Professional Documents
Culture Documents
Introduction of HBL
HBL was the first commercial bank to be established in Pakistan in 1947. Over the years, HBL has grown its branch network and become the largest private sector bank with over 1,450 branches across the country and a customer base exceeding five million relationships. The Government of Pakistan privatized HBL in 2004 through which AKFED acquired 51% of the Bank's shareholding and management control. HBL is majority owned (51%) by the Aga Khan Fund for Economic Development, 42.5% of the shareholding is retained by the Government of Pakistan (GOP), whilst 7.5% is owned by the general public i.e. over 170,000 shareholders following the public listing that took place in July 2007. With a presence in 25 countries, subsidiaries in Hong Kong and the UK, affiliates in Nepal, Nigeria, Kenya and Kyrgyzstan and rep offices in Iran and China, HBL is also the largest domestic multinational. The Bank is expanding its presence in principal international markets including the UK, UAE, South and Central Asia, Africa and the Far East. Key areas of operations encompass product offerings and services in Retail and Consumer Banking. HBL has the largest Corporate Banking portfolio in the country with an active Investment Banking arm. SME and Agriculture lending programs and banking services are offered in urban and rural centers.
Rating
HBL is currently rated AA (Long term) and A-1+ (Short term) and has a balance sheet size of over USD 11 billion. It is the first Pakistani bank to raise Tier II Capital from external sources.
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HBL Brand
HBL brand identity is the outward expression of what we stand for as an organization. This is summarized in our vision, mission and is supported by our values.
Vision
Enabling people to advance with confidence and success
Mission
To make our customers prosper, our staff excel and create value for shareholders
Values
HBL values are the fundamental principles that define our culture and are brought to life in our attitudes and behaviors. It is our values that make us unique and unmistakable. Our values are defined below:
Excellence
This is at the core of everything we do. The markets in which we operate are becoming increasingly competitive, giving our customers an abundance of choice. Only through being the very best - in terms of the service we offer, our products and premises - can we hope to be successful and grow.
Integrity
HBL is the leading bank in Pakistan and our success depends upon trust. Our customers and society in general - expect us to possess and steadfastly adhere to high moral principles and professional standards. 2
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Customer Focus
HBL understand fully the needs of our customers and adapt our products and services to meet these. We always strive to put the satisfaction of our customers first.
Meritocracy
HBL believe in giving opportunities and advantages to our employees on the basis of their ability. We believe in rewarding achievement and in providing first-class career opportunities for all.
Progressiveness
HBL believe in the advancement of society through the adoption of enlightened working practices, innovative new products and processes, and a spirit of enterprise.
IMPORTANCE OF CREDIT POLICY For any business selling goods or services, giving credit to its customers is critical; its a catalyst for growth in the business. Extending credit is business for some (banks, credit card companies) and for some, one way to compete and stay in business.
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Credit immediately increases the buying power of a consumer. Imagine an individual with not-so-good credit get a credit card with a $5,000 limit, or that you approved a modest credit limit to a firm with which you recently started working. The good part is that the credit generated an immediate sale, but the negative is that it could potentially result in bad debt. Uncontrolled credit could lead to collapse due to overbuying, overexpansion and overselling. The recent problems due to sub-prime loans are a case in point, as many in the stone industry from importer to distributor to fabricator can clearly attest. Its a good time to protect your company from major financial problems in the future. Cash-flow problems can be avoided by having a good credit policy in place. The purpose of a good credit policy is to lend to make a profitable sale, keeping in mind the businesss tolerance for risk. And since, by extending credit, youre essentially investing in your customers, you want to know if they are credit worthy. A good credit policy means increasing business with credit-worthy customers. Your companys credit policy involves identifying the market for sales growth looking at the potential customers that will be turned down if youre raising the credit standards, or potential customers you could get if you lower the standards. That credit standard depends on the businesss tolerance for risk. Liberalizing the credit policy may come from a need to increase market share or penetrate into new territory; when demand is decreasing; or when profit margins are high. Loosening the standards also may be advantageous when the inventory needs to be turned quickly, or when it may have a limited shelf-life or customer appeal. Conversely, it may be time to get conservative with credit when a product or service sells without much effort; is made as per customer specification (customized); when the profit margins are thin; and when general economic conditions arent favorable. Credit application is the foundation of a good credit policy It facilitates the process of determining whether or not to grant credit and to determine the limit. Credit application collects important information for review and can also be produced in court as evidence of the terms of sale and application of Credit /loan. (And, the information should always be treated as confidential.)
