Summit Bank Report

SUMMIT BANK LIMITED MULTAN ROAD BRANCH

An Internship report Submitted in Partial Fulfillment For The Degree of Masters of Science In Accounting & Finance

AMNA HAMID Session (2008-2010) Department Of Accounting & FinanceKinnaird College for Women, Lahore

EXECUTIVE SUMMARY “THE PURPOSE OF STUDY WAS TO KNOW ABOUT SUMMIT BANK LIMITED AND TO ANALYZE THE FINANCIAL STATEMENT. “ In this report the Summit Bank’s history, mission, vision and services as well as management is mentioned. After this the analysis of financial statements is conducted which shows where the Banks is standing. Banking sector of Pakistan has been transformed within a short period of 5 years from a sluggish and Government dominated sector to a much more agile, competitive and profitable industry.Speed and sequencing of banking sector transformation and its role in promoting economic growth is now a leading story of a sector succes.Within Pakistan SBP offers a story of what effective leadership of regulator and change management and corporate governance can achieve and offer.Outside pakistan it is serving to offer rich lessons in what difference governance of regulator can make and how bank restructuring and privatization can change the lanscape of of the industry. Summit Bank Limited started operations in August 2006 and became a profitable entity within one year.AHBL had started off with a high capital base and is positioned to take advantage of the business synergies and complementaries afforded to it by its sponsoring group.The bank has a quality management team, a first class technology platform, and commitment to global practices.Its business strategy is based on the “block-building” principle wherein profitable niches are tapped progessively. I did my 12 weeks internship in Summit Bank Limited Multan Road Branch.During internship I was rolled over in departments.

Summit Bank made heavy investments towards enhancing its capabilities in the area of automation and technology. It is well positioned to meet client needs, with improved competitive advantage. During my twelve weeks internship in Summit Bank Multan Road Lahore is spend one or two weeks each in following departments: •

Account opening department

• Clearing department •

Trade finance department

Working these departments was a great learning exposure for me. When I conduct financial and trend analysis of Summit Bank I found that its financial position is improving year by year. Comparative study with other banks shows that it is somewhat better then other banks. I concluded that Summit Bank is performing very well.

ACKNOWLEDGEMENT My creator, my best friend and mentor, who bestowed on me the meaning of life. “ALLAH” who granted me a wealth of knowledge, love and respect to share with my fellow beings. He gave me courage to pursue my passion against all odds. My Parents whose raising gave me character and a compassionate heart. I pay my thanks to Dr. Nikhat Khan Head of Accounting & Finance Department of Kinnaird College for Women enabled me to complete this assignment. I also pay my gratitude to my teachers and Ms Manal Talat Coordinator, Accounting & Finance who’s cooperation on every step of this demanding task is highly appreciatable. Without their cooperation it was not possible to complete this task. My heartily thanks to Staff of Summit Bank limited, Multan Road Branch for their cooperation.

Table of Contents Description

Page No.

Introduction of report------------------------------------------------02 History of the organization------------------------------------------07 Management of the organization------------------------------------21 Field of activities------------------------------------------------------26 Work done by me-----------------------------------------------------78 Financial analysis-----------------------------------------------------85 Dilemmas faced by organization------------------------------------103 Recommendation------------------------------------------------------104 Conclusion-------------------------------------------------------------105 Reference---------------------------------------------------------------106 Annexure---------------------------------------------------------------107

INTRODUCTION TO REPORT / OBJECTIVELY The core objective of preparing this report is to express my learning during the 12 weeks period of internship. This is the mirror of my practical exposure that is originated through time spent in “Summit Bank Limited”. The report is about Summit Bank its products, field of activities and its financial analysis. In the report, SWOT analysis is conducted so that I may able to give an authenticated approach to problems and Dilemmas faced by the Branch. When I conduct comparative analysis of operations, products offered and funds used, I found it far better as compared to other banks working in Lahore. Management style is somewhat participative and its culture is friendly and cooperative. I learnt a lot of different fields, and organizational behavior in real world phenomenon which gave me practical knowledge of what I have studied theoretical in Msc Accounting & Finance.

WHAT IS A BANK? A bank is a financial institution that offers the widest range of financial services. These financial institutions play a vital role throughout the world’s economic system. Caircross defines bank as: A financial intermediary and a dealer to create credits A bank or banker is a dealer in credit or more properly a dealer in money. It is an intermediate party between the borrower and the lender. It borrows from one party and lends to another. The system of common settlement of receipts and payments have been derived from the school of thought of the ancient “Romans” temple banking, to develop trade and trading relations with each other nations. Banks are of different types. The term “Commercial Banking” is a throwback of commercial loan theory. The theory holds that the bank assets (except for cash) should consist exclusively of commercial loans that are shortterm loan to businesses to financing the production and transportation of goods. Among the services provided by the commercial banks, two services are very important; Accepting deposit Lending loans Other functions include safekeeping of valuables, financial advising, cash management, offering trust service, selling insurance policies, retirement plans and offering security brokerage services, etc.

The banking structure of Pakistan The banking structure of Pakistan consists of State Bank of Pakistan, Commercial Banks, Exchange Banks, Cooperative Banks, Saving Banks and specialized Credit Institution. “ Banking means the accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawal by cheques, drafts, order or otherwise”.

VARIOUS ROLES OF BANKS

The Intermediation Role Transforming savings received primarily from households into credit (loans) for business firm and others to make investments in new buildings, equipment, and other capital goods.

The Payments Role Carrying out payments for goods and services on behalf of their customers (such as by issuing and clearing checks, wiring funds, dispensing currency and coin, etc.)

Role as a Guarantor Standing behind their customs to pay off customer debts when those customers are unable to pay (such as by issuing letters of credit to support international trade and to back customer issues of commercial paper), which makes it both easier and cheaper for a bank’s customers to obtain credit elsewhere in the financial marketplace.

The Agency Role Acting on behalf of customers to manage and protect their property or issue and redeem a customer’s securities (usually provided through the bank’s trust department).

The Policy Role Serving as a conduct for government policy in attempting to regulate the growth of the economy and pursue social goals

HISTORY OF SUMMIT BANK LIMITED: Arif Habib Group is among the largest most, most innovative and fastest growing business group in Pakistan.In addition to financial services(Asset Management, Brokerage Services, Corporate Finance and Project Advisory, Private Equity and commercial Bank), the group has also interest in fertilizer, cement and real estate. This has made possible by a strong brand franchise built on decades of firstrate services to clients. Managing assets in excess of PRs.37 billion (US$ 617 million), the group holds interests in the securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, private equity, cement and fertilizer industries. The Group takes pride in its orientation towards client service. It believes that its key success factors include continuous investment in staff, systems and capacity building, and its insistence on universal best practices at all times. ARIF HABIB SECURITIES LTD: The holding company o the group. Holds controlling interest in the enterprises listed below. ARIF HABIB LIMITED: The securities brokerage company. Member of all three srock ewchanges and the national Commodities exchange.Manages a number of mutual funds investment plans. The commercial bank with the mission to be “The bank for everyone” The proposed private equity venture with the objective to develop a vast new

Industry in Pakistan

The upcoming commodities firm at the (DMCC) Arif Habib Limited is one of the fastest growing commercial Banks of the country supported by the strong sponsorship of Arif Habib Group. AHBL started off with a high capital base and is positioned to take advantage of the business synergies and complementaries afforded to it by its sponsorship group. The bank has a quality management team, a first-class technology platform, and commitment to global practices. Its business strategy is based on the “blockbuilding” principle wherein profitable niches are tapped progressively. Progressively. The Bank has an Authorized Share Capital of 6.0 Billion and Paid-up Share Capital of 5.0 Billion. The management intends to double it in a short period by injection of fresh capital which will strengthen the bank further. The bank has a network of 35 Branches/Sub Branches.the branch network covers Sindh, Punjab, NWFP and Azad Jammu and Kashmir. The bank plans to open further offices to better cover all four provinces within a short time span. All branches are Real Time Online providing customers the facility to deposit at or without incurring any additional charges making banking with us a faster, relable and a convinient experience. OBJECTIVE: To be a Universal Bank in terms for providing products and services in all key segments of Banking.

