1- EXECUTIVE SUMMARYThis report is based on my service experience in Bank Alfalah LTD of Pakistan. It is a famous and reputed bank of Pakistan. Bank Alfalah LTD maintains seventh position in banking sector in Pakistan. This report is based on the activities which are performed in this bank. After completion of final semester of my MBA, I asked my branch manager for practice in all departments of Bank Al-Falah Ltd., Hussain Agahi branch. He welcomed me and inquired me about my educational status. He guided me about the banking operations and asked me about my intentions for the overall branch banking. Later he directed me to account opening department where I start my practice, so that I might understand the basic banking operations. Officer account opening was assigned the task of guiding me about working of department. In this report, my effort has been to stipulate my experiences and observations, during my practice in Bank Alfalah which would always be memorable for me. My report contains overview of the organization, organizational structure, functions of finance department, critical analysis of theoretical concepts, financial analysis of the organization, weaknesses of the organization, conclusions and recommendations as required. 1 2. OBJECTIVES OF STUDYING THE ORGANIZATION THE BANK ALFALAH The primary purpose of the Bank Alfalah is to fulfill the academic requirements of my study and to evaluate the banking practice, in corporate world and to compare these practices with the contemporary banking practices. The purpose of the study also is, to do practical work, in the field and apply the knowledge of classroom lectures to the real life situations, which thus enables a student to be a future banking practitioner. Besides this, some other purpose are associated, which include: To give a comprehensive review of BAL To analyze BAL organizational, financial and other aspects. To identify the areas of the bank that needs some improvement. To present feasible solutions for the problem pertaining to BAL. To apply the knowledge gained in practical field. The study conducted will benefit the finance students in particular and banking students in general because the third chapter of this comprehensively encompasses most of the aspects of banking, followed by SWOT analysis, conclusion and recommendations. Furthermore, Hussain Agahi Branch of the bank may also benefit from the recommendations made at the end of the report. Banking has a very broad scope. In only six weeks of internship, it is very difficult to understand each and every aspect of bank. Due to the barriers of limited time and space, the scope of work is usually confined. However this study of BAL will help the management to identify their weakness and threats and overcome them by using strength and capitalizing on the opportunities. This internship report will be source of financial data for all those who are interested in financial statement analysis of BAL. 2 3- OVER VIEW OF BANK ALFLAH Bank Alfalah Limited was launched on June 21, 1992 as a public limited company under the Companies Ordinance 1984. The bank commenced its operations on November 1, 1992. The bank introduced commercial banking and related services as defined in the Banking companies‘ ordinance, 1962. After a few years, the bank introduced its new identity of H.C.E.B after the privatization in 1997. The management of the bank had implemented strategies and policies so the bank would become a major player in the market. With a partnership with the Abu Dhabi Group the position of the bank became stronger which allowed the bank to invest more in revolutionary technology to increase its range of products and services. 3.1- HISTORY OF BANK ALFLAH After the disaster of BCCI (Bank of credit and Commerce instruments), the Ministry of Finance (Govt. of Pakistan) acquired its three branches and Habib Credit & Exchange Bank was incorporated on June 21, 1992 as a public limited company under the Companies Ordinance, 1984 and commenced banking operations from November 1, 1992. It engaged in commercial banking and related services as defined in the baking Companies Ordinance, 1962. Following the privatization in July, 1997, Habib Credit & Exchange Bank assumed the new identity of Bank Alfalah on February 25, 1998. And with this a challenge was launched, the challenge to transform this bank into a highly professional, most efficient & service oriented institution. Charged with the strength of the Abu Dhabi based consortium, and under the leadership of Highness Sheikh Nahayan Mabarak Al-Nahayan, Minister of Education, Government of Abu Dhabi, and a prominent member of Royal Family – the bank is energized with the vision, envisaging the development of consumer sector in Pakistan. 3 Bank Alfalah has emerged as one of the leading commercial banks in the financial sector of Pakistan. Bank has made significant contribution in building and strengthening both the corporate and retail banking in Pakistan. Prioritizing its product portfolio in line with consumer needs and wants, the bank is committed to develop products that give more value to its customer – be it a simple bank account or complex financing of a major project. Designing product portfolio in response to customer‘s preferences, bank‘s products like Royal Profit, Royal Patriot and Royal Custodial are prime examples of quality and innovation – providing timely banking opportunities to its customers. Assessment of the needs and wants of its customers is an on going process at Bank Alfalah, which helps it to continually develop new products and services. Some of our new products in the pipeline include Royal Force, ATM Network and a credit card. To continuously offer courteous, professional and advanced banking solutions, going through training programs with a focus on Information Technology has recently rejuvenated bank‘s team. With a team of talented, service-dedicated professional bankers, Bank Alfalah commits all its energies, resources and time to cater to all banking and financial needs of customers. To make banking solutions become accessible to more and more people, BAL has embarked upon a rapid expansion program, aiming to provide a networking that makes its services available to any of its customers in all the major urban centers of Pakistan – with a view to go international by the coming millennium. With its key indicators of progress already soaring to new heights, the bank is committed to put all its energies, resources and time to bring higher value and satisfaction of its customers, employees and shareholders. Technological developments are opening up new vistas of solutions for distributing traditional financial products. Concurrently, rapid change in customer preferences has resulted in a major shift from manual to automated services of the bank. Information 4 technology today, is the key to sustain and succeed in the corporate world. Therefore, during the year 2004, Bank Alfalah made heavy investments, towards enhancing its capabilities in the area of automation and technology. BAL is well positioned to meet client needs, with improved competitive advantage. Bank Alfalah is on the way of expansion of its business and branch network. Presently, there are 282 branches of BAL, spread all over the Pakistan covering major business centers and principle cities. 3.2- NATURE OF THE ORGANIZATION Bank Alfalah Pvt Ltd is actually a banking company under the companies‘ ordinance 1984 and banking companies ordinance 1962. It is known as a financial institution which provides finance to the different sectors of the country and as well as providing other banking services. It is bound to the roles of state bank in the country and works according to the prudential regulations of the state bank, compliance with the state bank of Pakistan. 3.3- BUSINESS VOLUME 2005 Paid up Capital Total Assets Deposit accounts Advances Investment Mark Earned up/Return & other 3372 311094356 221069 137318 67195 9084 2006 4265 344224743 229342 180323 69481 17756 2007 5463 2008 6283 2009 6283 377355130 410485517 443615904 257462 198239 63486 25778 292098 218961 113089 31787 330274 262510 96257 40044 5 Profit Before Tax Profit after tax 4058 2432 13018 8922 18501 12142 21308 15266 21867 15374 Source: Financial reports of Bank Alfalah Explanation: In the above table the business volume of Bank Alfalah LTD has been shown for the last five years. Paid up Capital of Bank Alfalah LTD was 3372 million in 2006 and it started to increase 2009 and reached to 6283. The increase in Paid up Capital means the increase in the business volume and also increase in financial position of the organization. The total assets are also increasing from 2005 to 2009 and other elements that are discussed in the above table also showing in the increase in the financial position of the organization. 3.4- NUMBER OF EMPLOYEES BY GIVING CADRE (DESIGNATION) VISE BREAK UP Sr. No 1 2 Designation President Chief Operating Officer(COO) Executives 3 4 5 6 7 Senior Executive Vice President Executive Vice President Senior Vice President Vice President Assistant Vice President Officers 8 9 10 Officer Grade-I officer Grade-II officer Grade-III Clerical Staff 11 12 13 Assistant Cashier Godown Keeper Non Clerical Staff 4 5 1 5 5 7 1 1 1 1 1 1 1 6 14 15 16 17 18 19 20 Messenger Driver Chowkidar Godown Chowkidar Guard Frash Sweeper 1 1 1 1 1 1 2 3.5 PRODUCTS / SERVICES Due to trend setting and innovative banking, Bank Alfalah presents a range of quality products with revolutionary perks and convenience. BAL provides a wide range of products/ services to its customers, which can be compared with any foreign, or national bank in terms of quality and reliability. Here is an overview of different products and services formulated by Bank Alfalah. a) Consumer Banking Services Personal Finance Mortgage Finance Business Finance Smart Cash BAL Debit card Travelers‘ cheques Value plus Deposits Profit / Markup Rates on Products b) Islamic Banking Services Islamic Corporate Banking Islamic Investment Banking Islamic Trade Finance 7 Islamic General Banking Islamic Consumer Banking c) Agriculture Finance Kiss an Ever Green Finance Kissan Farm Mechanization Finance Kissan Aabpashi Finance Kissan Livestock Development Finance Kissan Farm Mechanization Kissan Farm Transport finance d) Other consumer product Apart from the accounts offered for deposits of customers, BAL also provides a lot of other consumer products like: Alfalah Car Alfalah Car is a consumer-financing scheme that enables a customer to own his desired car at easily affordable and flexible installation with minimum down payment and insurance. All businessmen, Corporate Employees, Salaried and self-employed professionals having net take home income in excess of three times the monthly installment are eligible to take the advantage of this scheme. Salient Features: Lowest Financing cost available in the market 8.5% Tenure of 1 to 7 years as per requirement of customer Quickest processing Minimum documentation required Minimum Down payment requirement of 10% Repayment through monthly installments Lowest insurance rates available from bank‘s approved insurance companies Documents Required: National I.D card copy 8 Registered utility bill copy (Electricity/Phone/Gas) Last six months Bank Statement (Duly Signed & Stamped by Bank) Signature Verification by Banker Salary Certificate with break up of salary Sole-Proprietary Letter from the Bank Sole-Proprietary Declaration on Business Letter Head or on Stamp Paper of Rs.20/NTN Certificate Partnership Deed copy (if necessary) NOC from other partners Recent Tax return of Firm Form 29 of Limited Company Form A of Limited Company Salary Certificate of Director Tax Return of Director Basic Fact Sheet of Individuals CIB Report Bal Rupee Travelers Cheque Bank Alfalah issued its own rupee travelers Cheques with highest denominations. BAL RTCs have been presented with ultimate combination of features, which allows the customers the best way to make and accept payments (as it is called safe cash), or to save in a rewarding way. Differentiating features of BAL TCs are as follows: The highest denominations available as only BAL offers Rs.5 Lac and Rs.2 Lac Traveler cheques Widest range of travelers cheques as Rs. 1,000, Rs.5,000, Rs.20,000, Rs.50,000, Rs.100,000, Rs.200,000 and Rs.500,000. After 3 days of holding the TCs, customer may earn daily points and can exchange these points for great gifts. Another unmatched benefit of Bank Alfalah TCs is the commission on encashment. Customer may receive a commission of 0.15% in case of encashment after 7 days. 9 Special invisible UV printing, high definition micro-lines, anti-scanner effect, mould based paper, Alfalah watermark and printing in the UK, are just some of the security features of TCs which prevent counterfeiting. BAL TCs are fully refundable. Customer can refund the TCs without any penalty or loss. A customer can transfer or endorse its TCs over to anyone. Customer doesn‘t need to be an account holder to get BAL TCs benefits. Alfalah Lockers The client can also avail the facility of rent-free safe deposit lockers for their valuables. The distinguishing features of these lockers are: Highly effective security system Fully refundable security deposit Convenient locations Flexible operating hours Bal Home Loans: (For Overseas Pakistanis in UAE) Alfalah Home Loan is specially designed for those NRP‘s in UAE whose families live in Pakistan. BAL provides following types of Home Loans: To purchase a new house To renovate the existing house To construct a house Requirements: A person can get a Home Loan from BAL if he fulfills the following conditions: Non Resident Pakistani of UAE, holding a valid Pakistani passport Valid UAE Visa Pakistani National Identity Card Must be 21 years of age or over Salaried, Businessman or Self Employed person Similar to Home Loans scheme, Bank Alfalah has also offered Alfalah Car for Overseas Pakistanis in UAE. 10 4- ORGANIZATIONAL STRUCTURE 4.1- OVERALL ORGANIZATIONAL STRUCTURE The organizational structure of the bank Alfalah is very important for the running of this bank infact it that is good and smooth. So Alfalah is one if the fastest growing banks in Pakistan and its structure involve president which is the higher authority of the bank and then chief operating officer which is the second higher authority of bank Alfalah. After that there is executive vice president and country operations manager and country risk mangers executive vice president and the low authorities like information department and then the area mangers and branch managers who reports to the top authorities. Organizational Structure of Bank Alfalah is attached in Annexure I. 4.2- ORGANIZATIONAL STRUCTURE OF F-10 MARKAZ BRANCH There several departments of the bank which working for bank Alfalah the manger reports upon their work to the head offices Karachi. The branch of F-10 Markaz Islamabad is reporting to the main office of Lahore which is located in Sha din manzil Lahore. And the main office of bank Alfalah in Islamabad is located in blue Area Islamabad. Organizational Structure of F-10 Markaz, Bank Alfalah is attached in Annexure II. 4.3- REVIEW OF THE VARIOUS DEPARTMENTS OF THE ORGANIZATION The bank has following department: A. Account Opening department B. ATM Department C. Accounts Department D. Credit Department 11 E. Credit Card Department F. Remittance Department G. Foreign Trade Department H. Cash Department I. Clearing Department A. Account Opening Department Borrowing funds from different sources has become an essential feature of today's business enterprises. But in the case of a bank borrowing funds from outside parties is al l the more vital because the entire banking system is based on it. The borrowed capital of a bank is much greater their own capital. Banks borrowing is mostly in the form of deposits. These deposits are lent out to different parties. Such deposit creation is done through opening an account in the Bank. In Bank the account opening department along with performing some auxiliary functions of Check Book Issuing Types of Accounts In Bank Alfalah Limited, there are the following types of accounts: a. Current account. b. Saving Account. c. Alfalah Special Deposit Account.