Institutional Banking in Bangladesh by HSBC

RAB 8 Barisal

CHAPTER-1: INTRODUCTION

 

Origin:

 

What we mean by institutional banking? After seeing the word Institutional banking a picture comics in reader’s mind. In fact the word institutional banking itself gives a view that it is all about banking with institutions. For further clarification we can say as banking with financial institutions.

 

Institutional banking is a new concept in banking sector in our country. It provides its services under corporate banking, which basically deals with international trade services. Institutional banking team provides services to different Govt. and local banks, financial institutions, insurance companies and asset management companies. But in the market of institutional banking, different Govt. and local banks are playing key role, as they are the major clients for the competitors who are providing services.

 

Before going to the depth of this report we should have a brief concept about the competitors of this market.

 

ü  Who are the competitors?

ü  Who are providing services to this Govt. and local banks?

 

There are some multinational banks in our country, which are competing In this market. Standard Chartered, American Express, HSBC, CITI, Mashreq, JP Morgan and Commerz and some other multinational banks are dealing with our different Govt. and local banks regarding different services under institutional banking.

 

The services provided by the institutional banking team include –

ü  Payment and account services in all major currencies

ü  Trade services, including ‑ bills for collection, confirmation of documentary credits and reimbursement authorization.

 

Apart from promoting products and services offered by the group, tile institutional banking team focuses on establishing, retaining and developing relationships with various local and foreign banks, with a view to facilitating a structured approach to relationship management.

 

The institutional banking market in our country has been created while bank Such as American Express started serving our local financial institution needs. Later Standard Chartered, CITI and Mashreq entered in this market. HSBC established dedicated institutional banking operations in our country in 1998. I have already mentioned the name of seven multinational banks. Among these banks SCB has been running its operations with 18 branches, AMEX with 3, HSBC 5, CITI 2 and Mshreq with one branch in our country. Among the seven multinational banks that I have mentioned earlier JP Morgan and Commerz bank do not have any branch in our country. JP Morgan deals with our Govt. and local banks from India where Commerz bank is dealing from Germany.

 

So, it is very clear that in our local market the five multinational banks are major competitor as they are operating directly with their branches in our country. But in our survey we will keep JP Morgan and Commerz bank also to have the clients opinion towards them ‘as our Govt. and local banks are dealing with this banks for different services.

 

Purpose:

 

The purpose of this study is to find out the criteria by which these local banks select their correspondent banks for foreign trade transaction and to understand the position of HSBC in current market condition of institutional banking market. We have already discussed that Standard Chartered, American Express, CITI and HSBC are good competitors in correspondent banking.

 

The research will be focused on finding the reason behind selecting a multinational bank among these major competitors by a local bank. I think there might be some questions regarding the services of these multinationals and an appropriate answer of these questions will be helpful for us to come up with good findings.

 

ü  What is the major point on which these local banks are selecting their correspondent bank?

ü  Do, these local banks select different banks for different services?

ü  Is the communication between relationship manager is a key factor for selecting a correspondent bank?

ü  In which sectors these local banks want their correspondent banks to improve their services?

Geographical Scope:

 

The research of this topic will be conducted in Dhaka city because of time limitation. But a real picture of the market can only be drawn if Chittagong is included in the survey. Because there are some multinational banks, which have their branch in Chittagong and the opinion of their clients over there would be more helpful for us to have a real scenario of the market.

 

Limitation(s):

 

There are limitations of this report:

1. Sampling error may occur in this study due to the utilization of convenience sampling.

2. There are maybe difficulties in collecting information.

3. Due to time and cost restriction, the Study is concentrated in selected area.

4. Sample size is limited.

5. Lack of experience of the researcher and lack of cooperation from the respondents.

6. There might be some other aspects, which could be included in questionnaire.

 

Weakness:

HSBC has fewer branches than their competitors.Such as HSBC have only 5 branches,where as Standard Chartered has 17 barnches.

 

Historical Background of HSBC:

 

The HSBC Group is named after its founding member, The Hong Kong and Shanghai Banking Corporation Limited, which was established in 1865 in Hong Kong and Shanghai to finance tile growing trade between China and Europe. FISBC Group has over 9,500 offices in 79 Countries and territories in Europe, the Asia‑Pacific region, tile Americas; the Middle East and Africa.

