Credit report

Introduction of HBL:Habib Bank Limited is a leader in Pakistans services industry. It is a prime bank established in
1941 commonly referred to as "HBL" and head-quartered in Habib Bank Plaza, Karachi,
Pakistan, and is the largest bank in Pakistan. The bank has a network of over 1450 branches in
Pakistan and 55 branches worldwide. It has a domestic market share of over 40%. It continues to
dominate the commercial banking sector with a major market share in inward foreign
remittances (55%) and loans to traders, farmers and small industries. Its name is generally
considered for quality and reputation.HABIB BANK has been a pioneer in providing innovative
banking services such as first installation of mainframe computer in Pakistan followed by ATM
and more Internet banking facilities in all branches. The main strength of HBL brand is its great
services to all customers especially to the corporate customers and its prominent head office
building that has dominated Karachis skyline for 35 years.HBL is currently rated AA (Long
term) and A-1+ (Short term) and has a balance sheet size of USD 10.2 billion. It is the first
Pakistani bank to raise Tier II Capital from external sources.Habib Bank Limited provides
commercial banking, modaraba management, and asset management related services in Pakistan,
as well as in the Asia Pacific, Europe, North America, and the Middle East. It offers a broad
range of products to target different market segments.

History:HBL was recognized in 1941 in Mumbai (India) by Mr. Ismail Habib. It was the first bank
founded by a Muslim family in India. It was established with a paid up capital of RS. 2.5
Million. In the beginning the number of its branches was 12. Habib Group was the owner of this
bank up to December 31; 1973.At the time of creation of Pakistan, HBL had been even paying
salaries to the government employees because the Pakistan government hat not adequate
recourses. In 1974 Karachi saw its 1st commercial bank of newly formed Islamic Republic of
Pakistan, when the bank shifted its head office there. Throughout the decades HBL has held the
mantle of dynamic leader, by adding value to the lives of its customers.In 2001 Government of
Pakistan privatized the bank by selling 51% share to Aga Khan fund for Economic Development
(AKFED).HBL management has so far offered Golden Hand Shake/voluntary scheme in 1997,
2001 and 2005 due to which staff strength reduced from 31099(in 1996) to 16314(in 2005).In
2006,it has 14572 number of employees. After introducing professional management in 1997,
HBL succeeded from net loss of Rs 6.802 billion to profit of Rs.12.700 billion. In 2001, HBL
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introduced consumer products i-e Life Style, Auto Loan, Flexi Loan and House Loan. In 2005, it
introduced Visa Debit and in October 2007 it has launched HBL Visa card. It has also extended
consumer loans about Rs.40 billion to the customers. In 2006 HBL sold the operations that it had
established in Fiji in 1991 to Bank of South Pacific. In 2009 HBL was granted permission to
open Remnibi accounts in China.

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Products:
1. Corporate Banking
HBL Corporate Banking Group comprises a seasoned team of Relationship Managers (RMs) to
meet the demanding service standards of large corporations. A long history of financing and
nurturing relationships in Pakistan has given HBL a unique insight, enabling us to provide timely
and effective financial solutions for customers to meet the growing challenges of a global
economy. If you are a corporate customer, with a turnover of at least PKR 300 million, HBL
have a range of solutions designed to help you with your banking needs. HBL RMs has the
expertise you need to create tailored financial solutions catering to the specific requirements of
your business.
Services:

Working Capital Finance, including Overdraft, FE Loans, etc.

Pre and Post Shipment Export Financing (PKR and USD based)
Import Financing (PKR and USD based)
LMM Funding
Receivable Discounting
Islamic Banking facilities
Cash Management Services
Trade Services including Letter of Credit, Letter of Guarantee and Standby Letter of

Credit, etc.
1. Islamic Banking
HBL Islamic Banking offers a host of Shariah Compliant services that cater to diverse clientele.
This is a testament of the Bank's dedication to serve their customers with products and services
that suit their needs. Its services are certified by the State Bank of Pakistan and are fit to meet
the requirements of any customer.
Financing Products:1. HBL Murabaha
Enables the purchase of raw materials, spare parts, semi finished and finished goods locally or
via imports.

2. HBL Diminishing Musharaka

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Facilitates the joint ownership of vehicles, plant and machinery on both medium and long term
basis.
3. HBL Ijarah
Facilitates the rental of vehicles, plant and machinery on medium and long term basis.

