TABLE OF CONTENTS

Table of contents 1

Acknowledgement 3

Objective of studying the organization 5

Overview of the organization

Brief history of the organization 6
Nature of the organization 7
Business volume in terms of deposits,investments, 7
advance, etc
Hierarichal view of LDA plaza branch 8
Product lines (description of the various products/ services 9
offered by the organization

Organizational structure 11
Review of the various departments of the organization in
terms of their functions and responsibilities, etc
Main offices (Head offices and branches).

Structure and functions of Accounts/ Finance/ 28

Audit Department
The role of financial manager 29
Use of electronic data in decision making 31
Sources of funds 31
Generation of funds 32
Allocation of funds 32

Critical analysis of the theoretical concepts relating to 34

practical experiences i.e. relate the theoretical concepts
Balance sheet of last five years 36
Financial analysis (ratio analysis, horizontal & vertical 38
analysis of the organization for the last five years).
Horizontal analysis Balance Sheet 38
Horizontal analysis Balance Sheet 38
Vertical analysis Balance Sheet 40

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 Vertical analysis Balance Sheet 40
Horizontal analysis Profit and Loss Account 42
Horizontal analysis Profit and Loss Account 44
Vertical analysis Profit and Loss Account 45
Vertical analysis Profit and Loss Account Expense 46
Financial analysis(Ratio analysis) 47
Hierarchy Of Management 56

SWOT analysis 57
Future prospectus 60
Industrial analysis 62
Comparison of the Bank Industry Major Vs Medium Vs Small 62
Banks
64
Weaknesses and their Recommendation
69
Conclusion
Referances 70

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 Dedication

This Report is dedicated to my parents and my teachers and Bank Alfalah Limited
who gave me courage to complete this report.

Objectives of Studying the Organization

Major objectives to study this organization are:

1. To get awareness about the business development & financial techniques.

2. Comparison of the assets of organization with other organizations.

3. Policies followed by the organization enforced through laws of SBP.

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 4. Study the facilities provided by the organization to common public in various
forms.

5. To study the terms & conditions for fringe benefits provided to employees of the
organization at the age of superannuation.

6. To get MBA (Masters in Business Administration) degree.

7. To apply theoretical concepts in practical aspects

History Of Organisation

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited
company under the Companies Ordinance 1984. Its banking operations commenced from
November 1st, 1997. The bank is engaged in commercial banking and related services as
defined in the Banking Company’s ordinance, 1962. The Bank is currently operating
more than 285 branches with the registered office at B.A.Building, I.I.Chundrigar,
Karachi. Since its inception, as the new identity of H.C.E.B after the privatization in
1997, the management of the bank has implemented strategies and policies to carve a
distinct position for the bank in the market place. Strengthened with the banking of the

4
Abu Dhabi Group and driven by the strategic goals set out by its board of management,
the Bank has invested in revolutionary technology to have an extensive range of products
and services. This facilitates our commitment to a culture of innovation and seeks out
synergies with clients and service providers to ensure uninterrupted services to its
customers. They perceive the requirements of customers and match them with quality
products and service solutions. During the past five years, They have emerged as one of
the foremost financial institution in the region endeavoring to meet the needs of
tomorrow today

Since the inception of Bank Alfalah, by the grace of the Almighty, They have
moved rapidly in expanding their branch network and deposit base, along with making
profitable advances and increasing the range of products and services. They have made a
break-through in providing premier services at an affordable cost to our customers.
Keeping in view valued clients and the need for constant and effective communication of
information, As They pursues the path of excellence, and customer satisfaction remains
their priority. It is only when we know our customers better, can we deliver a higher
quality of services, thereby adding synergy to existing management expertise, financial
strength and profitability. This is yet another channel of communication for the delivery
of quality products and services that enhance value to bank’s stakeholders.

Nature of Organisation

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public

limited company under the Companies Ordinance 1984. Its banking
operations commenced from November 1st, 1997. The bank is
engaged in commercial banking and related services as defined in the
Banking Company’s ordinance, 1962. The Bank is currently operating
more than 285 branches with the registered office at B.A.Building,

5
 I.I.Chundrigar, Karachi. Since its inception, as the new identity of
H.C.E.B after the privatization in 1997, the management of the bank
has implemented strategies and policies to carve a distinct position for
the bank in the market place

Business Volume
These are the quick facts of the business
CHIEF volume in terms
MANAGER / of deposits,advances,revenue
BRANCH MANAGER
and Investment of last five years.

Rupees in “000”

2008 2007 2006 2005 2004

Manger
Manger Manager International
Operations Credits
Deposits Banking 239509391
300732858 273173841 222345067 129714891
7.

Advances 192671169 171198192 149999325 118864010 88931400

Accounts Leasing
Investment 75973238 88491564 56502210 57425700 35503196
Department
Department Imports
Department
Hierarchical View of Management LDA Plaza Branch
PRESIDENT
Cash
Total number of employees in LDA plaza branch where I did my internship is fifty.The
Department
5.
Home finance
branch was headed by Chief manager Mr Muhammad Naeem Dar.
Exports Department
HIERARCHY OF BRANCH Department
Account opening
Department
Credit card
Department
3.
Car finance
Foreign Exchange
Department
OFFICERS G
Department
Circle/
Remittances
Department
FINANCIAL
CONTROL GROUP
(SOUTH) "BRANCH
LICENSING UNIT"

PRESIDENT
Internal Audit Marketing 6
Clearing Department DE
Department
Department I II III
14.
PRODUCT & SERVICES

BAL offers highly prioritized and specifically tailored products and services designed to
suit the needs and preferences of their highly valued customers. For becoming a highly
effective financial supermarket, BAL provides a complete range of products to its
corporate clients, commercial enterprises and to the consumers. BAL offers syndicated
loans and structured financial products to the large corporate clients.

True to its strategy of becoming a highly effective financial supermarket, BAL Limited

provides a complete range of products to its customers; the corporate clients, commercial

enterprises and the small consumers. At BAL the primary commitment is to understand and

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support its client’s business objectives and financial needs. All this is ensured through

constant R & D focus and training & development of staff. BAL Bank Limited 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.

The products and services BAL is presently offering come under four main heads i.e.

Corporate Banking, Consumer Banking, Consumer Finance and Electronic Banking. The

various items that fall under these four heads can be summarized

CONSUMER BANKING:
Current Account

o Current Account is non-remunerative account. No restriction on withdrawals

and frequency of transaction. No profit is paid on Current Accounts. Service
charges are recovered as specified in schedule of charges. No Zakat is
deducted on Current Accounts. Free of cost account statements are dispatched
on half yearly basis within one week after the mid-year closing. if any
customer wishes to receive the account statement other than the half yearly
cycle, charges will be recovered as per the Schedule of Bank Charges.

 Foreign Currency Account

o The minimum amount to be placed under this product is USD 200.
Individuals (Single & Joint), Firms, Companies can open this Account. Free
locker facility. Free of Charge Bank Statement & Smart Cards. No Charges
on Standing Instruction.
 PLS Account
o PLS Saving Account is on Profit and Loss sharing basis. One individuals
(Single and Joint) are eligible to open PLS Saving Accounts. A checking

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 account with no restriction on Deposits and Withdrawals. Minimum balance
requirement as specified in Schedule of Bank Charges. Services Charges will
be deducted, if average monthly balance requirement is not maintained.
Profit/ Interest Provisioning/accruals is done on monthly basis, on minimum
monthly account balance and profit /interest will be disbursed / paid on half
yearly basis as per the rates notified by the banks.
 Business Account
o An upward mobile way to bring down costs on your way up.
o BAL Business Account lets you build your business through the accrued
savings from discounted transaction fees, and more.

Several Different Key points of Business Account are:

o Higher the balance, higher the number of free transactions.*

o Open a Business Account with Rs.50, 000 Only.
o Unlimited free cash deposit and withdrawal facility at hundreds of branches
nationwide.

Major Key Points are as follows

o The higher you balance, the higher your profit.

o Now avail attractive rates up to 8.5%.*
o Profit calculated on monthly basis.
o Profit paid into your account semi-annually.
o No joining fee on Debit/ATM Card.
o 50% Discount on Locker.
o Cash Deposit and Withdrawals facility at hundreds of branches nationwide.
o Unlimited number of ATM withdrawal transactions.

