ACKNOWLEDGEMENT

First of all I must thank Almighty Allah for helping me in many

ways to complete this report. Second to my parents whose guidance and
encouragement made this task easier. I would like to thank the Manager
Operations and staff of the Bank, who assisted me in every possible way
for completion of this report, which will definitely help in my career
building.

1
INTRODUCTION

Bank Alfalah Limited is growing day by day in the banking sector of

Pakistan and is fully equipped to face the future challenges of

banking sector. In Pakistan the main office of the Bank Alfalah

Limited situated at B.A. Building, I.I.Chundrigar Road, Karachi.

Bank Alfalah Limited has expanded into a nation-wide presence of

more than 109 branches in 37 cities. A shared network of online

ATMs covering all major cities in Pakistan supports the delivery

channels for customer service.

The management of Bank Alfalah Limited has experienced

professionals in the fields of banking and finance thereby

encouraging a culture of innovation, and total customer satisfaction.

2
OBJECTIVES OF STUDYING THE ORGANIZATION

I selected the bank Alfalah Limited as may project keeping the

following objectives:-

 How it operates its financial functions.

 What type of services it provides to its customers.

 How the organizational structure is defined.

 What type of financing policies is adopted?

 How they manage their working capital and credit policies.

 How bank Alfalah interacts with the state bank regarding its

laws.

3
OVERVIEW OF THE ORGANIZATION

Brief History

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

limited company (Annual Report 2005). Its banking operations

commenced from November 1st, 1997. The bank is currently

operating through 109 branches in 37 cites, with the registered

office at Bank Alfalah Building, I.I.Chundrigar, Road, Karachi.

Bank Alfalah Limited is consistently focusing on building long-term

shareholders’ value, as its primary objective. The strength of its

brand name, supported by strategic expansion and the depth of

their customer relationships, gives the bank strong foundation on

which to build and continue growing in the times ahead. The bank

facilitates its commitment to a culture of innovation and seeks out

synergies with clients and service providers to ensure uninterrupted

services to its customers. It perceives the requirements of its

customers and matches them with quality products and service

solutions. During the past five years, it has emerged as one of the

foremost financial institution in the region endeavoring to meet the

needs of tomorrow today.

4
During the year the bank’s profit before provisions and tax stood at

Rs. 2,965.558 million, this increase in profit is primarily attributable

to overall increase in business volumes.

5
Nature of the Organization

Bank Alfalah Limited like all other banks is involved in financial

business. Bank receives the money from the general public who

have surplus money and lends to those who are in need. Now a days

banking sector is growing very fast. New innovations are being

introduced. Bank Alfalah is fully equipped to meet these new

challenges. The mission of the bank is to be the leading private

sector bank in Pakistan with an international presence, delivering

quality service through innovative technology and effective human

resource management in a modern and progressive organizational

culture of meritocracy, maintaining high ethical and professional

standards, while providing enhanced value to all the stakeholders,

and contributing to society.

Knowing the customers and their needs is the key to bank’s

business success. Bank’s products and services are as diverse as its

market segments. Bank’s client relationship managers are well

equipped and well trained to provide the most efficient and

personalized service to the customers.

6
Business Volume

Bank Al-Falah Limited has a large client base exceeding 700,000

customers spread throughout the country. During the year 2005

bank’s profit before provisions and tax stood at Rs.2,942.425

million. During 2005 bank increased its strategic stake in Alfalah

Securities Private limited, a subsidiary company from 70% to

76%.

Years Deposits Advances

Rs. In Million Rs. In Million
2001 30,207 19,131
2002 51,685 28,319
2003 76,698 49,216
2004 129,715 88,931
2005 222,345 118,864

Showing the profit before tax and after tax of last five years.

Years Profit Before Tax Profit After Tax

2001 510 311

2002 948 446
2003 3,593 2,123
2004 2,026 1,092
2005 2,942 1,702

7
8
Profile of Employees

Total number of employees working in the Bank Al-Falah as on 31-

12-2005 is 5,218. With respect to Branch I have worked in, there

are only 12 employees. Chief Manager is head, who is supported by

the Manager Operations and Manager Credit, two-officer grade II,

two Officer grade III, one cashier and two Cash assistants and two

security guards. All the staff members are liable against Manager

Operations except manager Credit. Chief Manage5 is head of the

branch.

O r g a n i z a t i o n a l S

C h i e f M a n a g e r

M a n a g e r M C a r en da ig t e r O p e r

A s s Oi s Gt a O - n I GIt O - I GI O - I GI I C - I a I I s h i e

9
Product Lines

Bank Al-Falah Ltd. is one of the few banks in the country, which has

been continuously adding various investment products to its range

of banking services. The bank has taken progressive steps and has

introduced innovative products and services to provide a variety of

banking and financing services. Some of them are: -

Car/Auto Finance:

Car finance is one of its most successful products in the market.

With one of the largest entrant into the market, bank is please to

state here that bank now the market leaders in the industry with a

Car Finance portfolio of around Rs.11.700 billion. This product has

really made car affordable for the salaried individuals/middle class.

Bank recently started “Car Leasing” as well for some of our selected

corporate clientele. Bank Al-Falah offers unmatched rates on the

lease finance.

Features:

• Quickest processing
• No hidden charges
• Minimum down payment
• Complete repayment at any point of time
• Balance transfer facility for existing as well as new clients from
other banks.
• Tenure period ranging from 1 to 5 years.
• Financing of all brand new locally assembled vehicles and used
cars.

10
• Financing limit ranging b/w Rs. 200,000/- to Rs. 2000,000/- for
brand new cars

House Finance:

House Finance is the latest addition to the long list of its products.

With the flexible financing options, this product has become popular

in very short span of time. The bank offer competitive financing

option to the general public. With this facility, a customer no longer

needs to just dream about the home he wants for himself and his

family. Payment period ranges from 3 to 20 years.

Rupee Traveler Cheque (RTC):

Bank Alfalah limited is always been at the forefront in identifying

and meeting the financial needs of its valued customers and

provides convenient denominations for its customers. Bank Alfalah

presents Rs.1,000/-, 5,000/- and 10,000/- denominations of

traveler’s cheques, making it very convenient to carry money while

traveling or keeping their emergency cash safe.