2. Trade Service

Letter of Credit Facility

Collection of Foreign Bills
Collection of Local Bills
Letter of Guarantees

Faida hai to Business hay

HBL Business Faida brings you the perfect package to manage your daily business requirements.
By combining all the relevant features into one, you would be able to avail a huge variety of
banking products designed just for your business.
A flexible and convenient account to manage the payments and receipts of your business
Running Finance to help you manage your daily cash flows
Demand Finance to help you expand your business, renovating your business premises or
buying new equipment
Assure payments from your customers in Pakistan or overseas through trade finance products
1. HBL Easy Loan
Make your life easy when you are taking care of business expenses, supplier payments,
upgrading your production line, disbursing staff salaries, or starting an entirely new venture.
Requirement

2.

Running Finance Facility up to 95% of your savings

Financing up to PKR 100 million
Running Finance Facility with monthly or quarterly mark-up payments
Demand finance facility for up to 5 years
Financing against local/ foreign currency
Short and simple approval process
Competitive mark-up rates
Low incremental cost of borrowing
HBL Small Business Finance

HBL Small Business Finance provides you Running Finance for your working capital
requirements and Demand Finance for your business expansion needs.
Features
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Demand Finance Facility up to 70% of the assessed value of your property

Affordable installments/ mark up
Financing up to PKR 10 million
Running Finance and Guarantee facilities renewable every year
Demand Finance facility up to 5 years
Secured against residential/ commercial/industrial property
HBL Debit Card facility

What is required?

3.

25 to 65 years of age
A business in operation for at least 3 years
A valid CNIC.
HBL Trade Power

HBL Trade Power helps you to buy goods overseas or locally, ensures your overseas payment
collection, allows you to access proceeds from your sales through LC before the customer makes
payment and also provides your customer with financial or performance guarantees.
Services
Local and International Letters of Credit (Sight and Usance) through:
a) Finance against trust receipt
b) Finance against imported merchandise
Foreign bill collection
Negotiation and discounting of export bills
Financing up to PKR 40 million
Financing available in local/ foreign currency
Secured against residential /commercial / industrial property
Pre and post shipment export finance (from bank or SBP re-finance)
Performance bonds and other guarantees
Management of Foreign Exchange transactions
4. Debt Capital Markets & Syndications
Depending on the requirements of its customers, HBL offers a variety of products, including
syndications, securitizations, privately placed and listed TFCs, term finance facilities,
commercial papers, etc. HBL played the lead role in a number of significant debt transactions,
including PKR 15.14 billion TFC issue (the largest privately placed issue in Pakistan), the first
bond offering for any microfinance institution in all of Asia, credit enhancement for a rapidly
growing company in the consumer durables sector and numerous tier-2 capital transactions for
commercial banks.
Financing for the following:
Working Capital
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Procurement of Inventory
Receivables
Procurement of Machinery
Expansion of production facilities
Import of raw materials
Exports

Running Finance Facility

This facility provides a stream of financing to organizations for their basic business needs. A
Running Finance facility is usually backed by collateral in the form of land or current assets of
the organization. Markup rates are negotiated with the bank representatives and usually apply on
the utilized amount of the facility.
Cash Finance Facility
This facility provides cash inflows to any organization. It is also backed by collateral in the
forms of land, buildings and tangible assets. Markup is charged on the complete amount of the
facility provided and is payable during the tenure of the facility
Cash Finance is a personal loan against National Savings Certificates and Bank Deposits, at the
most competitive rate. Options are for a one-year Running Finance facility with quarterly markup or a Term Loan with equal monthly installments. Loans range from Rs 50,000 or up to 90pc
of net realizable value of Deposit/Securities and 85pc on FCY Deposit. No Processing Fee or
Pre-Payment Fee

International banking:Export facilities:

A letter of credit

It is a document issued by a financial institution, or a similar party, assuring payment to a seller

of goods and/or services. The seller then seeks reimbursement from the buyer or from the buyer's
bank. The document serves essentially as a guarantee to the seller that it will be paid by the
issuer of the letter of credit regardless of whether the buyer ultimately fails to pay. In this way,
the risk that the buyer will fail to pay is transferred from the seller to the letter of credit's issuer.
The letter of credit also insures that all the agreed upon standards and quality of goods are met by
the suppliers. Letters of credit are used primarily in international trade for large transactions
between a supplier in one country and a customer in another.
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Sight LC

When the LC is opened, stipulating the condition that, on presentation of the negotiable set of
shipping document by the seller as per the terms of the LC are made, the buyers bank will make
payment at sight meaning immediately to the sellers bank subject to fulfillment of terms and
conditions of the LC being fulfilled, the LC is called Sight LC.
Import facilities:

Finance against Imported Merchandise (FIM)

Financing imported goods against import Letters of Credit established through Bank will be
made available for a short period preferably not exceeding one twenty (120) days. The financing
may be repaid within the validity period either in part or in lump sum.