BUSINESS APPROACH AND CORE VALUES: It is their business objective to be a Universal Bank in terms of providing products and services in all key segments of banking i.e. Corporate , Wealth Management, Commercial Mid Market/ SMEs and Consumer Banking. Branch expansion plan is carried out to have a network of 100 Branches by 2011.The projected Branch network is based on centralized processing centre (factory and boutique concept) with secure and real time IT capability. Hence the delivery Channel configuration is dependent upon the potential in each location in terms of size, Product Delivery Template and Head count for each Branch. In terms of Statuary capital Requirement, they are determined to meet and in fact exceed the Minimum Capital Requirement-MCR benchmark via injection f capital and retention of retained earnings. Mandatory allocation of 20% of after tax profit as Free Reserves until such time our free reserves are equal to MCR will further strengthen their equity base. Business and branch Network: Summit bank is currently operating with 40 branches throughout Pakistan (breakup is given in coming part).The bank’s strategy is to establish a network of 100 branches during the next three to five years. Several new sites have already been identified at strategic locations. All branches are online, equipped with state of the art technology capable of providing Real Time Banking services to the clients. A professional team has been developed to meet the expectations of demanding customers. This is line with the bank’s strategy to build infrastructure of international standard to attract and retain a sizeable client base. The growth in the economy provided them numerous opportunities and they remained selective pursuing business through which strike a balance between growths and prudent like risk taking and diversification. Summit bank’s performance in 2007 was a result of the pragmatic and will planned efforts of the

management to attain present strategic goals aimed at providing quality services to their customers and at the same time enhance the shareholders value. Despite the high growth level, they continued to ensure the high customer satisfaction and service quality levels are maintained and they are appreciative of the trust and confidence that their customers place in them. Management firmly believe that the success of the Bank lies in expanding there way of financial services and seamlessly delivering innovative solutions to meet customers requirements across all the platforms.Accordingly, they work closely with their customers in order to understand their business needs and to address them with high quality tailored financial products so that they are viewed as a strategic partner in the business growth. Management is pleased and encouraged to receive a very favourable response to their endeavours from their respective customers. In all, management believes that the economic outlook for the coming year is bright with the right mix of products and services and their commited workforce; they can deliver yet another superior performance next year.Bank will continue to build infrastructure, leverage the cutting edge technology in plan introduce products and services , manage risk efficiently and effectively and generate alternative revenue streams.Management has ambitious plans for the coming year and they are all ready to make it happen to the benefit of their stakeholders Bank’s focus and energy for the coming year evolve around customer base and look to expand network of branches throughout the country.Summit Bank has a network of 35 branches/Sub branches in major districts of Pakistan.The branch network covers Sindh,Punjb,NWFP, and Azad Jammu and Kashmir and details are as under:

AUTOMATION & TECHNOLOGY Information technology and its optimum use greatly facilitate work and increase performance potential. Summit Bank is in the forefront of providing customers online and timely services. For this, automated and technologically sophisticated work flows and systems are a prerequisite. Summit Bank continually invests in upgrading these systems and similarly training the human resource. The ultimate aim is to achieve both service and cost optimization. The in-house developed software hplus has been successfully installed in all the branches and has been well received. Plans are underway for the installation of ATMs and joining a Switch Group of other prominent banks.

PRODUCTS & SERVICE LINE Summit Bank has a dedicated team of banking professionals with a thorough knowledge of Banking products and markets. Their aim is to contribute positively to the development of Banking and Capital Markets by capitalizing on Summit Bank’s expertise in product innovation and customer service. Summit Bank offers the largest product range available with any Banking institution in Pakistan. Their best selling products are: •

Non stop banking

•

24/7 cash withdrawl facility

•

Real time online Banking

•

Free unlimited online transactions

CORPORATE BANKING • Current Accounts (Pak Rupees) • Foreign Currency Accounts

• Clearing and Fund Transfer • Trade Services • Project Financing

CONSUMER BANKING • Current Account (Pak Rupees) • PLS Account • Saving Accounts • Term Certificates • Saving Deposit Lockers

CONSUMER FINANCE •

Current Account (Pak Rupees)

•

Personal Loans

•

Personal accidental insurance

•

ATM withdrawl insuranse

• Home finance •

Foreign Currency Account

FREE E-SERVICES INCLUDING: • Free Ecash issuance-ATM card

• Free ealerts-sms alerts for the transactions you do with them • Free etopup-recharge your mobile balance • Free evoice-24/7 customer care center at toll free number 080024252 • Free ebanking-internet banking • free phone banking

Summit Bank is committed to the personal welfare and professional development of all its team members. It realizes that proper training of human resource is essential, not only for a more productive and satisfied work force but also for a homogeneous corporate culture. The bank continues to follow its strategy of hiring batches of young and energetic management trainees who are sent to a Training and Development Center for training in all areas of banking. The Training and Development Center is a state of the art facility with an impressive faculty. At the same time short courses are continually conducted for other team members to only enhance their skill levels but also increase their performance potential. Lately, Surroor investments Ltd(SIL) have taken over Summit Bank and the board of directors of the bank has been changed.SIL has 60 percent shares of Summit bank limited. In addition, SIL has also signed share purchase agreements with the principal sponsors of My Bank Ltd. And Atlas Bank Ltd, respectively, and made down payment in each case. Acquisition of My Bank has been completed on August,18 2010 and after merging with Atlas Bank it will have a branches over 160 and total assets of about Rs.100 billion. The name of the new bank is Summit Bank Limited.

CREDIT RATING The Summit Bank’s Medium to long term rating increased to A and A-2 in the short term. These ratings have been assigned by PACRA, Pakistan’s Leading rating agency. These rating denote better risk absorption capacity Stemming from enhanced equity as well as well-maintained credit portfolio.

RATING DEFINITIONS: A1+: Obligations supported by the highest capacity for timely repayment.

AA- VERY HIGH CREDIT QUALITY: ‘AA’ ratings denote a very low expectation of credit risk, the capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. Organizational Structure Head Office: Karachi DECISION MAKING The branch follows centralized patterns as all approvals are given by centralized authority except for a few cases. Top management had set the procedures and regulations and now the employee have to follow those regulations.

CULTURE The bank has a bureaucratic culture. All the tasks performed are routine based and hardly any change is done in procedures. The bank has stories and myths told through bi-annual news letter. Interior of every branch is same carrying a very corporate look.

VISION •

We are committed to be recognized as preferred supplier of financial services to the markets we serve.

MISSION •

Our mission is to differentiate ourselves as an institution built on Trust, Integrity, Good Governance, and Commitment to deliver value to all stakeholders i.e. customers, creditors, employees, investors, and community at large.

•

Reach out and provide financial services to under-served and unserved customer segment.

CHAIRMAN’S MESSAGE “Our Core philosophy of honesty, transparency in customer dealings Product innovation, excellence in customer service and our commitment to be a responsible corporate citizen.” H.E.Sheikh Hamdan Bin Mubarak Al Nahayan

MANAGEMENT OF ORGANIZATION:

HUSAIN LAWAI PRESIDENT AND CEO SYED MOHAMMAD ANWAR LUTFULLAH HEAD OF OPERATIONS & INFORMATION TECHNOLOGY MOHAMMAD ZAHIR ESMAIL HEAD OF RETAIL/BRANCH BANKING, CONSUMER, SME, COMMERCIAL BANKING, CORPORATE AND INVESTMENT BANKING DIVISIONS ASIF QASIM HEAD OF TREASURY DIVISION SYED ASIF ALI HEAD OF RISK MANAGEMENT DIVISION & HEAD OF CREDIT AND CREDIT ADMINISTRATION & CAD PERVEZ MOBIN HEAD OF HUMAN RESOURCE MANAGEMENT, ADMINISTRATION & BRANCH EXPANSION GULRAYS KHAN HEAD OF CO-ORDINATION AND CONTROL DIVISION MUHAMMAD AMIN BHOORI CFO & COMPANY SECRETARY AZIZ MORRIS HEAD OF INTERNAL AUDIT DIVISION

SYED MUHAMMAD ATIF HEAD OF COMPLIANCE DIVISION

SUMMIT BANK MULTAN ROAD BRANCH LAHORE:

Valid city markets have their unusual importance regarding import business. They are known as business and commercial hub of Lahore. Major commoditieis 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.

