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ASKARI COMMERCIAL BANK LIMITED

INTERNSHIP REPORT

Hailey college of Commerce UNIVERSITY OF THE PUNJAB

DEDICATION
DEDICATED TO MY BELOVED PARENTS WHO ARE ALWAYS PRAYING AND SUPPORTING FOR MY SUCCESS .ALSO TO THE HONORABLE TEACHER,WHO ALWAYS GUIDE AND HELP ME AND HAVE A GREAT CONTRIBUTION TO W WHAT I AM TODAY.

HISTORY OF ACBL

HISTORY OF THE ORGANIZATION CURRENT PERFORMANCE FUTURE PROSPEVTIVES OBJECTIVES OF ACBL

HISTORY OF THE ORGANIZATION

Askari commercial bank limited was incorporated in Pakistan on October 9, 1991 as a public limited company, and is listed on the Karachi stock exchanges. The registered office of the bank is situated at AWT plaza, the Mall Rawalpindi. The bank obtains its business commencement certificate on February 26, 1992. And started operations from April 01, 1992. Army welfare trust directly and indirectly holds a significant portion of the banks equity at the year-end The bank is a scheduled commercial bank and is principally engaged in the business of banking as defined in the banking companies ordinance, 1962. Despite the recent lackluster performance of the economy in Pakistan, Askari Commercial Bank Limited (ACBL) has managed to outperform its competitors' and maintain its growth momentum. We are proud to say that Askari Commercial Bank is now a leading market player in the Financial Sector in Pakistan.

OBJECTIVES OF THE ACBL

As Askari Bank looks ahead to the future by moving through the decade of the 1990's its efforts are guided by a broad framework of corporate objectives, which are as follows: Askari is committed to its identity of security & trust and will endure to uphold this image at al the times. It will endure to provide its customers with as many creative financial services and products, as is required. As today customer demands a package of services suited to his particular business, Askari plans to develop different and new products to cater to the customer's demand. Askari bank has they strength to be a market leader. Bank will keep standing and by and develop, its human capital base. It is planning to provide all the required training to its staff towards achieving a higher level of professionalism. Askari will continue striving to build a strong, motivated and dedicated work force where total commitment will be towards customer's satisfaction and wealthy growth of organization. Askari bank will endure to provide a competitive return to its shareholders and will strive to maximize its share value. The enhancement in its capital and returns will be a continuous proces. Askari bank is interested in being one of the most financially viable institutions. So it lays great emphasis on gradual building up to a healthy deposit mix. In the years ahead, the bank will enhance its focus on growth through operational efficiency, creating strategic alliances developing well-structured networking system innovating new products, enhancing marketing and sales efforts improving customer service, achieving greater employee motivation and providing the best value to its stakeholders - will make it a leader in the corporate world

DEPARTMENTS
GENERAL BANKING DEPARTMENT o ACCOUNT OPENING o DEPOSITS
o

CLEARING

CREDIT DEPARTMENT FOREIGN EXCHANGE DEPARTMENT

GENERAL BANKING
ACCOUNT OPENING PROCEDURE & PRECAUTIONS
KNOW YOUR CUSTOMERS
The objective of knowing a customer is to have a fair idea about the identity , financial resources, and general information about the customer at the time when the relationship is established. A banker must have following information about the custom Customer name : Enter complete name as mentioned in original ID card /other business documents. Nature of business /profession: if customer is of salaried class enter his employer name. if the customer is a businessman, trader, sole proprietor, enter the business name, for example Jamil Tradersetc.also enter the customers title/position and address of the business/employer. Address with P.O.BOX is not acceptable. Similarly remarks like Private service, business are not acceptable, rather specify what type of company/business the customer is associated with for example Manager Philips Electrical Company. ADDRESS: Enter the complete business/residential address. With in the brackets you may also provide prominent address identification marks for ease of physically locating the address. Contact Numbers: Enter home, official, mobile, fax number and e-mail address (if available). Banker can verify the number by giving the customer a courtesy call or by sending him a e-mail. Other/ secondary/ mailing address: Some customer may volunteer their parents or siblings addressor second home address or a mailing address other than a permanent address.

Special instructions: Clear-cut special instructions must be obtained from customers. If the customer has not given any special instruction specified column must be cancelled by drawing a line, as this column must not be left blank in any circumstan Existing/other bankers: Almost all the bankers usually have a banking relationship with another bank. In case of customer who does not have an existing banking relationship,or does not want to disclose the existing relationship, then it is strongly recommended that at least for some time this particular account must be kept under observation.

