Asset Liability Management

Introduction
This internship report is prepared on ‘The HongKong and Shanghai Banking Corporation’- HSBC, in
Bangladesh. With its symbol of a Hexagon and the illustrative theme ‘The world’s local bank’ –HSBC is
known to a lot of countries and territories of the world as a leading financial service institution.
Although the history of its operation in our country is relatively new, yet HSBC already commands a
great deal of respect and reputation in our banking community. I consider myself privileged as an intern
student from Stamford University Bangladesh, to work with HSBC. During my internship, I was placed
in its Personal Financial Services Department [PFS].
While working with different sections of Personal financial Services Department, I got the opportunity to
observe various principles and procedures followed in this department. On completion of a period of two
months in the internship, I decided to start compilation of a report on my works, side by side with my
routine job assignments.
1.2.0 Background
Every Financial Institute irrespective of its size is generally exposed to market liquidity and interest rate
risks in connection with the process of Asset Liability Management. Failure to identify the risks
associated with business and failure to take timely measures in giving a sense of direction threatens the
very existence of the institution. It is, therefore, important that the strategic decision makers of an
organization assume special care with regard to the Balance Sheet Risk management and should ensure
that the structure of the institute’s business and the level of Balance Sheet risk it assumes are effectively
managed, appropriate policies and procedures are established to control the direction of the organization.
The whole exercise is with the objective of limiting these risks against the resources that are available for
evaluating and controlling liquidity and interest rate risk.
1.3.0 Objectives
HSBC is a well known fact that the function of Asset and Liability is very crucial for any bank. In
Bangladesh, banking is relatively underdeveloped, and the practice of a prominent foreign bank like
HSBC in its asset and liability management can be greatly enlightening.
Here high light some facts of this sector in the hope that it may serve as useful references for the local
banks to observe. The process they employ to manage and analyze facts of their asset and liability gives
them a clear picture of their strengths and weaknesses in operation. That enables HSBC to make better
decisions and obtain greater strength.
The objectives of this paper are:
To assess and identify the possible sources of risk in connection with the funding and lending activities.
Ratio Analysis of the Financial statements
To assess the impact of risk on the business and financial performance.
To be familiarized with the qualitative and quantitative techniques needed to avert and or minimize risk.
1.4.0 Methodology
The method to do the analysis on HSBC is by observation. I also took the help of the officials of the
Personal financial Services Department to clarify my queries and used secondary data to come up with a
report on the topic. I had to discuss one to one on the topic with the people responsible for managing this
section in HSBC
The general methodology of the work includes analyzing already followed practices of the Financial
Institutions of South East Asia and local Financial Institutions to manage Balance Sheet Risk. Practices
followed by Banks to the extent it matches with the activities of Financial Institutions have also been
analyzed. Different reports, Bangladesh Bank Guidelines, web site information of different financial
institutions were used as primary input for this paper.

1.5.0 Scope & Limitation
The initiative to write a detail procedure of how HSBC works in managing the asset and liability, in the
time of internee there across a lot of limitations which slowed me down and in some cases changed my
course to write it up. The department is an important department in HSBC Bangladesh, so deriving data
from PFS in any form is a severe breach of rule in the HSBC code of conduct. As a result, the project
could not be compiled on actual data of operation. Therefore, it is restricted to general principles and
process of HSBC BD in respect of its asset and liability management.
2.0.0 Overview of Bank
Bank is a financial institution and intermediary, which collect deposits through its different deposit
mechanism and provide loans and advances among the loan makers / investors with the view to earn
profit. Thus a bank is a financial intermediary, a dealer in loans and debts. In financial concept, banking
means safe custody of money and at the same time an institution for money transaction.
To regulate the banking business there followed some financial laws of the government the old one is
British stamp Laws in 1981 and English Exchange Bill in 1982. Other laws are the English Financial act
of 1915; ht e India Company’s Act of 1936 and Indian Banking Regulation Act of 1949 are worth
mentioning.
The concept of banking is an old as civilization itself. Banking activities in its earliest crude form of
lending and exchange prevailed during the ancient period. The legend of huge treasure of the Great King
Solomon, the man of great wisdom, son of David (Alaihee-aas-Salam) and the activities of taxation and
banking during his reign in 1005 B.C. The Indus Valley Civilization, the Roman Civilization, the Greek
Civilization, the Egyptian Civilization, the Mesopotamian, the Babylonian Civilization, the Vedic Indian
Civilization, the Muslim Civilization played important roles in giving birth to and flourishing of bank.
2.1.0 Origin of Bank
The trace of banking has been discovered in Saudi Arabia in ancient period eight thousand years ago. In
middle age in Italian Republics some. Jews dealt in money exchanging activities sitting on ‘Bonca’
(Italian word), ‘Banque’ (France word), meaning a long bench, which now converted to English as Bank
meaning a financial institution. The earliest known bank started in China in 600 B.C., which was
followed in Greece. With the advancement of urbanization people found it difficult to exchange goods
against goods (Barter). The medium of exchange was thus a necessity and to control the exchange market
the idea of a financial institution i.e. bank came into being.
3.0.0 HSBC Group at a glance
HSBC Group
Corporate directors Safra Catz • Vincent Cheng • Marvin Cheung • John Coombe • José Durán • Rona
Fairhead • Douglas Flint • Sandy Flockhart • William Fung • Michael Geoghegan (CEO) • Stephen Green
(Chairman) • Stuart Gulliver • James Hughes-Hallett • William Laidlaw • Rachel Lomax • Sir Mark
Moody-Stuart • Gwyn Morgan • Narayana Murthy • Simon Robertson • John Thornton • Sir Brian
Williamson
Brands Bank of Bermuda • first direct • Hang Seng Bank • HSBC • HSBC Bank International • HSBC
Direct • HSBC Halbis Partners • HSBC Insurance • HSBC Insurance Brokers • HSBC Investments •
HSBC Premier • HSBC Private Bank • HSBC Rail • HSBC Trinkaus • M&S Money • Proa • SABB
Principal local banks Argentina • Australia • Bermuda • Brazil • Canada • China • Egypt • El Salvador •
France • Germany • Hong Kong • Malaysia • Middle East • Malta • Mexico • Panama • Poland • Turkey •
United Kingdom • United States

Minority stakes and joint ventures Bank of Communications (19%) • HSBC Saudi Arabia (60%) • British
Arab Commercial Bank (47%) • SABB (40%) • Wells Fargo HSBC Trade Bank (20%) • Ping An (19.9%)
• Techcombank (15%) • Bank of Shanghai (8%) • Axis Bank (4.99%)
Annual group revenue: $88.6 billion USD (1% FY 2008)
Employees: 335,000
Stock symbols: LSE: HSBA, HKEX: 005, NYSE: HBC, Euronext: HSBC, BSX: 1077223879
Group website: www.hsbc.com
Group Headquarters: 8 Canada Square, London, E14 5HQ, United Kingdom
3.1.0 Foundation & Growth of HSBC
The HSBC Group has a remarkable history in banking and financial services. That history has left its
mark and helped to make one of the leading organizations in the modern financial world. HSBC’s pride in
its history is not a matter of nostalgia. The experiences have shaped the Group’s character and business
approach.
Headquartered in London, HSBC Holdings plc is one of the largest banking and financial services
organizations in the world. HSBC’s international network comprises over 9,500 offices in 79 countries
and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. Through an
international network linked by advanced technology, including a rapidly growing e-commerce
capability, HSBC provides a comprehensive range of financial services: personal financial services;
consumer finance; commercial banking; corporate, investment banking and markets; and private banking.
At 30 June 2003, the Group’s total assets amounted to US$983 billion (£595 billion, HK$7,663 billion). It
has 218,000 employees and nearly 200,000 shareholders around the world. Although the Group’s holding
company, HSBC Holdings plc, was formed as recently as 1991, many of its principal constituent
companies opened for business over a century ago and have long experience in their home and
international markets. The story of the growth and development of these companies is rich in variety and
achievement, with an international pedigree that is unique in banking history. This brief history describes
the origins and evolution of the companies that make up the HSBC Group. The history concludes with a
summary of the far-reaching changes in recent years that have given HSBC its special place in today’s
major financial markets.
3.2.0 The HSBC Group in the Asia-Pacific region
Beginnings, 1865
The HSBC Group’s name is derived from The Hongkong and Shanghai Banking Corporation Limited, the
founding member of the modern Group. The bank owed its origins to the business communities of the
China coast in the 1860s. At that time, the finance of trade in the region was not well developed and most
transactions were still handled by the European trading houses, or hongs, rather than by professional
banks. By the early 1860s, local businessmen needed larger and more sophisticated facilities. In Hong
Kong, in particular, business leaders required specialist banking services — preferably from a bank that
was locally owned and managed.
The founding of the bank in 1865 answered this need. The new company was the inspiration of Thomas
Sutherland, then the Hong Kong Superintendent of the Peninsular and Oriental Steam Navigation
Company, who produced a prospectus for a locally based bank operating on sound ‘Scottish banking
principles’. The prospectus attracted the support of a broad spectrum of Hong Kong interests, including
American and Indian trading houses as well as European firms, and the initial capital of HK $5 million
was quickly taken up in Hong Kong, Shanghai and Calcutta. On this basis, the bank opened for business
in Hong Kong on 3 March1865. Then, as now, the bank’s headquarters were at 1 Queen’s Road. One
month later, on 3 April 1865, the bank’s Shanghai office opened for business. Initial response from
customers in the two cities was favorable, both from the foreign business community and from the
compradors, the influential Chinese intermediaries in charge of local staff and business dealings in the