(ASDA) d. Term Deposit. a. Current Account In current account there is no interest on it. It is for only transaction purposes. They are paid on demand. When a banker accepts a demand deposit, he incurs the obligation of the 12 paying all cheques drawn against him to the extended of the balance in the account. As there is no profit paid on this account it is also called chequing account because cheques can be drawn on it. Current account is mostly opened for business. b. Saving Account The purpose of this account is to induce the habit of saving individuals in the neighborhood. The minimum deposit for opening the account is Rs.5, 000/- (as obvious in the Annexure). Though individuals open such accounts for saving purpose, persons belonging to Armed forces and different military institutions are free to use this account on current basis. c. Alfalah Special deposit Account ASDA account is an interest bearing current account interest is paid. The payment of return is monthly, where as the rate of return with aspect to the amount of minimum deposit clear. It is also chequing account because cheques can be drawn on it. It is necessary for this account that the client must maintain a minimum balance of Rs.50, 000 at the end of the month. That‘s why it is similar to current account. It is mostly opened by Business but individuals too open this account. Tax of 0.3% would be deducted on ASDA if withdrawals are more than Rs.25,000. d. Term Deposits A term deposit is a deposit that is made for a certain periods of time at the end of the specific period. The customer is allowed to with draw the principle amount. BAL Term deposits are of types clear in the deposit scheme. One of them is "Alfalah" Advantage one month. The rate of return on this account is set by head office. The term deposit account varies one month to 1 year for all following accounts. The amount of profit is given to depositors in three ways: 13 By cash By sending a bank Draft to depositors Home address or Officers or whichever is specified as mailing Address. The amount is credited in any one of the checking Accounts of the depositor. Account Opening Procedure For the chequing accounts (C/A, ASDA, SAVING), there are different types of account holders are required for all these types of account holders. The operation /procedure requirement that is needed for " Individual Account " differ greatly from " Joint account " proprietorship "Partner ship ―, "Limited Company" And "Club society or Association‖ as explained below. a. ndividual's Account When a single man or women opens an account in his/her own name and has the right to operate it is called individual Account. Documentation For literate person copy of National Identity Card is required as a primary requirement. For illiterate person and Veiled Women, along with the copy of National Identity Card requirement he or she must come in person for opening the account. Operation The person place a "Check Mark " in the type of account and type of operation required He/She fills in part-I of the form , a fix his /her either two or four similar signature (or thumb expression in the signature space and get it introduced and signed by a 14 person who already has an account with the bank and write his account no in the specific rows in a specific space. The person fills in "next of Kin " position where he/she father, mother, husband/wife or any other relative's name, his /her address, phone no and affix his/her signature to certify this requirement. This requirement is needed because in his/her absence bank can have correspondence with the specific person. The person put her /his signature (" or thumb expression) on the signature Specimen Card (SS CARD) similar in the area on the form. One the back of S.S card mailing address, telephone no, Person to contact and introducer space is filled in. All these requirement are necessary for future The person deposits the initial amount for opening account on to the cash counter. The person put his signature on form -A (check book requisition) on two places in "authorized signature" and fills in the "Title of Account space by writing his name. If the person put his signature in Urdu or any language other than English, he signed a "Vernacular form" where under take that affixed signature are original and his own signature and two postal size photos are needed. The next day is the opening of account. b. Joint Account When two or more persons, neither partners, nor trustees, open an in their name is called Joint Account. Husband and wife or two persons of same sex can open joint account. Documentation For joint account copy of National Identity Card of all the persons is obtained other things remaining same as in individuals account. Operation 15 The person checks the type of amount and type of operation required in the respective box on the form. The persons fill in the Part-I and part-II in the form. Signatures of both persons are obtained on the form in the area specified for signature and S.S. Card. In the title of account space names of all the persons are mentioned. Accounts holder specified in the form that they will operate the form singly or jointly. c. Proprietorship Account When an owner of a firm operating singly, opens an account in his firm name, this account is called a proprietorship Account the proper himself liable for all his acts. Documentation For this kind of account, an application for opening the account on the firm letter -pad (having the firm name) is required along with the NIC Card of proprietor. Operation All operation remains the same except that the firm name is written in the "Title of the Account‖ area and signature of the proprietor are affixed in the S.S. Card and the area specified for signatures on the form. d. Partnership Account The account is opened in the firm name and all partner designate one two persons to act on behalf of the partner ship firmer all acts on behalf of firm. The partners in the partnership firm are liable for the acts of the firm jointly and severely. Every partner has in a firm has an implied authority bind his co. partners by drawing and enclosed cheques. 16 Documentation Copy of N.I.C card of all partners Application to open the account on the firm letter pad. Partner ship deed in case registered partnership firm. Letter showing the implied Authority of one or more partners to act on behalf of the firm. In case of non -registered partnership firm, understanding on behalf of the firm to remain liable for all acts of the firm. Name, address of all partners is written on the pad. Operation All other requirement remain same except that the form is dully signed by all partners cards are signed by all those partners who will act on behalf of the firm and along filling part-I , Part-Iv is also filled. e. Limited Company Account This account is for limited companies. In order to facilitate their transaction with outside parties, bank provides many facilities. Documentation Memorandum of Association. Articles of the Association Resolution of the Board of Director. Certificate of Incorporation. Certificate of commencement of business N-I-C 17 Operation The persons authorized in the Resolution of the Board of Directors put their signatures on S.S Cards. Next of kin "requirement "is not need in case of a Limited Company. After completing each and every formality, introducer signature is verified by S.S card and is stamped "Verified" customer signatures are admitted by stamping ―Admitting" near signature and again signatures on S.S card are admitted in the same way. The same process of verification and admission of the signatures is repeated on Form-A and next of Kin area. After completing each and every formality, Accountant is open in the computer by writing name, address, A/C Number etc. Receiving Inward Cheques Another responsibility and function of account Opening Department is to receive Inward cheques for collection of other Banks as well as of Bank Alfalah Limited. Then these cheques are sent to clearing official who clears these checks at SBP from other banks. Account Closing Account is closed on the written request of the customer Bank Alfalah Limited free of cost. But to surrender the cheque book yet if some leaves are yet to be write to the bank as a necessary requirements for closing the account. Procedure The customer for individuals account write an application to the manager of the bank an a simple paper about the closing of his account with the bank (In case of proprietor ship partnership and limited company account the application should be written an firm or company letter –head) The individual or in case of other type- proprietor firm and company surrender the cheque book to the bank. 18 The cheque book is then torn from one side and is attached with the application. In case of Ltd. Company account resolution of the board of directors is also obtained to attach it with the application. The account opening form of the account holder is taken from the account-opening file, and the application, cheque book, and resolution of board of directors in case of limited company account are attached with the form. Lastly, it is written in ―Red Ink on the form that account closed‖ and ―Date of account closing.‖ B. ATM- Cards Department This department deals in issuing ATM-Card, term deposits and Alfalah Bachat Certificate. ATM Card ATM – Cards are only issue to Account Holder Issuing Procedure The person, first open the account within the blank. Then he fills the ATM application form in which name of account holder, Fathers name account number and N.I.Card number are mentioned. A copy of N.I. card is also attached with the application form. After completing this process, the application package is sent to head office Bank Alfalah Limited head office takes a period of 3-4 days for preparing and processing of ATM – cards. First, list of card holder is issued and then after 15 days cards are send to Bank Alfalah Limited issuing branch. The card and list are not sent simultaneously in order to avoid any mishandling. Bank Alfalah Limited takes Rs. 350/- for 1st time issuance as charges for a $card Biannually takes Rs 75. 19 C. Accounts Department Accounts department is a department which deals and checks all the activity of all the department .It also deals in expression of finance of the bank. Salary payment is also one function of the bank. Checking Bank’s Daily Activity Accounts department deals and checks the entire working of the Branch; all the vouchers that have been posted at the computer are scrutinized in accounts department. The ―End of Day‖ i.e. computer print is also received from the computer. The next day the activity is separated some statements from the ―End of Day‖. Then next day activity separated some statements from the ―End of Day‖. The vouchers are sorted out head wise. The vouchers are matched with the entries in the statements. Any abnormality if occurs, is immediately dealt with. All the vouchers and instruction are checked individually are checked individually against the computer printouts. After checking they are signed. Other Activities Preparation of daily bank positions statement Payment of salaries Preparation of the statements Depreciation calculation Lockers Issuance D. Credit Department After working for two weeks in Accounts Department, I was moved on to the Credit Department. Manager Credits welcomed me in his department. For him, I would just say, that I did not find such a lenient and cooperative person in my career. 