CORPORATE BANKING

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 Term loans
o As an individual can gain and benefit the most through BAL Consumer
Banking. In BAL you get friendly, efficient and attentive personalized
banking services a unique banking relationship experienced by each BAL
client.
 Working Capital Loans
o Based on the customer specific needs, the corporate bank offers a number of
different working capital financing facilities including Running finance, Cash
finance, Export Refinance, pre-shipment and post-shipment etc. Tailor- made
solutions are developed in keeping view the unique requirements of your
business.
 Trade Finance
o Under Corporate Banking BAL offers trade finance services that include an
entire range of import and export activities including issuing Letter of Credits
(L/Cs), purchasing export document, providing guarantees and other support
services.
 Cash Management
o One network of 285 branches in Pakistan enables us to collect and disburse
payments efficiently with our cash management services. This also enables us
to offer you a choice of paper based or electronic fund transfer solutions
including collection amounts, cross branch online transactions etc.
 Investment Banking
o BAL Investment Banking Team has emerged as a leading player in Pakistan’s
investment Baking arena. The team handles advisory, corporate finance and
capital market related transactions.

Within these areas, the Team has developed expertise in:

o Private Placement
o Debt/Equity Underwriting
o Term Finance Certificate
o Arrangement of Nom-Fund Facilities

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 o Mergers and Acquisitions
o Privatization
o Corporate Advisory

CONSUMER FINANCING
 Car financing
o BAL CAR4U gets not only a car of own choice but leads to the best in life.
it is affordable with competitive mark up, flexible conditions, easy processing
and above all, no hidden costs.
 Housing finance
o BAL Pyara Ghar is an ideal Home Finance product that lets purchase,
renovate or construct home the way every one has always wanted. Financing
available is up to 20 years for amount up to Rs. 20 million.
 Classic and Gold credit cards
o A suite of Classic and Gold credit cards focusing primarily on providing
convenience, safety, shopping pleasure and security giving a different feel to
the world of Credit Cards through innovative features. These unique features
include i-revolve which makes a variable mark up rate available to you upon
revolving and is the first of its kind in Pakistan
 Personal loan
o BAL personal Loan is simply a clean cash facility extended for personal use.
it offers a fixed installment loan that provides you access to cash instantly
without any collateral. Financing available is up to 5 years for amount up to
Rs. 1million.

ELECTRONIC BANKING
 ATM

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 o One of the nation’s largest networks of over 360 ATMs and still growing. Get
24-hour convenience of cash withdrawal, mini-statement, utility bill payment,
funds transfer services and much more.
 Online Banking
o One of the largest network of over 700 online branches in the country and
growing. Providing customers with 24/7 real time online transaction facilities.
 Mobile Banking
o Banking at your finger tips. SMS anytime to get information regarding
balance and mini statements.

Services at Bank Alfalah

Branch Banking

Safe Deposit Lockers

Bank Alfalah provides safe deposit lockers facilities to its customers for safe
keeping of their valuables like documents, securities and jewellery etc.

Consumer Banking

1) Debit Card
2) Credit card
3) RTC’s
4) Home loans
5) Auto loans

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 6) Money Gram

Deposit Department

Customer is a person who has some sort of account, either deposit or current or
some similar relation. A person becomes a customer the moment the bank receives the
money or cheques and agrees to open an account.
It is contractual agreement between bank and customer after which both concerned
parties indulge in a mutually beneficial business relationship.
"Deposits are the blood of a Bank"
Acceptance of deposits is the real source of income of a bank. Deposits department is the
backbone of corporate banking. Deposit is often used to describe the money, which
customers of all kinds leave with the banks.
Deposits account can be defined as an account, which is opened to earn interest.
The term deposit is highly misleading. It is not something deposited for safe
keeping, like currency in a safe deposit box. Bank deposits are not like that. When one
brings currency to a bank for "Deposit" the bank does not put the currency in a vault. It
may put a small fraction of the currency in the vault as "Reserves" but it will lend most of
deposits to some one else or buy an investment.
The entire banking system is based upon borrowing. Like all banks, deposit department
has acknowledged its worth as the most important. Almost all the operations generate
from the deposit department and with due course of time reflect back to the deposit
department.
In order to attract funds, bank has introduced various types of deposits schemes that may
suit the needs and tastes of a large body of depositors.

Types Of Deposit Facility

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Deposits are broadly classified into the following categories.
 Current Account
 Savings Account
 Term/Fixed deposit
 Royal Profit
Now I am going to discuss above deposit schemes offered by BAL.

Current Account

 Current A/c is basically used to meet the daily transactions.

 Current account provides safety to the customer's money, gives the advantage of
paying debts by the convenient and safe means of sending cheques through the
post thus avoiding the trouble and loss that might be involved if payments had to
be made in notes and coins. All payments in and out are the record of financial
transactions. Interest is not allowed on these accounts.
 No interest is paid on current accounts
 In case of current a/c customers can draw money at any time when customer need
it. There is no restriction that customer cannot draw money before such & such
time so we can say there is no time limit.
 Limited company, partnership firm, club, society or association joint and sole
proprietorship can open this account.
 Minimum balance acceptable by the bank to maintain the account is Rs.10000/-.

PLS
 In case of saving accounts, account holder gets profit.
 In Bank Alfalah Limited saving a/c is used as current a/c, & there is no main
difference between current & saving account except profit. Limited company,
Partnership Company, joint & sole proprietorship, can open this account.
 Balance acceptable by the bank to open this account is Rs.5, 000.

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  The profit is given to the customers at minimum balance during the month
 2½% zakat is deducted at 1st Ramazan.

Term / Fixed Deposit

When customer places money with a banker for a fixed period a deposit is termed
as fixed/term/time deposit.
Some important features that I have done in practice is that:
 No cheques-book is required.
 Time period varies from 3 months, 6 months to 1 year & up to 5 years. The profit
rate varies according to the time period for which it is deposited.
 The term deposit is renewed automatically on the date of maturity at the SBP's
applicable rolling rate of interest, the acknowledgement of receipt of money is
taken on the letter of authority after its proper identification. If a deposit receipt is
lost or stolen a duplicate receipt is issued after obtaining an indemnity. It is
necessary to obtain a duplicate receipt if original is lost because it is so worded
that banker undertakes to repay the amount on the presentation of duly discharged
receipt.
 Deposits on joint names are payable to conditions agreed at the time of their
acceptance.
On expiry the depositor presents the deposit receipt (advice) dully stamped and gets the
money in cash or transfer to his account. It is legally, a depositor cannot demand the
payment of his fixed deposit before the expiry of the stipulated period but generally to
oblige the customer, banker allows them to withdraw their fixed deposit before maturity.
In these cases customer are asked to forgo interest. Deposit receipts issued is called fixed
deposit receipts.

Royal profit

Royal profit has following features

 In this account minimum requirement is Rs.50, 000.

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  It has some features of saving account and current account.
 Monthly profit is calculated on average deposit during the month.

Procedure To Open An Account

I worked and observed that when a customer wants to open an account, the bank officer
gives application form to him. All information, which are necessary to be known by the
bank, are requirements of the application form. Form also requires the essential
documents to be attached by the customer.
Following persons can open an account:
 Sole proprietors
 Private accounts (individual a/c's)
 Joint account
 Limited Company
 Partnership company
 Trust and Association
Basically following information is required:
 Name
 Address
 Telephone no.
 Currency of account
 Nature of Business
 Residential status
 Special instruction regarding the account
 Signature of the applicant.

Cash Dealing Department

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Cash department of BAL is given the complete responsibility of handling all receipts &
disbursement of cash, as a result of transaction in both local & foreign currencies, & near
cash items such as traveler cheque etc (when they are issued against cash).
As a consequence it is also responsible for the book-keeping of these transactions & the
safe custody of cash & near cash securities. Following are the major functions of the cash
dealing department of BAL
I. Cash receipts (or receive deposits)
II. Encashment of cheque
Cash department of BAL is a separate close part covered with glasses. No one other than
cash department's employee is allowed to enter into that area. That’s why I did not work
in this department but I have gained knowledge about it from teller of BAL.

I. Cash Receipt
The depositor uses cheque deposit slip (or cash deposit slip) for depositing the amount.

Information required
All the details are required regarding date, account number, and amount in words &
figures, title of account & signature of depositors.