Credit Cards:

Bank Alfalah Credit Card is a partner everywhere and is globally

accepted and welcome at locations displaying the VISA logo. It is

accepted at nearly 30 million merchants and 1 million ATMs in more

11
than 150 countries around the globe and over 10,000/-

establishments in Pakistan.

Alfalah VISA card provides a customer facility to pay for shopping,

travel, entertainment, and meals and much more, card members

are facilitated through a number of promotions from time to time. In

addition, there are number of strategic business partnerships with

leading local and international brands for purchase of home

appliances at exciting Step-By-Step monthly installment plan with

free home delivery at lowest interest rates.

Alfalah Hilal Card:

Bank Alfalah Limited presents the Alfalah Hilal Card, the first Visa

Electron International Debit Card that gives its customer an

unlimited access to their current/savings account with a simple

swipe, at millions of retail shops and ATMs, worldwide. The Alfalah

Hilal Card comes with a host of conveniences and benefits combined

with the wide reach of Visa Network enabling it to be accepted at

more than 840,000 ATMs and 13 million retail outlets around the

world, making it the most acceptable Debit Card available in

Pakistan. It is easy to operate and can be used on any electronic

self-printing POS machine where VISA is accepted, locally and

internationally.

12
Money Gram:

Bank Alfalah Limited, in collaboration with Money Gram, offers

remittance service to Pakistan. Money Gram is person-to-person

money transfer service that allows consumers to receive money in

just a few minutes. An extensive network of quality agents, linked

by computer, transfer its customer’s money safely and ensure that it

is handled with care and without delay. Thousands of people already

use the Money Gram service all over the world. It is trusted for its

reliability and security. Money gram is available in over 154

countries and in more than 40,000 locations worldwide. With Money

Gram customer’s money is transferred immediately and usually

arrives at the receiving end within 10 minutes while other services

can take days or weeks. There is also an added personal touch a

customer can receive a 10-word message from the sender with

every transaction at no extra cost.

Agri Loans:

Bank Alfalah Limited Agri Finance program has been named as

Bank Alfalah Zarie Sahulat”. Bank is extending this service to the

clients on a competitive markup rate. Bank Alfalah Limited model is

in letter and spirit based on SBP instruction. The scheme now covers

financing of a multitude of activities related to crop production,

13
harvesting, transportation, marketing, storage, processing, packing,

export, agri development, working capital and fixed investment

financing of agri non crop activities, storage, silos, etc. making it

quite exhaustive and comprehensive. The products have been,

therefore, designed keeping in mind objectivity of practical

applicability in market scenario and to cater to the most commonly

demanded items of agricultural financing by farmers.

14
Organizational Structure

Departments of the Bank Al-Falah

1. Credit Department: Credit department is responsible in giving

credit to individual and corporate customers according to the

policies set by the Head Office.

2. Finance Department: Finance department makes major polices of

the bank such as budget, allocation of resources, tax

adjustment etc. all policies regarding financial matters are

being discussed in this department and accounting department

implements them.

3. Audit & Account Department: Audit department check the audit

matters of the bank. Accounts department maintains all

related mattes of accounting, salary, and wages, proper

making of accounting etc. accounting department implements

the policies of finance department.

4. Foreign Currency Department: Bank’s foreign currency

department deals in accounts in foreign currency and loan

options in foreign currency especially USD, GBP and EURO.

5. Marketing Department: Bank’s has special marketing department

and marketing personnel; they work for the promotion of the

products of the bank.

15
6. Human Resource Department: HR department of the bank

maintains human resources of the organization. Selection and

recruitment are the major functions of the department.

7. Information Technology: Information technology deals all related

matters of computes and checking of problems in computers

and making of software.

8. Customer Care Department: Bank has special customer care

department, which receives suggestions and complaints from

customers and tries to solve the complaints and implement

suggestions.

16
Main offices

Head Office

BANK AL-FALAH LIMITED

B.A. Building,
I.I.Chundrigar Road,
Karachi.

Bank Al-Falah Limited has expanded into a nation-wide presence of

109 branches including 01 branch at Dhaka Bangladesh located

at 37 major cities across the country.

17
Comments On The Organizational Structure

The bank Alfalah organizational structure (Placed in the annexure)

follows the autocratic style. As decisions are more important so

there are fewer people who can take decisions effectively in this

organization. A pyramid of authority concept is followed by this

organization. As explained below:-

Staff level – 4 Senior Management (Chairman, BOD, President)

Staff level – 3 Administrative Management (SEVP, EVP, SVP)

Staff level – 2 Junior Management (Vice President, AVP)

Staff level – 1 Supervisors (Officer Group I, II, III)

The staff at level 1 looks to their leader from level 2 to give them

“permission” to act. At level-2 all the team leaders could together

decided on a course of action. However, without the permission from

their leaders at level 3 this cannot happen so it realizes that the

organization has pyramid-like structure with the greatest authority

vested at the top. Under which the span of control is very low and

the decision power is centralized to the top. Under which the span of

control is very low and the decision power is centralized to the top-

level management. Due to which the bank cannot operate

independently and decision takes the time.

18
 STRUCTURE OF THE FINANCE DEPARTMENT

H i e r a r c h y o f F i n a n c e D e p a r t m e n

Se n i o r
E x e c u t i v e
V i c e
P r e s i d e n t

E x e c u t iv e E x e c u t i v e E x e c u t i v e
V i c e V
i c e V i c e
P r e s i d e n t P r e s i d e n t P r e s i d e n t
( F i n a n c i a l A c c o u n ( At s u ) d i t ) ( M a n a g e m e n

A s s i s t a A n st s i s t a A n st s i s t a A n st s i s t a A n st s i s t a A n st s i s t a n
V i c e V i c e V i c e V i c e V i c e V i c e
P r e s i d e P n r t e - Is i d e P n r t e- I s I i d e P n r t e - Is i d e P n r t e- I s I i d e P n r t e - Is i d e n

19
Number Of Employees Working In The Finance Department

Accounts Department has been playing its vital role in the

organizational structure of Bank Al-Falah Limited. There are 110

employees working in the finance department at various

managerial levels. Out of 110, only 4 members are placed at the

top-level management and 6 at middle level management and

remaining 100 are working at front level management.

Top Level Management 04

Middle Level Management 06
Low level Management 100

20
Finance & Accounting Operations

It is very clear that Finance and Accounts are two different fields but

a deep insight reveals that they are inter-linked. There are Different

activities performed by Bank Alfalah, which are as follows.