Chinese community.
The new bank’s commitment to local ownership and management required a special arrangement for
incorporation. Rather than operate under existing British or colonial regulations — which would have
required a London head office — the bank’s directors persuaded the Treasury in London to accept
incorporation under a special Hong Kong ordinance. This allowed the bank to maintain a head office in
Hong Kong without losing the privilege of issuing banknotes and holding government funds. In this way,
the bank (which had started life under a local Companies Ordinance as the Hongkong and Shanghai
Banking Company Limited) assumed the name The Hongkong and Shanghai Banking Corporation in
December 1866. Thereafter, the bank’s statutory framework remained basically unchanged until 1989,
when registration under the Hong Kong Companies Ordinance was completed. Early business and
development soon after its formation in Hong Kong and Shanghai, the bank established a network of
agents and branches around the world. Although that network reached as far as Europe and North
America, the emphasis was placed on building up representation in China and the rest of the Asia- Pacific
region. In many of its branches and agencies in Asia, The HongKong and Shanghai Banking Corporation
was the pioneer of modern banking practices. From the outset, trade finance was a strong feature of its
local and international business, an expertise that has been recognized throughout its history. Bullion and
exchange businesses were also important in the early years. In Japan, where a branch was opened at
Yokohama in 1866, the bank acted as an adviser to the government on banking and currency. In 1888, it
was the first bank to be established in Thailand, where it printed the country’s first banknotes. By 1900,
the branch network in Asia extended to India (1867), the Philippines (1875) and Singapore (1877), and to
cities in what are now Malaysia, Myanmar, Srilanka and Vietnam.
In the 19th century, international banking of this kind required innovation and high levels of risk. The
bank had its share of setbacks in its early years, including over-commitment to a number of local
industrial ventures. From the mid-1870s, however, the bank renewed its focus on trade finance. Thomas
Jackson, Chief Manager on three occasions between 1876 and 1902, dominated this period of the bank’s
growth and led it to become the foremost financial institution in Asia. In achieving this reputation,
Jackson and his successors were supported by a distinctive cadre of managers and staff. These officers,
many of whom had begun their careers with English or Scottish joint-stock banks, were trained in London
before taking up appointments in Asia.
3.2.1 Business in the early 20th century
After the shock and disruption that the First World War brought to international trade, The Hongkong and
Shanghai Banking Corporation looked forward to expansion in its Asian markets.
The new head office at 1 Queen’s Road (1935) and the new buildings at major branches such as Bangkok
(1921), Manila (1922) and Shanghai (1923) reflected this confidence. In contrast, the political outlook in
China grew increasingly uncertain and, in South-East Asia, the bank faced heavier competition from
Dutch and French banks. Throughout the 1930s, in keeping with its long-standing connections with
government finance in China, the bank took a leading part in efforts to stabilize the Chinese national
currency.
In the Second World War, the ma jority of the bank’s European staff became prisoners of war as the
Japanese advanced through Asia. Those in Manchuria, Japan and Indo-China were repatriated, but most
of those who failed to escape were interned. The Chief Manager, Sir Vandeleur Grayburn, and his
designated successor, D C Edmondston, died while prisoners in Hong Kong. Meanwhile, in 1941, British
regulators required that Arthur Morse, as Chairman of the bank’s London Advisory Committee, should
act as Chairman of the bank. Two years later, the London Committee was empowered to act as a Board of
Directors and Morse was appointed to the dual role of Chairman and Chief Manager.
3.2.2 Post-war recovery

After the Second World War, in June 1946, the bank was able to restore its head office powers and
functions to Hong Kong. In the immediate postwar period, the bank quickly took on a key role in the
reconstruction of the Hong Kong economy. Its support for the skills and experience of newcomers to
Hong Kong was especially vita l to the upsurge in manufacturing in this period. As a result, the bank’s
total assets tripled to HK$3.6 billion between 1940 and 1954.
3.5.0 New alliances in Asian banking
The changes of the post-war period — the concentration on Hong Kong and the closure of the branches in
mainland China — carried the risk that the bank was growing too narrow in its sphere of interests. Under
Michael Turner’s leadership between 1953 and 1962, the bank avoided the risk by diversifying its
business in a series of acquisitions and alliances. These additions, which included the formation of The
Hong Kong and Shanghai Banking Corporation of California and the purchase of The British Bank of the
Middle East, were to be the bank’s first experience of working as a ‘group’ of companies.
In the Asia-Pacific region, key additions were the Mercantile Bank in 1959, a controlling interest in Hang
Seng Bank Limited in 1965, and the formation of Wardley Limited in 1972. The Mercantile Bank,
originally established as the Mercantile Bank of Bombay as early as 1853, had its own distinguished
history in Asian banking.
When its acquisition by The Hongkong and Shanghai Banking Corporation was completed in 1959, the
Mercantile Bank was operating 35 branches, with an especially strong presence in the Indian sub-continent
and Malays ia. The Mercantile’s head office was transferred to Hong Kong in 1966, and its
business was then gradually integrated into the larger Group.
Hang Seng Bank, in contrast, was a local Hong Kong bank established in 1933. The Hongkong and
Shanghai Banking Corporation obtained a controlling interest in 1965, shortly after banks in Hong Kong
had faced a brief period of crisis.
Hang Seng, under its own name and management, has since emerged with great success as the second
largest bank incorporated in the Hong Kong Special Administrative Region. Not all these alliances were
in commercia l banking. In 1972, a new wholly owned company, named Wardley Limited after the bank’s
original headquarters in Wardley House, was created to serve as a merchant banking subsidiary. Wardley
later developed its own series of subsidiaries in financial centers throughout Asia. In 1981, it also
acquired a controlling interest in Equator Holdings Limited, whose subsidiaries offer merchant and
investment banking, trade and advisory services in Africa. In 1995, as part of the Group’s strategy of
adopting a unified identity for its investment banking and capital markets activities, the principal Wardley
businesses were renamed and brought together as HSBC Investment Bank Asia Limited.
The Hongkong and Shanghai Banking Corporation continued to seek new opportunities for
diversification in the emerging markets of the Asia-Pacific region. The globalization of the economy in
the 1980s and 1990s opened up financial markets that had previously been closed to foreign banks. In
1985, the bank obtained a banking licence in Australia and then established Hongkong Bank of Australia
Limited in the following year (now HSBC Bank Australia Limited).
3.3.0 New directions in Asia-Pacific
The Group has extended its services on the mainland since the late 1970s, following the introduction of
China’s ‘open door’ economic policy and in support of the country’s growing internationa l trade. In 1980,
The Hongkong and Shanghai Banking Corporation opened a representative office in Beijing. More offices

followed in China’s other major cities and, in 1984, it became the first foreign bank s ince 1949 to be
granted a banking license, allowing the Shenzhen office to be upgraded to a full branch. In 1997 (the year
in which the People’s Republic of China resumed sovereignty over Hong Kong), HSBC was one of the
first international banks to be given permission to conduct renminbi business in mainland China. By the
beginning of 2008, the Group had the largest network of any foreign bank in China with 62 outlets. This
network has been supplemented by a series of strategic partnerships. In 2001, an 8 per cent share in the
Bank of Shanghai was purchased and, in the following year, HSBC acquired a 10 per cent share in Ping
An Insurance Company of China, the second largest life insurance operator in the country.
There has been major business growth in India. 2001 saw the opening of the only branch in the HSBC
network that is open 365 days a year in Pune, western India, and, in the same year, HSBC was able to
enter the insurance market in India for the first time. The Group has also pioneered the use of global
resourcing centers to achieve a competitive advantage. India’s pool of skilled workers has made it an
ideal location for such operations and it now boasts seven of the Group’s 15 centers. These centers have
allowed HSBC to utilize its worldwide reach and to improve services by conducting back office functions
on an international basis.
In addition to investing in the emerging markets of China and India, the Group has also strengthened its
businesses in other parts of the Asia-Pacific region.
3.4.0 HSBC’s International Network
The HSBC Group’s international network comprises of some 10,500 offices in 81 countries. It would be
difficult to list them all individually, so I have the names of the major entities on the following pages
along with their region and number of operations as of 2004:
Region Number of offices
Americas
5,673
Asia-Pacific
1,013
Europe
2,559
Middle East & Africa
275
3.4.1 Country Classification
To ensure that key resources (management time, capital, Human resources and information technology)
are correctly allocated and that the exchange of best practice is accelerated between entities, the group has
classified the countries where it operates 3 categories: the large, the major and the international.
These classifications are a function of sustainable, attributable earnings, the number of retail clients,
balance sheet and size of operation. A brief presentation of this classification is shown below:
3.5.0 Group Identity
Group Vision
To
• Become the world’s leading financial services company
• Balance group earnings between the OECD and the Emerging markets

Group Values
Long term, ethical client service
High productivity through team work
Confident and ambitious sense of excellence
International character, conservative orientation
Capable of creativity and strong marketing
3.5.1 HSBC’S Governing Obje ctives
“We will beat the mean Total shareholder return performance of a peer group of financial institutions over
a three year rolling average; and target to double share holder returns in five years.”
3.5.2 HSBC’S Business principles & Values
The HSBC Group is committed to five Business Principles:
• Outstanding customer service;
• Effective and efficient operations;
• Strong capital liquidity;
• Conservative lending policy;
• Strict expense discipline;
HSBC also operates according to certain Key Business Values:
• The highest personal standards of integrity at all levels;
• Commitment to truth and fair dealing;
• Hand-on management at all levels;
• Openly esteemed commitment to quality and competence;
• A minimum of bureaucracy;
• Fast decisions and implementation;
• Putting the Group’s interests ahead of the individua l’s;
• The appropriate delegation of authority with accountability;
• Fair and objective employer;
• A merit approach to recruitment/selection/promotion;
• A commitment to complying with the spirit and letter of all laws and regulations;
• The promotion of good environmental practice and sustainable development and commitment to the
welfare and development of each local community.
3.5.3 The Brand “HSBC” & Its Corporate Identity
The Hexagon logo of HSBC derives from HSBC’s traditionally flag, a white rectangle divided
diagonally. Like many other Hong Kong company flags in the last century, the design of the flag was
based on the cross of ST.Andrew, The Patron Saint of Scotland.
HSBC brand & corporate identity represents what HSBC wants its brand to mean to its customer. The
essence of HSBC brand is integrity, trust and excellent customer service. It gives confidence to
customers, value to investors & comfort to colleagues.
3.5.4 Corporate Character
HSBC is a prudent, cost conscious, ethically grounded, conservative, trustworthy international builder of
long-term customer relationships.
4.0.0 HSBC Bank Bangladesh
HSBC Bangladesh Pvt. Ltd started operations in 1996. It is part of the HSBC Group. The Bank was
awarded ISO9002 accreditation for its personal and business banking services, which cover trade