20 In Credit department, I worked for the last two weeks. One major difference that I observed in credit department and other departments was the difference in the nature of work. After working in credit department, I realized the importance of lending operations for a bank. Here, I have tried to describe my experience and observation in credit department. Lending Operations Since, the basic function of a bank is to receive deposits (at low rate of return) and to lend money (at high rate of return). So, the lending operations of a bank constitute the most vital part of its business. Bank‘s funds comprise mainly of money borrowed from numerous customers on various accounts such as saving accounts, current accounts, fixed deposits and notice deposits etc. whereas, the major part of total income of a bank is generated through the utilization of these funds. Kinds of Credit Bank provides credit facilities to its customers for a specific maturity. This maturity or duration of credit is not an independent factor; it depends upon the purpose of the loan. According to the maturity of credit, it has three basic kinds. a) b) c) Short Term Credit Medium Term Credit Long Term Credit Short Term Credit: The period of a short-term credit is generally less than or equal to one year. This credit is used for the creation of current assets e.g. for the purchase of raw material and to meet the working capital requirements. Medium Term Credit: Medium term credit is normally issued for one to three years. It is used for the purchase of machinery, furniture etc. by the firms. 21 Long Term Credit: Credit facilities sanctioned for 3 to 5 years are considered as the long-term credit. Longterm credit is required for capital expenditures, such as purchase of building and heavy machinery. EXPORT OPERATIONS In trade finance department, I was much desirous to know that how the export transactions are carried out through bank, along with the imports. The export transactions in BAL were not of such extensive nature as imports due that specific area. So the processing of a normal export transaction has been discussed. Condition for Exporters Like an importer, there are certain conditions that a person must fulfill to become an exporter. 2) 3) The person must be an account holder of BAL. No one can export any commodity until and unless he/she is a Pakistani and has a valid export registration with the EPB. 4) The person must process a valid membership certificate of Trade Organization, licensed and recognized by Federal Government like a Chamber of Commerce . 5) 6) The person must possess a valid NTN (National Tax No.) certificate. A person cannot export any good unless he files a Form E (E stands for exports) with his application to the bank. The form E must be filled in writing and all specifications stipulated on the form, must be met. 7) The person must have the Sales Tax Registration Certificate. Complete export cycle The process of export starts with the receipt of the letter of credit (or contract) by the bank. The issuing bank sends the L/C to BAL 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 BAL and he should collect it immediately. 22 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. 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 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. 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. COLLECTION / NEGOTIATION When the exporter comes to the bank with the documents, he has two options: a) Send them for collection b) Get them negotiated 23 1) Collection: The bank sends the documents on behalf of the exporter to the issuing bank and payment against them is received after a specific period. In collection, the exporter is paid only when the bank obtains reimbursement from reimbursing bank. The payment is made to the exporter in PKR (Pak Rupees) and the exchange rate is the buying rate of the day normally called T.T Buying Rate. Deduction of Tax: Withholding Tax is deducted on the realization of export proceeds, under Income Tax Ordinance 1979. The rate of tax varies from 0.75 to 1.25 percent, depending upon the nature of commodity, as: • • • 0.75% for the export of finished goods 1.00% for the export of finished goods 1.25% for the export of finished goods 2) Negotiation: In case of Negotiation, the bank purchases the documents (clean documents having no discrepancy, against L/C‘s only) from the exporter, i.e. the exporter gets them discounted before their maturity. For example, if the payment against documents for the exports has to be received after 60 days. The exporter might not want to block his payment for this period. So, he can get his documents negotiated by the bank, the day he presents them to the bank. In this case, the exchange rate he will get is called O.D Buying Rate. This rate is slightly less than TT buying rate because the bank pays him an amount that it is going to receive after 60 days. These buying rates are updated every day (like selling rates) and are available to the exporter before he decides whether to get his bills discounted or not. Contracts are however not negotiated in any case. This is because, they are unsafe documents and the bank does not take the risk of being denied the payment by the importer after having made the payment to the exporter. 24 Fund Based Loan Running Finance (R/F) It is popularly known as overdraft. It is offered for working capital requirement of the customer. It is created in current account adjustment from time to time finally on expiry date. This facility is normally issued against hypothecation of immovable property. It is allowed to the borrower under a pre-sanctioned limit. A current account is opened and the conduct of this account is kept under review for a period of three to six months. Repayment in monthly installments is not required. Cash Finance (C/F) It is also offered for the working capital requirement of the customer. It is the type of loan in which client is given cash in lump sum it is offered against the pledge of moveable property or stock of borrower. In majority of the cases this finance is allowed against pledge of stock. The amount of finance is credited to borrowers CD account and he/she utilizes it for business purposes. Repayment is not made by monthly installments. Adjustments are linked with delivery of goods kept under bank‘s pledge. Goods are depledging when the payment is done on delivery order of the bank. Term Finance (T/F) Term finance is offered to client for investment in any project or business. It is issued for fixed time period. The amount of finance is credited to borrower‘s personal account by debiting the Term Finance Account. The amount of finance is credited to borrower‘s personal account by debiting the Term Finance Account. The amount of Finance is disbursed in lump sum. The repayment of Term Finance is usually in installments and with other documents a letter of installments is taken from the borrower at the time of disbursement. By that letter, the borrower binds him to pay the installments at regular intervals. Monthly repayment amount is calculated by dividing the principal amount by time period plus mark-up. Non-Fund Based Facilities Letter Of Credit Letter of Credit issued by the bank can broadly be classified as under: 25 Sight letter of credit. Usance letter of credit. The sight L/Cs calls for the draft to be drawn ‗at sight‘. Documents negotiated and received against sight are held as security till their retirement. Drafts drawn under usance are for a tenure specified in the L/C and are payable by the customer on due date. Credit line proposal must clearly state the type of letter of credit the branch is intended to issue. F. Credit Cards Department Credit cards are dealt in this department. He told me that the bank is authorized to issue the credit card of two companies, which are under bank of America. Master Card Visa Card Master Card There are following types of master card. Silver card Local silver card Gold card These are different due to their credit amount limit. For example for silver card, cardholder can take the maximum amount ranging between Rs. 25,000 to Rs, 200,000. While the local silver cardholder can use this card up to Rs. 25,000 to 500,000 for gold cardholder this limit has been extended to Rs. 300,000. Issuing Charges When the card is given to cardholder, there are certain fee charges to by the bank, which is different for different cards. Local cardholder is charged Rs. 1200 but if the cardholder is Army officer there is special discount for him. And he is special charged Rs. 750. Silver cardholder is charged Rs. 2500. 26 Gold cardholder is charged Rs. 3500. Issuing Procedure Credit card is issued to three types of parties. Professional (Govt & private officers) Business man Landlord. Professionals For professionals bank require Authorized letter from the concerned organization in which he works. This letter shows all particulars about the person, on the basis of these particulars; bank open on account and some feasible amount is required. Business Men In the case of businessman bank need Balance sheet of businessman. Type of business. Turnover of 5 years. And then when it is sured that the business has the ability to cover the expenses of credit card and to pay it at any time, the bank issues the credit card. Land Lord In the case, the person is totally new, and the bank doesn‘t know anything about him. For this bank need an account having the amount over and above the credit card limit of that credit card. Usually, there is more chance of default in this case; so, the bank avoids issuing credit card to that person. Payment Procedure The cardholder should have to pay all the amounts what he has consumed. But in order to facilitate the cardholder, 5% is the minimum limit that the bank requires and that should be 27 paid monthly. If you paid only 5% then 2% interests will be charged on remaining amount and it is added into the next month payments. If that 5% is not paid then Rs. 100 are the additional charges charged to the next month payment a part form the 2% interest. F. Remittance Department The need of remittance is commonly felt is commercial life particularly and in everyday life generally. The main function of the remittance department is to transmit money from one place to another. By providing this service to the customer, Bank earns a lot of income. Also customer is able to meet its day to day financial requirements. Demand Draft It is an instrument payable on demand for which value has been received, issued by the branch of the Bank drawn i.e. payable at some other place (branch) of the same Bank. If two Banks are involved then the DD is sent to other Bank but in other case it is handed over to the applicant. Issuance Procedure A demand draft application is given to the customer; he fills in relevant information and signs it. The officer checks the information form. The Bank charges such as commission, excise duty is charged as per effective schedule of charges. If he fills the tax exemption form, tax is not charged. In case of cash deposit, the cashier counts the amount and signs the DD application and enters it in the register. Then the officer of remittance department signs it and operation manager counter signs it. The entry is made in the DD issuing register, DD is given to the customer. Vouchers are prepared and posted. DD advises are printed and mailed to the respective branch. 28 Payment Procedure The Bank receives DD. The DD credit advice is received through mail. The numbers are checked and signatures are verified. An entry is made on the DD payable register and the vouchers are made. DD credit is attached with the vouchers and given for posting to the computer. When DD is received the test numbers are checked and the payment is made. Vouchers are given for posting and the entry that was made in the register is closed i.e. DD payable is Nil. Pay Order It is an instrument issued for payment in same city. Pay order issued from one branch can only be payable from the same branch. It is normally referred to as Banker‘s cheque. It is also called confirmed cheque, because Bank issues this on it own guarantee. Issuance Procedure The standard form is given to the customer. He fills in the details and signs it. The concerned officer checks the form. Bank charges (or commission) as per the schedule of charges and the withholding tax of 0.3% are applied. The cash amount of the pay order is received. A cash memo is signed, stamped and handed over to the applicant as a receipt. Then the pay order receipt is filled accordingly. Counter foil is also filled. An entry is made in the pay order issue register. Then the authorized officer signs it after checking the pay order. The order is then handed over to the applicant after obtaining his signature on the PO Form. A voucher is also made and posted at the computer. 29 Payment Procedure On presentation of the pay order receipt, two authorized officers of the branch sign the receipt. PO entry is made in the PO issue register. Then the amount is credited to the account of the customer or pain in cash. PO is posted at the computer. Outward Bills for Collection The bills, which are received by the Bank and sent to other cities (branches) for the local clearing in that city, are called Outward Bills for Collection. Procedure: The cheques that are of other cities are separated. They are entered in the OBC Register and OBC numbers are given to them. The OBC forwarding schedules are prepared for different branches. The respective cheques are attached with the schedule. The office copy is filled and original schedule is mailed. On clearing, the respective Banks send back the OBCs along with the IBCA (Inter Branch Credit Advice). The OBC numbers are checked from the OBC register, after those entries are made. Commission charges are deducted from the account. Inward Bills for Collection The bills, which are received by the Bank from other branches out of the city for local clearing, are called Inward Bills for Collection. Procedure The OBC of other branches will be the IBC of this branch. So an OBC forwarding schedule is received by mail. The cheques are entered in the IBC register. The IBC numbers are allotted to them. The cheques are lodged for clearing. 