TYPES OF ACCOUNTS
1) ACCOUNTS OF GENERAL CUSTOMERS
Minor account Illiterate person account Joint account

2) ACCOUNT OF SPECIAL PERSONS

Proprietor ship account Partnership account Limited companys account Accounts of club societies and associations Agents accounts Trust account Liquidators account executers and administrators account

ROUTINE DOCUMENTS
Appropriate account opening form Specimen signature, card, Cheque book requisition slip Letter of indemnity from the customer if he/she signs in language other than English and confirm/shaky handwriting.

Third party mandate if the account holder has authorized any other person to operate the account.

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1.ACCOUNTS OF GENERAL CUSTOMERS

ACCOUNT OF MINOR
According to Pakistani law
A person is regarded as minor until he has attained the age of 18 years.

Under section 3 of majority act, 1875, if a competent court of law appoints a guardian of his person or property or both before age of 18 years, the majority extends to the age of 21 years. ACCOUNT OPENING PROCEDURE The natural guardian who signs both account opening form and S.S card can open account in the name of the minor. Title of the account The title of the account should clearly indicate the name of the minor and guardian in the following manner: special instructions: The guardian will continue to operate the account even if minor attains the age of majority Documents: National identity card of guardian Form B OF MINOR In case the guardian is appointed by the court of law then attested copy of guardianship certificate be obtained on record. Special care The age of minor should not be recorded either in account opening form or any other document.

11 In case the account has been opened under the directives of court, operations should strictly be allowed in accordance with the clauses of guardianship certificate. No overdraft is allowed in minors account.

ACCOUNTS OF ILLITERATE PERSONS

Before opening such account such persons should be informed that he/she can not issue cheques in favour of any other person ACCOUNT OPENING PROCEDURE Title of account Name of account holder should be written in blocked form. Special instructions: Personal withdrawal Documents: Two attested photograph to be obtained one for pasting on AOF form and other on S.S card. Thumb impression: Male Female Special care: t should be ensured that that illiterate person should not be allowed to operate the account unless he/she personally comes to the branch and put his /her thumb impression in the presence of bank officials. Accounts of illiterate Pardah Nisheen ladies not willing to give photograph should not be opened. left hand thumb impression right hand thumb impression

JOINT ACCOUNTS
These are the accounts of two or more persons who are neither partners nor trustees.

12 Title of account: Title of account should mention names of all joint account holders. Special instructions: At the time of opening of account special instructions should be obtained regarding operation of the account and payment of the ACBLance at the death of two or more joint account holders in the following manner: The account shall be operated by joint account holder singly. By any two or more joint account holders or by two or more survivors jointly By all the joint account holders jointly. By all the survivor jointly.

These instructions as far as possible should be obtained in the handwriting of the parties concerned, under the signature of all joint account holders. Document: National identity card of all the joint account holders Mode of signature: All joint account holders are required to sign as applicant and in the column of special instructions. Specimen signatures of only those joint account holders are required who are authorized to operate the accoun Special care: The operating instructions should be recorded on the AOF and on the S.S card boldly and authenticated by deposit in charge. All the operations in the account should be strictly in accordance with the operating instruction given by joint account holders. In the event of death of any of the joint account holders, the survivor (s) be asked to close the old account and open a fresh one in the name of surviving joint account holders depending upon the original instructions regarding the operation the account.

13 If the original instructions do not allow for the payment of ACBLance amount to survivors then all the debit operation on the joint account should be stopped. If bank receives an order issued at the request of the heirs of the deceased joint account holders to stop payment of the ACBLance in the joint account then no withdrawal should be allowed and matter should be referred to head office.

2.ACCOUNTS OF SPECIAL PERSONS

ACCOUNTS OF PROPRIETORSHIP CONCERN
A sole proprietorship is a business carried on by an individual owner in his own name or trade name. it is usual in such case to take a declaration from the sole proprietor that no person other than himself has any interest in the business as a proprietor or otherwise and he, as a sole proprietor will personally be liable for all dealing and obligations in the name of the business." ACCOUNT OPENING PROCEDURE Title of account: Title of account must be in the name of proprietorship concern. Special instructions: In case of proprietor ship concern, the special instructions should cover the style of the account and the name of the person who will operate the account as sole proprietor. Documents: National identity card of the sole proprietor Letter of request to open the account on the letter head of proprietor ship Account opening form(pink) Declaration for proprietor ship concern (part II, printed on the reverse of AOF)

14 Third party mandate, in case any other person has been authorized by the by proprietor to operate the account.

ACCOUNTS OF PARTNERSHIP CONCERN

Definition of partnership concern(section 4, partnership act 1932) Partner is the relation between persons who have agreed to share the profits of business carried an by all or any one of them acting for all. It is important to create liability that all the transactions must be apparently entered into the interest of the firm for the purpose of its business and in the name of the firm.therefore the act of the partner in order to be binding upon the firm must be: i. ii. iii. An act done in relation to partnership biusiness. It must be an act of carrying on businesss in its usual way. It must be an act qua partner and not qua individual.

