credit facilities Approval of loan to a customer follows a step-by-step procedure that is discussed in the report. Writing the report was an enlightening practice as I came to know how the department operates, what its credit facilities are and how a loan is approved. Finally, this internship has increased my knowledge about banking operations and this knowledge and experience will help me advance in career life in the future.

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