30 After realization, an IBCA is prepared and mailed to the branch from where the cheque was received. At the end of the day, two vouchers are prepared and posted. G. Foreign Trade Department Foreign trade department deals in: Foreign currency account Exports Imports Foreign Currency Account Mainly this account deals in individual, personal and companies account Criteria for Opening Foreign Currency Account There are not hard and fast rules for becoming the Foreign Currency Account holder. Bank wants only introduction of the Client and very little about the background. I.D card is also not necessary, if someone has; well and good, otherwise no restriction will be there for him. Features of Foreign Currency Accounts There will be legal protection for the account holders. According to foreign exchange rules and regulation every citizen of Pakistan, either within the Pakistan or outside the Pakistan, can open the foreign currency account. Resident firms and Resident Companies including investment Banks can open Foreign Currency Accounts. All foreign nationals and foreign Companies in Pakistan or abroad can open Foreign Currency Accounts. Opening of Foreign Currency Accounts in the joint names of residents/nonresidents is permissible. Foreign Currency can be deposited by: Remittance received from abroad Foreign Currency Notes 31 There will be no restriction and questioning to him about the currency, which he wants to deposit that from where he got that money. No Zakat will be deducted on these accounts; no Income Tax deduction, no Wealth Tax deduction will be there. These incentives reinforce and motivated the people to invest in foreign currency accounts rather to keep the foreign currency idle. Foreign currency accounts can easily be transferred from one person to another, one place to another, with in the ACBL Branches or in other Bank. The account holder can transfer the funds freely, in any currency to any part of the world. Foreign currency Accounts can be used for payment of purchases at Duty Free shops. Facilities This account provides following facilities: Traveling quota Out ward remittances In ward remittances receiving To make remittances procedure flexible Export The international trade transaction in which one country sells its goods to other country is called Export. The controlling body of export in Pakistan is Export Promotion Bureau; it gives different incentives to the businessmen for enhancing the exports and reducing the Balance of payment deficit. It restricts the export of some goods and reinforces export of other. The steps involved in import are described earlier from the importer‘s point of view. The procedure of export is same, as it can be described from exporter's point of view. The activities, which are different, described here. 32 Foreign Bill Purchased (FBP) Following requirements must be fulfilled before the purchase of Foreign Export Bills. Exporter should be account holder of the bank. Bank issues the Form-E. Form-E should be filled correctly and then bank authenticates the E-Form. Exporter goes to the custom authorities for custom clearance. Shipping Company issues Bill of Lading or Airway Bill. Exporter should bring other documents like certificates of Origin, commercial invoice, packing list etc. Bank scrutinizes the documents. After fulfilling these requirements, bank purchases the export bill and makes payment for the value of goods in Pak Rupee to the Exporter. Foreign Documents Bill for Collection (FDBC) In FBP bank purchase the export bills from the exporter and make payment to the exporter before the maturity of that bill, while in FDBC banks collect the export bill on the behalf of exporter on the date of maturity. In FDBC bank acts as a intermediary party. Bank gets little amount of commission for the collection of FDBC. Like FBP exporter deposit all the important documents of export bill to the bank, bank lodged this FDBC, it means bank record this export bill in the FDBC register where name of exporter, name of importer, bank which open the LC, Tenor, maturity date is written. Advance Payment of Bills This is another function which the export department of Bank Alfalah Limited performs. In advance payment bank pay the amount of export bill to the exporter before the shipment of goods. For this purchase of bill bank gets more charges as compare to FBP. Mainly export deals in: Negotiation of documents Sending the documents for collection Pre-shipment financing Post-shipment financing 33 Remittance against agent commission Forward covered booking Handling the documents for negotiation according to the UCP 500 (uniform custom and practices) Handling the documents for collection according to URR (uniform rules for collection) Submission of monthly returns to SBP regarding the export on form A-2/O-2 Import Opening the letter of credit Scrutinize the documents receive from flowing bank under letter of credit. Account to UCP 500 and extending the credit facility to the importer informs FIM (finance against imported merchandise) FATR (finance against trust receipt). Arrange forward cover booking regarding import payments Also arrange forward cover booking for letter of credit open other then ABL Submission of monthly returns to SBP regarding the import on form I The international trade transaction, in which one country buys goods from other country, is called import. Import and Export Act of 1950 govern‘s the import trade in Pakistan. Previously, the regulating body of imports was controller of Import and Export. But this function has been shifted to Trade Development Authority. Foreign Exchange Departments of all banks are restricted to work under the rules and regulations of government. Import License and Registration The individuals and firms who interested to import goods from the foreign countries are required to obtain import license. Import licenses are a type of artificial restraint on the import trade of a country. To acquire import license, the importer has to submit applications to the licensing authority. The importers can only get their merchandize cleared from the custom authorities if they have the import license duly issued in their 34 names. The import licenses issued by the Import Trade Controller are required to be registered with the State Bank of Pakistan. Contract of sale After getting the license, the importer then negotiates with the exporter. When they reach to an agreement on all terms of sale, they sign a contract. Thus contract includes all information of terms and condition of sale. Letter of credit Foreign trade payment problems are mainly solved by a letter of credit. A letter of credit is issued by the importer‘s bank. If guarantees payment to the exporter up to specified amount of money provided the terms and conditions laid down the L/C are fulfilled. A letter of credit is a commitment on the part of buyer‘s bank to pay or accept draft drawn upon it, provided drafts do not exceed a specified amount. A letter of credit thus is a (I) written undertaking by an importer‘s bank to exporter‘s bank. (II) That it will pay or accept draft drawn upon it up to a stated amount with a specified time. (III) The payment will only be made to the exporter if he compliers with the terms of credit. Parties to a letter of credit There are four parties involved in letter of credit. Account party: The buyer or the importer on whose account and request the letter of credit is opened is known as account party or opener. Issuing bank: The bank which issues or opens a letter of credit at the request of importer is called issuing bank. Exporter or seller: The seller or the party in whose favor L/C is drawn is the exporter. He is also called beneficiary. 35 Negotiating bank: The paying bank in the exporter‘s country, on which the draft is drawn, is called negotiating bank or paying bank. Opening of letter of credit The main steps involved in the opening of the letter of creditor as follows: Application for letter of credit The importer will request with own bank or any other bank, which deals in foreign trade transactions to issue a letter of credit in favor of the exporter. He will prepare an application on the prescribed form available from the bank. The information, which are supplied in the application are based on the contract of sale and include only the important feature of contract, such as value of merchandise, port of shipment, documents to be presented, port of unloading, brief description of goods, import license etc. Scrutiny of application Before issuing a letter of credit, the bank will scrutinize whether the importer is of good financial standing, possesses the import license issued by import control. Authorities, the amount available covers the letter of credit applied for, market demand of goods, collateral offered to cover the credit etc. Cash margin The bank asks the importer to deposit cash or securities with the bank. The bank depending upon the credit worthiness of the importer decides the proper margin of cash or securities to be deposited. 36 Issue of the letter of credit The importer bank after being fully satisfied will issue a letter of credit in favor of the exporter. The L/C may be sent directly to the exporter or the advising bank in the exporter‘s county. In such a case, the advising bank will inform the exporter about opening a letter of credit. Shipment of goods When the exporter receives L/C, he examines it to ensure that it conforms to the terms of contract of sales. He then shifts the goods and presents all required documents along with the bill to negotiating bank. Role of negotiating bank The negotiating bank after receiving all the documents and the bill from the exporter will scrutinize them whether these conform to the terms of letter of credit. If the documents of title accompanying the bill are in order, these will be sent to the importers bank for payment. Liability of the issuing bank On receipt of documents and the bill, the issuing bank will examine them. If the documents on the face appear to be in order, the payment would be released by the bank. In case any defect is found in the documents and the draft is honored by the issuing bank the importer can claim damages on the issuing bank. The issuing bank is only accountable for the completeness of documents, not to see whether goods conform to the contract of sale. Payment by importer to the bank First the importer pays all his obligations the bank then bank releases the documents. In case of sight draft, the importer‘s bank pays the amount on the same day charging the 37 importing customer‘s account. In case of a time draft, the importer discharges his obligations to the accepting bank on or before the maturity date of acceptance. The accepting bank will then release all the shipping documents to the importer. Payment to the exporter The exporter can obtain payment from the negotiating bank by discounting the draft (L/C) immediately after shipping the goods and obtaining shipping documents. Submission of Monthly Returns It includes reporting of Form-M and Form-E to SBP. Reporting of Form-E Every Exporter is required to submit a declaration to custom authorities for goods exported. This declaration is submitted on prescribed Form-E in quadruplicate, which is certified by authorized dealer. Four copies of Form-E are maintained. Form-E is reported to SBP at the end of the month, in which the amount is realized. There is a prescribed Performa used for the reporting of Form-E. It includes the reporting period, currency, Serial No. of Form-E, amount, Code No. of country and commodity. Reporting of Form-M Every foreign bank deducts some charges form the value of goods. It is for miscellaneous purposes like foreign bank charges or foreign agent commission. Form-M is used to declare this outflow of foreign currency. At the end of the month of realization of the amount, Form-M is reported. It includes the list of Serial No, amount and purposes of every FormM. 38 H. Cash Department Cash department deals in money, this department accept the money on counter and withdrawals on the counter. Cheques are cashes on the cash counter. Cash officer accept the utilities bills and perform different function with respect to bonds, cheques and other primary functions. Credit card bills can be deposited on the cash counter. Cash officer after identification pays the money to the cheque holder at that time. Cash department is the responsible for any fraud or any replacement of cash, that‘s why this department is very carefully fulfill his duties, efficiently and effectively perform his duties. I. Clearing Department The word clearing has been derived from the word ―Clear‖ and is defined as ―a system by which banks exchange cheques and other negotiable instruments draw on each other within a specified area and thereby secure payment for their client through the clearing house at specified time‖ in an efficient way. Advantages of Clearing Since clearing does not involve any cash etc and the entire transaction take place through book entries, the number of transactions can be unlimited. No cash is needed as such the risks of robbery, embezzlements and pilferage is totally eliminated. As major payments are made through clearing, the banks can manage cash payment at the counters with a minimum amount of cash in vaults. A lot of time, cost and labor are saved. Since it provides an extra service to the customers of banks without any service charger or costs, more and more people are inclined and attracted towards banking. 39 Clearing House It is a place where representatives of all scheduled banks sit together and interchange their claims against each other with the help of controlling staff of State Bank of Pakistan and where there is no branch of State Bank of Pakistan the designated branch of National Bank of Pakistan acts on behalf of State Bank of Pakistan. Working of clearing house All the banks which are the members of clearing house maintain their accounts with State Bank of Pakistan by debit and credit to which the clearing settlements are made. If on a particular day, a bank delivers cheques and other negotiable instruments worth more than the total amount of Cheque received by it that banks accounts with State Bank of Pakistan will be credited with the differential amount. If on the other hand the total amount of cheques and other negotiable instruments draw on a certain bank by other bank is more than the total amount receivable by it from other banks, then this bank‘s account will be debited on that day. The cheque delivered to the representatives of other banks for clearing are called outward clearing, whereas cheques received from the representatives of other banks for payment are called inward clearing. Procedure of Settlement Presume that Bank Alfalah Limited got the cheques which are drawn on HBL, NBP and MCB for amounts Rs. 50,000/-, Rs. 15,000/- respectively, its total being amounts Rs.95,000/-, it means that this amount is to be credited to Bank Alfalah Limited A/C with S.B.P. on the other hand the cheques drawn on Bank Alfalah Limited are from HBL, NBP and MCB of Rs.15,000/-, Rs.75,000/- and Rs.30,000/- respectively, its total being Rs.1,20,000/-, it means that this amount is to be debited from Bank Alfalah Limited account. The difference between Rs.95,000/- credit and debit Rs.1,20,000/- debit is Rs.25,000/- debit which means the house is against Bank Alfalah Limited for Rs.25,000/-. The brief detail is following. 