bop internship report

HISTORY OF BANKING IN PAKISTAN

Pakistan came into being on 14th August, 1947; sufficient banking services were available in the areas forming Pakistan. Out of the total branches of the nearly 3,500 in the undivided India, as many as about 1,500 branches were existing in these areas. It was agreed between the two countries that reserve bank of India shall continue to function in the Pakistan territory until 30th September 1948 and that Indian notes would continue to be legal tender at Pakistan until 30th September 1948. Unfortunately, relationship between the two countries became most strained immediately after independence; banking was mostly in the lands of Hindus who immediately started transferring their offices and assets into India. As a result most of the banks in Pakistan were closed down and even those which were open were not doing any effective business. The number of banking office in Pakistan came down to about 200 on 30th June 1948. Branches of some European banks were also functioning in a limited manner, financing in export of crops, and their number was limited to about 20. It was only the Habib bank, which transferred its office from Bombay to Karachi Austral Asia bank was another bank, which was in existence in the Pakistan territory at the time of independence. Despite of best efforts on the part of government of Pakistan, no heady way could be made on this behalf and reserve bank of India was in no mood to help the new country. Imperial bank of India, agent of the reserve bank of India also started closing down its branches in Pakistan. Reserve bank also refused to advance money to Pakistan to make essential payments such as salaries etc, also Pakistan’s share of Rs.75 billion in cash balance was with held by bank, causing hardships to the newly born state. In view of these hopeless state affairs it was

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agreed between the two countries that reserve bank would serve as monetary authority in Pakistan only up to 30th June 1948.

NATIONALIZATION OF BANKS The principle of nationalization of banks is to stream line the operation of commercial banks in such a way that it may be conductive to the development activities in process in the country. Since the commercial banks were owned controlled by big business groups of the country it was feared that these banks would not maintain uniformity in their operational and would be instrumental to inflationary pressure. However, the considerations behind nationalization are 

To form uniformity in the policy of the commercial banks so they may serve the best national interest.

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To make the operation of commercial banks highly sensitive and responsive to the policy of the government relation to financial matters.

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To make the credit policy of the commercial banks more purpose full and effective especially in the development of economic sectors of the country. It acts as an agent of the State Bank of Pakistan

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To make the best use of the funds available at the disposal of these banks for the economic development of the country.

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To eliminate unhealthy and uneconomic competition among commercial banks.

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To development strong money banks market in the country so that the value of currency may be maintained at stable level both in national facilities to exporter and agriculturists which have not been satisfactory in the past years.

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Public Sector Commercial Banks

National Bank First Women Bank Limited The Bank of Khyber The Bank of Punjab

NBP FWB KB BOP

Local Private Banks

Askari Commercial Bank Limited Bank Al-Falah Limited Bank Al Habib Limited Meezan Bank Limited Faysal Bank Limited Silk Bank Limited Soneri Bank Limited Union Bank Limited Muslim Commercial Bank Limited Allied Bank of Pakistan Union Bank Limited

Foreign Banks

ABN Amro Bank CITI Bank Habib Bank A. G. Zurich Mashreq Bank PJSC Oman Bank Barclays Bank Standard Chartered Bank 3

Specialized Banks

Zari Tarqiati Bank Ltd. Industrial Development Bank of Pakistan Punjab Provincial Cooperative Bank Limited

It has not so far been decided as to how the word ‘Bank’ originated. Some author’s opinion is that, this word is derived from the word ‘Bancus’ or ‘Banque’, which means a bench. Others authors hold the opinion that the word ‘Bank’ is derived from the German word ‘Back’, which means joint stock fund. It is therefore so much difficult to decide as to which opinion is correct. Banking in fact is primitive as human society, forever since man came to realize the importance of money as a medium of exchange, the necessity of a controlling or regulating agency or institution was naturally felt. Perhaps it was the Babylonians who developed banking system as early as 2000bc. It is evident that the temples of the Babylon were used as ‘Banks’ because of the prevalent respect and confidence at the clergy. At the time of independence there were 631 offices of the scheduled banks in Pakistan, of which 487 were located in West Pakistan alone. As a new country with resources it was very difficult for Pakistan to run its own banking system immediately. Therefore the expert committee recommended that the Reserve Bank of India should continue to function in Pakistan until 30, September 1948, so that problems of time and demand liability, coinage currencies, exchange etc, could be settled between India and Pakistan. The non Muslims started transferring their funds and accounts to India. By the end of June 1948, the number of officers of scheduled banks in Pakistan declined from 631 to 255. There were 19 foreign banks

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with the status of small branch offices that were engaged solely in export crop from Pakistan, while there were only two Pakistani institutions, Habib Bank, and Australasia Bank, the customers of the banks are not satisfied with the uncertain condition of banking. Similarly the Reserve Bank of India was not in the favor of Govt. of Pakistan. The Govt. of Pakistan decided to establish a full-fledge central bank. Consequently the Governor General of Pakistan Quaid-e-Azam inaugurated the State Bank of Pakistan on July 1,1948 Thus a landmark was made in the history of banking when the State Bank of Pakistan assumed full control of banking and currency in Pakistan.

THE BANK OF PUNJAB

VISION STATEMENT

“To be a customer focused bank with service excellence.”

MISSION STATEMENT

To exceed the expectations of our stakeholders by leveraging our relationship with the Government of Punjab and delivering a complete range of professional solutions with a focus on programmed driven products & services in the Agriculture and Middle Tier Markets through a motivated team.

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CORE VALUES

 

Our Customer As our first priority. Profitability For the prosperity of our stakeholders that allows us to constantly invest, improve and succeed.

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Corporate Social Responsibility To Enrich the Lives of community where we operate

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Recognition and Reward For the talented and high performing employees

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Excellence In every thing we do.

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Integrity In all our dealings.

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Respect For our customers and each other.

HISTORY OF BOP

The Bank of Punjab was established in 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with a network of almost 273 branches at all over major locations in the Punjab. The Bank provides all types of banking services such as Deposits in Local Currency and client foreign currency, remittances, and advances to business, trade, industry and agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. The bank offers attractive rates of profit on all deposits, opening of foreign currency accounts and handling of foreign exchange business for example imports, exports and remittances, financing, trade and industry for working capital requirements and money 6

market operations. The lending policy of bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. The Bank provides al ltypes of banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency, Remittances, Advances to Business, Trade, Industry and Agriculture A wholly owned subsidiary of BOP First Punjab Modaraba (FPM) was established in 1992 and is being managed by Punjab Modaraba Services (Pvt) Ltd , a wholly owed subsidiary of The Bank of Punjab. Lending under Islamic mode of finance, main vehicles are Morabaha, Ijarah & Musharika to encompass requirements of corporate, commercial and individual customers. Liability generation through COM’s (Certificate of Musharika ) offers attractive returns to individuals and institutional depositors for fixed tenure instruments. FPM is working to introduce new and innovative products to enhance its range of services.

AWARDS AND ACHIEVEMENTS Excellence Award by the Central Board of Revenue The Central Board of Revenue presented "Excellence Award" to the Bank of Punjab in recognition of the contribution made by the bank towards Government exchequer. 3rd Kissan Time Awards In recognition of Bank's contribution in development and growth of agricultural sector, the Bank honoured with "Top Bank for Agriculture Loans" and "Best Bank Crop Insurance" under 3rd Kissan Time Awards year 2006. Best Corporate Report Award

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Annual Report of the Bank for the year 2005 won 5th position for "The Best Corporate Report Award" for the Financial sector, adjudicated jointly by the Institute of Chartered Accountants of Pakistan and the Institute of Cost and Management Accountants of Pakistan. 16th Bolan Excellence Award The Bank was awarded Best Bank Award under 15th Bolan Excellence Awards distributed in 2006. Achievement Award The Lahore Chamber of Commerce & Industry (LCCI) awarded the Bank "LCCI Achievement Award" 2006.