Procedure
The cashier first verifies all the requirements of the cash deposit slip that whether these
are fulfilled or not & verifies the amount written in words & figures. The deposit slip is
stamped, cash is received & second copy is given to the depositor.

Encashment Of Cheque
Cheque encashment involves following four main steps. These steps are:
i) Accepting of cheques
ii) Affirmation of signatures
iii) Entry into system
iv) Payment of cash

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 II. Encashment of a Cheque

Requirements to Encash a Cheque

Following requirements are essential to encash a cheque.
1.No Stop Payment Instruction
No stop payment instruction is presented for the account.
2.Instrument in Writing
It must be in writing. However, there is no bar on writing material but the cheque written
with lead pencil is not honored by the bank in practice because unauthorized alternations
can also easily be made are difficult to detect so a cheque should be pen written..
3.Cheque must not be crossed
The cheque, which could be presented to the drawer bank for encashment over the
counter, should not be crossed whereas crossed cheques are deposited into account.
4.The sum of money must be certain
A cheque must contain an order to pay a certain sum of money only amount in figures
and words must be same.
5.Drawer's Signature
The document in order to be validly called a cheque must bear the drawer's (account
holder) signature or that of his authorized person. At the time of opening an account a
customer provides a banker with a specimen of his signatures, so the signature on the
cheque must tally with that.
6.Sufficient Balance
Sufficient balance should be present in the customer's (drawer's) account to encash
cheque.

Payment Of Cash
The cashier enters the entry cheque in computer & pays against the second signature of
the receiver on the back of the cheque.

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Remittance Department
When money is transferred from one place to another place or from one country
to another country to fulfill the requirements of the customers by the order of the
customer, it is called remittance.
I worked in this department and realized that Bank remits money in different ways.
Some of these ways are as under:
 Pay Order
 Demand Draft
 Telegraphic Transfer
 Mail Transfer
 Rupee Traveler Cheques

Pay order
Pay order is also a cheques drawn on the bank but it is payable in the same city.
The bank also charges nominal charges for its issuance.
order.

Demand Draft

DD (Demand Draft) is a cheques issued by the bank drawn on the same bank’s
outstation branch. The bank charge nominal commission on issuance of demand draft. If
lost the holder must in personal request the bank in writing for the duplicate. The bank if
satisfied can issue a duplicate demand draft after getting the indemnity.

Telegraphic Transformation

TT stands for telegraphic transfer and MT stands for Mail transfer. In BAL I
observed that the TT is normally faxed to the other branch and then the original copy is
sent by mail.
In case if inward TT is drawn on other bank a TTR is prepared for onward transfer.

Clearing

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 Clearing is the system by which banks exchange cheques and other negotiable
instrument, drawn on each other, within the specified area, and secure payment for their
clients through clearing house specified time by book entries i.e., State Bank of Pakistan..

Nearly all the banks provide a wide variety of services to their depositors. One
valuable service provided is that of clearing. Clearing department also plays an
important role in performing the activities of the bank.

The basic function of clearing department is to provide services to customers in

collection of their cheques of other banks, whether they are in city or outside the city. The
customer can get the money in his account at Bank Alfalah Limited from the cheques
drawn on another bank. The bank accepts the cheque in the clearing department & later
on collects these cheques from the bank on which it is drawn through the clearing house
Every bank acts in two ways i.e.,
1) Paying Bank (The bank, which pays the cheques of his customers, presented by
other banks.)
2) Collection Bank (The bank, which collects the fate of cheques on the behalf of
customers, presented by other banks.)
Different modes of transferring the money are follows as
 Transfer
 Clearing
 Collection

Transfer
A method which means simply we transfer amount from one account to another
account is called transfer.

Clearing.
A system through which funds are transferred from one bank to another in (same
city) clearing house. It may be within city or outside the city. A process by which cheque

20
is exchanged between the collecting bank and paying bank and the ensuring financial
settlement is called clearing.

Clearing-house
Clearing house is a place where representative of the member bank meet at given
timings every day, to exchange cheques and other instruments drawn on each other.
Representative of the banks take all the cheques and the instruments such as PO, DD etc
drawn on banks in the city, to the clearing house and bring back cheques and other
instruments drawn on our bank which are payable by us.

Credit Department

Credit comes from the Latin word "creditus" which means, "to believe." Credit
allows us to buy things, which might not be able to afford all at once by letting us pay
over a period of time. But to obtain credit, creditor believes that bank is trustworthy and
responsible.

During my stay at BAL (LDA Branch) I observed that Bank does not dish out the money
to everybody. For bankers it is a matter of

 Trust, faith, belief

 Trust that money lent will come back
 That the transaction booked will prove rewarding for the bank

This trust comes through

 Ability & integrity of credit officer

 Good repute of the borrower
 Honesty & intention to repay
 Ability
 Solvency

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What differentiates a bank from its competitors is the quality of its loan officers, lending
policies and strategies. Credit policy of a bank is usually combination of globally
accepted time tested standards relating to
 Safety
 Liquidity
 Profitability
Most of their loans are made to businesses so loan officer has understanding of
 Nature of businesses, industries and their products
 Laws relating to these businesses
Followings are responsibilities of credit officer
 Sound judgment and evaluation
 Accurate reporting to the management for their decision making

 Credit maintenance as per bank’s policy

 Periodical re-evaluation and ratings of borrowers
 Timely problem identification and taking appropriate remedial steps.

Credit Process
The function of credit department is to lend in the form of clean advances, against
promissory notes, as well as secured advances against tangible and marketable securities.
According to the Prudential Regulations of the State Bank of Pakistan, No bank can issue
a clean advance of more than Rs.100, 000/-. The bankers prefer such securities that do
not run the risk of general depreciation due to market fluctuations.
Credit process consists following activities:

 Credit marketing
 Analysis and assessments
 Qualitative
 Quantitative

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  CLP
 Proposal evaluation & decision at appropriate level
 Credit administration
 Completion of documents
 Monitoring
 Rating
 Sensing problem loans

Credit Marketing

Types of borrowers

Individuals
 Married women
 Existing account holders
 Staff members
 Relatives of staff
 Employees of other banks
 Joint account holders

Businesses

 Sole proprietorship
 Partnership

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  Corporate bodies
 Joint ven5tures
 Group accounts

Other
 Clubs and associations
 Government bodies
 Traders
 Property dealers
 Manufacturers

Types Of Securities

Securities are

 Stock Exchange Securities

 Immovable property or fixed assets
 Goods & products
 Various forms of deposits
 Life insurance policies
 Vehicles
 Miscellaneous
 Salary cheques
 Gold

Methods Of Charging Securities

Charge on collaterals can be created through:
 Mortgages
 Pledges with conferring possession of assets
 Hypothecation
 Lien

24
  Assignment
Common Securities for the banker’s advances are as under.

Guarantees:
When an application for advance cannot offer any tangible security, the banker may rely
on personal guarantees to protect himself against loss on advances or overdraft to the
applicant.

Mortgage:
A mortgage is the transfer of an interest in specific immovable property for the
purpose of security the payment of money advanced or to be advanced by; way of loan,
and existing or future debt, or the performance of an engagement, which may rise to a
pecuniary liability. The transfer is called a mortgagor, the transferee a mortgage.

Promissory Note
Sometimes promissory note is also accepted as a security, “A promissory note is
an instruments in writing containing an unconditional undertaking signed by the maker,
to pay; on demand or at a fixed or determinable future time a certain sum of money only,
to or to the order of certain persons, or to the bearer or the instrument.” A promissory
note is incomplete until has been delivered to payee or the bearer. Moreover, the sum
promised in a promissory note may be two or more makers who may be liable three on
jointly and severally.

Pledge
A formal contract whereby the borrower agrees to deposit goods/ documents with
the creditor on the condition that those will be redelivered to the depositor if the debt is
repaid or can be sold by the creditor if the borrower defaults. After recovery of dues from
sale proceeds the surplus if any is paid back to the borrower Possession passes to bank,
ownership remains with borrower.

25
Lien
Right of a person in possession of the securities or goods of another person to
retain them until the owner discharges his debt or meets other obligations towards the
possessor.
Lender can dispose off the goods/securities for recovery of debt after serving proper
notice. Banks have a right of “General Lien” also which they can apply towards recovery
of amount. This right is not applicable in certain situations.