40 Bank Alfalah Limited has t receive Rs.50, 000/- from HBL and to pay Rs.15, 000/to HBL so difference is Rs.35, 000/- credit. Bank Alfalah Limited has to receive Rs.30, 000/- from NBP and to pay Rs.75, 000/to NBP so difference is Rs.45, 000/- debit. Bank Alfalah Limited has to receive from MCB Rs.15, 000/- and to pay Rs.30, 000/- to MCB so difference is Rs.15, 000/- debit. GRAND TOTAL: 35,000-45,000-15,000 = -25,000 I.e. Rs. 25,000 debit Hence Bank Alfalah Limited A/C with State Bank of Pakistan will be debited with Rs.25, 000/- and the contra will be other banks accounts respectively. This called as ―Debit and Credit Rule‖. Outward Clearing at the Branch The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing: The name of the branch appears on its face where it is drawn on It should not be stale or post dated or without date Amount in words and figures does not differ Signature of the drawer appears on the face of instrument Instruments is not mutilated There should be no material alteration if so, it should be properly authenticated If order instrument, suitably endorsed and last endorsee‘s account being credited Endorsement is in accordance with the crossings if any 41 The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil The title of account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque). If an instrument is in order then out bank‘s special crossing stamp is affixed across the face of the instrument. Clearing stamps is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on paying-in-slip and half on counterfoil). The instrument is suitably discharged, where a bearer cheque does not required any discharge and also an instrument in favor of a bank need not be discharged. The instrument along with paying-in-slip is retained while the counterfoil is given to the customer duly signed. Then the following steps are to be taken: The particulars of the instruments and the pay-in-slip or credit vouchers are entered in the Outward Clearing Register. Serial number is given to each voucher The register is balanced, the credit voucher are separated form the instrument and are released to respective departments against instrument and are released to respective departments against acknowledgement in the register The schedules are arranged bank-wise The schedules are prepared in triplicate, two copies of which are attached with the relevant instrument and the third is kept as office copy The house page is prepared from schedules in triplicate The schedules and house pages are signed by the officer in-charge with branch stamp The grand total of the house page is taken and agreed with that of the outward clearing register The instruments along with duplicate and house page are sent to the Main Office 42 Inward Clearing of the Branch The particulars of the instruments are compared with the list The instruments are detached and sort out department wise The entry is made in the Inward Clearing Register (serial number, instrument number, account number, amount of the instrument is written). The instruments are sent to the respective departments against acknowledgement in the Inward Clearing Register. The instruments are scrutinized in each respect before honoring the same 43 5- STRUCTURE AND FUNCTIONS OF FINANCE DEPARTMENT 5.1- ORGANIZATIONAL CHART OF FINANCE DEPARTMENT The department of finance and accounting is a large department and the head of this department is chief Finance officer and second major controlling authority is the assistant finance officer and all the reporting comes to the Chief finance in the end. In this major department there are two major operations authorities, one is the head finance department and the second is the head of accounts department and both the heads have separate duties and they report to the Chief finance Officer in the end. The organizational structure of Bank Alfalah is attached in Annexure III. Head of finance department works with the sub ordinates like manager business operations and finance manager business and senior business analyst etc and they perform the duties like budgeting controlling and analyzing the different activates of finance department. And the other officer is the accounts manager and who perform the duties of managing the accounts operations and reports upon them to the Chief Finance Officer (CFO). Head of finance department performs the following functions: i) Budgeting ii) Controlling iii) Analyzing iv) Directing v) Coordinating business activities vi) Reporting to director finance vii) Admin activities The highest authority in finance department is Director Finance who overlooks all the functions of that department and reports to Chief Finance Officer. Head of Accounts Department is bound to report to the Chief finance officer and accounts because Chief finance officer is the higher authority to this person but the functions of this department are 44 not same in the nature to the above first department. Accounts Controller works with the people who are engaged in functions below: i) Accounts operations ii) Payroll iii) Finance activities iv) Accounts receivables v) Audit preparation vi) Reporting to the director finance 5.2- FINANCE AND ACCOUNTING OPERATIONS Bank Alfalah Limited deals in finance and accounting operations. They check the daily voucher and posting. They note all the banks charges and expanses. The main focus on bank financial statement, they prepare the financial statement annually and semi annually of the bank. All accounting and financing activities are checked in this department. Preparation of daily bank positions statement Payment of salaries Preparation of the statements Depreciation calculation Expanses, Income, Liabilities Generation and Allocation of funds Manager Accounts Finalize the Accounts on monthly basis.. Preparation of special reports as per instruction by Branch Manager. Supervise all the working of other staff members. Verify the party‘s payment & all other expenses payments Deputy Manager Accounts Posting in the Accounting System. Supporting to Manager Accounts to finalize the Accounts on monthly basis. 45 Supporting to make the monthly budget of the company. Preparation of Debtors and Creditors reconciliation reports and aging schedules. Preparation of Special reports for decision making of Management. Accounts Officer Prepare fund flow statement on daily basis. Supporting to prepare weekly budget. Posting of Funds Received from parties. Tax Officer Handle all sales tax and income tax matters. Preparation of Refund case & Processing in department. E-Filing of both (Sales tax & Parties tax payment) E-Filing of both (Sales tax & Parties tax payment) 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. 46 5.3- THE ROLE OF FINANCIAL MANAGER Financial manager stands between the firm‘s operations and financial markets. Financial manager must have considered the interest rates on the load and concluded that it was not too high. Achievement of goals and objective based on financial manager how he can get them and what activities he applies. Financial manager also involve in financing decision. Financial use the policies and strategies how to generate a fun and where have to invest. Financial manager is responsible for all kind of operations of the bank. Our financial manager uses the decision making and ratio analysis to earn a profit and decrease the expanses of the Bank Alfalah Limited. Financial manager is responsible for maintaining the record of accounts, cash management and credit management. He monitor all kind of cash management activities in which area more cash should be invested and for whom people should grant the loan, he control the other activities of credit management. The role of CFO in this bank is very important. He control and monitor the all the banks department and also check the performance of the bank and make necessary decisions. He is responsible to control the bank efficiency and checks all the staff of the bank and also check the performance of financial manager. 5.4- USE OF ELECTRONIC DATA IN DECISION MAKING Now this is the age of information technology. So the banking system is also become computerized. As the result, these financial institutions are also using computerized systems in these days. For this purpose Bank Alfalah Limited using software for financial information system in bank. The name of the software is Uni-Bank. The features and functions of this software is given below: Uni-Bank Software Its working is so simple and it is user interfering software. 47 Its working procedure is so simple and easily understandable. It has user friendly software. It is very helpful in decision making It has perpetually and periodically transaction updating features. It is very important for decision making and it is helpful in the following ways: Functions and uses 1. Used for entering the daily Deposits, Advances, Markup, A/R and Revenue. 2. Revenue transactions are recorded on this software. 3. Account of advances and receivable are also maintained on it. 4. it is used for generating many type of reports like: Daily reports. (Cash report, advances report, receivable report etc.) Monthly reports (accounts closing reports, revenue and expenses reports.) Quarterly and yearly reports (profitability reports, financial position reports, cash flow reports, solvency reports, comparative statements and account reports etc.) Used for preparing the daily Reports. Used for calculate the Profitability of the Bank. So on the bases of these reports Manager decide the future planning for the Bank Alfalah Limited. 5.5- SOURCE OF FUNDS The main sources of funds for Bank Alfalah Ltd. are there Paid-up-Capital, Profit, revenue on investment, lending from different financial institutions, sub-ordinance loans, which are as follows: 2005 Bills Payable 7,956,695 2006 8,536,674 2007 7,089,679 2008 10,479,058 2009 10,551,468 48 Borrowing from financial institutions Deposits 25,735,255 27,377,502 23,943,476 39,406,831 22,663,840 and 225,450,960 229,341,890 257,461,838 292,098,066 330,274,155 other accounts Subordinated loans Source: *Economic Bulletin of Bank Alfalah Ltd. June 2008. ** 2009 includes till June. Explanation: In the above table sources of funds of Bank Alfalah Ltd. has been analyzed. In the particular column main accounts which are sources of Bank Alfalah Ltd. are shown. The main source of funds is paid up capital as written above. Lending to financial institutions increases from 2005 to June 2009 and investment also increase during this tenure. Liabilities are also the sources of funds. The increase in liabilities means the increase in the funds. 1,085,152 1,598,080 1,597,440 497,232 257,461,838 5.6- GENERATION OF FUNDS Bank Alfalah Ltd. generates its funds from there mark up/ return/ interest earned, interest income, fee, commission and brokerage income, dividend income, income from dealing in foreign currencies, share profit of joint venture,. All these sources for 2009 as follows. 2005 Markup/return/interest earned Net mark6277938 14,974,764 21,252,702 23,921,062 28,483,084 8021829 2006 2007 2008 2009 17,756,3232 25,778,061 31,786,595 40,043,824 up/return/interest earned Fee, and income Commission brokerage 2311235 2,448,950 2,311,235 2,634,610 2,866,729 49 Dividend income Income from dealing in foreign exchange 331457 160555 480,344 531,455 811,801 692,010 322,300 693,408 617,554 727,564 Source: *Economic Bulletin of Bank Alfalah Ltd. June 2008. **2009 includes till June Explanation: The detail or generation of funds of Bank Alfalah Ltd. has been analyzed in the above table. The different of heads of funds generation have also been shown and their values for last five year have also been shown comparatively. Mark-up income increases during the last five years of operation which means all other relevant accounts also increases like net markup income dividend and earning before interest and taxes etc. 5.7 ALLOCATION OF FUNDS The most important functions of banks are to allocate funds and make a portfolio of funds to profitability. BAL allocates resources from different ways i.e. Reserves, and fixed asset sales. Advances The most important activity of the bank is the granting of credit to the customers' it is the loan function which produces the major portion of banks income. Lending is the most important functions of banks. They collect funds from the public in the form of various types of deposits and lend and invest them for productive and profitable purpose. BAL provides short term long terms financing for domestic and international trade. The policies made by central office of the cash can be amended on the basis of the rules and regulation, economic risk of each country board of directors and committee of the BAL made this type of decisions and informed about these decisions to the branch managers. Manager can grant the credit limit to each customer with in the declared limits approved by the controlling offices i.e., co, ghq, circle and zonal. Banks grant credit BAL provided the advances on the following sectors which are given below: Business finance Mortgage finance 50 Running finance Advance salary finance Gold finance Student finance Working capital loan Syndicate (project) loan The advances ratio of BAL from year 2005 to 2009 is given below: taking 2005 advances amount as base year i.e. (161,266) million Year Advances 2005 136.91% 2006 166.71% 2007 196.02% 2008 211.25% 2009 256.09% Source: Financial Reports of BAL From year 2005-2009the advances ratio of BAL goes to higher and higher, which indicates the stability and reputation of bank in public sector. The advances of national bank of Pakistan through year 2005 to 2009 are given below: Year Advances rs in (million) 2005 220,794 2006 268,839 2007 316,110 2008 340,677 2009 / 412,98^ Source: Financial Reports of BAL Investments