services, securities and safe custody, corporate banking, Hexagon and all personal banking. This ISO9002
designation is the first of its kind for a bank in Bangladesh. The bank primarily focuses on urban areas
have branches in most areas of the capital city of Dhaka; it also has branches in the cities of Chittagong
and Sylhet. The bank also has a good number of ATM booths in the cities present; it also has booths in
most five star hotels.
The HongKong and Shanghai Banking Corporation Bangladesh Ltd. primarily limited its operations to
help garments industry and to commercial banking. Latter, it is extended to pharmaceuticals, jute and
consumer products. Other services include cash management, treasury, securities, and custodial service.
Realizing the huge potential and growth in person banking industry in Bangladesh, HSBC extended its
operation to the personal banking sector in Bangladesh and within a very short span of time; it was able to
build up a huge client base.
HSBC Bangladesh is rated ‘AAA’ in the Long-term and ST-1 rating in the Short-term, which are the
highest level of ratings for any bank or financial institution in Bangladesh.
HSBC Bangladesh offers a comprehensive range of financial services such as commercial banking,
consumer banking, payments and cash management, trade services, treasury, and custody and clearing.
The bank also offers offshore banking in the Export Processing Zones, this is only limited to investors in
the EPZs. A special service called NRB Services is also available for non resident Bangladeshis; this
service allows consumers to maintain accounts in US Dollars, Pound Sterling and Euros. People using
this service can freely remit money from Bangladesh to any part of the world and can access their money
from any HSBC booth around the world.
HSBC in Bangladesh also specializes in self-service banking through providing 24-hour ATM services.
Currently HSBC Bangladesh is offering five off-site ATM booths and five Branches, along with ATM
booths, for better satisfying those geographic segments, located at various geographical areas of Dhaka &
Chittagong. HSBC Bangladesh has a help center which operates on daily basics. It is one of the very few
banks in the country to offer day night banking.
4.1.0 HSBC Bangladesh at a glance
HSBC Bank Bangladesh Pvt. Ltd
Type
subsidiary
Founded 1996
Headquarters Dhaka, Bangladesh
Key people Sanjay Prakash (CEO)
Industry
Finance
Products
Financial Services
Revenue
$58 million (2009)

Parent
HSBC Holdings plc
Website
www.hsbc.com.bd
4.2.0 Technology
Offers full online banking from branch to branch and also from Dhaka, Chittagong & Sylhet through their
own networking solution call HUB.
4.3.0 Customer
Serves individual and corporate customers within Dhaka, Chittagong & Sylhet region.
5.0.0 Functional Departments of HSBC
In the banking sector, HSBC is expending through out Bangladesh. It is one of such multinational
company which has captured the market share by providing good service and introducing lucrative
product for their customers.
In this organization the leadership role is mainly played by CEO himself but all the department head of
the organization also contribute individual leadership skills for the company. To maintain a close touch
with in the organization, each man works in separate cubicles in a floor with easy communication
facilities. The working environment is very friendly and the open communication between the seniors and
the juniors makes the whole working environment easy to resolve the problems.
The HSBC culture of doing a job with every one contribution created a strong management team that fells
integrated and work as “one bank one team” strategy. Each and every employee of HSBC takes pride of
being a part of HSBC and his or her pride comes from the freedom of direct communication with the top
management.
The management of HSBC willingly accepts suggestions, ideas, and innovations of the officers and junior
officers’ level. There are awards, incentives, and status for innovative ideas and hard works in HSBC, to
encourage employee participation to encounter in the management process.
Again the management style can also be termed as Collegial as high amounts of team work and
participation exists between the top and bottom parts of HSBC.
According to my perspective, the management at HSBC Bangladesh falls between supportive and
collegial. A table below shows the four segments of character:

Management of HSBC Bangladesh
AUTOCRATIC
– Power
– Authority
– Obedience
– Dependence on Boss
CUSTODIAL
– Economic Resources
– Money
– Security and benefits
– Dependence on organization
SUPPORTIVE
– Leadership
– Support
– Job performance
– Participation
COLLEGIAL
– Participation
– Teamwork
– Responsible Behavior
– Self -discipline
In Bangladesh HSBC follows a 4-layer management philosophy. These are Managers, Executives,
officers & Assistant officers. The top most authority of all the levels is the CEO. All Managers are the
departmental heads who are responsible for the activities of their departments. They are the heads of their
respective department and formulate strategies for that department. The Executives have the authority
next to managers. They are ultimately responsible for certain activities & organizational functions.
After these two layers, represent the management level of HSBC Bangladesh. Officers are the next
persons to stand in the hierarchy list. They are the typical mid-level employees of HSBC organizational
hierarchy. These officers are responsible for managing the operational activities and operating level
employees. The operating level employees of HSBC who are ranked as Assistant Officer (AO’s) fill the
last layer of this hierarchy; this is the entry-level position in HSBC Bangladesh.
They perform day-to-day operational activities of HSBC. They belongs closure relationship with the end
customers of HSBC. An organizational hierarchy chart is shown below:
The organizational structure of HSBC Bangladesh is designed according to the various service and
functional departments. The Chief Executive Officer (CEO) heads the chief executive committee, which
decides on all the strategic aspect of HSBC. The CEO is the person who supervises the heads of all the
departments and is the ultimate authority of HSBC Bangladesh. He is responsible for the all the activities
of HSBC Bangladesh and all its consequences. He administers all the functional departments and
communicates with the department heads for smooth functioning of the organization. The HSBC Chief
Executive Committee is formed with the heads of all departments along with the CEO. The structure of
this top-most authority is shown in the following figure. Besides the CEO the Chief Executive Committee

is staffed with 8 more managers: Chief Operating Officer, Manager Human Resources, Manager Credit
Risk Management, Manager Personal Financial Services, Manager Treasury, Senior Corporate Banking
Manger and Manager Compliance & Control, and Manager Group & Public Affairs.
5.1.0 Human Resource Department
The Human resource Manager currently heads this department. The major functions of this department
are Recruitment, Training and developments, Personnel Services and Security. The HR department is
very much concerned with the discipline that is set up by the HSBC group. HSBC group has got strict
rules and regulations for each and every aspect of banking, even for non-banking purposes; i.e. The Dress
Code. All these major personnel functions are integrated in the best possible way at HSBC, which ensure
higher productivity. The Human resource officer monitors the employee staffing and administration
activities.
The Training officers supervise and monitor Training, development & rotation activities. To keep control
on timely presence of the employee, the employee has to punch their card in the office premises within
8.45am everyday. Late comers are highly discouraged. The structure of the HR department is shown
below:
HSBC Bangladesh limited follows a standard procedure for recruitment and selection. However, there is
no set time period when this recruitment and selection takes place. Each Departmental head places the
requisition for recruitment to the Human resource officer, if any vacancy is created due to (1) Retirement,
(2) Resignation (3) Death, or (4) Extra work load.
In order to enhance the efficiency of the employees, HSBC gives emphasis on the both theoretical and
practical training for its personnel. All the training and development programs are aimed at two basic
reasons –
Skill development
Motivation through counseling and persuasion to change value system.
For the top management or senior Managers there is provision for overseeing training arranged by HSBC
group. For the mid-level manager or other managerial level there is provision for regional training
courses. Besides, for non-management level there are training programs arranged in different institution
and also with in the organization. For the operatives, various on the job-training program are conducted
within the company.
5.1.1 Performance Appraisal
The company follows both rating and descriptive systems for the performance appraisal. Although the
appraisal system is non-participative but the employees are annually assessed with a joint consultation
with their immediate supervisor and departmental head of the bank. The Rating of the employee is mainly
done on the basis of the following factors-
Knowledge of work
Accuracy and Reliability
Speed
General intelligence
Sense of responsibility and duty
Diligence
Initiative and self confidence
HSBC activities are performed through functional departmentalization. Therefore, the departments are
separated according to the functions they perform. Within the major departments there are some other
subsidiary departments that allow smooth operation of their own major departmental functions.
5.2.0 Personal Financial Services (PFS)
The Hongkong and Shanghai Banking Corporation Limited offers a full range of personal banking
products and services designed to take care of its customers’ growing needs and requirements. This

department basically deals with the management of products and services offered to the in individual
consumers.
**Hierarchy of PFS department
The diagram above shows the departments under PFS credit. PFS is the most flourishing department of
HSBC Bangladesh. Within a span of only five year HSBC PFS has grown tremendously and is still
growing with its innovative products and service offerings. Chief of PFS manages and supervises the
Personal Banking activities of the branch network of HSBC Bangladesh. The 11 branches of HSBC deal
with the personal banking activities and provide various accounts services to individual customers.
5.2.1 Branch Network
There are eleven branches of HSBC, 8 situated at different Dhaka, 2 at Chittagong & 1 at Sylhet. There
functions are to provide various financial services to the consumers. These include customer services, sale
of various PLB products, opening new accounts, providing cash, remittance and other teller services, etc.
the branches are quite decentralized for better delivery of services to customer and have their own
premises and facilities. These branches are headed by branch managers. Each branch is staffed with its
own team of employees. A great deal of teamwork is seen within these branches. ATM’s are situated with
each branch premises.
5.2.2 Credit Department
The personal banking credit department deals with the consumer credit schemes such as the Personal
Loan, Car loan. Education loan, tax loan, Personal Secured Loan, etc. which are tailored to meet the
demand of individual customers. The manager of PLB credit who approves and administers all the
activities heads this department. He is staffed with one loan approval officer, one loan processing officer,
two assistant officers and one MIS clerk. The approval officer mainly rejects or approves the credit
requests. After being checked by the approval officer, the credit requests go to the processing officer for
further processing of the application.
5.2.3 ATM Center
The ATM center ensures smooth operation of the ATM machines that are located at Dhaka and
Chittagong. The ATM center is responsible for regular replenishment of the off-site ATM’s and servicing
of all the ATMs. Currently a total 14 ATMs are in operation. The ATM center also deals with issuance,
termination and servicing of the ATM cards. On a whole, the ATM center is the department that is solely
responsible for all the activities related to ATM and is the facilitating department that enables customers
24 hour banking support. Now day and night banking started in HSBC. The easy pay machine is
providing 24 hours services to the HSBC customers as well non HSBC customers. These machines are
situated in the ATM booths only.
5.2.4 ATB Center
ATB refers to Automated Tele Banking. This department deals with the back office servicing of the
HSBC phone banking services provided to customers. This department is basically responsible for the
activation of ATB, ATB pin generation, and ATB security management, ATB blocking and
troubleshooting of all ATB problems. This department is fairly new and was constructed on
January’2001. Currently this department is staffed with one executive and one officer
5.3.0 Corporate Banking
This division if HSBC provides financial services to organizational clients. HSBC is a worldwide leader
in banking and financial services whose success is based on its relationships with its corporate clients.
Whether it is locally or around the world, HSBC offers a comprehensive range of services that can be