 

The post‑war political and economic changes in the world forced the bank to analyze its strategy for continued growth in the 1950s. In 1959 the bank completed two important purchases, those of The British Bank of the Middle East (now HSBC Bank Middle East) and the Mercantile Bank. In 1965 the bank purchased a controlling interest in Hang Seng Bank, which had been established in Hong Kong in 1933. By the 1970s the policy of expansion by acquisition of subsidiaries with their own identities and specialization’s was firmly in place.

 

During the 1980s the bank concentrated on moving into those markets where it was not yet fully represented. Hong Kong Bank of Canada (now HSBC Bank Canada) was established in 1981 and Hong Kong Bank of Australia (now HSBC Bank Australia Limited) in 1986. In 1987 Marine Midland Bank (now HSBC Bank USA), based in New York State, became a wholly owned. member of the Group and its principal subsidiary in the United States.

 

HSBC Holdings plc, the parent company of the HSBC Group, was established in 1991 with its shares quoted on both the London and Hong Kong stock exchanges. The acquisition in July 1992 of Midland Bank in the United Kingdom created one of the largest banking and financial services organizations in the world. The 1990s have seen further expansion and consolidation of the various businesses of the HSBC Group. In the United States, a joint Venture, the Wells Fargo HSBC Trade Bank was formed in 1995. Elsewhere in the Americas in 1997, a new subsidiary Banco HSBC Bamerindus, ‘Was established in Brazil; the acquisition of the Roberts Group (now called HSBC Bank Argentina SA) in Argentina was completed, and a 19.9 per cent interest in Mexico’s Grupo Financiero Serfin was purchased. In 1999, HSBC Holdings plc signed a memorandum for the acquisition of a controlling interest in Seoul Bank, one of the largest commercial batiks in South Korea. The VISBC Group now comprises a unique range of banks and Financial service providers around the globe.

 

Slogan:

The world’s local Bank.

 

Source of data:

To carry out the proposed study the researcher will utilize both primary and secondary Sources.

 

Primary data:

For this Study primary data will be collected by questionnaires. To find out the current market Situation and the reason behind selecting different multinational banks for correspondent banking, survey through the questionnaire will be appropriate and conversation with the respondent will be useful to come tip with good Finding.

 

Secondary data:

 

Secondary data are of two kinds, internal and external. Internal secondary data will be gathered from the organization itself. External secondary data will be gathered by the sources outside the organization such as Internet and collect necessary information from other sources.

 

Basically Institutional Banking is a new concept and there is not enough scope of having well‑structured information from previous study and research work. So this report will depend oil primary data ‑rather than secondary source.

 

Methodology of collecting data:

 

Sampling Unit:

The population of this survey will be different local and govt. banks. The employees, who are working in foreign trade related department in these banks, will be taken as our respondent for this research work.

 

Sample Size:

For this study, our sample size will be 40. In fact to conduct this survey we need to take respondent from 40 different branches of different local and govt. banks.

 

Sampling procedure:

Non‑probability sampling procedure is used in this research work for selecting samples. In non‑probability technique I have used judgmental sampling method, which is a form of convenience sampling.

 

The samples are taken from the client list. We have taken 40 different branches of 23 banks. For selecting the sample we have consider the no. of L/C advised by a branch in a month. And we have found these 40 branches as a highest L/C advising branch (Within our research area) in a month.

 

Sample Question:

Simple close‑ended questions are as to the respondents for this report purpose.

 

Scaling procedure:

Interval scaling procedure is used in this research work for measuring customer satisfaction. The satisfaction is measured in a four‑ point scale.

 

CHAPTER-2:LITERATURE REVIEW

 

Documentary Credits (Letter of Credit):

 

The documentary credit, letter of credit, documentary letter of credit or commercial letter of credit ‑ is an agreement whereby the applicant (the importer) request and instructs [lie issuing bank (the importer’s bank) or the issuing bank acting on its own behalf,

 

ü  Pays the beneficiary (the exporter) or accepts and pays the dratl (bill of exchange) drawn by the beneficiary, or

 

ü  Authorizes the advising bank or nominated bank to pay the beneficiary or to accept and pay the draft drawn by the beneficiary,

 

ü  Authorizes the advising bank or the nominated bank to negotiate.