BAL also invests their funds in different sectors for the purpose to get income. Such as trading securities, government securities, investment in mutual funds managed by nit units, and investment in joint venture. The investment ratio of BAL from year 2005 to 2009 is given below Taking 2005 investment amount as base year i.e. (166,196) million Year Advances rs. In (million) 2005 89.86% 2006 94.47% 2007 84.21% 2008 126.83% 2009 102.78% Source: Financial Reports of BAL 51 From year 2005-2009 the investment ratio of BAL is increases but in 2007 the investment ratio is slightly decreases and then this ratio is become goes to higher and higher from year 2008 to till 2009. The investments of BAL in different sector through year/2005 to 2009 are given below: Year 2005 2006 156,986 2007 139,947 2008 210,788 2009 Y0,822 Investments rs. In ( m i l l i o n ) 149,350 Source: Financial Reports of BAL Fixed assets Fixed assets are immovable assets of the organization financial year ended December 31, 2007 shows property and equipment of bank Alfalah ltd. After depreciation amount is rs. 24, 218 in million it is also a comparative figure to show a bright future of the bank. 52 6- CRITICAL ANALYSIS OF THE THEORETICAL CONCEPTS Bank Alfalah Ltd. is an only government commercial bank in Pakistan which provides help and assistant to the Government in implementing different financial policies to grass root Bank Alfalah Ltd. works on behalf of the government of Pakistan. As for the weaknesses of the bank are concerned, there might be some hurdles and weaknesses in the implementation of the policies of Govt. at small level or in those branch which are situated in rural areas as compare to well established private banking sector in Pakistan. Because I think in Bank Alfalah Ltd. the faculty is not so much equipped with current banking changes in the market, not in Pakistan but also at international level. In current banking system when we can see modest equipment and knowledge is spread everywhere Bank Alfalah Ltd. must have consider it positively and should get some steps to improve the ability of competitiveness of its staff. No doubt Bank Alfalah Ltd. has well educated and equipped with recent changes in the market in its higher and upper level of staff, but the need of the time is to spread their experience and knowledge at the lower level management system. The spread of Bank Alfalah Ltd. is also biggest in the country as compare to any other bank in Pakistan. Therefore to compete at lower level Bank must have to take some positive steps in this matter. Secondly if we see the financials of the bank we can analyze that Bank Alfalah Ltd. has a substantive financial resources to meet its basic needs, they are using there financial resources quite efficiently and therefore they earned in quite positive manner. If we talk about the recent performance in financial matters of the bank we come to know that its net profit is being increase year by year, which can be seen in the financial statements of the bank which are attached with the report, in year 06 Net Profit of the Bank Alfalah Ltd. increase from .4165 to .4261% which is a substantial increase in Net Profit. But the bank has to take some quick financial decisions to get this rate to more heights. Similarly if we have look on ROE ratio of the bank it's also a weak area of the bank's financials. There is need to do more for this area to earn more on equity. Now quick ratios of the bank also facing heavy ups and down these should be get stable for smooth liquidity of the bank. 53 7-FINANCIAL ANALYSIS 7.1- PROFIT & LOSS ACCOUNT Bank Alfalah Ltd. Comparative Profit & Loss Accounts (Rupees In ,000) 2005 Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against loans & advances Provision for diminution in the value of investments Bad debts written off directly (418) (87,509) Net mark-up/interest income after provisions 1,917,294 (2,165) (351) (372,724) 2,813,020 23,163 (512) (379,647) 4,662,172 (1,537) (699,227) 5,259,357 (5,844) (2,376,711) 6,786,197 4,033,380 2,028,577 2,004,803 (87,091) 2006 5,620,203 2,434,459 3,185,744 (370,208) 2007 12,246,811 7,204,992 5,041,819 (402,298) 2008 21,191,470 15,232,886 5,958,584 (697,690) 2009 25,783,871 16,620,963 9,162,908 (2,370,867) Non mark-up/interest income Fee, commission & brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities Unrealized loss on revaluation of investments classified as held for trading Other income Total non mark-up/interest income 2,773,503 3,391,751 5,309,045 Non mark-up/interest expenses Administrative expenses Other provisions/write off Other charges Total non mark-up/interest expenses 1,799,490 2,000 1,875 1,803,365 3,505,680 Extra-ordinary/unusual items Profit before taxation Taxation 3,505,680 2,677,635 1,700 2,679,335 1,653,734 1,653,734 4,313,023 10,125 21,104 4,344,252 2,563,290 2,563,290 5,874,745 43,306 5,918,051 2,565,945 2,565,945 8,272,587 6,959 9,565 8,289,111 4,535,552 4,535,552 572,822 1,520,049 4,333,069 744,518 2,245,370 6,907,542 (27,599) 842,099 3,224,639 8,483,996 (14,929) 1,031,372 6,038,466 12,824,663 399,383 112,017 106,848 675,868 52,539 218,820 1,158,747 52,014 290,091 1,804,998 37,393 386,997 180,751 2,429,599 64,722 474,510 2,053,192 54 Current Deffered Prior year Deffered (prior year) 1,364,723 (5,164) 22,887 1,382,446 586,159 (3,663) (30,000) 9,249 561,745 1,091,989 592,635 267,524 (7,000) 8,037 861,196 1,702,094 476,226 427,902 (100,874) 803,254 1,762,691 1,726,810 (321,487) 1,405,323 3,130,229 Profit after taxation 2,123,234 Source: Financial reports of Bank Alfalah 7.2- BALANCE SHEET Bank Alfalah Ltd. Comparative Balance Sheet (Rupees In ,000) Assets Cash and balance with treasury banks Balance with other banks Lending to Financial Institutions Investments Advances Operating fixed assets Differed tax assets other assets Total Assets 2005 8,423,399 626,917 7,437,733 28,903,596 49,216,120 2,791,626 1,553,108 98,952,499 2006 19,708,518 3,183,957 35,503,196 88,931,400 4,280,504 3,226,959 154,834,534 2007 24,788,625 9,713,369 27,050,493 57,425,700 118,864,010 6,620,067 3,851,529 248,313,793 2008 27,859,360 12,731,952 12,456,653 56,502,210 149,999,325 10,502,990 5,633,051 275,685,541 2009 29,436,378 18,380,738 3,452,059 88,491,564 171,198,992 11,922,324 6,013,097 328,895,152 Liabilities & Owners Equity Bills payable Borrowings Deposits & other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Differed tax liabilities other liabilities 323,010 2,686,754 275,834 2,725,344 484,066 5,219,666 1,921,338 7,305,496 1,379,809 9,531,860 1,208,671 13,127,754 76,698,322 649,740 2,233,671 12,723,830 129,714,891 1,899,480 3,733,124 5,844,389 222,345,067 3,223,355 3,091,135 8,394,130 239,509,391 3,222,106 4,138,243 21,230,697 273,173,841 3,220,858 55 Share Capital Reserves Unappropriated profit Surplus on revaluation of assets - net of tax Total Liabilities & Owners Equity 2,000,000 790,374 463,042 1,004,832 98,952,499 2,500,000 1,008,772 860,300 892,412 154,834,534 3,000,000 2,351,218 1,386,845 726,063 248,313,793 5,000,000 2,749,533 2,823,072 1,669,340 275,685,541 6,500,000 2,414,833 4,851,840 2,453,171 328,895,152 Source: Financial Reports of BAL 7.3- FINANCIAL ANALYSIS A. 1) 2005, Liquidity Ratios Current Ratio Current Assets/Current liabilities 40644073/57691915 = 0.71% 2006, 90265337/72891248 = 1.24% 2007, 81299072/88859851 = 0.92% 2008, 95514957/112786931 = 0.85% 2009 93514562/114698321 = 0.82% Comments In this above ratio analysis (current ratio) of past five years we can see that current ratio during 2003, is .15% which very less compare to the other years because we can see that during 2005, it is 1.24% and it is going down I the coming year, which shows that difference in 2007, in 2007 it is more then 2003 but it is still less then above two years. 56 B. 2) 2005, Financial Leverage Ratios Debt to Equity Ratio Total Debt / Total Equity 13127754/2000000 = 6.57% 2006, 12723830/2500000 = 5.09% 2007, 5844389/3000000 = 1.95% 2008, 8394130/5000000 = 1.68% 2009, 21230697/6500000 = 3.27% Comments In this second ratio analysis of past five yeas of financial leverage ratio the debt to equity ratio is high in the above two years and then in the end it is less compare to the first two yeas we can see that in 2003, 2004, it is 6.57% and 5.09% respectively and in the year 2007 it comes to 3.27% which is less. 3) 2005, Debt to Total Asset Ratio Total Debt / Total asset 13127754/98952490 = 0.14% 2006, 12723830/154834534 = 0.09% 2007, 5844389/248313793 = 0.03% 2008, 8394130/275685541 = 0.03% 2009, 21230697/328895152 = 0.07% 57 Comments In the above chart 3 we can see the variations in the ratios of debt to Assets. And the diagram shows that debt to assets ratio is high in the first 2003 year and it is down in 2007 in the comparison of fist year 2003. That ratio is still high in 2004 but getting down and down in the last three years. C. 4) 2005, Coverage Ratio Interest Coverage Ratio EBIT/ Interest Expense 3505680/1803365 = 1.95% 2006, 1653734/2679335 = 0.62% 2007, 2563290/4344252 = 0.59% 2008, 25659445/5918051 = 0.44% 2009, 4535552/8289111 = 0.55% Comments In the above mentioned chart 4 we can see that interest coverage ratio is 1.95% in 2003, and it is .62% in 2004, so it is constantly coming down in 2005,2006 and a slit change is shown in year 2007 which .55%. D. 5) 2005, Profitability Ratios Profit in Relation to Investment Net Profit after Tax / Total Assets 2123234/98952490 = 0.03% 2006, 1091989/154834534 = 0.01% 58 2007, 1702094/248313793 = 0.01% 2008, 1762691/275685541 = 0.01% 2009, 3130229/328895152 = 0.01% Comments In this chart no.5 we can see that profit in relation to investment is .03% in year 2003, it is low in all the past five years, because it is .01% in 2004 and as well in 2007, so there is a change. It needs to be higher in the above years. 6) 2005, 2006, 2007, 2008, Return on Equity Net Profit after Tax / S. holders Equity 2123234/2000000 1091989/2500000 1702094/3000000 1762691/5000000 = = = = 1.07% 0.44% 0.57% 0.36% 2009, 3130229/6500000 = 0.49% Comments In chart no. 6 we can see that return on Equity is very high in 2003, but unfortunately it is less in 2004, and we can see a slit change in 2005, it getting a bit high, but if we see closely to the other years which are 2006 and 2007, the return on Equity is less. 59 7.4- HORIZONTAL ANALYSIS OF INCOME STATEMENT Bank Alfalah Ltd. Horizontal Analysis - Profit & Loss Accounts 2005 Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against loans & advances Provision for diminution in the value of investments Bad debts written off directly 100.00% 100.00% 100.00% Net mark-up/interest income after provisions 100.00% 100.00% 100.00% 100.00% 100.00% 2006 139.34% 120.01% 158.91% 425.08% 2007 303.64% 355.17% 251.49% 461.93% 2008 525.40% 750.91% 297.22% 801.10% 2009 639.26% 819.34% 457.05% 2722.29% 0.00% 83.97% 425.93% 146.72% 0.00% 122.49% 433.84% 243.16% 0.00% 367.70% 799.03% 274.31% 0.00% 1398.09% 2715.96% 353.95% Non mark-up/interest income Fee, commission & brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities Unrealized loss on revaluation of investments classified as held for trading Other income Total non mark-up/interest income 100.00% 100.00% 100.00% 100.00% Non mark-up/interest expenses Administrative expenses Other provisions/write off Other charges Total non mark-up/interest expenses 100.00% 100.00% 100.00% 100.00% 100.00% Extra-ordinary/unusual items Profit before taxation Taxation Current 100.00% 42.95% 43.43% 34.90% 126.53% 100.00% 148.80% 0.00% 90.67% 148.57% 47.17% 47.17% 239.68% 506.25% 1125.55% 240.90% 73.12% 73.12% 326.47% 0.00% 2309.65% 328.17% 73.19% 73.19% 459.72% 347.95% 510.13% 459.65% 129.38% 129.38% 0.00% 20.65% 44.82% 81.62% 0.00% 26.84% 66.20% 130.11% 0.00% 30.36% 95.07% 159.80% 0.00% 37.19% 178.03% 241.56% 100.00% 100.00% 100.00% 100.00% 169.23% 46.90% 204.80% 0.00% 290.13% 46.43% 271.50% 0.00% 451.95% 33.38% 362.19% 0.00% 608.34% 57.78% 444.10% 0.00% 60 Deffered Prior year Deffered (prior year) 100.00% 100.00% 100.00% 100.00% 70.93% -131.08% 0.00% 40.63% 51.43% -5180.56% -30.59% 0.00% 62.30% 80.17% -8286.25% -440.75% 0.00% 58.10% 83.02% 6225.54% 0.00% 0.00% 101.65% 147.43% Profit after taxation 100.00% Source: Financial Reports of BAL Interpretation: Profit and loss statement or income and expenditure determine the summary of an organizations revenues and expenses over a specified period ending with net income or loss. The above table shows that interest earned vary during the five years in analysis, the interest expenses also vary with the same point. Both figures effects on net-mark-up, so we can see that net-mark-up in 2006 are 62.02%, 109.58% in 2007, 133.73% in 2008, and 157.56% in 2009. Net markup in 2009 shows the BAL performance goes higher and higher. Markup interest income after provisions show increasing trends since 2006-2008, but in 2009 it is decreased because of greater increase in provision against non performing advances and provision for diminution in the value of investment. Total non markup/ interest income show increasing trend which is because of greater increase in income from dealing in foreign currency and fee, commission and brokerage, income. However there is some variation in non markup/interest income, in 2009 dividend income increased at 156% from its base year 2009, similarly other income also decrease from 2007-2008 but it increases in 2009, 142.31%. Profit before taxation show declining trend this is because of increase in the portion of interest expenses as well as non interest expenses in current year. Non interest expenses increase because of increase in admin expenses, other provision/ write off and other charges also increasing. Profit after taxation show greater declining as compare to previous year 2008, and it decreases from 304.58% to 247.62%. This is because of increasing in taxation, interest and non interest expenses. 61 The whole analysis explains that if we compare current and old year, the overall position of the bank decreases in financial year 2009, it is not stable. Income statement showing a downward trend, now, it is the requirement to develop new policies to stabilize its position and compete into the market. 