Posting of Cheques: When customer wants to draw the money from his

account, he/she will draw cheque to withdraw money. Proper date,

name of drawer, correct amount figure should be mentioned in the

cheque. His signature should be must; the stamp of the branch

must be on the cheque. After checking these, the bank person

checks the balance of his account; if balance exists he makes entry

in the ledger. After entry he checks the specimen care of account

holder and matches the sign with this card, if sign is matched then

he stamps his cheque “posted” stamp. Then cheque is presented to

he cashier he stamps the “Cash Received” and pays the money to

the customer.

Clearing: It is a system by which banks exchange cheque and other

negotiable instruments, drawn on each other, within a specified

area, and secures payment for their clients through clearing house

at specified time by book entries. Each branch of bank collects

outward clearing cheques for its clients and sends them to their

Clearing Department. National Institution of Facilitation

21
Technology (NIFT) is performing the clearing function for banks.

At Clearing House, each bank maintains its own desk.

Transferring: In bank there is transferring department. The cheque

that is drawn by the same bank branch i.e. if cheque is drawn from

the Bank Alfalah and presented to other branch of Bank Alfalah then

it will be simply stamped with “Transfer” stamp.

Depositing: The main activity of bank is depositing. Bank provides

service to their respected customers for investing money in bank

into different accounts. Customer deposits his money in the account

of PLS, CD etc. when customer deposits his money, bank’s person

fills deposit slip for customer and writes the particular amount,

which the customer is going to deposit. The cashier stamps this slip

with “Cash Received” and receives money from the client and

returns the depositor copy to the client.

Remittances: Remittance means transfer of funds from one place to

another. The following modes are available to a banker for

transferring the money from one city to another city. The

instruments used for remittances are Demand Draft, Telegraphic

transfer, Mail Transfer and Travelers Cheques.

Debit/Credit Supplementary of (PLS/CD): After completing the whole

process of bank at last the bank person prepares the summary

report of the daily transactions of saving and current deposits. This

22
summary total should be matched with the receipt and payment

books of cashier.

23
FUNCTIONS OF THE FINANCE DEPARTMENT

The general functions of Finance Department are, making the funds

available at right time and at right place and utilization of funds in

an appropriate way. The major function of Finance Department is to

control the Cash Receivable and Cash Payments. Accounts Payable

Section is making all the payments. Bank Al-Falah’s Finance

Department perform the following functions:

Central Payments: Central Payment section issues currency to

different branches of bank. They can be regional branches, area

branches, domestic branches etc. This section issues all payments of

bank. They keep record of every branch, how much amount is

issued to the branch. The employees payroll statements are issued

from this section and they issue payments to them, income

statements are issued from this section and they issue payments to

them, income and expenditure reports are presented to this

department so according to demand of bank, they do payment to

them.

PLS Return Record: PLS return section is forth section of finance

department. It keeps record of PLS accounts. The accounts of PLS

with have been closed during Financial period are entered in return

section.

24
Income Tax Deductions: Another function of Finance Department is

Income tax Deductions. Income Tax cell imposes taxes on deposits,

salaries, demand drafts, traveler cheques, telegraphic transfers etc.

The Income Tax Cell also makes deductions from employees’

salaries as income tax.

Audit: Audit department do the audit of bills/vouchers according to

the audit rules and policies of the bank. The audit section of bank

audits balance sheet of the financial year. It checks assets and

liabilities of bank and compare with balance sheet statement and

check all the financial statements of the bank.

Sales Section is maintaining the receipts for the sale of Bank Alfalah

Limited products and services and, the salaries and wages are being

prepared by account Sections.

25
Accounting System of the Organization

Accounting system of Bank Al-Falah Limited is based on Double

Entry System and is on line electronic data processing system. It is

query base Accounting system. Advanced accounting software is

used for processing of the data. The package is a comprehensive

management information and financial system. As a result this

equation always remains balance. In addition, the system makes

possible the measurement of net income and the use of error

detecting devices such as trial balance. Further for having strong

internal control over cash disbursement voucher system is designed.

Under this system any transaction that will result in cash payment is

verified, approved and recorded before a cheque is issued.

Finance System of the Organization

There are different projects of the organization which need proper

financing in order to keep flowing the pace of required targets at

different stages. These projects require long-term, medium and

short-term financing both in term of local currency and foreign

exchange. The local currency is required to meet the operational

demands, and day-to-day expenditure, whereas, foreign currency is

required for the foreign market transactions.

26
Use of Electronic Data in Decision-Making

Management Information System is main key for making the

decision by the management of Bank Al-Falah Limited. An electronic

Data from all bank branches received through main server, which is

connected by all branches through local area network regarding

business activities and on the basis of this management, takes the

decisions of business.

Management information system section is fully updated with the

information of day-to-day transactions, and this section is

supporting the management for making decisions on the basis of

financial analysis of budgeted cost and actual expenditure.

27
Mobilization of Funds

One of the basic functions of a bank is to mobilize funds. For the

development and for its efficiency Bank Al-Falah Limited mobilizes

its funds effectively and actively. Organization mobilizes it funds

according to the plans and policy. Bank Al-Falah Limited mobilized

its funds in different investments like Federal Government

Securities, Term Finance Certificates, Overseas Government

Securities, investments in listed companies shares and investments

in different mutual funds. Bank also mobilizes its funds through

different types of advances.

Years Deposits Advances

Rs. In Million Rs. In Million
2001 30,207 19,131
2002 51,685 28,319
2003 76,698 49,216
2004 129,715 88,931
2005 222,345 118,864

28
Generation of Funds:

Funds are generated by bank in a number of ways. By offering

remittances facilities i.e. transfer of money from one place to

another place in or outside the country, by pay order, demand draft,

and telegraphic transfer etc. bank earns commission on providing

such facilities. Bank advances loans to its customers; bank earns

interest on such loans. Bank earns funds by earning commission on

providing utility services. Bank purchases securities of different

organization and earn on these securities.

Years Profit After Tax

Rs. In Million
2001 311
2002 446
2003 2,123
2004 1,092
2005 1,702

PROFIT AFTER TAX

2500
2000
Rs.in 1500
Million 1000 2123
1702
500 1092
311 446
0
2001 2002 2003 2004 2005
Years

29
Sources of Funds:

The main sources of funds are bank’s own funds and borrowed buds.

