Internship Report of BAF

INTERNSHIP REPORT

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well done keep it up good effort

BANK ALFALAH LIMITED

Student Name Student ID MBA (Finance) Session Date of preparation

VIRTUAL UNIVERSITY OF PAKISTAN (IIIT GUJRANWALA CAMPUS)

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DEDICATION

This project is dedicated to my parents, love of whom has been a constant source of motivation for me.

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ACKOWLEDGEMENT

First of all I thank Allah Almighty for the blessings he has bestowed upon me. I would like to thank my BIOLOGICAL AND SPIRITUAL PARENTS without whom I’ve not been what I’m. I would like to thank Mr. Umair (Dean) and Mr. Farhan (our coordinator) of internship program for guiding me in preparation of this report. I am grateful to the Mr. Sheikh Masood Elahee (Branch Manager) of Bank Alfalah, Mr. Malik Javaid (Manager Operations) and the entire operations Department & Miss Maria Khan (CRO) of Bank Alfalah for helping and guiding me in a relentless manner during my internship at Bank Alfalah. I also thankful to Miss Saira (Manager Trade) & Mr. Hamayoun Rasool Malhee (Manager Credit), Miss Hina also give a greater knowledge about accounts department, so I am also thankful to her, I am thankful to all those individuals who contributed for the completion of this project.

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EXECUTIVE SUMMARY Being a student of business administration, it’s very much necessary to get the practical experience of an organization and see the implementation of all that we have studied in theory. When I stepped in Alfalah to have my reality bite, I wasn’t blind of what I am going to have. I’ve heard many people saying that these course books contradict with the real scenario but I didn’t find any gaps. The organization, its procedures, its processes, the system, everything was predictably sound. The only enigma was the “people”, as books can’t provide the expertise needed to deal with them, its life that does! In Pakistan, the integration of the Banking and Finance Sector with the international finance community is a high priority of the Government to attract foreign investments in the development of the country's economy. Internship is in fact a glimpse of job world and off course practical and professional life. Internship at Bank Alfalah provided me an opportunity to explore practical work in light of what I have studied during MBA. My SIX week working at Bank Alfalah Limited, Main GT Road Branch, and Gujranwala was full of learning regarding various aspects of banking. This report contains practical knowledge, which I gained during my internship. Bank Alfalah limited is one of the largest private banks in Pakistan, and due to bank’s movement on its path of strategic excellence with a special focus on service and value enhancement it has a very bright future ahead. During past few years the positive and dynamic interplay of political and economic factors translated into higher performance for the Bank. Working at BANK ALFALAH LIMITED is really a very tough job. But the working environment BANK ALFALAH LIMITED is marvelous. BANK ALFALAH LIMITED is a perfect example of a modernized bank where great emphasis lies on achieving customer satisfaction. Moreover, BANK ALFALAH LIMITED is a growing organization and when organization grows, its employees also grow. All the information in this report is based upon my observation, interviews and practical involvement in different tasks during my internship at Bank My report is divided in 4 sections. The first one contains the introduction of bank and BAL. BAL is a big name in the world of banking. It’s a real BIG THING as it has its 8

network spread country wide and internationally of course. Its 274 branches in 74 cities say it all! The second portion is all about my experience at BAL i.e. what I learnt there. My experience at Alfalah was like a slice of a surprise cake, every bite of which was having something new to taste. And I enjoyed every bite of it. It was an entirely new experience, it was life… and I won’t be wrong if I say it was an experience of a life time. I worked in A/C opening and Foreign Trade and spend my maximum time in exports. I also worked in credit department & learn a lot. I also worked in accounts department for one week. The reason behind it was the rush of internees, lack of time at employee’s end and my own temperament. I also work for audit preparation for one week. The third portion contains the financial analysis of BAL where I’ve analyzed the working of Bank Alfalah Limited regarding cash flow ratios, liquid ratios, market-based ratios and special bank ratios etc. The overall solvency of bank is good. The fourth portion is about the financial analysis from where bank generate money for financing and accounting system of the organization. I also mention the SWOT analysis of the bank Alfalah limited. At the end I give some suggestions for further improvement.

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TABLE OF CONTENTS TITLE DEDICATION ACKNOWLEDGEMENT EXECUTIVE SUMMARY TABLE OF CONTENTS SECTION 1: INTRODUCTION TO BANK ALFALAH LIMITED 1. ORGANIZATION’S BUSINESS SECTOR 1.1OVERVIEW OF BANK ALFALAH LIMITED 1.2. HISTORY OF THE ORGANIZTION 1.2.9. NATURE OF THE ORGANIZATION 1.3. BUSINESS VOLUME 1.4. SERVICES/PRODUCTS 1.4.1. HOME FINANCE 1.4.2. CAR LOANS 1.5. CREDIT CARDS: 1.6. BANK ALFALAH’S DEBIT CARD: 1.7. TYPES OF ACCOUNT OFFERED BY THAT BANK 1.8. MONEYGRAM 1.9. COMPETITORS 1.10. ORGANIZATIONAL STRUCTURE OF BAL 1.10.1. NUMBER OF EMPLOYEES 1.10.3. INTRODUCTION OF ALL THE DEPARTMENTS 1.10.4. COMMENTS ON THE ORGANIZATIONAL STRUCTURE: 1.11. INTRODUCTION OF BANK ALFALAH LIMITED GUJRANWALA 2. TRAINING PROGRAM: 2.1. "ACCOUNT OPENING 2.2.1OPERATIONS DEPARTMENT AT GUJRANWALA BRANCH: 2.2.2. MANAGEMENT AT OPERATIONS DEPARTMENT 2.2.3. ACCOUNT OPENING DEPARTMENT & CHEQUE BOOK

Page # 3 4 5-6 7-9 10-31 11 12 12-15 15 16 17-25 17-18 18-20 20-22 22 22-24 25 26 27 28 28-29 29 30-31 32-102 33-71 34 34 35-71

ISSUANCE & LOCKERS 2.3. PROCEDURE OF ACCOUNT OPENING 2.4. ACCOUNT CLOSING 2.4.4. STOP PAYMENT 2.4.5. CHEQUE BOOKS RECIVING & ISSUANCE 2.4.6. IN CASE OF CHEQUE BOOK LOST 2.4.7. MANUAL CHEQUES 2.4.8. RECEIVE THE CHEQUE BOOK BY OTHER PERSON ON BEHALF

49-52 52-55 55-56 57 58-59 60 60-63

OF ACCOUNT HOLDER 2.4.9. ACTIVATION OF DORMANT ACCOUNT 2.4.10. CHANGE OF ADDRESS & TELEPHONE 2.4.11. CHEQUE FILLING

63-64 64-65 66

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2.5. MONEY GRAM 2.6. LOCKERS 2.7. ACCOUNTS DEPARTMENT 2.8. CREDIT DEPARTMENT 2.9. TRADE DEPARTEMNT 2.9.14. TASKS THAT I PERFORMED 2.10. FINANCE DEPARTMENT 3. FINANCIAL ANALYSIS 3.4. CALCULATIONS OF SPECIALIZED RATIOS 3.5. CALCULATIONS FOR LEVERAGE RATIOS 3.6. MARKET ANALYSIS 3.7. CASH FLOW ANALYSIS 3.8. ACTIVITY RATIO 3.9. PROFITABILITY RATIO 3.10.1 HORIZANTAL ANALYSIS 3.10.2 GRAPHICAL REPRESENTATION OF VERTICAL ANALYSIS 3.11. FUTURE PROSPECTS OF THE ORGANIZATION 3.12. COMPARISON WITH COMPETITORS 4. SWOT ANALYSIS 5. RECOMMENDATION 6. CONCLUSION BIBLIOGRAPHY GLOSSARY PERSONAL INFORMATION

67-68 69-71 72-76 77-89 90-97 98 110-114 103-142 105-109 115-120 121-124 120-122 125-129 130-132 133-137 140-146 146 147 148-151 152-153 154 155 156-157 158

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1. BRIEF INTRODUCTION OF THE ORGANIZATION’S BUSINESS SECTOR: 2. Introduction of banking sector is not described. 3. •

Trading and sales It includes fixed income, equity foreign exchange, commodities, credit, funding, own position securities, lending and repos, brokerage debt and prime brokerage.

•

Retail banking It includes lending and deposits, banking services, trust and estates, private lending and deposits, banking service, trust and estate investment advice, merchant/ commercial/ corporate cards and private labels and retails.

•

Commercial banking Commercial banking include project finance, corporate finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange and deposits.

•

Corporate finance Corporate banking includes services provided in connection with mergers and acquisition,

underwriting,

privatization,

securitization,

research,

debts

(government, high yield), equity, syndication, IPO and secondary private placements. SUBSIDIARIES OF BANK ALFALAH LIMITED:

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AL-BADER INTERNATIONAL DEVELOPMENT CO.

1.1OVERVIEW OF BANK ALFALAH LIMITED:

Private Type

KSE:

Founded Headquarters

LSE: Karachi Principal Office, Karachi Pakistan

Key people

H.E. Sheikh Hamdan Bin Mubarak Al Nahayan (Chairman)

Industry

Banking Capital Markets

Products

Loans, credit card, savings, consumer banking etc.

Revenue Website

PKR www.bankalfalah.com

1.2BRIEF HISTORY: Bank Alfalah Limited is located in Karachi, Sindh, Pakistan. Bank Alfalah was 14

incorporated on June 21, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the

Bank

has

invested

in

revolutionary technology to have an extensive range of products and services. This facilitates bank’s commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure

uninterrupted

services to its

customers. Bank perceives the requirements of its customers and matches them with quality products and service solutions. During the past five years, bank has emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. 1.2.1. History of bank Alfalah limited: Bank Alfalah has gone through different phases over the years. Its name has been changed in the following sequence. •

Bank of credit and commerce and international (BCCI)………………1972

•

Habib Credit and exchange bank………………………………………1992

•

Bank Alfalah…………………………………………………………..1997

1.2.2. Introduction of BCCI: Bank Alfalah limited was being formed after going through different changes. At first the bank Alfalah limited was working the name of bank of credit and commerce international (BCCI). BCCI was incorporated in Luxemburg on September 21, 1972. At that time it's paid up capital was US $ 205, million. By early 1973 BCCI has established its first 4 branches in three countries. o Luxemburg o UAE o UK With the passage of time the branch network of bank Alfalah limited was expand rapidly in different region of the world i.e. far east, Africa, Europe and western and Latin America. 15

1.2.3. Branches of BCCI in Pakistan: There were three branches of BCCI in Pakistan. These were o Karachi o Lahore o Rawalpindi The Lahore branch was opened on 15th December 1978. This branch was opened at that time when some other international banks like citi bank, bank of America and American express etc. were already working. But within a few years this branch crossed mostly all the other banks in case of deposits, advances, imports & exports dealings. 1.2.4. Liquidation of BCCI: BCCI was closed on July 5, 1991. At that time BCCI was opening almost 69 countries in the world. It had 3 operating branches in Pakistan. When financial authorities launched a coordinated swoop, it was supposed to be the biggest international fraud story in history. 1.2.5. Incorporation of Habib credit & exchange bank: In July 1991, the branches of BCCI in Pakistan at that time were taken over by The Ministry of Finance and SBP. All three branches were under Habib Bank Limited after valuation of its assets for 15 million dollars. It worked with Habib Bank Limited as a subsidiary for around about 10 months from 14 March 1992 to 31st October 1992 1.2.6. Privatization of Habib credit & exchange bank: H.C.E.B was privatized on July 7, 1997. 70% shares and management was taken over by Abu Dhabi based Al-Nayhan consortium. This consortium consists of foreign investors of UAE and highly professional Pakistani bankers. The bank was sold for Rs. 39 per share for 70% shares. The government decides to sell 10% shares to employees and rest of the shares was privatized through the stock exchange. 1.2.7. Emergence of bank Alfalah: Following the privatization in July 1997, Habib credit and exchange bank assumed the new identity of bank Alfalah on February 25, 1998. It is now Abu Dhabi based bank as the family of Sheikh Nahayan Mubarik al-Nahayan purchased 70% of its shares. Bank Alfalah Limited was launched on June 21, 1997 as a public limited company under the Companies Ordinance 1984. The bank commenced its operations on November 1,

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1997. The bank introduced commercial banking and related services as defined in the Banking Company's ordinance, 1962. After a few years, the bank introduced its new identity of H.C.E.B after the privatization in 1997. The management of the bank had implemented strategies and policies so the bank would become a major player in the market. With a partnership with the Abu Dhabi Group the position of the bank became stronger which allowed the bank to invest more in revolutionary technology to increase its range of products and services. 1.2.8. Bangladesh: Bank Alfalah took over Shamil bank of Bahrain and renamed it to bank Alfalah in 2005 On the 16th of May, 2005 Bank Alfalah formally took over the Bangladesh operations of Shamil Bank of Bahrain for US $17.88 million and renamed it to Bank Alfalah. This was the first branch of the bank outside Pakistan. Currently there are three branches of the bank in the country, two being in Dhaka and the other being in Chittagong. Nature of organization: Bank Alfalah Limited is a private bank in Pakistan owned by the Abu Dhabi Group. Bank Alfalah was incorporated on June 21, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. After a few years, the bank introduced its new identity of H.C.E.B after the privatization in 1997. The management of the bank had implemented strategies and policies so the bank would become a major player in the market. With a partnership with the Abu Dhabi Group the position of the bank became stronger which allowed the bank to invest more in revolutionary technology to increase its range of products and services. The bank is currently operating through more than 274 branches domestically and an international presence in Afghanistan, Bangladesh and Bahrain, with the registered office at B.A.Building, I.I.Chundrigar, Karachi. Some of the main branches are located in all of the major cities including: Lahore, Kasur, Islamabad, Gawadar, Peshawar, Faisalabad, Quetta, D.I.Khan, Rawalpindi, Sargodha, Sukkur, Sialkot, Multan, Murree, Attock District, Gujranwala, Pirmahal etc.

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1.3. BUSINESS (VOLUME): The directors of Bank Alfalah Ltd have subscribed to right shares in accordance with their entitlement on the basis of a number of shares held by them and so far deposited Rs 708.097 million in the bank’s account. According to a communique dispatched to KSE on Wednesday, they included Hamadan Bin Mubarak Al Nahayan, Abdullah Naseer Hawaileel, Abdullah Khalif Al Mutawa, and Khalid Mana Saeed Al Otaiba, Ikram ulMajeed Saigol, Nadeem Iqbal Sheikh and Sirajuddin Aziz. It may be noted that the board of directors of Bank Al-Falah in a meeting held in Abu Dhabi, UAE on December 15, 2008 approved the issue of 50 percent right shares (one share for every two shares) at a face value of Rs 10 per share to enhance its paid up capital. Bank Alfalah Limited, through its subsidiaries, provides retail and commercial banking, and corporate finance products and services in Pakistan, the Asia Pacific, and the Middle East. The company’s retail banking products and services include retail lending and deposits, private lending and deposits, trust and estates investment advice, merchant/commercial/corporate cards, and private labels; commercial banking products and services include project finance, corporate finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange, and various deposit products; and corporate finance products and services include services in connection with merge. Bank Alfalah Ltd. reported earnings results for the year ended December 31, 2008. For the period, the profit before taxation declined to PKR 1.794 billion as compared to PKR 4.535 billion earned in the corresponding period in 2007. The profit after taxation declined to PKR 1.301 billion in the period under review against PKR 3.130 billion earned in the same period a year back. The bank earning per shares declined to PKR 1.63 against PKR 3.92 recorded in 2007. The bank's mark-up/return/interest earnings increased to PKR 31.046 billion against PKR 25.783 billion. The bank's total non-mark-up/interest income declined to PKR 5.245 billion against PKR 6.038 billion. Revenue Net income

▲PKR 25.783 Billion ▲PKR 3.130 Billion

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1.4. SERVICES/PRODUCTS OFFERED BY BANK ALFALAH LIMITED: Bank Alfalah Limited, through its subsidiaries, provides retail and commercial banking, and corporate finance products and services in Pakistan, the Asia Pacific, and the Middle East. The company’s retail banking products and services include retail lending and deposits, private lending and deposits, trust and estates investment advice, merchant/commercial/corporate cards, and private labels; commercial banking products and services include project finance, corporate finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange, and various deposit products; and corporate finance products and services include services in connection with mergers and acquisition, underwriting, privatization, securitization, research, government and high yield debts, equity, syndication, IPO, and secondary private placements. It also operates as an investment advisor/fund manager, as well as floats and manages open-ended and closed-ended funds. The company’s products and services also include deposit accounts, lockers, remittance, and hilal/debit cards; structured finance, trade finance, lease finance, small and medium enterprise finance, and agriculture finance; credit cards, home loans, and auto/vehicle loans; and money market, forex market, correspondent banking, nostro account, consumer banking, and home remittance products and services. As of December 31, 2008, it operated a network of 274 branches. 1.4.1. HOME FINANCE: Following products in the Home Loan are offered by Bank Alfalah. 1.4.1.1. PRODUCTS 1.4.1.2. Home Purchase: With this facility, customer no longer need to just dream about the home he wants for himself and his family .Bank Alfalah will provide customer up to 80% of the purchase price of the property (whichever is less), so that customer can realize his dream and enter the reality of owning a home. Payment period ranges from 3 to 20 years. 1.4.1.3. Home Construct: If customer has a plot and need finance to construct a home, which excites everyone in your family! No problem. Bank Alfalah will provide customer 100% of the estimated value of constructed property to enable him to say good-bye to rent forever! Even if customer don't have a plot, Bank Alfalah will provide customer up to 60% of the value of

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the plot that customer has selected to purchase! Payment period ranges from 3 to 20 years. 1.4.1.4. Balance Transfer Facility: Customer’s existing installment on a home finance leave customer with nothing to spend. Customer need not worry any more because Bank Alfalah has genuinely low rates and payment options that could leave more funds with customer each month. With Bank Alfalah’s BTF, repaying home finance will not make customer break into a sweet! Transfer up to 100 % of the existing finance. Customer can stretch repayment period for up to 20 years. 1.4.1.5. Home Renovation If your customer already own a home, but need extra space for a growing family or want to see some rooms get a new look. Simply apply for financing of up to Rs. 3.50 million or 40% of the surveyed value of your home and get yourself the extra space. You can stretch your payments for up to 10 years. Home Start The crown jewel of Home Finance Scheme, the golden opportunity for someone starting a career to buy an already constructed housing unit so early in life! Bank Alfalah offers a moratorium of up to 3 years in principal payments, for a financing of up to 20 years. Customer services only the mark-up element initially, and principal repayment starts after the end of moratorium period. Home Start is specially designed for young people to own a home of their own. 1.4.2. CAR LOANS: Objective The main objective of the car finance department is to finance all the cars manufactured or assembled in Pakistan and imported cars at a very reasonable markup. 1.4.2.1. Benefits and Features •

Quickest processing

•

No hidden charges

•

Minimum down payment

•

Complete repayment at any point of time

•

Balance transfer facility {BTF} for existing as well as new clients from other 21

Banks •

Tenure period ranging from 1 to 5 years.