7.5- HORIZONTAL ANALYSIS OF BALANCE SHEET Bank Alfalah Ltd. Horizontal Analysis - Balance Sheet Assets Cash and balance with treasury banks Balance with other banks Lending to Financial Institutions Investments Advances Operating fixed assets Deffered tax assets other assets Total Assets 2005 100% 100% 100% 100% 100% 100% 100% 100% 100% 2006 234% 508% 0% 123% 181% 153% 100% 208% 156% 2007 294% 1549% 364% 199% 242% 237% 100% 248% 251% 2008 331% 2031% 167% 195% 305% 376% 100% 363% 279% 2009 349% 2932% 46% 306% 348% 427% 100% 387% 332% Liabilities & Owners Equity Bills payable Borrowings Deposits & other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deffered tax liabilities other liabilities Share Capital Reserves Unappropriated profit Surplus on revaluation of assets – net of tax Total Liabilities & Owners Equity 100% 100% 100% 100% 100% 100% 100% 100% 100% 85% 101% 125% 128% 186% 89% 156% 100% 150% 194% 150% 297% 300% 72% 251% 100% 595% 272% 250% 348% 610% 166% 279% 100% 427% 355% 325% 306% 1048% 244% 332% 100% 100% 100% 100% 185% 97% 169% 292% 309% 45% 290% 496% 256% 64% 312% 496% 342% 162% 356% 496% Source: Financial Reports of BAL 62 Interpretation: Over all the assets has increased from the previous year the major increase has been seen in cash and bank balance. Similarly the liabilities has also been increased in liabilities major increase has been seen in bills payable and deposits in other bank while share capital has also increased by significant margin. 1) Total assets Financial year 2005 is a base year. It is equal to 100% value. Total assets due to analysis show an upward trend by 105.09%, 115.53%, 138.65%, and 148.75% respectively as compare to base year 2005. The increase in total assets in 2006 only 5.09%, which is very low figure then form years 2005-09. Other assets are decreased and vary during a period of time from year 2005-2009. Cash and balances with treasury banks increases as 75.38%, 83.25%, 100.45%, and 112.77% respectively from year 2005-2009. Similarly advances and other assets shows upward trend that support the overall increase in total assets. The balance with other banks and lending to financial institutions shows upward trend in year 2007, similarly in financial year 2008 the advances and investments of BAL at peak point by 41.13% and 81.6% respectively. But over all total assets of bank is increase from previous level. 2) Total liabilities and capital Total liabilities shows an upward trend by 99.32%, 109.15%, 127.44%, and 147.14% respectively as compare to base year 2005. The total liability is decrease in 2006 as compare to base year which is very low figure then from year 2005-2009. Other liabilities are increased and decreased during a time period of 2005-2009. Deposits and other accounts are increases as 99.54%, 107.80%, 127.14% and 134.23% respectively. Other liabilities are increase 108.98%, 116.06, 134.70, and 173.05% during the time period of 2005 -2009. Liability side, financial year 2006 shows downward trend in bills payable, deposits, and borrowing form financial institutions but increase in share capital and reserves. BAL focuses to increase capital through equity in the long run as we see from year 2005-09. 63 7.6- VERTICAL ANALYSIS OF BALANCE SHEET 3.5- Vertical Analysis Bank Alfalah Ltd. Vertical Analysis - Balance Sheet Assets Cash and balance with treasury banks Balance with other banks Lending to Financial Institutions Investments Advances Operating fixed assets Deffered tax assets other assets Total Assets 2005 8.51% .63% 7.52% 29.21% 49.74% 2.82% .00% 1.57% 2006 12.73% 2.06% 0.00% 22.93% 57.44% 2.76% 0.00% 2.08% 2007 9.98% 3.91% 10.89% 23.13% 47.87% 2.67% 0.00% 1.55% 100.00% 2008 10.11% 4.62% 4.52% 20.50% 54.41% 3.81% 0.00% 2.04% 100.00% 2009 8.95% 5.59% 1.05% 26.91% 52.05% 3.62% 0.00% 1.83% 100.00% 100.00% 100.00% Liabilities & Owners Equity Bills payable Borrowings Deposits & other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deffered tax liabilities other liabilities Share Capital Reserves Unappropriated profit Surplus on revaluation of assets – net of tax Total Liabilities & Owners Equity 1.22% 13.27% 77.51% .66% .00% .33% 2.72% 2.02% .80% .47% 1.02% 1.44% 8.22% 83.78% 1.23% 0.00% 0.18% 1.76% 1.61% 0.65% 0.56% 0.58% 1.50% 2.35% 89.54% 1.30% 0.00% 0.19% 2.10% 1.21% 0.95% 0.56% 0.29% 100.00% 1.12% 3.04% 86.88% 1.17% 0.00% 0.70% 2.65% 1.81% 1.00% 1.02% 0.61% 100.00% 1.26% 6.46% 83.06% 0.98% 0.00% 0.42% 2.90% 1.98% 0.73% 1.48% 0.75% 100.00% 100.00% 100.00% Source: Financial Reports of BAL Interpretation: Analysis of balance sheet 2005 shows 100% on both sides and further as well. The cash and balances with treasury banks is 17.18% and cash with other banks is 9.06%, which are 64 impressive figures to meet the liquidity position. Lending to financial institutions is 1.91%. Investments and advances are major components in balance sheet 26.33% and 40.28% respectively. These two elements are lifeblood of any banking business. Operating fixed assets and other assets are not up to the mark showing 1.67% and 3.34% only. A deferred tax asset is 0.23%. Deposits are the one of the main sources of the bank and shows 84.69%, which is impressive figure. Total equity is 7.81% in which the higher figure is surplus on revaluation of assets. It gives view that the bank is strong and need to further expansion because bills payable and borrowings are 1.31% and 2.02% respectively. Analysis of year 2006 shows cash and balance with treasury banks, balance with other banks are decreases at (17.18% to 12.32%) and (9.06% to 5.37%) respectively. In this year, BAL follows a downward trend in its position but it got overall profitability. Lending to financial institutions, investments, and other assets are increases from previous year 27.17%, 46.53%, and 4.14% respectively. While operating fixed assets are slightly decreases as (1.67% to 1.64%) and deferred tax assets is zero. On liability side, Bills payable, borrowing from financial institutions, deposit and other accounts are also decreases at 0.30%, 1.52%and 80.22% respectively, while other liabilities and deferred tax liabilities also increases. In this financial year total liability is decreases 5.06% from 92.19% to 87.13%. Total equity is 12.87% in which the higher figure is surplus on revaluation of assets. It gives view that the bank is strong and need to further expansion because bills payable and borrowings are 0.30% and 1.52% respectively. With the analysis of 2007, it arises that BAL tries to take its position backs. The cash and balances with treasury banks is 12.38% and cash with other banks is 6.40%, which are impressive figures to meet the liquidity position. Lending to financial institutions is 3.62%. Investments and advances are major components in balance sheet 22.03% and 49.77% respectively. These two elements are lifeblood of any banking business. Operating fixed assets is not up to the mark showing 1.52% only, and other assets increases are increases at 4.27%. A deferred tax asset is zero. Deposits are the one of the main sources of the bank but it decreases at 79.02%. Total equity is 12.90% in which the higher figure is surplus on revaluation of assets as4.55%. 65 In financial year 2008, cash and balance with treasury banks, balance with other banks is increases from financial year 2007 as 12.44% and 4.94% respectively. Lending to financial institutions, advances, and other assets are decreases from previous year at 2.82%, 44.70%, and 4.07 % respectively. While operating fixed assets are increases up to 3.40%, while investments are increases, and deferred tax assets is zero. On liability side, Bills payable, borrowing from financial institutions, deposit and other accounts are also decreases at 0.30%, 1.52%and 80.22% respectively, while other liabilities are also decreases and deferred tax liabilities are increases. In this financial year total liability is decreases 2.36% from 87.13% to 84.74%. Total equity is 15.26% in which the higher figure is surplus on revaluation of assets. In this financial year total equity is greater than over all period of time from year 2005-2009 Analysis of December 31, 2009, appears both increase and decrease in balance sheet throughout the year. Cash and balance with treasury banks, advances, and other assets shows upward trend as compare to last financial year, and increases at 13.02%, 50.50%, and assets 5.45% respectively. While balances with other banks, lending‘s to financial institution and investments are decreases from previous level. In this financial year total liabilities are also increases at 87.47%. As earlier discussed that bank has been needed to expansion of their business, and management of BAL expend their business from previous levels as a result bills payable, borrowing from financial institutions, are also increases at 1.25% and 4.94% respectively. The total equity is decreases from 15.26% to 12.53%. 7.7- VERTICAL ANALYSIS OF INCOME STATEMENT Description Total Income (Markup and Non Markup income) Mark up / return /interest earned Mark up / return /Interest expensed Net mark up /Interest income Provisions against non-performing advances Provisions for diminution in the value of investment Provisions against off balance sheet obligations 2005 100 71.61 22.42 49.19 5.18 0.63 0.05 — 2006 100 78.11 15.23 33.41 3.52 -0.57 — 2007 100 78.26 24.37 53.89 5.50 -1.27 — 2008 100 78.87 26.42 52.45 7.37 -0.06 2009 100 78.78 30.88 47.90 13.69 0.48 0.01 66 Bad debts written of directly Total Provisions 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 of securities Unrealized gain/ loss on revaluation of investment classified as held for trading Share of profit from a joint venture Other income Total Non mark up /interest income Gross income Non Mark up /interest expenses administrative expenses Other provisions /write offs Other charges Total Non mark up /interest expenses Extra ordinary items Profit before tax Taxation current Prior years Deferred TOTAL TAX Profit after tax — — 0.11 5.98 4.32 0.05 5.16 48.98 0.01 4.24 49.66 0.06 — 7.37 45.09 14.18 33.72 17.43 4.35 3.45 — 11.44 3.99 2.34 10.98 5.17 2.38 2.09 -0.01 10.58 5.09 1.63 3.65 -0.05 — 10.24 3.72 5.13 0.51 0.00 0.16 — 2.99 28.39 71.60 3.66 21.89 70.86 — 1.12 21.74 71.39 0.23 21.13 66.21 1.61 21.22 54.94 30.35 0.11 0.03 30.49 — 41.11 16.92 2.90 -0.05 19.77 21.34 25.44 0.46 0.15 26.61 — 44.26 16.61 -2.55 0.68 14.74 29.52 24.03 -0.03 0.37 24.37 — 47.02 15.54 0.95 0.11 16.60 30.42 22.16 0.26 0.03 22.45 — 43.77 12.96 0.61 0.50 14.08 29.69 23.49 0.97 0.75 25.21 29.73 15.21 -5.46 9.75 19.98 Source: Financial Reports of BAL Interpretation: The most important component of any profit and loss account of a banking concern is its markup expenses it has to pay for servicing the depositors. Figure 2006 shows that bank markup income is 71.61% and non markup income is only 22.42%. This shows that bank has been successful in selling larger volumes of higher profit items. Both figures effects on net-mark-up, so we can see that net-mark-up in 2006 are 49.19%. Markup interest income after provisions is 43.21%. Net markup/ interest income is decreased because of greater 67 increase in provision against non performing advances and provision for diminution in the value of investment. Total non markup/ interest income is 28.39%, fee commission and brokerage income 17.43% of total income earned. Dividend income, income from dealing in foreign currencies and other income are 4.35%, 3.45%, and 2.99% of total income. Profit before tax is 44.26% shows increasing trend this is due to because of increase in the portion of interest expenses as well as non interest expenses. Non interest expenses increase because of increase in admin expenses, other provision/ write off and other charges also increasing. Profit after tax is only 21.34%. The management should control their admin and non interest expenses. Analysis of year 2007 shows that banks markup income increases from previous level at 78.11% and interest expense also decreases. Both figures effects on net-mark-up, so we can see that net-mark-up income in 2007 are also decreased. Now net markup in 2007 is 33.41%. This shows that bank has been needed to selling larger volumes of higher profit items. Net markup/ interest income after provision is decreased because of greater increase in provision against non performing advances and bad debts written of directly. Total non markup/ interest income is 21.89%, fee commission and brokerage income 11.44% of total income earned. Dividend income, income from dealing in foreign currencies is also decreases as compare to year 2005. Profit before tax is 41.11% shows declining trend this is due to because of decrease in the portion of interest expenses as well as non interest expenses. Non interest expenses decreases because of decrease in admin expenses, other provision/ write off but other charges also increased. Profit after tax is only 29.52%. With the analysis of 2007, it arises that BAL tries to maintain its position like previous year. The markup income is 78.26% but markup expenses also increases. As a result net markup income is also increase from overall period of time year 2005-2009. Net markup income after provision is decreases but however it is greater than from whole period of time which is analysis. Total non markup income is slightly decreased from year 2006 at 21.74%, fee commission and brokerage income 10.98% of total income earned. Dividend income is also increased at 5.17%, income from dealing in foreign currencies and other income are 3.48%, and 1.12% of total income. Profit before tax is 47.02% shows increasing trend this is due to because of decrease in the portion of interest expenses as well as non 68 interest expenses. Non interest expenses decreased because of decrease in admin expenses, other provision/ write off and other charges also decreased in this year. Profit after tax is only 30.42%. In financial year 2008, banks markup income increases from previous level at 78.87% and interest expense also increases. Both figures effects on net-mark-up, so we can see that netmark-up income in 2008 is slightly decreased. Net markup income in 2006 is 52.45%. Net markup/ interest income after provision is decreased because of increase in provision against non performing advances. Total non markup/ interest income is 21.13%, fee commission and brokerage income 10.58% of total income earned. Dividend income, income from dealing in foreign currencies is also decreases as compare to year 2007. Gain on securities is also increased from 2.09% to 3.65%. Profit before tax is 41.11% shows declining trend this is due to because of decrease in the portion of interest expenses as well as non interest expenses. Non interest expenses decreases because of decrease in admin expenses, other provision/ write off but other charges also increased. Profit after tax is only 29.52%. Net profit before tax is 43.77 and profit after tax is 29.69%, and other income is not up to mark. Gross income is only 54.94%. Analysis of December 31, 2009, shows that bank try to maintain its position. In this year markup income is slightly decreases from previous level as 78.78% and markup expense going upward direction. As a result net markup income shows downward trend and reached at 47.90%. Total interest income after provision is decreased as 33.72%, because of provision against non performing advances. Total non markup/ interest income stand still at 21.22%, fee commission and brokerage income and dividend income going downward direction as 10.24%, 3.72% respectively. Only income from dealing in foreign currencies move upward direction, it increases from previous level from 1.63% to 5.13%. Profit before tax is only 29.73% and profit after tax is 19.98%. The whole analysis explains that if we compare current and old year, the overall position of the bank decreases in financial year 2009, it is not stable. Income statement showing a downward trend, now, it is the requirement to develop new policies to stabilize its position and compete into the market. 