 

Some of the specific descriptions are:

 

Back‑to‑Back:

A new letter of credit issued to another beneficiary on the strength of a primary credit. The second L/C uses the first L/C as collateral for the bank. Used in a three‑party transaction.

 

Clean:

A letter of credit that requires the beneficiary to present only a draft or a receipt for specified funds before receiving payment.

 

Confirmed:

An L/C guaranteed by both the, issuing and advising banks of payment so long as seller’s documents are in order, and the L/C terms are met. The confirming bank assumes the credit risk of the issuing bank.

 

Deferred Payment:

A letter of credit Issued for the purchase and financing of merchandise, similar to acceptance‑type letter of credit, except that it requires presentation of sight drafts payable on an installment basis.

 

Irrevocable:

An Instrument that, once established, cannot be modified or cancelled Without the agreement  of all parties concerned.

 

Non‑cumulative:

A revolving letter of credit that prohibits the amount not used during the specific period from being available afterwards.

 

Restricted:

A condition within the letter of credit, which restricts its negotiation to a named bank.

 

Revocable:

An instrument that can be modified or cancelled at any moment without notice to and agreement of the beneficiary, but customarily includes a clause in the credit to the effect that any draft negotiated by a bank prior to the receipt of a notice of revocation or amendment will be honored by the issuing bank. Rarely used since there is no protection for the seller.

 

Revolving:

An irrevocable letter issued for a specific amount; renews itself for the same amount over a given period.

 

Sight:

A letter of credit that contains a limited engagement clause which states that the issuing batik promises to pay the beneficiary upon presentation of the required documents at Its Counters or the counters of the named bank.

 

Transferable:

A letter of credit that allows the beneficiary to transfer in whole or in part to another beneficiary any amount Which, in aggregate, Of Such transfers does not exceed the amount of the credit. Used by middlemen.

 

Unconfirmed:

A letter of credit forwarded to the beneficiary by the advising bank without engagement on the part of the advising bank

 

Confirmation:

 

In confirmation the advising bank confirms the authenticity of an issuing bank. The words “we confirm the credit and hereby undertake. …”or “we add our conformation to this credit and hereby Undertake….”normally are included in the L/C as a confirmation.

 

In a confirmed letter of credit, the exporter or the importer pays an extra charge called the confirmation fee, which may vary from bank to bank within a country. The fee usually is added to the exporter’s account. The exporter may indicate in the sales contract that the confirmation fee and other charges outside the seller’s country are on buyer’s account.

 

The parties to and associated with a letter of credit:

 

Applicant:

The applicant is the party who requests and instructs the issuing bank to open a letter of credit (L/Q in favor of the beneficiary. The applicant usually is the importer or buyer of goods and/or services.

 

The applicant can also be another party acting on behalf of the importer, such as a confirming house.

 

Beneficiary:

The Beneficiary is the party in whose favor the issuing bank opens a letter of credit. The beneficiary usually is the importer or buyer of goods and/or set‑vices.

 

Issuing Bank:

The issuing bank opens a letter of credit (L/C) in favor‑ of the beneficiary, at the request and on the instructions of the applicant. The issuing bank usually is located in the applicant’s country.

 

Advising Bank:

The advising bank advises the beneficiary that a letter of credit (L/C) opened by tile issuing bank is available to him/her and informs tile beneficiary about the terms and conditions of the L/C.

 

The advising bank can be a branch office of the issuing bank or a correspondent bank, which usually is located in beneficiary’s country.

 

The issuing bank most often sends the L/C through its branch office or correspondent bank to avoid fraud. The branch office or correspondent bank maintains specimen signature(s) on file where it may counter‑ check the signature(s) on the L/C, and it has a coding system secret test key‑ to distinguish a genuine L/C from a fraudulent one.

 

The exporter can request the importer to specify his/her bank (the exporter’s bank) as the advising batik in an UC application. The exporter’s bank may not be the issuing bank’s correspondent batik, thus the issuing bank may use other bank as the advising bank.

 

In many Countries it is beneficial to the exporter when tile advising bank is the exporter’s batik, where the exporter may avail the reduced bank charges and fees because of special relationships with the bank. In addition it is more convenient to deal with tile exporter’s own bank over a bank with which the exporter does not maintain a business account.