•

Financing of all brand new locally assembled vehicles and used cars.

•

Financing limit ranging b/w Rs. 200,000/- to Rs. 2000,000/- for brand new cars

1.4.2.2. Corporate & Individual Car Leasing: BAL’s recently introduced car leasing facility for individuals and corporate sector has set new dimensions for the product. Now customers are provided with the option of either to get the vehicle leased or financed. 1.4.2.3.Insurance Renowned and reliable Insurance companies are offering the competitive rates of Insurance, per year insurance premium in advance {at the time of down payment} and remaining in the subsequent equal monthly installment. 1.4.2.4. Processing Fee (Non Refundable): For financing upto Rs.

1.00M

5000

For financing upto Rs.

2.50M

10,000

For financing upto Rs.

5.00M

12,500

For financing over Rs. 1.4.2.5. Mark-up Rates:

5.00M

15,000

1 Year KIBOR + 2% for salaried person 1 Year KIBOR + 3% for Business People / Self-employed and Overseas Pakistani (both salaried and self-employed) •

1 Year o

Salaried 14.00% per Annum

o Self-employed Professionals & Businessmen and Overseas Pakistani (both salaried and self-employed) 15.00% Per Annum

These are indicative rates reviewed monthly

1.4.2.6. Late Payment Charges:

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Rs. 500/- per late payment

1.4.2.7. Prepayment Charges: Nill if repaid through own sources, otherwise 5% penalty of the outstanding amount. No charges are applied on balloon/bullet payments for reducing your loan amount

1.4.2.8. Documentation Charges: At actual, including stamp duty charges for legal documentation, on-site inspection during construction, lawyer’s fee and charge registration fee, as advised by the relevant persons/ agencies. *All quoted rates are subject to change in response to SBP / Market factors. However, we will notify our customers of each rate change. 1.5. CREDIT CARDS: Bank Alfalah Credit Card is your partner everywhere and is globally accepted and welcomed at locations displaying the VISA logo. It is accepted at nearly 29 million locations in more than 150 countries around the globe and over 22,000 Bank Alfalah’s establishments in Pakistan. Alfalah VISA lets you pay for shopping, travel, entertainment, meals and much more. Card members are facilitated through a number of promotions from time to time. In addition, there are a number of strategic business partnerships with leading local and international brands for purchase of home appliances at exciting Step-BY-Step (SBS) monthly installment plan with free home delivery at lowest interest rates. Salient features are: o No Joining / Annual / Renewal fee o Electricity, Sui Gas, PTCL and Warid bills payment through 24 hour Call Center and Auto Debit instructions o SMS for card usage, mini statement, payment receipt confirmation, etc. o Cash withdrawal at all 1LINK ATMs o Special offer on Warid post paid connections 1.5.1. Revolving Credit

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With Alfalah Visa a customer has the option of paying only 5% (minimum Rs. 500/-) of his outstanding balance by the payment due date. Service charges at the rate of 2.25% per month will be levied on the balance unpaid and carried forward. These charges are calculated on a daily basis from the transaction date for all cash and retail transactions. The following month, customer has the option of either the full amount payment or if he wishes, pay only the minimum amount due and revolve again. 1.5.1. Free Supplementary Cards Bank Alfalah gives up to six supplementary cards for the spouse, children, parents and siblings of the cardholder. All the persons having supplementary cards can use the card up to the limit of the original cardholder. 1.5.2. Zero Loss Liability If the card is lost or stolen, and the cardholder notifies the bank immediately after such event, then the bank will be responsible for any misuse of that card. 1.5.3. All Billing in Pak Rupees Whether the customer makes transactions in Dollars or any other currency, for his convenience, all his billing will be in PAK Rupees. 1.5.4. Comprehensive Travel Protection Alfalah VISA offers a comprehensive cover up to Rs. 7.0 Million on Alfalah VISA Gold Card in case of an accident, while traveling on any common carrier. It is applicable only if the tickets are charged through Alfalah VISA card. All transactions will appear under a separate heading stated as “Credit Cover Premium.” You will be charged 45 paisa’s per Rs. 100 of your statement balance each month. 1.5.5. Legalities The rights and obligations of any card member subscribing to Alfalah Credit Cover will be governed by the definitions, terms and conditions given on the back of this form. By virtue of Credit Cover, Bank Alfalah aims to offer through an insurance company of its choice, certain protection to those card members who are subscribing to Credit Cover in the event of death, prolonged illness, permanent, temporary or total disability. Followings are the credit cards offered by bank Alfalah limited: 1.5.6. Platinum Card It is accepted at nearly 29 million locations in more than 150 countries around the globe

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and at over 22,000 establishments in Pakistan. Titanium Titanium MasterCard is your partner everywhere and is globally accepted and welcomed at locations displaying the MasterCard logo. 1.5.7. Gold & Silver A perfect card combination for all segments of salaried & professional individuals. 1.5.8. Young Professional This Card is for you, if you are: • a Graduate • has just started your Career 1.5.9. Women Exclusive Now for the first time in Pakistan, Bank Alfalah has introduced a credit card exclusively for women. This card has its unique features. 1.5.10. Student Card For the first time in Pakistan, Bank Alfalah introduces a credit card for Students. 1.5.11. Supplementary Card Now you can give Free Supplementary Cards to anyone you care for 1.5.12. Visa Mini Visa Mini is a practical and convenient part of your everyday life - whether you go for shopping, dine out, buy grocery, want to go for holidays. 1.6. BANK ALFALAH’S DEBIT CARD: Alfalah Hilal Card is the revolutionary, new-age form of cash that provides you greater freedom, security and convenience, combined with the wide reach of Visa Network. This single card brings just about everything within your reach. Now, you can use your Alfalah Hilal Card for all your financial needs around the world, round the clock, wherever Visa cards are accepted, locally and internationally. The Alfalah HilalCard is an International Visa Debit Card which gives you an unlimited access to your current / savings account with a simple swipe, at millions of retail shops and ATMs, worldwide. 1.7. TYPES OF ACCOUNT OFFERED BY THAT BANK For any type of transaction and for availing any type of credit facility the 1st and most important step for customer is that he/she must be accountholder of bank. So he must

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open his/her account in the bank and then he can proceed further. •

On the basis of nature of account

•

On the basis of functionality

•

On basis of currency

1.7.1. On The Basis Of Nature: These accounts are further divided into three main categories, which are as follows: 1.7.1.1. Saving Account: Saving accounts are those accounts in which the bank gives the customers profit on their deposits. Bank also deducts zakat on this account. For opening the saving account the customer’s initial deposit must not be less than Rs. 5000. The special code is assign to this account is 02. This account is also further divided into 3 categories •

Saving account

•

Profit and loss account

•

Royal profit account

1.7.2. Current Account: Current accounts are those accounts in which we give no profit to customer on their deposits. Bank also deducts no zakat on this account. For appending the current account the customer’s initial deposit must not less then Rs.10, 000. The special code is assign to this account is 01. 1.7.3. Term Deposit Account: In this account the customer gets its amount fixed for a specified period of time. Bank adds interest in this account and the customer is not allowed to withdraw the money before the expiry of the tenure. On the basis of functionality: This account is also divided into three categories. These are as follows. 1.7.4. Business Account: This account is related to the business community. This account is also further subdivided into three categories. •

Sole proprietor account

•

Partnership account

•

Limited Company account

1.7.5. Personal Account: The accounts related to persons other than companied and partnership firms are called personal accounts. These are further subdivided into three 26

categories: •

Personal account

•

Joint account

1.7.6. On The Basis Of Currency: This account is also divided into two categories. These are as follows: •

Local Currency account

•

Foreign Currency Account

1.7.7. Local Currency account: The account dealing with the local currency is called local currency account. Foreign Currency Account: The account dealing with the foreign currency is called foreign currency account. This account is further subdivided into following. •

USD

•

Euro

•

JPY

1.7.8. Alfalah Kifayat Account: This account is for individual/joint customers only. Other customers like companies, corporate etc are not eligible for opening of this account. Minimum balance requirement for opening this account is Rs. 10,000/- with a maximum of Rs.1, 000,000/-

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1.8. MONEYGRAM:

1.8.1. FEATURES Bank Alfalah limited, in collaboration with Money Gram, offers remittance service to Pakistan. Money Gram is person-to-person money transfer service that allows consumers to receive money in just a few minutes. 1.8.2. SECURE AND RELIABLE An extensive network of quality agents linked by computer, transfer customer’s money safely and ensures that it is handled with care and without delay. Thousands of people already use the Money Gram service all over the world. It is trusted for its reliability and security. 1.8.3. CONVENIENT AND FAST Money Gram is available in over 154 countries and in more than 40,000 locations worldwide. With Money Gram customer’s money is transferred immediately and usually arrives at the receiving end within 10 minutes while other services can take days or weeks. There are no complicated procedures and customers do not need a bank account or a credit card. The receiver is handed the cash immediately. 1.8.4. FREE MESSAGE SERVICE (FOR SENDERS)

There is also an added personal touch-you can receive a 10 word message from the sender with every transaction at no extra cost. 1.8.5. WAY TO RECEIVE MONEY

1.8.6. To receive money: Ensure that the sender has given you the Money Gram reference number. Go to any Bank Alfalah authorized branch, taking some form of identification (e.g. passport) with you. Provide the reference number and complete a simple form. Customer will be given the money immediately, in your local currency. 1.8.7. MONEY GRAM AT BAL GRW At Bank Alfalah Gujranwala Mr. Faisal is the Incharge of Money gram.

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1.9. COMPETITORS: The major competitors of bank Alfalah are •

Allied bank

•

Union bank

•

Standard charter

•

MCB

799500000 Number of share holders 17343

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1.10. ORGANIZATIONAL STRUCTURE OF BAL GUJRANWALA BRANCH: Branch Manager Sheikh Masood Elahee

Credit Manager Mr. Hamayoun Rasool Malhee

Operations Manger Mr. Malik Javaid

Trade Manager Miss Saira Chudhary

Home Loan Mr. Faisal Mr. Shahid

Agri-Credit Mr. Shahzad Naseem

SME Mr. Usman Mr. Muhammad Ali

Officer Mr. Asim Mehmood

Remittance Mr. Qamar

Accounts Mr. Faisal Miss Hina

Cash Department Waseem Butt Irfan Ahmad Amir Asgher Amam Adil M. Daud M. Rizwan

Consumer Banking Shahzad Ahmad M.Asif Bhatti

IT officer Mr. Adnan Munir

CRO Miss Maria Khan

Return & guarantees Usman Anwer

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1.10.1. NUMBER OF EMPLOYEES: The bank Alfalah as everybody knows is well known banking organization they have currently 7,584 employees all over the Pakistan and the numbers of employees working in Bank Alfalah Gujranwala Branch are 45. 1.10.2. MAIN OFFICES 1.10.3. INTRODUCTION OF ALL THE DEPARTMENTS At bank Alfalah G.T road Branch following are the departments •

Operations o E.g. Deposits, Remittances, Foreign Trade, Lockers, account opening, cheque books issuance, accounts.

•

Consumer Department o E.g. Credit Cards, Auto Loans, Home Loans, Consumer Durables.

•

Electronic banking o E.g. Phone Banking, ATM's, online banking.

•

Trade Department o E.g. Short/long Term Finance, Trade Finance, Structured Finance.

•

Treasury & investment o E.g. Money Market, Forex Market, Investments, Govt. Securities, Correspondent

banking.

detail required o o 1.10.4. COMMENTS ON THE ORGANIZATIONAL STRUCTURE: Management must have to adopt some administrative style to get all the activities to be done effectively and efficiently. As far as the management styles at bank Alfalah Gujranwala branch, is concerned, there is some centralization and decentralization to some extent, but most centralized Administrative style of branch manger Mr. Masood Elahee is authoritative. His authoritative style is the requirement of administration. For the implementation of

31

strategies and getting all the activities to be done properly with an organized environment, unity of command is the requirement of the time. But the scenario is different in case of departmental heads. In cash and credit department, powers are delegated at low levels. Employees are allowed to organized and take necessary actions to accomplish their work properly. The organizational structure of BAL is Centralized every thing is approved from the head office they follows the policy of their head department which is in Karachi and they follows all the policy which they send them that BAL is working successfully employees are very satisfied and customers get lower difficulties of any fraud because of centralization. Employees directly reported to manager and then manager send their problems to the head office and they try their level best in solving the matter. Bank Alfalah's management believes in developing the potential of the bank's employees to the fullest extent. Training & development centre of the bank is housed in custom built, state of the art facility on the 4th floor of the head office building at Karachi. The centre is responsible for providing multi-level high quality training programs to all staff members in the following areas: o Consumer banking operations o Credit marketing & credit proposals o Credit administration/documentation o Trade finance operations o Marketing & selling skills o Customer service skills o Performance appraisal skills o Time management & personal effectiveness It is obligatory for each staff member of the bank to attend at least one training programmes. Whenever the training department is unable to provide focused training for certain groups of staff, reputable external training providers are invited to fill the gap.

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1.11. INTRODUCTION OF BANK ALFALAH LIMITED GUJRANWALA: I have done my internship in BANK ALFALAH LIMITED main G.T. Road branch Gujranwala. The internship provided me great opportunity to equip myself with knowledge, techniques, application and tools used in an organization. I was very much excited because working at Alfalah was my dream. The second portion is all about my experience at BAL i.e. what I learnt there. My experience at Alfalah was like a slice of a surprise cake, every bite of which was having something new to taste. And I enjoyed every bite of it. It was an entirely new experience, it was life… and I won’t be wrong if I say it was an experience of a life time! Bank Alfalah limited is providing successful banking services in many cities, so Gujranwala city is one of them. Valid city markets have their unusual importance regarding import business. They are known as business and commercial hub of Gujranwala. Major commodities and industrial raw materials are being imported in these markets. Major industrials are routing prefer to route their business through the banks situated in these areas. These markets are highly profitable and important for banking sector. BANK ALFALAH LIMITED major competitors, Union bank and Askari commercial bank earned huge profits in this area. Therefore, to capture this business and to target this very important segment, bank Alfalah launched its branch in December 22, 2002, with a bright and clear vision of customer service. In the beginning there were some problems as the citizens were afraid of depositing their money in this bank. The employees of the bank worked very hard to increase the business of the bank in Gujranwala. It was due to their firm determination and hard work that this branch of Gujranwala working successfully. Now in Gujranwala BANK ALFALAH LIMITED is making greater profit from rest of the banks. Bank Alfalah G.T Road branch has the importance of backbone for BANK ALFALAH LIMITED. It has second volume of foreign trade business and has led to huge profits, just with in 4 or 5 years. During my internship of 6 weeks at bank Alfalah I analyze that the employees are very hardworking and try to give best level services to the customers, customer satisfaction is more valuable thing for them. Entire team of Bank Alfalah Gujranwala were very

33

cooperative and every time ready to solve my problems in case of any problem. During my internship I work in account opening department and cheque book receiving and issuance there I got a lot of experience how to deal with customers. I got a lot of confidence from this sort of environment of bank Alfalah limited, so this branch is working well but due to economic crises it goes down from previous years but employees are very hard working and from their firm determination Bank Alfalah will become market leader again in Gujranwala. 1.11.1. Starting Date of my Internship at Bank Alfalah Limited: I did six weeks Internship at BAL, so I start my internship on May 19, 2009 and ended on June 30, 2009 1.11.2. Departments of Bank Alfalah where I got training & duration: It was very shorter time for learning but I try to my level best to learn but I touched almost the main departments of bank Alfalah Gujranwala branch. I start my internship from accounting opening, cheque book & lockers department and here I spend 2 weeks of my internship account opening department is more interested for me. I also got knowledge of how to fill different cheque and slips I also got knowledge about money gram. After that in third week I rotate from account opening to Accounts department here I got little bit knowledge about accounts because all officers were busy because of their audit preparations and the closing of June so, I got little bit knowledge about accounts. Then fourth week I spend one week in credit department here I got the knowledge of all the requirements and documents of giving loan. The policies of central branch of bank Alfalah limited. Then the fifth week I got the knowledge of trade fiancé department and I only touched export related working and activities. Six week my last week of internship I spend my all time in closing the accounts its audit working so operations manager give me the task of filing the accounts and close the accounts, attach all customers requests attach with their account foams.

