2.

1 An 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 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.

The Making of the modern HSBC Group:

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. This strategy culminated in 1992 with one of the largest bank acquisitions in history when HSBC Holdings acquired the UKs Midland Bank plc (now called HSBC Bank plc). However, it

remained committed to its historical markets and played an important part in the reconstruction of Hong Kong where its branch network continued to expand.

2.3

Banks under the HSBC Group

Many of the members have changed their name into HSBC, The Hongkong and Shanghai Banking Corporation Limited to introduce the whole group under one brand name. Midland Bank HSBC Holdings acquired Midland Bank one of the principal UK clearing banks in 1992. Headquartered in London, the bank has a personal customer base of five and a half million, business customers of over half a million, and a network of almost 1,700 branches in the United Kingdom. Midland has offices in 28 countries and territories, principally in continental Europe, with a number of offices in Latin Hang Seng Bank America. Hang Seng Bank, in which Hongkong Bank has a 62.1% equity interest, maintains a network of 146 branches in the Hong Kong SAR, where it is the second largest locally incorporated bank after Hongkong Bank. Hang Seng Bank also has a branch in Singapore and two branches Marine Midland Bank and two representative offices in China. Marine Midland Bank headquartered in Buffalo, New York, has 380 banking locations statewide. The bank serves over two million personal customers and 120,000 commercial and institutional customers in New York State and, in selected businesses, throughout the United States. Hongkong Bank Hongkong Bank of Canada is the largest foreign-owned bank in of Canada Canada and the countrys seventh-largest bank. With headquarters in Vancouver, it has 116 branches across Canada and two branches in the Banco HSBC Bamerindus western United States. Banco HSBC Bamerindus was established in Brazil in 1997. The bank has network of some 1,900 branches and sub-branches, the second

largest in Brazil. Hongkong Bank Hongkong Bank Malaysia is the largest foreign-owned bank in Malaysia Malaysia and the countrys fifth-largest bank, with 36 branches. The British The British Bank of the Middle East (British Bank) is the largest and Bank of the most widely represented international bank in the Middle East, with 31 Middle East

(British Bank)

branches throughout the United Arab Emirates, Oman, Bahrain, Qatar, Jordan, Lebanon and the Palestinian Autonomous Area, including an offshore banking unit in Bahrain. The bank also has branches in Mumbai and Trivandrum, India, and Baku, Azerbaijan, as well as private banking operations in London and Geneva. HSBC Banco Roberts was acquired in 1997. Based in Buenos Aires, it is one of Argentinas largest privately owned banks, with 60 branches

HSBC Banco Roberts

throughout the country. Hongkong Bank Hongkong Bank of Australia has 16 branches across Australia. It is the of Australia flagship of the HSBC Groups businesses there, operating under the name HSBC Australia, and providing a complete range of financial The Saudi British Bank services. The Saudi British Bank, a 40%-owned member of the HSBC Group, has 63 branches throughout Saudi Arabia and a branch in London. Figure 1: Banks under the HSBC Group

Other associated Group banks are British Arab Commercial Bank, The Cyprus Popular Bank and Egyptian British Bank.

2.4 Customer Segments of HSBC Group

Personal HSBC provides a full range of personal financial services, including pensions and investments. In 2000, residential mortgages across the Group excluding Household grew by 15%, while non-mortgage personal lending increased by over 20%. Credit cards in issue grew by 20% worldwide. Sales of repayment protection insurance and deposit growth reached record levels. Current account balances in the UK exceeded 10 billion for the first time at year-end 2000. The number of customers registered for e-banking services via the internet and telephone more than trebled in 2000. The internet generated sales of over 2.3 million products and 87 million transactions.

Financial Services current and savings account, mortgages, insurance, credit cards, loans,

Consumer Finance

Through Household International, Inc., HSBC is now a major provider of consumer finance and a top 10 issuer of credit cards in the USA. Household provides consumer loans, credit cards, vehicle finance, mortgage financing and credit insurance to middle America. During 2004, Household achieved good organic loan growth, which it supplemented with portfolio acquisitions. The strongest growth was in the real estate portfolio and the mortgage services business, and also in branch-based consumer lending. Synergy benefits with HSBC included store cards and point-of-sale financing. The provision of services to small and medium-sized enterprises around the world is core strength of HSBC. During 2000, HSBC increased its leading position in the UK business start-up market to 21% and attracted record levels of business current and deposit account balances. Business internet banking was offered in 20 countries and territories, and the number of registered users more than doubled to 600,000. Money transmission revenues, trade finance fees, wealth, savings and insurance products all showing growth during 2000. This customer group comprises four main business lines Corporate and Institutional Banking, Global Investment Banking, Global Markets and Global Transaction Banking which focus on long-term relationships with major international corporations and institutions. Record results were achieved in 2000. The Global Markets business excelled, particularly in international debt issuance, risk management and structured products, and foreign exchange. Global Investment Banking was entrusted with a number of landmark deals in capital restructuring, corporate reorganization and strategic advice.

Commercial Banking

Corporate, Investment Banking and Markets

Private Banking

This customer group provides world-class financial services to high net worth individuals and their families. In 2000, Private Banking posted improved financial results in all regions, led by Asia, which had a record year. New business initiatives and a general improvement in investment markets led to increased client activity across a range of products. An increase in discretionary mandates, together with a strong demand for client-tailored structured products, contributed to higher fee revenues and dealing income. Funds under management grew by 18%, reflecting both net inflows of client assets and improving market conditions.

2.5 HSBCs International Network

Fig 2: HSBCs International Networks The HSBC Group's international network comprises of some 7,000 offices in 80 countries. A brief list is presented below:

2.6

Country Classifications

To ensure that the 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 into 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:

Figure 3: Map of HSBC's Country Classifications

Large: United Kingdom, USA and Hong Kong SAR/Mainland China.

 Definition More than one million personal clients Sustainable earnings greater than US$ 200 million Business Focus Concentrated group resources on wealth management Be a top 10 player in any market or region served Develop cross selling, loyalty programs and value added products. Major: Argentina, Canada, Malaysia, India, Kingdom of Saudi Arabia, Singapore and United Arab Emirates. Definition Sustainable earnings between US$ 100 - 200 million Business Focus Universal banks (personal, corporate, and investment banking with domestic business) Platforms for international group business Next generation of large companies Stable self funding entities Onshore HQ International: The rest of the world. Definition Earnings below US$ 100 million

 Business Focus Platforms for international group business Limited domestic presence Nursery for developing management Tomorrows major businesses Supported by offshore HQ

2.7

International Brand

A key part of the Groups business strategy, announced in 1998, is the creation of a global brand featuring the HSBC name and hexagon symbol. The symbol is now a familiar sight around the world. The Group has embarked on the next phase making the HSBC brand universally synonymous with its core values of integrity, trust and excellent customer service. HSBC Brand & Corporate Identity: The Hexagon logo of HSBC derives from HSBCs traditionally flag, a white rectangle divided diagonally. 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. It is derived from the group: Corporate Character: HSBC is a prudent, cost conscious, ethically grounded, conservative, trustworthy international builder of long-term customer relationships. Basic Drives: HSBCs basic drives are Higher Productivity, Team Orientation, and Creative Organization, & Customer Orientation.