MAJOR CUSTOMERS OF BOP Some of the major customers of Bank of Punjab are: 

Educational Institutes

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Agriculturists

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Pakistan Telecommunication Private Limited

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WAPDA

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Pharmaceutical Companies

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WASA

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MDA

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Town Municipal Committees and local governing bodies

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PUNJAB GOVERNMENT SHOWS FAITH IN BOP Punjab Government wishes to state that being the major stake holder in the Bank of Punjab it has full faith in the new management and operations of the Bank. The government further pledges its unequivocal support to the Bank and firmly believes that the affairs of the Bank are sound and its financial health robust.

Finance Department Government of the Punjab.

BRANCH NETWORK

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Lahore Region

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Faisialabad Region

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Gujranwala Region

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Rawalpindi Region

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Karachi/Queta Region

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Multan Region

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Gujrat Region

HEIRARHICAL FLOW

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GENERAL BANKING OF THE BANK OF PUNJAB

DEPOSIT DEPARTMENT In modern times very few business enterprises are carried out solely with the capital of the owners. Borrowing funds from different sources has becomes an essential feature of today business enterprise. But in the case of a entire banking system is based on it. The borrowed capital of the bank is much greater then their own capital. Banks borrowing is mostly in the form of deposits. These deposits are lent out to different parties. The larger the difference between the rate at which the deposits are borrowed and the rate at which they is lent out the greater of the

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profit margin of the bank. Furthermore, the larger the deposit the larger will be the funds available for employment; larger the funds lent out the greater will be the profit of the bank. To receive the deposit is the basic function of all commercial banks. The bank does not receive these deposits for save keeping purpose only, but they accept deposits as debts. When banks receive deposit from a customer, the relationship of a debtor and creditor is established where by the customer become the creditor and the bank a debtor. When the bank receives amount of deposit as a debtor, it becomes the owner of it. It may, therefore use it as deems appropriate. But there is an implicit agreement that the amount owned would be paid back by the bank to the depositor after a specified period.

NATURE OF DEPOSIT

 Current or demand Deposits  Saving Deposit  Short Notice Term Deposit  Call Deposits  Fixed or Term Deposits

CURRENT DEPOSIT Current deposit are those which are payable to bank whenever demand by the customer. Bank doesn’t pay any profit on current deposits. There are of different scheme of saving deposits, which are classified under different duration purpose and rate of interest. Fixed deposits are those which are by the bank under the conditions that will not be payable on demand but will be payable under fixed or determinate future time date.

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SAVING DEPOSIT This type of accounts is one step towards the Islamization of banking system in Pakistan. There are two types of PLS Accounts. •

PLS Saving Account

•

PLS-TDR (Profit & Loss Sharing Term Deposit Receipts). PLS saving accounts can be opened with the minimum sum of Rs. 100 and PLS-TDR

account can be opened for a sum of Rs. 1000 or above. Profit is paid on both types of the PLS account on half yearly basis. Under PLS saving account the depositor undertakes to share profit or loss on the deposits earned or sustained by the bank. Secondly the bank is at the liberty to invest the funds of the deposits in any avenue, it deems fit. The PLS deposits are invested in non-interested channels.

SHORT NOTICE TERM DEPOSITS This kind of deposit is for a short period. The depositor may withdraw his deposit at any time by giving seven days notice to the bank. This type of deposit facilitates the depositor to withdrawn his amount with interest of the deposited period.

CALL DEPOSIT Call deposits are the sorts of deposits, which are deposited with the banker against any tender. This is without interest deposit. This may be with interest provided the depositor has agreed to keep this amount with the bank for some fixed period.

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TERM DEPOSIT RECEIPTS This type of deposit is same as the SNTD. The difference is that SNTD is for short period (7- 30 days) while TDR is for long period (1 month up to 5 years).

ACCOUNT OPENING Account opening is the first step towards establishing a relationship between the customer and the bank. The Bank of Punjab is offering basically two types of account:

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Current Deposit Account

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Profit and Loss Sharing Account

The necessary condition for a customer, who wants to open an account with the bank, is introduction, which is preferably by the bank officers or any account holder of the bank. The different categories of accounts that are available are as under.

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Individual Account

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Joint Account

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Partnership Account

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Limited Company Account

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Clubs, Society, Association, or Trust Account

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SNTD

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TDR

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Foreign Currency Deposit

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ACCOUNT OPENING PROCEDURE The general banking department performs various functions among them the first and most important function is Account Opening. The bank reserves the right to open any account, which in its opinion is suitable as a customer. The process of opening an account is very simple and any body that would like to open his account could do it easily without any difficulty. The person would like to open his account is required to meet with the manager or second officer, who will give him an Application form specifically used for account opening. Along with the form a card for specimen signature is also supplied to the customer. Manager has every right not to accept this contract if he is not satisfied with the details provided by the customer. But in case the contract is acceptable to both, the next step is official account opening. This begins with the Account Opening Register which can be thought as a customer’s master file. The manager records the necessary details into this register5 and allots an “Account Number” from this account opening register. This register is maintained for each type of accounts and the account numbers are allotted serially. After opening the account every applicant’s date is entered in the computer to maintain the safe record and application form is also safely put off, so that it can be available whenever it is needed. Checking officer is responsible to tally the manual data with computerized account opening file. For fix deposit only the application form is needed, which is prepared manually, because most of the procedures of fix deposit is done manually.

Signature specimen card contains three

signatures of the applicant, applicant account number, account type, branch code, and title of account. It will be attached with the account opening form. Banker uses this card when he

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receives the cheque, he compares signature on the cheque with the Specimen card, for avoiding the frauds.

CLEARING DEPARTMENT This department receives the cheque and other negotiable instruments drawn on local branches of other banks. State bank of Pakistan has clearing house, in which cheque, and other negotiable instruments are brought by each local bank representatives and the mutual claims of each bank on other and offset and a settlement is made by the payment of difference. Clearing system is help full for both the customer and saving currency, time and labor. Investments which are collected •

Cheques

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Demand Drafts

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Telegraphic transfers

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Mail Transfers

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Pay Order

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Dividend Warrants

CLEARING Any instruments which drawn on BOP branches and other banks in same city that’s instruments are called clearing. A clearing and date stamp is a fixed on these instruments these are two types of clearing! •

Outward Clearing

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Inward Clearing

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Inward clearing means the cheque drawn on BOP and outward clearing means the Cheques drawn on others

OUTWARD CLEARING

The instrument collected or stored bank wise and a schedules is prepared separately for each bank mentioning the total number of instruments and the amount of the instruments. Then these are recorded in a register called “OUTWARD CLEARING REGISTER” then a main schedule is prepared showing the total number of cheque and their aggregate amount being presented in the clearing. The cheque/instruments are handed over the clearing branch. Central clearing branch issue CREDIT ADVICE to the branch for passing credit to its customer immediately. The branch on receiving credit advice debits the clearing account and credit the respective customer accounts.