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35

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2. TRAINING PROGRAM: “WORK DONE BY ME" I reported at Bank Alfalah Limited (G.T Road Gujranwala) on May 19, 2009. Mr. Sheikh Masood Elahee, the Branch Manager at that branch of Bank Alfalah welcomed me and inquired about my educational status. He then directed me to see Mr. Malik Javed, Manager Operations and also the internship Incharge at that branch of Bank Alfalah. He introduced me about the internship program at Bank Alfalah. Mr. Malik Javed, Manager Operations guided me about the banking operations and asked me about my intentions for the internship program. Later I was instructed to start my internship from Account opening & cheque Book issuance, so that I might understand the basic banking operations. Miss. Maria Khan, Customer Relations officer, was assigned the task of guiding me about working of department. In this report, my endeavor has been to stipulate my experiences and observations, during my internship in Bank Alfalah G.T Road, which would always be memorable for me. 2.1. "OPERATIONS DEPARTMENT HIERARCHY" MR. MALIK JAVED (MANAGER OPERATIONS)

MR. FAISAL (ACCONTS DEPT) MISS. HINA

MIAN FAISAL (MONEY GRAM, ATM CARDS, LOCKER)

MARIA KHAN ACCOUNT OPENING, CHEQUE BOOKS

MR. ADNAN (IT DEPARTMENT)

IRFAN CD INCHARGE CASH DEPARTMENT

QAMAR ADNAN, RASHID, LOCAL TRASACTIONS)

MR. ASIF BHATI (ONLINE TRANSACTIONS)

2.2.1OPERATIONS DEPARTMENT AT GUJRANWALA BRANCH: Operations department deals with different field of activities dealing with accounts of customers, provides money gram facility, locker facility and ATM cards, online transitions, accounts, cash dealing services. 2.2.2. MANAGEMENT AT OPERATIONS DEPARTMENT: Mr. Malik Javed is the operation manger and Mr. Faisal, Miss Maria Khan assists him in 37

the work. Mr. Faisal is the Incharge of Accounts department, Miss. Hina assists him. Miss Maria Khan is the Incharge of account opening & cheque Book issuance department. Mr. Irfan is the Incharge of cash department. Mr. Faisal handles the services of money gram. Mr. Asif Bhati handles online transactions. Mr. Adnan deals with IT related services, Mr. Adnan, Rashid and Mr. Qamar deals with local transactions. 2.2.3. ACCOUNT OPENING DEPARTMENT & CHEQUE BOOK ISSUANCE & LOCKERS: I spend considerable time in performing the job of Account opening & cheque Book issuance coordinator & lockers. In account opening department I learned about •

How to deal with new customers.

•

Kinds of accounts offered by Bank Alfalah Limited.

•

What are the requirements for opening an account.

•

The persons who are eligible to open an account.

•

Procedure of closing an account.

•

Details about loose the cheque.

•

Details about loose cheque book.

•

How to activate dormant account of customer.

•

Procedure for online an account.

•

Stop payment on customer request.

•

Change the address of customers.

•

Deal with the queries and problems of existing customers.

•

Proper maintenance of requisite documents in files and pouches.

•

Arrange the previous files for AUDIT.

•

Providing account information.

•

know about your customers (KYC'S)

I worked with Miss Maria Khan in this department. She was often busy dealing with customers as in this department lots of customers use to come daily. But still she told me a lot about account opening procedure. She also briefed me how to use bank smart in account opening department. She use to be very polite with customers as her job requires this. She use to mange relationships with customers by providing them better services.

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Therefore customers are pleased. In this department I worked 2 weeks, at my first day Miss Maria told me about what are the requirements for open an account, how many kinds of accounts are there. At my first week I understand the basic steps of account opening procedure. She also told me read the other forms like closing of an account, what is dormant account, how to activate the dormant account, how to issue cheque book to the customers, how to deal with new customers, etc. She told me all the things very briefly, after that she ask me to cheque the forms of different customers & if there is something miss then write down it on the form. Then she said me deal with a customer why she comes? I ask why you come she told me I want to open an account. Then I told her about basic banking account. 2.2.3.1. BASIC BANKING ACCOUNT: Basic banking account basically open for house wife & for salaried person, 1000 initial deposit is needed for this account. In this maximum 2 deposits & 2 withdrawals through cheque are allowed. Free debit card can be used to withdraw cash there is no limit for ATM withdrawals. I told her what documents are required for this accounts.  Two clear copies of computerized national identity card (card holders signatures, name, card number and photo should be clear).  Introducer (bank Alfalah's account holder having good reputation)  NIC No. of next of kin (preferably of blood relation of customer)  In case of house wife account there is need for her husbands source of income prove.  Customer's service card/appointment letter/salary slip or any other documentary evidence of service, including, but not limited to a certificate from the employer.  If customer signs in language other than English, an understanding is required on stamp paper worth Rs. 100 containing text of banks prescribed format.  Signatures of customer should match with that of computerized national identity card, if not then a separate undertaking will be obtained on banks prescribes format and the same will be authenticated by introducer. See annexure  annexure

39

 Two passport size photographs required if customer's signatures are shaky. 40

 If customers signs in a shaky style or affix thumb impression, a separate indemnity will be obtained on banks prescribed format and the same will be authenticated by the introducer.  In case national identity card (CNIC) does not contain a photograph, then in addition to CNIC, any other document such as Driving License etc that contains a photograph is required. if customer does not have any other valid document which bears photograph, then following documents will be obtained: o A passport size photograph duly attested will be obtained: o A copy of CNIC duly attested by gazetted officer/Nazim. o A confirmation in writing to the effect that the individual have no other document bearing photograph. After that I gave the basic banking (BBA) form, and take signs from her on the form and attach all required documents. And also introduce her with branch manger Mr. Sheikh Masood Elahee who ok's her form after taking interview from her. In account opening work was done on routinely basis every day you open accounts and give cheque books to the customers. In account opening tasks was performed on routinely basis. I also learned about other types of accounts at bank Alfalah Gujranwala branch. Following are the accounts which I opened at this department. 2.2.3.2. BUSINESS INDIVIDUALS ACCOUNT: This account is for business individual and firms. Like business has three types so same as this account can also be opened by Sole proprietors, partners & companies. So it is of 3 types  Sole proprietorship Account  Partnership Account  Limited company Account 2.2.3.4. REQUIREMENTS FOR SOLE PROPRIETORSHIP ACCOUNT:  Attested copy of NIC (New) of proprietor.  Declaration of proprtiorship on letter head.  Attested copy of NTN certificate.  Business stamp should be affixed on every signature.  Next of kin of proprietor.

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 CNIC number of next of Kin.  Signature of proprietor should match with that of computerized national identity card, if not then a separate undertaking will be obtained on banks prescribed format and the same will be authenticated by introducer.  Bank References.  Accounts statements.  If proprietor signs in language other than English, an undertaking is required on stamp paper worth Rs. 100 containing text of banks prescribed format.  If customers signs in a shaky style or affix thumb impression, a separate indemnity will be obtained on banks prescribed format and the same will be authenticated by the introducer.  In case national identity card (CNIC) does not contain a photograph, then in addition to CNIC, any other document such as Driving License etc that contains a photograph is required. if customer does not have any other valid document which bears photograph, then following documents will be obtained: o A passport size photograph duly attested will be obtained: o A copy of CNIC duly attested by gazetted officer/Nazim. o A confirmation in writing to the effect that the individual have no other document bearing photograph. 2.2.3.5. REQUIREMENTS FOR PARTNERSHIP ACCOUNT:  Attested copies of NICs (New) of all partners.  Certified true copy of partnership Deed (on stamp paper worth Rs. 500). --partnership Deed should be attested by Notary public.  Copy of NTN certificate of firms as well as all partners.  Partnership Mandate (Banks Prescribed Format).

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Request Letter on firm's letter head mentioning the person/persons authorized to operate the account.  Firms should be affix on every signature.  All partners should sign on banks prescribed format for partnership in their

43

individual capacity (i.e. Firms stamp should not be affixed with signatures on mandate).  Signature of all applicants should match with that of computerized national identity card, if not then a separate undertaking will be obtained on banks prescribed format and the same will be authenticated by introducer.  Photocopy of certificate of registration issued by registrar of firms (only in case registered firms).  Copies of membership certificates from concerned trade organization, if any.  Copies of import/export registration if any (only for trading firms).  Balance sheet (optional).  Banks References.  If any partner signs in language other than English, an undertaking is required on stamp paper worth Rs. 100 containing text of banks prescribed format.  Two passport size photographs required if signatures of any partner are shaky.  If customers signs in a shaky style or affix thumb impression, a separate indemnity will be obtained on banks prescribed format and the same will be authenticated by the introducer.  In case national identity card (CNIC) does not contain a photograph, then in addition to CNIC, any other document such as Driving License etc that contains a photograph is required. if customer does not have any other valid document which bears photograph, then following documents will be obtained: o A passport size photograph duly attested will be obtained: o A copy of CNIC duly attested by gazetted officer/Nazim. o A confirmation in writing to the effect that the individual have no other document bearing photograph. 2.2.3.6. REQUIREMENTS FOR LIMITED COMPANY ACCOUNT:  Memorandum & Article of association. -Attested by SECP. -Company seal should be affix on both memorandum & article of association.  Attested photo state copy of certificate of incorporation. (Attested by SECP).

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 Attested photo copy of latest 'form A-29'. (Attested by SECP).  List of Directors on company's letter head. -under signed by the chairman & sectary of the company.  Copy of Board Resolution regarding account opening. -under signed by the chairman & sectary of the company. -company seal should be affixed on Resolution.  Attested copies of NICs (New) of all Directors.  Copy of Board Resolution (Banks prescribed form).  Attested copy of NTN certificate of company as well as all Directors.  Attested copy of certificate of commencement of business (in case of public limited company only).  Rubber stamp should be affixed on every signature except banks prescribed resolution.  Signature of all applicants should match with that of computerized national identity card, if not then a separate undertaking will be obtained on banks prescribed format and the same will be authenticated by introducer.  Balance sheet.  Banks References.  If any of directors/authorized signatory signs in language other than English, an undertaking is required on stamp paper worth Rs. 100 containing text of banks prescribed format.  Two passport size photographs required if signatures of any partner are shaky.  If customers signs in a shaky style or affix thumb impression, a separate indemnity will be obtained on banks prescribed format and the same will be authenticated by the introducer.  In case national identity card (CNIC) does not contain a photograph, then in addition to CNIC, any other document such as Driving License etc that contains a photograph is required. if customer does not have any other valid document which bears photograph, then following documents will be obtained: o A passport size photograph duly attested will be obtained: o A copy of CNIC duly attested by gazetted officer/Nazim.

45

o A confirmation in writing to the effect that the individual have no other document bearing photograph. 2.2.3.7. REQUIREMENTS FOR CLUBS, SOCITIES AND ASSOSIATIONS ACCOUNTS:  Certificate copies of a. Certificate of registration. b. By-laws/rules & regulations.  Regulation of the governing body/executive committee for opening of account authorizing the person (s) to operate the account.  An undertaking signed by all the authorized persons on behalf of the institution mentioning that when any change takes place in the persons authorized to operate on the account, the banker will be informed immediately.  Copies of CNIC of all members signing the Account Opening Form.  List of members of governing body/executive committee on letter head.  Rubber Stamp. 2.2.3.8. REQUIREMENTS FOR AGENTS ACCOUNTS:  Certificate copies of power of Attorney  Attested copy of NIC of the agent. 2.2.3.9. CNIC VERIFICATION: NADRA verification must attach with the form as a prove either this customer who want to open an account is Pakistani or not.

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2.2.4. TYPES OF ACCOUNTS AT BAL GUJRANWALA: BAL opens the following accounts; •

Current account (both in foreign and local currency)

•

Saving account (both in foreign and local currency)

•

Royal profit account (in Pak. Rs.)

2.2.4.1. CURRENT ACCOUNT Every bank maintains the current account with its customers; “A current account is running account which is continuously in operation by the customer on all working days of the bank”. The customer withdraws money from current account without prior notice to the bank. In short, in current account, the banker incurs an obligation to honors all the cheques drawn by the customer so long as there is enough money to credit of the client. 2.2.4.2. Interest on current account The banks don’t usually pay any interest on current account in local as well as foreign currency. The amount can be withdrawn at any time, so the bank can’t comply these funds due to fear of withdrawal. 2.2.4.3. Who are interested in opening current account? The current account is operated by traders, business companies, institutions, public bodies, industrialists who Wish to have working capital in their custody Like to receive and make payments through cheques Are interested in keeping their money liquid and safe Utilize the agency services of the bank frequently 2.2.4.4. Advantages of having current account The customer gets the following advantages on behalf of current account; The bank collects properly endorsed cheques on behalf of current account holders The bank may allow the facility of overdraft on prior arrangements to the trustworthy customers. Loans and advances may be sanctioned to the creditworthy clients with ease. On line facility alternative of cash transaction is also provided to customers having min. balance of Rs.500, 000/- in their current account.

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2.2.4.5. Initial deposit The minimum initial deposit for current account in local currency in Rs.1000, where as for maintain current account min.Rs 5000 is must; otherwise the bank will take Rs.200 for not maintains account properly. Initial deposit in foreign currency current account is US$ or UK pound 500. Summing up, the current account doesn’t earn but serves the cause of industry trade and commerce. 2.2.4.6SAVING ACCOUNT Saving deposit account is an ideal account for those who have money to save but cannot profitably invest it anywhere else, as amount is too small. Saving deposit is an important source of fund for commercial banks. It is opened to encourage thrift among the persons of small means. Saving account is opened both in local and foreign currency. 2.2.4.7. Withdrawal of amount The depositors are normally allowed to draw a limited amount of money only twice a week. If a customer wants to withdraw a large sum of money, he then has to give a prior notice of 7 to 15 days in writing to the bank. The bank can safely invest the deposits of saving account, as it knows that only the customer withdraws a small percentage of this account. 2.2.4.8. Interest on saving account On Pak. Rs. Account the bank usually pays interest according to prescribed rates by the central bank. This amount is credited to the customer’s account after every 6 months. The rate doesn’t remain the same but fluctuates due to many reasons e.g. conditions of the bank, bank’s total deposit’s position, inflationary and deflationary powers in the economy etc. The rate of interest on foreign account is as follows; US$ saving account (new)

2.25%

UK pound saving account (new)

2.00%

While interest rate on the old foreign currency accounts is 1.00% both for initial deposit, while in foreign currency account the minimum amount is 500$.

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2.2.4.9. ROYAL PROFIT ACCOUNT Royal profit account is just like the saving account with the following major differences; The royal profit account is opened only in local currency. Minimum balance for opening royal profit account is Rs.25000/. Rate of profit is higher. Following are the accounts which are mostly open at Gujranwala branch but during my internship most of saving accounts closed because on customer demand and current accounts because nill balance in their accounts.