Hypothecation
When moveable property/ goods are charged with the amount of debt but neither
the ownership nor the possession is passed to the lender. It is said to be hypothecated. By
virtue of letter of hypothecation bank can take possession of hypothecated goods in case
of default of the borrower.

Check-points
 Regular stock reports giving details of goods with volume and value
 Regular inspections for physical verification
 Complete valid effective insurance in bank’s name
 Registration of charge wherever applicable
 Letter of hypothecation on bank’s approved format

Structure and function of Accounts//Finance/Audit

Department
Finance and Accounting operations

Functions of Finance

1- Investment Decision

26
The investment decision is the most important of the BAL Bank’s three major decisions
when it comes to value creation. It begins with the determination of the total amount of
assets needed to hold by the BAL Bank. Review the balance sheet in your mind for a
moment. Imagine liabilities and owner's equity being listed on the right hand side of the
balance sheet and its assets on the left.

2- Financing

The second major decision of the BAL Bank is financing decision. The financial manager
is concerned with the make up of the right hand side of the balance sheet.

Dividend must be viewed as an integral part of the BAL Bank’s financing decision. The
dividend payout ratio determines the amount of earning that can be retained in the firm.

3- Assets Management Decision.

The third important major decision of the BAL Bank is the asset management decision.
Once assets have been acquired and appropriate, financing provided. These assets must
still be managed efficiently. The financial manager is charged with varying degrees of
operating responsibility over existing assets.

4- Risk Management

In keeping with BAL bank's track record of strong profitability and market leadership,
the function of risk management has become a critical fulcrum of the bank's long term
vision and success. The approach of risk management has evolved beyond the classic
exercise of balancing risk and reward. We have inculcated modern technique which will
allow business units of the bank to create more share holder value through a better
understanding. The risk management group controls the review and administration of
lending solutions offered to our clients through a dedicated team of experienced
professional. It also manages the tree main areas of risk that are inherent to all activities
of the bank namely credit risk, market risk and operational risk.

27
5- Budgeting

There are today two basic philosophies as to the levels at which budgeted amounts should
be set. We will identify three philosophies as

i. The Behavioral Approach

The assumptions’ underlying the behavioral approach is that the departmental

managers will be most highly motivated if they view the budget as a fair basis for
evaluating departmental performance. Therefore, budgeted amounts are set at
reasonable and achievable levels.

ii. Total Quality Management Approach

A basic premise of total quality management is that every individual and segment
of the organization constantly should strive for improvement. The entire
organization is committed to the goal of completely eliminating inefficiency and
non value adding activities.

THE ROLE OF FINANCIAL MANAGER

FINANCIAL MANAGER

“The person which manages the financial resources of a business is called financial
manager”.

ILLUSTRATION:

The emergence of financial management as a distinct management discipline is relatively

recent and linked to changes in business and socio economic scenario, brought about by
the advancement in computer and information technology, emergence of multi product
and multi division corporation with complex and dynamic organizational sets-ups,
increasing global competition etc.

28
Almost every firm, government agency, and other type of organization has one or more
financial managers, who oversee the preparation of financial reports, direct investment
activities, and implement cash management strategies. Because computers are
increasingly used to record and analyze data.Many financial managers are spending more
time developing strategies and implementing the long term goals of their organization.

ROLE AND DUTIES OF FINANCIAL MANAGER

The duties of financial manager varies with their specific titles, which include controller,
treasurer or finance officer, credit manager, cash manager, and risk and insurance
manage. Controller directs the preparation of financial reports that summarize and
forecast the organizations’ financial position such as income statement, balance sheet and
analyses of future earning and expenses. Controllers also are in charge of preparing
special reports required by regulatory authorities. Often Controller oversees the
accounting, audit, and budget departments. Treasurer and finance officer direct the
organization’s financial goals, objectives, and budgets. They oversee the investment of
funds, managed associated risks, supervise cash management activities, execute capital
raising to support a firm’s expansion, and deal with mergers and acquisitions. Credit
managers oversee the firms’ issuance of credit, establishing credit rating criteria,
determining credit ceilings, and monitoring the collections of past -due accounts.
Managers specializing in international finance develop accounting and financial systems
for the banking transactions of multinational organizations.

Use of electronic data in decision making

Electronic data gives exact values and figures which top level management
required. Because of electronic data they came across to know those minute
things which impacts a lot on final place. Through this they can measure
exact profit and loss accounts, assets and liabilities up to a branch level from
where they can decide which should be kept and which should not.

29
 Through this top level management is able to decide which product
should be taken into course for further level or which should stop.
Electronic data make management able to take decision at any point of
time

Sources of Funds trend

The major sources of funds are:
• Public Source

As the largest regional bank of Pakistan according to asset base the Banks major
source of funds is from the Public.
• Financial institutions

Corporate sector is one of the major sources of funds in all types of Banking. All
major organisations, financial institutions and government & private organisations
are the major sources of the funds.

Deposits 2008 2007 2006 2005 2004

Customers 289,137,021 264,272,208 229,595,652 210,549,380 126,195,222,

Financial 300,732,858 273,173,841 239,509,391 222,345,067 129,714,891

Institut
ion

Generation of Funds:

Mark up /return Interest earned

(Rupees in Million)

30
Year 2008 2007 2006 2005 2004
Markup/interest 31046 25783 21191 12246 5620

Markup/return/interest earned can be obtained by two ways

a) On loan and advances to:

• Customers
• Financial institution
b) On investments in:

• Available for sale of securities

• Held to maturity securities

On deposits with financial institution

On securities purchased under resale agreement

On money at call

Others

Allocation of Funds trend

BAL’s funds are allocated to the following departments. The banks major focus is
on short term financing. Major allocation of funds are on these divisions.

Long Term Financing(For over one year)

Long term financing includes a tenure more than one year.

Short Term Financing(For upto one year)

Short term financing includes period less than one year. The banks major focus is
on short term financing.

31
 2008 2007 2006 2005 2004
65,960,365 64,658,338 64,691,318 48,016,917 31,208,249
Long Term Finances
132,851,48 111,020,472 87,544,463 70,847,903 57,723,151
Short Term Finances 7

Agriculture financing
The bank provides adequate and timely financial assistance to the farmers to
improve production potential of agriculture sector. Insurance of leased assets, animals,
crops and life assurance of borrowers are all source of money for the bank.

E-Banking
The bank has a centralized database that is web-enabled. All the services that the
bank has permitted on the internet are displayed in menu. Any service can be selected and
further interaction is dictated by the nature of service.

Utility bills
The bank also makes possible the payment of electricity, gas and telephone bills
for its customers charging some commission on each payment.

Lockers
Commission charged on lockers provided by bank for customers, is also a source
of inflow for the bank.

Consumer financing
Personal Finance, mortgage finance, business finance, smart cash, auto financing and
travelers cheques are all sources of funds for the bank. The bank finances all these loans
and facilities on competitive mark up rates

32
Critical Analysis of the practical exposure relating to theoretical
concepts

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

33
Computer system
The system has not totally shifted on computer. Manual procedure is still there hence
computer facility is not fully availed. There should be a system at each counter for quick
processing.

Right person for right job

During my internship I have observed the person who has came as customer Relationship
Officer was acting as Cashier. It should not be like this. The person should be posted
according to his qualification, profession skills and experience.

Customer problem
People have to wait for en-cashing their cheques for about 10-20 minutes, which is
not good for the reputation of bank, the delay is due to manual work. Therefore I suggest
that computers and other electronic machines should be installed in bank so that time
could be saved.

Deficiency in management
I felt at some places the BAL need to have employees, because a lot of work is to be done
by a single employee that will result in work overload and employee might not perform
his/her job with full devotion.

Financial Analysis

To analyse the financial position of BAL, different tools are use, which includes Ratio
Analysis, Common size Analysis of the last five years.

Introduction and Importance of Financial Analysis

34
 Financial analysis involves the use of various financial statements. These
statements do several things. First the balance sheet and the second is
income statement.
The balance sheet summarizes the assets, liabilities, and owner’s equity of a
business at a point in time, while the income statement summarizes revenues
and expenses of a firm over a particular period of time. A conceptual
framework for financial analysis provides the analyst with an interlocking
means for structuring the analysis.