The essence of HSBC brand is integrity, trust, and excellent customer service. It gives confidence to customers, value to investors, & comfort to colleagues. Through the process of listening to individuals needs and then acting in partnership to deliver the right solutions, HSBC is committed to help the clients make the most of their financial assets. HSBC operate on a global basis, but also work on a local level to ensure the crossborder differences are identified and any related benefits exploited. HSBC teams of specialists ensure that whether you need solutions across the world, regionally, or locally, and they have the skills, expertise, and resources to deliver them. They automate as many functions as possible, even as ensuring retains control. HSBC claims that they are the people to talk to if anyone wants the following: Global cash flow co-ordination Enhanced risk management Improved security and audit controls Minimized costs and reduced operating expenses Maximized liquidity, returns and interest benefits

2.8 Group Business Principles and Value

The HSBC Group is committed to Five Core Business Principles: Outstanding customer service; Effective and efficient operations; Strong capital and liquidity; Conservative lending policy; Strict expense discipline; HSBC 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 Groups interests ahead of the individuals; The appropriate delegation of authority with accountability; Fair and objective employer; A merit approach to recruitment, selection, promotion; Promotion of good environmental practice and sustainable development and commitment to the welfare and development of each local community. HSBCs reputation is founded on adherence to these principles and values. All actions taken by a member of HSBC or staff member on behalf of a Group company should conform to them.

Chapter 3: Overview of HSBC Bangladesh

3.1 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 two booths in Gulshan & Motijheel with a vision to satisfy its customer with high quality service that reflects its global image as the premier International Bank. The Bank has recently opened another branch in Dhanmondi. 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. Five ATMs located at the five branches, there are five off-site ATMs located in Uttara, Dhanmondi, Banani, Shantinagar and GEC (Chittagong).

3.2 HSBC Bangladesh Overview

Name of the Organization Year of Establishment Head Office Nature of the organization Shareholders Products The Hong Kong Shanghai Banking Corporation Bangladesh LTD 1996 Anchor Tower, 1/1-B Sonargaon Road Dhaka 1205, Bangladesh Multinational company with subsidiary group in Bangladesh HSBC group shareholders Savings & deposit services Loan products Corporate and Institutional services Trade services & Hexagon

Management

Mr. Mark Humble Chief Executive Officer Mr. Joo Baknner Head of Personal Financial Services Mr. Adil Islam Head of Corporate Banking Mr. Syed Akhtar Hossain Uddin Human Resource Manager Mr. Munir Hussain Marketing Manager Mr. Wasim Adnan Wahed Chief Operating Officer 4 (Dhaka, Motijheel, Chittagong) 06 250+ Offers full online banking from branch to branch and from Dhaka to Chittagong.

Number of Offices Number of ATMs Number of employees Technology

Gulshan,

Dhanmondi,

&

Service Coverage & Customers

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.

3.3 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 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 nonresident Bangladeshi. 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 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 provide first class cash management solutions in 3 major global currencies; US dollar, Pound sterling, and the Euro. Payments and Cash Management (PCM): HSBC is 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.

Chapter 4: An Overview of Functional Departments

Chapter 6: Loans & Credits

6.1 Personal Installment Loan (PIL)
Any purpose loan no cash security Minimum monthly income BDT 15,000/-, 2 years service in a well reputed, stable company, 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/- and 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 Auto Pay customers will get discounted interest rate: 15.5% and loan amount: 6 times of salary or 2 million whichever is lower CEPS customers will get discounted interest rate: 15.5% and loan amount: 10 times of salary or 2 million whichever is lower 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 or evidence. For businessmen the TIN certificate and CIB (Credit Information Bureau) report will remain a mandatory document for income verification. A current account needs to be opened by the customer before applying for Personal Installment loan (PIL).

6.2

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. Loan amount is minimum loan amount is BDT 50,000/- and maximum loan amount is BDT 5,00,000/ Interest rate: 15% Tenure: Maximum loan tenure is 36 months. If loan amount is BDT 4,00,000/or above then maximum tenure is 48 months. Loan processing fee: 1% of the loan amount or BDT 1,000/- whichever is higher + stamps BDT 170/ No personal guarantee is required

6.3

Car Loan
Eligibility- minimum monthly income BDT 20,000/-, 2 years service in a well reputed, stable company, 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 is 4,00,000/ For both reconditioned car and new car loan amount will be maximum 70% of the car value Interest rate will be 14.5% per annum Maximum loan tenure is 60 months 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. CEPS salaried customers will get 0.5% discount in loan processing fee, i.e. 14%

6.4

Home Loan

Its easier than ever to own a dream home Eligibility- minimum monthly income BDT 40,000/-, 2 years service in a well reputed, stable company, 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 No personal guarantee is required Minimum loan amount is BDT 7,50,000/- and 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. Interest rate is 14% per annum 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

6.5

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. Standby loan against TMD and NRB bonds (WEDB/USDB) WEDB (Wage Earners Development Bond) or USDB (US Dollar Bond) issued from HSBC and other multinational banks are considered. Interest rate 12.5% for loan amount below BDT 5,00,000/- and 12% for loan amount of BDT 5,00,000/- and above Interest rate against LCY TMD is 13% Minimum loan amount BDT 90,000/-

 Maximum loan amount 90% of LCY TMD amount or WEDB and 80% of FCY TMD or USDB Processing fee against certificate issued from HSBC is BDT 1,000/- + stamps BDT 170/-

6.6

Personal Secured Credit

Credit facility against the investmentsPersonal 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. Customers can borrow up to 90% of their LCY TMDs and WEDB value WEDB and USDBs issued from HSBC and other multinational banks are considered Minimum loan amount is BDT 90,000/ Maximum loan amount 90% of LCY TMD amount or WEDB and 80% of FCY TMD or USDBs.

6.7

Credit Card

Increase the spending powerProduct Name: HSBC Prime 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/-

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

6.8

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 well 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.

6.9

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 expertise and 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 clients cash efficiently.

6.10 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:

6.11 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.