tailored to the individual needs of the company. The Head of this department is the Chief of Corporate
Banking. He is also the Vice-CEO of HSBC Bangladesh. The chief of CB manages the activities of
corporate banking of HSBC Bangladesh. Two offices of HSBC Bangladesh offer corporate banking
services to corporate clients. These are the Dhaka Head Office and Chittagong office. Corporate Banking
of HSBC Bangladesh includes Corporate Institutional Banking (CIB) Trade Service (HTV), and
Hexagon. These sub-divisions are discussed briefly in the following sections along with a structure chart
of Corporate Banking division of HSBC Bangladesh.
**Hierarchy of Corporate Banking Department of HSBC
5.3.1 Corporate Institutional Banking (CIB)
As their major customers operate internationally, HSBC services them internationally. Operating through
the major centers and in close liaison with HSBC Investment Bank, Corporate and Institutional Banking
provides the full range of the Group’s capabilities at local and global leve ls, with a particular focus on
payments and cash management, trade and securities custody. HSBC also offers local financial
institutions and banks access to wide range of financial services available on an international basis. The
services are tailored to suit the needs of the companies. CIB has two separate wings: Relationship
Management Department and Hexagon. These are discussed below:
5.3.2 Relationship Management Department
The RM department consists of various relationship managers who are assigned to different corporate
client to better satisfy their needs. These RM’s communicate with the clients and are solely responsible
for the companies they deal in. Any information regarding a corporate client must be communicated
through the respective RM assigned to that corporate client. A Relationship Manager may be assigned
more than one company and this decision depends on the chief of Corporate Banking.
5.3.3 Hexagon
The Hexagon department deals with all aspects related to HSBC’s Unique Banking software product –
Hexagon. It is the global Electronic Banking system of HSBC, which offers the customers more
convenient and efficient banking than ever before. It is an innovative desktop banking system developed
by the HSBC group, which operates via the group’s proprietary worldwide communications network.
5.3.4 HSBC Trade Services (HTV)
Trade service is known by various names in other banks, e.g. Trade Finance Foreign Exchange, Foreign
Trade etc. However, the functions are the same. As the name suggests, this department is involved in
facilitating trade, both international & within Bangladesh.
HSBC is the leading provider of trade finance and related services to importers and exporters in Asia.
Trade is considered a core business of the group. The group’s presence in 81 countries of the world gives
a good opportunity to control both ends of a trade transaction and keep the business within the Group.
The various awards it has won from the leading publications of the world acknowledge HSBC’s
excellence in Trade. The trade service department has two separate subsidiaries:
5.3.5 Credit Administration
Credit Administration department basically deals with all the documentation, processing, administration
and disbursement of the import-export services provided to corporate clients. This department is known to
be the heart of HSBC trade services that administers and manages all the trade tools and facilities
provided by HSBC Corporate Banking. Some important aspects of this department are LC advising,
documentation, OD facilities, guarantees, etc.

5.3.6 Foreign Exchange Division
The For-ex division of trade services is solely concerned with the management of Foreign exchange
inflow and outflow. The For-ex division of trade service in relation with Network Services Center and
Financial Control Department manages the foreign currency traffic of HSBC that originates from
Corporate Banking and trade services.
5.4 Finance Department of HSBC Bangladesh
The HSBC’s finance department is denoted by Financ ial Control Department. The department is under
direct supervision of Chief Operating Officer (COO). Along with Financial Control Department, The
COO has other departments under his supervision they are Network service center (NSC),
Administration, HSBC Universal Banking (HUB), Information Technology (IT), Management Internal
Control (MIC), Group public Affairs (GPA) etc.
In the financial control department, there are five departments, in the following; the five departments of
FCD are briefly discussed.
Five Departments of FCD
5.4.1 Treasury
The treasury department of FCD is the treasury back office. It acts as a support function of treasury front
office, which is the Capital market dealing room. The treasury back office calculates the (CRR) Cash
reserve Ratio, (SLR) Statutory Liquidity ratio and that is analyzed by the front office, and treasury deals
are done, the cash reserve ratio is in BDT amount. The bank has to maintain a minimum amount of 4% of
demand and time liability. The customer deposits and demand liabilities are taken into account for
calculation. Statutory Liquidity ratio is set as 16% as minimum to be maintained. The back office of FCD
processes both the local currency and the foreign currency deals made by front office. The treasury back
office of FCD also checks the deals and authenticates the dealing. Then the information is inputted in the
HSBC Universal Banking (HUB). The treasury back office also makes conformations with local
counterparts and sends swift messages to foreign counterparts for deals made by the front office.
5.4.2 Return
The Return section acts as an important support function of financial control department. The department
works to maintain proper Bangladesh Bank Regulatory policy. The department maintains proper financial
reports and also looks after the bank compliance with tax and company laws. By this way the return
section overviews the different sections of FCD which as a result give optimum level of performance.
5.4.3 Payments
The payments section of Financial Control Department looks after the cost of operation aspects HSBC
Bangladesh. The payments department deals with appropriate bills under their proper payments. The
department allocates proper bills under the proper cost centers of the bank. The payment section also
verifies the authenticity of the bill as per bank’s policy.
5.4.4 Reconciliation
The Reconciliation section of Financial Control Department deals with the Nostro and Vostro Balances
with other banks and entities. The section deals with HSBC’s accounts in other banks (Nostro) and other
banks account in HSBC (Vostro). The section checks the transfer of fund with different accounts. This
department settles payable and receivable balances in different accounts and informs treasury about
different account positions.

5.4.5 ALCO
The word ALCO stands for Asset and Liability Committee. This section of Financial Control Department
acts as an Management Information System of the bank. The department cosines all the data in a
manageable form for the authority to look into. These data helps to make managerial decision for the top
level of the bank. The asset and Liability management section segregates all the business lines of the
bank. This helps the top level to understand the different business lines performance in specific terms.
The ALCO also sets the targets to be met to the departments as per the Group Head office and
Intermediate Head office. The department reports various information to group Head Office in England
and Intermediate Head Office in Hongkong as per bank policy. The department also calculates various
ratios related to bank’s performance. That is why the section maintains a high degree of secrecy, so tha t
there is zero level of information drainage out side the section. The section uses software like HMI,
Sarasen etc. for performing their job.
5.4.6 Foreign Correspondence (FC)
FC keeps records of all the accounts of HSBC. All the vouchers, notes, advices and transaction reports of
the branches are sent to FC for record keeping purposes. FC also prepares the financial statements for the
banks and decided upon banks assets and liabilities. It also deals with the returns that are submitted to the
Central Bank on regular interval.
5.4.7 Treasury Front Office
This department works under FCD. Their main job is to take decisions regarding purchase and sell of
foreign Currency. The purpose of Treasury’s operations is to utilize the funds effectively and arrange
funds at a lowest possible rate of interest, through maintaining effective relationship with other banks and
following the Government rules and foreign exchange regulations
5.4.8 Payments & Cash Management (PCM)
PCM deals with the Inter-Bank payment. PCM strategies are designed to ensure efficiency, profitably and
comprehensive support.
5.5.0 Group Public Affairs (GPA)
This is one of the major departments of HSBC called Group Public Affairs. This is the marketing
department of HSBC. The marketing department of HSBC plays a vital role in fostering the continues
growth of HSBC in Bangladesh. The Marketing Manager is assigned to this department who looks after
the overall Marketing Operation and Public Relation of HSBC in Bangladesh. This department is
basically concerned about Marketing the company’s products, services and building a strong Corporate
Image. The marketing department of HSBC has three subdivisions: Direct Sales, Promotion & Marketing
Administration.
***Hierarchy of Marketing Department
5.5.1 Direct Sales (DS)
An executive is assigned to this part of the Marketing Department. The Direct Sales division coordinates
& manages the sales activities of all the Mobile sales officers (MSO) of HSBC Bangladesh. The MSOs’
basically make sales of various Personal Banking Products such as, Savings Accounts, various Consumer
Loans outside the bank premises. There are a total of more than 300 mobile sales officers (MSO)
employed in the cities of Dhaka and Chittagong. A MSO’s are assigned to specific Branches for making
sales activities more smoothly. The DS executive sets sales strategies & targets for the Sales officers and
manages the whole team of MSO’s in Bangladesh.
The direct sales department also decides upon the commission and remuneration of the mobile sales