INWARD CLEARING On receiving cheque/instruments from central clearing branch, the in charge checks the number and amount of cheque received in clearing must tally with the main schedule received from central clearing branch. These cheque/instrument are entered in “INWARD CLEARING REGISTER” for the cheque/instrument passed in clearing is a credit advice for the aggregate amount of cheque passed in clearing is prepared, drawn on central clearing branch.

RESERVES AT STATE BANK

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Deposit held by bank at SBP serves as check clearing and collection balances. Rather than physically transferring funds between banks, check clearing and collection can be done by simply debiting or crediting a bank’s account at SBP.

REMITTANCE DEPARTMENT Remittance is a major function of the bank. It is the transfer of money from one place to another place. The need for remittance is commonly felt in commercial life particularly and in everyday life generally. By proving this service to the customers the Bank of Punjab earns a lot of income in the form of service charges.

TYPES OF REMITTANCE

The Bank of Punjab deals with the following type of remittances •

Demand Draft (DD)

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Mail Transfer (MT)

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Telegraphic Transfer (TT)

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Pay Order

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Now we discuss all these in detail:

DEMAND DRAFT (DD): Demand draft is a written order given by the one branch of a bank on behalf of customer to another branch of the same bank to a certain amount to the certain person.

PROCEDURE 18

1) A draft voucher is filled which contains the following information •

Name of the parties involved

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Date

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Amount to be sent

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Account number (if DD is crossed) 2) A credit voucher is filled in order to get the excise duty and exchange commission. 3) The sender deposits the total amount of the two vouchers i.e. the debit and credit vouchers. 4) Then the cashier sends the cash receipt voucher to the accounts department and the account records the amount paid in his cash scroll. 5) Accountant gives the DD leaf along with the DD voucher to his assistant who records the sender’s name, amount and receiver’s name. After writing all the information in the DD register he gives it to the officer along with the DD for authentication. 6) After authentication the DD is handed over to the sender and bank sends the advice to the concerned branch. So when the party presents the DD in the concerned branch its payment could be made.

PARTIES INVOLVED The following parties are involved in demand draft;

1) Purchaser or Sender The purchaser is the person who sends the money to a particular person payable at a certain branch. 2) Issuing or Drawing Branch

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The branch from where the demand draft is issued to another branch of the same bank. 3) Drawer Branch Branch in which the draft has drawn and called upon to pay the amount. 4) Payee The person who is entitled to receive the amount after presenting the demand draft in the drawer branch.

MAIL TRANSFER It is the transfer of money from one branch to another branch of the same bank through mail service. In mail transfer there is no need of advice as the amount is directly credited to the receiver’s account.

PROCEDURE 1) First a voucher is filled in whish the sender writes the amount to be sent, name, account number of the receiving person with the branch name and date. 2) A credit voucher is filled in order to deduct exchange, postage charges according to the amount of the mail transfer. 3) The sender deposits the total amount in the cash department. 4) The cash officer gives the vouchers to the officer after affixing received cash stamp and writing the amount in red ink. 5) Then the officer writes the amount paid in the cash scroll and gives the MT to his assistant.

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6) MT leaf is filled according to the information provided in credit voucher. He also writes the same information in the MT register. Then he gives the MT leaf and MT register to the officer for authentication.

TELEGRAPHIC TRANSFER This is the most urgent method of remitting the money from one place to another place. This method is used when the sender desires to send urgently, in this case the sender request the manager of the branch to issue TT.

PROCEDURE For sending the TT the manager and officer apply a test. In the test the manager and officer uses a coding technique. They write their own code numbers, which is allotted, to them as the bank branch code. After making all the conformation the concerned branch makes the payment to the receiver. If the sender wants to convey the same message through telephone then he has to pay the charges of telephone along with the TT charges. First the person deposit the TT amount along with the charges through the credit voucher then his TT sent to the relevant branch.

PAY ORDER A pay order is a written order issued by the bank on its own branch, drawn upon and payable by itself to pay a specified sum of money to the person. The purpose of a pay order is to transfer the fund from one place to another. It is usually not issued in favor of the parties of other cities. Usually the pay order is issued for the local transfer of money from one person to another or from the person to any other department. It

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is used for different purposes. The purpose may be the repairs of the branch or renovation of the branch.

PROCEDURE The procedure of a pay order varies with the nature of the purpose. If the work is of huge amount then first the manager writes a letter to the Zonal Chief in order to get sanction of the work. Then the advertisement of the work is given in the newspaper in order to invite the contractors. But if the work is small then the branch manager has discretionary power to select the party whose rate is lowest. After finishing the work the contractor submits the bill of work on his stamp pad. Then the bank issues a pay order, against the pay order the contactor gets the amount from the issuing branch.

.ACCOUNT DEPARTMENT

Account department is the backbone of a bank. It plays a vital in performing different functions of a bank. The account department of is computerized as well as manual. Accounting books of different departments are maintained under this department and with the help of these, accountant prepare the monthly quarterly, semiannually and yearly financial statement and order statement of the whole bank. All the transaction taking place is recorded daily in the books of accounts and in computerized ledgers. For every transaction there is Voucher prepared and through these vouchers contra entries are passed under different head. Good working of accounts mainly depends on the voucher system. Accounts department is responsible for proper handling and maintenance of vouchers of different department 22

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MANUAL FUNCTIONS OF ACCOUNTS DEPARTMENT Accountant prepares vouchers for all daily activities of different departments. Checking officer checks and tallies these vouchers with their daily transactions and posts their entries under proper heads.

TYPES OF VOUCHERS •

Debit Voucher

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Credit Voucher These two types of vouchers are again classified under following types: -

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Cash voucher

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Transfer voucher

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Clearing voucher All the daily transaction in cash, transfer and clearing is done through these vouchers. A

sheet is prepared on which all the vouchers passed during one day are consolidated and summarized. This sheet is called supplementary sheet. There are two types of supplementary sheet.

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Daily paid voucher sheet

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Daily receipt voucher sheet

Paid sheet is used for all debit vouchers and receipt sheet is used for all credit vouchers.

CASH BOOK

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Cash book is prepared daily to keep the record of daily paid vouchers. Cash book contains the opening balance and the closing balance of a working day. Before writing and balance the cash book firstly there is needed to properly arrange all the vouchers of that day.

MAINTAINING & UPDATING LEDGERS One of the functions of accounts department is to maintain and update the term deposit ledgers and books manually. Term deposit receipt or TDR ledger is updated after every month for estimating profit on customer’s accounts. Accountant prepares different ledger for all schemes of term deposit. With the help of TDR ledger accountant prepares “provisional ledger”. From this ledger accountant calculate the monthly product of each account and estimate the profit for a half-year. The semiannual profit on each account will be the expenses of branch.

COMPUTERIZED FUNCTIONS OF ACCOUNTS DEPARTMENT Most of the daily working is done through ledgers. In BOP all the daily transaction in deposit, cash, clearing, transfer, remittance and advance are performed these daily ledgers; accounts department receives the following output of general ledger.