6.12 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, and LC, Documentary credit advising, Documentary checking.

6.13 Risk management

HSBC has developed a unique range of specialized products aimed specifically to reduce a companys exposure to international trade risk. The services in this area areTrade 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 clients to concentrate on growing business. So these are some of the services provided by HSBC trade services.

6.14 Hexagon
Hexagon is the HSBC Group's global electronic banking service, specifically designed for the corporate market. It gives a customer access to one of the largest banking and financial services organizations in the world - 24 hours a day, seven days a week. Hexagon is one of the most advanced and easy-to-use electronic banking packages on the market today. It has been designed to make life easier for the customers; with Hexagon businesses can become more efficient, increase accuracy, and reduce costs. Hexagon offers an extensive and growing range of financial services, including global cash management, trade services, foreign exchange, and securities, all from a single PC. Hexagon uses the HSBC Group's Global Data Network, the largest private system of its kind in the world. Additionally, it has a comprehensive range of system security, and control features together with its use of full data encryption, means the data is totally secure. Services Provided by Hexagon: Account information: Hexagon provides access to all the customers accounts. In addition to the latest available balances, Hexagon offers full statement information that can be tailored to customer requirements. Report Writer The account information can be quickly and easily printed using the flexible Report Writer Service or the information can be exported to some other formats. Export

Export allows account details to be exported in variety formats. This enables Hexagon to act as a true financial link between the bank's computer systems and the customer own back-office accounting packages. Reconciliation This service enables the customer to reconcile his/her bank accounts. Payments: Transfers between accounts and payments to third parties are easily achieved in more than 60 currencies anywhere in the world. Both priority payments and low-value automated clearing-house payment options are available in Hexagon. Exports Documentation: Hexagon gives the customers the ability to view outstanding documentary credits and bills in summary or a more detailed format, including interest details where financing has been requested. Coupled with account information, companies are able to track the whole export process from the point when the documentary credit is opened or bill is presented through when settlement is made. Import Documentation: With the import option, a customer can easily create and amend documentary credit (DC) applications and submit them online. So these were some of the very important services provided by HSBCs unique banking software HEXAGON. Other Facilities Provided to Corporate Customers: HSBC also offers some other facilities to its customers. They are Factoring, Forfeiting, Guarantees, Hire Purchase Finance, Leasing, Tender Bond, and Performance Bonds. All these services and products are designed to meet the total business needs of the corporate clients of HSBC.

Critical Functional Issues Chapter 8: Industry Analysis

8.1 Industry Analysis
Industry analysis builds on customer & competitor analysis to make more strategic judgment about a market & its dynamics. One primary objective of industry analysis is to determine the attractiveness of a market to current & potential participants. A second objective of a market analysis is to understand the dynamics of the market.

The need is to identify the key emerging factors, trends & threats, opportunities, & strategic uncertainties that can guide information gathering & analysis. Porters approach can be applied to an industry, but it can also be applied to a market or submarket within the industry. The basic idea is that the attractiveness of an industry or market as measured by the long-term return investment of the average firm depends largely on five factors. A complete understanding of the competitive area helps to guide strategy design & implementation.

Rivalry among Existing Competitors: The rivalry among the competitors and the growth in the industry depends upon the intensity of competition. A high intensity of competition is observed in the banking sector of Bangladesh. There are more than 50 commercial banks in Bangladesh that fight for their own share of the market. The national banks have the highest banking network in Bangladesh. They compete against the banks with their low cost of operation and government support. Again, Standard Chartered Bank is the largest multinational banking network in Bangladesh that has its network in many metropolitans of Bangladesh. There are other international banks that also take part in

the competition and aggressive in nature. This high intensity of competition makes companies difficult to sustain in the long run.

Bargaining Power of of Bargaining Power Suppliers Suppliers Supplier concentration Supplier concentration Number of of buyers Number buyers Switching cost Switching cost Substitute raw materials Substitute raw materials Thereat of of forward Thereat forward integration integration

Threat of of Potential Threat Potential Entrants Entrants Economies of of Scale Economies Scale Brand identity Brand identity Capital requirement Capital requirement Access to to distribution Access distribution Regulatory policies Regulatory policies Switching cost Switching cost Reaction from existing Reaction from existing players players

(Degree of of Rivalry) (Degree Rivalry)

Differentiation Differentiation No. & & Size of players No. Size of players Industry Growth Industry Growth Brand Loyalty Brand Loyalty Exit Barrier Exit Barrier

The Industry The Industry

Pressure from Pressure from Substitute Substitute Price of of substitute Price substitute Product identity Product identity Functional similarity Functional similarity

Bargaining Power of of Bargaining Power Buyers Buyers Buyer Concentration & & Buyer Concentration Size Size Number of of Suppliers Number Suppliers Switching Cost Switching Cost Substitute Products Substitute Products Threat of of backward Threat backward integration integration

Figure13: Porters Five Forces Model

Threat of New Entrants: The next force highlights the possibility of new competitors entering the market. Existing firms may try to discourage new completion by aggressive expansion & other types of entry barriers. The banking sector of Bangladesh seriously faces the threat of new entrants. However the threat comes from two directions. The first threat comes with the arrival of the multinational banks and their branch expansion particularly due to the booming energy sector. Secondly, the continuous entries of local banks with lower cost structure also possess a severe threat to this industry. In the context of HSBC the various new & upcoming Banks pose a significant threat, being new entrants in the banking sector of Bangladesh. But HSBC is aware of these potential competitors. So it is trying to expand countrywide to make the sector unattractive & to create entry barrier.

Threat of Substitute Products: This force considers the potential impact of substitutes. New products that satisfy the same customer needs are important sources of competition including alternative products in the definition of product market structure identify substitute forms of competition. HSBC continuously faces the threat of various substitute products launched by its strong competitors in the market place. For example, the launch of premier banking by SCB poses a strong threat on HSBCs premium customer group and HSBC is at a condition where it should launch an even better product. Moreover the various consumer credit schemes offered by various local banks with lower interest rates and cost also poses a strong threat on the HSBC personal banking products. Again the lower service charges at national banks also discourage a wide group of customers to hold account in HSBC. So these are some of the threats posed by substitute products in the market place.