officers as their salary structure is based on sales performances. Thus this part of the marketing division is
very important for the overall growth of the Personal Banking Division in HSBC.
5.5.2 Promotion
This part of the marketing department deals with all the promotional activities of HSBC Bangladesh.
Major responsibilities of this department including:
• Mainta ining strong public relations with various media intermediaries.
• Advertising the company’s products and services.
• Building a strong corporate image of HSBC in Bangladesh.
The promotion department organizes various environmental and social activities in order to build a strong
corporate image of HSBC in the minds of customers as well as in the media world wide.
5.5.3 Public Relations
Maintaining strong relationship with news media is another major duty of public relations department. In
every year employees are selected for different social events and give them the opportunity to travel
through the world.
5.5.4 Advertising
The promotion also coordinates all the advertising of HSBC products within Bangladesh. Some of the
advertising tools that are frequently used by this Bank are as follows:
a) Newspapers Advertising: Regular advertisements of various products and services of HSBC are given
in some of the countries most renowned daily newspapers.
b) Billboards: Huge colourful billboards with HSBC logo are found in various major areas of Dhaka and
Chittagong. These billboards emphasize on the needs of customers and shows HSBC logo as solution to
their needs.
c) Road Side Signposts: Medium sized multi color signposts focusing on various products of HSBC are
found on the roadsides of various posh areas such as, Gulshan, Dhanmondi, Baridhara, Motijheel, Banani
etc.
d) Mailers: various product updates and new product information are regularly sent to existing customers
of HSBC.
e) Broachers: Various colorful broachers featuring specific products of HSBC are being displayed and
distributed to existing and potential customers via branch offices and Mobile sales officers.
f) Call Center : Tele Sales Officer are continuously follow up exiting customer as well as non exiting
customer by giving them phone calls about new product and services.
5.5.5 Marketing Administration
This department formulates & executes various marketing strategies of HSBC Bangladesh. This
department also administers various marketing research activities on the existing and potential customers
of HSBC. Some such research activities are: Mystery Shopping, Critical Incident Surveys, Customer
Suggestion Surveys, etc.
The results of these surveys are integrated while formulating various marketing Strategies. This
department also deals with the billing and invoicing of various Marketing & Advertising costs of HSBC
Bangladesh. Except the branches all other departments are situated at HSBC Bangladesh head offices
located at Anchor Tower, Kawran Bazar. Most of HSBC’s operation and activities are operated centrally
from the head office. But to deal with customers more completely, the branches are given considerable
authority and they operate in a more decentralized manner but subject to verification of the respective
departments.
5.6.0 Services Department
This is an integral and vital part of the bank. The services department ensures smooth operation and

functioning within and between all the departments of HSBC. It also provides continuous support to the
core banking activities of HSBC. The chief of services department is the Chief Operating Officer, who
formulates and manages various critical issues of the services function of HSBC. He is followed by a
group of executives who are the heads of various subsidiary divisions that operate within the services
department. The services department is considered as the backbone of all other departments. The various
subsidiary divisions within this department are Administration, IT, Internal Control (IC), Network
Services Center (NSC), and HUB. A structure of the services department is presented below followed by
a briefing of the subsidiary divisions:
5.6.1 Administration
Like any other organizations, the Admin department of HSBC makes sure that the organizations moves
on with all its departments and staffs operating according to all the rules and regulations of the company.
It also prevents any bottlenecks within the work process and ensures smooth functioning. The admin
department has two divisions – General Administration and Business Support Services.
The general admin division is pretty much similar to the admin departments of other companies that
ensure discipline and regulatory concerns. The business support services provide supports to the
departments during employee leaves and sudden terminations so that the department can function without
problems.
5.6.2 Information Technology (IT)
This department gives the software and hardware supports to different departments of the bank. As HSBC
is engaged in online banking, the role of IT is very crucial for the bank. This department is the most active
department of HSBC, where the staffs remain stand- by to solve any problems in the system.
The managers and executives of IT division work continuously to develop the total IT system of HSBC so
that it can be operated with ease, accuracy and speed.
5.6.3 Management Internal Control (MIC)
The manager of internal controller is like auditors who visit on regular basis and submit the report to the
higher authority for audit purposes. This gives different departments the chance to know their mistakes
and take necessary corrective actions.
Again, the Bank annually administers a company wide audit program to evaluate the overall performance
of the bank in Bangladesh. The department also looks after the Bangladesh bank return and the regulatory
policies to be maintained properly.
5.6.4 HSBC Universal Banking (HUB)
The HSBC banking system is called HUB. HSBC does the online banking and it is HUB, which sets up
the parameter for that. This HUB is linked with the HSBC group via satellite and each and every
transaction made by HSBC within Bangladesh is being recorded at the HSBC Asia-pacific headquarters at
Hong Kong via HUB. Thus the HUB is the most powerful and important equipment of HSBC Bangladesh
that monitors and tracks any fraud and faults made with HSBC Bangladesh.
5.6.5 Network Services Center (NSC)
This department can be described as the ‘Power House of HSBC Bangladesh. NSC does the back office
job for the bank. The main four jobs that are performed by NSC are Clearing, Scanning of signature
cards, issuing checkbooks and sending & receiving Remittances. NSC looks after the clearing process of
HSBC and makes necessary contact with the central bank for maintaining account flows. All the customer
signatures are scanned in this department and are entered into the system. NSC also issues checkbook for
new and old accounts based on requisition from various branches. ‘Remittance’ is a banking term, which
means ‘Transfer of funds through banks’. When a bank remits on behalf of its customers, it is termed as
outward remittance. On the other hand, when the bank receives the remittance on behalf of the bank, it is

inward remittance. The following are the methods that NSC used to remit money for customers:
Telegraphic Transfer (TT), Demand Draft (DD) & Cashier’s Order. In this department there is part of the
Payments and Cash Management (PCM). The PCM deals with the Inter-Bank payments and designed
strategies to ensure efficiency in managing cash of various corporate clients and give comprehensive
support to the bank by managing salary accounts of various corporate clients, which helps the bank to
have large amount of deposit.
6.0.0 Product & Services
HSBC Bangladesh carries out all traditional functions, which a commercial Bank performs such as
Mobilization of deposit, disbursement of loan, investment of funds, financing export & import business,
trade & commerce & so on. Besides it also offers some specialized services to its customers. Products &
services offered by HSBC can be categorized according to the customers they serve. Thus two major
groups can be identified. They are – individual customers or consumers & corporate customers or
organizations. An in-depth analys is of HSBC’s product and services in Bangladesh is presented in this
section.
The summary of all the products and services of HSBC Bangladesh is displayed with the help of a
diagram. The liability products of the bank are discussed. After that the various products and services of
personal banking division will be presented, followed by a brief discussion of the corporate banking
services offered to corporate clients will be given.
6.1.0 Accounts
6.1.1 Savings Accounts
Savings Account is a secure, rewarding and accessible way to manage your routine money matters
effectively. Our Savings Account allows you to complete any number of transactions without charge,
penalties or a reduction in credit interest.
Features
No ledger fees
No matter how many transactions you make in your savings account, there is no charge involved and no
loss on interest earned.
Being able to access your account through an ATM card, without having to visit a branch! You can access
your savings account via ATM 24-hours a day, seven days a week.
Wherever you are in the world, you’re just a phone call away. Our Phone Banking Service lets you
conduct your banking transactions – 24-hours a day, seven days a week, 365 days a year.
Interest rate structure encourages you to save. Interest is calculated daily and credited to your account
every 6 months.
The Customer will receive a free personalized chequebook when they open a savings account.
Maintain a balance of BDT 50,000 to receive daily interest.
6.1.2 Current Account
This is also a depository account basically designed for various customers. This is a non interest bearing
account and the features of this account are as follows:
Opening balance TK 50,000
Average balance that should be maintained: TK 50,000
No restrictions on number of Transactions
No yearly ledger fee
Non interest bearing
Free ATM card and phone banking service

6.1.3 Power Vantage Account
PowerVantage Account (PVA) is a unique customer proposition that is designed to meet your financial
needs with a range of exclusive services.
Features
• Enjoy customized services from a dedicated Relationship Officer who will assist you with your banking
requirements through a dedicated service desk and a cash counter
• Fast track service for credit applications
• Dedicated desk at Call Centre
• Free endorsement of foreign currency against yearly travel quota
• Customized cheque book
• Specially des igned ATM card with enhanced cash withdrawal limit
• Compos ite account statement on a quarterly basis
• Clean Overdraft Facility up to a maximum limit of BDT 50,000* (Fifty Thousand Taka only)
• Preferential interest rates and discounts for lending products
• As a PowerVantage customer, you will enjoy free personal accident insurance coverage.
• You can issue standing instructions to have funds transferred between your current account and savings
accounts, enabling you to better manage your funds and obtain a higher rate of interest, free of charge.
• You can set up standing instructions of any fixed amount to be paid to se lected parties’ accounts with
HSBC, free of charge.
• To enjoy the benefits of PowerVantage, you need to maintain an average deposit balance of BDT1M
(One million Taka only) or minimum gross monthly salary income of BDT150,000 (One Hundred Fifty
Thousand Taka only) processed through HSBC. The annual membership fee is just BDT500 (Five
Hundred Taka only)+15% VAT.
• The Bank will levy a charge of BDT 200 (Two Hundred Taka only)+15% VAT per month if the average
deposit balance falls below BDT1M (One million Taka only) or if monthly salary of BDT150,000 (One
Hundred Fifty Thousand Taka only) is not being processed through HSBC on any given month. The
service charge will be debited from your PowerVantage Account.
6.1.4 HSBC Select
HSBC is pleased to offer you HSBC Select – a customized banking proposition offering exclusive
privileges and unrivalled personal attention. HSBC Select is designed to provide you with a superior
service offering, access to exclusive facilit ies, preferential pricing, convenient services and personal
attention, allowing you greater personal and financial freedom.
Features
Dedicated relationship managers: One-on-one assistance from a personal relationship manager to manage
all your financial requirements.
Privileged access: Exclusive HSBC Select Centers offer a private lounge, reserved car parking for your
convenience and priority service.
Internationa l credit card: HSBC’s Internationa l credit card (MasterCard) allows you flexibility and
convenience when you travel internationally. The credit card entitles you to exclusive discounts
worldwide.
Pre-approved overdraft facility: HSBC Select customers receive a pre approved, unsecured overdraft
facility* to give you flexibility and help you meet any emergency financing needs.
A free HSBC global Select ATM card: This card is issued against your resident foreign currency deposit.
It allows you to access cash from over 800,000 ATMs around the world, 24 hours a day (subject to
foreign exchange regulations).
Improved pricing: You can avail improved pricing on loan products, credit facilities, remittance and other
services.
An integrated account statement: This will provide you with a consolidated update on your total financial
position.
Emergency cash disbursement: You will be able to receive emergency cash at any HSBC branch