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2.3. PROCEDURE OF ACCOUNT OPENING 2.3.1. STEP 1-REASON TO OPEN THE A/C: When a person approaches the bank to get an A/C opened in his/her name with a request, the first step is “knowing the reason” i.e. why does he/she want to open the A/C. 2.3.2. STEP II-THE ACCOUNT OPENING FORM: The person who is desirous of opening on account with the bank has to fill in “The Account Opening Form”. The client must bring his own original National Identity Card. He is given an account opening form to fill in. If he/she wants to open a Current, Foreign currency or PLS A/C, then he/she have to fill a form according to the account. Any person, firm a body corporate that can enter into contract can open an account with the bank. 2.3.3. STEP III-COMPLETION OF THE FORM: The applicant must fill in the form properly. There should be no overwriting or cutting. He has to write his name, address, contact number and the amount he has to deposit at the time of opening an account. For PLS account the limit of initial deposit is Rs.500. for current account the limit of initial deposit is Rs. 10000 and for foreign currency accounts the limit of initial deposit is Us.200$ and 200 Pounds. The applicant has to declare in the form that he/she shall comply with the bank rules, which are enforced from time to time for the conduct of the account. One signature of the person is taken on the face of the form and one is taken on the backside. These signatures should be usual signatures and he would operate the account with them in future. 2.3.4. STEP IV-INTRODUCTION: The prospective customer is to provide his introduction to the bank either from the old customer of the bank or from the person known to the bank. The introducer or reference verifies the integrity, character, honesty and good will of the intending customer on the application form. The signatures of the introducer must be present on the form otherwise the form will be considered as incomplete. 2.3.5. STEP V- SPECIMEN SIGNATURE CARD: The signatures of the client are obtained on a Specimen Signature Card. These cards are obtained in duplicate with two signatures on each card from the customer. These 51

Specimen Signature Cards (SSCs) are then scanned in the computer. Every time a cheque is received for a payment from the client, the signature on the cheque are verified by comparing them with the S.S. Card. see annexure

2.3.6. STEP VI-ACCOUNT NUMBER: When all the formalities are completed then the final approval of account has to be taken from the Branch Manager. After obtaining approval of the branch manager an account number is allotted to the customer all the information is entered into the computer. Then that account number is printed on the chequebook, S.S.cards and account opening form. 2.3.7. STEP VII- ISSUANCE OF A CHEQUEBOOK: Once a person has opened the account, the next important phase is “acquiring the cheque book”. For this, the bank issues him a “requisition slip” on which the A/C holder mentions his A/C title, A/C number, type of account, the number of pages needed in the cheque book along with his signatures. The account number and the name of the client, from the requisition slips, are then Emailed to the Head Office Karachi. It’s to be mailed on Fridays – before 12:30pm, on Saturdays – before 12:00pm, and, on the rest of the days – before 1:30pm. Bank receives

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the required cheque books the very next day it makes the request (normally). On receipt of cheque books from HO, the designated officer immediately sends a confirmation sheet back to HO, through E-mail, on which the names and numbers of all sent chequebook are mentioned. The officer then issues chequebook to customers, taking their signs on another copy of that very sheet (sent to HO) against their names and stamp the signs “verified”. This sheet is kept in the folder named “request for chequebook”. Another copy (which is the 3rd use of this sheet) is kept for voucher records i.e. the cheque book charges. The cheque book can be of pages containing the numbers: 10, 25 and 50. There’s a requisition slip in every new cheque book to request the next one. Bank charges Rs. 5 per leaf and vouchers are prepared where “chequebook’s charge recorded (Cr)” with the rate “5*total number of leaves*total books” and “customer a/c (Dr)” with the rate “5*total number of leafs”. And, “stationary security A/C (Dr)” and “stationary payable (Cr)” with the ratio of 2.30. Bank takes its share at ratio of 2.70. The expiry period of a cheque book is 3 months. A person can sign the records and take away his/her cheque book. But if the entitled customer is unable to receive the chequebook’s him/herself, he/she can authorize somebody else to receive the cheque book on his/her behalf. In this case, Authority letter, 3rd / authorized person’s CNIC, along with “verisys” (which is copy of 3rd person’s NIC from NADRA) copy and requisition slip are taken. To make the transaction safer, “cheque book delivery of A/C” intimation or the “acknowledgement letter” is also issued that’s signed and returned to bank by the entitled customer/account holder to acknowledge receipt. 2.3.8. STEP VIII (A) - ENTRY OF A CHEQUEBOOK: Before issuance of a chequebook, the employee performs certain functions. They include: •

Stamping every leaf with specific A/C number.

•

Enters it in the chequebook issue register.

•

Check whether or not a senior officer verifies the signatures, if no then first he gets them verified. After entry in the manual register, the employee issues the chequebook to the A/C holder after his/her signature on the register.

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2.3.9. STEP VIII (B) - THE ONLINE RECORD: Once a chequebook’s issued the officer immediately has to get the chequebook’s serial number entered into the system. Otherwise the customers won’t be able to get the cheque cashed. Software, named “bank smart”, is being used to keep the record of customer’s transactions. 2.3.10. STEP IX- FILLING OF ACCOUNT OPENING FORMS: For current and saving account, separate files are maintained in which the forms are pasted in numerical order and kept under lock and key in fireproof steel or safe. This is because these forms are the basic documents of the contract with the customer. 2.3.11. STEP IX- MAINTAINING THE COMPUTER RECORD: After opening of account, every information regarding the account is entered into the computer. Currently, a program named ‘Bank smart’ is being used for this purpose. Record of all the transactions regarding the account of a customer is kept updated in the computer. 2.3.12. KNOW YOUR CUSTOMER FORM: Along with an account opening form an officer also fills a questionnaire form known as “Know Your Customer Form”(KYC). In this form some additional information about the customer is recorded. This form is an evident and shows that the account-opening officer has personally met the client. KYC is another form same as account opening form but it contains few more details which help the bank to know its customer. That is why it is known as Know Your Customer form. This is the form proves that the documents and details given by the customer are verifies and correct. After verifying the details like monthly income, address, line of business, telephone number and the other details the bank allows the customer to be a part of bank. 2.4. ACCOUNT CLOSING: 2.4.1. Two types of account closing •

Own customer request

•

Due to Nill balance

A customer comes and told I want to close my account so I gave him account closing form and told him requirements for closing an account give & ask why you want to close

54

your account, he ask me I have no need to continue the account. There are no charges in some conditions when a customer wants to close their account. See annexure

55

After filling the form I told him confirms the form from Mr. Malik Javed who is the operations manager and he has the authority to close or activate the account or stop the payment. After that Mr. Malik took interview from the customer & closes their account. 2.4.2. PROCEDURE FOR CLOSING AN ACCOUNT: `The procedure followed for the purpose of closure of an account is described in the following steps. The customer who wishes to close an account first has given an application, duly signed on the pre-printed application of the bank. The client has to attach this application with the liability form (explained below). The customer can also give an application on plain paper, but correct signatures are very necessary. Then it has to be made sure that if the account to be closed is a saving or foreign currency account then the account balance before closing should be zero. In case of these types of accounts the bank does not take any closing charges. If a client wishes to close a current account then the bank charges Rs. 150, so at the time of closing the balance should be Rs. 150. Along with the application to close the account customer's cheque book is also received from him and then it is destroyed in order to prevent any misuse in the future. A liability form is filled and sent to the Trade Finance Department and credit Department in order to check that the customer does not owe the bank a single penny in any regard. A debit voucher and a credit voucher are also attached to the liability form. When both of these departments approve that the customer does not owe any money to the bank and the form is returned to the account opening department, then original account opening form pasted in the ledger when the account was opened is marked 'account closed' along with the date on which it is marked. One thing has to be taken into immediate consideration that the account number allotted to the client (who has to close his account), after closure of the account becomes unless and is not allotted to any one in the future. After approval of the liability form, it is sent to either the foreign currency department or the cash department, as the case may be so that the officer who scanned it in the first place could return the specimen signature card to the account-opening department.

56

Once the S.S. Card is received back from the concerned official then the liability form, the client's application along with the specimen signature card is passed in the ledger right along side the original account opening form. The form has to be pasted with the original account opening form even if the account was opened a decade ago. In the computer as well all the entries and records related to that particular account are permanently deleted by using the 'close account' option. 2.4.3. IMPORTANT DOCUMENTS USED: LIABILITY FORM: This particular form is used when an account is to be closed. The staff of account opening department, after filling in the name and account number of the client forwards this form to the credit department and the trade finance department who upon receipt of such liability form make required security so as to check whether or not the customer owes some money to the bank or not. 2.4.4. STOP PAYMENT: I also learned how to stop the payment on customer's request. One ID card copy is required from the customer & and attach the stamp of original seeing on ID card. The charge of stop payment of one cheque is Rs. 200. whole cheque book stop payment is 550

57

58

2.4.5. CHEQUE BOOKS RECIVING & ISSUANCE: After opening an A/C with the bank, the A/C holder once makes a request in the name of bank for the issuance of a cheque book. The A/C holder mentions title of A/C, A/C number, sign it properly and mentions the no of leaves he/she requires. Normally BAL issues a cheques book having at least 25 or 50 leaves. Every cheques book also contains one leaf that is used for another of a cheques book. It was routine work at account opening department that customer gave request that is known as cheque book requisition slip for new cheque books. See annexure

When customer give request for new cheque book it is quality of bank Alfalah customer get cheque book from next day, that issues from head office that is in Karachi. After collecting the cheque book slips all requests mail to main office before 2 o clock, and enters the information in system. It was an important task at account opening department that was issue cheques book to customers on their request. It was very sensible & responsible task at that department, because their may be conduct different kinds of frauds due to irresponsibility.

59

2.4.6. IN CASE OF CHEQUE BOOK LOST: There was many cases regarding cheques books lost of customers, in case of cheques book lost of a customer following procedure must be followed by a customer, Inform to the Account opening Incharge, My cheque book was lost & bring a police report of cheques book lost. One ID card copy is also attached with the report and INDEMITY REQUEST. See annexure

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61

2.4.7. MANUAL CHEQUES: A manual Cheques book is issued to the customer his/her request of 25 leaves. After issuing the new cheques book to the customer it was enter in the register as a record. The charges of stop all cheques book is Rs.500 & for stoppage of single cheque is Rs.200. in case of lost of single cheque the following procedure is follow, •

Inform to the Incharge

•

ID card copy

•

Stop payment request In case of loss of a cheque, to stop a cheque from encashment, the rules say the following

2.4.7.1. (No specific order): •

Customer has to come personally with an application to prevent the cheque from encashment

•

Rs. 210, per complaint of a cheque

•

Rs. 520, on loss of complete cheque book, after filing an RAPAT.

2.4.7.2. Of requisition slip: In this case the rules say the following: •

Indemnities for Requisition slip loss. Indemnity is and undertaking/request in case of loss of requisition slip that is resulted in issuance of Form B.

•

Application to issue Form B for Rs. 105.

•

Issuance of Form B (requisition slip)

2.4.8. RECEIVE THE CHEQUE BOOK BY OTHER PERSON ON BEHALF OF ACCOUNT HOLDER: If a customer was very busy and don’t have time to receive cheques book so he/she give authority to give cheque book to this person. See annexure

62

63

ACKNOWLEDGEMENT:

When a person want to receive cheques book on behalf of account holder, then that 64

person acknowledge, that I receive cheques book on behalf of account holder. 2.4.9. ACTIVATION OF DORMANT ACCOUNT: What is dormant account? A dormant account is that if a customer cant doing the transaction in last 6 months, or if a customer not have enough amount in his/her account that account becomes the dormant account. In my internship period it was routine work to activate so many dormant accounts. Customer ID card is must to activate the account on request. It is necessary a customer must come for activation with amount according to the requirement of that account.

65

2.4.10. CHANGE OF ADDRESS & TELEPHONE: If a customer wants to change the address or telephone then first of all fill this & attach the copy of his/her ID card. See annexure This & attach the copy of his/her ID card. See annexure

66

67

2.4.11. CHEQUE FILLING It was another duty I have ever done during my internship period. To fill a cheque requires full attention on what you are writing. The account holders who are illiterate and never know how to fill the cheque ask for help from the customer service officer. While filling a cheque on behalf of customers I must had to check the following things: 1. Date of withdrawing amount 2. Writing exact amount 3. No cutting and over writing 4. Signatures or thumb impressions on right place 5. CNIC number must be mentioned in the back side of cheque 6. Who is the bearer 2.4.12. PERSONAL EXPERIENCE OF FILLING CHEQUES While filling the contents of cheque I was very attentive about what I am writing on the cheque. It should be written with proper attention that what is the date and what amount the customer wants to withdraw. Because by increasing or decreasing the number of zero in the amount column the amount can be totally changed and the customer will have to bear the problem. It sometimes happened with me that I filled the cheque wrongly then my in charge instructed me to cut the written word and take sign of the customer in cutting place. My way of writing amount is like =______/-, and also I used to write the numbers very close to each other so that the person who came to withdraw the amount could not add any other number. So it was a simple task but requires proper attention of the person.

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2.5. Money Gram: I also work for few days Money Gram. Mr. Faisal, Incharge of Money Gram, welcomed me in his department. For his, I would just say, that I did not find such a helpful and cooperative person in my career. In that, I worked for few days of my internship program. One major difference that I observed in this department and other departments was the difference in the nature of work. Here, I have tried to describe my experience and observation, Money Gram department. 2.5.1. First of all what is money gram? Money gram is software, through which we get foreign remittances without any Account #, only just know the basic information from customer who wants to deposit money Procedure: •

Name of the sender

•

ID card copy of the receiver

•

Receiver & sender Contact numbers

•

Currency

•

Date and time

All these information must be fulfilled.

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2.6. LOCKERS: To keep the valuables safe, BAL also provides the LOCKERS facility to its A/C holders…so, it needs no special verification and documentation procedures. It is important to first time check by the officer of lockers what customer put in locker. If customer has no account at BAL then it must provide ID card copy with attested B form. These lockers are in various sizes and definitely on various rates. 2.6.1. SIZES AND RATES OF LOCKERS: Lockers are available in the following rates and sizes: •

SMALL –

•

MEDIUM – Rs. 1500 per year

•

LARGE –

Rs. 1000 per year

Rs. 2500 per year

Bank deducts 5% Federal Excise Duty (FED) on this amount. 2.6.2. MAINTAINING THE LOCKERS: The locker maintenance involves three major issues: •

Locker Map That presents the position of each locker.

•

Locker Control List Presents, which locker has been issued to whom and against which key.

•

Locker Position It makes the further issuance of lockers easier by demonstrating the issued and remaining numbers and types of lockers.

2.6.3. DOCUMENTS REQUIRED: •

Request Form

•

SS card

•

Locker Form 72

•

ID card of customer

2.6.4. OPERATING THE LOCKERS: •

The customer first contacts the official locker operator.

•

Signs on locker attendance register

•

Gets to his/her own locker after having that HEAVY door opened.

•

The bank key along with the customer key is used to open the locker.

•

Meanwhile, the officer leaves the room. The customer operates the locker and then locks it with his/her own key alone.

2.6.5. LOSS OF KEYS: If a person loses his/her keys, which results in breaking the lockers, bank fines him Rs. 1000 and all the breaking charges are to be borne by the customer himself. 2.6.7. INSURANCE: Lockers are insured upto 0.25 million. 2.6.8. LOCKER SIZES: •

6 by 6

•

6 by 12

•

12 by 12

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2.7. ACCOUNTS DEPARTMENT: After account opening department I rotate towards the account department Mr. Faisal is the head of the accounts department in this department I just touch the procedure of the accounts because of the closing reports and they must be complete them before their audit, Miss Hina assist me little bit working of this department. To do work in this department it required a lot of time but I had shorter time so I learn little bit. First day when I move towards this department Mr. Faisal and Miss Hina welcomed me and told me about the daily task of accounts department, and give me activity of affairs to check and marked the amounts of each department to know the daily working of the whole branch. She also told me about what statements she makes at the end of the each month; she makes the following ratio for bank. But she doesn’t tell me about how to calculate them because she said these ratios are calculated in our banks software named as Bank Alfalah SMART. So internees are not allowed to use it she also told me that we must be report in every morning the daily position of the branch to the centralized. 2.7.1. Month end Statements: •

Assets & liabilities

•

Other assets & liabilities

•

Rate of return

•

Deposit about 3 million

•

Quality assurance balancing

•

Mandatory leaves report

•

Monthly performance review report

During my internship in accounts department I learn following things not in detail but followings are according to my learning. The accounts department deals with various routine activities for the bank. The main activities performed by it are •

Budgeting

•

Reporting

•

Maintenance & depreciation of fixed assets

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•

Miscellaneous function

2.7.2. BUDGETING Accounts department of a bank Alfalah, for a makes budget for the branch. Procedure The budget is based on forecasting through past performance. 2.7.2.1. Procedure: •

First of all, they review what its sources of funds are and where it can utilize these funds?

•

The main sources of the bank Alfalah are deposits, securities issued by the bank, borrowing from other banks, borrowing from SBP, bank’s paid-up capital, its reserve fund, profit generated by the bank.

•

The bank may employ these funds in lending to others at a high rate of mark-up. Investment in securities, placement in inter-bank markets etc.

•

It also takes into account the income from other sources, cost of funds, administrative expenses, and utilities expenses.

•

Then the budget is submitted to the head office for recommendation and modification.

•

Monthly budget meeting is held by branch managers to analyze the monthly performance. Budget and actual performances are employed and variance is computed for analysis.

•

Variance can be negative or positive. Variance does not mean that it will have positive effect on the overall profitability e.g. positive increase in deposits is not always coupled with positive increase in advances.

•

The management will then drive the reasons for the variance and take remedial measures to achieve the targets.

2.7.3. REPORTING The accounts department in the form of reports clubs and details of various departments together, Each and every minute detail is provided in weekly, monthly and annual reports. The reports are submitted to head office, SBP and to the government. 2.7.3.1. Kinds of Reports Following reports are prepared by the accounts department on daily basis. •

Statement of affairs 76

•

Income & expenditure

•

New FCY report

•

Royal profit report

•

Subsidiary statement

•

Currency wise deposits report

•

Stationary reports

Following are the reports that are prepared on the basis of reports granted from mainframe. These are very important for proper analysis and feedback. 2.7.3.2. Daily advance and deposit position •

Daily exchange position

•

Daily fund management

2.7.3.3. Maintaining of fixed assets & their Depreciation Accounts department maintains the record of all the assets and charges depreciation on them. Department prepares asset purchase report and asset sale report after every 6 months that helps in changing the depreciation. It is calculated on monthly basis and charged yearly. Bank Alfalah does not only depreciate the existing assets but also the assets but also the assets transferred in and transferred out. 2.7.3.4. Miscellaneous function: The accounts department also performs some other miscellaneous functions: •

Daily activity checking

•

Reconciliation statements

•

Closing entries

•

Foreign exchange forward transaction

2.7.3.5. Daily Activity Checking The accounts department the vouchers with daily activity report generated by the computer. The vouchers are then sorted out into bundles according to their categories and comparing with the activity report checks the posting of transaction. 2.7.3.6. Reconciliation statements: The bank prepares reconciliation statement with head office and SBP. 2.7.3.7. Head office

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Reconciliation with head office is done in reconciliation department. The branches sent out the head office. They check the posting of all the entries if outstanding, which has not been posted by branch or head office. The reconciliation is carried out in the head office and accounts department handles quarries. 2.7.3.8. State Bank of Pakistan The SBP keeps the record of every scheduled bank. The bank statements and statements of SBP are reconciled on daily basis. Reconciliation is basically setting of outstanding entries. The reconciliation statement contains two sides. One contains entries originated from bank but not responded by SBP and on the other side entries originated by SBP but not responded by bank. 2.7.3.9. Closing Entries: Accounts department also passes the closing entries on monthly, 6 monthly and yearly bases to calculate the profit and analyze the overall performance for a certain period. 2.7.3.10. Foreign Exchange Forward Transaction In the past, the banks has to keep their foreign exchange with SBP on the agreement that SBP will purchase the foreign exchange on book rate and charge a fee for covering the risk. This whole transaction was known as foreign transaction. Now this facility is not available. To bank on new accounts, but they can avail it by renewing their limit on old accounts with SBP. We can say that the accounts department holds a sort of internal check on the branch relating to its income and expenditures.