Bargaining Power of Suppliers: The fourth force is the power of suppliers that may have impact on the producers in an industry. Companies may pursue vertical integration strategies to reduce the bargaining power of suppliers. In the context of HSBC, suppliers are those customers and organizations that provide financing to the firm via depository schemes. If the cost of financing rises, then HSBC will have to increase the interest rate that it charges to its customer in order to be remain the business. This may result in severe customer dissatisfaction & as a result poor profitability. HSBC is aware of this devastating situation. Bargaining Power of Buyers: Finally, buyers may use their purchasing power to influence the producers or service providers. Understanding which organizations have power & influence in the distribution channel provides important insight into the structure of competition. In the banking sector of Bangladesh, customers have a strong bargaining power since there are a large number of commercial banks providing similar services. Customers have a wide range of options in deciding either go for the multinationals or turn to new local banks for getting quality service. Others may also consider the national banks for large credit facilities. Therefore banks have to pursue the customers with attractive interest rates and provide them with tailor made customized services in order to attract the customer or hunt depositors. In the context of HSBC, the firm is more or less free from the cope of the bargaining power of the buyers. HSBC has its own policies to carry out its operations & employees follow those rules to deal with the customers. But too much rigidity of the prevailing policies while dealing with the clients may under cut its client base as well as profitability. To overcome this worst scenario a positive & personalized approach to the needs of customer - has become HSBCs motto.

8.2

SWOT Analysis

Strengths: Strong Corporate Identity: HSBC is the leading provider of financial services worldwide. With its strong corporate image and identity it can better position in the minds of customers. This image has helped HSBC grab the personal banking sector of Bangladesh very rapidly. Distinct Operating Procedures: HSBC in known worldwide for its distinct operating procedure. The companys managing for value strategy better satisfy customers needs and also keeps the firm profitable. Distinct Schedule: Everyone in HSBC from the appraiser to the top management has to work to the same schedule toward a different aspect of the same goal, interfacing simultaneously at all level over quite a long period of time. Strong Employee Bonding and Belongingness: HSBC employees are one of the major assets of the company. The employees of HSBC have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards HSBC. The strong culture of HSBC is the main reason behind this strength. Efficient Performance: HSBC provides hassle free customer service to its client base comparing to the other financial institutions of Bangladesh. Personalized approach to the needs of customers is its motto. Young Enthusiastic Workforce: The selection & recruitment of HSBC emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that

HSBC wants to avoid the problem of garbage in & garbage out. & this type young & fresh workforce stimulates the whole working environment of HSBC. Empowered Work force: The human resource of HSBC is extremely well thought & perfectly managed. As from the very first, the top management believed in empowered employees, where they refused to put their finger in every part of the pie. This empowered environment makes HSBC a better place for the employees. The employees are not suffocated with authority but are able to grow as the organization matures. Companionable Environment: All office walls in HSBC are only shoulder high partitions & there is no executive dining room. Any of the executives is likely to plop down at a table in its cafeteria & join in a lunch chat with whoever is there. One of the employees has said, Its exciting to know you may see & talk to the top management at any time. You feel a real part of things. No Communication Barriers: Many organizations are trying hard to avoid communication barriers & structural bureaucracies. The little existence of authoritative barriers among the different level of management stimulates a feeling of importance as their work get priority over the position. Equalization: At HSBC, workshops are conducted periodically. On the workshops, all people participate as equals with new members free to openly challenge top managers. Free Exchange of Communication: At HSBC the main objective is to setting up workshops are to remove authority from an artificial spot at the top, & place it where the most knowledgeable people are, the people closest to the operations. The free exchange of ideas is reinforced by a policy of constructive confrontation. Each employee is expected to challenge ideas openly & aggressively but never attack an individuals motives for presenting an idea.

MBO: HSBC also has Management by Objectives (MBO) everywhere. Each person has multiple objectives. All the employees must have to get the approval of their bosses on what they are going to do. Later they review as how well they have performed their job with their management as well as the peer group. One-to-one Meeting: The MBO makes the review a communication device among various groups. The key to the system is a one-to-one meeting between a supervisor & a subordinate. In the meeting, the problems in dealing with customers are put forward first & every one dug it to solve. Modern Equipment & Technology: HSBC owns the best banking and information technology equipments in Bangladesh. Its ultra modern banking systems starting from terminal pcs to HUBs are based on the international HSBC group standards and are the latest. The Hexagon product is one of the best examples in this context. Visually Appealing Facilities: HSBC has some of the best visually appealing branches and office premises in Dhaka & Chittagong that highly attracts customers attentions and customers also feel the international environment while banking with HSBC.

Weaknesses:
Narrow Operating Span: HSBC has a very narrow operating span in Bangladesh. It has only 2 full service branches in Bangladesh situated only at Dhaka and Chittagong. Various geographic segments are currently not availing the services of HSBC due to inconvenient branch location or absence of neighborhood branches.

Absence of Strong Marketing Activities: HSBC currently dont have any strong marketing activities through mass media e.g. Television. TV ads play a vital role in awareness building. HSBC has no such TV ad campaign. No Investment Products: Currently, the personal banking division of HSBC does not have investment products for its customers. Banning of investment loan by central bank posses a strong pressure to design new products. Lack of Customer Confidence: As HSBC is fairly new to the banking industry of Bangladesh average customers lack the confidence in HSBC and judge the bank as an average new bank. Too Many Contractual Workers: HSBC has contract workers who lack the commitment with superior quality service and also are pretty dissatisfied as being a contractual worker. This hampers the banks service quality as a whole. Low Remuneration Package: The remuneration package for the entry-level officers is considerable low. Since other foreign and local banks offer a more lucrative salary package, it would be difficult for HSBC to attract MBAs in future with its current salary package.

Opportunities:
High demand of Housing loans: Since housing is one of the basic needs of people, there is a high demand of housing loans. HSBC personal banking division can focus on this category of products and grab these segments of customers.

Distinct operating procedures: HSBC is noted for its distinct operating procedures. Repayment capacity as assessed by HSBC of individual client helps to decide how much one can borrow. As the whole lending process is based on a clients repayment capacity, the recovery rate of HSBC is close to 100%. This provides HSBC financial stability & gears up HSBC to be remaining in the business for the long run. Countrywide Network: The ultimate goal of HSBC is to expand its operations all over Bangladesh. Nurturing this type of vision & mission & to act as required, will not only increase HSBCs profitability but also will secure its existence in the log run. More Experienced & Managerial Know-how: The top management team of HSBC is expert in banking activities. The operating policies established by them are unique & unified. All the members of the team carry out their management roles exhaustively. They equally contributed to HSBCs superior leadership by carrying out their unique roles. They worked well together, respecting each others abilities, and arguing openly without any rancor when they disagree. Diversification: HSBC can peruse a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify in to leasing and insurance. As HSBC is one of the leading providers of all financial services, in Bangladesh it can also offer these services. Credit Cards: This is one of the most popular and emerging products in Bangladesh, which offers customers total financial mobility. Various other banks and institutions are currently offering this product. HSBC can also take advantage of this product and grab the market share.