Balance Sheet of last five years

Rupees in “000”

ASSETS 2008 2007 2006 2005 2004

Cash and balances 32687335 29436378 27859360 24788625 19708518
with treasury
banks
Balances with 21581043 18380738 12731952 9713369 3183957
other banks
Lending to 3315500 3452059 12456653 27050493 -

35
financial
institution
Investments 75973238 88491564 56502210 57425700 35503196
Advances 19267116 17119899 14999932 11886401 88931400
9 2 5 0
Fixed assets 13773293 11922324 10502900 6620067 4280504
Deferred tax - - - - -
assets
Other assets 8989186 6013097 5633051 3851529 3226959
34899076 32889515 27568554 24831379 154834534
4 2 1 3
LIABILITIES
Bills payable 3452031 4138243 3091135 3733124 2233671
Borrowings 13690222 21230697 8394130 5844389 12723830
Deposits and 30073285 27317384 23950939 22234506 129714891
other accounts 8 1 1 7
Sub-ordinated 2571169 3220858 3222106 3223355 1899480
loans
Liabilities against - - - - -
assets subject to
finance lease
Deferred tax 208465 1379809 1921338 484066 275834
liabilities
Other liabilities 11291280 9531860 7305496 5219666 2725344
33194602 31267530 26344359 24084966 149573050
5 8 6 7
NET ASSETS 17044739 16219844 12241945 7464126 5261484
REPRESENTE
D BY
Share capital 7995000 6500000 5000000 3000000 2500000
Reserves 3166056 2414833 2749533 2351218 1008772
Unappropriated 3447467 4851840 2823072 1386845 860300
profit
14608523 13766673 10572605 6738063 4369072

36
Surplus on 2436216 2453171 1669340 726063 892412
revaluation of
assets
17044739 16219844 12241945 7464126 5261484

Common Size Analysis

Horizontal Analysis

This type of analysis represents the percent change in specific line item of the Income
statement or the balance sheet from the last year. This analysis is used to comment on the
growth of specific line item in the industry or the firm.

2008 2007 2006 2005 2004

ASSETS
Cash and balances with % 165.
treasury banks 85 149.36 141.36 125.82 100
Balances with other %
banks 677.81 577.29 399.88 305.07 100
Lending to financial %
institution - - - - -
Investments % 213.99 249.25 159.15 161.72 100
Advances % 216.65 192.51 168.67 133.66 100
Fixed assets % 426.82 369.46 325.48 205.15 100
Deferred tax assets % - - - - -
Other assets % 210.002 140.48 131.59 89.98 100

LIABILITIES
Bills payable % 154.55 185.27 138.38 167.13 100
Borrowings % 107.59 166.86 65.97 45.93 100
Deposits and other %
accounts 231.84 210.59 184.64 171.41 100

37
Sub-ordinated loans % 135.36 169.57 169.63 169.69 100
Liabilities against assets %
subject to finance lease - - - - -
Deferred tax liabilities % 7.65 50.61 70.49 17.76 100
Other liabilities % 4093.5 3455.65 2648.51 1892.32 100

INTERPRETATION
Horizontal analysis is done using fixed base method. In this analysis, values
of the year 2002 are taken as base.

Formula
= Current Year x100
Base year

BALANCE SHEET
HORIZONTAL ANALYSIS
COMMENTS

■ Cash is increasing gradually yearly, but decrease in 2005 and 2008,

cash shows that the liquidity position of the bank is going to be
strong, so it is positive sign for the bank.
■ There is decreasing trend in balance with other banks which is a
negative sign.
■ Increase in money at call and short notice, it means that customers
of bank are very punctual in making payments. Therefore it is good
sign for the bank.

38
■ In the field of investment there is increasing trend with the passage
of time. It is common term of finance” more investment more
return.
■ As we know that main source of profit of a bank is the difference
between the percentages of interest, Banks pay less rate of interest
than receiving the interest from the customers. In this case advance
to customers very low in 2004 but increase from 2005. It means
that BAL is running very well.
■ BAL is in a position that it is earning more and more profit with
passage of time. Then bank can purchase more and more fixed
assets, and it is bank is doing. Assets of the banks are increasing
day by day by purchasing the assets. More assets mean that bank
has more capacity to pay off its liabilities. There is increasing trend
in field of fixed assets. It is due to purchase of new assets.
■ Other assets have a decreasing trend which is not a positive sign.
Decrease in assets decrease the worth of organization
■ There is increasing trend in deposits and other accounts which
shows the credibility of the bank.
■ Borrowing is decreasing in 2004 but there is increasing trend in the
year 2005. Although it is seeing that bank’s borrowing is
increasing with the passage of time which is not a good sign but
there is a positive thing in this behalf, usually banks borrow money
at that time when they would have to give it for earning more
profit, The BAL Bank doing the same thing for increasing its
profits.
■ Bills payable increase in 2008 but decrease in 2007 negative sign.
■ Other liability has an increasing trend not good because increase in
liability decreases the liquidity position of the bank.
■ Share capital increase that shows the creditability of bank.

■ The BAL Bank Limited is increasing its reserves and Un-

appropriated profit in order to increase its lending power, which is
good sign, because according to the prudential regulations of State
Bank of Pakistan, a bank can lend money (per party exposure)
equal to the 30% of its assigned capital plus reserves.

39
 Vertical analysis

ASSETS 2008 2007 2006 2005 2004

Cash and balances 9.37 8.95 10.11 9.98 12.72
with treasury banks
Balances with other 6.18 5.59 4.62 3.91 2.06
banks
Lending to .95 1.05 4.52 10.89 -
financial institution
Investments 21.77 26.91 20.49 23.12 22.93
Advances 55.21 52.05 54.41 47.87 57.44
Fixed assets 3.95 3.62 3.81 2.67 2.08
Deferred tax assets - - - - -
Other assets 2.58 1.83 2.04 1.55 2.76
LIABILITIES

Bills payable
0. 1 1 1 1
9 . . . .
9 2 2 5 4
5 1 0 4
Borrowings
3 6 3 2 8
. . . . .
9 4 0 3 2
2 5 4 5 2
Deposits and other
accounts 8 8 8 8 8

40
 6 3 6 9 3
. . . . .
1 0 8 5 7
7 6 8 4 8
Sub-ordinated loans
0 0 1 1 1
7 . . . .
4 9 1 2 2
8 7 9 3
Liabilities against
assets subject to - - - - -
finance lease
Deferred tax
liabilities 0 0 0 0 1
. . . . .
0 4 6 1 7
6 2 9 9 6
Other liabilities
3 2 2 2 0
. . . . .
2 8 6 1 1
3 9 5 0 8

BALANCE SHEET (ASSETS)

VERTICAL ANALYSIS
COMMENTS

41
 ■ There is increasing trend in cash and balances .cash and balances
increases in 2006 again but decreases in 2008.
■ Balance with other banks increases in 2006 and again start to decreases
in 2007 and 2008.
■ Lending to financial institution increase in 2006 an decrease in 2007 and
2008.
■ Investments are decreasing every financial year in 2007 it began to rise
up and finally in 2008 it stars decreases.
■ Operating fixed assets are increasing after every year.
■ Other assets are also increasing every year which is a positive sign for the
organization.

Profit and Loss Account of last five years

Rupees in “000”

2008 2007 2006 2005 2004

Mark up / return / interest 31046583 25783871 21191470 12246811 5620203
earned
Mark up / return / interest 20331194 16620963 15232886 7204992 2434459
expensed
Net mark up / interest 10715389 9162908 5958584 5041819 3185744
income

Provision against loans 2035997 2370867 (697690) (402298) (370208)

and advances
Provision for diminution 1479062 - - - 2165
in value investments
Bad debts written off 28298 5844 1537 512 351
directly
3543357 2376711 699227 402810 372724
Net mark up / interest 7172032 6786197 5259357 4639009 2813020
income after provision

42
Non mark up / interest
income
Fee,commission and 2539321 2429599 1804998 1158747 675868
brokerage income
Dividend income 300943 64722 37393 52014 52539
Income from dealing in 914845 474510 386997 290091 218820
foreign currencies
Gain on sale of securities 424220 2059793 180751 239551 -
Unrealized loss on (81571) (21530) (27599) 23163 -
revaluation of
investments
Other income 1247669 1031372 842099 504967 572822
Total non mark up / 5245427 6038466 3224639 2268533 1520049
interest income
12417459 12824663 8483996 6907542 4333069
Non mark up / interest
Administrative expenses 10471399 8272587 5874745 4313023 2677635
Provision against off 28582 6959 - 10125 -
balance sheet obligations
Other charges 122758 9565 43306 21104 1700
Total non mark up / 10622739 8289111 5918051 4344252 2679335
interest expenses
1794720 4535552 2565945 2563290 1653734
Extra ordinary / unusual - - - - -
items