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2.8. CREDIT DEPARTMENT: After accounts department I spend my forth week in credits department Mr. Hamayoun Rasool Malhee is the head of the CAD department credit administration department. In credit department Mr. Usman and Mr. Muhammad Ali deals with SME’s and corporate department Mr. Faisal deals with home loan and also assists Muhammad Ali. Mr. Usman Anwer deals with monthly return and Guarantees. Mr. Shahzad Naseem deals with Agri finance, so my mail focus on SMEs Mr. Malhee helps me a lot and told all the answers of my question and also helps in my learning. The credit department plays a key role in a bank it earns considerate income in form of mark up on its advances enjoyed in this department very well. The credit department has been sub-divided into two sections •

Credit Marketing

•

Credit administration & Monitoring

2.8.1. CREDIT MARKETING: Credit marketing is the most important department of the bank that actually finds the ways to utilize the deposit that are beneficial for the bank and generate income for the bank. The credit marketing department consists of two sections •

SME’s

•

Corporate

2.8.1.1. SME [small and medium enterprise] In this section, we grant the loan to the small businesses, which fall in the category of SME. According to Prudential Regulations of SME: SME means an entity, ideally not public limited company, which does not employ more than 250 persons (if it is manufacturing / services concern) and 50 persons (if it is trading concern) and also fulfills the following criteria of either ‘a’ and ‘c’ or’ b’ and ‘c’ as relevant: a)

A trading service concern with total assets at cost

excluding land and building upto Rs. 50 million. b)

A manufacturing concern with total assets at cost

excluding land and building upto RS 100 million. c)

Any concern (trading, service or manufacturing)

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with net sales not exceeding Rs. 300 million as per latest financial statements. d)

An individual, if he or she meets the above criteria,

can also be categorized as an SME.9 Here the sale or turnover is normally up to three million and the number of employees is fifty for service organization and 250 for manufacturing organization. 2.8.1.2. CORPORATE The corporate section gives loan to industries and different companies according to worth of the company. 2.8.1.3. LOAN LIMIT Branch is allowed to extend the credit from minimum of 500,000 to maximum of 5,000,000. The Area office can extend the limit up to 10,000,000 and above this limit the branch has to get approval from Head Office. 2.8.1.4. WORKING OF CREDIT MARKETING CREDIT LINES

The bank offers following credit lines to its worthy customer. •

Funded Facility

•

Non Funded Facility

2.8.1.5. FUNDED FACILITY Funded lines are those in which bank directly issues cash to its customers and it consist of the following lines: •

Current Finance /Running Finance (CF)

•

Term Finance

•

Local Bill Purchase

•

Foreign Bill Purchase

•

Finance against Foreign Bills(FAFB)

•

Finance against Packing Credit I, II (FAPC)

•

Finance against Imported Merchandise (FIM)

•

Finance against Trust Receipts

(TF)

(FATR)

2.8.1.6. NON-FUNDED FACILITY

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Non-Funded lines are those in which bank does not give cash to its customers, rather it gives guarantee to the creditors of its customers. These lines consist of the following: •

Letter of Credit [that can be Usance or Sight

•

Letter of guarantee

2.8.1.7. PRINCIPLE OF LENDING •

Know your customer

•

Purpose of facility

•

Profitability

•

Sources of repayments

•

Security( Collateral)

2.8.1.8. GOLDEN PRINCIPLE OF LENDING The following points are considering the Golden Principles for lending: •

Short term loan

•

Secured

•

Self-Liquidation

2.8.1.9. DOCUMENTS REQUIRED 2.8.1.9.1. FOR SOLE PROPRIETOR AND PARTNERSHIP •

BBFS (Borrower’s Basic Facts Sheet)

•

Copy of ID card

•

Partnership deed

•

Collateral Documents

•

Tax Return

•

Bank Statement for the last six months

2.8.1.9.2. FOR THE COMPANY BORROWER In addition to above document the following documents are required. •

Memorandum of Association

•

Article of Association

•

Form 29 82

•

IT Form 30

•

Valuation of property being offered as collateral

•

Collateral documents

•

Request letter

•

Previously owned property to assess net worth

2.8.1.10. TYPE OF BORROWERS 2.8.1.11. INDIVIDUALS It consists of the following: •

Existing account holder

•

Staff members

•

Close relatives of the staff members

•

Employee of other banks

2.8.1.12. BUSINESS ACCOUNT •

Sole proprietor ship

•

Partner ship

•

Limited company

2.8.1.13. OTHERS •

Clubs and association

•

Federal, provisional and local govt. bodies

•

Traders

•

Contractors and construction companies

•

Transport, storage, warehousing

•

Property dealers

2.8.1.14. INTERNAL DOCUMENTS It is also the responsibility of the credit marketing department to search for the potential customers by visiting the business institutions and the individual business people. When a customer applies for credit, the credit marketing department verifies his credit worthiness, ensures that all the required documents are provided, and after being satisfied, it refers the case to the branch credit committee for approval. Also the department prepares the case history and the required internal documents of the applicant.

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2.8.1.15. CREDIT LINE PROPOSAL In this document the department mentions all the important information about the client and prepares the proposal for the loan. CLP has 8 Sections •

Customer information

•

Proposal

•

Securities

•

Brief customer profile

•

Financial briefs

•

Account Conduct

•

Attachments

•

Rational justification and consideration

2.8.1.16. TYPES OF PROPOSAL There are three types of proposals: New Here the client applies for loan for the first time. Revision In this type of Proposal the client requests the bank that he wants to make certain changes in the credit limit. Renewal In this the client request for the same limit after expiring the date of previous one In case of limit change or amount change the expiry date is changed but in case of markup change the expiry date doesn’t change. 2.8.1.17. CATEGORIZATION OF SECURITY Category A involves tangible and releasable security (lien). Whereas, Category B involves non tangible and realizable security (personal guarantee, corporate guarantee) 2.8.1.18. COMPOSITE CREDIT LINE APPRAISAL In this regard, the bank checks the credit worthiness of the borrower and analyzes the borrower on different aspects, gives different rating to each and on the basis of rating gives recommendations to the authority. It consists of following sections: •

Grade

•

Risk index level 84

•

Condition

•

Trends

•

Aggregate score

Grade - In this section, we give different grades to different credit limits. Risk Index Level - In this section, we assign different points associated with different level of risk e.g. 1 to lowest risk and 10 to highest one. Condition - In this section, we mention what is the condition of the business on the basis of different factors e.g. excellent to the strong condition and poor to weakest condition. Trends - In this section, we tell about the financial position of the firm. Aggregate Score - On the basis of above we give aggregate score to the different borrowers. SCORE

CONDITION

41 and above

[80%and above]

Strong

31 to 40

[60% to 79%]

Good

21 to 30

[41% to 59%]

Fair

20 and below

[40 and below]

Poor

So, in this way we recommend the authority either to accept or reject the proposal. 2.8.1.19. APPRAISAL OF CREDIT PROPOSAL •

The constitution of borrower and his nationality

•

The liquidity and reliability of the borrower

•

History of borrower relationship with the bank

•

Status report from the borrower previous /other banks

•

Management structure of the borrower

•

Nature of the business

•

The borrower financial position

•

Financial analysis

•

Feasibility analysis

•

Project analysis

•

The profitability transaction with the bank

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•

Repayment ability

•

The security offered

•

Documentation for considering credit facility

•

Visit report

•

Status report (CIB report)

•

Credit line proposal (CLP)

•

Financial statements

•

Stock inspection report

•

Credit file

•

Among all theses document the most important is the CIB report that show the actual worth and past loan data of customer. CIB (Credit Information Bureau) depicts the following:

•

Outstanding liability (funded or non funded)

•

Overdue

•

Recovery during the month

•

Amount under litigation

•

Write offs

•

Number f time rescheduling

•

Outstanding liabilities (post due90 days due 360 days)

2.8.1.20. DURATION BASED CLASSIFICATION OF LOANS Credit loan can be classified as. Short Term - Covering a period of one year. Medium Term - Covering a period of two to three years. Long Term - Covering a period of more than three years. 2.8.1.21. MONITORING Monitoring is required on the loan issued by the bank and it is different for long term and short term mostly it is of two types, monitoring by means of practical visit and by means of analyses of financial statement. Here in head office, sanctioning of big loan are made as branches have limited power to issue loan. 2.8.1.22. SECURITIES /COLLATERAL

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PRIME COLLATERAL It is consist of liquid securities that can be pledged or mortgage. 2.8.1.23. SECONDARY COLLATERAL These securities are readily convertible to cash that should of more than adequate margin fully under bank control having high value that can with stand the volatile market condition. 2.8.1.24. TANGIBLE COLLATERAL The availability of tangible collateral with necessary margin and fair degree of marketability under forced sale situation. 2.8.1.25. ATTRIBUTES OF GOOD TANGIBLE SECURITY •

Marketability

•

Easy assessment of value

•

Stability of value

•

Ascertainment of title/easy transferability of title

•

Yield

Moreover, following things need to be observed: 2.8.1.26. MANAGEMENT Management should have skill, vast experience and strong succession,

aggressive and

able to adapt change. 2.8.1.27. MARKET POSITION It should be market leader with the clear competitive edge. 2.8.1.28. INDUSTRY BUSINESS SEGMENT CONDITION Traditionally stable and establish industry with strong future and growth

potential.

2.8.1.29. CONDUCT OF OBLIGOR Excellent /commitment are met in due time with exception. 2.8.1.30. DEFAULTERS Defaulters can be of two types: 2.8.1.31. WILLFUL DEFAULTERS People deliberately pledge securities whose values on documents are far more than their actual worth. So when the person defaults, bank has to face this fraudulent act and to bear the loss. 87

2.8.1.32. RANDOM DEFAULTERS These defaults are due to the situational factors. Any accident can result in such default. To avoid the losses from such defaults bank make sure that it must have equal amount of borrower assets so that it can recover its amount. To make this possible bank usually go for pledges, personal guarantee, hypothecation (charge on other asset) and mortgage of property. Once the borrower defaults he will not be granted loan again. Bank will file a suit and to recover amount from the

borrower bank can offer rescheduling in the form

that only the principal should be returned to the bank in specific time period. 2.8.2. CREDIT ADMINISTRATION DEPARTMENT (CAD) The chairman of the Bank in his review for 2001 annual report defines the credit policy of Bank as: “CONSERVATIVE YET DYNAMIC CREDIT POLICY” 2.8.2.1. OBJECTIVE The overall objective of the department is to provide independent assurance to branch management and head office credit monitoring division that lending activities are properly controlled and monitored. 2.8.2.2. FUNCTIONS •

Documentation

•

Lodgment of documents and cash collateral

•

Reimbursement audit certificate

•

Limit input in bank smart

•

Post disbursement monitoring

•

Monitoring of irregular doubtful and bad debts

•

Reporting

Here it is necessary that we must have an overview of at least the most important documents that are relevant to this department. 2.8.2.4. DOCUMENTATION •

Sanction Advice

•

Facility Offer Letter

•

General documentation

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•

Standard charge documents

•

Legal document pertain to properties

•

Cash collateral

•

Charge with SECP

•

Other securities

•

Insurance covers

•

Guarantees

2.8.2.5. SANCTION ADVICE A type of document in which the senior officer of bank discuss all the confidential terms & condition that the demanded facility should be provided or not. 2.8.2.6. FACILITY OFFER LETTER When it is decided that loan should provided to borrower than branch makes facility offer letter which explains type of facility to be provided & document required from borrower according. 2.8.2.7. GENERAL DOCUMENTS After facility offer letter general document are checked these document consist of •

Complete account opening form

•

Facility request letter

•

BBFS

•

CIB

•

Credit opinion

•

Search report

•

Audited /unedited financial

•

Borrower’s profile

•

Checklist of state bank regulation

•

Board resolution to borrow

•

Memorandum and article of association

At this stage all the past records are checked & verified to ensure that past record of the borrower matches with data provided in request letter. The most important document, which is checked, is CIB report. In this report all the past loan of borrower are showed

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and their repayment record is also mentioned. The company polices are also collected and their aim is checked that whether the company is working in the same direction which it has mentioned. 2.8.2.8. STANDARD CHARGE DOCUMENT CF (Current Finance) TF (Term Finance) FAPCI (Finance against Packing Credit) FAFB (Finance against Foreign Bill) LBP (Local Bill Purchase) FBP (Foreign Bill Purchase) SLA (Sight Letter Of Credit) ULC (Usance Letter Of Credit) FIM (Finance against Import) FATR (Finance against Trust Receipt) 2.8.2.9. GUARANTEE LEGAL DOCUMENT PERTAINING TO PROPERTIES •

Title deeds

•

Copy of record of rights

•

Copy of mutation

•

NEC

•

PTI

•

Aks Shajra

•

Site plan

•

Valuation

•

Site visit report

•

Power of attorney

•

Agreement to create mortgage

•

Token mortgage

•

Pre disbursement lawyers opinion

•

Perfection certificate of lawyer

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These all documents are taken from borrower & bank make a file of these documents. These documents are very important because if at any time in future bank has to take legal action against borrower then bank is well aware that who are the owners or partners of the company, which property is mortgaged and these all the things are provided to bank own lawyer which finally decided that is everything right and he make a certificate or borrower can bring this certificate himself from the recommended lawyer of bank. 2.8.2.10. GUARANTEES Personal guarantees of borrower Personal guarantees of mortgagors Counter guarantees Cross corporate guarantees Guarantees are most important thing because in this document it is written that who is responsible in case of default. Personal Guarantees are considered most important because it mentions that the guarantor has liability to pay bank’s money.

91

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2.9. TRADE DEPARTEMNT: After working in credit department for one week, I was advised by Mr.Malik Javed, Manager Operations, that I should move on to Trade Finance department. I was much pleased to hear this as I had a great desire to work and learn something regarding foreign trade operations. So, I was sent to Miss. Saira Chudhary, Incharge trade finance. Mr. Asim assists Miss Saira both were very kind persons and told me a lot about Exports. Although 1 & half week period was very small to get knowledge of whole this department but still they explained me everything that they can in this short span of time.

2.9.1"Trade Finance DEPARTMENT HIERARCHY" Miss SAIRA CHAUDARY Trade Manager

Trade Office Mr. Asim Miss Saira is the head of this department and checks the activities of the import & export departments. 2.9.2. EXPORT OPERATIONS: During the one week in trade finance department, I was much desirous to know that how the export transactions are carried out through bank. The export transactions in BAL G.T Road were not of such extensive nature as imports due that specific area. 2.9.3. CONDITIONS FOR EXPORTER: There are certain conditions that a person must fulfill to become an exporter. 1)

The person must be an account holder of BAL.

2)

No one can export any commodity until and unless he/she is a Pakistani and has a valid export registration with the EPB (Export Promotion Bureau).

3)

The person must process a valid membership certificate of Trade 93

Organization, licensed and recognized by Federal Government like a Chamber of Commerce. 4)

The person must possess a valid NTN (National Tax No.) certificate.

5)

A person cannot export any good unless he files a Form E (E stands for exports) with his application to the bank. The form E must be filled in writing and all specifications stipulated on the form, must be met.

6)

The person must have the Sales Tax Registration Certificate.