Acquisition: HSBC is one of the experts in acquiring various firms and organizations. In Bangladesh it can also diversify quickly by acquiring various local established banks and increase its total operation within Bangladesh rapidly.

Threats:
Upcoming Banks: The upcoming private local & multinational banks posses a serious threat to the existing banking networks of HSBC. It is expected that in the next few years more commercial banks will emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks. Losing Customers: Absence of various products such as credit card, housing loans is causing various customers to detract from HSBC. This is a serious threat for HSBC Bangladesh. Moderate Levels of Customer Satisfaction: HSBC should continuously improve its customer service strategies and the overall service quality needs to win the customer satisfaction undoubtedly. Default Culture: This is a major problem in Bangladesh. As HSBC is a very new organization the problem of non-performing loans or default loans is very minimum or insignificant. However, as the bank becomes older this problem will arise enormously and the bank may find itself in a more threatening environment. Thus HSBC has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem.

Customer Apply for Figure 14: Flow of Credit Assessment Policy Loan by MSO or Walk in to Branches

11.2 Factors Determining Loan Assessment Customer Service (Signature

Applications Submitted & Checked by

Verification, A/C Opening loan Approval officers in case of assessing the Etc.) must comply with some basic requirements and criteria. The group itself determines these parameters and some of them are implied due to Bangladesh Banks regulations. Parameter like security type, New Applications Received by bank relationship with MIS and other banks, age, occupation, address, references, HSBC CIB (Credit Information Bureau) and CPV (Contact Point Verification) report, previous After Primary loan Applications are experience or employment history,Input, repayment trend etc are considered and forwarded to Respective Approval scrutinized before declaring a customer eligible to avail the loan. Some of the important Officers parameters are discussed briefly to have an idea regarding loan assessment.

Assessment A person with high net worth is considered as a good candidate for loan. When a loan is backed by property (Flat, Car) the approval officers find the loan easy and secure to assess. In case of secured loan, mostly the security matters. At HSBC the Personal

MIS secured loan securities like Protirakkha Sanchaypatra, WEDB (Wage Earners Bond),
USDB (US with Applications Bond), and TMD (Term Deposits) are needed to be lien with the bank. Discrepancy are informed to Approved Applications are MSO by Daily Loan Update forwarded to Operation Before sanctioning loan the credit officers carefully analyze whether the customer (Lotus Notes) Department for Disbursement would be able to pay out the credit when due, with a comfortable margin of error. Six aspects of loan application usually determine this. They are character, capacity, cash, Rejected, Dropped, Deferred collateral, condition and control. All these factors should be taken into consideration Applications are sent to before approving a loan. Central Storage

Character: The approval officer wants to know about the purpose of the loan first. They must be convinced that the customer has a well-defined purpose for requesting bank credit and serious intention to repay. If the officer is not sure exactly why the customer is applying for the loan, he may ask for the clarification and comfort ness of bank. Once the purpose is known, the approval officers must determine whether it is consistent with the banks current loan policy. Every loan application form of HSBC bank consist a blank area to be filled by the customer/ borrower describing the purpose of the loan. If any kind of inconsistency arises the approval officers have the right to ask for the proper explanation to the MSO or even to the customers. Capacity: The approval officers make sure that the customer has the legal eligibility for requesting the loan and the legal standing to sign a binding loan agreement. In HSBC has a parameter like the minors (age below 18 yrs) as well as the people exceeding the age limit 55 yrs would not be eligible for a loan. At the same time in case of corporate clients the approval officers make sure that the representative from a corporation asking for loan has the proper authority from the companys board of directors to negotiate a loan and sign the loan agreement binding the corporation. In case of partnership business, the approval officer might ask to see the firms partnership agreement to determine which individuals are authorized to borrow the firm. A loan agreement signed by unauthorized persons can be stated as uncollectible, insecure and therefore result in substantial losses for the bank.

Cash: While assessing the loans the approval officers concentrate mainly on the borrowers ability to generate cash flow either from business or from salary or other income. At HSBC, the bank statements are considered as the proof of income. There is always a high chance that the loan application of a borrower with a strong bank statement (inflow to the bank account) will be approved by the credit department of the Bank. In case of unsecured loan, since no security is kept against the loan taken by the

borrowers, their ability to generate cash flow becomes the main consideration of loan assessment. Collateral: Like cash inflow collateral is also important to support loan request. A person with high net worth is considered as a good candidate for a loan. When a loan is backed by some property the approval officers find the loan easy to make. In case of secured loan, the security matters mostly. At HSBC the Personal secured loans are need to be backed by the government bonds. Other requirements are negligible in this case.

Condition: The approval officer and credit analyst must be aware of recent trends in the borrowers line of work or industry and how changing economic conditions might affect the loan. For instance, at HSBC the approval officers are not very interested to entertain the businesspeople from garments industry and buying house business since, both of these interrelated businesses are vulnerable in nature and under uncertainty. Though the papers (bank statement and tax papers) appear to be strong at present these might turn into weak in near future.

Control: The bank wants to have control on the credit they have made to their customers. The bank watches on whether law and regulation could adversely affect the borrower. At the same time the bank sees whether the loan request meets the banks and regulatory authorities standards for loan quality. For example, previously HSBC bank used to give Investment Loan to the borrowers so that the borrowers can use that money to invest on government bond at a high interest rate. However, Bangladesh government has made the decision that no loan should be made for investing the loan amount to the government bond. Therefore, HSBC stopped the Investment Loan scheme and is making alternative loan products. Structure of the Loan: The approval officer is responsible to both the customer and the banks depositors and stockholders and must seek to satisfy the demands of all. This requires first drafting of

a loan agreement that meets the borrowers need for funds with a comfortable repayment schedule. The borrower must be able to comfortably handle any required loan payment, because the banks success depends fundamentally on the success of its customers. If a major borrower gets into trouble because it is unable to service a loan, the bank may find itself in a serious trouble. Proper accommodation of a customer may involve lending more or less money than asked for over a longer or shorter period than requested. It is because many customers do not know their own financial need and ability. Thus, the banks approval officer must be financial counselor to customer. At HSBC, the approval officers do not sanction the amount applied for in all the cases. What the approval officers do is that, they analyze the financial need and capability of the borrower and carefully determine the amount the customer is capable to repay to the bank. In addition, HSBC has prepared a flexible repayment schedule of three, four and five years in which borrowers repay the loan through equal monthly installment. Therefore, HSBC is not only sanctioning the loan to the potential clients but also it is making sure that the borrowers able to serve the loan easily.