 

Correspondent Bank:

The term correspondent bank or correspondent used in international trade refers to another bank in another country with which the first bank maintains a banking service agreement.

 

The correspondent bank regularly performs services for another financial institution usually located in another city or marketing area. Services typically include handling out of‑area checks, trusts and technical services, and acceptance of deposits from the out-of-area institution.

 

Confirming Bank:

The bank that adds its confirmation to another batik’s (the issuing bank’s) letter of credit and promises to pay the beneficiary upon presentation of documents specified in the letter of credit.

 

Nominated Bank:

 

A bank designated by the issuing batik, which is authorized to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the letter of credit (L/C) is known as the nominated bank. The nominated bank call be a party other than the advising bank

 

Transferring Bank:

 

The paying, accepting or negotiating bank that makes the credit available in whole or in part to one or second beneficiaries at the request of the first beneficiary is known as the transferring bank.

 

Claiming and Reimbursing bank:

 

The claiming bank is a paying, accepting or negotiating bank, which claims for reimbursement on other party called the reimbursing bank. The reimbursing bank can be a party other than the issuing bank authorized (by the issuing bank) to reimburse the claiming bank.

 

Payment Instruction(PI):

 

Payment Instruction (PI USD):

Payment Instructions (PI) are basically DC based payments issued by DC opening banks against imports made. These payments are made against export bills, once received by the DC opening bank. These payments are made via the DC opening bank’s Nostro account with its correspondent bank in USA.

Payment Instruction (PI ACU):

In terms of ACU, the payments are made via the DC opening bank’s Nostro account with its correspondent bank in India. And tills is only applicable for tile member Countries of ACU.

 

Payment Instruction processing:

 

Payments are processed on the basis of paper based PI Instructions, issued by the local banks, which is provided by the Correspondent bank of the issuing bank. The correspondent bank is authorized to directly debit the issuing bank’s USD nostro account wit t e correspondent bank’s branch in USA or in India (ill case of ACU).

 

ACU: Asian clearing union

 

Member countries:

Bangladesh, India, Pakistan, Bhutan, Myanmar, Srilanka, Nepal, Iran.

 

About ACU:

The central banks and monetary authorities of India, Islamic Republic of Iran, Nepal, Pakistan and Sri Lanka signed the agreement, which gave birth to the ACU, after a considerable period of efforts and discussions sponsored by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), in December 1974. The ACU started its operations a year later in November 1975 with its headquarters in Tehran. Bangladesh and Myanmar joined the union as sixth and seventh members in 1976 and 1977, respectively, Bhutan joined to ACU on December 9, 1999. The ACU functions under a Secretary General responsible to the Board of Directors and the Central Bank of the Islamic Republic of Iran acts as the Agent Bank. Among the objectives of the agreement, there is an emphasis on (i) The expansion of intra‑ACU trade that would contribute to the growth of the region, (ii) The use of participants’ currencies in the Current transactions and thus economies in the LlSe of their ‘foreign exchange reserves, and (iii) Monetary co‑operation and closer relations between banking systems. Starting from September 1989, the ACU also included a currency swap arrangement among its operational objectives.

 

Relationship Manager:(RM)

 

The relationship manager plays an important role In Institutional banking service. The mangers are involved with these local banks from account opening to solving any sort of query of their client.

 

Non-probability Sampling:

 

Non-probability Sampling relies on the personal judgment of the researcher. These techniques do not use chance selection procedures. The researcher can arbitrarily or consciously decide which elements to include in the sample.

 

Convenient Sampling:

Non-probability sampling technique that attempts to obtain a sample of convenient elements. The selection of sample units is left primarily to the interviewer.

 

Judgmental Sampling:

A form of convenience  sampling in which the population elements are purposively selected based on the judgment of the researcher.

 

Interval Scale:

A scale in which, the numbers are used to rate objects such that numerically equal distances on the scale represent equal distances in the characteristics being measured.

CHAPTER-3:FINDINGS AND ANALYSIS

 

The Correspondent Bank that is used most for D/c advising by the local and govt. banks in past 12 months:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

D/C Advising Frequency Percentage
Amex 5 12.5
CITI 6 15
COMM 3 7.5
HSBC 8 20
JP 3 7.5
Mashreq 5 12.5
SCB 10 25
Total 40 100

Table-3.1: D/C advising.