Bank own funds are:

• Paid up capital

• Reserve funds

• Portion of undistributed profit

The borrowed funds are:

• Borrowing from Central Bank

• Deposits i.e. Current deposits, PLS deposits, Fixed Deposits

30
Allocation of Funds:

Bank is allocating its funds to different assets in order to proper

utilization of the available resources. Finance Department of the

organization is responsible for making the policies regarding

allocation of funds. We can properly understand by seeing the

bank’s performance for the last five years.

(Rs. In Million)
Allocation 2001 2002 2003 2004 2005
Long Term Investment 11,397 24,470 28,904 35,503 57,426
Total Assets 40,098 65,167 98,952 154,835 248,314
Advances 19,131 28,319 49,216 88,931 118,864

From the above-mentioned table we can understand that bank is

allocating its resources to different assets and for payment of

outstanding liabilities. Bank is earning while giving more and more

cash in form of advances to its customers.

31
 CRITICAL ANALYSIS BETWEEN THEORETICAL
CONCEPTS & PRACTICAL EXPERIENCE

This part of report is the essence of the internship, because finding

the relationship between what is written in the books and what is

actually going on in field is the main concern. The Balance Sheet,

Income Statement and other books of Accounts are prepared as per

accounting rules. The theories and models prescribed in Corporate

Finance and Financial Management are being utilized and

implemented by the Financial Planning Officers for the valuation of

various projects by applying different tools like NPV, Payback Period,

and IRR etc.

Other analysis like ratios is also used for knowing the financial

position of the company from time to time. Besides this, Internal

Audit Department is also functioning effectively adhering the rules,

regulations and procedures framed by the Board for every

contractual payments and procurement.

As studied in the books of business administration, it is found that

many rules and regulations are not being administered in the true

letter and sprit. Employees are working at the same job for the last

many years without rotation. There is a lack of proper training of

the employees; due to this efficiency of each employee is also being

32
affected. As the accounting system is computerized and all the work

of banking is involved on facts and figures many wrong entries are

often recorded in the system and there is always a need for review

by the sectional in-charges. All is relevant with proper and periodic

training of the employees.

33
Financial Analysis

Public Companies always have a variety of stakeholders, such as

shareholders, bondholders, bankers, lenders, suppliers, employees

and management etc. Their stakeholders always have a need to

monitor how well their interests are being safeguarded. They rely on

the company’s periodic financial statements for the basic

information on the profitability of the firm. These financial

statements are used to analyze the firm’s overall performance and

assess its current financial standing.

We all have heard the stories of financial whizzes that can take a

company’s accounts apart in minutes and find its innermost secrets

in financial ratios. The truth, however, is that financial ratios are no

substitute for a crystal ball. They are just a convenient way to

summarize large quantities of financial data and to compare firm’s

performance.

34
 Ratio Analysis Of The Bank AL-Falah Limited

Ratios 2001 2002 2003 2004 2005

LIQUIDITY

Current Ratio 1.010 1.009 1.024 1.008 1.017

Quick Ratio 1.010 1.009 1.024 1.008 1.017

ACTIVITY/EFFICIENCY RATIO

Adequacy Ratio 9.56 8.70 8.45 8.16 8.65

PROFITABILITY RATIO
Income/Expense Ratio 5.07 4.43 4.12 2.67 3.34
Return on Equity 27.49 29.95 79.08 26.89 30.65
Return on Investment 0.90 0.85 2.59 0.86 0.84
Market Value Analysis

Dividend Yield Ratio - 53.33 125 25 45.33

Earning Per Share 3.65 2.23 8.49 3.90 5.75

Price-Earning Ratio 7.89 16.38 2.80 5.40 4.33

DEBTS RATIO

Advances/Deposits Ratio 63.33 54.79 64.17 68.56 53.46

OTHER RATIO

Sock Dividend - 33.33 100.00 25.00 33.33

Cash dividend 0 25 25 0 12

LIQUIDITY RATIOS:

35
Current Ratio: Current ratio may be defined as the relationship

between current asset and current liabilities. It is a measure of the

general liquidity and is most widely used to make the analysis for a

short-term financial position or liquidity of the firm. Current ratio of

the company in year 2003 was 1.024, in year 2004 it was 1.008 & in

2005 it is 1.017. The current ratio of last three years of Bank Al-

Falah Limited is between 1.00 to 1.02, which shows the satisfactory

trend, and the ability of the company to pay its current obligations

in time as and when they become due.

Current Ratio

1.5

0.5

0
2001 2002 2003 2004 2005
Years

Quick Ratio: A somewhat more accurate guide to liquidity is the

quick/acid test ratio. This ratio is same as the current ratio except

that it excludes inventories – presumable the least liquid portion of

current asset from the numerator. The ratio concentrates on cash,

marketable securities, and accounts receivable, in relation to current

obligations. The last three years ratio as shown in the table and

36
graph is almost to one, which shows that the firm is able to meet its

current liabilities at par.

Quick Ratio

1.5

0.5

0
2001 2002 2003 2004 2005
Years

ACTIVITY/EFFICIENCY RATIO

Adequacy Ratio: this ratio measures the efficiency or effectiveness

with which a firm manages its resources or assets. the adequacy

ratio of the bank is between 8.16% to 8.70% from last four years

which shows that the efficiency of the bank is on a same level.

Adequacy Ratio

10
9.5 9.56
9
8.5 8.7 8.65
8.45
8 8.16
7.5
7
2001 2002 2003 2004 2005
Years

37
PROFITABILITY RATIO

Income/Expense Ratio: This ratio indicates the time of income earned

during the year from different operations as compared to the

expenditure incurred. The bank is earning 2-4 times more income

than its expenses in each year. It means that the bank is generating

more income by incurring less expense.

Income/Expense Ratio

0
2001 2002 2003 2004 2005
Years

Return on Equity: Return on equity is the relationship between profits

of a company and its equity. Through return on equity profitability

and performance of the company should be judged. The return on

equity of Bank Al-Falah was 27.49 in 2001, in 2002 it was 29.95%,

in 2003 it was 79.08% than 26.89% in 2004 and 30.65% in 2005

which shows the that the overall bank performance is satisfactory.