Chapter 12: Skip Customers Demography and Trend Analysis

12.1 Delinquency and skip customers
Delinquency is one of the most difficulties that banks are facing at this moment. The primary task of the collection department of bank is to reduce the delinquency level or keep it under control. As the delinquency level of a bank begin to rise it worsens the financial condition and the consequence can be fatal. As skip customers we can refer to those who have overdue or have not paid their monthly installments on time. And there is a basic difference between delinquent and skip customers. Skip customers are those who have overdue and from collection point of view the due amount is uncollectible. As example we can consider the customers who have provided false address and could not be contacted later on, the deceased customers, customers who have shifted to another country permanently, job less, job changed, fraud etc are skip customers. Data regarding the Skip customers of HSBC shows that it still in a tolerable level but showing a increasing tendency. The main reason is that some certain groups of customers have been delinquent very often and skipping without any trace. According to the Delinquency Cycles of HSBCs personal asset products, Skip customers are the defaulters who have not paid EMI (Equal Monthly Installment) regularly and its not possible to collect or repayment of overdue amount from the customers. Moreover, once a borrower is conserved as a Skip or default customer, cheques are bounced rendering the borrower criminally liable, legal notice served of defaulter to repay; failing this an arrest warrant/summons is issued by the court. Finally, on failure to

repayment, those account are written off with due approval of from Manager PFS or Manger CRM. Analyzing the nature of skip customers of personal asset products will reveal whether there is any natural tendency among the skip customers or if there is any correlation among them. Moreover, analysis will help to find out the steps that should be taken to control or bring the skip customers tendency at a nominal level In-depth interviews were conducted with credit collection officers of the department of CCR of PFS since they are responsible to follow up customers for repaying their loans. In detail conversation with them, eight groups have been sorted out based on skip customers characteristics.

12.2 Skip Customers Nature

LOB - Loan Overburden: Most of these customers have taken loans not only from HSBC but also from other banks. Some of them invested the loan amount in own business or taken the loan for friends and relatives. Therefore, too much loans have created over burden on them, which results into irregular payment of loan of HSBC. JOC - Job Changed: This group have changed job after availing the loan. Now, they are receiving lower salary than before, this is not enough to repay the loans. JOL - Job Less: These customers are currently job less. They have lost their jobs somehow after availing the loan. Therefore, they are having serious problems in paying loan installments. FRA - Fraud Activities: Post-approval verification found that these customers have taken loans by providing false documents and information. SAL - Salary Problem:

These customers are facing salary problems i.e. either their employers are not paying them or they are irregularly paid which results into irregular payment of loan installments. IND - Intentional Defaulter: These customers have no intention to pay off the loan. They do not want to maintain any kind of relationship with the bank after availing the loan. TRA - Traceless: Customers having invalid contact no, false references and false addresses are included in this group. Therefore, collection officers cannot contact them and force them to pay off the loan. STC- Shifted to other Country: Customers have intentionally escaped or permanently shifted to other country without informing the bank as well as not paying the overdue of the loan. In this situation after taking every possible step to contact customers, the loan is written-off from the book and defined as bad and loss. But bank take legal action like filing case against the skip customers. OTH - Others: Customers who have other reasons like serious illness, address change, family crisis, temporary financial problem etc. are included in this group. There are 74 Skip customers as of February 2005 of personal asset products of HSBC. The analysis has been done on this database and each skip customers nature has been derived by interviewing collection officers of CCR, PFS, and HSBC. Analyzing Nature of Skip Customers: The following data have been collected from the Skip customers database of MIS department and comments are supported by in-depth interviews with credit collection officers, tele-collector and collection supervisor of the department of CCR, PFS. Ratio of nature of Skip customers based on their characteristics:

Nature of Customers LOB IND JOC JOL TRA Products STC Category FRA CAR Total
PIL Grand Total

No. of % Customers 32 42 3 4 4 6 8 11 20 27 No3 % 4 4 6 674 8 100

68 74 92 100

From the analysis we can see that about 42% of total Skip customers are having loan over-burden problems, 4% customers are intentional defaulters, 6% customers are not paying due to job-switching or 11% of are job-less. 27% customers are totally traceless; therefore payments are not coming from them. Finally, 4% customers skipped as they move to another country without repaying the loan. Some of them found fraud (6%) or having other problems like illness, financial crisis or have passed away. Ratio of Asset-Products of Skip Customers:

From the above table, it is found that 92% of skip customers have taken personal installment loan and 8% have taken car loan. The ratio of skip customers of car loan is very low since the vehicle; insurance and registration documentation are held as the security against the loan. If a customer reaches to Grade-6, collection officers initiate the repossession proceedings. Besides, it is noteworthy that there are no skip customers of personal secured credit and personal secured credit since these loans are given against the bonds. Normally the security is encashed if the customer misses three consecutive EMIs. Since the apartment, property insurance and documents are held as security in the case of home loan, there is no skip customer of home loan. Ratio of CEPS/AutoPay in Skip Customers:

Customers Type

No. of Customers

CEPS/AUTOPAY General Total

15 59 74

20 80 100.00

It is found that only 15% of total skip customers are having CEPS/AutoPay background. Since Autopay customers salary is deposited in HSBCs account, their chances of becoming delinquent are very low. In addition, customers with CEPS background are from high-profile companies. Their loan repayment behavior has been good over the years.

Nature of CEPS/AutoPay Customers:

Nature of Customers LOB IND JOC JOL TRA STC FRA Other Total CEPS/AUTOPAY 5 4 15 7 8 10 6 4 59 % 8 7 25 12 1 17 10 7 100

It is found that 5% of total CEPS/Autopay customers are having loan overburden problems, 22% customers are from job-changed and job-left group and 4% customers are international defaulter. Finally, 8 % of the skip customers are delinquent since they are traceless, have no intention to pay or have salary problem. It is evident that, some of these customers have availed the loan at lower interest rate using company reputation or autopay advantages. 10% skip customers have left the country without repaying the loan and have no intention to pay in future. And 4% of the customers have other reason like death, illness, mental retarded etc. However the overall ratio is satisfactory so far. Companies in Terms of Skip Customers:
Company A K Lub Oil Pvt Ltd CAR PIL 1 Company Learning Spree Era CAR PIL 1

Access Telecom Bd Ltd AIN O Salish Kendro Arshi Asset Devel & Holdings Ltd Aurora Associates AZE CD & COMPUTER Babul Traders Bang Shilpakala Academy BAT Bd Ltd BATA Shoe Co. (Bang) Ltd Beximco Pharmaceuticals Ltd Beximco Textiles Ltd Boichitra Conversyl Departmental Store DANIDA Dhaka Sheraton Hotel Dolphin Computers Ltd Etcetera Bd Fabian Group General Pharmaceuticals Ltd George Washington School Global Brand Pvt Ltd Grameen Phone GrameenSoftware Ltd