2.9.4. COMPLETE EXPORT CYCLE:  The process of export starts with the receipt of the letter of credit (or contract) by the bank. The issuing bank sends the L/C to BAL G.T Road through the advising bank. Upon receipt of L/C, an intimation letter is prepared and is sent to the beneficiary of the L/C, advising him that his document has reached BAL and he should collect them immediately.  An E-form is necessary for exports out of the country. It is a part of exchange control mechanism of the State Bank of Pakistan. When an exporter receives an L/C, the next job is to get an E-form from the bank. The E-form is a quadruplicate and contains the following information.  The Commodity  The quantity  The price  The port of shipment  The port of destination  Terms of shipment  After getting the E-form verified from bank, the exporter starts preparing for his shipment. As the banks only deal in documents, so in order to receive the payment for his good to be exported, the exporter has to send certain documents to the L/C issuing bank via negotiating bank. These documents have already been discussed in import section.  A very important step in the export process is to scrutinize the documents, before sending them to the issuing bank. It requires utmost care and attention of the bank officer. When the documents are presented in the bank, they are always scrutinized

94

and they must be in accordance with the requirements stipulated on the L/C. Any deviation could result in rejecting the documents by the importer, hence causing loss to the exporter or even to the bank if the documents are to be negotiated. Bank Alfalah provides a platform to enhance foreign trade in Pakistan. No one can deny the important role Foreign Trade plays in progress of any economy. This foreign trade can be in two forms: either Exports (sending your goods out) or Imports (buying goods from a foreign land). I would first through light on Exports by describing the various methods used by the bank. In exports, bank Alfalah provides its customers with 2 different ways. Those are 1. FDBC 2. Advance Payment Let me explain each one, according to my understanding. 2.9.5. FDBC – FOREIGN DOCUMENTARY BILL FOR COLLECTION: If a person/company in Pakistan wants to do business with a company in UK by supplying its products against money through this mode, it’ll come to the bank to get an E-FORM (export form). The requirements for E-form issuance are: •

A/C in the name of firm

•

NIC

•

Chamber membership (if any)

•

NTN

Then the party transfers its goods to UK through ship or air and will come to the bank with the following documents: •

Invoice (containing the amount of goods shipped)

•

Shipping bill

•

Bill of Lading (non negotiable)

•

Bill of Exchange

•

Packing list (containing the list of goods shipped)

The bank attaches the Cover Letter with these documents and transfers the CAD (cash against documents) request to the importer’s bank, who after taking the cash from importer against these documents (that are used by importer to get hold on the goods shipped) sends it back to BAL through NOSTRO bank. NOSTRO bank is the one that 95

knows both parties and is having A/C of both. Bank uses software named SWIFT that gives message whenever a payment comes in NOSTRO. Message is actually an “information” that’s provided by HO (head office). Gujranwala branch is having a code of 0053 in SWIFT. Whenever a message is received containing export receipt with code 0053, the activity of NOSTRO is downloaded through the software NAS (NOSTRO activity system) that contains all the operations and activities of NOSTRO in various countries and places with lots of other banks and branches. Thus, activity can be rightly called as “conformation” of the information. The directed officer, who’s Miss Saira, does this process and highlights the •

Customer reference

•

Date

•

Payment Details

•

Match with that of the message.

This is the brief process. The detail is mentioned below under the specific heads. 2.9.6. E-FORM ISSUANCE: On request, by party, to issue the E-form, bank does the following: •

Verify the signs on request letter with stamp

•

Note down A/C number from the letter

•

Stamp and write initials representing the sign verification on request

•

Write down the issuance on register named E-form issuance to keep the record.

•

On the request, E-form number and date is mentioned.

•

Issues four paged E-form with stamp on it. Customer keeps the original (for customer) and the quadruplicate (for custom) copy and returns to bank the triplicate (SBP’s copy) and duplicate (bank’s copy) one.

2.9.7. E-FORM CERTIFICATION: On issuance of E-form, certification is done in two ways. If it’s FOB (freight on board – importer will pay the freight) then only “authority certificate” would be filled, saying that we authorize this person to receive B/L. If it’s CIF (cost insurance freight – we pay for it), we issue certificate saying that this transaction is not FOB based, with a request to issue B/L and an NOC. 96

In both cases, we stamp the e-form and make entry (which is incomplete at the time of issuance) on certification register. 2.9.8. MAINTAINING CUSTOMER FILE: When documents come for CAD, the documents for bank record (other than those that are sent to the importer) are punched in a separate file carrying the name of firm. Then the file is assigned with a number e.g. FDBC/GWL/90. On the front, the USD amount of consignment sent is also mentioned. A liability is also booked on the same file on the basis of that day’s rate (taken from HO) in Pak Rupee (rounded value), that will simply be reversed the day payment is received. This is done to bind the customer. In this file, the list of the documents kept is as under: •

Covering letter of firm

•

2 Packing lists and invoices

•

1 copy of B/L (non negotiable)

•

1 shipping bill (copy)

•

2 e-forms (that are returned by the customer)

•

1 photocopy of voucher (of liability booked in the name of party)

•

1 photocopy of cover letter to foreign bank

•

1 photocopy of BOE

•

1 photocopy of original B/L (on the original B/L, officer endorses that the shipment is in the order of foreign bank and the copy of this endorsed B/L is attached in bank’s file)

•

DHL receipt (courier)

The front of the file is stamped with Date of certification……… (Taken from E-form) Date of shipment…………. (Taken from B/L i.e. boarding/shipment date) Date of lodgment………..

(The date on which doc are received: current)

Date of realization……….. (On receipt of payment) 2.9.9. ON REALIZATION OF EXPORT PAYMENT: On realization of payment in FDBC, we do the following:

97

•

Reverse the liability in voucher

•

Make entry in FDBC register

•

Make entry in E-form certification register

•

Make entry in realization register

2.9.10. FILE MAINTENANCE: •

On receipt of payment, a file is opened (say with the number 20) in the following form: ADV/20/07 This file will contain: o Message and activity o Copy of Blotter and vouchers If, this whole payment is being withdrawn through the e-form, we’ll endorse and place all the documents in this very file and not otherwise.

•

On withdrawal of 5000, the file code would be: ADV/20A/07

And the documents provided by the customer would be punched in it. The documents include: o

Copy of shipping bill

o

Copy of B/L

o

Invoice

o

Covering Letter from the party

o

Two e-forms

This file’s not complete yet. A few more documents are to be placed in it, which will be described next. •

On withdrawal of next amount, which if is 5000, file ADV/20B/07 would be the last file and if it’s lesser then file 20C, 20D and so on would come into existence.

Again the documents to be attached would be the 2 E-forms and the other previously (customer provided) and next (bank arranged) mentioned documents. 2.9.11. EXPIRY OF PAYMENT:

98

Advance payment, if not used, gets expired after a year. To use this expired amount, special permission is to be sought from SBP. Now, a question arises, that if advance payment is credited to party’s account and it uses it for things other than export and doesn’t export anything to the foreign party, what then is to be done? The answer is, a person has to be mad to do it, because he’s paying all the duties to the bank. If he does it, then bank after a year will seek permission from SBP to let him do the shipment now from his own money against that payment. And if he’s not willing to do the shipment at all, he’ll lose his credibility with the banks. Bank doesn’t lose anything in Advance Payment. 2.9.12. E-FORM SUBMISSION: E-form’s triplicate copy along with the original invoice provided by the party and the copy of advance payment voucher from return will be submitted to SBP on month end. 2.9.13. RETURN: On month end, return is to be sent to SBP, illustrating the progress and performance of the bank in that whole month. On receipt of advance payment, A advance payment voucher is filled with the total amount. If any amount is used, this voucher is endorsed from the back. And if the amount is used after sending that month’s return, the endorsement is made on the back of the copy of that voucher maintained in the Return Register, which are kept month wise. This return is sent to SBP along with the following documents: •

M FORM The charges that foreign bank has deducted from the payment are enlisted on it.

•

FDBC E-Form

•

Foreign Currency Details

•

Money Gram

Each department provides its details which are combining sent to SBP in the form of return. 2.9.14. TASKS THAT I PERFORMED:

99

In exports, I understood the whole process while watching Ma’am doing all the steps. the tasks that I performed were: •

Got documents photocopied

•

Got documents (blotter, voucher, EPRC) signed

•

Got vouchers stamped.

•

Calculated of W.H.Tax.

•

Searched Return, Advance payment, FDBC, E-form certification and other required registers and source, W.H.T and reference files.

•

Compiled W.H.Tax files.

•

Arranged and completed FDBC and ADV payment files.

•

Endorsed ADV payment vouchers and E-forms.

•

Got DD number from Mr. Qamar downstairs.

100

2.10. ORGANIZATIONAL STRUCTURE OF FINANCE DEPARTMENT OF BAL GUJRANWALA BRANCH:

Credit Manager Mr. Hamayoun Rasool Malhee

SME Mr. Usman Mr. Muhammad Ali

Home Loan Mr. Faisal Mr. Shahid

Return & guarantees Usman Anwer

Agri-Credit Mr. Shahzad Naseem

2.10.1. Number of employees working in the finance department: There are the 6 employees working in the finance department of BAL Gujranwala. Mr. Hamayoun Rasool Malhee is the head of the department and check all the activities performed by their subordinate’s whole team are responsible. They just forward the case to centralize and if centralize give approval then they provide finance to the customers. 2.10.2. Finance & accounting operations: Finance and accounting departments are interlinked with each other finance department makes financing decision first confirm from accounting activities then provide finance to the customers either finance is available or not. Finance department easily makes the decision on behalf of the calculation of the accounting system of the organization. The accounting operation includes the banks accounts maintained with other banks, the updated status of the customer, execution of standing instructions, discounting bills of exchange, payment and collation on behalf of customers, customers accounts maintenance, collection of bills of exchange by bank, the collections of bills including utility bills. Accounts department also passes the closing entries on monthly, 6 monthly and yearly bases to calculate the profit and analyze the overall performance for a certain

101

period. The accounting system of the BAL deals with various routine activities for the bank. Fiscal year of bank starts from January and ends on December. 2.10.4. Functions of the Finance Department Accounting System of the BAL: The accounting system of the bank is well mange they have the accounting software in their BAL smart software there is no manual work required all accounting ledger generals are computerized. Their accounting system is based on cash and accrual basis they make daily reports for the record keeping and make analysis and decision on that basis. They check the daily activity which is generated automatically from the system the daily transactions report. A Debit value will always be recorded on the debit side left hand side of a nominal ledger account and the credit value will be recorded on the credit side right hand side of a nominal ledger account. A ledger has both a Debit left side and a Credit right side. If the values on the debit side are greater than the value of the credit side of the nominal ledger then that ledger is said to have a debit balance. The accounts department the vouchers with daily activity report generated by the computer. The vouchers are then sorted out into bundles according to their categories and comparing with the activity report checks the posting of transaction. Accounting operations provides decision makers with sufficient relevant information to make prudent and intelligent decisions regarding bank’s business. From this system we easily calculate the assets and liabilities of bank, cash inflow and outflow all activities done in the accounting system of the BAL. Finance system of the organization: The financing system of the BAL is centralized all the decisions regarding financing is taken by head office. In this branch they only inform the customers about the procedure and policy regarding financing activities. Financing by BAL include SME, Home loans, credit cards, agri-finace, leasing, bank guarantees etc. The Financing policy of bank is the combination of certain globally and locally accepted time standards and other dynamic factors dictated by realities in ever-challenging market and industry. The extension of a financing facility should add value to the bank’s assets” should be borne by the bankers. For this purpose the bank takes special care for judging the •

Ability to repay

102

•

Willingness to pay

The development of bank by earning income in the form of mark-up, development of whole economy by financing the development projects both in private and public sector and help in accelerating the rate of growth. This department facilitates the trade activities both inside and outside the country 2.10.5. Use of electronic data in decision making: The accounting system of the BAL is provide electronic data all the daily activities report generated through electronic systems, whole organization is electronic base if the send or receive any file they use email system fax system. The file generated by system is helpful in making budgeting financing make the analysis current deposits situation of the branch the profit of the branch all electronic data is helpful in decision making, because electronic system of bank generate accurate and timely information for further decision making. Banks Smart Software is very helpful in making decisions. 2.10.6. Mobilization of funds: Bank Alfalah mobilize its funds in financing to SME’s, provide home loans who have no residential facility bank Alfalah give then the facility to take money and build new home or renovation purposes, it also provide finance to Agri sector also provide Agri equipments or machinery to the former. It also facilitates the customers through leasing. Through financing they charge interest from customers that is called markup rate it is the profit of the bank. 2.10.7. Generation of funds: BAL generate its funds through the following activities from consumer banking like deposits, profit from investments, through offering share and bonds, through markup. Savings and loan associations, which are state institutions, provide home-building loans to their members out of funds obtained from savings deposits and from the sale of shares to members. Finance companies make small loans with funds obtained from invested capital, surplus, and borrowings. Credit unions, which are institutions owned cooperatively by groups of persons having a common business, fraternal, or other interest, make small loans to their members out of funds derived from the sale of shares to members.

103

2.10.8. Sources of fund: •

Deposits

•

From financial institutions incase of any sharing

•

From their subsidiary companies

•

Leasing

•

Guarantees

•

L/Cs

•

Credit card interest

•

Markup on different funding

2.10.9. Allocation of Funds: These decisions of allocation of funds are taken by head office because it’s the risky task so the main office takes decisions regarding this matter but the SBP policy that it takes 30% reserves from every bank for any assistance or for further investment of the bank. Description of allocation of funds in different departments was required.

104

105

106

2. FINANCIAL ANALYSIS:

107

108

109

110

111

112

RATIO ANALYSIS 3.4. CALCULATIONS OF SPECIALIZED RATIOS: CONCERNED YEARS: 2006, 2007, 2008 Ratios Earning assets to total assets Return on earning assets Net margin to earning assets Loan loss Coverage ratio Deposit time capital Loans to deposit

2006

2007

2008

Change

84%

85.5%

84.1%

Unfavorable

0.76%

1.11%

0.10%

Unfavorable

2.57%

3.25%

36.5%

Favorable

1.27% 22.6% 0.62

19.6% 19.8% 6.26

0.18% 20.5% 0.64

Unfavorable Favorable Unfavorable

Earning assets to total assets: Formula: Earning assets Earning assets to total assets =

* 100 Total Assets Calculation of earning assets missing?????

Ratio Earning

2006 2007 =231690140/2756855 =281523353/32889515

2008 =293540950/34899076

assets to

41

2

4

=84%

=85.5%

=84.1%

total assets COMMENTS

This ratio shows that bank management does not efficiently uses the bank assets to generate profit. The earning assets of Bank Alfalah Limited are decreasing, which is because of the change in investment pattern of Bank Alfalah Limited. Although the earning assets of Bank Alfalah Limited have increased as compared to both previous year by yet lesser than increase in total assets. The bank has used much amount to invest 113

in operating fixed asset, which are not included in earning assets. Return on Earning Assets: Formula: Net profit after tax Return on earning assets =

* 100 Earning assets

Ratio Return on

2006 2007 =1762691/231690140 =3130229/281523353*

2008 =1301301/293540950*

earning

*100

100

100

assets

=0.76

=1.11

=0.10

COMMENTS This ratio is a profitability measure that shows the strength of a bank. The calculation of the concerned ratio indicates that the earning of Bank Alfalah Limited has decreased in the current year as compared to the previous year. This may be due to mismanagement of the bank resources. The net profit of the bank has decrease, whereas the earning assets of the bank have increased. This is due to change in the investment pattern of the bank.

Net Margin to Earning Assets: Formula: Net Margin Net margin to earning assets =

* 100 Earning assets

114

Ratio Net Margin

2006 2007 =5958584/231690140 =9162908/281523353*

2008 =10715389/293540950

to Earning

*100

100

*100

Assets

=2.57

=3.25

=36.5

COMMENTS: This ratio is most important in measuring the bank profitability because it represents the ability of the management to control the spread between interest income and interest expense. Although the calculations show favorable result of Bank Alfalah Limited as compared to the previous year yet the bank has not properly controlled the spread of expenses over income. It shows that although the bank has increased its profitability but the earning assets are not the quality assets because of higher increase in interest expense as compared to interest income. Loan Loss Coverage Ratio: Formula: Pre tax profit + provision against non-performing loans Loan loss Coverage ratio = Net charges off + provision against non-performing loans Ratio Loan Loss

2006 =2565945+9162908/

2007 =4535552+237086/584

2008 =1794720+2035997/28

Coverage

1537+9162908

4+237086

298+2035997

=11728853/9164445

=4772638/242930

=3830717/2064295

=1.27

=19.6

Ratio

=0.18 COMMENTS: This ratio is also the profitability measure of the bank. It helps in determining the asset

115

quality and level of protection of loans. This is a measure of protection to the depositors about the coverage of loan loss. The loan loss coverage of Bank Alfalah Limited shows lesser results as compare to the previous years because the provision against nonperforming loans increased. Bad debts have also increased which show a negative aspect of the bank because it can affect the profitability of the bank.

Deposit Time Capital: Formula: Deposits Deposits time capital = Capital Ratio Deposit Time Capital

2006 2007 =239509391/1057260 =273173841/13766673

2008 =300732858/14608523

5

=20.5

=19.8

=22.6

COMMENTS: This is a key ratio to determine the bank credit rating. Higher deposits show the availability of more amounts for advances, which is the major operation of commercial banks. The higher deposits of Bank Alfalah Limited in the current year indicate that the bank has more money to advance which will affect the profitability of the bank in a positive way. Increase in deposits will definitely improve the credit rating of Bank Alfalah Limited. But on the other hand the capital also increased which gives a negative answer to the ratio. 116

Loans to Deposit Ratio: Formula: Advances Loans to deposit = Deposits Ratio Loans to deposit

2006 =149999325/

2007 =171198992/27317384

2008 =192671169/30073285

239509391

1

8

=6.26 times =0.62 times

=0.64 times

COMMENTS: This ratio is a type of debt coverage ratio and it measures the position of the bank with regard to taking risks. In specialized analysis of Bank Alfalah Limited it is observed that debt coverage of bank is decrease in 2008. The decrease in loans shows that the bank deposits are not utilized more properly. The profitability of the bank directly depends on the loans / Advances.