SWOT analysis:Strengths
1. A skill or capability that enables HBL to conceive and implement its strategies.
2. HBL has got a reliable and easy to use internal computer system. Every information
regarding the transactions in customers deposits has been computerized.
3. HBL maintained its data properly.
4. HBL has very good security system.
5. HBL is the larger commercial bank in Pakistan with the network of over 1439 domestic
and international branches.
6. Being the pioneer of banking in Pakistan, HBL is the oldest and is the richest in
experience.
7. HBL focuses on consumer banking by lucrative schemes, products and services suiting
best to the wants and demands of the customers.
8. HBL has opened all its branches at commercial areas so that the customers or clients face
no problems in reaching to the bank.
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9. Having potential to encounter the competitive environment in the market.
10. Customer enjoys the services at the residential localities.
Weaknesses:1. Highest number of branches effecting the proper maintenance and difficulty in providing
same working environment at the each branch
2. Poorer system of recovery of the system is a threat to bankruptcy.
3. Lack of customer feedback.
4. Low job satisfaction.
5. Poor ATMs Service
6. Inconsistency in efficiency and working atmosphere due to the largest of branches.
7. Sense of insecurity in the employees serving at low profitable branches due to the
downsizing.
8. Victim of political, legal and socio-cultural pressures
9. Lack of professionalism in the branch employees mostly.
Opportunities:1. Huge untapped market potential in consumer banking
2. In opportunity exist, in form of opening of ladies banking section within the branch
which is entirely a new idea and it will attract customer.
3. Opportunity for developing value added services combined with corporate banking
relationships, cash management services to large and medium sized corporate clients.
4. Growing policies of government on business and commerce sector provide HBL
opportunities to take advantages of these policies to meet efficiently with the business
people to solve their problems with the instant cash and financing facilities.
5. Govt. is taking very bold steps to promote IT in Pakistan. HBL has an opportunity to
improve in technology.
6. Large international network which principally focuses on trade finance with Pakistan can
be utilized to tap trade activities in other markets. In addition, services such as cross
border / offshore financing for corporate customers can be enhanced.
7. Customer feedback on different products and accounts has really improved the bank
performance and encourage the atmosphere for other future policies.
8. Further reduction in intermediation costs possible, with improving technology.
9. Due to efficient and veteran management group, HBL can also improve and expand its
foreign operation successfully.
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10. Habib Bank Limited provides opportunity to utilize its skills and efficiencies in leasing
business.
Threats:1. An area in the environment that increases the difficulties the organizations achieving
high performance.
2. Consolidation in the banking sector resulting in increased competition.
3. Shortage of trained and specialized staff at lower executive and officer levels
4. The threat of inconsistency and government policy regarding to business and economics
sectors, specially political and regional situation which makes the environment uncertain.
5. Growing global technological advancement.
6. Strict regulation by government over credit facilities to the customers as well as to meet
the prudential.
7. Loss of confidence of overseas customers due to freezing of accounts.
8. Facing more competition by foreign banks in the market.
9. Foreign banks are flourishing in field of consumer financing.
10. Also the increasing operation of private banks.
11. Highly attractive and advance services by foreign banks to their customers.

Credit philosophy:Bank credit has to do with the amount of funds that an individual or a business may be able to
borrow from one or more lending institutions. In effect, it is a measure of how much in the way
of cash loans may be issued, based on the credit history and the assets of the company or person.
Because bank credit focuses on the borrowing capacity of the individual or business entity, the
premise is a little different than the extension of a line of credit. First, this type of credit has to do
with loans that are taken out for specific purposes, rather than general purposes. Second, they
often involve some sort of collateral that helps to ensure the repayment of the loan in the event of
default.
A basic philosophy of the banking system is that when money is loaned out, there must
be a reasonable expectation of repayment of the loan, plus interest. This means that looking at
the overall financial status of the applicant is important. Assets such as property, savings and
stock accounts, current indebtedness, employment status and annual net salary or wages, and
overall credit rating are all components that factor into determining the bank credit of the
applicant. This is a far more comprehensive approach than is normally used for the issuing of a
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credit card. Adopting a credit management philosophy is an important first step in drafting credit
policy. The philosophy should set out the broad goals and objectives of a credit unions lending
activities, as established by the board of directors. Developing a credit granting philosophy
provides the board with an opportunity to express their vision for the credit unions lending
program. This vision should govern all lending policy constraints and help address new
situations where policy does not yet exist.