38
 Return on Equity

100
80 79.08
60
40
27.49 29.95 26.89 30.65
20
0
2001 2002 2003 2004 2005
Years

Return on Investment: This ratio is used for measuring the overall

efficiency of a firm. This ratio reveals how well the resources of a

firm are being used, higher the ratio better are results. The inter-

firm comparison of this ratio determines whether the investments in

the firm are attractive or not as the investors would like to invest

only where the return is high. The above ROI shows that investment

opportunities are very less attractive for the investors except in

2003.

Return on Investment

3
2.59
2
1 0.9 0.85 0.86 0.84
0
2001 2002 2003 2004 2005
Years

MARKET VALUE ANALYSIS

Price/Earning Ratio: Price earning ratio is the ratio between market

price per equity share and earnings per share. The price of the share

39
is always higher than it’s earning per share. It shows that the share

of the bank is floating in the market at reasonable price. The

investors are fully interested in the share of Bank Al-Falah Ltd.

Price/Earning Ratio

20
15 16.38
10
7.89
5 5.4 4.33
2.8
0
2001 2002 2003 2004 2005
Years

Dividend Yield Ratio: The dividend per share with respect to the

market price of the share is very impressive. It means that dividend

if paid to share holders each year shows the reasonable change in

the price and demand of the shares by the investor is also high.

Dividend Yield Ratio

150
125
100
50 53.33 45.33
25
0 0
2001 2002 2003 2004 2005
Years

Earning Per Share: E.P.S. is a small variation of return on equity

capital and is calculated by dividing the net profit after taxes and

preference dividend by the total number of equity shares. EPS

40
shows the earning power of the organization. EPS of Bank Al-Falah

Ltd. was 3.65 in 2001. In 2002 it was 2.23, in 2003 it was 8.94 in

2004 it become 3.90 in 2004 and in 2005 it become 5.75 which

shoes the profitability and earning power of the bank is satisfactory.

Earning Per Share

10
8.49
5 5.75
3.65 3.9
2.23
0
2001 2002 2003 2004 2005
Years

DEBTS RATIO

Advances/Deposits Ratio: Advances are less than deposits for the last

five years. It means that liabilities are more than assets of bank. It

has been the practice of the bank to advance less amount out of

deposits kept with it. Reason to have cushion for emergency money

needed.

Advances/Deposits Ratio

80
63.33 64.17 68.56
60 54.79 53.46
40
20
0
2001 2002 2003 2004 2005
Years

41
Vertical Analysis of Balance Sheet of Bank Al-Falah Ltd. for
Last Five Years

ASSETS 2001 2002 2003 2004 2005

Cash and balances with treasury
10% 2.94 8.51 12.73 9.98
bank
Balance with other banks 3 0.36 0.63 2.06 3.91
Lending to financial institutions 4 7.11 7.52 - 10.89
Investments 28.3 37.89 29.21 22.93 23.13
Advances 48 43.46 49.74 57.43 47.87
Other assets 3 1.51 1.57 2.08 1.55
Operating fixed assets 4 2.7 2.82 2.77 2.67
Deferred tax assets 1.7 - - - -
Total assets 100 100 100 100 100
LIABILITIES
Bills payable 0.76 1.17 1.22 1.44 1.50
Borrowing from financial 16.73 9.27 13.27 0.22 2.35
institutions
Deposits and other accounts 75.33 79.31 77.51 83.78 89.54
Sub-ordinate loans - 0.99 0.66 1.23 1.30
Other liabilities 1.79 1.84 2.21 1.76 2.10
Deferred tax liabilities - 1.2 0.33 0.18 0.19
Total liabilities 94.6 94.40 95.19 96.6 96.99
Share Capital 1.87 1.53 2.02 1.61 1.21
Reserves 0.90 0.56 0.80 0.65 0.95
Un-Appropriated Profit 0.62 0.38 0.97 0.56 0.56
Surplus on revaluation of assets 0.99 3.13 1.02 0.58 0.29
100 100 100 100 100

Vertical analysis means how much portion an asset has in total

assets and similarly how much percentage portion a liability has in

total liabilities. Accordingly, total assets and total liabilities have

been considered as base for each asset and liability item

respectively. The major portion of total assets lies in long-term

investments and long-term advances in all the five years under

review. This is not a bad strategy as these two are the major

sources on which huge amounts of income could be earned. Fewer

42
amounts are held in highly liquid as well as fixed assets. The lion’s

share of total liabilities lies in deposits kept with bank. Bank has to

pay interest on these deposits. It has been in the range of 75-89%

in the five years period, which shows effective strategy made and

implemented by the bank.

The analysis reflects good policy regarding assets and liabilities.

43
Vertical Analysis of Income Statement of Bank Al-Falah Ltd.
for Last Five Years

2001 2002 2003 2004 2005

Net Markup/Interest Income
100 100 100 100 100
After Provisions
Non Markup/Interest Income
Fee, commission, brokerage
16.54 21.6 20.83 27.58 24.85
income
Dividend Income 4.71 4.24 5.84 1.87 1.12
Income from dealing in Foreign
12.79 6.50 5.57 7.78 6.22
Currency
Other Income 8.39 9.96 123.79 20.36 15.97
Total non markup/interest income 42.43 42.06 176.9 54.04 4.16
Non Markup/Interest Expenses
Administrative Expenses 83.5 80.85 93.86 95.19 92.51
Other Provision/Write offs - - 0.10 - 0.22
Other Charges 0.07 0.07 0.098 0.06 0.45
Total non Markup/Interest
83.57 80.92 94.06 95.25 93.18
Expenses
Profit Before Taxation 58.86 61.15 124.62 58.79 54.98
Taxation 23.97 30.69 49.15 19.15 18.04
Profit After Taxation 34.88 30.69 75.47 38.82 36.51

Similar to the vertical analysis of balance sheet, net profit of the

bank for the five years has been taken as base for vertical analysis

of income statement. Each item of income and expense has been

related to the net profit to see its contribution therein. It can be

seen clearly that major source of income is interest income for all

the years under review. In first three years, it is many times more

than net profit. However, in subsequent years, it has decreased. As

interest income and interest expense are highly inter-related

because these are two sides of the same picture, therefore, it can be

seen that interest expense has also on very high side and

44
continuous increasing year by year. Non-interest income is also on

the move but the trend is same as in interest income. However,

non-interest expense has greatly declined in the current years,

which shows efforts of the management to control its routine and

other peripheral expenditure.