MANAGEMENT OF SUMMIT BANK MULTAN ROAD BRANCH LAHORE

BRANCH MANAGER OMER KHAN MANAGER OPERATIONS AHMER HAMEED RELATIONSHIP MANAGER CREDITS AHMAD AWAIS CUSTOMER RELATION OFFICER ZAMURAD BUTT SARA AHMAD KHAWAR IQBAL RAZA BUSINESS DEVELOPMENT OFFICER FARHAT QAYUM PIRACHA CASH OFFICER MUHAMMAD USMAN ZUBAIR NAWAZ

IT Officer

DEPARTMENTS OF SUMMIT BANK MULTAN ROAD BRANCH: Following departments operates in Summit Bank Limited; •

Account Opening Department

•

Cash Dealing Department

•

Clearing Department

•

Local Remittance Department

•

Accounts Department

•

Trade Finance Department

•

Marketing Department

FIELD OF ACTIVITIES ACCOUNT OPENING DEPARTMENT The department that is responsible for opening and closing an account assumes immense significance and holds a central place in the basic banking operations. Details of the Account Opening Form In the account opening form the client is required to provide the following information. The first part establishes the Particulars of account which include title of account in block letters as per CNIC, title to appear on ATM card and mailing address. The second part is then Account information which include Type of account to be maintained. The various choices offered are

• Profit and loss saving •

Current account

•

Daily Product

•

Basic banking

• Other________ Customer relation •

Individual

•

Joint

Currency in which the account is to be maintained/ operated. The currencies include

• Pakistani Rupee •

U.S. dollar

•

Pound sterling

•

Euro

• JPY The information to be provided in the account opening form is as follows

• The client should inform weather the zakat to be deducted or not .

•

The client is supposed to provide the information whether the account would be maintained singly (only one person operates the account) or jointly (two or more than two persons maintain the account).

•

Name of the person who intends to operate the account is to be provided.

•

Provision of either Father’s or the Husband’s name is also a pre-requisite.

•

Occupation of the prospective account holder is also to be written.

•

Name and complete address of the employer is to be written.

•

Nationality is to be provided.

•

Country of residence is to be specified.

•

Telephone number is must.

•

The national identity card, of course is an integral part of the account opening application.

•

Passport number, if the prospective client has got one.

•

Another requirement is the date and place of issue of the national identity card.

•

The prospective client also has to provide the name, address and relationship of any one of his/her close relatives in order to facilitate the communication problem. The clients often have a misconception that there next of kin might, if some peculiar circumstances arise, get the profit out of his account but this is not the case. The name and address of a close relative is only recorded in order to undertake necessary communication when needed.

•

In case of a business concern there are two more things that are to be provided by the business.

TYPES OF ORGANIZATION The various types of organization which are present in Pakistan at present are: •

Limited company

•

Public

•

Private

•

Partnership

•

Association/Club/Society

•

Sole-Proprietorship

The business concerns also have to give their full name, brief description of the business, date of Incorporation, and place of incorporation, national tax number, telephone number and fax number. The choice of either the deduction or non-deduction of Zakat also needs to be highlighted. Zakat is deducted out of a Profit and Loss sharing account and not out of any account maintained in any other currency. Moreover exemption from Zakat would only be granted if proper proof of exemption under a law presently enforced in Pakistan is provided. Details of other account/s maintained with other branches of Summit Bank or other banks are also to be given. The name, signatures, and account number of the introducer is a very essential prerequisite in order to facilitate the opening of an account. The introducer is a person who already has an account in the same branch. It can also be a person from the staff of the branch as well. Then the client also has to put forth the instructions regarding as to whether the account

would be maintained on the basis of ‘either or survivor’, ‘jointly’ or ‘any one of us’. After this three signatures of the client are needed and if it is an account of a business concern then the rubber stamp of the company/organization is also needed below the three signatures. In case of a joint account all the persons unanimously might give the right to operate the account to one person. In case of account opened by a business concern there are some documents that are needed to be attached with the account opening form. The details of these documents are given below.

Limited Company: •

Copy of certificate of incorporation

•

Memorandum of Association

•

List of Director’s

•

Copy of board resolution

• Certificate of Commencement of Business •

Copies of NIC of Director’s

•

Latest copy of Form-29

Partnership: •

Partnership deed certified copy

•

NIC photocopies of all partners.

•

Partnership mandate for account signed by all the partners

•

A letter duly signed by all the partners containing the operating instructions of the account also has to be taken

Club/Society/Association: •

Copy of rules/ by-laws

•

Copy of registration (if applicable)

• List of Executive member management committee/management board etc

Sole Proprietorship / Individual: •

NIC/ Passport photocopy

•

Letter from Proprietor confirming “sole proprietorship”

There are two things that always accompany an account opening form; •

Signature Specimen Card.

• Cheques Book Requisition

PROCEDURE OF OPENING AN ACCOUNT The Account Opening Form: When a client comes to the bank, and makes a request for opening of an A/C. The officer first gave him a prescribed application form.

Completion of the Form: The name, occupation, and complete address of the person opening the account are written in the columns provided in the form. 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.

Specimen Signature Card (S. S. 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. Every time a cheques is received for a payment from the client, the signature on the cheques are verified by comparing them with the S.S. Card.

Issuance of 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 and all the information is entered into the computer. Then that account number is printed on the Cheque Book, S. S. cards and account opening form.

Issuance of a Cheques book: After opening an A/C with the bank, the A/C holder once again makes a request in the name of bank for the issuance of a cheques book. The A/C holder mentions title of A/C, A/C number, sign it properly and mentions the no of leaves he requires. Normally Summit Bank issues a cheques book having at least 25 leaves. Every cheques book also contains one leaf that is used for another issue of a cheques book.

Entry of Cheques Book: Before issuance of a cheques book, the employee performs certain functions. They include:

• Stamping every leaf if the account is photo account • Enters it in the cheques book issue register. • After entry in the manual register,and in the sysytem the employee issues the cheques book to the A/C holder after his/her signature on the register.

Recording in Computer: After opening of account, all information regarding the account is entered into the computer. Currently, a program named hplus is being used for this purpose. Record of all the transactions regarding the account of a customer is kept updated in the computer.

PROCEDURE FOR CLOSING AN ACCOUNT: The procedure followed for the purpose of closure of an account is described in the following steps The client who wishes to close an account first has to give 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 client can also give an application on a 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 client’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 the 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 so marked. One thing has to be taken into immediate consideration that the account number allotted to the client (who has closed his account), after closure of the account becomes useless and is not allotted to any one in the future. After approval of the liability form, it is sent to either the Foreign Currency Accounts Departments 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. 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 pasted 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.

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 scrutiny so as to check whether or not the customer owes some money to the bank or not.

Account Statement Request Form This small form is used to request for the account statement for the desired period. The client gets this Performa from the account-opening department and then, after filling it up, gives it to the computer section that gives the statement to the client in printed form.

Issuance Requisition This requisition is used by the staff to order for any thing (e.g. stationary) they need. They write the type and quantity of the stationary they need, get it signed by the Manager Operations, give it to the person in-charge of issuance of stationary who on receipt of this requisition (duly signed) issues the stationary.