Any local or govt. bank can choose any multinational bank for D/C advising. But some time it depends on exporter’s  (Beneficiary) choice. It is always convenient for the beneficiary if the D/C (letter of credit) is advised  through a bank, which has a relationship with the exporter. But generally it depends on the issuing bank.

 

Here in this chart we can see that 25% of the local  and govt. banks are depending on Standard Chartered Bank for their D/c advising. Where 20% and 12.5% of the respondents are depending on HSBC and American Express Bank respectively.

 

It is always convenient for the issuing bank to advice through such a multinational  bank, which has more branches around the world because it is a question of accountability of a bank throughout the world. We can see a reflection of that, as 20% of the local and govt. banks are depending on HSBC for D/C advising.

 

But we can clearly see that one-forth of the local and govt. banks are depending on Standard Chartered Bank for their D/C advising though their number of branches around the world is much less that HSBC. Where Amex and Mashreq is getting 12.5% of the respondent as a good competitor in the market.

 

From the conversation with the respondent I’ve found that the promotional activities and relationship with this local and govt. banks is a reason of getting maximum client  in case of SCB. And more over SCB is operating there business long before than HSBC in our country, which is another reason. Because this is a matter of practice that the employees of out local banks are used to in advising D/Cs through SCB and Amex from the very beginning in this market.

The Correspondent Bank that is used most for confirmation by the local and govt. banks in past 12 months:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

Confirmation Frequency Percentage
Amex 4 10
CITI 5 12.5
COMM 4 10
HSBC 6 15
JP 2 5
Mashreq 8 20
SCB 11 27.5
Total 40 100

Table-3.2: Confirmation

 

In confirmation  the advising bank gives assurance to the beneficiary regarding the payments that a issuing bank promise to pay. In case of confirmation the decision of selecting a correspondent bank depends on the confirmation limit offered  by a multinational bank.

 

Here in our chart we can see that Standard Chartered, Mashreq and HSBC are getting preference for D/C confirmation from the local and govt. banks. SCB, Mashreq and HSBC are getting preference of 27.5%, 20% and 15% of the respondent respectively. City is getting 12.5% where Amex and Commerz is getting 10% of the respondent as a good competitor in the market.

 

In the market HSBC is the most conservative  bank in giving confirmation limit to the local and govt. banks. Where  Standard Chartered, Mashreq, Citi, Amex and other multinational  banks are quite liberal. But this conservatives is not putting that much negative effect on HSBC as we can see that they are in 3rd position in the market in confirming L/Cs.

 

But it is always convenient for the issuing bank to select a multinational bank that gives more confirmation limit. And I think HSBC should increase the confirmation limit for keeping their business. Because other multinationals  are coming up with more flexible agreement with these local and govt. banks. As we have seen that Mashreq is already in 2nd position in the market  for confirming L/Cs because of offering more confirmation limit to the issuing banks.

 

The correspondent bank that is used most for Reimbursement Authority (RA USD) by the local and govt. banks in past 12 months:

 

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

RA (USD) Frequency Percentage
Amex 6 15
CITI 7 17,5
COMM 3 7.5
HSBC 6 15
JP 2 5
Mashreq 4 10
SCB 12 30
Total 40 100

Table-3.3: Reimbursement Authority (USD)

 

We know that any sort of USD payment is made through the clearing-house of USA. Generally the correspondent bank takes charges for reimbursement authority, while payment is made to the beneficiary. So, it is always convenient for the exporter if the reimbursing bank charges less. And here, HSBC charges less in the market because they  are the third largest party in USA clearing house. But it is also true that these multinational banks take different charges from different local banks. They also give rebate to these local banks, which varies from bank to bank.

 

From our survey we have found that 30% of the respondents are depending on SCB for RA (USD) payment. Where 17.5% of the respondents are depending on Citi Bank. Amex and HSBC are getting 15% of the respondents. Mashreq, Commerz and JP Morgan are holding  10%, 7.5% and 5% as close competitor in the market.