worldwide (subject to foreign exchange regulations).
Waiver of fees: There will be no fees on purchase or sale of foreign currency, required for travel purposes
(limits apply).
Commission free endorsement: There will be no commission charge on the endorsement of foreign
currency for self and spouse.
Higher ATM limits: You can enjoy a higher ATM withdrawal limit up to BDT 150,000 each day.
6.1.5 Amanah Current Account
At HSBC Amanah, our unique combination of local experience and global resources enable us to
understand your needs and concerns and this is precisely why we have designed a current account, in full
compliance with the Shariah principles, for you. The HSBC Amanah Current Account is a relationship
checking account, designed to comply with Shariah (Islamic Law) guidelines while also providing the
regular convenience and security of a current account. The HSBC Amanah Current Account offers you:
• An interest free deposit, where no interest is paid or received for your funds. Separate books of accounts
are kept for all current account Amanah Deposits, this is to ensure that these deposits are used only in a
Shariah compliant manner.
• Our on-line, real-time branch banking service allows you to use any of our five branches in Bangladesh
to conduct full branch banking transactions. While a HSBC Amanah Current Account will be resident in
the HSBC Amanah Branch, you can use any of our other HSBC branches in Dhaka and Chittagong.
6.2.0 Fixed Deposit
It is also known as term deposits. These deposits are made in the bank for a fixed period of time. This
period of time should be specified in advance. The bank needs not maintain cash reserves against these
deposits & therefore, it offers interest rates that are higher than the savings accounts.
6.2.1 Monthly Interest Bearing Time Deposit
Features
A simple, safe and convenient way to make your money grow, providing you with the benefits of
attractive interest rates, security, convenience and flexibility.
Earn interest on a monthly basis with the security of a fixed deposit account.
Option of keeping the Time Deposit for a maximum period of 2 years, which will be renewed
automatically every year.
A minimum deposit balance of BDT 500,000 (Taka five lacs) to open the account.
Benefits
Monthly interest earned can be transferred to another nominated account
Better rates than normal savings account
Higher rate than 1- month time deposit account’s rate
Free ATM Card for new accounts.
6.2.2 Time Deposit
Features
• Minimum BDT100,000
• Flexible depos it periods to suit your needs
• You can place Term Deposits with HSBC, for varying periods of time , 1, 3, 6 or 12 months. Just choose
whichever suits your needs.
• High interest with your depos its
• You can earn higher interest on your term deposits with our attractive rates. Interest is calculated from
the date of the deposit until maturity, at the rate applicable when the deposit is first placed or renewed,
and is paid when the deposit matures. Larger amounts attract extra interest, so the more you deposit, the
more you earn
• Renewal, transfer or withdrawal facilities

• On maturity of your Term Deposit, we will automatically renew it with the interest earned.
Alternatively, you can transfer it to any of your accounts with us, or withdraw the Term Deposit and
interest.
6.3.0 Bangladesh International (BI)
The HSBC Group is one of the world’s largest banking and financ ia l services organizations and
comprises over 9,500 offices in 85 countries and territories, serving over 100 million customers
worldwide.
Bangladesh International offers an exclusive range of banking services for non-resident Bangladeshis and
foreign currency account services for resident Bangladeshis.
6.3.1 Foreign Currency Current Account
A choice of currencies – US Dollar, Pound Sterling and Euro
An ATM card for US Dollar, Pound Sterling and Euro accounts that gives you access to your funds in
local currency of the respective country from around the world through 800,000 ATMs, 24 hours a day
The balance of the account is freely remittable, i.e. you may transfer funds overseas subject to foreign
exchange regulation of the recipient country
Cheque book facility
6.3.2 Foreign Currency Time Deposit Account (NFCD)
Interest bearing time deposit account
A choice of currencies – US Dollar, Pound Sterling and Euro
Competitive interest rates
A choice of tenures of one, three, six and twelve months with auto renewal facility
Interest is tax free within Bangladesh
Both interest and principal are fully repairable, i.e. you may transfer any outstanding fund of your account
to your country of residence/overseas subject to foreign exchange regulation of the recipient country
6.3.3 Non-resident taka account
Local currency account
Can be opened as either a local currency interest bearing savings or non-interest bearing current account
Not freely remittable
Cheque book facility.
6.4.0 Loan Products
6.4.1 Travel Loan
Travel Loan is offered within the existing Personal Installment loan structure. The purpose of launching
this product is to attract and aid customers with their travel related services.
Features
No personal guarantee or cash security.
The loan amount ranges from BDT 50,000 to BDT1,000,000 or a maximum of four times of your
monthly income, whichever is lower.
If you are an AutoPay customer, you can get six times or if you are a CEPS customer you can get ten
times of your monthly income.
Competitive interest rates.
Low processing fees.
You can repay the loan in 12, 24, 36 or 48 months.
Loan against partial security is also available.
Documentation-travel quotation along with other documents.
6.4.2 Car Loan
So you’ve found that new car you’ve always wanted. Now comes the difficult part – arranging the
funding. You approach banks and financial companies who want guarantees and securities against loans

and you feel your dream slipping away. Now with a car loan from HSBC, you can realize your dream.
Benefits
No personal guarantee or cash security.
Wide range of loan amounts- the scheme covers loans ranging from BDT100,000 to BDT2,000,000 (up to
a maximum of 75% for brand new car or 70% for reconditioned car value)*
No hidden costs with low processing fees.
Loan against partial security is also available.
You can repay the loan in 12, 24, 36, 48 or 60 months. Your monthly instalment will be debited from
your personal account held with us.
*The loan does not cover registration, insurance and other costs.
Eligibility
• At least 25 years of age
• Employed for at least two years by a well established company*
• Minimum monthly income of BDT20,000
6.4.3 Home Equity Loan
Introduc ing HSBC’s Home equity loan – an opportunity for you to release some of the value tied up in
the home. Whether you want to renovate your home or expand the own business, you can potentially
receive cash loans against the equity in your house. Let your home work for you with HSBC’s Home
equity loan.
Benefits
Loan facility against your fixed asset, a residential house or apartment, not more than 15 years old
More flexibility with a loan tenure of maximum 7 years
Loan amount of BDT 500,000 – 6,000,000
A maximum of 60% of the property valuation would be offered as loan with 25% cash security
A wide range of loan purposes – purchase of land, apartments, office space, renovation, extension or
construction of houses, shops etc, education expenses for children and many more
Clubbing of income amongst spouse, father and son/daughter, mother and son/daughter is possible
Partial prepayment and early settlement facilities
Competitive interest rates on a monthly reducing balance.
Who can apply?
Any salaried individual or self-employed individual with a minimum monthly income of BDT 50,000 can
apply for the loan facility. The salaried individual must be employed in a well-established organization
for at least two years (only last two employers would be considered). Self-employed individuals should
have at least two years professional experience or business establishment.
Requirements
Registered Mortgage and original title deed
Irrevocable General Power of Attorney (IGPA)
Property insurance covering fire, earthquake, flood and cyclone
Partial cash security is required for a loan facility of above 20% against your property valuation.
6.4.4 Personal Secured Loan
A Personal Secured Loan is a fixed loan secured by your time deposit held with HSBC. The loan will
provide you with the flexibility to meet any emergency cash needs you may have, so you don’t have to
encash your high yield investments.
Benefits
Loan amount is up to 90% of the value of your taka time deposit or WEDBs or 80% of the value of your
foreign currency time deposit or USDBs with minimum loan amount of BDT90,000
Processing fee – BDT1,000

Flexible repayment schedules ranging from 12 to 60 equal monthly instalments
Partial prepayment and early settlement facilities
Automatic and free transfer of monthly instalments from your savings account without affecting the
interest earned on that account.
Option of one time repayment at the end of loan tenure with discounted interest rate is available.
6.5.0 Corporate Banking Services
HSBC offers wide range of cash financing, working capital, short and medium-term loans and guarantee
facilities to its corporate customers. Its offshore banking Unit (OBU) provides US dollar denominated
working capital as ell as short tem finance for capital imports to eligible businesses. HSBC is a worldwide
leader in banking and financial services whose success is based on its relationships with its clients.
Whether locally or around the world, HSBC offers a comprehensive range of services that can be tailored
to the company’s needs. Some major services provided by HSBC corporate divis ion are Custody services,
Global payment & cash management, Trade services & Hexagon.
6.5.1 Custody Services
A full range of custody and clearing services are available to foreign institutional investors. Tariffs are
tailored to individual requirements.
6.5.2 Global Payments & cash Management (PCM)
HSBC’s Global Payments and Cash Management services are designed to help its clients to operate
efficiently, profitably and with comprehensive support.
The aim is to provide a service that takes full account of the customers local needs as well as regional and
international requirements using our the expertise and the unrivalled global resources of the HSBC
Group. PCM provides the following services to its clients:
•Accounts & transaction management services: Structuring of bank accounts to optimize the management
and flow of funds within or across national borders.
•Cash & Liquidity management services: Cash is a company’s most volatile asset and HSBC provides the
best service to manage its client’s cash efficiently.
6.5.3 HSBC Trade Services (HTV)
HSBC is the leading provider of trade finance and related services to importers and exporters in Asia. The
bank operates a highly automated trade-processing network and offers an electronic data interchange
(EDI) capability through Hexagon. Some services provided by HTV are as follows:
6.5.4 Import Services
A full range of import services handled by experienced staff is available, ensuring that clients import
documents are processed without delay. Some import related services are:
• Import collection services
• Import financ ing services
• Import documentary advis ing
• Processing and advising on shipping guarantees.
6.5.5 Export Services
HSBC provides advices on any aspect of export document preparation. It also provides working capital
finance to help the sourcing of raw materials. Some other export services are;
• Pre-shipment Financing
• Post shipment Financ ing
• Purchase of Export bills
• Back-to-Back credit & Back-to-Back L/C