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Daily general ledger expense

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Daily general ledger income

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Daily general ledger assets

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Daily general ledger liability

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Daily general ledger circle expense

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Daily general ledger audit expense

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The formats of all these ledgers are same. They contain the following head account no. description, previous balance. Codes are assigned to all these items. Income will be credited in the branch account and expenses will be debited I the branch at the month end. All the expenses of circle, regional, audit, inspection office is debited in the head office account, because it is the responsibility of the head office to bear the expenses of its offices. For all the heads of general ledger there is closing balance and opening balance. These ledgers are helpful in preparing the daily, monthly, semiannually and yearly statements. Some of these statements are prepare for the purpose of record keeping of branches and some are prepared to send to the circle office, head office and state bank of Pakistan. Some of these statements are

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Statement of provisional income

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Statement of provisional expense

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Statement of head office account

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Summary of income and expense

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Statement of profit and loss on PLS account

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Statement of profit and loss PLS 365 account

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Balance confirmation report

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Statement of affairs

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BILLS DEPARTMENT

This department deals in bills for collection for all kinks such as cheque, draft, and pay orders, call deposits etc. with outstation branches of BOP or with other banks. It provides service to their customer to get payment from the nearer bank at nominal charges. The four main heads of bill department is. •

Outward Bill for Collection (OBC)

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Inward Bills For Collection (IBC)

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Outward Documentary Bills For Collection

(ODBFC)

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Inward Documentary Bills For Collection

(IDBFC)

OUTWARD BILLS FOR COLLECTION

Bills department receive cheque or other of bills from its kinks client whose account must be opened in that branch. The branch forwards the check with schedule or covering letter to that branch on which bills is drawn. The checking officer of bills department will cross the cheque with special bank stamp before forwarding the cheque. OBC register is also maintained for proper record keeping of outward bills. This register is updated two times once at the time of receiving bill from clients and the other when the confirmation advice of this cheque is received from the payable branch. Bank gets a commission Rs. 25/- and courier charges Rs. 40/- on the service.

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INWARD BILLS FOR COLLECTION The branches which receive bill have to verify these bills for payment. The party account must be opened in that branch. The responsibility of this branch is to verify the bills for collection with in three days and send the advice to the originating branch. In case of verification of bills is approved, banks debit the account of the respective account holder and send a debit advice to the originating branch and at the same time credit the head office account for inward bills IBC register is maintaining for keeping the proper record of the bills.

OUTWARD DOCUMENTARY BILLS FOR COLLECTION Originating branch receives the documentary bills from their clients and sent them to out station branches of the same bank or other bank. Customer account must be opened in that branch. The documentary bills are i.e. trust receipt, railway receipt, sales invoice, receipts of courier service etc. bank gets as commission 0.35% plus postage charges plus courier service charges of this service. Seller and producer both can avail the facility of bank in case of selling and purchasing their product or goods.

INWARD DOCUMENTARY BILLS FOR COLLECTION Bank receives the documentary bills from the other outstation branches of the same banks or other banks for collection the amount from purchaser. In this case back acts as a buyer’s bank, when bank receives the documentary bills they send intimation to buyer about his arrival of goods. If the buyer is the account holder then bank will debit his account otherwise purchaser deposits the amount of the bills. Bank hand over

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these documents to purchase, on behalf of which buyer receives the goods. Bank also charges commission.

ADVANCES/CREDIT DEPARTMENT It is the loan function, which produces the major person of bank’s income, and as such it is the major areas of professional banker’s concern and attention.

PRINCIPLES WHILE ADVANCING Basically there are five principles that must be duly observed while advancing money to borrowers. •

Safety

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Liquidity

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Disposal

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Remuneration

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Suitability

FORMS OF LENDING Many there are two types of advances: •

Short-term (maturity within one year)

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Long term (maturity with the period of more than one year)

However they are further classified as: •

Running Finance

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Demand Finance

•

Cash Finance 28

•

Letter of Guarantee

RUNNING FINANCE This form of finance was previously known as “overdraft”. When a customer requires the temporary accommodation, his bank allows withdrawal his account in excess of credit balance, which the customer has in its account, a running finance occurs. The accommodation is thus allowed collateral security. When it is against collateral securities, it is called a “Secured Running Finance” and when the customer cannot offer any collateral security except his personal security, accommodation is called a “Clean Running Finance.” The customer is in advantageous position in running finance because he has to pay the mark-up only the balance outstanding against him on daily product basis.

DEMAND FINANCE This is common form of financing to commercial and industrial concerns and is mad available either against pledge or hypothecation of goods produce or merchandise. In Demand Finance the party is financed up to a certain limit either at once or as and when required. The party due to facility of paying mark-up only on the amount it actually utilizes prefers this form of financing •

Ordinary Shares

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Preferred Shares

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Quoted or Unquoted

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Registered

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Bearer

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Inscribed

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ADVANCES AGAINST IMMOVABLE PROPERTY

A mortgage is the transfer of and interest in specific immovable property for the purpose of securing the payment of the money, advanced or to be advanced. By way of loan, and existing debts or the performances of the engagement this may rise the pecuniary liability. The transfer is called the ‘mortgager’ and the transferee the ‘mortgagee’ the principal money and interest of which payment is secured for the time being and instrument by which the transfer is effected, is called the letter of the mortgage deed. Availability of adequate flows of credit for industry and agriculture are a sine qua non for the growth and development of an economy. This acquires added importance when agriculture is the mainstay of the economy as also the sector where the bulk of the poor are concentrated. Growth and productivity in Pakistan's agriculture has slowed down in recent years and is, therefore, of serious concern given its importance for the economic prosperity of the country. Apart from various other weaknesses in the infrastructural support of the agricultural sector, inadequacy and lack of efficacy of credit, flows to support agriculture related activities has been a major constraining factor. Agriculture is the largest sector of the economy. It contributes 25 percent to GDP, provides raw materials to 80 percent of industry and employment to over 50 percent of the population. This is a sector that has the shortest gestation period for investments and, therefore, a remarkable capacity to bring about a turn around in the economy. This important sector in Pakistan is suffering from a number of maladies and is consequently witnessing stagnation in productivity. Due to policy and administrative exigencies, the savings in the agriculture sector remain low and, therefore, the sector has perpetually remained capital starved. The pricing of input and output in agriculture over the years has forced the majority of farmers in Pakistan to plough

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back their incomes into agriculture and non-institutional credit, and has more often than not served to sap their potential earnings. Needless to say, that shortage of savings and lack of availability of capital is one of the major reasons for poverty in the country. The agricultural and rural sectors in Pakistan in general and in Punjab in particular are, therefore, suffering from severe under-development. Under a desirable development model, Punjab can:

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Increase agricultural production to meet the country's requirement of essential foods items and industrial raw materials.

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Develop agro-based industry in the rural sector for economic value addition;

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Generate additional employment opportunities in rural as well as adjacent small towns/cities

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Control massive migration to the urban centers that in turn is causing a number of social, administrative (i.e. law and order) and economic problems for the urban areas

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Elevate poverty and improve the income generating capacity of the agri-based population.

AGRICULTURE SCHEME There are many agriculture promotion schemes provided by BOP. 