1 1 1 1 1 1 1 1 3 1 1 1 1 2 1 3 1 1 2 1 1 1 1 1 2 1

Legacy Footwear Ltd Li & Fung Bd Ltd M/s Kamal Enterprise Macro Footwear Ltd Malaysia Airlines Marks & Allys Ltd Navana Electronics Ltd New Horizons Newport Express Bd Ltd

Youngone (CEPZ)
Opex Group Orion Taxi Cab Pvt Ltd Pathfinder Development Bd Ltd Philips Van Heusen Far East Ltd Quasem Zinc Ltd. Rangs Ltd Royal Brunei Airlines Scholastica Ent Pvt Ltd Sheba Electrinics (BD) Ltd Tex-Ebo Int Pvt Ltd Travel World West Wind Internatioal 1 1

1 1 1 1 1 1 1 1 2 2 5 1 3 1 1 1 1 1 1 1 1 1 3 69 74

Beximco Textile Ltd

Grand Total Total Skip Customers

2 5

KAFCOs
Karnaphuli Ltd

It is found that, Opex Group have been producing highest no (5) of skip customers and in the second place Dhaka Sheraton Hotel, British American Tobacco, Pathfinder
Development Bd Ltd have been producing the second (3) number of delinquent

customers. From interview with collection officers, it is found that those customers are lower level employees (mainly chefs and waiters) but receive high salary (16,00025,000/=). They dont have higher education, which is a major reason for unwillingness to pay off loans. Besides, some of them have loans with other banks or they are intentional defaulter. Whenever they get salary, they are more interested in meeting other commitments, family needs etc but not in paying loan installments. Collection officers have found them very problematic and commitment- breaker. These reasons are applicable for KAFCOs (2) employees also. Though, they get handsome salary but they are over-burdened with other loans, which create problems in paying loan installments. Next, Beximco Textile Ltd (2) and Youngone (CEPZ) Ltd (2) are other riskier companies in terms of having delinquent customers. As Beximco Textile Ltd is not a financially strong and profitable company, they do not pay their employees regularly.

They pay them once in every 3-4 months, which create problems for a customer in paying loan installments. Besides, in Youngone (CEPZ) Ltd, the ratio of job-left and job-switch cases are high. More over, this company doesnt pay its employees regularly also. Therefore, there are some delinquent customers of this company. The Ratio of rest of the companies can be ignored but have to be monitored closely as applicants from these companies might give a significant rise in skip customers trend.

Riskier Sectors in Terms of Skip Customers:

Sector Academy of fine & performing arts Airlines & Aviation Pharmaceuticals Buying House Cargo & Airlines Cellular Service Provider Cigarette Manufac. & Mkt. Computer Education Centre Construction & Trading Construction and Supply Courier Dying, Knitting & Packaging Electrical goods import & trading Fabrics Manufacturing Garments Accessories Garments Item Hotel Services Human rights and legal aid Industrial Thread Manufacturer ISP PC accessories Producing & Distrib. of Drugs Real Estate developer RMG Shipping, Manufacturing Show Retailing Taxi Cab Company Tele Communication CAR PIL 1 1 1 3 1 1 3 1 1 3 1 2 1 1 1 1 3 1 2 1 1 1 1 5 1 1 1 1
% 2 2 2 6 2 2 6 2 2 6 2 4 2 2 2 2 6 2 4 2 2 2 2 10 2 2 2 2

1 1

Ticketing and Cargo Trading & Marketing Grand Total

2 3 51

4 6

100

From the above table, it is found that 10% of total Skip customers own or work in garment factories; dying, knitting and packaging industries or fabrics manufacturing companies. It has been observed that, people, working in this sector are more likely to change the job, leave the job due to irregular salary payment from the employer. Therefore, this sector can be considered risky in giving loans. There are about 6% skip customers in Pharmaceutical sector. From interview with credit collection officers, it is found that, most of the people, working in pharmaceutical companies, are sales officers. Their salary is mainly commission-based. When they fail to reaches their sales-target, assigned by their companies, they dont get commissions. Therefore, they face serious problems in paying loan installments. There are 4% skip customers in dying, knitting, and packaging sector. In this sector, the practice of job change is very apparent. Moreover it is a sensitive sector, which fluctuates simultaneously with market-demand. Some the owners, who have taken loan from HSBC, became skip customer due to financial instability of the firm. Another analysis, it is found that people, who work in hotel sector, do not have good record in loan repayment, too. Skip customers rate in this sector is like 6%, due to dependability on the market demand heavily. Other risky sectors are Developer and Construction suppliers sector (6%), Buying/Trading Houses (6%) etc. People, who work in developing and construction businesses, always having shortage of cash in hand. Whenever they get money they invest in the business as soon as possible. Therefore, they often fail to pay loan installment due to crisis of liquid money. The ratio of leaving job or job mobility is high in trading and marketing business. Moreover, people who work in this sector often hide their actual salary and avail the loan by showing their salary much higher. In addition, these people work in sales department. Their fixed salary is very low. They totally depend on salescommission. Therefore, it is hard for them to pay loan installment when they are in a bad situation.

In the ticketing and shipping cargo sector, is another sector where the rate of skip customers is about 4%. Primary reason for this we say about their income level which is not high and commission based. They are over-burdened with other loans taken from either friends or from other banks. Therefore, they often face financial problem or others difficulties in paying loan installments when there is downtrend in RMG, construction, food supply business. Because these are the business that uses the cargo service mostly. Besides, some businessmen have become hardcore defaulters who work in buying or trading companies. Usually, those buying houses financial stability have been very poor and some of them are losing businesses. Showing false salary to avail the loan is also a common practice in this sector. In addition, in some cases, it is found that, some customers have taken loans by showing ownership of buying houses, though that house does not exist at all. Moreover, some trading houses owner have availed loan by representing false documents and information. Finally, other risky sectors are- real estate business, cigarette manufacturing and marketing etc. The ratio of rest of the sectors can be ignored as they have very negligible percentage of total delinquent accounts.