 

The correspondent bank that is used most for Reimbursement Authority (RA ACU) by the local and govt. banks in past 12 months:

 

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

RA ACU Frequency Percentage
Amex 12 30
CITI 3 7.5
COMM 0 0
HSBC 8 20
JP 0 0
Mashreq 0 0
SCB 17 42.5
Total 40 100

Table-3.4: Reimbursement Authority (ACU)

 

The market is less competitive in case of ACU. Among the seven multinational banks JP Morgan, Commerz and Mashreq has no ACU transaction. In case of ACU the payment is made through  the clearing house of India. The reimbursing bank in India takes the charges.

 

From the table we can see that the majority of the respondents  (42%) are depending on SCB. Where Amex, HSBC and Citi bank  are getting 30%, 20% and 7.5% of the respondents. So we can say that for HSBC and specially for Citi bank there is much more opportunity to improve  in the ACU payment sector. Among these four multinational  banks SCB is operating their business in our country with highest (18) branches. And Amex is operating their business from long before which has created a good understanding among  the local and govt. banks of our country.

 

 The correspondent  bank that is used most for Payment Instruction (PI USD) by the local and govt. banks past 12 months:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

PI USD Frequency Percentage
Amex 5 12.5
CITI 6 15
COMM 3 7.5
HSBC 5 12.5
JP 5 12.5
Mashreq 5 12.5
SCB 11 27.5
Total 40 100

Table-3.5: Payment Instruction (USD)

 

Like reimbursement authority  charges rebate made by the correspondent bank are the key reason for selecting  a multinational  bank for payment instruction.

 

In payment instruction charges are shared by the local and USA branch of a reimbursing bank where the entire charges is taken by the USA branch of a reimbursing bank in case reimbursement authority.

 

From the survey it is found that SCB is getting highest (27.5%) respondent also in this sector. Citi bank is in second position with 15% clients. Amex, HSBC, JP Morgan and Mashreq are getting 12.5% each. And Commerz bank is getting 7.5% clients. So, we can see that competitors are very  close in USD payment instruction. But SCB is standing  long before than its competitors like we have observed in previous cases.

 

The correspondent bank that is used most for Payment Instruction (PI ACU) by the local and govt. banks past 12 months:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

PI ACU Frequency Percentage
Amex 17 42.5
CITI 2 5
COMM 0 0
HSBC 8 20
JP 0 0
Mashreq 0 0
SCB 13 32.5
Total 40 100

Table-3.6: Payment Instruction (ACU)

 

 

We have seen that the market is less competitive in case RA ACU and the situation  is quite similar to that.

 

In payment instruction the local branch of the issuing bank shares the charges with its India branch. And these correspondent banks give rebate to the local banks. The amount of rebates is different for different  banks.

This amount depends on the agreement between the issuing and corresponding bank.

 

From the graph we can see that the majority of the respondents (42.5%) are depending on Amex for PI ACU Where SCB, HSBC and Citi bank are getting 32.5%, 20% and 5% of the respondents  respectively.

 

Opinion of the local and govt. banks towards service of the back office staff:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

Back Office Cumulative Value Percentage
Amex 106 66.3
CITI 74 46.3
COMM 27 16.9
HSBC 104 65.0
JP 36 22.5
Mashreq 76 47.5
SCB 111 69.4

Table-3.7: Service of Back Office

 

We know that a correspondent bank sends L/C to the beneficiary through an advising bank. After sending the L/C, it is the duty of a correspondent bank to maintain every sort of communication with the advising bank on behalf of the applicant (Issuer).

 

The correspondent bank sends message regarding the confirmation, payment and reimbursement etc. to the advising bank. And all tasks  depend on the back office performance of a multinational bank.

 

The above graph shows the opinion of the local and govt. banks about the back office performance of these multinational  banks. SCB, Amex and HSBC are pretty close regarding the satisfaction of the clients in back offer performance  with 69.4%, 66.4% and 65.0% points respectively. Where Mashreq and Citi  is getting 47.3% and 46.5%. And JP Morgan with 22.5%, Commerz with 16.9%. In case of JP Morgan and Commerz communication gap between their clients is putting negative effect on their performance, as they don’t have any branch in our country.

 

Opinion of the and  govt. banks towards the Relationship

Manager of these banks:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank
Relationship Manager Cumulative Value Percentage
Amex 94 58.8
CITI 64 40.0
COMM 20 12.5
HSBC 103 64.4
JP 30 18.8
Mashreq 76 47.5
SCB 121 75.6

Table-3.8: Service of Back office

The performance of a relationship manager can play an important role in this market. The managers are involved with these local banks from account opening to solving any sort of query of their client.