3.5. Calculations for Leverage Ratios: Ratios involved in the analysis are •

Debt ratio

•

Equity ratio

•

Debt to equity ratio

•

Total equity

•

Sales to Fixed Assets Ratio

•

Debt to Tangible net worth Ratio

•

Fixed Assets to Equity Ratio

•

Total Capitalization Ratio

117

ITEMS INVOLVED: •

Earning before interest and taxes

•

Interest

•

Lease payment

•

Preferred dividend

•

Total debts

•

Total assets

•

Total equity

•

Tangible debts

•

Tangible net worth

Concerned Years 2006, 2007, 2008 Debt Ratio: Formula: Total debts Debt ratio =

*100 Total assets

118

Ratio

2006 =263,443,596 /

2007 =312675308/

2008 =331946025/

275,685,541*100

328895152*100

348990764*100

= 95.5%

=95%

=95.1%

Debt ratio

Equity Ratio: Formula: Total equity amount is incorrect.

Total Equity Equity Ratio =

*100 Total Assets

Ratio

2006 =10572605/

2007 =13766673/

2008 =14608523/

275685541*100

328895152*100

348990764*100

= 3.8%

=5%

=5%

Equity ratio

Debt to Equity Ratio: Formula: Total Debts Equity Ratio =

*100 Total Equity

119

Ratio

2006 =263,443,596 /

2007 =312675308/

2008 =331946025/

10572605*100

13766673*100

14608523*100

=2271.2%

=2272.2%

Debt to Equity Ratio = 2491.7% Debt to Tangible net worth Ratio: Formula:

Total Debts Debt to Tangible net worth Ratio =

*100 Tangible net worth

Tangible net worth = Equity – All intangible assets 2006= 10572605-38906 =10533699 2007= 13766673 -116676 = 13649997 2008=

14608523-217931= 14390592

Ratio

2006 =263,443,596/

2007 =312675308/

2008 =331946025/

Debt to

10533699*100

13649997*100

14608523*100

= 2500.9%

=2290.6%

=2272.2%

Tangible net worth Ratio

120

Sales to Fixed Assets Ratio: Formula:

Net sales Sales to Fxed Asests Rtio =

*100 Net fixed assets

Ratio Sales to

2006 =5958584/

2007 =9162908/

2008 =10715389/

10502990*100

11922324*100

13773293*100

= 56.7%

=76.8%

=77.7%

Fixed Assets Ratio

Fixed Assets to Equity Ratio: Formula:

Fixed Assets Sales to Fxed Asests Rtio =

*100 Equity

121

Ratio Fixed Assets

2006 =10502990/

2007 =11922324/

2008 =13773293/

10572605*100

13766673*100

14608523*100

= 99.3%

=86.6%

=94.2%

to Equity Ratio

122

COMMENTS In consideration to the long-term debts paying ability of Alfalah Bank Ltd in the year 2006, 2007, 2008, it is observed that the solvency of the business is towards the owner. The results of the calculations show that the Alfalah Bank Ltd is in normal position as comparative years. In this year, the bank assets and equity have increased with a higher percentage as compare to the previous years but total debts also increase in 2008 slightly which shows that the bank is now not in good position as compared to pay its long-term debts. Equity of the bank has increased and Asset has increased which shows that the bank is in a good position to pay its long-term debts. Although, the debts of the bank are also increasing, but the percentage of increment in assets are more than debts. From calculation of ratios show that bank are in struggling to achieve its previous a image for the prospective investors to invest their money in the bank. It also shows that the bank has ability to pay its debt easily which is due. The increase in equity is also due to the increase in reserves and net earnings of the bank. But as on one side if it is favorable for the bank on the other side it is also unfavorable because when the solvency of the company is favorable toward the owner so it means that the equity of the company is contributing more than other items. Due to increase in equity, the company has to face the tax with a high percentage.

123

3.6. Market Analysis: Definition Market Analysis considers the current market position of any organization. Especially of those investors who want to invest in stock of Organization and gain a long term benefits. This analysis provides facility to the investors to make’s their investment decisions on the basis of following ratios:

Calculations for Market Analysis Ratios involved in the analysis are •

EPS (EARNING PER SHARE)

•

BOOK VALUE PER SHARE

•

DIVIDEND PAYOUT RATIO

•

PERCENTAGE OF RETAINED EARNING

ITEMS INVOLVED: •

Earning before interest and taxes

•

Interest

•

Market price per share

•

Earning per share

•

Number of shares outstanding

•

Dividend per share

•

Total equity

EPS (earning per share): Net earning or Net income EPS =

124

No of shares outstanding Net income amount is incorrect Ratio

Earning Per

2006 =1762691/ 500000

2007 =3130229/799500

2008 =1301301/799500

= 3.52

=3.91

=1.62

Share P/E Ratio: Formula: Market price per share P/E Ratio= Earning per share Ratio

2006 =38.5/ 3.52

2007 =40.8/3.91

2008 =55.4/1.62

Price

= 10.93

=10.43

=34.1

Earning Ratio Book Value per Share: Formula: Total Equity – preferred stock Book Value Per Share = No of shares outstanding Ratio Book Value

2006 =10572605/ 500000

2007 =13766673/799500

2008 =14608523/799500

125

Per Share

= 21.1

=17.2

=18.2

Dividend payout ratio: Formula: Dividend per share Dividend Payout Ratio = Earning per share Ratio Dividend Payout

2006 =0/3.52

2007 =0/3.91

2008 =975000/1.62

=0

=0

=601851.8

Ratio Dividend Yield Ratio: Formula: Dividend Yield = Dividend per share Market value per share Ratio Dividend Yield ratio

2006 =0/38.5

2007 =0/40.8

2008 =975000/55.4

=0

=0

=17599.2

Percentage of Earning Retained ratio: Formula: Percentage of earning retained= Total Income- Dividend *100 Total Income Ratio Percentage

2006 =1762691-0/1762691

2007 =3130229-0/3130229

of Earning Retained

2008 =1301301-601851.8/ 1301301

=100%

=100%

=53.7%

ratio 126

COMMENTS The market analysis of bank Alfalah shows that the bank has not performed well in the market even though the net earnings have increased but still Earning per Share has declined to only 1.62 from 3.91. It shows a decline of profit of share which can discourage the investors to invest in the bank. The book value of the bank is far lower than its market value. But the market analysts do not rely more on book value because it is based upon historical cost. When market value is below book value, investors view the company as lacking potential. A market value above book value indicates that investors view the company as having enough potential to worth more than the unrecovered cost. When investors are pessimistic about the prospects for stocks, the stocks will sell below book value. On the other hand, when investors are optimistic about stock prospects, the stock will sell above book value. Book value per share has increase slightly as compared to the previous year this is because the equity has increased but the shares have increased which resulted in the decline of book value. This also shows a negative picture of the bank. In the year 2008 the dividend payout ratio also increases and the management has decided to give dividend in that year. It is positive for the bank on one side that then invertors may be willing after change and invest in BAL. Most firms hesitate to decrease dividends since this tends to have adverse effects on the market price of the company’s stock. No rule of thumb exists for a correct payout ratio. Some stock holders prefer high dividends; others prefer to have the firm reinvest the earnings in hopes of higher capital gains. The increase in the percentage of retained earnings could give a negative influence to the investors. But still the investor will be waiting to see the further results. It is due to the reason that the investor would be interested to invest in the business in order to get more dividends. But with this decrease in the retention ratio the potential investor will not remain any more interested in the business because investor requires return and if he don’t get that he will not invest in that firm. 3.7. Cash flow Analysis:

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The statement allows the preparer to use the concept of cash that included not only cash itself but also short-term high liquid investments. It contains three important things these are: •

Cash flow from Operating Activities.

•

Cash flow from Financing Activities.

•

Cash flow from Investing Activities.

Operating Cash per Share Ratio: Formula: Operating Cash per Share =

Operating Cash______ No of shares Outstanding

Ratio Operating

2006 =7852362/500000

2007 =39645325/799500

2008 =2499606/799500

=15.7

=49.5

=3.12

Cash per Share

Operating Cash to Total Debts Ratio: Formula: Operating Cash to Total Debts = Operating Cash*100 Total Debts Ratio Operating

2006 2007 =7852362/263,443,59 =39645325/312675308

2008 =2499606/331946025*

6*100

100

*100

128

Cash to

=29.85%

=12.67%

=0.75%

Total Debts Ratio

Operating Cash to Cash Dividend Ratio: Formula: Operating Cash to cash dividend =

Operating Cash*100

Cash dividend Ratio Operating Cash to Cash

2006 =7852362/0*100

2007 =39645325/0*100

2008 =2499606/

=0

=0

(601851.8)*100 =(415.3)%

Dividend Ratio

129

COMMENTS In consideration to the ability of the bank to use the cash that includes not only cash itself but also other short term highly liquid instruments has negative impact on the business. All the measurements taken are unfavorable to the bank. The operating cash of the bank has decreased in the current year which is the major reason for the unfavorable results of cash flow analysis. It shows that the operating cash is insignificant in relation to total debts, which show the Bank Alfalah is not able to cover its total debts against the yearly cash flow. The negative results show the inability of the management to cover the total debts with the available cash of the bank. Operating cash per share has the negative indication for short term which indicates that the bank cannot make capital expenditure decisions properly and will pay lesser dividends in the concerned year. The Bank is, thus, not in a better position to pay its one-year cash dividend. Overall cash flow analysis shows that the net cash flow of the Bank Alfalah from its operating activities would not attract the prospective investors to make their investments in the concerned business. 3.8. Activity Ratio: Current Ratio: Formula: Working of current assets and current liabilities missing???/ Current Ratio =

current Assets__ Current liabilities

Ratio Current Ratio

2006 2007 =53047965/11485265 =51269175/25368940

2008 =575838878/1714225

=4.61

=33.5

=2.02

Working Capital Ratio: 130

Formula: Working Capital Ratio = Current Assets – Current Liabilities Ratio Working

2006 =53047965-

Capital

11485265

Ratio

=41562700

2007 =51269175-25368940

2008 =575838878-1714225

=25900235

=574124653

Accounts Receivable Turnover Ratio: Formula: Accounts receivable turnover =

Net Sales______________ Average Goss Receivable’s

Ratio Accounts

2006 2007 2008 =5958584/134431667 =9162908/160599158.5 =10715389/181935080

Receivable

.5

Turnover

=0.04

.5 =0.05

=0.05

Ratio

Accounts Receivable Turnover in Days: Formula: Accounts receivable turnover in days=Average Gross receivables Net sales/365

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Ratio Accounts

2006 =134431667.5/59585

2007 2008 =160599158.5/9162908 =181935080.5

Receivable

84/365

/365

/10715389/365

Turnover in

=0.06

=0.03

=0.04

Days

Total Assets Turnover Ratio: Formula: Total assets turnover=

Net sales______ Average Total Assets

Ratio Total Assets Turnover

2006 =5958584/12241945

2007 =9162908/316219844

2008 =10715389/17044739

=0.48

=0.028

=0.62

Ratio COMMENTS From the above analysis it is observe bed that the current assets of BAL are increase as compare to its liabilities it means BAL has more current assets to pays its current liabilities as compare to previous years. Total assets turnover measures the activity of the assets and the ability of the firm to generate sales through the use of the assets. The total assets turnover of bank is increasing which is a favorable for bank Alfalah limited. Bank Alfalah currently generates more sales by introducing new products and increase more assets to pay its liabilities. The receivable of the bank Alfalah limited in current year is constant which shows that the bank is recovering its receivables constantly as compared to the previous year that is favorable for the bank. 3.9. Profitability Ratio:

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Net Profit Margin Ratio: Formula: Net Profit margin= Net Income Net sales Ratio Net Profit Margin

2006 =1762691/5958584

2007 =3130229/9162908

2008 =1301301/10715389

=0.29

=0.34

=0.12

Ratio

Return on Assets Ratio: Formula: Return on assets=

Net income_______ Average total assets

Ratio Return on Assets Ratio

2006 =1762691/12241945

2007 =3130229/316219844

2008 =1301301/17044739

=0.14

=9.89

=0.076

DuPont Return on Assets Ratio: Formula: DuPont return on assets= Net profit margin * Total assets turnover Ratio DuPont return on

2006 =0.29*0.48

2007 =0.34*0.028

2008 =0.12*0.62

=0.1392

=0.009

=0.0744

assets

133

Operating Income Margin Ratio: Formula: Operating income margin= Operating income Net Sales Ratio Operating Income

2006 =7852362/5958584

2007 =39645325/9162908

2008 =2499606/10715389

=1.31

=4.32

=0.23

Margin Ratio Return on Operating Assets Ratio: Formula: Return on operating assets=

Operating income

Average operating assets Ratio Return on

2006 =7852362/10502990

2007 =39645325/13773293

2008 =2499606/11922324

Operating

=0.74

=2.87

=0.20

Assets Ratio Operating Assets Turnover Ratio: Formula: Operating asset turnover= Net sales____________ Average operating asset Ratio Operating Assets

2006 =5958584/10502990

2007 =9162908/13773293

2008 =10715389/11922324

=0.56

=0.66

=8.98

134

Turnover Ratio

Gross Profit Margin Ratio: Formula: Gross profit margin= Gross profit Net Sales Ratio Gross Profit Margin

2006 =5259357/5958584

2007 =6786197/9162908

2008 =7172032/10715389

=0.88

=7.40

=0.66

Ratio COMMENTS In consideration to the ability of the bank to generate its profibility return on assets measures the firm’s ability to utilize its assets to create profit by comparing the profits with the assets that generate the profits. The decreasing return on assets in 2008 year show that the bank’s ability to utilize its average operating assets. The gross profit ratio of bank Alfalah also decreases.

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3.10. TREND ANALYSIS OF BANK ALFALAH It shows the trend over a period of time. It includes: •

Speed of the trend

•

Direction of the trend

•

Nature of the trend

Two types of trend analysis these are: 1. Horizontal analysis 2. Vertical analysis 3.10.1. HORIZONTAL ANALYSIS OF BALANCE SHEET OF BAL: HORIZONTAL ANALYSIS OF TOTAL ASSETS As At 31 December, 2006 – 2008 ITEMS

2006

2007

2008

Average

Cash and

100

106

117.3

change 8.65%

Direction

Nature of Trend

balance with

+VE

Favorable

+VE

Favorable

+VE +VE

Favorable Favorable

+VE

Favorable

+VE

Favorable

+VE

Favorable

treasury banks Balances

100

144

169

34.5%

with other banks Investments Financings Operating

100 100 100

27.7 156.6 114.1

26.6 134.4 128.4

36.7% 17.2% 28.4%

Fixed Assets Other

100

106.7

159.5

29.75%

Assets Total

100

119.3

126.5

13.25%

Assets

HORIZONTAL ANALYSIS OF TOTAL LIABILITES 136

ITEMS Bills

2006 100

Payable Borrowings

100

2007 133.8 252.9

2008 111.6 163.0

Average

Direction

change 5.8%

Trend

commercial 100

114.0

125.5

+VE

Unfavorable

+VE

Unfavorable

+VE

Favorable

+VE

Unfavorable

+VE

Unfavorable

31.5%

from other banks Deposits

Nature of

12.75%

and Other Accounts Other

100

130.4

154.5

27.25%

Liability Total

100

118.6

126.0

13%

liabilities HORIZONTAL ANALYSIS OF EQUITY As At 31 December, 2006 – 2008 Items

2006

2007

2008

Avg.

Direction

Change Share capital Capital Reserves Total Equity

Nature of trend

100

130

159.9

29.95

+VE

Favorable

100

138.0

115.1

15.1%

+VE

Favorable

100

130.2

138.1

19.05%

+VE

Favorable

COMMENTS: In consideration to the horizontal analysis of balance sheet of Bank Alfalah Limited, it is observed that the bank has positive impacts. The cash and balance with other bank is increasing which is favorable for the bank & also, the investment of the bank is increasing which is positive for the business. If the any banks investment increases its

137

means investments it enhances the profitability that will increase the good will of the bank towards the current as well as the prospective investors. More and more investors will attract towards the bank due to its increasing profits in order to earn higher gains. On the other hand, the borrowing of the bank has been increasing which is negative for the bank. The bank has increased its debt burden which will affect the solvency of the business. Also, the periodic interest payments of the bank will increase and the bank has to bear high interest expense which will also affect the profitability of the bank. The bank should decrease its debt burden to pay off its debt in order to increase its solvency as well as to decrease the interest expense. The share capital of the bank also increases during these years which are positive for the bank. Its means the claims of the outsiders have decrease in the business which is positive towards the owner of the bank. The bank has to the more profit for distribution profit among the stockholders and the owners also enjoy more profit. HORIZONTAL ANALYSIS OF INCOME STATEMENT As At 31 December, 2006 – 2008 Items

2006

2007

2008

Avg.