Debit and Credit Vouchers These two vouchers are basically used when an account has to be closed. The debit voucher shows as to how much amount has to be taken from the client’s account and the credit voucher shows as to hoe much amount has to be credited as Bank’s income, in order to facilitate the account closing process.

Application to Close the Account This is a pre printed application of the bank in which the client fills in the account

number, the title of the account and the type of account and requests the branch manager to close his account with the Bank.

Application to Change the Address This is again a pre printed request form in which the client fills in his name, account number, telephone numbers and the new address so that he could communicate with the bank and receive all the notices, statements and other necessary document which the bank might send through mail depending upon the circumstances. Mandate Form Used By an Individual to Enable a Third Party to Operate The Account An individual to enable another individual to operate hi/her account without changing the title of the account uses this form. In this form the account holder certifies that the person to whom he is giving the mandate shall be fully authorized to embark upon all possible transactions with regard to this account unless and until otherwise specified.

CASH DEALING DEPARTMENT This department of bank is mainly responsible for the handling of cash deposits and encashment of cheques issued by the account holders. The following are the sections of the cash dealing department •

Receipts of cash

•

Encashment of cheques

•

Cash receipt section

The depositor uses depositor slip/vouchers for depositing the amount. Client fills these vouchers, fulfilling all requirements.

Encashment of Cheques Cheques encashment is made in four steps 

Receiving of cheques



Verification of signatures



Computer terminal process



Payment of cash

CLEARING DEPARTMENT One of the basic economic functions of banks is to receive deposits and to honor cheques drawn upon them. So, cheques are a most commonly used instrument for making payments by account holders. Now the question arises that how these cheques & other negotiable instruments drawn on one bank are deposited in other banks and money is transferred from one bank to another. Clearing House has provided this facility. Clearing house facilitates different banks to get their cheques drawn upon other banks to be cleared. Cheques lodged in clearing constitute two types of clearing •

Outward Clearing

•

Inward Clearing

Outward Clearing When cheques and other negotiable instruments drawn upon other banks like MCB, ABN-AMRO of the same city (as Lahore) are presented in Summit Bank Limited to deposit them in the respective payee’s accounts, these instruments are lodged in outward clearing of summit Bank limited. When the cheques are presented in Summit Bank to be deposited in their respective payee’s accounts, different stamps are put on cheques before their lodgment in outward clearing.

Crossing the cheques Crossing means two parallel transverse lines, drawn across the face of the cheques with or without words written in between them. Crossing may be general or special. In clearing, cheques are crossed specially. Cheques are stamped with bank’s name between two transverse parallel lines to constitute special crossing. After the cheques have been crossed specially, the holder cannot receive payment except through the banker named on the cheques. Basic advantage of crossing is to save the instrument to go it from illegal

hands. If, crossed cheques is lost or stolen, there is no risk of wrong payment. So it is an effective means of minimizing the risk of loss or forgery.

Clearing Stamp After the cheques have been crossed specially, clearing stamp is put on the cheques and other instruments, with the following day’s date, as these cheques would have to be presented in their concerned drawee banks on the subsequent day.

Endorsement Stamp It means anything written or printed upon the back of an instrument. So, at the end, the cheques are endorsed in full (endorsed specially) by putting the stamp with words describing “ Payee’s account Credited in Summit Bank Limited , Multan Road Branch, Lahore”. After putting these three stamps on cheques & other negotiable instruments, they are sent to NIFT (National Institutional Facilitation Authority) with Add List. NIFT after segregating the cheques of different banks delivers them to their concerned banks, which constitute the inward clearing for those (drawee) banks.

Inward Clearing Cheques and other negotiable instruments (PO, DD etc.) drawn on Summit Bank Limited, Lahore, sent by other banks, constitutes the inward clearing of Summit Bank. After having all the stamps and dates of cheques confirmed, the concerned drawer’s accounts are debited (in Summit Bank Limited) and main branch’s account is credited by the total amount.

Collection When cheques and other negotiable instruments drawn upon other banks outside the city (Lahore) are presented in Summit Bank

Limited, Multan Road Branch, Lahore to

deposit in payee’s accounts, then instead of clearing, these instruments are lodged in collection and constitute outward bills for collection. Cheques of cities, where Summit

Bank Limited branch exists (e.g. Islamabad, Faisalabad etc.) are sent to that branch where these cheques are lodged in is outward clearing. Otherwise, they are directly sent to the drawee bank. Postage & other charges are deducted on account of payee according to Schedule of Charges.

Accounts It is probably the only department in the entire bank where there is almost no direct customer dealing. Two types of accounts are there which are as follows:

Inter-Branch Accounts Like other banks, Summit Bank Limited has a network of branches all over the country. These branches in different cities are interlinked with each other through their correspondent accounts in other branches. So, all payments from one branch to another branch (in the same city or another) are made by debiting and crediting these inter-branch accounts.

Inter-Bank Accounts Like inter-branch accounts of a bank, different banks have correspondent accounts with each other. Main branches of banks in a city maintain these inter-bank accounts. So, money is transferred from one branch of a bank to another bank’s branch through these inter-bank and inter-branch accounts. 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

•

Miscellaneous functions

Budgeting

Accounts department of bank, for a year makes budget of branch. Fiscal year of bank starts from January 01 and ends on December 31. The accounts department starts preparing budget from October for the next year.

Procedure The budget is based on forecasting through past performance First of all, the bank reviews what are its sources of funds and where it can utilize these funds? The main sources of the bank are deposits, borrowing from other banks, borrowing from SBP, bank’s paid-up capital, its reserve fund, profit generated by the bank. 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. The management will then drive the reasons for the variance and take remedial measures to achieve the targets.

Reporting The accounts department, in the form of reports, clubs the 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. The accounts department prepares many reports, of which the most common are •

Statement Of Affairs

•

Income & Expenditure

•

Foreign Currency Report

•

Outstand Receipt Report

Maintaining Of Fixed Assets & Their Depreciation Accounts department maintains the record of all the assets and charges depreciation on them. The bank normally uses the straight-line method to compute the depreciation.

The accounts 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 not only depreciates the existing assets but also the assets transferred in and transferred out.

Miscellaneous Functions The accounts department also performs some other miscellaneous functions like •

Reconciliation Statements

•

Closing Entries

•

Foreign Exchange Forward Transaction

•

Reconciliation statements

• The bank prepares reconciliation statement with head office and SBP

Head Office Reconciliation with head office is done in reconciliation department. The branches send their reports to 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.

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.

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.

Foreign Exchange forward transaction In the past, the banks had 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. Now banks can avail it by renewing their limit on old accounts with SBP.

Statements The predominant functions performed by the accounts department can be categorized into two broad categories. •

Daily Activity Checking

•

Report Generation

Daily Activity Checking All the operations performed in various departments of branch are computerized. The functions are performed through the customized software of the bank called hplus. In order to facilitate double-checking of all the transactions done, every concerned official also passes vouchers. At the day end all the vouchers passed by various officers working in different departments are given to Accounts Department. Furthermore the I.T. department also prepares a report which constitutes of the computer print outs of all the transactions / entries which have been fed into the computer system of the branch that day.

Report Generation The exact number of reports generated by the accounts department on a daily, weekly, monthly, bi-yearly and yearly basis is somewhere in the bracket of 500. It is neither necessary nor possible to get acquainted by all of these reports in a short period of time. Some of the common reports are •

Daily Advance And Deposit Position

•

Daily Exchange Position

•

Daily Fund Management

•

Closing Reports

•

Monthly Assets & Liabilities

•

Monthly Budget Review Report

•

Monthly Monitory Statement

•

Monthly Performance Review Report

•

Schedule Of Maturity Distribution

From these statements, five reports carry extreme importance. The five reports are •

Daily position of advances and deposits

•

Statement of affairs

•

Daily exchange position report

•

Fixed assets statement

•

Month review of performance.