Credit Culture
Hbl follow production driven credit culture

Risk assessment
Relationships with Banks CAMPARI
One of the old (but still valid) models used by banks to evaluate lending propositions is
CAMPARI. This model looks at a range of aspects associated with lending which covers not just
the finance that is being sought but the people who are seeking it. A refinement on CAMPARI is
CAMPARI which adds additional dimensions:
Character Do we believe the management team to be open, honest and trustworthy?
Ability What relevant skills, competencies and experience do key people have?
Management How will key activities be organised and how will progress be tracked?
Purpose Is there a clear business case for the stated use of this advance?
Amount Is the amount being asked for reasonable and sufficient in the circumstances?
Repayment Financial assessment of source and timing of repayment plus key risks?
Insurance What is our security should things not proceed as the management forecasts?
CAMPARI covers a range of intangible aspects (value drivers) like:
o
o
o
o
o
o
o

Relationships and obligations.

Knowledge and experience.
Leadership and communication.
Reputation and trust.
Culture and values.
Skills and competencies.
Processes and systems

Considerations in planning credit approval processes:-

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The individual steps in the process and their implementation have a considerable impact on the
risks associated with credit approval.The errors encountered in practice most often can be put
down to these two sources:
1. Substantive errors:
These comprise the erroneous assessment of a credit exposure despite comprehensive and
transparent presentation.
2. Procedural errors:
Procedural errors may take one of two forms: On the one hand, the procedural-structural design
of the credit approval process itself may be marked by procedural errors. These errors lead to an
incomplete or wrong presentation of the credit exposure. On the other hand, procedural errors
can result from an incorrect performance of the credit approval process. These are caused by
negligent or intentional misconduct by the persons in charge of executing the credit approval
process.
Segmentation of Credit Approval Processes:In order to assess the credit risk, it is necessary to take a close look at the borrowers economic
and legal situation as well as the relevant environment (e.g industry, economic growth). The
quality of credit approval processes depends on two factors, i.e. a transparent and comprehensive
presentation of the risks when granting the loan on the one hand, and an adequate assessment of
these risks on the other. Furthermore, the level of efficiency of the credit approval processes is an
important rating element.Due to the considerable differences in the nature of various borrowers
(e.g. private persons, listed companies, sovereigns,etc.) and the assets to be financed (e.g.
residential real estate, production plants, machinery, etc.) as well the large number of products
and their complexity, there cannot be a uniform process to assess credit risks.This segmentation
is mostly used to differentiate the services offered and to individualize the respective marketing
efforts. As a result, this segmentation is based on customer demands in most cases. Based on its
policy, a bank tries to meet the demands of its customers in terms of accessibility and
availability, product range and expertise, as well as personal customer service
Accounting for Risk Aspects:The quality of the credit approval process from a risk perspective is determined by the best
possible identification and evaluation of the credit risk resulting from a possible exposure. The
credit risk can distributed among four risk components
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a. Probability of default (PD)
b. Loss given default (LGD)
c. Exposure at default (EAD)
d. Maturity (M)
a. Probability of Default:Reviewing a borrowers probability of default is basically done by evaluating the borrowers
current and future ability to fulfill its interest and principal repayment obligation.
b. Loss Given Default:The loss given default is affected by the collateralized portion as well as the cost of selling the
collateral. Therefore, the calculated value and type of collateral also have to be taken into
account in designing the credit approval processes.
c. Exposure at Default (EAD):In the vast majority of the cases described here, the exposure at default corresponds to the
amount owed to the bank. Thus, besides the type of claim, the amount of the claim is another
important element in the credit approval process.
Thus, four factors should be taken into account in the segmentation of credit approval processes:
1. type of borrower
2. source of cash flows
3. value and type of collateral
4. amount and type of claim
The segmentation of the credit approval processes should distinguish between
credits to corporations, partnerships, or sole proprietors; and
specialized lending
HBL have to distinguish between the following forms of specialized lending in the calculation of
regulatory capital.
1. Project finance
2. Object finance
3. Commodities finance
4. Finance of income-producing commercial real estate
Value and Type of Collateral:-