Green Tractor Lease Finance Scheme

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Agri Finance Branches

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Agricultural Finance Scheme

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Kissan Dost Tractor Scheme

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Second Hand Tractor Lease Finance Scheme



Kissan Dost Aabiari Scheme



Kissan Dost Mechanization Support Scheme



Kissan Dost Farm Transport Scheme 31



Kissan Dost Eslah-E-Arazi Scheme



Kissan Dost Live Stock Development Scheme



Livestock Breed Improvement Trough VVW



Kissan Dost Commercial Agro Services



Kissan Dost Agri Mall Finance Scheme



Corporate Farming Finance Scheme



Commercial Lease Finance Tractor Scheme



Demand Finance-Sheds Construction and Civil Works



Lease Finance Facility for Milch Animals



Running Finance-Livestock/Poultry and Fish Farms



Kissan Dost Model Dairy Farms (PDDC)



Kissan Dost Model Milk Collection Center (PDDC)



Kissan Dost Green House Finance Facility



Kissan Dost Cold Storage Finance Facility



Scheme for Controlled Sheds



Lease Finance Facility for Installation of Biogas Plant



Group Financing to Small Farmers



Clean Credit Facility through Syngenta Franchisees



Zarkaashat Drip Irrigation System



Markup of Schemes

BUSINESS PROMOTION SCHEME 

BOP Quick Cash



BOP Car Loan



BOP House Loan 32



BOP SME Loan



BOP Assaish Loan



BOP House Loan For Federal Govt

SERVICES 

Commercial Banking



Corporate & Investment



Cash Management Services



Utility Bills



Lockers COMMERCIAL BANKING

The Commercial Banking Group has been formed to cater the needs of small & medium size customers for increasing Bank’s business significantly with clear focus, repositioning of resources and active marketing to improve Bank’s profitability. Commercial Banking will deal with customers having sales turnover and aggregate credit exposure as per benchmarks prescribed in the SBP’s Prudential Regulations.

This Group’s emphasis will be to meet necessary business needs of customers which are numerous as compared to CIB clients but their individual credit requirements are relatively much smaller. In view of this peculiar nature of this business segment that involves a higher turn over a much wider network is needed. The SME will concentrate on rebuilding its set up which suits to its peculiar needs on all locations. 33

CORPORATE & INVESTMENT BANKING Corporate Banking The BOP Corporate Banking endeavors to market new clients and retain the existing relationships and build market share by offering superior services, competitive pricing and wide product range to valued corporate clients including Public Sector Entities and Multi National Companies. BOP facilitates its customers for all sorts of their banking needs including working capital, trade finance, BMR and project financing etc. BOP has worked on some of the local markets’ largest and most complex transactions and infrastructure projects. The BOP Corporate Banking Group comprises of seasoned relationship management team to meet the demanding service standards of large corporations. The group delivers a full range of high quality advisory, financing and operational service solutions tailored according to customers’ needs. Investment Banking The investment Banking Group is entrusted with the prime responsibility of developing and executing investment banking strategy to enhance and maximize shareholder value and customer confidence. IBG specializes in providing innovative and unique advice to its clients to assist them in meeting challenges in an ever-changing market. The team of qualified professionals operates under a strict risk management framework, following best practices within their fields and continuously striving for excellence. Investment Banking Unit offers full spectrum of services, which include TFCs, Syndicated Finances, Structured Finances, Leveraged Buyouts, Project Finance,

34

Quasi-Equity Products, Independent Advice, Equity Placements, IPOs, Equity Underwriting, Mergers, Corporate Restructuring, Acquisitions and other products. IBU also works on and come up with providing Fund Management Facilities CASH MANAGEMENT SERVICE Cash Management is a process of collections & payments on behalf of the Customers using the Bank Network.The objective is to faciliate organizations with multiple collection points in gathering Cash / Funds and making them available in the customer operating Account. Similarly it facilitates disbursement of frequent and or Bulk payment to multiple locations. This should be accomplished with minimal supervision by the customer, supported by an automated system to provide timely and requisite MIS / Reconciliation under agreed Service Levels UTILITY SERVICE Customers can pay their utility bills e.g. electricity, water gas, telephone, mobile, at any of our 272 branches across Pakistan. For your convenience bills are collected on all working days from 9:00 am to 5:00 pm (Monday to Friday) except lunch & prayer breaks and from 9:00 am to 1:30 pm on Saturday. You can also pay your bills by availing our drop box facility. Just drop your Cheque along with bill at your branch and collect the receipt in the evening, avoid the hastle of standing in queues and save your precious time BOP LOCKER Discover peace of mind, enjoy personalized service and operate your locker in a friendly and pleasant environment at The Bank of Punjab. 35

Locker Size

Annual Fee

Small

Rs.1,200

Medium

Rs.1,800

Large

Rs.3,000

Extra Large

Rs.6,500

These are the other services provided by the BOP.



ATM Facility



On-Line Banking



Lockers Facility



Demand Drafts



Letter of Credit



Pay Order



Mail Transfer



Debit Card



Collection of Utility

AUTOMATED TELLER MACHINHE

Through the ATM’s Customers have access to the various services such as withdrawal, balance enquiry and mini statement? Complete security is ensured because access to the account is only possible by entering a four digit personal identification number (PIN) known

36

only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card.

ONLINE BANKING BOP is currently offering window-based online banking to its customers, which gives access to information on their accounts and the liability to act on the latest information received over the net.

LOCKERS It is one of the utility services that BOP provides to their customers for keeping jewellery, important documents and other valuables.

DEMAND DRAFT BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch.

LETTER OF CREDIT BOP is offering its business customers the widest range of option in the area of money transfer. BOP’s letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter of credit is the best way to do the business transactions.

PAY ORDER 37

BOP provides transfer of money using different facilities. Its pay orders are a secure and easy way to move the money from one place to another. The charges for this service are extremely competitive.

MAIL TRANSFER Moves money safely and quickly from BOP Mail Transfer service. The rates for this service is quiet impressive as compare to the market.

DEBIT CARD BOP Apna Cash Card is an ATM plus Debit Card. 1. The front of the card will have the following matter on it: •

Card Holder’s Name

•

International Bin Number (6 Digits - XXXXXX)

•

Magnetic Strip

•

Signature Panel

•

Conditions of Usage

•

M-Net and M-Net logo

LIMITATIONS •

Any non-personal account i.e. Companies, Organizations, Trust Account, Government account and Collection account etc.

•

Dormant, inoperative, blocked or restricted accounts.

•

Accounts with “NIL” balance.

•

Term Deposit Accounts.

38

•

NIDF Accounts. (Non Interest Demand Finance Accounts)

•

Accounts requiring thumb / photo for operation (illiterate accounts) · ATM/Debit cards can only be issued on local currency accounts.

FINANCIAL ANALYSIS To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years. Importance of Financial Analysis

IMPORTANCE OF FINANCIAL ANALYSIS Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owner’s equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis

39

BALANCE SHEET 2008 2007 (Rupees in ‘000)

Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets

10,685,057 2,178,455 633,333 22,711,980 131,731,158 3,471,838 8,388,162 6,109,137

14,210,302 1,927,662 2,450,000 73,461,695 133,893,585 3,252,759 5,805,097

185,909,120

235,001,100

1,219,801 12,278,773 164,072,532

937,647 17,842,915 191,968,909 40,321 2,205,530 3,009,984

Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Net Assets Represented By Share capital Reserves (Accumulated loss) / Un-appropriated profit

-30,632 4,564,257 182,165,995 3,743,125

216,005,306

5,287,974 7,427,232

4,230,379 7,427,232

18,995,794

3,452,842

(Deficit) / Surplus on revaluation of assets - net

Contingencies and Commitments

40

(7,658,686) 5,056,520 (1,313,395)

15,110,453 3,885,341

3,743,125

18,995,794

INCOME STATEMENT 2007

2008

(Rupees in ‘000)

Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/ interest income Provision against non-performing loans and advances Provision for diminution in the value of investments Bad debts written off directly Net mark-up/ interest income after provisions Non Mark-up/interest Income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale and redemption of securities Unrealized gain / (Loss) on revaluation of investments