Overall profitability of the bank is appreciable.

45
Horizontal Analysis of Balance Sheet of Bank Al-Falah Ltd.
for Last Five Years

ASSETS 2001 2002 2003 2004 2005

Cash and balances with
100 116.85% 216.78 507.22 637.96
treasury bank
Balance with other banks 100 2.53 57.98 294.48 898.38
Lending to financial 100 272.78 437.78 - 1592.17
institutions
Investments 100 216.68 253.62 311.52 503.88
Advances 100 148.03 257.25 464.84 621.30
Other assets 100 83.41 131.53 273.29 326.19
Operating fixed assets 100 123.57 195.92 300.41 464.65
Deferred tax assets 100 0 0 0 0
Total assets 100 162.52 246.77 386.14 619.27
LIABILITIES
Bills payable 100 248.37 395.56 731.03 1221.74
Borrowing from financial 100 89.99 195.67 189.65 87.11
institutions
Deposits and other accounts 100 171.10 253.91 429.42 736.06
Sub-ordinate loans 100 0 0 0 0
Other liabilities 100 166.98 305.21 380.3 728.52
Deferred tax liabilities 100 100 - - -
Total liabilities 100 162.14 24.83 394.25 634.84
Share Capital 100 133.33 266.67 333.33 400.00
Reserves 100 101.14 218.58 278.98 650.24
Un-Appropriated Profit 100 100.14 385.68 344.53 555.40
Surplus on revaluation of 100 512.03 252.22 224.00 12.24
assets
100 162.52 246.77 386.14 619.27

2001 has been considered as base year and subsequent years

percentage worked out accordingly. Overall increase in financial

position is 619% as compared to 2001, meaning thereby both

assets and liabilities have increased more than twice in five years.

This is good sign showing healthy financial position.

Major increase in assets side can be shown in cash & cash

equivalents in long-term advances. Increase in both segments in

46
due to high graph of business growth. Increase in liabilities is

represented by fiancé lease liabilities and borrowings from financial

institutions.

47
 Horizontal Analysis of Income Statement of Bank Al-Falah
Ltd. for Last Five Years

2001 2002 2003 2004 2005

Net Markup/Interest
100 164.29 215.29 315.87 523.51
Income After Provisions
Non Markup/Interest
Income
Fee, commission, brokerage
100 214.81 271.18 526.18 786.79
income
Dividend Income 100 148.12 267.27 125.36 124.11
Income from dealing in
100 83.53 93.79 192.07 254.64
Foreign Currency
Other Income 100 189.69 897.56 402.51 594.19
Total non markup/interest
100 162.86 897.56 402.51 594.19
income
100 163.87 41.55 341.61 544.57
Non Markup/Interest
Expenses
Administrative Expenses 100 159.08 241.99 360.01 580.02
Other Provision/Write offs 100 - - - -
Other Charges 100 149.10 281.54 255.26 316.77
Total non Markup/Interest
100 159.07 242.30 359.99 583.69
Expenses
Profit Before Taxation 100 170.69 668.85 315.49 489.03
Taxation 100 210.24 647.44 263.09 393.91
Profit After Taxation 100 143.49 683.56 351.53 547.98

Like horizontal analysis of balance sheet, 2001 has been considered

as base year to work out the performance of bank over the five

years. Increase in interest income is less than increase in interest

expense. It means that bank has earned less les interest on advance

while paid more interest to the depositors. The reason behind this is

the relationship discussed earlier between advances and deposits.

As bank keeps much of deposits with it and advances out less

48
amount, therefore, it has to pay more amount as interest to its

depositors and receive less amount from its advances.

As compared to non-interest income, increase in non-interest

expenses is on low side, which is positive sign for the bank. Increase

in taxation is equal to the deferred tax asset, which shows that what

the bank has to pay on account of tax is nothing, as it has to receive

the same amount on same account.

49
Critical Analysis Of Bank Al-Falah Limited With Reference
To Banks Listed On Stock Exchange

The Bank Al-Falah Limited is listed in the banking Sector of Karachi

Stock Exchange. Some of the other public limited banks listed in this

sector are Union Commercial Bank Limited, Askari Bank Limited,

Faysal Bank, Muslim Commercial Bank, National Bank of Pakistan &

Bank of Punjab.

Union Bank Limited was listed on Stock Exchange in 1992 and has a

paid up capital of Rs. 2794.444 million. The bank paid 66.67% right

shares to its shareholders in 2001, 66.67% right shares in 2002. In

2003 bank paid 10% dividend plus 10% bonus shares, 10%

dividend plus 25% bonus shares & 9.8% right shares in 2004 & 15%

bonus shares in 2005. The profit of the bank in 2005 was 1744.7

million.

Al-Falah Bank was listed on Stock Exchange in 2004 and has a paid

up capital of Rs. 3000.00 million. The bank paid 25% bonus and

25% right shares to its shareholders in 2004 & 12% dividend plus

33.33% bonus shares paid in 2005. The profit of the bank in 2005

was 1702.10 million.

Faysal Bank was listed on Stock Exchange in 1995 and has a paid up

capital of Rs. 3684.484 million. The bank paid dividend to its

shareholders @ 10% in 2001, 17% dividend in 2002. In 2003 bank

50
paid 45% dividend plus 10% bonus shares, 45% dividend plus 10%

bonus shares in 2004 & 15% dividend plus 15% bonus shares in

2005. The profit of the bank in 2005 was 3069.5 million.

Muslim Commercial Bank Limited was listed on Stock Exchange in 1992

and has a paid up capital of Rs. 4265.327 million. The bank paid

dividend to its shareholders @ 25% in 2001, 25% bonus plus 25%

dividend in 2002. In 2003 bank paid 27.5% dividend plus 10%

bonus shares, 25% dividend plus 10% bonus shares in 2004 &

42.5% dividend plus 20% bonus shares in 2005. The profit of the

bank in 2005 was 8922.4 million.

National Bank of Pakistan was listed on Stock Exchange in 2002 and

has a paid up capital of Rs. 4924.106 million. The bank paid

dividend to its shareholders @ 12.5% in 2001, 12.5% dividend plus

10% bonus shares in 2002. In 2003 bank paid 12.5% dividend plus

20% bonus shares, 15% dividend plus 20% bonus shares in 2004 &

25% dividend plus 20% bonus shares in 2005. The profit of the

bank in 2005 was 12709.4 million.