• Documentary credit advis ing
• Documentary checking
6.5.6 Risk management
HSBC has developed a unique range of specialized products aimed specifically at reducing a company’s
exposure to international trade risk. The services in this area are:
Trade Collect Service: A dedicated US dollar export bill collection service from HSBC.
Trade Safe Service: A major concern for many exporters is the reliability of the LC issuing bank,
particularly if shipments are going to less familiar markets. If these banks get into difficulties, the
exporter may not get paid. That’s where HSBC comes in. Under the Trade Safe Service, HSBC absorb the
bank and country risk, allowing its client to concentrate on growing business
So these were some of the services provided by HSBC trade services.
7.0.0 Financial Analysis Part
7.1.0 Introduction
To evaluate a bank its financial condition particularly it’s Report of condition and Report of Income is
needed to evaluate.
The first step in analyzing any bank’s financial statements is to decide what objectives the bank is seeking
for. The bank’s performance must be directed towards specific objectives. A fair evaluation of a bank’s
performance may start by evaluating whether it has been able to achieve the objectives its management
and Shareholders have desired.
7.1.1 Value of the bank’s stocks
One of the key objectives of a bank to perform is to raise the value of their stocks. Basic principles of
financial management say that attempting to maximize the bank’s stock value is the key objective that
should have priority over all others. But the bank I have worked in is not enlisted in the local stock
market; as a result I could not calculate the value of the bank’s stock price.
7.2.0 Profitability Ratios
The profitability Ratios are one of the most difficult attributes of a firm’s performance as it reflects the
market evaluation of the firm’s performance. This indicator is often not reliable in banking. The reason is
that most bank stocks especially stocks issued by smaller banks are not actively traded in international or
national stock markets. That’s why to analyze through market –value indicators in the form of various
profitability ratios’ are a better option.
7.2.1 Return on Asset
ROA
One of the common measure of managerial performance is the ratio of income to average total assets after
tax. It primarily indicates the management efficiency; it also shows how efficiently the management of
the bank has been converting the institutions assets into net earnings.
ROA= Net Income after Tax / Total Asset
Year 2005 2006 2007 2008
Value of ROA 0.0276 0.029 0.031 0.03
Explanation
Here we can observe an increase in trend of ROA over the 3 years. Though there is a decline in ROA in
year 2008 as the assets were far greater then its return as income from it.

7.2.2 Return on Equity
ROE
On the other hand ROE measures the rate of return flowing to shareholders. It is the net benefit that the
shareholders have received from investing their capital in the bank.
ROE= Net Income after Tax / Total Equity Capital
Year 2005 2006 2007 2008
Value of ROE 0.2112 0.2421 0.2530 0.2446
Explanation
The above statistics shows that the banks operations have grown significantly. The operation is giving the
HSBC group a good business through efficiency in the tax management, resulting in higher net income
after tax. Moreover, the equity to total asset ratio has also improved over the years that has boosted the
earning of HSBC Bangladesh.
7.2.3 Efficiency
Net Operating Margin
The net operating margin is efficiency measure and profitability measures. It indicates how management
and staff have been able to keep the growth of revenue which comes primarily from the bank’s loans,
investments and service fees. Ahead of rising costs principally the interest on deposits and money market
borrowings and employee salaries and benefits.
NOM= (Total Operating Revenue – Total Operating Expense) / Total Asset
Year 2005 2006 2007 2008
Value of NOM 0.057 0.062 0.06 0.064
Explanation
Here we can understand that there is an upward trend over the years of the banks Net Operating Margin.
The trend shows how well the management has kept a growth in the revenue generation with respect to
their cost.
7.2.4 Earning Spread
Earning Spread
Another traditional measure of evaluating a bank is the earnings efficiency with which a bank is managed,
that is called earning spread. It measures the efficiencies of a bank’s intermediation function in borrowing
and lending money and also the intensity of competition in the bank’s market area. Greater competition
tends to squeeze the difference between average asset yields and average liability costs. If other factors
are held constant, the bank’s spread will decline as competition increases.
Earning Spread= Total Interest Income / Total Asset
Year 2005 2006 2007 2008
Earning Spread 0.044 0.0397 0.039 0.042
Explanation
There is a decrease trend in the Earning Spread of the bank. As the bank try to grow over the years, it has
offered more products and services for the customers. They had recovered it on year 2008 by offering
various product and services.

7.2.5 Net Profit Margin
Net Profit Margin
The bank’s Net profit margin reflects the effectiveness of expense management and service pricing
policies.
NPM= (Net Income after Taxes / Total operating Revenue)
Year 2005 2006 2007 2008
Value of NPM 0.351 0.371 0.406 0.369
Explanation
This trend shows a mixed reaction over the years. As there has been a sudden decline in the trend though
it had a stable growth, but it came up sharply in the year 2007. The profit margin of a bank or the ratio of
net income to total revenue is a subject to some degree of management control and direction. The bank’s
can increase their earnings and their return to shareholders by successfully controlling expenses and
maximizing revenues. That HSBC needs to look into, in this case.
7.2.6 Asset Utilization Ratio
Asset Utilization Ratio
The Portfolio management policies especially the mix and yield on the bank’s assets are called asset
utilization ratio.
Asset Utilization Ratio= (Total operating Revenue / Total Asset)
Year 2005 2006 2007 2008
Asset Utilization Ratio 0.079 0.078 0.076 0.081
Explanation
The trend had an increasing flow till 2008 in the asset utilization ratio. This shows that the bank’s revenue
generation has been perfect as of previous years in respect to its assets. By carefully a llocating the bank’s
assets to the highest yielding loans and investments while avoiding excessive risk, management can raise
the bank’s average yield on its assets which I believe that HSBC could do properly in the recent year.
7.2.7 Equity Multiplier
Equity Multiplier
The Equity multiplier shows the leverage or financing policies, the banks source chosen to finance the
bank’s operation. The multiplier is a direct measure of the bank’s degree of financial leverage, how many
taka equivalent of asset must be supported by each taka equivalent of equity (owners’) capital and how
much of the banks resources therefore must rest on debt.
Equity Multiplier= (Asset / Equity Capital)
Year 2005 2006 2007 2008
Equity Multiplier 7.65 8.31 8.25 8.15
Explanation
The above trend shows an increase in the Equity Multiplier ratio, the asset to equity capital ratio. The
equity must absorb the losses on the bank’s assets, the larger the multiplier, the more exposed to failure
the bank is. On the other hand the greater the multiplier the greater the bank’s potential for high return for
its shareholders.
7.3.0 Liquidity Ratios
Liquidity refers to the ability of a firm to meet its short term financial obligations when and as they fall
due.

7.3.1 Current Ratio
Current Ratio
Current Ratio= (Current Asset/Current Liability)
Year 2005 2006 2007 2008
Value 0.82 0.78 0.51 1.24
Explanation
The higher the ratio the higher the liquidity position of the company. We see the bank’s Liquidity position
decrease in year of 2006 to 2007. But in 2008 it is in higher position.
7.3.2 Cash Position
Cash Position
Cash Position= (Cash / Current Liability)
Year 2005 2006 2007 2008
Cash Position 0.395 0.41 0.251 0.385
Explanation
The cash position ratio discussed captured one dimension of liquidity. It measures how quickly a firm can
pay it current debt. The higher the ratio the higher the cash position of the company. From 2005 to 2006 it
has increased but in 2007 it decreased, which is recovered by the bank in 2008. In this case the firm has
enough cash to pay its current debt in previous year & also the following year.
7.4.0 Leverage Ratios
Leverage ratios provide insight into the extent to which non equity capital is used to finance the assets of
the firm. Which components to include in the numerator or denominator of the ratios depend on how one
defines liabilities and shareholders’ equity.
7.4.1 Total Debt Ratio
Total Debt Ratio
Total Debt Ratio = (Total Asset-Total Equity) / Total asset
Year 2005 2006 2007 2008
Total Debt Ratio 0.869 0.88 0.879 0.877
Explanation
It measures the firm solvency. The Higher the ratio the higher the proportion of assets financed by
nonshareholder parties. We can see that there is a nearly stable position of debt ratio from the year of
2007.
7.4.2 Time Interest Earned
Time Interest Earned
Time Interest Earned= (EBIT/Interest)
Year 2005 2006 2007 2008
Value 1.779 1.842 1.836 1.85
Explanation
The Higher the ratio the higher the proportion of assets financed by nonshareholder parties. We can see

that the interest earning has increased in 2007 and 2008. In this case the firm was in better position in last
year to pay its interest expenses than other years.
7.4.3 Cash Coverage
Cash Coverage
Cash Coverage= (EBIT+ Depreciation /Interest)
Year 2005 2006 2007 2008
Value 1.841 1.900 1.900 1.915
Explanation
The Higher the ratio the higher the proportion of assets financed by nonshareholder parties. The cash
coverage ratio has in stable position in 2006 and 2007. In this case the firm has enough cash to pay its
current debt in previous year & also the following year.
7.5.0 Efficiency Ratios
Efficiency ratios examine how the management uses its assets and capital measured by sales generated
various asset or capital categories. The ratios are given below
7.5.1 Operating Efficiency
Operating Efficiency
Operating Efficiency = (Total Operating Expense/Total Operating Revenue)
Year 2005 2006 2007 2008
Value 0.265 0.215 0.207 0.218
Explanation
The higher the ratio the higher the operating efficiency of the company. There is a peak in the year of
2005, after that the ratio decreased and remain stable for the next two years. But in year 2008 it raised a
slight in operating efficiency.
7.5.2 Net Fixed Asset Turnover Ratio
Net Fixed Asset Turnover Ratio
The net fixed asset turnover ratio reflects the firm’s utilization of fixed asset. An abnormally low turnover
implies capital tied up in excessive fixed assets. An abnormally high asset turnover ratio can indicate a
lack of productive capacity to meet sales demand.
Net Fixed Asset Turnover Ratio = (Total Operating Revenue / Net Fixed Asset)
Year 2005 2006 2007 2008
Value 17.633 14.393 16.47 18.72
Explanation
The higher the ratio the higher the firm’s utilization of fixed asset. It indicates that the firm utilization
ratio has been peak in year 2006. But after that in has decreased slightly.
7.5.3 Total Asset Turnover
Total Asset Turnover Ratio
The total asset turnover indicates the effectiveness of the firm’s of its total asset base. This ratio must be