69 7.8-COMPETITOR ANALYSIS Competitors Analysis of Incomes (Earnings): Particulars Bank Alfalah (000) 60,942,798 37,058,030 7,925,370 2,878,932 3,969,057 HBL (000) 25,778,061 21,252,702 2,311,235 811,801 692,010 ASKARI BANK LTD (000) 18,393,313 7,742,594 1,257,584 173,621 873,512 Bank AlHabib (000) 52,253,361 24,117,702 5,156,066 548,782 827,328 Mark-up/return/interest earned Net mark-up/interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Source: Financial Reports of BAL, HBL, AKBL, BAHL Explanation: In making the analysis with the competitors of Bank Alfalah Limited some of the data from the Profit & Loss accounts have been derived. The first row contains the Markup/return/interest earned. This income of BAL is greater among the other competitors which show the greater performance. Net mark-up/interest income is also is also high. Fee, commission and brokerage income is also higher among its competitors and dividend income and income form from foreign currencies is too greater. Competitors Analysis of Expenses: Particulars Bank Alfalah (000) 18,171,198 747,521 583,361 19,502,080 HBL (000) 6,482,592 11,411 66,708 6,560,711 ASKARI BANK LTD (000) 5,904,169 459,050 10,987 5,915,615 Bank AlHabib (000) 15,519,634 450,390 258,321 16,228,345 Administrative expenses Other provisions/write offs Other charges Total non mark-up/interest expenses Source: Financial Reports of BAL, HBL, AKBL, BAHL Explanation: In analyzing the expenses of Bank Alfalah with its competitors the above data is helpful for this purpose. The expenses of Bank Alfalah are high among its competitors but if the 70 proportionate is calculated among the incomes and expenses of each organization the percentage of other banks is low as compared to Bank Alfalah. So while concluding the whole competitors analysis in short sentences then it can be said that Bank Alfalah is enjoying high business level in the main areas of the business like in the interest income non interest income total assets and liabilities and net assets. Competitors Analysis of Balance Sheet: Particulars Cash & Balance with other banks Lending to financial institution Investment Net Total Assets Total Liabilities Net Assets Bank Alfalah (000) 106,503,756 17,128,032 170,822,491 817,758,326 715,299,108 102,459,218 HBL (000) 32,465,976 21,081,800 63,486,316 342,108,243 301,263,929 40,844,314 ASKARI BANK Bank AlHabib (000) 16,029,635 4,479,754 35,677,755 206,191,138 193,219,775 12,971,363 (000) 50,069,965 22,805,341 116,328,288 605,072,482 561,209,723 43,862,759 Source: Financial Reports of BAL, HBL, AKBL, BAHL Explanation: While the analyzing the Bank Alfalah with its competitors some elements has been derived from the Balance Sheet of different competitors. But the position of Bank Alfalah is among the top ranking banks. Cash and other current assets are high due to which the total assets of Bank Alfalah are high. While the total liabilities of Bank Alfalah are also high among the competitors but the net assets of Bank Alfalah are greater that show the better financial position of the organization. 7.9- FUTURE PROSPECTS OF BANK ALFALAH LTD After doing successful business in year 2005, Bank Alfalah is now looking forward positively towards the future and its management is confident to build on the gains realized during 2009. Currently bank is emphasizing on expanding its operations to meet client‘s needs and for this purpose management has plans to add more branches to existing network 71 in the coming years. Bank has already started its working to go internationally and its future target markets include UAE, Bahrain, Bangladesh and Sri Lanka. Technological developments are opening up new vistas of solutions for distributing traditional financial products. Concurrently, rapid change in customer preferences has resulted in a major shift from manual to automated services. Information Technology today, is all pervading in the corporate world. Bank Alfalah made heavy investments towards enhancing its capabilities in the area of automation and information technology. Information Technology department of bank has successfully developed an advanced computer program named BANK S. BAL can further focus on the following areas in future for getting better results. Information Technology. Internet and mobile banking Establishing Foreign Branches Local Setup Expand Agriculture and farm industries Small and Medium Enterprises (SME) Cottage Industries Small /individual customers Investment in consumer financing e.g. Credit cards, personal loans, car finance 72 8- SHORT-FALLS/WEAKNESSES OF BANK ALFALAH LTD. Following are the weak areas of Bank Alfalah, which I observed during my internship. Electronic funds transfer is only available from Alfalah to Alfalah only. Long and fussy documentation System and Operational Issues (Rule & Practices, Risk Factor) Bank Smart Software Late hour job Burden of work (over job enlargement) Employee turnover 13% Mixed Culture New Setup Staff is lesser. Governmental policies may pose unpleasant role. Global issues like Afghan war and terrorism. Inflationary pressure 73 9- CONCLUSION Bank Alfalah (BALF) under the leadership of Sheikh Hamden Bin Mubarik Al-Nahayan has made significant in building of strengthening both the corporate and retail banking sectors in Pakistan. The Bank attained Number two (2) position in terms of its Balance Sheet size amongst the private banks in Pakistan in 2000. Bank Alfalah views specialization and service excellence as the cornerstone of its strategy. The people of bank innovation, creativity, reliability, customized services and their execution are the key ingredients for their future growth. Based on this approach, their Treasury Division and the Structured Finance Unit have been geared to provide specialized services to the corporate customers. Revenues from these activities have started yielding dividends and they expect significant growth in these areas in the coming years. While building on their in-depth familiarity with their customers‘ needs and anticipated developments in the banking industry, the Retail and Corporate areas of their operations will continue to provide a strong and stable base to the business of the Bank. They are aware that they have stepped into the 21st century and they must meet its challenges by acquiring the highest levels of Technology. They will thus be accelerating their enable them distribute their products and services through most efficient and hightech means. They say that they will invest in the modern tools and substantial allocation of resources will be made to achieve this objective during the current year. Their focus would be to constantly seek out growth opportunities through increased quality assets and by offering a wider range of products and services to their esteemed customers. There are significant growth opportunities for Bank Alfalah and they are confident in their ability to grasp them. They are committed to enhancing the shareholder‘s value and look forward with greater optimism to a prosperous future for Bank Alfalah. 74 10- RECOMMENDATIONS During the working, the researcher felt myself to be a part of BAL. Even, this was my First experience of working in a banking organization, but the researcher learned a lot From this experience. Based on my experience & observation regarding the operations and Policies of Bank Alfalah, the researcher have tried to stipulate some recommendations for Further improvement. Efficiency of HR Department BAL has huge business volume, whereas the staff is not enough to meet these requirements. The researcher found that some employees were burdened with overwork, even some clients‘ complaint for the slow service. Therefore, more staff should be recruited. Time Limitation There should also be time limitation so that employees can avoid irritation. Due to long timing employees can not give full attention and felt prisoners. So to avoid any kind of errors timing should be binding. Promotion Activities BAL has formulized a lot of products and services for its customers, even more than other commercial banks, but any advertisement on electronic media has not been seen. So, the researcher thinks that there should be a proper marketing department and advertisement expenditures of the bank should also be increased to improve its visibility and to publicize its financial schemes. Employees Training Human resource constitutes the most valuable asset for an organization. To improve the professional skills and quality, BAL has started six-months comprehensive training program, that is really a commendable step taken by BAL. Bank, apart from this program, conduct some training programs for existing employees to improve their proficiency. 75 Also, Bank Alfalah should arrange some seminars to make its visions and objectives, clear to every one. On Line Banking The bank should emphasize much on computer technology. Like other banks, BAL should enhance its on-line services. Bank, also should concentrate on E-banking and use of ATM. Moreover, bank should also emphasize on enhancing its website information. Extension in Branch Network Bank Alfalfa‘s business has grown with a tremendous pace. There have been considerable profits just with in a short span of time. Therefore, due to the expanding business requirements, BAL should expand its branch network to capture other business markets. Employees Mental Satisfaction One major & alarming drawback that, is the inferiority complex faced by some employees. But some employees to be the victim of complex that big branch have more promotions. So, to avoid such discrepancies, seminars should be conducted to signify the importance of each branch. All branches should be given equal status. Bank Alfalah should increase his advances to maximize profit, currently advances are going downward with reference to deposits. This is a routine practice that in order to give personalized services to the customer, bank staff tries to fill all the columns of AOF with their own handwriting, which is wrong. The customers must fill in AOF. Bankers should avoid filling in the AOF because it can create problem if the address, title of account or any other information provided by the customer has not been written properly. Customer may be affected or he may claim that he did not provide this information, but if the customer fills AOF then banker cannot be held responsible for any incorrect information provided by the customer. Under no circumstances cheque book should be given to the customer if the account formalities are incomplete. 76 There are two officers involved in cash deposit process, which is time consuming. Cashier should be given certain powers to receive cash to provide prompt services. Similarly, there are two officers involved in cheque payment process, which is time consuming. Cashier should be given certain powers to pay cheque up to Rest. 50,000/- to provide prompt services. Cheques, which are drawn on Bank Alfalah Branch and returned unpaid in clearing, are not reflected in the Statement of Account of the customers. This cheque must be reflected in the accounts so that credibility of the customers may be assessed. Audit should be held internally. Rather there should be an Audit Department in the branch to make audit on daily basis. This can become as helpful as different banks are having this department of their own. 77 11- REFERENCES 1. Bank Alfalah Limited. (2009). Bank Alfalah Limited (Annual Report 2009). 2. Bank Alfalah Limited. (2008). Bank Alfalah Limited (Annual Report 2008). 3. Bank Alfalah Limited. (2007). Bank Alfalah Limited (Annual Report 2007). 4. Bank Alfalah Limited. (2006). Bank Alfalah Limited (Annual Report 2006). 5. Bank Alfalah Limited. (2005). Bank Alfalah Limited (Annual Report 2005). 6. Askari Bank Limited. (2009). Askari Bank Limited (Annual Report 2009). 7. Bank Al Habib Limited. (2009). Bank Al Habib Limited (Annual Report 2009). 8. Habib Bank Limited. (2009). Habib Bank Limited (Annual Report 2009). 78 12-ANNEXES ANNEXURE I: ORGANIZATIONAL STRUCTURE OF BANK ALFALAH 79 ANNEXURE II: ORGANIZATIONAL STRUCTURE OF F-10 MARKAZ BRANCH OF BAL Branch Manager Customer Service Manager Remittance Department Account Opening Clearing Department Credit Trade 80 ANNEXURE FINANCE ALFALAH III: & ORGANIZATIONAL ACCOUNTS STRUCTURE OF OF DEPARTMENT BANK CFO Asst Finance Officer Finance Department Accounts Department Finance Manager Operations & Business Accounts Manager Payroll Manager Senior Business Analyst Business Analysts Senior Accounts Payable Senior Accounts Receivable Accounts Asst Payable Accounts Asst Receivable 81