How HSBC Jade financing solutions enhance wealth accumulation

December 22, 2020 16:00
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Being asset rich does not mean one’s liquidity needs are always fully covered. Interesting business opportunities may come up, or there could be unexpected spending, or anticipated cash inflows not being materialised. To offer clients greater financial flexibility and help them address cash flow issues by making use of their existing investments, HSBC Jade has launched Wealth Portfolio Lending service.

Wealth Portfolio Lending facility can be used for most purposes with very few restrictions. After submitting the application, a credit line would typically be approved within 2-4 business days and the customer could then begin drawing down on their loan facility anytime they want. The standing credit line is always available with no fixed repayment schedule.

Wealth Portfolio Lending allows customers to draw loans at HSBC’s Best Lending Rate, then a further reduction of 2.55% with no additional fees and charges for applying and maintaining the facility.

In essence, Wealth Portfolio Lending can be regarded as a liquidity solution for customers to draw loans at a lower cost, and potentially get a higher lending limit compared to other lending facilities in the market.

By borrowing against their investment portfolios, customers can also avoid compromising their long term investment strategies by staying invested.

“If investors were to simply sell part of their holdings in order to meet liquidity needs, they could be disrupting their long term investment strategy or even suffer a loss in an unfavourable market,” said Sami Abouzahr, Head of Customer Wealth, Wealth and Personal Banking, Hong Kong, HSBC.

“While staying invested in their existing portfolio means that customers can continue to receive dividends, interest or capture capital gains, especially in anticipation of favourable market conditions,” he continued.

Taking into consideration that customers using such financing option could be exposed to potential margin calls and even forced liquidation of assets amid adverse market movements, sophisticated simulation tools are used to determine a recommended credit line based on each individual portfolio.

Wealth Portfolio Lending is designed to set advance ratios (credit to asset ratios) based on the quality of the collateral such as, liquidity, credit quality, country quality, market cap, diversification and currency considerations among others. For example, for fixed income funds, the advance ratio could be as high as 95%, while that of bonds could be up to 85% and 60% for HK-listed equities.

To help clients safeguard against taking excessive risk, Abouzahr said: “We encourage lending on more diversified portfolios as opposed to concentrated portfolios. The benefit is that it reduces the likelihood of margin calls and customers having to top up should the value of their collaterals drop.”

In a low interest rate environment such as now, the quest for yield is becoming more challenging. To help clients who are seeking yield enhancement opportunities, HSBC’s Unit Trusts Investment Financing service has been re-launched, which offers a leverage option to HSBC Jade account holders.

There are a number of fund categories eligible for leveraging such as fixed income funds, income-driven multi-asset funds, and equity dividend funds. High yield bond funds are however not included.

Customers could take advantage of Unit Trusts Investment Financing to capture potential gains from the difference between the yield of their unit trusts and the interest costs.
But clients have to bear in mind that if the value of unit trusts drops, they could suffer a double loss when the interest expenses are factored in.

“Unit Trusts Investment Financing is a high-risk, higher potential reward proposition, so the bank will be monitoring the margin status of individual Unit Trusts Investment Financing accounts using the Portfolio Margin Ratio. While we have a set procedure for monitoring such risks and will act quick to notify customers should they reach margin call status, customers need to be aware of their own margin status as well,” Abouzahr noted.

To make sure clients understand what they are walking into, they need to undergo a risk profile assessment to make sure they have the core objective of yield enhancement and the right level of risk tolerance. HSBC Jade Directors would also explain the risks involved with such leveraged investments and help clients select the suitable unit trusts.

HSBC’s Best Lending Rate applies to Unit Trusts Investment Financing, with a reduction of 2.60% for HKD loans and a reduction of 1.12 % for USD loans. There is no limit on the length of the lending period.

Wealth Portfolio Lending and Unit Trusts Investment Financing, each with its own features targeting different needs, should broaden the choices of HSBC Jade clients and open up new wealth accumulation possibilities, provided that they consider the relevant risks and use these funding instruments properly. Clients can contact their HSBC Jade Director to learn more.

Terms & conditions apply. Investment involves risks. Unit Trusts are investment products and some may involve derivatives, and are not equivalent to time deposits. There would be a higher level of risks and potential greater losses if you decide to use any loan amount for reinvestment. The information provided does not constitute in any form of solicitation/recommendation of any investment products or lending products.

To borrow or not to borrow? Borrow only if you can repay!

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