Profit before taxation

Current 1730051 1726810 476226 592635 586159

Prior years (221797) - (100874) 1037 (30000)
Deferred (1014835) (321487) 427902 267524 12912
493419 1405323 803254 861196 561745
Profit after taxation
Unappropriated profit 1301301 3130229 1762691 1702094 463043
brought forward
Transferred from surplus 4851840 2823072 1886845 860300 23667
on revaluation
Profit available for 24586 24585 26074 24870 23667

43
appropriation
6177727 5977886 3675610 2587264 2078698

Horizontal Analysis of Profit and Loss Account

This type of
analysis represents the percent change in specific line item of the Income
statement from the last year. This analysis is used to comment on the growth
of specific line item in the industry or the firm
Horizontal analysis of incomet side,

2008 2007 2006 2005 2004

Mark up / return / interest 552.41 458.77 377.05 217.90 100
earned
Fee commission and 375.71 359.47 267.06 171.45 100
brokerage income
Dividend income 572.79 123.19 71.17 99 100

Income from dealing in 418.08 216.85 176.85 132.57 100

foreign currency
Other income 217.81 180.05 147.01 88.15 100

Total non mark up / interest 345.08 345.08 212.14 149.24 100

income

Mark up / return / interest 552.41 458.77 377.05 217.90 100

earned
Provision against loans & 549.96 640.41 188.46 108.67 100
Advances
Provision for diminution in 1479062 - - - -
value of investment
Bad debts written off directly 8062.10 1664.95 473.89 145.87 100

Administrative expenses 391.07 308.95 219.40 161.07 100

Other charges 7221.05 562.65 2547.41 1241.41 100

Profit before taxation 87.84 4.37 142.99 153.31 100

44
 PROFIT AND LOSS A/C
HORIZONTAL ANALYSIS
■ Interest income decrease in 2004 will great proposition which is
not favorable. It means that interest received by the bank is
decreasing with the passage of time. It is not good for a banking
company.
■ It is known that banks provide many services for their customers
and also act as a agent of the customer. The banks receive fee and
commission after their services; it is a main source of bank to
receive fee and commission from their customers. In case bank is
taking more fees as compared to previous years. This is good for
the bank.
■ In foreign currency dealing and dividend there is huge increasing
trend which shows the investment of bank in healthy organization.
■ Other income decrease in 2006 but this increase mean positive
situation.
■ Return on deposit decreases which shows good sign and it is due to
decrease in return rate.
■ Adm and diminution and provision against non performing loan
decreasing turned that is favorable.
■ Bad debts increased with huge amount not positive sign.
■ Profit before taxation has increased with greater proportion.
■ Tax increases which are not bad because it is interrelated with
profit, if profit increased, tax also increase.

Vertical analysis of Profit & Loss

2008 2007 2006 2005 2004

Mark up / return / interest 85.55 81.02 86.79 84.37 78.71

45
earned
Fee commission and 6.99 7.63 7.39 7.98 9.47
brokerage income
Dividend income 0.83 0.21 0.153 .358 .735

Income from dealing in 2.52 1.49 1.59 1.99 3.16

foreign currency
Other income 3.43 3.24 3.45 3.48 8.02

Mark up / return / interest 67.96 70.70 74.06 68.63 60.88

earned
Provision against loans & 4.45 6.5 2.44 2.25 4.01
Advances
Provision for diminution in 3.23 - - - -
value of investment
Bad debts written off directly 0.06 0.02 0.01 0.003 0.004

Administrative expenses 22.92 22.68 20.53 24.17 29

Other charges 0.27 0.03 0.15 0.12 0.02

Profit before taxation 1.09 0.06 2.81 4.82 6.08

PROFIT AND LOSS A/C

VERTICAL ANALYSIS

46
 ■ Interest income increase which is good sign for the BAL Bank.
Income increases because the bank advances increases from the
previous year.
■ Banks provide many facilities other than money lending and
borrowing. Banks receive fee, commission etc. for these services.
Therefore fee and commission income are increasing which is
good and favorable signs It means bank doing good business with
its clients.
■ Divided income decreased but it is very small. The dividend
income fluctuating every year, there is a problem for investor to
properly estimate the dividend and return on investment.
■ Other income increase with great proportion good sign.
■ Income from foreign currency decreases yearly that is not good
sign for the BAL Bank.

■ Return on deposit decrease good sign because it increases the

profit.
■ Administration expenses are increased but no alarming rate. The
administrative expenses are paid to expand new branches and hired
new staff for the bank.
■ Position against non performing loan is zero which show bank
have good customer.

RATIO ANALYSIS

47
Ratio means “one number expressed in term of another a ratio is statistical
yardstick by mean of which relationship between two or various figures can
be compared or measured. The ratio analysis can be done under,
Ration analysis can be classified into different types

1- Profitability ratio
2- Liquidity ratio
3- Coverage ratio
4- Activity ratio
5- Special ratio
6- Gearing ratio

1. PROFITABILITY RATIOS
“Profitability reflects not only the quantity and trend in earning but also the factors
that may affect the sustainability or quality of earnings.”
Following profitability ratios have been calculated

I. Net Profit Ratio

II. Profit before Tax Ratio
III. Return on equity
IV. Return on total assets
V. Return on fixed assets
VI. Operating Expense Ratio
VII. Administrative Expense Ratio

I. NET PROFIT RATIO

Net Profit after tax x 100

48
 Markup /Interest earned

Data Values 2008 2007 2006 2005 2004

Net profit after Tax 6177727 5977886 3675610 2587264 2078698
Markup/ Interest earned 3104658 2578387 2119147 1224681 5620203
3 1 0 1
Ans 19.89% 23.18% 17.34% 21.13% 36.99%

II.RETURN ON ASSETS
Net profit after tax x 100
Total assets

Data Values 2008 2007 2006 2005 2004

Profit After Tax 6177727 5977886 3675610 2587264 2078698
Total Assets 348990764 328895152 275685541 248313793 1548345341
Ans 1.77% 1.81% 1.33% 1.04% 1.34&

INTERPRETATION
This ratio indicates the profitability of the bank based on total assets; it means that what
is the ratio of net profit after tax to total assets. This decrease shows the bank’s
inefficiency to generate net profit as compared to last year.

III. RETURN ON FIXED ASSETS

49
 Net profit after tax x 100
Fixed Assets

Data Values 2008 2007 2006 2005 2004

Net Profit After Tax 6177727 5977886 3675610 2587264 2078698
Fixed Assets 1192232 1050299 6620067 4280504
13773293 4 0
Ans 44.8% 50.1% 34.9% 39.1% 48.5%

INTERPRETATION
The ratio increases which is a tremendous increase in Bank return on fixed assets. But it
reduces .This decrease shows the bank’s inefficiency to generate return on fixed assets as
compared to last year.

IV. ADMINISTRATIVE EXPENSE RATIO

Administrative expenses X 100
Total deposit

Data Values 2008 2007 2006 2005 2004

Administrative
Expenses 10471399 8272587 5874745 4313023 2677635
30073285 27317384 222345067 129714891
Total Deposits 8 1 239509391
Ans 3.48% 3.03% 2.45% 1.94% 2.06%

INTERPRETATION
This ratio indicates the rate of administrative expenses to total deposit.

50
 2. LIQUIDITY RATIOS

Liquidity represents the ability of a bank to efficiently and economically accommodate

deposits withdrawal as well as fund increase in assets. A bank has a liquidity potential
when it has the ability to obtain sufficient funds in a timely manner at a reasonable cost.
Illiquidity is a primary factor leading to a bank’s failure whereas high liquidity helps
otherwise weak institutions to remain funded during the period of difficulty.

“Liquidity reflects the adequacy of the institution’s current and prospective

sources of liquidity and funds management practices.”