•

The Local Remittances Department

Besides cheques (the primary notes of exchange in a bank), banks also handle Promissory Note, Bills of Exchange, Bank Drafts, Pay Orders, Traveler Cheques, Pay Slips, Call Deposit Receipts; as negotiable instruments.

Pay Order (PO): “Pay Order is a negotiable instrument made by the bank, on account of a customer, to pay on order the specified amount” Pay Orders are used to make payment or to transfer money, with in the same city. Pay Order is always drawn on the bank that has issued it.

Making of a PO: When a person requires a Pay Order (made by Summit Bank Limited, Lahore), he is asked to complete the prescribed application form in which the amount of pay order is to be stated. Certain amount of commission and advance tax is charged on issuance of pay

order. After having the total amount deposited in the bank (in cash or through cheques, in case of account holder), pay order is issued in favor of the payee. Like cheques, when pay orders issued by Bank, are presented in other banks to get them deposited in the payee’s accounts, they constitute the outward clearing for those banks and inward clearing for Summit Bank Limited, Multan Road Branch Lahore.

Demand Draft (DD): “A Demand Draft is a negotiable instrument issued by the bank, on account of a person, and drawn on its own branch in a specific city or on the branch of another bank in that city (in case bank doesn’t have any branch there), requesting it to pay the specified amount to the person named on it”. Demand Drafts are used to make outstation payments or to transfer money, out of the city. Therefore, a DD is always made for a particular city.

Making of a DD: Suppose a customer requests his Summit Bank Limited, Multan Road Branch Lahore to provide him a DD made on his account for a particular city like Islamabad. Then, after having the total amount to be deposited with application form, demand draft is issued in favor of the specified person in Islamabad (supposed) and is drawn on Summit Bank Limited, Islamabad Branch. So, when this demand draft is presented by payee in any bank, it constitutes the inward clearing of Summit Bank Limited, Islamabad Branch.

Cancellation of PO & DD After issuance of Pay Order, Demand Draft by Summit Bank Limited, Multan Road Branch, Lahore, if any one of these has to be cancelled by the customer, it is returned in the bank. Then, after deducting the cancellation charges of Rs.100, the remaining (net) amount is paid to the customer through Cash Payment Voucher.

Advance Tax against Remittances Advance Tax is deducted on issuance of PO & DD (when customers don’t have tax exemption form) and credited in Tax on PO & DD account. Tax deducted has to be paid to State Bank of Pakistan (SBP) with in one week of issuance of these instruments.

TRADE FINANCE Trade deals with entry / departure of goods into / from one country to another country. International trade basically is a consequence of an agreement between buyer and a seller separated by geographical boundaries. To ensure secured transfer of goods to the right buyer and a right seller, the services of the Financial Institutions are of great importance. In this relation the banks have proved to be not only dealers but also the leaders.

Trade finance The term Trade Finance encompasses all banking transactions that are embarked upon in relation to exports and imports. Now-a-days banks have become a compulsory assistant to almost all the International Trade transactions. When trade is taking place between the representatives of two countries (exporter and importer), the exporter involves his bank (the Advising Bank) in the transaction, as he wants to feel secure regarding timely payment of his remuneration in the required currency. On the other hand the importer involves his bank (the Issuing Bank), in order to get a sense of security regarding timely supply of the required product, in the required manner. The Trade Finance Department has two predominant dimensions namely Exports and Imports. Thus there are two processes that take place in international trade i.e. ‘the buying process’ (the importer purchases the products from the exporter) and ‘the selling process’ (the exporter sells the goods to the importer).

The buying process The buying act exchanges one thing, usually currency, for another of equivalent value. The objective of the buyer is to obtain the most competitive price and delivery with the best quality. The buying process begins with locating the source of a good or service, and ends when it is resold, stocked in inventory, or the service is completed. Within the global market place, companies worldwide become the potential source of

goods and services. However, the objective remains the same for each purchase, to get the best price with the best delivery and with the best quality.

The selling process The selling process exchanges goods and services for currency of equivalent value. The objective of a sale is to achieve the highest price for the goods while preserving the relationship for continued business. Trade finance can be categorized into two departments •

Imports Department

•

Exports Department

The exporter and the importer might decide to carry on trade without the

IMPORTS DEPARTMENT In the common words, import means bringing commodities into a country from outside by sea or air. Stated differently, whenever there is a need of any commodity in a country and if that commodity is not available the need for import arises.

Requirements to be fulfilled When a person wants to import, he must have to register his name and his company’s name. The registration was previously granted by chief controller imports and exports but now the Export Promotion Bureau of Pakistan performs this task. For Import Registration, the following basic documents are required: •

Questionnaire duly filled in

•

National Identity Card (attested copy)

•

Membership Certificate of Chamber of Commerce

•

National Tax Number / Certificate

•

Bank Certificate

•

Affidavit in case of Female Proprietor / Partner / Director

•

Sales Tax Registration

The fulfillment of these requirements will give the registration to the importer and after that he can open an L/C with any bank and can import anything.

The Letter Of Credit (L / C) International trade involves numerous factors such as payment for imports in the exporter’s country, shipment of goods within the limitations prescribed and difficulties of enforcing legal rights in the foreign country etc. Therefore, to Overcome these impediments a system has been enforced, this system is represented by ‘Letter of Credit”. It is a conditional bank undertaking of payment. An L/C is a commitment on the part of buyer’s bank to pay or accept draft drawn upon it provided draft doesn’t exceed a specified amount. In simple words, it can be defined as; “A bank’s written undertaking given to the exporter for payment of a certain sum of money on behalf of the importer provided the exporter tenders to the bank, or its overseas agents, the specified documents within a specified period in accordance with the terms of the undertaking”.

Basic parties involved in a Letter Of Credit (L / C) There are four basic parties involved Importer & its Issuing Bank Exporter (Beneficiary) & its Advising Bank Various Shapes OF the Letter Of Credit (L / C) There are various types of L/C’s used in trade. The main kinds are as follows

Revocable Letter of Credit: It is the one, which can be cancelled or modified by the issuing bank at any time without any notification to the seller. Since it offers little security to the seller, it is hardly used in foreign trade by the exporter.

Irrevocable Letter of Credit: It is the L/C that can be amended or cancelled only with the agreement of issuing bank,

confirming bank and seller. This L/C gives more security to exporter as compared to revocable L/C. In Pakistan, all banks including Bank Alfalah Limited-IBD are permitted to open irrevocable L/Cs only.

Confirmed Letter of Credit: The letter of credit is that which has the protection of credit standing of importer as well as exporter’s bank. The exporter’s bank that confirms the Letter of credit takes the liability of paying agents, in case of issuing bank fails to make payment to the exporter.

Unconfirmed Letter of credit: Under the unconfirmed Letter of credit the advising bank (through whom the credit is negotiated) does not give any kind of guarantee to the exporter that the issuing bank will honor the bill drawn.

Types of letter of credit (L / C) There are two main types of L/Cs.

Sight L/C If the beneficiary of a credit is to obtain the payment immediately on presentation of stipulated documents, it is sight credit. In this form of credit, the exporter draws a sight or demand draft payable at the counters of the advising bank or the bank specified in the letter of credit. The draft is paid on presentation if all the other terms of the credit have been complied with. In this form of letter of credit the beneficiary or exporter gets the credit from advising bank immediately after completing all the requirements. Banks usually deal in this type of letter of credit more because there is lesser risk for both the exporter and the bank. Bank gets payment from importer before giving him the possession of documents. In other words, we can say in this type of L/C when importer sights the document he makes the payment to the issuing bank.

Usance L/C When a credit is to be paid upon the maturity of a bill of exchange drawn under the terms of the credit, it is called an Acceptance Credit or Usance Credit or Terms credit. In this type of letter of credit the payment will be made on maturity of a bill of exchange. This maturity or tenor of this type of letter of credit varies e.g. 30, 60, 90, 120 days. Exporter does not get payment on the receipt of documents rather he gets the acceptance on bill exchange by importer that payment will be made on maturity.