Thus in a firm each partner has prima facie authority to bind his co-partners. If all the partners or all but one partner become insolvent,the firm is compulsory dissolved. In case of solvency of the partner cheque signed by him be returned unpaid for confirmation by the other partners. Subject to any agreement between partners, partnership is dissolved by the death of any partner . the date, time and source of information should be recorded on AOF form SS card and the status of the account should be changed to Deceased in the system. Cheques signed by the deceased partner and presented after his death should be returned unpaid with the reasons DrawerDeceased. In case of debit ACBLance operations should be stopped and matter be taken up with the head office/higher authorities.

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The surviving partners should be asked to close the existing account and and open a new account.

ACCOUNT OPENING PROCEDURE Title of the account Title of the account must be in the name of the partner as declared by the partners Operational instructions: Operation on the account must be allowed strictly in accordance with the instructions given in the partnership mandate &declaration (part III) in terms of section 25 of partnership act of 1932. According to partnership deed if given. Documents: Copy of NIC of all partners Copy of registration certificate (if a registration firm) Third party mandate,if 3rd party is authorized to operate the account. Copy of partnership deed (where available)

Mode of signature: Signatures of all the partners are obtained in their individual capacity as applicant. partnership mandate &declaration (part III)is also to be signed by all the partners in their personal or individual capacity. Specimen signatures are to be obtained in the official capacity. Special care: When a partnership account is opened, following following consideration should be borne in mind by the banker.: A partnership should not consist of more than 20 persons. One partner is entitled to open the account for the firms business provided he opens in the firms name. One partner has the power to stop the payment of cheque drawn by him or another and the banker is bound to comply with the instructions by that partner.

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ACCOUNT OF LIMITED COMPANIES

Definition of public company: Section 2 of the companies act, 1913, defines company as an association of individual for the purpose of profit, possessing a common capital contributing by the members constituting it, such capital being commonly divided into shares, of which each possesses on or more and which are transferable by the owners. Title of account: Title of account must be in the same name and style as mentioned on the memorandum and article of association. Special instructions: All the special instructions should be given to the bank in the form of resolution of board of directors. Documents: Up-to-date MOA &AOA (certified by Director/companys secretary affixed by the companys seal. Certificate Of Incorporation Certificate of commencement of business (for public Ltd only) Resolution of board of directors passed under companys seal to open account.(as per specimen given in AOF. Copies of NIC/passport of all the directors/authorized signatories (attested by companys secretary) List of directors and authorized signatories.

Mode of signatures: In official capacity (with rubber stamp) on all the documents, such as AOF, SS card, chequebook requisition slip. Special care: The opening of account for share subscription by a company shall be subject to prior approval of the head office.

17 Due care and caution should always be exercised to ensure that cheque payable by limited companies are collected for the credit of companies account and not for personal account of any director /employee etc.

TRUST ACCOUNTS
LEGAL CONSIDERATION Definition: According to section 3 of trust act 1882, A trust is an obligation annexed to the ownership of property and arising out of a confidence proposed in and accepted by him for the benefit of another, or of another or of owner. ACCOUNT OPENING PROCEDURE Branches are allowed to open the trust accounts subject to the prior approval of head office, after scrutiny of the documents by the legal department. Title of account: The account should be opened in the name of the trust. However, if the account is opened in the name of trustees, the account should not be treated as joint, rather it should be treated as trust account. Documents: Certified copy of trust deed Certified copy of NIC of all the signatories Resolution of trustees The banker should examine the trust deed very carefully. Particular attention should be paid to the borrowing powers, status of account in case of death of any trustees or signatories, and provisions for the appointment of new trustees. Mode of signature: All the trustees are required to sign the account opening form, SS card and cheque book requistion slip in their official capacity. Special care:

18 Banker should see that cheques are drawn in conformity with the powers given by the trust deed. A banker cannot set off the trust funds against an overdraf on the trustees private account. Cheque drawn on trust account should not be collected for the personal account of trustees. In the event of death of any trustee, the operation in the trust account should be stopped forth with and the surviving trustees should not be allowed to operate the account till further authority.