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a)
Management Accountability
Business managers will be accountable for managing risk and, in conjunction with Risk Management, for establishing and maintaining appropriate risk limits and risk management procedures for their businesses.
Credit risk policies will be established by the Credit Policy Committee and approved by the Board through its Risk Management Committee. The Bank will have a system of checks and balances in place around the extension of credit which are:
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An independent risk management function Multiple credit approvers An independent audit and risk review function There will be a single Control Unit for every client, responsible for approving or consenting to all credit extensions related to the client.
b)
Credit Officers will be appointed by the President and/ or the Chief Risk Officer (CRO) or an SCO designated by the President. The level of authority required to approve credit will increase as amounts and transaction risk increases as reflected in the risk ratings. Every extension of credit must be approved by at least three authorized credit officers. It is the responsibility of the Credit Officer to insure the integrity of the credit process and the proper documentation of the credit decision.
c)
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There will be a single set of standards, as defined in this document for the measurement of credit risk in order to ensure consistency across businesses, stability in methodologies and transparency of risk.
Every obligor must be assigned a risk rating over a certain level (as defined in the Risk Rating Policy).
e)
Each business line will maintain a diversified portfolio of risk assets in line with the capital desired to support such a portfolio. Portfolio Credit risk limits, include but are not limited to, obligor limits and concentration limits by industry or geography, will be set by the Business in conjunction with Risk Management and will be reported to BRMC on periodic basis (frequency to be defined by BRMC).
In order to ensure transparency of risks taken, it is the responsibility of the Credit Administration to accurately, completely and in a timely fashion, report the comprehensive set of credit risk data into the independent risk system.
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Credit policies are based on past experience and reflect long-term expectations. The policies represent a key element of a uniform, constructive and risk aware culture throughout HBL. The credit culture relies upon the personal integrity of individuals and a commitment to discuss issues openly and to place the long-term interests of the bank ahead of the short-term interests of a particular business unit. Credit policies are formulated to support the Bank's business strategies. The objective is to achieve the earnings target with minimum volatility, based on a sound credit portfolio. In order to achieve this objective, the Bank must have: a clearly defined Business Strategy a focused Target Market approach which allows build up of strong customer relationships, through offering of a diverse product range to meet the customer needs a proactive Portfolio and Risk Management system checks and balances in the form of portfolio and process, evaluation and reporting systems which ensure compliance with the Policies and Procedures and corrective actions required thereof Credit quality must take precedence over business development. Process and
Management should be geared towards avoiding losses, but at the same time it should ensure efficiency both in terms of response time and market needs, and most importantly ensure an adequate return on assets employed. The Credit policies have been formulated keeping in view the above perspective, and provide a framework to help manage the risks in any business. Certain standards have been established and a set of policies and procedures defined to ensure that these standards are met.
Business/Line Management
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Business managers will be accountable for managing risk and, in conjunction with Risk Management, for establishing and maintaining appropriate risk limits and risk management procedures for their businesses. The line management (Business Group), within the guidelines set by the Credit Policy Committee, develops and executes its own business plans, initiates and proposes credit which are jointly approved with the Credit Officer in the risk management organization (above the minimum threshold).and are responsible for credit quality through effective Risk Management systems. In short, in addition to setting and achieving business goals, Line Management is responsible for creating and managing risk in line with the concept of decentralization and responsibility. This may require setting up of additional policies and procedures to supplement those provided by Credit Policy Committee. Line Management is expected to play the following role in the entire credit process: Develop Target Market and Risk Acceptance Criteria and get CPC approval for compliance, within the MRC and BRMC guidelines on portfolio parameters; Monitor portfolio and process quality with the support and assistance of Credit Administration unit, which should ensure compliance with credit policies. Set standards for credit process management and portfolio quality, monitor deficiencies and ensure that appropriate corrective actions are implemented. Ensure that portfolios conform to approved target markets. Maintain a flow of information to ensure a hands-on approach to the adversely classified portfolio.