Common Shipping terms used while opening Letter Of Credit (L/C)

C & F (Cost and Freight) Insurance of shipment is borne by importer, while exporter pays the freight under this condition.

CIF (Cost Insurance and Freight) Exporter has to pay both insurance and freight under this condition, but not applicable in Pakistan.

CIF & C I When goods are shipped on CIF and C I (Commission and Interest) basis, it means the price quoted includes cost, freight, insurance, commission and interest.

F O B (Freight on Board) When freight of goods shipped, is not realized in advance by shipping company, it is

then to be paid by the importer on delivery of goods at the port of destination. Documents required for opening letter of credit (L / c) For getting an L/C issued, the importer has to submit the following documents

Performa Invoice: The foremost document required by the bank for establishment of an L/C is the Performa Invoice (signed by both the importer & exporter). The exporter issues it. It comprises all the terms and a condition that has to be mentioned on L/C. Performa Invoice constitutes the basis of the whole transaction.

Indent: When the importer and exporter don’t have direct relations and are connected to each

other through an intermediary, called Indenter, then he (indenter) issues an indent form containing all terms and conditions (like Performa Invoice).

Annexure B: This is a form in triplicate and must be filled by the importer. The HS (Harmonized Code) or ITC (International Trade Control) code of the imported goods must be mentioned. Every commodity has a different universally applicable code. The banker must check before opening the L/C that the HS code given by the importer is correct.

Form I: This form is also a part of the SBP’s efforts to check all transactions in which foreign exchange is involved. The form I also contains all the information about the transaction along with the importers import registration number.

L/C Form with Adhesive Stamp: The application form for the opening of an L/C must possess a legal stamp with it. This stamp is worth Rupees 100. Without a legal adhesive stamp, an application for opening of an L/C will not be accepted.

Insurance: It is necessary for the importer to get the consignment insured and provide proof of having done so.

Promissory Note “It is an unconditional written promise signed by the maker, to pay on demand or at a fixed or determinable future time, a certain sum of money to the specified person or to the bearer of the instrument”. Therefore, to make the payment (by importer) secure, bank obtains a promissory note signed by the importer, along with the above stated documents.

L/C Margin: It is a certain percentage of the value of L/C that is retained by the bank as security.

Clauses of letter of credit (l / c) A letter of credit contains several clauses. The main ones are

Type of Credit: The heading of a credit indicates the type of credit and its purpose. For this purpose, every bank has prescribed its own letter of credit forms.

Value of Credit: The fixed amount to which the bank is liable is specially mentioned in the letter of credit.

Specifications of Documents: The documents required are specially mentioned in the credit.

Description of Goods: A brief description of goods that are required by the importer is given.

Part-Shipment and Trans-Shipment: Part-Shipment means shipment of goods in lots or installments that is in more than one shipment. Trans-Shipment means the carriage of goods by more than one vessel or mode of transport. The credit must specify whether this can be trans-shipped / part-shipped or not.

Collection of Charges: The buyer and seller should have been decided as to which party would bear the expenses because of interest/ markup and other bank charges. The credit specifies the party that would bear the charges.

Validity Period: This is a very important clause and because every credit indicates an expiry date or the validity period. This period is so fixed to provide sufficient time to complete the transaction.

Reimbursement Clause: This clause indicates the method for obtaining the reimbursement by the foreign

negotiating bank. It will be discussed elaborately in later part.

Shipping Marks: If the importer wants that the goods should be identifiable with some special packing marks, it should be so specified in the credit. This clause is not found in all the credits.

Procedure Of Issuance Of Letter Of Credit (L / C) After completing the documents necessary for opening the letter of credit the procedure of issuance of letter of credit starts.

Letter Of Credit (L / C) application form After having an L/C limit approved, the process of L/C opening starts with L/C application form. The bank has prescribed a standard application form that contains the required guidelines, instructions and other relevant terms and conditions under which the L/C is to be opened and claims from the beneficiary are to be settled.

The application form contains the following •

Description of the goods, detail of quantity, unit price, total price and currency of credit

•

Instructions about the advice of credit, whether it should be sent by airmail, by courier or telecommunicated

•

Form of credit: whether revocable or irrevocable, confirmed or unconfirmed. Due to permission of irrevocable credit only, it is prescribed on form

•

The name and address of the beneficiary

•

Type of credit: whether sight, Usance etc

•

Validity period of credit and last dates for shipment and negotiation

•

Port of shipment and port of destination and whether trans-shipment and/or part-shipment are allowed

•

Types and number of sets of documents required to be submitted by the exporter

•

Shipping terms in the contract of sale, e.g., FOB, C&F or CIF etc.

•

The application form must possess a legal stamp worth Rs. 100. Form without this adhesive stamp is not accepted. This legal stamp is usually pasted on the

application form before giving it to the applicant.

Banks involved in the processing of letter of credit (L / C) Starting from the establishment of an L/C, till the retirement of documents, following are the banks involved in the whole L/C Cycle. The number of banks involved in L/C Processing may vary from 1 to 6. Only a single bank can perform all the functions through its different branches.

Issuing Bank (Opening Bank): Bank opening the letter of credit is called Opening Bank or Issuing Bank. Opening bank’s undertaking under an irrevocable or confirming L/C is absolute. Therefore, once an L/C has been communicated to the beneficiary through the bank, the banker has no option, but to pay provided the other terms and conditions have been fulfilled.

Advising Bank: The bank that advises the L/C i.e., the bank that physically delivers the L/C to the exporter on the behalf of the issuing bank. It is a correspondent bank of the issuing bank situated in the beneficiary’s country or it can also be a branch of issuing bank.

Negotiating Bank: The negotiating bank receives the documents and delivers to exporter. When the exporter completes all the documents, after making shipment, the negotiating bank sends them to the issuing bank.

Reimbursement Bank: According to ICC Rules, Reimbursement against foreign currency has to be made through the country originating that currency. Therefore, for dollar transactions, reimbursement has to be made (received) through the banks situated in USA. When issuing bank don’t have any branch in USA (for dollar payments), Summit Bankk has Nostro Account, that bank is known as Reimbursement Bank or Drawee Bank. It is a correspondent bank of issuing bank and makes payment by debiting the nostro account.

Intermediary Bank (Collecting Bank): Intermediary Bank is that where the negotiating bank has its Nostro Account and who obtains reimbursement against L/C from reimbursing bank and gives credit to the negotiating bank. For dollar payments, intermediary bank would have to be situated in USA. Similarly, for transactions in GBP, both the Reimbursement & Intermediary banks would be in UK.

Approval of Letter of Credit (L / C) When the importer has provided all the required documents for the credit, an approval sheet is put on top of them. This sheet shows the credit limit of the party and if the tenure is Sight or Usance. After, the completion of the approval sheet, the L/C is presented to the local credit committee of the bank for approval.

Communicating Letter of Credit (L / C) After establishing the letter of credit, it is communicated to the beneficiary through many intermediaries.

Transmission of Letter of Credit (L / C) After issuance, the L/C is sent to the advising bank. There are many ways to transmit an L/C to the advising bank. These are: Through Airmail Through Courier Through Telex The medium is used according to the instructions of importer mentioned on the top of the L/C Application form.

Advising Letter of Credit (L / C) After transmitting the L/C to advising bank, it is advised (physically delivered) to the exporter, through advising bank. Summit Bank has collaboration with a number of banks

worldwide, for advising its L/C’s. For example, if an L/C has to be advised in Australia, it can be advised through ABN AMRO or Standard Chartered Bank, Australia.