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Value and type of collateral have a significant impact on the risk involved in lending. Of
particular relevance in this context are those types of collateral which afford the lender claim in
rem on the collateral, and those product constructions under which the lender has legal and
economic ownership of the asset to be financed. Two forms of finance are particularly relevant in
practice:
mortgage finance
leasing finance
Mortgage finance and leasing are those forms of finance which often give the lender a substantial
degree of control over the asset being financed. The strong legal position resulting from such
collateral may warrant special treatment of the relevant forms of finance.The valuation of the
collateral provided by the credit applicant is an essential element in the credit approval process
and thus has an impact on the overall assessment of the credit risk involved in a possible
exposure. The main feature of a collateralized credit is not only the borrowers personal credit
standing, which basically determines the probability of default (PD), but the collateral which the
lender can realize in case the customer defaults and which thus determines the banks loss.
Physical collateral, the bank receives a specific security interest In certain assets of the borrower
or the collateral provider. Examples of physical collateral are the following:
a. Mortgage
b. Pledge of movable assets (on securities, goods, bills of exchange)
c. Security assignment
d. Retention of title

Credit process of products

1. Investment process
The investment process adopts a fundamental approach to investing in the bond, credit and
currency markets. HBL uses top-down analysis for making strategic decisions, a bottom-up
analysis to assess issuers creditworthiness and a security selection process
2. Strategic top-down analysis
Top-down analysis is used to assess the attraction of different areas of the global bond and credit
markets as well as regions, countries and currencies. Factors in the top-down analysis include the
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political environment and macro-economic variables such as real GDP growth, inflation, budget
and current account deficits, monetary and fiscal policy, foreign exchange reserves and debt
burden.
HBL position the Fund in accordance with the opinion on the relative attractiveness and
accessibility of each of the different areas of the exposure of the Fund to issuer type
(e.g. sovereign versus corporate), creditworthiness
(e.g. investment grade versus speculative grades), geography
(e.g. developed versus emerging markets) and currency
(e.g. developed currencies versus emerging currencies).
3. Creditworthiness bottom-up analysis
Bottom-up analysis is used to assess the creditworthiness of the issuers of debt securities of any
credit quality (investment grade, speculative grade and unrated). The aim is to assess an issuers
creditworthiness, with respect to both ability and willingness to pay commitments in a timely
manner. Factors in the bottom-up analysis of corporates include the quality of management,
financial variables such as interest coverage and debt ratios, and the sensitivity of the business to
changes in the environment for its products. Factors in the bottom-up analysis of sovereigns
include the political environment and macro-economic variables mentioned above.
4.Security selection
The attractiveness of various currencies and bonds, whether sovereign or corporate, in developed
or emerging markets, is judged after consideration of a number of factors such as:
The expected total return relative to the assessed risk
The contribution from income and capital to the expected return :Issue size and liquidity
Currency of denomination
Outstanding term to maturity
Duration

Portfolio construction:A portfolio will be constructed that best meets the objectives of the Fund as to expected total
return, income yield, duration, risk to capital, volatility and leverage.
In constructing the portfolio HBL consider the most efficient way of achieving the required
strategic exposures identified in the top-down analysis using the securities identified in the
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selection process and any other instruments required, including the use of financial derivative
instruments (including derivative instruments with leverage). HBL create synthetic short
positions to allow the Fund to benefit from downwards movement in prices or overpricing of
securities or market factors by taking short or negative exposures.
Negative list of professions issued by HBL

Lawyers
Policemen
Gold smith
Real estate

Basel accord:Pakistan started implementing Basel environment in the year 2005 with the deadline of fullfledged adoptability up to December 2009 which was latter extended for indefinite period of time
State Bank of Pakistan has chalked out a roadmap for the transition of the banking system to this
new capital regime, we intend to, like so many other economies, first adopt the standardized
approach to credit risk and operational risk from January 1, 2008 and then move forward with
the adoption of the internal ratings based(IRB) approach from January 1, 2010, subject to due
diligence of the banks with international presence.

Conclusion:The overall credit process of the bank is doing well. As whenever they grant the credit of any
borrower they did the proper CAMPRI analysis which is very helpful for them. Their strategy
not to grant loans to negative lists borrowers is good to reduce their credit exposures. In
constructing the portfolio HBL consider the most efficient way of achieving the required
strategic exposures identified in the top-down analysis using the securities identified in the
selection process and any other instruments required, including the use of financial derivative
instruments.

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