Bank of Punjab was listed on Stock Exchange in 1991 and has a paid

up capital of Rs. 2349.719 million. The bank paid 2.5% bonus

shares to its shareholders in 2001, 17.5% dividend plus 15% bonus

shares in 2002. In 2003 bank paid 25% bonus shares, 40% bonus

51
shares in 2004 & 52% bonus shares in 2005. The profit of the bank

in 2005 was 2353.2 million.

Askari Commercial Bank Limited was listed on Stock Exchange in 1992

and has a paid up capital of Rs. 1507.108 million. The bank paid

dividend to its shareholders @ 20% in 2001 & 2002, in 2002 bank

also paid 5% bonus shares. In 2003 bank paid 20% dividend plus

10% bonus shares, 20% dividend plus 20% bonus shares in 2004.

The profit of the bank in 2005 was 2022.00 million.

Comparison of Profit with Other Banks (2005)

(Rs. In Million)
Banks Askari Al-Falah Faysal Muslim National Union Bank of
Commercia Bank Bank Commercia Bank of Bank Punjab
l Bank l Bank Pakistan

Profits 2022 1702.1 3069.5 8922.4 12709.4 1744.7 2353.2

PROFIT COMPARISON (2005)

15000
Rs.In Million

10000

5000

0 Askari Al-Falah Faysal Muslim National Union Bank of

Commeric Bank Bank Commerci Bank of Bank Punjab

Series1 2022 1702.1 3069.5 8922.4 12709.4 1744.7 2353.2

PROFIT

52
In light of the above we can hope that Bank Al-Falah Limited will

prosper in future in the banking sector although its profit during

2005 is less from other banks. The bank is growing day by day in the

banking sector and its innovative products attracting the new

customers, which increases the deposits of the bank.

53
Future Prospects Of The Organization

Company is focusing on long-term objectives and future prospects

are as follows:

• Making Customer Complaint Center at all Regional

Headquarters.

• Promotion of sports i.e. hiring of services of international

players and provide coaching facilities to young players.

• Helping the government in supporting education programs.

• Starting training programs at all Regional Headquarters.

Training is the most effective tool to run any business. A well-

trained employee is better than ten ill-trained employees.

Investment by an organization on its workforce/manpower gives it

many times return and reward in future. Keeping in view all the

above factors, bank is in a position to grow in an improved manner.

Its progress graph seems to be inclined towards optimum level. If all

the above strategies are planned properly and undertaken

accordingly, there may be on hindrance on its way to success and

prosperity.

54
 SHORT-FALLS/WEAKNESSES OF THE FINANCE
DEPARTMENT
In the light of Audit Objections any my work with the Finance

Department for the three months, I noticed following shortfalls in

Finance Department in the bank:

 Employees are lacking motivation because there is definite

channel of promotion as compared it competitors like MCB,

Union Bank because they have systematic procedure regarding

promotion of their employees.

 Bank is not utilizing its IT tools to its full limit and thus reducing

the efficiency while its competitors fully utilizing the IT tools.

 Bank has no training facilities for working employees; there is

also workload on employees which hurdles in the way of

training also. As training requires heavy investment in respect

of time, money and other resources, it makes people think

several times before initiating such facility. Moreover, benefits

of training cannot be forecasted on confirmed manner; only a

guess can be made. Furthermore, as stated earlier, employees

are over-burdened by their routine work.

 The bank especially in finance department does not hire

qualified professional like Chartered Accountants, Cost &

Management Accountants. While its competitors getting

55
 services of professional like CMA’s CAs & ACCAs in its Finance

Department.

 The budget, which is set by the Finance Department usually,

got over budgeted. Routine expenses are more employees and

expensing on training and other allied expenditure, the branch

is unable to control its routine expenditure.

 Communication is the mandatory part of teamwork. When we

talk of managing teams, we are most concerned with

communication. Success of any organization depends on how

effectively communication process takes place. It is observed

that there is lack of communication in Finance Department.

Every one is blaming about workload. Due to remaining busy in

his own work, nobody has time to share his ideas, thoughts and

plans with other companions.

 Presently manually vouchers are prepared in Bank Al-Falah

while its competitors using the computerized vouchers systems

as well.

 Tax is of so specialized nature that there must be a person of

the required level of knowledge and competence. But

importance of the required level of knowledge and competence.

But importance of this post is entirely ignored at branch level

56
 and no person is hired as tax officer, etc. to deal with routine

tax cases.

 Tax authorities have specified various statements to be filed

with the tax department on various occasions. For instance,

section 149 of Income Tax Ordinance, 2001 says that statement

of deduction of tax from the salaries of employees should be

filed with the tax department on monthly, quarterly as well as

annual basis. Particulars of employee who is not liable to tax

deduction should also be enclosed therein. If statement is not

filed will-in-time, penalty is imposed on the employer (i.e. Bank

in our case).

57
RECOMMENDATION FOR IMPROVEMENT

I would suggest following in order to increase the positive

functioning of the branch.

 E-Banking: To become the market leader in the financial

sector, Bank Alfalah has a golden opportunity if its start the

use of new technologies in its banking. It can start “internet

Merchant Accounts’ in the country as SBP has allowed all the

financial institutions to start E-Banking but any Bank has

taken no initiative yet. Similarly also other functions of E-

Banking like providing different services to the customers on

internet, will increase the customers of the Bank, due to the

growing number of internet users, thus will become the

market leader.

 Micro Credit Financing: the bank should introduce new

scheme of micro credit financing for self-employment of the

general masses on soft terms and conditions. Micro level

credit having less risk of default should be enhanced helping

the government in poverty alleviation, thus strengthening the

overall economic situation of the country.

 Services: the services provided by the bank are of good

quality but looking and responding to the problems of the

58
 customers will improve the image and goodwill of the bank. It

should be done through quick counter responses, minimizing

the hard and fast rules for the credit facilities and reducing the

time frame for the approval of credit applications etc.

 Increase the Number of ATMs: Bank Alfalah can improve

its customer’s network by providing the ATM facility at least in

every city providing 24 hours each facility to the customer and

at their doorstep.

 Encouragement of innovation: Being one of the modern

banks in Pakistan, Bank Alfalah has become a market leader in

the banking industry. It has always introduced new

products/services in the banking sector through innovation.