Negotiating Letter of Credit (L / C) documents Negotiating bank, after receiving the documents from advising bank, intimates the exporter. When the exporter makes the shipment and completes all the documents, he presents them to the negotiating bank. The negotiating bank sends these documents to the issuing bank, according to the date of negotiation mentioned on L/C, and claims the reimbursement

Documents sent by the Negotiating bank Following are the documents sent by the negotiating bank for the settlement of L/C;

Bill of exchange “A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money on demand or at a future determinable period, to a certain person or to the bearer of the instrument”. It is drawn by the exporter through negotiating bank (drawer) and is an order for the importer or issuing bank (Drawee; Summit Bank) to pay a specified amount. In case of sight bill (for sight L/C), it has to be paid immediately.

Commercial Invoice Commercial Invoice prepared by the exporter signifies the name and address of importer, invoice price, invoice number and all the specifications of goods being imported.

Packing List It is prepared by the exporter to show that the consignment is in accordance with the order of importer.

Shipment Advice Shipment Advice is issued for the insurance company to provide every information and specifications regarding shipment.

Certificate of Origin This document is a certification for the origin of goods. It certifies that the goods being imported (or exported) have the origin of a specific country.

Phytosanitary Certificate The exporter in case of commodities, like medicinal herbs, sends this certificate. It certifies that the use of goods is not harmful.

Bill Of Lading/ Airway Bill/ Railway Receipt Bill of Lading is a document issued by the shipping company that stipulates the quantity of commodity, weight, port of shipment & discharge, date of shipment and other specifications

Insurance Policy (If Applicable) If insurance is responsibility of exporter i.e. in case of CIF price, then the L/C issuing bank also requires the insurance policy along with other documents. Usually, all the transactions are carried out in FOB or C&F prices.

Covering Schedule Along with the above stated documents, the negotiating bank sends its Covering Schedule on which the instructions regarding the whole transaction are prescribed. It also mentions the number of each document sent by the exporter.

Scrutiny of documents After receiving all the documents, next and the most important step is to scrutinize the

documents. For this purpose, a list called “Check List of Import Documents” is prepared. All the documents must be in accordance with the requirements of L/C. In case of any deviation the documents can be rejected and payment can be stopped. Negotiating bank must be intimated about any discrepancy found, with in 7 days.

Retirement of Documents The whole transaction of foreign trade in which an L/C is involved, completes with the retirement of documents. The documents that are first lodged in PAD are retired when the importer pays the total amount (payable). This amount includes the PAD plus the mark-up charged on PAD and other charges (mentioned on cost memo). Upon receipt of payment, when the documents are retired, they are given to the importer and he gets the consignment cleared from custom authorities (by submitting the Bill of Entry). This completes the whole transaction of Foreign Trade, carried out through a Letter of Credit.

The Exports Department Export plays the major role in the economic development of the country; it is the one of the major sources of earning foreign exchange without additional burden on the economy.

Conditions for Exporter Like an importer, there are certain conditions that a person must fulfill to become an exporter.

• The person must be an account holder of Summit Bank Limited. •

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

•

The person must process a valid membership certificate of Trade Organization, licensed and recognized by Federal Government like a Chamber of Commerce (e.g. Lahore Chamber of Commerce).

•

The person must possess a valid NTN (National Tax Number) certificate.

•

A person cannot export any good unless he files a Form E (E stands for exports) with his application to the bank.

•

The person must have the Sales Tax Registration Certificate.

Two key documents Two major kinds of documents reach the export department;

Letter Of Credit In simple terms a letter of credits is defined as a bank’s written undertaking given to the exporter for payment of a certain sum of money on behalf of the importer, provided the exporter tenders to the bank, or its overseas agents, the specified documents within a specified period in accordance with the terms of the undertaking. Documentary credits as they are called, L/C’s have been discussed in detail in the imports section.

Contract A contract is defined as an agreement, certain and performable, made by competent parties, with their free consent for the lawful object, and lawful consideration, and if not expressly declared void. Another way to define contract is that it is a Mutual understanding between the buyer and the seller without the involvement of the L/C. involvement of a letter of credit. In this situation, trade is carried out based on a mutual contract between them.

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

Summit

Bank

Limited,

Branch,GUJRANWALA 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 reached Summit Bank Limited, NGT Branch, Lahore and he should collect it immediately. As mentioned earlier, 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. After filling in the complete information about the goods to be exported, the exporter Brings the E-form to the bank for verification. The bank verifies the contents in accordance with the documents and not by physical checking. 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

•

Export registration number

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 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.

WORK DONE BY ME This section is based on my observation and experience and rotation during my internship at the Multan Road Branch of Summit Bank limited,Lahore. Some of the jobs that I performed or assisted in performing or overlooked in the various departments were;

Account Opening Department • Inward outward mailing and filing the documents.

Trade Finance Clearing Department/ Accounts Department/ Remittances Department • Cash department

FIRST THREE WEEKS Account Opening Department In first week I was placed in account opening department. In account opening department I learned about

Account Opening Procedure •

The persons who are eligible to open an account

• Kinds of Accounts offered by Summit Bank Limited •

Documents required by different categories of persons

• Issuance of Cheques Book •

Details about Loose Cheques

•

Procedure of closing an account

•

Procedure of dormant accounts

I worked with Miss Sara 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 his job requires this. She use to manage relationships with customers by providing them better services. Therefore, customers are pleased. In this department I worked for 15 days and in this span of time I learned different kind of accounts offered by bank, stamping leafs, entering of books in cheques book issue book and entries in system.

FOURTH AND FIFTH WEEK

Clearing Department/ Accounts Department/ Remittances Department As in clearing, accounts and remittances department has very less work to done so they are combined in single department here in Summit Bank Limited. This department is collectively called Operations department and 2 people work over here. I worked with Miss Zamurad Butt .She told me about different activities of this department. Her attitude was very nice. First of all he told me about; •

Procedure of clearing a cheques

•

Checking of cheques

•

Inward and outward clearing

•

Within bank transfer

•

Different reason of returning a cheques

•

Types of clearing stamps

Then she told me about the operations of Accounts department. I learned weekly, monthly, bi-annually, annually and quarterly reports that are sent to main branch and head office and even to SBP. Most of these are prepared by system automatically. Two main functions performed by this department are daily activity checking, report generation. Main reports prepared are; •

Daily Advance And Deposit Position

•

Daily Exchange Position

•

Daily Fund Management

•

Closing Reports

•

Monthly Budget Review Report

•

Monthly Monitory Statement

•

Monthly Performance Review Report

• Next she told me about remittances. Here I gained knowledge about inward clearing and outward clearing. She told me about following things; •

Demand draft (D.D)

•

Pay order (P.O)

•

Local remittances and outgoing remittances

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Schedule of bank charges for remittances

SIXTH AND SEVEN WEEK Trade Finance Next week I worked in Trade Finance department with Mr.Iqbal Raza. He is a very kind person and told me a lot about trade finance department. Although two week period was very small to get knowledge of whole of this department but still he explained me everything that she can in this short span of time. Here I gained knowledge about shipping terms, shipping documents required, and procedure to open L/C. He also told me about different kinds of banks involved in this procedure are Issuing Bank, Advising Bank, Negotiating Bank, Reimbursement Bank, Intermediary Bank. Then she told me role of these banks. The main activities of this department are divided into two parts; Import and Export. And requirements for importers and exporters are different. She also told me about Parties of L/C, Types of L/c, Import license (registration of import in EPB), Import bill, checking a scrutinizing of documents, Mode of payment.

EIGHTH AND NINTH WEEK CASH DEPARTMENT: In eighth week I worked in the cash department with Mr.Usman. He is very cooperative person he told me about the procedures which are involved in the receiving and payment of the cash and cheques. He told me about the things we should keep in mind while taking the cash. Cheques should be properly checked, the name and account number of the client is mentioned on the cheque, and it is matched with the entries in the system for the scrutiny purpose Utility Bills are also accepted in this department, proper entries are made on the system hplus. After accepting the bill, the bill is stamped with Summit Bank Limited stamp which is computerized to avoid frauds and errors.

