Good Report About HSBC: Credit Analysis

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Introduction

The global financial crisis in 2008 to 2010 has left many industries suffering from a great financial lost that lead to the closure of many businesses. In a news reported by the Fox News Network, approximately 20,000 small businesses had closed due to the impact of the financial crises . One industry that has been badly affected was the banking industry. This is confirmed by a report published by The Guardian citing the Federal Deposit Insurance Corporation (FDIC) stating that over 304 banks have failed from 2008 to November of 2012 . However, in another report that maps the failure of the banking sector during the recession reported that there were in fact, 465 banks that have suffered failed and had to surrender their assets and deposits to be redistributed to 7, 176 banks that have managed to withstand the impact of the recession . HSBC, one of the globally trusted brand in the banking industry has managed to remain solid during and after the recession. While HSBC did not have a smooth operation during this period, it manages to survive the recession. This paper aims to evaluate the performance of HSBC particularly in UAE. A credit analysis is to be conducted to evaluate the status of HSBC-UAE.

Company Profile

The Hong Kong and Shanghai Banking Corporation or HSBC is, in fact, British multinational financial and banking services company with its main headquarters at 8 Canada Square, Canary Wharf in London, UK. However, HSBC was originally founded in Hong Kong and bore the Chinese name Wayfoong (滙豐), which literally translate to “abundance in remittance” or “focus of wealth”. HSBC has been around for more than 150 years surviving different economic difficulties including the Panic of 1893, the Great Depression and very recent was the Global Economic Crisis of 2012. Trading as HSBA in the London Stock Exchange, as 0005 in the Hong Kong Stock Exchange and as HSBC at the New York Stock Exchange, HSBC is a public limited company, which derived its name from the initials of the Hong Kong and Shanghai Banking Corporation.

History of HSBC

Founded by Thomas Sutherland, a Scottish Hong Kong Superintendent for the Peninsular and Oriental Steam Navigation Company, HSBC was conceptualized base on an article that published on Blackwood’s Magazine. As narrated in an online manual of HSBC narrating the company’s humble beginnings, HSBC was founded by a person who had no basic knowledge or idea about the banking industry. Instead, Sutherland was said to have drawn his inspiration based on an article that narrates the success of a Scottish bank. However, instead of establishing the bank in Scotland, he decided on building the bank in Hong Kong where he saw great potential and great need for a financial institution. Nevertheless, despite being established in Hong Kong and Shanghai, the principles used by HSBC is patterned after the Scottish banking principles. The decision to station HSBC’s headquarter in Hong Kong and be managed in the same country was to prevent any possibility of foreign interference with regards to management especially those who have no knowledge or interest in the events that is taking place in Hong Kong. Thus, in August of 1864, Sutherland presented a Provisional Committee for the bank. He began with a HKD$5 million capital. Immediately after the shares were all taken, HSBC was formed.
In March 3, 1865 HSBC Limited was opened in Hong Kong. A month later, a branch was opened in Shanghai. The objective of the founders was to establish a bank that will be housed in both Hong Kong and Shanghai to help local and foreign traders given the drastic change in the trading practice. Originally founded in Wardley House at 1 Queen’s Rd., City of Victoria, HSBC was strategically located at the heart of Hong Kong’s Central Metropolitan district. It was actually facing the harbor, Hong Kong’s business center. HSBC, as mentioned earlier, has been able to surpass a number of economic difficulties including the economic crisis in 1866 where 11 foreign banks in Hong Kong collapsed because of difficulty. HSBS’s ability to weather many economic crises was attributed to the effective management, sound business protocol and customer-center approach in doing business.
HSBC, which is the bank with the third largest assets in the world, was founded in London in 1991 to serve as a new group holding company. As of July 2014, HSBC has over 6,600 offices strategically distributed in 80 different countries, as well as territories across North and South America, Europe, Africa and Asia . These offices caters to a total of 60 million culturally diversified client.
Banking Condition in U.A.E.
HSBC began operations in in 1946. However, initially it was called the British Bank of Iran and the Middle East. However, when Iran decided to withdraw from the operations, the company changed its name to British Bank of The Middle East or BBME taking the name of Iran out of its title. In 1959, HSBC acquired British Bank of The Middle East. The BBME or HSBC-UAE is responsible for establishing the banking sector in the MENA region.
There are different banks that can be found all-over the United Arab Emirates. Different kinds of banking mechanisms and systems can be found in UAE. Online banking is very popular in the country. In the same way, the use of credit cards, debit cards and cash cards are also popular in the country. Cash is still the most popular mode of payment and the most popular way of transacting business. Banks are operational from Sunday to Wednesday from 8am to 1pm. It resumes operation in Friday from 8am to 12nn. However, most banks are usually closed on Thursdays. The medium of communication is either Arabic or English and most ATM machines have English language as an option.
Banks in UAE offer different kinds of services. Specifically, banks offer current accounts, savings accounts and deposit accounts. As of 2010, there are 8 foreign banks operating in UAE. Among these were (1) ABN AMRO Bank NV, (2) Barclays Bank, (3) BNP Paribas, (4) Citibank, (5) Habib Bank AG Zurich, (6) HSBC Bank Middle East, (7) Lloyds TSB Bank, and (8) Standard Chartered Bank.

Financial Highlights

HSBC’s Annual Financial Report is audited by a third-party auditing committee. In the case of HSBC-UAE, the audit was conducted by the KMPG Lower Gulf Limited. According to KMPG Lower Gulf Limited, HSBC-UAE meets the standards of the International Financial Reporting Standard. Therefore, the opinion presented by HSBC-UAE that the company is in sound and stable financial position according to their interpretation of their financial performance and cash flow.
The latest financial status of HSBC was from 2012 to 2013. This will be the basis of comparison in analyzing the financial status of the company. In 2013, HSBC-UAE reported a Net Operating Income of UAD 4,816,848. This is UAD 1,040,277 higher from 2012 Net Operating Income which was UAD 3,776,571.

Bibliography

Fox News, 2012. Politics: Economy lost more than 200,000 small businesses in recession, Census shows. [Online] Available at: http://www.foxnews.com/politics/2012/07/26/economy-lost-more-than-200000-small-businesses-in-recession-census-shows/[Accessed 22 April 2015].
Heschmeyer, M., 2012. News: How Banks Survived the Recession. [Online] Available at: http://www.costar.com/News/Article/How-Banks-Survived-the-Recession/143319[Accessed 22 April 2015].
HSBC Groups, 2015. HSBC UAE. [Online] Available at: http://www.about.hsbc.ae/hsbc-in-the-uae[Accessed 22 April 2015].
HSBC Groups, 2015. The HSBC Group: Our Strory. [Online] Available at: file:///C:/Users/Macxy/Downloads/140113-hsbc-our-story%20(1).pdf[Accessed 22 April 2015].
Rogers, S., 2012. The Guardian: Failed banks in the US: mapping the crisis. [Online] Available at: http://www.theguardian.com/news/datablog/2010/nov/02/failed-banks-map-us[Accessed 22 April 2015].