17,752,969 16,614,000

17,539,094 13,939,377

1,138,969 18,863,580 366,387 19,229,967

1,887,769

(18,090,998)

1,711,948

577,630 2,020,896 324,328 733,787

653,512 1,804,878 377,233 2,039,535 -

Other income Total non-markup/interest income

526,185

Non Mark-up/interest Expenses Administrative expenses Provision against other assets Provision against off balance sheet items Other charges Total non-markup/interest expenses

3,599,717 1,616,421 24,479 246,869

547,635

4,182,826

5,422,793

(13,908,172)

7,134,741

2,799,933 10,101 114,700

2,250,777 292 37,950

2,924,734

2,289,019

(16,832,906) -

4,845,722

(16,832,906) 207,600 1,052,000 (8,033,001)

4,845,722 169,252 (19,921) 250,772

(6,773,401)

400,103

(Loss) / Profit After Taxation Unappropriated profit brought forward Transfer from surplus on revaluation of fixed assets - net

(10,059,505) 3,452,842 5,572

4,445,619 3,219,246 5,866

3,458,414

3,225,112

(Accumulated loss) / profit available for appropriation Basic (loss) / earnings per share (after tax) - Rupees Diluted (loss) / earnings per share (after tax) - Rupees

(6,601,091)

7,670,731

Extra ordinary/unusual items (Loss) / Profit Before Taxation Taxation - Current - Prior years - Deferred

41

-

(19.02)

8.41

(19.02)

8.41

FINANCIAL BUSINESS SUMMARY

2004

2005

2006

2007

2008

Operating Results Markup/ return/ interest earned

Rs in m

2,555

6,125

11,579

17,539

17,753

Markup/ return/ interest expenses

Rs in m

719

2,669

7,509

13,939

16,614

Net markup income

Rs in m

1,836

3,456

4,070

3,600

1,139

Non-markup based Income

Rs in m

1,097

1,331

2,954

5,423

4,183

Non-markup based expenses

Rs in m

1,150

1,291

1,882

2,289

2,925

Provision against NPLs

Rs in m

47

331

374

1,888

18,864

Net profit before tax

Rs in m

1,736

3,165

4,769

4,846

(16,833)

Net profit after tax

Rs in m

1,368

2,353

3,804

4,446

(10,060)

Total Assets

Rs in m

66,320

111,154

164,855

234,974

185,909

Advances (net)

Rs in m

39,439

63,624

101,320

133,894

131,731

Investments

Rs in m

16,198

18,026

28,233

73,462

22,712

Shareholders Equity

Rs in m

4,420

6,777

10,659

15,110

5,057

Revaluation Reserve

Rs in m

3,419

6,893

5,467

3,885

(1,313)

Deposits

Rs in m

54,724

88,465

137,728

191,969

164,073

Borrowings from FIs

Rs in m

2,832

6,791

6,989

17,843

12,279

Balance Sheet

42

RATIO ANALYSIS Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of BOP has been calculated: Ratios

2004

2005

2006

2007

2008

Gross spread ratio

%

72

56

35

21

6.42

Profit before tax to total income

%

59.19

66.11

67.89

53.71

(316.29)

Markup/ Interest cover ratio

times

5.08

2.79

1.94

1.65

1.32

Profit after tax to total income

%

46.65

49.16

54.16

49.27

(189.03)

Total assets turnover

times

0.06

0.07

0.09

0.1

0.12

Return on avg total assets (after tax) %

2.49

2.65

2.76

2.22

(0.05)

Price earning ratio

times

7.25

10.23

7.71

9.31

(0.60)

EPS (Non dilutive)

Rs./share

9.08

10.01

13.14

10.51

(19.02)

Dividend per share

Rs./share

4

5.2

3.25

3.5

-

Market value per share

Rs./share

65.9

102.45

101.25

97.8

11.50

Capital adequacy Ratio

%

12.83

12.78

10.09

9.69

1.92

GROSS SPREAD RATIO Gross spread ratio defines the total spread of interest between borrowing and lending.Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds. The higher the spread the higher will be the profit margin. GSR= Rev/CGS GSR= (Mark-up earned – Mark-up Expense)/Mark-up earned GSR is 2nd highest all over the globe in Pakistan. GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits. 43

% 80 72

70 60

56

50 40

%

35

30

21

20 10

6.42

0 2004

2005

2006

2007

2008

PROFIT BEFORE TAX TO TOTAL INCOME Operating income less operating cost (profit before tax). This ratio tells what percent of total income is earned before paying all the taxes. BOP has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts. The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking

% 100 50

59.19

66.11

67.89

53.71

0 -50

2004

2005

2006

2007

2008

-100

%

-150 -200 -250 -300

-316.29

-350

44

INTEREST COVERAGE RATIO MP/Interest cover ratio= EBIT/Mark-up This ratio tells what percent of interest is covered from the total income of a firm or a bank.It tells the ability of a bank to pay its mark-up to the depositors..

times 6 5

5.08

4 3

times

2.79

2

1.94

1.65

1

1.32

0 2004

2005

2006

2007

2008

PROFIT AFTER TAX TO TOTAL INCOME This ratio analysis tells profitability of a firm after paying all the taxes to total income. Profitability of BOP is increased because of decrease in the tax paid to the govt and of high spread ratio. BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%

45

% 100 50

46.65

54.16

49.16

49.27

0 -50

2004

2005

2006

2007

2008 %

-100 -150 -189.03

-200 -250

TOTAL ASSET TURNOVER Asset turnover= Net Income/ Total assets This ratio tells the turnover of the asset to generate income. This ratio is increased during last few years which represent increase in the turnover by assets. tim es 0.14 0.12

0.12

0.1

0.09

0.08 0.06

0.06

0.1

0.07

tim es

0.04 0.02 0 2004

2005

2006

2007

2008

RETURN ON TOTAL ASSET This ratio gives an idea of returning net profit generated by the bank in comparison with assets. Return on assets= Profit after tax / Total Assets

46

This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.

% 3 2.5

2.76

2.65

2.49

2.22

2 1.5

%

1 0.5 0 -0.5

2004

2005

2006

2007

-0.05 2008

PRICE EARNING RATIO Price Earning Ratio= Market price of a share/ EPS From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm

times 12 10.23

10 8

9.31 7.71

7.25

6

times

4 2 0 -2

2004

2005

2006

47

2007

-0.6 2008

EARNING PER SHARE EPS = Net Income/ total shares Through this ratio it can be analyzed what percent of 1RS share is earned.

120 102.45

100

101.25

97.8

80 65.9

60

EPS

40

DIVIDENT VALUE

20 9.08 4

0 -20

10.01 5.2

2004

2005

13.14 3.25 2006

10.51 3.5 2007

11.5 0 2008 -19.02

-40

CAPITAL ADEQUACY RATIO Capital adequacy ratio informs lending up to a certain ratio of equity. This ratio is set by the State Bank of Pakistan. C.A 14 12

12.83

12.78 10.09

10

9.69

8

C.A

6 4 2

1.92

0 2004

2005

2006

ADVANCES & DEPOSITS

48

2007

2008

SWOT ANALYSIS SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as well as its environment opportunities and threats. “SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affect organizational performance.” “The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOT analysis In SWOT analysis the best strategies accomplish an organization’s mission by : •

Exploiting an organizations opportunities and strength.

•

Neutralizing it threats.