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Borrowers with aggregate borrowings in excess of criteria specified from time to time (depending on the market needs and requirements, HBLs target market and other factors) will qualify to be booked under the Corporate Banking Group's umbrella. If any constituent of a group of borrowers, falls into the specified category, regardless of whether the others do or do not, shall also qualify to be booked under the Corporate umbrella. The set of criteria will be specified by the CPC in consultation with the business heads and advised through various bulletins/ circulars. Any exceptions to the above, where relationships will continue to be domiciled in other business groups despite meeting the criteria, will require the approval of the CPC Head/ CRO.
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IBD has been established to provide Shariah compliant products and services in the Country operating through dedicated Islamic Banking branches. A specific policy/circular for Islamic Banking Products will be advised separately.
Credit Transactions
This approach focuses on the decision to extend credit to an individual customer or relationship. Generally, this is applicable when: customers cannot be considered homogenous credit requirements are specific, large or multiple, or involve complex corporate finance transactions risks require in-depth evaluation of each customer approval is based on detailed financial analysis and individual judgment of Credit Officers 13
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there are multiple facility structures and forms of collateral risk is managed on an individual customer basis
Under this system, credit is approved using the credit proposal process. It may however be noted that credit transactions must follow the Target Market and RAC process.
Approval Procedure
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Each Business Group is required to establish Credit Committees at the branch (designated lending units) regional or country (in the case of IBG) and Business Group levels. Approval at all these levels will depend on the amount of credit authority delegated to the individual heading the unit (or alternate) be it branch, region, country or Group. This has to be jointly exercised by the individual with two other Credit Officers, one of which must be a Credit Officer from the Risk Management Group so designated, in the approval chain for the particular business group. All credit proposals, whether initial, or for renewal of credits, must be initiated by the Relationship Manager. In case of Group relationships, All credits, particularly new initiations should be screened against the Target Market Criteria and should fit in the business strategy of the Group. In cases where credit does not meet all the terms and conditions, but the unit feels that the exceptions are justifiable, or can be rectified over a reasonable period of time, the RM may proceed with processing the credit proposal. It may be appropriate for the Relationship Manager to consult his Senior Marketing/ Credit Officer and seek their guidance prior to initiating the proposal. Relationship Manager should obtain all necessary information required to process the credit proposal.
Control Unit
Whenever the Bank deals with a customer and its related entities in more than one location, or when the customer deals with different business units within the Bank, i.e., RBG, CBG, CBD, IBG or ARM, it is important to designate a UNIT to take on primary responsibility for managing the relationship. This may also involve approval of credit at one business unit, whereas the facilities in full or part may be made available at a different business unit. This control function is critical for having marketing and credit synergies. The designation of Control Unit is also to ensure accountability for credit process on an overall Group basis.
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Termination/ Liquidation
For all Credit Programs that are either terminating or liquidating, a memorandum must be prepared annually. It must include an action plan that describes how the risks in the Program are being managed throughout the termination / liquidation, and who is responsible for such. It must be approved as per the Credit Program, based on the remaining facilities at the time of the memorandum.
Investment in TFCs
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Policy
This is treated as a credit lending to the issuer by HBL, no different from secured Term Loans. While complying with SBP regulations in participation/TFC investment, it will be aggregated with the advances portfolio for determining the level of approval authority.
extending short term facilities under the normal approval process). These are done on a selective basis by HBL and will be addressed through a separate Policy.
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Target Market
Purpose
The Target Market (TM) process follows the formulation of the overall business strategy for the Bank. It is the process employed to develop a focused marketing approach for each business group/country, in order to meet the targets/objectives set for them.