The survey shows that SCB, HSBC and Amex are getting 75.63%, 64.38% and 58.75% from the respondent. As SCB and Amex are operating their business from long before, they have a good relationship and understanding  with their clients. But HSBC is also in good position though  they are comparatively new. Jp Morgan and Commerz bank is getting 18.75% and 12.5%, which is quite low. The reason is that it is not possible for the relationship  manager of these two banks to have a visit to the local banks on regular basis.

 

Opinion of the local and govt. banks towards service by telephone of these multinational banks:

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

Service through Tel Frequency Percentage
Amex 99 61.9
CITI 70 43.8
COMM 68 42.5
HSBC 91 56.9
JP 63 39.4
Mashreq 67 41.9
SCB 101 63.1

Table-3.9: Service though telephone

 

In international trade service, telephone is a major medium of communication. The correspondent bank solves hundreds of queries of their clients through telephone. The correspondent bank informs their clients about regular statement, payment and balance of accounts etc. through telephone.

 

Regarding the service through telephone all clients are more or less satisfied with these multinational banks. SCB, Amex and HSBC is getting 63.1%, 61.9% and 86.9% respectively, citi, Commerz and Mahreq is quite  close (43.8%, 42.5% and 41.9%) where JP Morgan have got 39.4%.

 

Correspondent bank recommended  by the local and govt.

banks for foreign  trade transaction?

  • American Express Bank
  • CITI Bank
  • Commerz Bank
  • HSBC Bank
  • JP Morgan Chase Bank
  • Mashreq Bank
  • Standard Chartered Bank

 

Most preferred Frequency Percentage
Amex 6 15
CITI 5 12.5
COMM 1 2.5
HSBC 8 20
JP 2 5
Mashreq 3 7.5
SCB 15 37.5
Total 40 100

Table-3.10: Recommended  correspondent bank

In our entire survey, this question was an interesting one. Here  the respondents  (the employees of local banks) were  asked to suggest a multinational bank for  correspondent  banking. And the answers of this  question will give  us a idea about the preference of these local banks.

From the calculation we have found that majority of the local and govt. banks are suggesting SCB (37.5%), 20% percent of the respondent suggest  HSBC and 15% of the respondent  suggest Amex for correspondent. Citi bank is standing  right behind  Amex, as we can see that 12.5% of the respondents are suggesting  then. Where 7.5% respondents are suggesting Mashreq. And JP Morgan and Commerz is suggested by 5% and 2.5% of the respondent.

 

Performance of HSBC:

We know the HSBC has started its Institutional Banking from 1998. Where  other multinational banks like Standard Chartered, Amex are quite experienced in this  field. Naturally it will be a tough job for HSBC to create a good position in market among these well-established competitors.

Services Percentage
D/C Advising 20%
Confirmation 15.0%
RA (USD) 20.0%
RA (ACU) 20.0%
PI (USD) 12.5%
PI (ACU) 20%

Table-3.11:  Performance of HSBC

In D/C advising HSBC is getting the  second  preferences of the clients. But in confirmation  HSBC is in third position, because Mashreq bank is ahead of HSBC as they offer  more confirmation  limit  to the clients. Regarding RA and PI ACU there are  only four competitors in the market, where HSBC has a good opportunity  to improve. In RA and PI ACU, Standard Chartered and American Express Bank are ahead of HSBC. Where in RA USD, respondents prefer HSBC and Amex equally. But in PI USD, HSBC should give more afford to improve their position. And we have seen that the local and govt.  banks are quite satisfied with the service through telephone, back office performance and about the relationship  managers of HSBC.

CHAPTER-4:CONCLUSION AND RECOMMENDATION

CONCLUSION

At present only five multinational banks are providing services directly institutional  banking market  in our country. Where other  multinational banks JP Morgan, Commerz etc. have no branch in Bangladesh. In institutional banking the entire service is related with international  trade.  The quality of service  can only be ensured by a good understanding between the local and multinational banks.