•

Avoiding or correcting its weakness. 49

SWOT analysis is one of the most important steps in formulating strategy using the organization mission as a context; managers assess internal strengths distinctive competencies and weakness and external opportunities and threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralize threats and avoid weaknesses.

STRENGTH •

The Bank officers of BOP are considered as one of the most able professionals in the banking world. However, they have added some local flavour in accordance with their targeted segmented. In my observation that they interact with their clients as if they are their personal friends and discuss about their problems as their own.

•

As a result of the compassionate and personalized services of the officers, the clients’ perception for BOP is very high. They have trust and feel themselves to be secure while dealing with BOP.

•

BOP has opened all its branches at commercial areas so that the customers or clients face no problems in reaching to the bank.

•

BOP has got a reliable and easy to use internal computer system.Every information regarding the transactions in customers’ deposits has been computerized. Data are properly maintained.

•

Good security system

•

Not excellent but good facilities are given to employees

WEAKNESSES

50

•

Lack of proper internal controls is one of the major weakness of BOP. It is also pointed by the auditor in his review.

•

BOP 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.

•

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.

•

Biased selection of employees.

OPPORTUNITIES •

Satisfy dynamic consumer needs, BOP has made significant in roads in its entire service spectrum. A lot of products have been introduced especially in Retail Banking (Agriculture side) and people are increasingly becoming loyal to the bank and because of feasible transactions. Optimum pricing and branding strategies of the bank are helping to make customer feel secure and convenient.

•

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 BOP should emphasize much on IT, especially on E-Banking. Bank can design a universal account like other foreign banks, to enhance online facilities.

•

BOP has introduced a number of financial schemes including special ‘Deposit Accounts’. These accounts have their unique features. During the last three years,

BOP deposits have been increasing @ 40%, which is a very healthy sign. Therefore, with the commencement of new schemes there can even be a greater increase in its deposits

51

THREATS •

Despite the difficult circumstances that confronted the banking sector in particular and the country in general, BOP has been still highly profitable. But, the facts can’t be denied and there might be an adverse impact of such situation.

•

BOP is facing a strong competition by its competitors, Business of all these Banks are growing at very high pace.

PEST ANALYSIS

PEST analysis of any industry investigates the important factors that affect the industry and influence the companies operating in the sector. PEST stands for Political, Economic, Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that drive the industry and how those factors can influence the industry.



POLITICAL



ECONOMICAL



SOCIO CULTURAL



TECHNOLOGICAL

52

ECONOMICAL • • • • • • • •

GDP MONSOON INFLATION SAVINGS & ACCOUNTS AGRICULTURE CREDIT INTEREST RATES RAISING LIVING STANDRED DISPOSABLE INCOME SOCIOCULTURAL

POLITICAL • • • •

GOVERNMEN T POLICY & BUDGECT BUDJECT MEASURES MONATORY POLICY FDI LIMIT

• • • Organization •

53

CHANGES IN LIFE STYLE LITERACY RATE DEMOGRAPHIC OF LARGE POPULATION SHIFT TOWARDS THE NUCLEAR FAMILY

POLITICAL FACTORS Government policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmer’s votes. By doing so the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints TECHNICAL various chairmen of the banks. Various policies are framed by the SBP looking at the present • TECHNOLOGY IN situation of the country for better control over the banks BANKS • CORE BANKING SOLUTIONS • OF ATM FOCUS ON REGULATIONS GOVERNMENT • INTERNATE • I.T SERVES AND Government affects the performance of banking sector most by legislature and framing policy MOBILE .government through its budget BANKING affects the banking activities securitization act has given more power to banking sector against defaulting borrowers.

54

MONETARY POLICY Bank Rate: The Bank Rate has been retained unchanged Repo Rate It has been reduced under the Liquidity Adjustment Facility (LAF) Reverse Repo Rate : It has been reduced under LAF by 25 basis points from 3.5% to 3.25% with immediate effect. RBI has retained the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors.

FDI LIMIT The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who are starved of net worth to meet CAR norms. Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0 percent and have been included within the ambit of FDI investment

ECONOMIC FACTORS Banking is as old as authentic history and the modern commercial banking are traceable to ancient times., banking has existed in one form or the other from time to time. Every year SBP declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore,

55

booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels

GROWING ECONOMY / GDP It is great news that today the service sector is contributing more than half of the Indian GDP. It takes PAKISTAN one step closer to the developed economies of the world. Earlier it was agriculture which mainly contributed to the GDP. The Pakistani government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI

LOW INTEREST RATES SBP controls the Interest rate, which is based on several monetary policies. Recently SBP has reduced the interest rate which stimulates the growth rate of banking industry. Call money rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with 5.25/11.00 per cent on the corresponding date of last year

INFLATION RATES Inflation represents a rise in general level of prices of goods and services over a period of time. It leads to erosion in the purchasing power of money. Resultantly, each unit of currency buys fewer goods and services. Different fiscal and monetary policies have curbed the Inflation rate. To fight against the slowdown of the Economy, Government of Pakistan & SBP took many fiscal as well as 56

monetary actions. Clubbed with fiscal & monetary actions, decreasing commodity prices, decreasing crude prices and lowering interest rate, we expect that Indian Economy could again register a robust growth rate in the year 2009-10

SAVINGS AND ACCOUNTS As stated earlier Pakistan continues to remain one of the high savings economies among the emerging market economies. Gross Domestic Savings (GDS) of the Pakistan economy constitutes savings of public, private corporate and household sectors. In the recent period the high growth performance of the Pakistan economy is driven by rise in savings

AGRICULTURE CREDIT Agriculture has been the mainstay of our economy with 70% of our population deriving their sustenance from it. In the recent past, the sector has recorded a growth of about 4% per annum with substantial increase in plan allocations and capital formation in the sector. The target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To achieve this, I propose to continue the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this year, the government shall pay an additional subvention of 1% as an incentive to those farmers who repay their short term crop loans on schedule

SOCIO CULTUREAL FACTORS

57

Socio culture factors also affect the business. They show in which people behave in country. Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and consumption habit of people, their language, beliefs and values affect the business. Banking industry is also operates under this social environment and it is also affect by this factor. These factor are changing continuously people’s life style, their behavior, consumption pattern etc. is changing and also creating opportunities and threat for banking industry. There are some socio-culture factors that affect banking in India have been analyzed below.

SHIFT TOWARDS NUCLEAR FAMILY Attitude of people of Pakistan is changing. Now, younger generation wants to remain separate from their parents after they get married. Joint families are breaking up. There are many reasons behind that. But banking sector is positively affected by this trend. A family need home consumer durables like freeze, washing machine, television, bike, car, etc. so, they demand for these products and borrow from banks. Recently there is boost in housing finance and vehicle loans. As they do not have money they go for installments. So, banks satisfy nuclear families wants.

CHANGE IN LIFE STYLE Life style of Pakistan is changing rapidly. They are demanding high class products. They have become more advanced. People want everything car, mobile, etc.. what their fore father had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also want to have well furnished home, television, mobile, vehicle and this has opened opportunities for banking secter to tap this change. Every thing is available so it has become easy to purchase anything if you do not have lump sum.

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POPULATION Increase in population is one of the important factor, which affect the private sector banks. Banks would open their branches after looking into the population demographics of the area. Percentage of deposit in any branches of banks depends upon the population demographic of that area. About 70% of population is below 35 years of age. They are in the prime earning stage and this increase the earning of the banks. Deposits showed a subdued growth during 2004-05.Income distributions also affects the operations and overall business of private sector banks.