Skip Customers in terms of Age, Service Tenure and Income Level:

Loan over Burden: Service Tenure 2-3 Years 3-5 Years 5-7 Years 7(+) Years Total Monthly Income 15000-25000 tk. 36000-45000 tk. 26000-35000 tk. 45000(+) Total No of Customers 9 5 8 10 32 No of Customers 12 8 7 5 32 % 28 16 25 31 100.00 % 38 25 22 16 100.00

Age 25-30Years 31-40Years 41(+) Years Total

No of Customers 15 9 8 32

% 47 28 25 100.00

It is found that, 47% of total skip customers are due to loan over burden is from 25-35 years age group, 38% customers monthly income range is 15000-25000 tk, 28% customers service tenure is between 2-3 years. 28% of total skip customers are due to loan over burden is from 31-40 years age group, 25% customers monthly income range is 36000-45000 tk, 16% customers service tenure is between 3-5 years. We can find a trend from the analysis that those who are working more than 7 yrs in a company within income range of 15000 25000 tk are overburdened more than other categories. Analysis implies that, most of the LOB customers work experience and income level is not very high. Moreover, they are from young age group. From interview with the collection officers, it is found that, in most of the cases, customer deliberately concealed the actual purpose for taking the loan and used vague terms like Purchasing household appliances, Personal expenditure etc. Most of these customers have personal loans with other banks or with their friends and relatives and taken loan from HSBC just to repay those loans. Moreover, they provided misinformation regarding their monthly income and expenditure to lower the DB ratio. For providing false contact number and references it was not possible for the collection team to locate or contact them. Intentional Defaulter:
Service Tenure 3 (+) Years 2-3 Years Total No of Customers 4 2 6 % 67 33 100.00

Monthly Income 25000 (+) tk. 15000-25000 tk. Total

No of Customers 5 1 6

% 83 17 100.00

Age 36-45 Years 25-35 Years Total

No of Customers 3 3 6

% 50 50 100.00

It is found that, 67% of total IND customers have more than 3 years work experience, 83% earn more than 25000/=, 50% belong to 36-45 age group- usually all these ratio are considered as strength for a customer. However, IND customers have taken loans using this strength. Even they have provided valid phone numbers, addresses and references, but later on they found as hardcore defaulters and skipped as well. Though having the ability to pay off the loan, they are totally unconscious about payment and they took loan without having the intention to repay. Job Changed:
Service Tenure 2-3 Years 3 (+) Years Total Monthly Income 15000-25000 tk. 25000 (+) tk. Total Age 25-35 Years 36-45 Years Total No of Customers 2 2 4 No of Customers 3 1 4 No of Customers 3 1 4 % 50 50 100.00 % 75 25 100.00 % 75 25 100.00

From the analysis, it evident that 50% of total JOC customers have 2-3 years work experience, 75% earn from 15000 to 25000/= and 75% belong to 25-35 age group. It seems that, the trend of job switching is high in young age group. Therefore, their service tenure is not too long. Besides, 15000 -25000/=, this income group have tendency to change job to get more salary. However, some of them have found that they are receiving lower salary or irregular salary in the new job than before. As a result, they are not paying loan installments. Some of them have availed loan by applying as service-holders, which are actually small businessmen. They do this just to

avoid providing authenticated tax paper. It has been observed that people working in pharmaceuticals, trading -buying houses, insurance companies, advertising and media companies and construction supply have higher tendency of job change.

Job Less:
Service Tenure 2-3 Years 3(+) Years Total No of Customers 6 2 8 % 75 25 100.00

Monthly Income 15000-25000 tk. 25000(+) tk. Total

No of Customers 5 3 8

% 63 37 100.00

Age 25-35 Years 36-45 Years 45(+) Years Total

No of Customers 4 3 1 8

% 50 38 12 100.00

It is found that, 75% of total JOL customers have 2-3 years work experience, 63% earn from 15000 25000 tk and 50% belong to 25-35 age groups. The characteristics of JOL customers are more or less similar to JOCs characteristics. It has been found that people working in different types of buying house, constructions supply business, computer education centers, courier services, internet service providers (ISPs) and RMG sectors, have higher tendency of leaving or switching to another job. Traceless:

Monthly Income 15000-25000 tk. 45000 (+) tk 26000-35000 tk. 36000-45000 tk. Total Age 25-35 Years 45(+) Years 36-45 Years Total

No of Customers 10 6 3 1 20 No of Customers 12 5 3 20

% 50.00 30 15 5 100.00 % 60 25 15 100.00

In this analysis it is evident that 50% of total TRA customers earn from 15000 to 25000 tk and 64% belong to 25-35 age groups. It is worth mentioning that most of TRA customers are young and earning minimum salary to avail a loan. From interview with the collection officers, it is found that some of TRA customers permanently left the country. Some of them have left the job without notifying both employer and the bank. Some of them have provided false phone number and references or addresses. So it is too tough to contact them. Therefore, they are totally out of sight of the collection department and considered as skip customers. Salary Problem: (Fraud)
Service Tenure 2-3 Years 3(+) Years Total No of Customers 4 3 7 % 57 43 100.00

Monthly Income 25000-35000 tk. 35000(+) tk. Total

No of Customers 5 2 7

% 71 29 100.00

Age 25-35 Years 36-45 Years Total

No of Customers 5 2 7

% 71 29 100.00

It is found that, 57% of total SAL customers have 2-3 years work experience, 71% earn from 25000 to 35000/= and 71% belong to 25-35 age group. It seems that SAL customers earn handsome amount of money though having service tenure not too long. Actually, they have availed loans by providing false salary statement, which is much higher than original. In other cases, some companies like garments manufacturing organizations pay their employees irregularly, which make them incapable to pay loan installments.

Fraud Activities:
Service Tenure Less than 3 Years 3(+) Years Total Monthly Income 15000-25000 tk. Total Age 25-35 Years 36-45 Years Total No of Customers 3 1 4 No of Customers 4 4 No of Customers 2 2 3 % 75 25 100.00 % 100.00 100.00 % 67 23 100.00

It is found that, 75% of total fraud category customers have less than 3 years work experience, all of them earn from 25000 to 35000 tk and 67% belong to 25-35 yrs age group. It is significant that FRA customers do not have long work experience and consists of young aged people. Some of them provided misinformation regarding their employer or business concern. Post approval verification revealed that these customers mentioned business concerned does not at all have any existence. In most cases, the applicant mentioned their friends and colleagues as immediate relatives and cousins. Besides, some of them have provided false tax paper, LOI etc. Actually, they have taken loan from other banks also by using same techniques, for which they can be considered as professionals. So it is quite evident that these types of customers had no intention to repay the loan from the very beginning and intentionally skipped. Others:

This group contains different types of customer like those who are temporarily job less, having financial problem, sudden death, family crisis, illness etc. A customer may be skipped for these various reasons. Since this group contains very few accounts, the analysis in terms of age, income and service tenure is not done for this group. But measures should be taken to keep this group under control.