 

Standard Chartered is the largest foreign bank in Bangladesh. They have a strong position in this market. From our survey we have seen that SCB is long ahead than other  multinational  banks in providing  international  trade services. Where Amex  and HSBC is in  close competition.  Mashreq and Citibank is coming up with good possibilities.  The other  two multinational  banks JP Morgan and Commerz  are also having  a good portion  of the client though they do not have any branch in our country.

 

The report has outlined an  approach to draw  is picture  on overall condition of institutional banking market. The purpose  of the report would  be served more  accurately if all branches of local and govt.  bank  were counted in the survey.

 

In this market HSBC has lots  of possibilities   as the numbers of competitors  are not that much. HSBC is one of the largest multinational bank in the world. They have some competitive advantages  comparing with other  multinational banks in our country. A well planned promotional  activity and a good relationship  with local and govt.  bank will help HSBC to create a better position in the market.

Recommendation:

Though HSBC is not that much experienced  in the market, they have lots of scope to improve-

 

  • In D/C advising HSBC can persuade the local and govt. banks as they have more  branches around the world  than  any other  multinational  bank in our country.
  • In L/C confirmation HSBC should increase the confirmation  limit, which will encourage  the local and govt. bank to confirm L/Cs through  HSBC.
  • HSBC can really make a good offer to its clients in RA USD and PI USD, as they have the competitive advantage  of being  third largest party in USA clearinghouse.

 

 

References

 

Akar &  Dey, Market Research,23, 6th edition, India.

H.E. Evitt, A Manual of foreign  exchange, 15, 4th edition, London.

S.K. Verghese Foreign exchange and financing  of foreign trade,13, 3rd edition, India.

 

http://www.hsbc.com

htt://www.hsbc.com.bd

http://www.asianclearingunion.org

 

APPENDIX

 

Asian  University of Bangladesh  (AUB)

School of Business

 

 

This Questionnaire  is for no purpose other than research and any information provided will be treated as strictly  private and confidential.

 

1.         Which of the following  correspondent bank you used  most for D/C

advising in past 12 months?

  1. American Express Bank
  2. CITI Bank
  3. Commerz Bank
  4. HSBC Bank
  5. JP Morgan Chase Bank
  6. Mashreq Bank
  7. Standard Chartered Bank

 

  1. Which of the following  correspondent  bank you used  most for confirmation in past 12 months?

 

  1.                            i.        American Express Bank
  2.                         ii.        CITI Bank
  3.                       iii.        Commerz Bank
  4.                       iv.        HSBC Bank
  5.                          v.        JP Morgan Chase Bank
  6.                       vi.        Mashreq Bank
  7.                     vii.        Standard Chartered Bank

 

 

  1. Which of the following correspondent bank you used most for Reimbursement Authority  RA USD  in past 12 months?
    1.                            i.        American Express Bank
    2.                         ii.        CITI Bank
    3.                       iii.        Commerz Bank
    4.                       iv.        HSBC Bank
    5.                          v.        JP Morgan Chase Bank
    6.                       vi.        Mashreq Bank
    7.                     vii.        Standard Chartered Bank

 

4.         Which  of the following  correspondent bank you used most for

Reimbursement  Authority RA ACU  in past 12 months?

  1.                            i.        American Express Bank
  2.                         ii.        CITI Bank
  3.                       iii.        Commerz Bank
  4.                       iv.        HSBC Bank
  5.                          v.        JP Morgan Chase Bank
  6.                       vi.        Mashreq Bank
  7.                     vii.        Standard Chartered Bank

 

5.         Which  of the following  correspondent  bank you used most for

Payment Instruction  PI USD  in past 12 months?

  1.                            i.        American Express Bank
  2.                         ii.        CITI Bank
  3.                       iii.        Commerz Bank
  4.                       iv.        HSBC Bank
  5.                          v.        JP Morgan Chase Bank
  6.                       vi.        Mashreq Bank
  7.                     vii.        Standard Chartered Bank

6.         Which of the following  correspondent  bank you used most for payment instruction  PI ACU in past 12 months?

  1.                            i.        American Express Bank
  2.                          ii.        CITI Bank
  3.                        iii.        Commerz Bank
  4.                        iv.        HSBC Bank
  5.                          v.        JP Morgan Chase Bank
  6.                        vi.        Mashreq Bank
  7.                      vii.        Standard Chartered Bank

 

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