LITERACY RATE Literacy rate in Pakistan is very low compared to developed countries. Illiterate people hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side of this as well i.e. illiterate people trust more on banks to deposit their money; they do not have market information. Opportunities in stocks or mutual funds. So, they look bank as their sole and safe alternative

TECHNOLOGICAL FACTORS

TECHNOLOGY IN BANKS Technology plays a very important role in bank’s internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services.

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The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed ‘anytime, anywhere banking’ facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc.

IT SERVICES & MOBILE BANKING Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. All these technological changes have forced the bankers to adopt customerbased approach instead of product-based approach. Technology advancement has changed the face of traditional banking systems. Technology advancement has offer 24X7 banking even giving faster and secured service.

CORE BANKING SOLUTIONS

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It is the buzzword today and every bank is trying to adopt it is the centralize banking platform through which a bank can control its entire operation the adoption of core banking solution will help bank to roll out new product and services.

SUGGESTIONS FOR REMOVING WEAKNESSES INTERNAL CONTROL To me the major and the most important flaw in the BOP is lack of internal controls and inter communication between different branches of the bank. As far as financial aspect is concerned there is no proper system is configured that’s why there is always a risk of big frauds with in the bank. I during my internship also pointed out that point but no one bothered. To me the bank should install some proper resource planning and controlling systems like other banks do i.e., oracle financials etc.

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PROFESSIONAL TRAINING BOP staff lacks professionalism. They lack the necessary training to do the job efficiently and properly. Although staff colleges are in all major cities of the Punjab but they are not performing well. For this purpose these staff colleges should be reorganized and their syllabus should be made in such a way which can help the employee understand the everchanging global economic scenario. Banking council of Pakistan should also initiate some programs to equip the staff with much needed professional training. DELEGATION OF AUTHORITY Employees of the bank should be given a task and authority and they should be asked for their responsibility. The sense responsibility in employees mind is one of the most important factors in the success of any organization. PERFORMANCE APPRAISAL During Internship I felt that there is no or very less appraisal of any ones cool performance. The manager should strictly monitor the performance of every staff member. All of them should be awarded according to their performance and result in the shape of bonuses to motivated and incite them to work more efficiently. TRANSFERS Transfer is not properly carried out. Some of the employees are continually serving at the same post. They are simply rotated at the same branch. Therefore it is recommended that evenly rotation of every employee should take place after every three years in different braches of the bank.

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NEED OF QUALIFIED STAFF Required, qualified staff should be provided to branch in order to improve the functioning of the branch. Especially a telephone operator should be appointed CREDIT CARD FACILITY BOP should start its operation in credit card. These cards are very helpful for the ordinary customer in general and the business people in particular. To make it mores secure and to eliminate the misuse of it, the management is required to keep proper security against the card. DECREASING ADMINISTRATIVE EXPENSE Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year 2007. That can be done by lying off the surplus pool of employee with golden hand shakes scheme. The branches that are not much used could also be closed. That will give positive results in the future SHOULD BE AGGRESSIVE IN CREDIT POLICY As mentioned earlier, BOP is very conservative in advances and loans policy. It reduces the investment opportunities. Also loans should be given to the small businessmen and the other businesses on large scale like in agriculture sector at the low mark-up rate. It should adopt flexible credit policy while giving credit to the agriculture sector. TECHNOLOGICAL IMPROVEMENT I would like to suggest that at least all the main branches of BOP should be fully computerized in order to expedite the dealing process among bankers and their customers. Every department should be provided a computer with adequate training (especially Advances, Deposits and Foreign Exchange departments). Daily records should be entered 63

directly into these computers, (instead entering the overall daily transactions after the banking hours). It will not only reduce transaction time, will increase accuracy but will also be efficient as well. Not only it will be economical but will also reduce the extra burden of work of the bank. It will also help in reducing the use of excessive paper work. STAFF RELATIOSHIP Good relationship among staff member leads to the peak performances in any organization. I observed that the staff relationship was normal other wise but some time I noticed that there exists little conformity among the staff members. Another syndrome from which the staff suffered was that all of them considered themselves more important than others. FAVOURITISM & NIPOTISM In the branch during my internship I saw that when some of the employees are transfer to other places, due to their relation with influential people and with top management they can cancel their transfer in few weeks, when they are unsatisfied at that place. So I suggest that in the organization there should be no favouritism, nepotism and politics and their transfer and promotion should be made on merit and according to the rules and regulations of the bank and provided favourable environment to the employee to show their performances. MARKETING POLICY The branch should adopt various marketing strategy and promotion strategy to promote the bank and its product. The most important in my opinion is personal marketing; it is the most effective of all when you think in term of branch level. But on the whole organization level, they should arrange

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the seminar with in the bank and outside the bank. They should do more advertising through newspaper and media and through channel of personal contacts. AVOIDING BAD DEBTS Great care should be taking while extending the loan. Loans should be awarded against reasonable securities, where market value should be equal to the loan granted. Policies should be crafted in a way to ensure that no loan is extended on political pressure. SBP regulation for loan approval should be strictly followed. According to which the current ration of borrower’s business must be 1:1 and the debt to equity ratio should be 60:40, means the liquidity position of business should be healthy.

RECOMMENDATIONS FOR STUDENTS In this section some recommendations for those students who are planning for an internship at BOP particularly and in any other bank generally. The most important of all is the difference between what we learn from the books i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below: WORKING IN DIFFERENT DEPARTMENTS During my internship I observed that other internees in the bank use to stick with one department only. An internee with specialization in Finance was of the view that he should be in Finance department same was the case with other specialized Internees. But I would suggest that one must work in every department for some time to gain a hand on experience of all the departments. As in real working environment employee have to coordinate with other departments, so he/she must know what the other departments operations are and how they work.

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RELATIONSHIP BETWEEN THEORY & PRACTISE This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks don’t prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. So for a internee it is more important to learn new things which he/she has never heard about in his/her course book. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firm’s environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.

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CONCLUSIONS By analyzing the financial statements of the bank, I came across to know that it is one of the most growing bank in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hirings and between colleagues should be removed.

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Bibliography Books and Other Study Material •

Fundamentals of Financial Management by James C. Van Horne and John M.

Wachowicz, JR •

The Analysis and use of Financial Statement by Gerald White, Ashwinpaul C.

Sondhi and Dove Fried •

International Financial Statements Analysis by: Thomas R. Robinson, Hennie Van

Greuning, Elaine Henry, Michael A. Broihahn 68

•

Financial Statement Analysis Case #1: Dow Chemical Company •

Irshad, M. (2007). Money Banking and Finance, Nayyar Asad Printers.

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Siddiqui, A. H. (1998). Practice and Law of Banking in Pakistan (2nd Ed.), Karachi: Decent Print Enterprises P.

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Webster’s Pocket Business Dictionary. (2002), (pp-17), United States Of America, Trident Press International.

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Annual reports of the Bank of Punjab (2007-08)

Online References •

http://www.bop.com.pk

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http://www.sbp.org.pk

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http://www.business-standard.com

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http://www.sheshunoff.com

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http://www.blurtit.com/q726435.html

Personal References •

Muhammad Imran Khan Manager: The Bank of Punjab Mall Road Branch Murree.

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Shahid Gulzar Operational manager: The Bank of Punjab Mall Road Branch Murree.

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