Direction

Nature of

Interest earned Interest

100

121.6

146.5

Change 23.25%

+VE

trend Favorable

100

109.1

133.4

16.7%

+VE

Unfavorable

100

153.7

179.8

39.9%

+VE

Favorable

100

-339.8

-291.8

535.7%

+VE

Unfavorable

100

129.0

136.3

18.15%

+VE

Favorable

100

134.6

140.6

20.3%

+VE

Favorable

expenses Interest income Provision against loans & advances Net interest income after provisions Fee, commission and brokerage income

138

Dividend

100

173.0

804.8

352.4%

+VE

Favorable

100

122.6

236.3

68.15%

+VE

Favorable

currency Other income Total non

100

122.4

148.1

25.54%

+VE

Favorable

markup

100

187.2

162.6

31.3%

+VE

Favorable

100

104.8

178.2

39.1

+VE

Favorable

100

22.0

283.4

-183.4

-VE

Favorable

100

140

179.4

39.7

+VE

Unfavorable

100

176.7

69.9

-15.05

-VE

Unfavorable

100

362.6

100.1

-199.9

-VE

Favorable

100

177.5

73.8

-26.2

-VE

Unfavorable

Income Income from dealing in foreign

income Administration expenses Other charges Total non interest expenses Profit Before Taxation Taxation Profit after taxation COMMENTS:

In consideration to the horizontal analysis of the income statement of Bank Alfalah Limited, it is observed that the bank has negative impacts over the past 3 years. The increase in interest expense is one of the reasons for the unfavorable result. The increase in debt has caused increase in the interest expense. Although the interest expense of the bank Alfalah limited has increased but the increase in interest income is more than the increase in interest expense which is also favorable for the bank. The administration expenses of the bank Alfalah limited have also increased which cause the decrease in profitability of the bank. The increase in administration expenses show that the management of the bank is not properly utilizing its resources and putting them into work. The management should utilize the bank resources properly in order to reduce

139

its expenses which will enhance the profitability of the bank in the future. The profitability of the bank has been decreasing which is unfavorable for bank Alfalah limited & it will decrease the confidence of the current investors as well as prospective investors will not invest in the bank Alfalah limited. The decrease in profitability is also favorable for the bank Alfalah limited because it will decrease the tax expense of the bank.

140

VERTICAL ANALYSIS VERTICAL ANALYSIS OF INCOME STATEMENT As At 31 December, 2006 – 2008 Items

2006

2007

2008

Avg.

Direction

Change Interest expensed Less: interest expense Net Spread Other Expenses Profit Before Taxation Profit After Taxation

100

100

100

Nature of trend

-------

-VE

Favorable

71.1% 64.4%

65.4%

66.9%

+VE

Favorable

46%

35.6%

34.6%

38.7%

+ VE

Favorable

28.9% 32.1%

34.5%

31.8%

-VE

Favorable

12.1% 17.5%

5.78%

11.7%

+ VE

Favorable

3.79% 5.45%

1.58%

3.60%

-VE

Favorable

VERTICAL ANALYSIS OF BALANCE SHEET VERTICAL ANALYSIS OF BALANCE SHEET (ASSETS) As At 31 December, 2006 – 2008 Items

2006

Cash Balances with banks Lending

2007

10.1% 8.95%

other 4.61% 5.58%

Direction

Nature of

Change 9.36% 9.47

+VE

trend Favorable

6.18% 5.45

+VE

Favorable

0.95% 2.16

+VE

Favorable

+VE +VE +VE +VE

Favorable Favorable Favorable Favorable

2008

Avg.

to

financial institutions Investments Advances fixed assets Other assets Total Assets

4.51% 1.04% 20.4% 54.4% 3.80% 2.18% 100%

26.9% 52.09% 3.62% 1.82% 100%

24.7% 52.0% 3.94% 2.87% 100%

24 52.83 3.54 2.29

141

VERTICAL ANALYSIS OF BALANCE SHEET (LIABILITIES) AS AT 31 DECEMBER, 2006, 2007, 2008 Items

2006

2007

2008

Avg.

Direction Nature of

Change Total Liabilities Total Equity Total Liabilities

trend

96.14%

95.78% 95.78% 95.9%

+VE

Unfavorable

3.86%

4.22%

+ VE

Favorable

100

100

4.22%

6.15%

100

& Equity

142

3.10.2. GRAPHICAL REPRESENTATION OF VERTICAL ANALYSIS

INTREST EXPENSE

65.4

71.1 2006 2007 2008

64.4

NET SPREAD

34.6 46

2006 2007 2008

35.6

143

OTHER EXPENSES

28.9 34.5 2006 2007 2008

32.1

PROFIT AFTER TAXATION

1.58 3.79 2006 2007 2008

5.45

144

PROFIT BEFORE TAXATION

5.78 12.1 2006 2007 2008

17.5

CASH

9.36

10.1 2006 2007 2008

8.95

145

BALANCES WITH OTHER BANK

4.61 6.18

2006 2007 2008

5.58

LENDING TO FINANCIAL INSTITUTIONS

0.95

2006

1.04

2007 2008 4.51

146

INVESTMENTS

20.4

24.7

2006 2007 2008

26.9

ADVANCES

52

54.4 2006 2007 2008

52.09

147

FIXED ASSESTS

3.8

3.94

2006 2007 2008

3.62

OTHER ASSESTS

2.18 2.87

2006 2007 2008

1.82

148

TOTAL LIABITIES

95.78

96.14 2006 2007 2008

95.78

TOTAL EQUITY

3.86

4.22

2006 2007 2008

4.22

149

3.11. FUTURE PROSPECTS OF THE ORGANIZATION: The future of the industry portends prosperity for BAL, with major restructuring taking place in the economy, and the increasing concentration of a few large institutions has propelled BAL to focus on strategic excellence. The environment not only instills in the entire BAL team a sense of heightened competition but also the relentless pursuit of rising above the fierce challenges the industry has to offer. In view of the above we have come up with product development and service and quality assurance departments to identify the gaps in the market, profitably fulfill them by developing premium products and offering them to our customers through our counters coupled with service beyond distinction. BAL’s management is increasingly focusing on the service quality aspect to increase retention rate through organized programmes as the Gold Standard Service. The program has met spirited response and is being implemented to increase efficiency levels internally and externally. 3.12. INDUSTRY ANALYSIS WITH OTHER ORGANIZTION: BAL is a large conventional bank in Pakistan from last years its position goes down but not that much as compare to its competitors. BAL only one branch earns huge profit every year but like ALLIED BANK they have number of branches but that are not equal in profit generation as BAL. BAL provide innovative services and products to their customers but like ALLIED BANK they provide small range of products and facilities to their customers. BAL’s team’s firm determination is very strong and they are liable to their bank too much and bank gives them incentive in large amount and they are satisfied. Last year the Gujranwala branch earns 3 billions profits, and they also provide trade facilities to their customers but most of the banks are not provided such kinds of facilities to their customers. From analysis it is proved that bank has a lot of assets to pay its liabilities as compare to its competitors. Economic factors effect on the profitability of the BAL but not that much. Like the recent merger of the 3 banks and they become the SILK BANK. BAL will achieve its previous well known status easily soon.

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4. SWOT ANALYSIS STRENGTHS Bank Alfalah is considered to be a very sound bank in the financial circles a bank, where the customers can safely keep their money as long as they want. I am pointing some of the major strengths of the bank: COMPASSIONATE CUSTOMER SERVICE The officers of BAL are considered as one of the most able professionals in the banking world (some belong to BCCI). However, they have added some local flavor in accordance with their targeted segmented. Especially, in G.T Road Branch, I observed that they interact with their clients as if they are their personal friends and discuss about their problems as their own. GOODWILL & TRUST As a result of the compassionate and personalized services of the officers, the clients’ perception for BAL is very high. They have trust and feel themselves to be secure while dealing with BAL. the bank has efficient and qualified management. The management has a keen observation on future aspects which play a key role in bank success. LOCATION Bank Alfalah has opened all its branches at commercial areas so that the customers or clients face no problems in reaching to the bank. For example, G.T Road branch for being situated in business and commercial hub of Gujranwala has second largest volume in trade finance. FOREIGN TRADE BUSINESS The bank is focusing on Trade Finance it shows a great significance to the development and maintenance of healthy correspondent relationships with other banks and financial institutions. Towards this pursuit, BAL has developed excellent business relations with foreign banks, whose support in terms of lines of credit extended to the bank, has enabled it to handle the ever-growing trade volumes. WIDE BRANCH NETWORK Bank Alfalah’s objective has been to expand its branch network to meet clients’ needs. It

151

is heartening to note that in just five years, which is considered the infancy stage in the industry, the bank has increased the branch network from 274. And, due to the growing business requirements, there are further more proposed branches in different cities. The expansion program is strategically important to increase customer base and to approach different customer segments. Recently one more new branch open in Gujranwala. THE COMPUTERIZED SYSTEM BAL has got a reliable and easy to use internal computer system. Every information regarding the transactions in customers’ deposits has been computerized. ‘Bank excel is being practiced for this purpose but now, a new program named ‘Bank smart is functioning very efficiently and accurately. TREND SETTER Bank Alfalah is a trend setter and always goes to explore the risky market. This helps the bank to meet new challenges in order to compete in the banking sector of the country and also to attract more customers both with in and outside the country. WEAKNESSES Perfection is only the claim of Allah Almighty. No other being living or dead can say this for itself. Similarly, Bank Alfalah also has some shortcomings that need to be mentioned: ADVERTISEMENT It is already doing much advertisement BAL has formulized a lot of products and services for its customers, even more than other commercial banks, but any advertisement on electronic media has not been seen. Since, BAL’s major competitor Union Bank Limited has started large media campaign, so keeping in view these threats; Bank Alfalah should emphasize more on its advertisement. PROBLEMS OF EMPLOYEES I observed during my internship that some of the employees were burdened with over work. So I think that the work should be distributed according to their post and capabilities. WORK LOAD I observed that the employees of BAL facing heavy load of work and they go back home

152

8 or 9 P.m. it’s not good for the health of employees and for personal life also. LACK OF INCENTIVES The bank lack incentives to motivate the employees. Due to this reason there is a high employee turnover rate. The employees of higher ranks are given incentives in the form of bonuses but the employees of lower rank are totally ignored. LACK OF COMMUNICATION There is lack of upward communication. Also there are barriers in horizontal communication due to lot of professional jealousy. NO HUMAN RESOURCE DEPARTMENT In this branch no specific human resource department for the hiring and firing of employees and for the satisfaction of employees OPPORTUNITIES Bank Alfalah has grown up its business with a very high pace and it has got tremendous popularity, even with in a very short span of time. There are many opportunities for the bank and by availing that it can stand amongst the top foreign banks. INFORMATION TECHNOLOGY All the opportunities of the 21st century are to be availed in the information technology. Information technology is the future of this dynamic world. Therefore BAL should emphasize much on IT, especially on E-Banking. Bank can design a universal account like other foreign banks, to enhance online facilities. EXTENSION OF BRANCH NETWORK Bank Alfalah’s growing business requires an extensive branch network. There are great opportunities for BAL for the expansion of its business. GROWTH IN DEPOSITS BAL has introduced a number of financial schemes including special ‘Royal Accounts’. These accounts have their unique features (discussed earlier). During the last three years, BAL’s deposits have been increasing @ 30%, which is a very healthy sign. Therefore, with the commencement of new schemes there can even be a greater increase in its deposits. THREATS ECONOMIC CONDITIONS

153

Despite the difficult circumstances that confronted the banking sector in particular and the country in general, Bank Alfalah has been still highly profitable. But, the facts can’t be denied and there might be an adverse impact of such situation. COMPETITORS Bank Alfalah is facing a strong competition by its major competitors, ‘Union Bank’ and ‘Askari Commercial Bank’. Business of these banks is also growing with very high pace. The SWOT analysis of the bank signifies that its strengths overcome its weaknesses and its opportunities are more than its threats. This is a positive sign for any organization.

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5.RECOMMENDATIONS

I spent six weeks of my internship in BAL G.T Road Branch, Gujranwala. During these six weeks, I felt myself to be a part of BAL. Even, this was my first experience of working in a banking organization, but I learned a lot from this experience. Based on my experience & observation regarding the operations and policies of Bank Alfalah, I have tried to stipulate some recommendations for further improvement. MARKETING BAL has formulized a lot of products and services for its customers, even more than other commercial banks, but any advertisement on electronic media has not been seen. So, I think that there should be a proper marketing department and advertisement expenditures of the bank should also be increased to improve its visibility and to publicize its financial schemes. ENHANCED COMPUTER NETWORK The bank should emphasize much on computer technology. Like other banks, BAL should enhance its on-line services. Bank, also should concentrate on E-banking and use of ATM. Moreover, bank should also emphasize on enhancing its website information. One drawback that I observed in G.T Road Branch was manual preparation of negotiable instruments like PO, DD etc. Due to growing business requirements of concerned branch, it should be provided more facilities. EXPANSION IN BRANCH NETWORK Bank Alfalah’s business has grown with a tremendous pace. There have been considerable profits just with in a short span of time. Therefore, due to the expanding business requirements, BAL should expand its branch network to capture other business markets. TRAINING FACILITIES AND SEMINARS Human resource constitutes the most valuable asset for an organization. To improve the professional skills and quality, BAL has started six-months comprehensive training program that is really a commendable step taken by BAL. Bank, apart from this program, conduct some training programs for existing employees to improve their proficiency. Also, Bank Alfalah should arrange some seminars to make its visions and objectives, 155

clear to every one. EQUAL STATUS OF BRANCHES One major & alarming drawback that I observed in G.T Road. Branch, is the inferiority complex faced by some employees. BAL G.T Road Branch, for being situated in business and commercial hub, has its unusual importance and has huge foreign trade business. But I observed some employees to be the victim of complex. So, to avoid such discrepancies, seminars should conduct to signify the importance of each branch. EXPANSION & RECRUITMENT IN G.T ROAD BRANCH BAL G.T Road. Branch has huge business volume, whereas the staff is not enough to meet these requirements. I found that some employees were burdened with overwork, even some clients’ complaint for the slow service. Therefore, more staff should be recruited. Also, there should be an expansion in the area of branch to meet the requirements of growing business transaction.

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6. CONCLUSION The time duration of my internship was of six weeks. I have learnt a lot about the banking functions. Bank Alfalah is playing a key role in the banking sector in Pakistan. It was established in 1998 and developed very effective growth strategies. As a result of this the bank progressed so well that in the short time of six years it has become one of the leading banks in Pakistan. Its profitability has increased about 75% as compared to the previous year. As mentioned in its mission statement that it provides innovative products and services to its customers. This makes this bank different from other banks. Bank strategy is to maximize the synergies of branch network though an optimal allocation of financial, human and other recourses in order to meet the dynamic challenges of present financial environment. The recruitment and training policies of the bank are according to the latest requirements so the employees are motivated and work efficiently and effectively. But the incentive system is weak and this is the main reason which makes the employees at lower level less motivated than the employees of the higher level. The bank should make its policies by considering the present conditions of the banking sector in order to compete in today’s world.

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BIBLIOGRAPHY All the information mentioned in this report is gathered from the following sources. o Websites www.bankalfalah.com. www.google.com www.wikipedia.com www.businessrecorder.com www.investopedia .com www.pakistaneconomist.com www.businessrecorder.com www.kse.com.pk o Other sources ANNUAL REPORT BANK ALFALAH LIMITED (2006, 2007, 2008) EMPLOYEES AT BANK ALFALAH o Manuals Branch Manger Mr. Sheikh Masood Elahee By miss Maria Khan (CRO) BY Miss Saira Chudhary (Trade Manger) BY Miss Hina (Accounts Officer) BY Mr.Hamyoun Masood Malhee o Book Financial Statement Analysis BY: Charles H. Gibson 7th Edition

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GLOSSARY Business Account This account is related to the business community. Current account Current accounts are those accounts in which we give no profit to customer on their deposits. Deferred Taxation Sum set aside for tax in the Financial Statements that will become payable in a financial year other than the current financial year. Export Export is the actual shipment, transfer, or transmission of items out of a country; a transfer of good or technology with knowledge or intent that the goods or technology shipped, transferred, or transmitted to an authorized recipient; or the transfer of goods or information in a country to an embassy or consulate of a foreign. Money gram Money Gram, offers remittance service to Pakistan. Money Gram is person-to-person money transfer service that allows consumers to receive money in just a few minutes. Market Capitalization Number of ordinary shares in issue multiplied by the market value of share as at the year end. Net Dividends Dividend net of withholding tax Net Interest Income The difference between what a banks earns on assets such as loans and securities and what it pays on liabilities such as deposits, refinance funds and inter-bank borrowings. Non Performing Loans A loan placed on cash basis (i.e. Interest Income is only recognized when cash is received) because in the opinion of management, there is reasonable doubt regarding the collect ability of principal or interest. Loans are automatically placed on cash basis when a payment is 3 months past due. All loans are classified as nonperforming when a

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payment is 3 months in arrears. Online banking Quantum of settlement within different branches is appreciable because of updating daily record. Price Earnings Ratio (P/E Ratio) Market price of a share divided by earnings per share. Return on Average Assets Profit after tax divided by the average assets. Repurchase Agreement Contract to sell and subsequently repurchase securities at a specified date and price. Return on average Equity Net profit for the year, less preference share dividends if any, expressed as a percentage of average ordinary shareholders’ equity. Revenue Reserve Reserves set aside for future distribution and investment. Saving account Saving accounts are those accounts in which the bank gives the customers profit on their deposits. Shareholders’ Funds Total of Issued and fully paid share capital and capital and revenue reserves. Term deposit account In this account the customer gets its amount fixed for a specified period of time.

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PERSONAL INFORMATION

Sttudent Name Student ID Student Contact Number Student Address

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