compared to that of other firms within an industry because it varies substantially between industries.
Total Asset Turnover Ratio = (Total Operating Revenue / Total Asset)
Year 2005 2006 2007 2008
Value 0.0785 0.078 0.076 0.081
Explanation
The higher the ratio the higher the firm’s effectiveness of the company. It indicates that the firm
effectiveness has been peak in year 2008. That the company was very effective in last year.
Asset and Liability Management process of HSBC (BD)
8.0.0 Asset and Liability Management
8.1.0 Objectives of ALM
To manage growth in the balance sheet with a view to achieving efficient allocation and utilization of all
resources and to ensure that growth is financed with retained profits.
To enhance economic profit by improving net profits and promoting efficiency in the use of capital by
enhancing return on risky assets, in the context of a clearly defined growth policy.
To understand the interaction between different portfolios in the balance sheet and the issues affected by
them, such as transfer pricing, resource allocation etc.
8.2.0 Responsibilities & Roles of Group Head Quarter
The Group Executive Committee reviews asset and liability management issues on a monthly basis. The
team is also responsible for ongoing development and support of the Asset and liability management
process in the group. The different operation of HSBC consults on the format and structure of the asset
and liability management process, on which the nature, content and emphasis will deviate in each areas.
The instructions comes with a formal guideline to areas on management team that group have Group has
implications.
8.2.1 Responsibilities- Role of Subsidiary Head Office and Area Offices
All Large and Major Subsidiaries and Principal Offices must have an Asset and Liability Management
Committee (ALCO). CEO/Principal Office Managers have primary responsibility for ensuring efficient
development of ALM and decides whether additional ALCO’s for other subsidiaries/branches or an
intermediate head office ALM function are merited and their remit. Responsibilities for supporting the
ALM process are rested in the Staff Financial Officer and the Head of Treasury. Staff Financial Officers
are responsible for the ALCO support function.
Treasury department in subsidiaries/area takes an active role in the ALM process. Their key
responsibilities are to;
Treasury also manages actual interest rate currency and Liquidity risk in the market on a day-to-day basis
within parameters authorized by the local ALCO within limits approved by Group Head Quarter.

8.2.3 Role of ALCO’s
The ALCO is the primary vehicle for achieving the objectives of ALM. The main purposes of an ALCO
are to;
8.2.4 ALCO – Terms of References
All ALCO’s has formal terms of Reference approved by the CEO of the subsidiary / branch ALCO’s
review their Terms of Reference on an annual basis.
8.2.5 Membership
The ALCO are chaired by the CEO / Principal office Manager and are consisted of senior executives with
responsibility for the following functions:
8.2.6 Meetings
The committee sits once a month and as soon as practicable after the month end and the agenda should
include the following;
Matters arose in the previous meeting
Standard reports
Summary performance analysis (including analysis of economic profit).
Balance sheet and net interest income analysis.
Alternative strategies (simulation) sensitivity and risk analysis.
Liquidity analysis.
Divisional / product economic profit.
Market share and market sector profits.
Concentration report.
Leverage ratio.
Regulatory ratios and limits.
Reviews of market trends, rates projections, current and projected business volumes, current and
projected liquidity capital adequacy positions.
Review of progress made in implementing strategic plans and the Group’s strategic imperatives.
Decisions and action plans / guidelines.
8.2.7 ALCO Minutes
Minutes are to be kept for all monthly meetings. These are approved by the Committee Chairman and
preferably released within a week of the meeting. In Minutes it is state clearly the options discussed and
the accepted recommend. Responsibilities for action are shown as an action point, in the minutes for ease
of subsequent follow up. ALCO minutes reflect the agenda / reporting requirements.
All subsidiaries of the Hong Kong and Shanghai Banking Corporation and branches forwards copies of
related agenda, reports and minutes to Asset Liability Management monthly.

8.2.8 ALCO Support function-responsibilities
Major subsidiaries / areas may have dedicated ALM support functions to:
Provide ALCO with concise, accurate and timely analysis of current and projected performance results in
the form of the ALCO report;
Quantify the income risk arising from possible interest rate movements and changing market conditions;
including if necessary supporting the balance sheet modeling efforts.
Establish likely interest rate trends, asset and liability volumes, distribution and maturity profiles
Evaluate alternative strategies and recommendations to ALCO.
8.2.9 ALCO Data requirements
A key requirement for the process is timely and reliable data which must be tailored to meet the
requirements of each subsidiary / area.
Although control from a risk stand point is an integral part of ALCO, it must not dominate the process.
Appropriate emphasis must be placed on economic profit and growth.
Information for ALCO should take the form of various reports, descriptive analysis and presentations,
design to meet each area’s requirements. While most reports tend to show historical performance (an
analysis of which can help to see major strengths and weaknesses) a primary responsibility for the ALCO
support function or the Staff Financial Officer must be to provide an analysis of how certain actions or
development in future can affect future risk and profitability.
Balance Sheet Risk Profile
In carrying out the business, every Financial Institution has to encounter several risks like, liquidity,
interest rate, prepayment, credit, reinvestment and event risk etc. Among them, liquidity risk is associated
with the Financia l Institutes’ ability to meet its financia l commitment and obligat ion, interest rate risk is
associated with both funding and lending activities, prepayment risk is associated with early repayment of
loans , credit risk is associated with default due to client’s failure to repay loan insta llment, reinvestment
risk is associated with reinvestment of prepayment/regular repayment proceeds at less than the existing
rate and event risk is associated with happening of an unforeseen event that may cause financial loss to
the organization.
Liquidity Risk
Asset Structure
Assets serve as a source of liquidity and must be framed in groups according to the nature of either
“available for sale” or “held to maturity”. Status of liquidity is to be judged in terms of length of time it
takes to dispose off the asset and the price the asset carries when it is sold. The following points are to be
considered at the time of asset structuring:
a) Nature of business.
b) Tenure of lending.
c) Interest rate structure – fixed or floating.
d) Pattern of repayment – regular installment or bullet payment.
e) CRR and SLR requirement.
Liability Structure
Every organization meets its funding needs through liability management. Liability structuring must be
made in such a way so that it matches with the tenure of asset structure. The following points are to be
considered at the time of liability structuring:

Grouping of liability into two major categories according to the maturity namely, long term and short
term.
Pricing option.
Exchange rate fluctuation in case of foreign currency transactions.
Early repayment option.
Capital Structure
Capital structure includes Equity, Preference share, long term Bond under both clean and securitization
arrangement etc. The following points are to be considered at the time of capital
Structuring
Regulatory framework.
Favorable gearing ratio.
Capital adequacy ratio.
Value of the organization.
Interest Rate Risk
Interest rate risk affects spread from lending business. Interest rate risk arises due to change in overall
market interest rate structure both on borrowing and lending.
Interest on borrowing
Interest on borrowing has a significant bearing on the pricing of lending. It affects profitability of an
organization and desired margin to the shareholders.2.2.2 Interest on Lending Interest rate risk arises due
to reduction of interest rate on lending from time to time on several occasions. The Company has to
reduce interest rate on several occasions to attract more clients and to compete with the competitors.
Prepayment Risk
Prepayment risk arises due to early repayment either partial or entire loan portfolio, which result in loss of
interest income.
Credit Risk
Credit risk can be classified into two categories as under:
Default Risk
Default risk arises due to client’s failure to repay loan installment in due time. Default risk analysis help
identify the reason of default, customer group of making default in respect of their profession and income
status. Default risk is quantified in terms of loan being classified as SS, DF, and BL etc.
Credit Spread Risk.
Credit spread risk arises due to non-recovery of regular installment repayment, which ultimately
decreases the overall effective lending rate and erodes margin from lending business. Credit spread risk
also arises due to stringent Income Recognition policy in respect of framing time for SS, DF, and BL.

Reinvestment risk
The risk that the amount of prepaid loans will be reinvested at less than the existing rate is reinvestment
risk. Declining interest rate environment induces borrower to make prepayment and forces Financial
Institutions to invest at comparatively lower rate.
Event Risk
Financial Institutions are prone to event risks, a few examples are as under:
Restriction regarding participation on money market transactions and accepting short-term
Customer deposit.
Introduction of VAT on the service charge of Lease and Housing Finance business.
Disallowing loan loss provision.
Highest Corporate tax bracket.
8.3.0 Capital Growth and Profitability
In 1988, The Bank for International Settlements (BIS) agreed common international standards for the
measurement of capital, calculations of risk-weighted assets and determination of minimum capital
adequacy ratios. All banks incorporated in the group of Ten countries (Belgium, Canada, France,
Germany, Italy, Japan, Netherlands, Sweden, United Kingdom and United States) must meet these
standards, as amended by subsequent pronouncements and implemented by local regulators. Now some
120 countries subscribe to similar standards. These guidelines allow credit risk to be measured according
to internal grading or models and oblige banks to hold capital for “operational risk”.
8.3.1 Capital adequacy ratio
The measurement of capital adequacy is critical in calculating and reporting the Group’s capital position.
Furthermore, the Banking Act requires that the Group maintain sufficient capital which is commensurate
with the nature and scale of its operations.
The measurement of capital adequacy is measured in terms of two ratios:
The published ratio.
The supervisory ratio
These ratios are calculated by comparing the levels of capital requirement with the amount of regulatory
capital. Moreover, the Financial Services Authority specifies the Group that is calculates these ratios.
These two ratios are extremely important. The published ratio is used as a gauge of the Group’s capital
strength by external parties such as investors, shareholders and rating agencies while the financial service
authority uses the supervisory ratio to asses the Group’s capital strength for supervisory purposes.
8.3.2 Capital Ratio calculation
The Group and any subsidiaries regulated directly by the financial services authority must calculate two
capital ratios as set out

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