Categories in the RAC should include Industry/Risk Level, maximum per borrower limits, product offering/tenor, security/documentation requirements, and pricing. Political and Macroeconomic Framework Analysis An understanding and analysis of the macro environment is necessary to decide on the overall growth strategy, balance sheet/earnings targets, risk tolerance, and resource requirement planning for each business group/sub-group in the domestic network and each country in the International Banking Group. a) Political Structure Form of government Key political forces/influencers Expected political changes and effect on economy/banking sector
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Area, population, population density, rural and urban population mix, literacy rate, GNP, GDP, GDP per capita, balance of trade, balance of payments, forex reserves, foreign debt, domestic debt, savings rate, inflation rate, etc. c) Economic Policy Role of the state Key features of fiscal policy Key features of monetary policy Expected changes and their projected effects d) Legal Environment Level of sophistication Degree of independence Enforceability of security/collateral e) Financial Services Industry Market size and level of sophistication Market segmentation Banks existing strategy and product offering in the market Segments that the Bank is targeting Identification of key players in those segments SWOT analysis
In conclusion:
TM screens should be clear, simple and objective The TM document should give conclusive recommendations on which type of customer the Bank should deal with and with which it should not The prospects/clients should be selected with the objective of meeting the Banks revenue goals, while not adding credit cost volatility
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Risk Acceptance Criteria A RAC sheet containing the recommended industry RACs should form part of the industry study. A brief memorandum (with one or two paragraphs per criterion) detailing the reasons for the proposed criteria should accompany each RAC sheet.
Industry classifications should be as per Credit Policy Guidelines Based on financial strength, market share, management quality, etc., wherever relevant, TM names in respective industries should be sub-divided into a suitable number of risk levels.
b. Amount
For each tier, maximum tenor should be specified (this would often be related to the Risk Level) Certain products may only be proposed to be offered to Risk Level 1 names (for example), such restrictions (if any) should also be specified
d. Security / Documentation
Any additional security/support required due to the peculiar nature of an industry must form part of the RAC In certain cases, it may be made mandatory to obtain additional support such as personal guarantees (even when dealing with public limited companies) and/or additional tangible security from (say) Risk Level 4 names.
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e. Pricing / Return
In conclusion:
RACs are the standard terms and conditions that would be expected (keeping in view the environment and competition) in dealing with each Risk Level within the TM RACs should address eligible products, credit appetite, tenor, security, support, documentation, covenants, pricing, etc., for each type of client within the overall context of the industry
Profitability calculation
Profitability / yield calculation statement is being introduced to enable the RM to calculate the account profitability and yield of an obligor. The Profitability Sheet should be prepared for all obligors having exposures greater than Rs 10 mln. In case of a group, separate Profitability Sheets should be prepared for each individual
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obligor with a weighted average yield to be calculated for the group, as per the annexed format.
In case of an existing relationship, actual profitability / yield of an obligor/group for the past twelve months should also be prepared.
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Risk Rating Scorecards for RBG and FI borrowers shall be developed and advised in the future. This policy document sets out the key principles of Risk Rating appropriate to all scorecards when determining the most appropriate rating for both performing and nonperforming relationships.
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A Group Risk Rating (GRR) Scorecard has been launched to enable the management to gauge the risk profile of various companies in a group by assigning a consolidated risk rating. The derived GRR is based on Risk Ratings of individual borrowers in relation to their weighted average exposures within the group. The Group Risk Rating Scorecards for all groups in CBG, IBG and CBD will be submitted annually to the SCO for approval. Where group exposure exceeds the discretionary authority of the SCO, approval should be sought from the CRO. While risk ratings for individual borrowers within a group would be reflected under the column BRR, the Group Risk Rating should be shown on all Credit Proposals, short forms and CLMRs under the head GRR. Half yearly reports of total limits and approved assigned Group Risk Ratings for all the groups must be submitted to the SCO.
Credit Administration
Scope and Objectives The primary objective of CAD is to monitor the Banks lending activity .To perform this function it must ensure that: proper checks and balances are maintained with regard to correct utilization (viz. amount, tenor, collateral, pricing, etc.) of credit facilities according to the terms and conditions of the credit approval all documentation relating to transactions is scrutinized & verified to be legally enforceable, all borrowing and security documents are lodged in the vault under dual control , collateral securities are effectively controlled and monitored 24
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customers out standings are accurately reflected in the Banks books for monitoring and control purposes an effective follow-up system for routine actions (i.e., documentation, collateral, etc.) is in place, and all irregularities pertaining thereto are recorded and reported as required To maintain a set of standardized documents for similar type of risks/facilities and to critically review and update the same periodically in accordance with changes in Law or Bank practice
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