I. Current ratio
II. Quick Asset to Deposit ratio
III. Interest coverage ratio
IV. Liquid assets to total assets

3. ACTIVITY RATIOS

I. Fixed asset turnover ratio

II. Total asset turnover ratio

I. FIXED ASSET TURNOVER RATIO

51
 Interest/markup/ return earned
Fixed Assets

Data Values 2008 2007 2006 2005 2004

Markup/ Interest 1224681 5620203
31046583 25783871 21191470 1
Fixed Assets 13773293 11922324 10502990 6620067 4280504
Ans 2.25 2.16 2.02 1.85 1.31

INTERPRETATION

Fixed asset turnover indicates the efficiency with which the company uses its assets to
generate sales. Generally, the higher a company’s fixed asset turnover, the more

efficiently its assets have been used.

II. TOTAL ASSET TURNOVER RATIO

Interest/markup/ return earned

Total Assets

Data Values 2008 2007 2006 2005 2004

Markup/ Interest 31046583 25783871 21191470 12246811 5620203
Total Assets 348990764 328895152 275685541 24831379 154834534

52
 3
Ans 0.088 0.078 0.077 0.049 0.036

INTERPRETATION

This ratio shows the overall efficiency of the bank in utilizing its assets to earn mark up
return.

4. SPECIAL BANK RATIOS

I. Total advances to total Assets

II. Fixed assets to total assets

I. TOTAL ADVANCES TO TOTAL ASSETS

Total advances x 100

Total Assets

Data Values 2008 2007 2006 2005 2004

Total Advances 192671169 17119899 149999325 118864010 88931400
2
Total Assets 32889515 248313793 154834534
348990764 2 275685541
Ans 55.21% 52.05% 54.41% 47.87% 57.43

INTERPRETATION

53
This ratio shows the advances, which the bank makes as the percentage of its total assets.
If the advances of the banks increasing within increase in the total assets it is favorable
for the bank business. Because there are more advances, there is more income of the bank
and respectively more profit. Total advances to total assets variation is showing
increasing trend in the last year’s whish shows that the management of the bank is
increasing the portion of its advances then compare to increase in the total assets which is
favorable.

II. FIXED ASSETS TO TOTAL ASSETS

Fixed Assets x 100
Total assets

Data Values 2008 2007 2006 2005 2004

Fixed Assets 13773293 11922324 10502990 6620067 4280504
Total Assets 27568554 248313793 154834534
348990764 328895152 1
Ans 3.95% 3.62% 3.81% 2.67% 2.76%

INTERPRETATION

In the bank, another financial institution, fixed assets are comprised of equipment,
furniture and building. These assets have great importance in banks in order to maintain
the working condition that up to that mark.

5 GEARING RATIOS

54
These ratios measure the extent to which bank’s resources have been geared by debt i.e.
financed by debt in relation to share holder’s equity.
I. Debt To equity Ratio
II. Debt To Total Asset Ratio

Hierarchy Of Management

CEO

55
 CHIEF OPERATING
OFFICER

GROUP HEAD

REGIONAL MANAGER

AREA MANAGER

MANAGER

OPERATION
MANAGER

OFFICERS

CASHIER

PEONS

INTRODUCTION (SWOT Analysis)

56
SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and
threats SWOT analysis is careful evaluation of an organization’s internal strengths and
weakness as well as its environment opportunities and threats.

“SWOT analysis is a situational which includes strengths, weaknesses, opportunities and

threats that affect organizational performance.”

“The overall evaluation of a company strengths, weaknesses, opportunities and threats is

called SWOT analysis.”

In SWOT analysis the best strategies accomplish an organization’s mission by:

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.

3. Avoiding or correcting its weakness.

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

STRENGTH

 The Bank officers of BAL are considered as one of the most able
professionals in the banking world (some belong to BCCI). However, they
have added some local flavour in accordance with their targeted segmented. In

57
 my observation that they interact with their clients as if they are their personal
friends and discuss about their problems as their own.
 As a result of the compassionate and personalized services of the officers,
the clients’ perception for BAL is very high. They have trust and feel
themselves to be secure while dealing with BAL.
 BAL has opened all its branches at commercial areas so that the customers
or clients face no problems in reaching to the bank. For example, LDA plaza
Branch is being situated in business and commercial hub of Lahore as big
volume in trade.
 BAL has got a reliable and easy to use internal computer system. Every
information regarding the transactions in customers’ deposits has been
computerized. Data are properly maintained.
 Good security system
 Not excellent but good facilities are given to employees

WEAKNESSES

 Lack of proper internal controls is one of the major weakness of BAL. It is

also pointed by the auditor in his review.
 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.
 I observed during my internship that some of the employees were
burdened with over work. So I think that the work should be distributed
according to their post and capabilities.
 Biased selection of employees.

OPPORTUNITIES

58
 Satisfy dynamic consumer needs, BAL has made significant in roads in its
entire service spectrum. A lot of products have been introduced especially in
Retail Banking (Agriculture side) and people are increasingly becoming loyal
to the bank and because of feasible transactions. Optimum pricing and
branding strategies of the bank are helping to make customer feel secure and
convenient.
 All the opportunities of the 21st century are to be availed in the information
technology. Information technology is the future of this dynamic world.
Therefore BAL should emphasize much on IT, especially on E-Banking. Bank
can design a universal account like other foreign banks, to enhance online
facilities.
 BAL has introduced a number of financial schemes including special ‘Deposit
Accounts’. These accounts have their unique features. During the last three
years, BAL deposits have been increasing @ 40%, which is a very healthy
sign. Therefore, with the commencement of new schemes there can even be a
greater increase in its deposits

THREATS

 Despite the difficult circumstances that confronted the banking sector in

particular and the country in general, BAL has been still highly profitable.
But, the facts can’t be denied and there might be an adverse impact of such
situation.
 BAL is facing a strong competition by its competitors, Business of all these
Banks are growing at very high pace.

59
 Future Prospects

Financial Valuations and the future prospect of BAL

BAL’s share is currently trading at PKR45.80 (On closing of fiscal year at 30th June,
2007). And by looking at the growth track of BAL it can be analyzed that it will real
grow up. Through different estimations and by viewing remarks of analysts it is expected
that it would grow up to PKR 80 by DEC. It shows real future profit.In future BAL is
also planning to open more than 50 branches all over the Pakistan to increase their profit.

Organizational Analysis

Overview on the Major Players of Bank Industry

The brief overview on the bank industry and the major players involved on it. The
combined values of all major players are collected from their financial statements of
2007.

Asset Liabilities &

s Equity
900,000 900,00
Cash & bank 0
800,000 800,00
0
700,000 Investments 700,00
0 Bills
600,000 Lendin To Financial 600,00 Payable
Borrowing
Rs
Institutions 0 sDeposit
Rs
500,000 In 500,00
in Advances Mil0 sSubOrdinated
M
400,000 lio 400,00 Loans
Other
Op Fixed Assets & ns 0
Intangible Assets Liabilities
Equit
300,000 300,00
Other assets 0 yTotal
200,000 200,00
Total 0
100,000 100,00
0
0 0
NBP HBL UBL MCB BAL ABL SCB BOP
NB HBL UBLMC BAL ABL SCB BO
P B P

• As graphical shows NBP (National Bank of Pakistan) is the key player and the
leader in the industry with total assets and liabilities of RS. 764,609. While BAL
is RS. 234,991.

• Major Player Includes NBP, HBL, UBL, , ABL, SCB and BAL.

60
• Total Assets of the major players in the industry are RS. 3,561,195 (M).

• BAL is considered as one of the major banks in Pakistan by assets.

• Like major Player NBP has the largest Profit before and after Tax i.e., 28,452(M)
and 19,405 (M) respectively. While BAL has PBT RS. 4,856 (M) and PAT RS.
4,454 (M) only

• The total Profit before and after tax of the major players are RS. 99,835 (M) and
RS. 70,045 (M) respectively.