The bank should encourage the process of innovation,

strengthening of R&D for the launching of new and unique

products.

 Increase Marketing Activities: Bank Alfalah should increase

marketing activities, through reminder advertisements,

increasing customer relations, pronominal campaigns with

products, and other tools of marketing. This will increase the

credibility and image of the bank.

59
CONCLUSION

The Bank Al-Falah Limited has an important position in the banking

sector. The bank performance during the year 2005 has significant

improvement in all areas of risk management and corporate

governance. Bank’s spreads kept a healthy trend, despite tough

market competition, as a result of high yielding consumer assets.

The bank achieved a post tax profit Rs. 1702 million for the year

2005, which depicts a healthy increase of 155.86% compared to last

year. The non-fund income also increased by 20.2% and stood at

Rs. 14492 million at year-end. The net interest margin rose by

8.65% to 41.17% to total interest income. Earning per share stood

at Rs. 5.75. Total deposits grew by 71.4% to Rs. 222.34 million. The

total assets showed an increase of 62% and stood at Rs. 188.86

million.

From the analysis, it can be hoped that Bank Al-Falah Limited with

its evolving portfolio, strategy and management system, would

continue to prosper coping with pressure on margins and tough

competition.

60
REFERENCES & SOURCES USED

 Annual Reports of Last five years of Bank Al-Falah

Limited

 www.bankalfalah.com.pk

 www.kse.com.pk

 The Business Recorder, Karachi

61
 Annex-I

ORGANIZATIONAL STRUCTURE

Chairman

Board of Directors

President

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Assistant Vice President

Officer Group-I Officer Group-II Officer Group-III

Annex-II
62
63
Annex-III

64
 Annex-IV

BALANCE SHEET COMPARISON OF LAST FIVE YEARS

ASSETS 2001 2002 2003 2004 2005

Cash and balances with 3,885,612 4,540,486 8,423,399 19,708,518 24,788,625
treasury bank
Balance with other banks 1,081,208 232,728 626,917 3,183,957 9,713,369
Lending to financial 1,698,969 4,634,398 7,437,733 - 27,050,493
institutions
Investments 11,396,61 24,694,397 28,903,596 35,503,196 57,425,700
6
Advances 19,131,49 28,319,401 49,216,120 88,931,400 118,864,014
4
Other assets 1,180,775 984,847 1,553,108 3,226,959 3,851,529
Operating fixed assets 1,424,883 1,760,774 2,791,626 4,280,504 6,620,067
Deferred tax assets 298,538 - - - -
Total assets 40,098,09 65,167,031 98,952,499 154,834,53 248,313,793
5 4
LIABILITIES
Bills payable 305,558 758,961 1,208,671 1,233,671 3,733,124
Borrowing from financial 6,709,054 6,037,576 13,127,754 12,723,830 5,844,389
institutions
Deposits and other 30,207,32 51,684,984 76,698,322 129,714,89 222,345,067
accounts 4 1
Sub-ordinate loans 650,000 649,740 1,899,480 3,223,355
Other liabilities 716,475 1,196,342 2,186,754 2,725,344 5,219,666
Deferred tax liabilities - 1,186,501 323,010 275,834 484,066
Total liabilities 37,938,41 61,514,364 94,194,251 149,573,05 240,849,667
1 0
Net assets 2,159,684 3,652,667 4,758,248 5,261,484 7,464,126
REPRESENTED BY
Share Capital 750,000 1,000,000 2,000,000 2,500,000 3,000,000
Reserves 361,591 365,727 790,374 1,008,772 2,351,218
Un-Appropriated Profit 249,701 250,050 963,042 860,300 1,386,845
1,361,292 1,615,777 3,753,416 4,369,072 6,738,063
Surplus on revaluation of 398,392 2,036,890 1,004,832 892,412 726,063
assets
2,159,684 3,652,667 4,758,248 5,261,484 7,464,126

65
 Annex-V

PROFIT & LOSS STATEMENT COMPARISON OF LAST FIVE YEARS

2001 2002 2003 2004 2005

Net markup/interest income after 890,566 1,463,11 1,917,294 2,813,020 4,662,172
provision 5
NON MARKUP/INTEREST
INCOME
Fee, Commission, brokerage 147,277 316,368 399,383 775,868 1,158,747
income
Dividend income 41,910 62,077 112,017 52,539 52,014
Income from dealing in foreign 113,923 95,165 106,848 218,820 290,091
currency
Other Income 74,756 141,808 2,373,503 572,822 744,518
Total non markup/interest income 377,886 615,418 3,391,751 1,520,049 2,245,370
1,268,432 2,078,53 5,309,045 4,333,069 6,907,542
3
NON MARKUP/INTEREST
EXPENSES
Administrative expenses 743,602 1,182,88 1,799,490 2,677,635 4,313,023
7
Other provision/write offs - - 2,000 - 10,125
Other charges 666 993 1,875 1,700 21,104
Total non markup/interest expenses 744,268 1,183,88 1,803,365 2,679,335 4,344,252
0
PROFIT BEFORE TAXATION 524,164 894,653 3,505,860 1,653,734 2,563,290
Taxation (213,552) (448,974) (1,382,626) (561,836) (841,196)
PROFIT AFTER TAXATION 310,612 445,679 2,123,234 1,091,898 1,702,094
Un-appropriated profit brought 1,211 249,701 250,050 463,042 860,300
forward
Transfer from general reserve - 85,000 - - -
Transferred from surplus on - - 14,405 23,667 24,870
revaluation of fixed
assets
Prior years - 38,098 - - -
Current year-net of tax - 20,708 - - -
- 58,806 - - -
Profit available for appropriation 311,823 839,186 2,637,689 2,078,698 2,587,264
APPROPRIATIONS
Transfer to statutory reserve (62,122) (89,136) (424,647) (218,398) (340,419)
Issue of bonus shares-interim @ - (250,000) (1,000,000) (500,000) -
33.33%
Cash dividend - (250,000) (250,000) (500,000) (360,000)
(62,122) (589,136) (1,674,647) (1,218,398) (1,200,419)
Un-appropriated profit carried 249,701 250,050 963,042 860,300 1,386,845
forward

66
Basic and diluted earning per share 3.65 4.46 8.49 4.37 5.75

67