TENTH AND ELEVENTH WEEK FINANCIAL ANALYSIS

1. Return on equity =Net income/ shareholders equity

Return on Equity Years

Ratio

2006

20.37

2007

Interpretation

25.72

The return on equity measures return to both common and preferred stock holders. This ratio has increasing trend in this case, actually the purpose of calculating this ratio is to measure rate of return to the stock holders, and its increasing trend shows that the return rate is satisfactory. We see slightly increasing trend in this ratio that is from 20.37 to 25.72 from the year 2006 to 2007.

2. Capital Adequacy= Total regulatory capital / total risk weighted exposure

Capital Adequacy

Interpretation

Years

Ratios

2006

9.48

2007

9.85

Capital Adequacy is the risk weighted assets to capital, calculated in accordance with State Bank’s guidelines on capital adequacy. This ratio compares the amount of eligible capital with the total of risk weighted assets (RWAs). Bank Alfalah monitors and reports its capital ratios under SBP rules which ultimately determines the regulatory capital required to be maintained by banks and DFIs. In case of this Bank, ratio has been increased from 2006 to 2007, which shows that the Bank Alfalah has eligible amount of capital as compared with total of risk weighted assets.

3. Return on Assets = net income / average total assets

Return on Assets Years

Ratio

2006

0.67

2007

1.04

Interpretation This is the most important ratio of the entire profitability ratios. The return on assets is the real determinant of the profit. The ratio shows that company has increase in this ratio, but this increase is very nominal i.e. 0.67 to 1.04. Apparently it seems that company profitability increases.

In this ratio apparently it seems that bank’s return on asset increases but it doesn’t mean bank faces losses but it shows the loopholes in management. As assets and sales both increases in the year of 2007 as compare to 2006, bank’s management couldn’t manage this increasing trend properly in 2006 but they manage increase in sales in 2007. Management fails to give as much increase in sale in 2006 as the ratio seems in the increase in assets but they stable their sales in 2007.

4. Earnings per Share = net income / total number of shares

Earning per Share Years Ratio 2006 2.91 2007 4.82

Interpretation Earning per share is the amount of income earned on a share of common stock during an accounting period. Earning per share varies from the bank’s point of view because it receives much attention from financial community like investors and potential investors. Therefore bank’s annual report supposed to provide full report of earning per share. This ratio increases from the year 2006 to 2007, it directly mean banks earning per share increase, which is a very healthy sign for the company. To attract the investors company should be increase in this ratio.

5. Stock holder’s return Stockholder Returns Years Cash Dividend 2006 0 2007 0

Interpretation This stock holder return in terms of cash dividend shows that in year 2006 and 2007 the bank fails to give any cash dividend to its stock holders.

6. Stock holder’s return Stockholder Returns Year

Stock Dividend

2006

33.33

2007

30.00

Interpretation This stock holder return in terms of stock dividend shows that in 2006 the share holders has given 33.33% stock dividend but in year 2007 the bank give stock dividend of 30.00% to its stock holders which is less as compare to 2007. It is good sign to give stock dividend to share holders.

7. Shareholders equity Shareholders Equity Years Amount[Millions] 2006 10573 2007 13767

Interpretation As compare to year 2006, in year 2007 the share holders equity increase which means that the investment in the bank increase, the increase in the number of investors increase their portion of equity in the bank.

8. Liquidity and funding ratio = total advances / total deposits liquidity and funding years ratio 2006 62.63 2007 62.67

Interpretation An advance to deposits is also liquidity ratio. It shows the relationship and variation between the advances and the deposits. The trend is declining in 2006 but in 2007 it increases significantly. Mostly bank advances the loan on the basis of fixed and saving deposits. We see that in 2007 bank increase its advances significantly as compare to 2006, the main reason of this significant increase is that banks fixed deposits and saving deposits in 2007.

TREND ANALYSIS During a year the bank’s profit before provision and tax stood at Rs. 6906 million compared to Rs. 3264 million the previous year registering an increase of 53%. This increase in profit is primarily attributable to overall increase in business volumes.

The above graph is about the values of deposits, advances, imports and exports in 2006 and 2007. There are increase in the value of deposits, advances, imports and exports in 2007 as compared to 2006. Increase in deposits exports are good for bank but increase in imports are not good.

TWELVTH WEEK SWOT ANALYSIS Strengths •

Strengths BAL-IBD is that Pakistan Credit Rating Agency Bank has been awarded an AA-an A1+ (A one plus) in the long and short term respectively.

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Strength is shown from its ratios in most of the ratios it is better than others.

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Strength is that assets are increasing and the major asset cash and lending to financial institutions are increasing which shows the strength.

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Earning to total assets is also improving from previous year and it is somewhat different from others.

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BAL-IBD has strong online network system.

Weaknesses •

As I have thoroughly study the Bank’s management and financial there is no such major weak point but one point is that there liabilities are increasing from year to year and in 2005 it become very high as compared to the previous year.

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Another is Bank is decreasing which in my opinion is a weak point.

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Equity to total assets is decreasing from previous year.

Opportunities •

As far as opportunities are concerned BAL-IBD is growing day by day and its profits are increasing it has an opportunity to develop more branches to expand the business.

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And there is acceptance of its services so Bank has to increase its services to meet its customer’s needs.

Threats •

There is an increase in the debts of Bank so this can be a threat for the Bank and they should look upon this.

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Another is that debt ratios are increasing due to increase in debts and other banks have improved ratios so they have to look upon it.

DILEMMAS FACED BY ORGANIZATION All these problems are faced by the BAL-IBD Wahdat road Branch Lahore

1. BAL-IBD area location is not appropriate. It is far away from the main city. 2. BAL-IBD building is also not properly build and it doesn’t meet the needs of the Bank

3. Software security is not good. It is open to all restriction. Internal control is not efficient. Use of Flash drive can cause virus in the system.

4. In BAL-IBD non availability of IT professionals. 5. BAL-IBD direct hiring the staff. •

No training after selection

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No proper HR

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No proper appraisal to evaluate performance of employees.

2. Employees are not holding the proper position. Finance manager & IT professional is a same person.

3. Sale promotion/marketing department are same in the BAL-IBD.

RECOMMENDATION o ATM Machine is not working in the bank. ATM is need of the era. o BAL-IBD branch must be relocated. o There must be a training before the employees start working in bank. o Software need a greater security. o There is an ambiguous authority to utilize the software. o Account opening dept, has the authority to give reports and show customer o balance but the same function is also performed by foreign trade, credit and other depts. It shows that they have ambiguity in utilizing the software as it is open to all. o Marketing of Islamic banking products like:- Musharka etc. o Proper back up should be made available for existing employees. o In networking, no input control on data. o Floppy disk, USB should not be allowed, Uninstalled in systems. o Tests of employees should be conducted on Islamic banking. So that o employees should become aware of Islamic terms and their meanings. o IT professional must be hire. o Human Resource officer should be hired.

CONCLUSION As I have studied and analyzed BAL-IBD I found out that this a good bank as its working, management is concerned. First of all the reason of this is that there is no directive style in the management of Bank Alfalah and which shows that there is decentralization in the Bank and every branch manager can take decision according to the situation. Bank Alfalah is providing their customers with wide range of services including online banking, phone banking and some of their new products in the pipeline, include ATM network Royal ………….etc shows that Bank Alfalah is taking good care of their customers. Bank Alfalah made heavy investments, towards enhancing its capabilities in the area of automation and technology. Bank Alfalah is well positioned to meet client needs, with improved competitive advantage. And from the financial and when I conduct comparative analysis with other banks I found that it is somewhat better than others, and from the analysis of previous year I concluded that it is improving and in 2007 profits are more than the previous year. So I can say that Bank Alfalah is performing very well.

REFRENCES Annual report Annual report 2009 of Summit Bank Limited (formerly Arif Habib Bank).

Websites  www.summitbank.com.pk

ANNEXURE