Income
Comparison
50,00
0 Sprea
45,00
0 d
40,00 Provisio
0 n
35,00
Non Markup
R 0 30,00 Incom
Interst
s 0 e
Operating
In 25,00 Income
Mi 020,00 Operating
lli 0 Expenses
o 15,00 PBT
n 0 10,00
0 Tax
5,00
0
0 Profit after
NBP HBL UBL MC BAL ABL SCBBO Tax
B P

61
 Comparison of the Bank Industry Major Vs Medium Vs Small Banks

Total Assets Liability C omparison

4000000
4,000,000
3500000
3,500,000
3000000
3,000,000
Rs
In 2500000 2,500,000

Rs. In Millions
Mill Major Players M ajor Players
ion 2000000 Medium Players
s
2,000,000 M edium P layers
Small Players
1500000 1,500,000 Small Players

1000000 1,000,000
500000 500,000
0 0
Inv LenFin Adv Op Ass
Casban Othass Tot
est din anc anc Fix ets
h &k
es er ets al
me To ial

l
ed &

ta
y
its
s

uit
Bo ble

To
ng

s
s
nts

itie
he oan

Eq
o
wi
ya

bil
rr o

De
Pa

ia
d
rL
te
lls

ina
Bi

Ot
rd
bO
•

Su
Major Players in the Medium category of the Banking industry are AB, NIB,
ABN, Citi, SB BAH, FB.

• Total Assets and liabilities of this level comprised on RS. 1,091,083(M)

• Net Income of this level is RS. 9,567 (M)

• This level is giving a tough competition to the major players and trying to grab
there share.

• Few mergers are taking place and in future it is expected to be more because to
maintain SB Standard reserve ratio.

Incom e Com paris on

200,000

150,000

Major Players
Rs in Million

100,000
Medium Players
50,000 Small Players

0
T

x
ad

Ta
PB

ax
e

es

-50,000
ls

m
om
re

sa

rT
co

ns
Sp

er

nc

In

pe

te
ev

tI

af
g

Ex
tin
/R

rs

it
of
g
te

ra
ion

tin

Pr

62
In

pe

ra
p/
is

pe
ku
ov

ar
Pr

O
M
n
No
 • Major Players in the Small category of the Banking industry are ATLAS KASB,
JS etc.

• Total Assets and liabilities of this level comprised on RS. 411,077 (M)

• Net Income of this level is RS. (2,176) (M)

• These Banks are going in loss overall in 2007. Since they are new players in
Pakistani Market. It is expected that they will give return in future.

Weaknesses and their Recommendations (Financial & Administrative

Aspects)

Internal Controls

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

Professional Training

63
BAL staff lacks professionalism. They lack the necessary training to do the job efficiently
and properly. Although staff colleges are in all major cities of the Punjab but they are not
performing well. For this purpose these staff colleges should be reorganized and their
syllabus should be made in such a way which can help the employee understand the ever-
changing global economic scenario.
Banking council of Pakistan should also initiate some programs to equip the staff with
much needed professional training.

Delegation of Authority

Employees of the bank should be given a task and authority and they should be asked for
their responsibility. The sense responsibility in employees mind is one of the most
important factors in the success of any organization.

Performance Appraisal

During Internship I felt that there is no or very less appraisal of any ones cool
performance. The manager should strictly monitor the performance of every staff
member. All of them should be awarded according to their performance and result in the
shape of bonuses to motivated and incite them to work more efficiently.

To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is

suggested that a special section should be made inside the branch. Which should only
handle the treasury function, salaries and pensions of federal personnel or the bank
should do these functions in the evening time. Also management should purchase more
furniture and arrange them in such a way which provides maximum space and convenient

64
especially in deposit department and there should also be convenient sitting place for
customers.

Transfer

Transfer is not properly carried out. Some of the employees are continually serving at the
same post. They are simply rotated at the same branch. Therefore it is recommended that
evenly rotation of every employee should take place after every three years in different
braches of the bank.

Changes in Policies

There should not be any abrupt policies change by the upper management, as this practice
hurts the customer confidences in the bank. Government should make long-term policies

Clean Loans

Clean loan or clean overdraft is the credit facility extended to the customers to the
customers without any security. These types of small term loans should not be extended
to anybody, because sometime these loans are provided to blue-eyed people of the
management and they become a part of bad debts.

Decreasing Administrative Expenses

Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year
2007. That can be done by lying off the surplus pool of employee with golden hand
shakes scheme. The branches that are not much used could also be closed. That will give
positive results in the future.

65
 Technological Advancement

I would like to suggest that at least all the main branches of BAL should be fully
computerized in order to expedite the dealing process among bankers and their
customers. Every department should be provided a computer with adequate training
(especially Advances, Deposits and Foreign Exchange departments). Daily records
should be entered directly into these computers, (instead entering the overall daily
transactions after the banking hours). It will not only reduce transaction time, will
increase accuracy but will also be efficient as well.
Not only it will be economical but will also reduce the extra burden of work of the bank.
It will also help in reducing the use of excessive paper work.

Improper Distribution of Work

Proper distribution of work leads to success in every organization. Proper distribution of
work prevents the employee from over and under work situation. So for a smooth running
of an organization proper distribution of work is the hint to be followed.
During my internship I observed that there was no proper distribution of work in the
bank. I saw that some of the employee worked like ants other sat idle staring here and
there. So this created a lot of over work situation for while relaxation for other.

Favouritism and Nepotism

In the Main branch during my internship I saw that when some of the employees are
transfer to other places, due to their relation with influential people and with top
management they can cancel their transfer in few weeks, when they are unsatisfied at that
place.
So I suggest that in the organization there should be no favouritism, nepotism and politics
and their transfer and promotion should be made on merit and according to the rules and
regulations of the bank and provided favourable environment to the employee to show
their performances.

66
 Inter Departmental Transfer
I watched during my internship that, there employees who have worked on one seat for
many a year. It can have negative effects motivation of employee who is hard working
and intelligent. Take the example of advances section. In advance section if the employee
is transfer after sixth month or seven month, how can he be able to show his
performances and how can he be able to know the bank customer in a short period of
time.

Organizational Commitment

It is suggested that employees working on daily wages basis should be given some
benefits, which the other employees are getting. Their salaries must increase according to
efficiency, performance and service this will increase there commitment to the
organization.

Avoiding Bad Debts

Great care should be taking while extending the loan. Loans should be awarded against
reasonable securities, where market value should be equal to the loan granted.
Policies should be crafted in a way to ensure that no loan is extended on political
pressure. SBP regulation for loan approval should be strictly followed. According to
which the current ration of borrower’s business must be 1:1 and the debt to equity ratio
should be 60:40, means the liquidity position of business should be healthy.

From the Quantum of the profit and its financial data it can be easily judged that after
privatization, BAL is performing well. Its deposits are growing day by day and so its
profitability. The controlling body is responsible for the productive performance of the Bank.

Following are my observation and suggestion to improve the efficiency for the development
of the economy.

67
o Net profit after tax ratio should be increased. The bank must minimize his non
performing loans which affect the income of the bank.
o The bank has to increase its sales and do transaction with the original and worthiness
customers so that the non performing can be solved.
o The directors of the banks should increase the equity of the bank. because the equity
of the bank is lesser than the liabilities. This will encourage the investor to invest.

o Before advancing to any customer, the bank must investigate the client’s ECIB report
and data check so that the risk of the default must be mitigate and there will no
chances of non-performing loans.
o Cash and Balances of the bank decrease with the previous year, the bank should give
attractive rate to their customer so that’s the banks cash & balances increases and it
will solve the liquidity position of the bank and will help in day to day cash problems.
o The bank must focus on their foreign accounts and their transactions because if the
bank manage these foreign transactions and attract the client, the bank can earn heavy
income form these accounts. Foreign branches should be opened in order to capture
the international market and to earn international repute for the bank
o Assets quality was impacted by an increase in non performing loans which coupled
with subjective classification by the State Bank of Pakistan resulted gross non
performing loans to gross loans amount increased. Fixed assets turnover ratio should
be maximum by generating greater sales. Utilization of fixed assets should be
maximum.
o A big portion of the home remittance is sent by Pakistan working capital through
BAL. As we know a big portion of this amount is wasted purchasing of luxuries. The
rate of profit should increase 1% or 2% than other banks and it would be profitable
step for the bank.
o Most of the bank employees should be sent for training to other countries and
employees from other branches should be brought here. Some more reading material
should be provided. The purpose should be to educate the employees with the

68
 advance studies in their field. The employ should be provided the opportunities to
attend and participate in seminars and lectures on banking.
o Foreign branches should be opened in order to capture the international market and to
earn international repute for the bank.
o Working environment, equipment, furniture and staff dressing should be according to
the modern banking style.
o Proper attention should be paid to upgrade customer services.
o Bank should adopt the global organizational banking structure to meet the
international standards of banking sector.

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

References
Reference material used for compiling this report is gathered from these sites.
• www.bankalfalah.com

• www.sbp.gov.pk

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