ACCOUNTS OF CLUBS AND SOCIETIES

These are non trading non / profit making organizations and are formed for the promotion of the culture , education recreational activities and charitable purpose etc. ACCOUNT OPENING PROCEDURE Title of accounts Account must be opened in the name of the organization in the following manner: Opening instructions: All the operations must be in accordance with the clauses of the resolution Documents: Copy of Bye- laws regulations List of members of managing /executive committee Copy of certificate of registration ( if registerd). Copies of NICs of the members of the executive committee In addition of part 1 of AOF part 5 is also to be obtained List of names of officials authorized to sign on behalf of the organization Along with the specimen signatures under the signature of the secretary of the club / societ

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Mode of signature Official capacity Special care In case of transfer or death of office bearer authorized to operate the account ,operations in the account should be stopped until receipt of new resolution passed by the managing committee /directors authorized the new office bearers to operate the account and copy of the resolution along with names and specimen signatures of new authorized officials are received by the bank.

ACCOUNTS OF AGENTS
An agent is a person who is authorized to perform certain functions on behalf of another person.The person for whom he has to carry out the business is called the principal. POWERS OF ATTORNEY Banking accounts are opened in the name of the agents on behalf of the principal.The agent will operate upon the account in the manner and the way prescribed in the powers of attorney granted to them by their principals. POINTS TO REMEMBER 1. Since the accounts are opened primarly for the principals ,as such whenever it comes to our knowledge of the principals death ,insanity ,insolvency ,operation on the account should be stopped and cheque signed by the owner should not be honoured. 2. Anything done by the agent outside the purview of the powers of Attorney is illegal and must not be allowed under any circumstances. 3. All powers of Attorney tendered for the purpose of the bank after proper scrutiny.

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DEPOSITS
Deposit is a life blood of a commercial bank. Main function of a commercial bank is to channelize the saving from the savers to the ultimate user of funds.The process of collecting saving is called Deposit mobilization. Two broad categories of of deposit with reference to time period are:

DEMAND DEPOSITS
They are payable on demand.They include current account, sundry deposit (e.g, margin account )and call deposit receipt. No profit is given on demand deposits

LOCAL REMITTANCES
DEMAND DRAFT It is an instrument payable on demand for which value has been received, issued by the branch of the bank drawn i.e. payable at some other place (branch ) of the same bank.In case of agency arrangements -Demand draft can also be issued by one branch of the bank payable to other branch of the other bank e.g. DD issued by the ACBL payable by MCB. Issuance: Request shall be on the standard DD application form. Fill in all information such as name of the beneficiary ,place where the DD is drawn ,amount ,mode of payment ,cash / cheque / debit authority ,signature with name and address.

21 Check the application form . Charge commission as per schedule of charges. Recover excise duty and withholding tax as per application rates.Get the exemption form filled in if the customer has NTN number. Get voucher from cash department after the customer has made payment by cash /cheque. Prepare the demand draft (security stationery). The issuance of DD is computer and the amount is automatically protectographed during printing, for avoidance of forgery. Entry is then made in DD issuance register. In the DD issued register , separate folio is allotted for each drawee branch and a serial control number is applied. Cancellation of DD: Obtain application in writing along with original DD. Verify the signature of the applicant . this signature should tally with the signature on the DD application form. Make cancellation in DD issued register . Payment from Suspense account DD cancelled after recovery of cancellation cheques as per current schedule of charges. Inform the drawee Branch regarding cancellation and ask for ICBA. On receipt of ICBA adjust amount paid out of suspense account. All pay order shall be crossed Payees account only. It may be noted that ICBA is not involved because PO are payable at the same branch. lost / stop payment /issuance of duplicate DD: Get application from the purchaser and verify the signature. Inform the drawee branch of teh loss of DD and advise them to mark caution against payment if presented.

22 After necessary checking, the drawee branch will inform us about the status of DD whethr it has paid or still outstanding. Write on the face of duplicate DD in red ink "Duplicate in lieu of orginal DD No._______dated_______reported lost". The duplicate DD will have the same control number. The printed number and serial control number of DD issued shall be mentioned on application form. Signature of two attorney holders with their attorney number should be obtained on the DD. The second signing officer must check all the particulars before signing.

TELEGRAPH TRANSFER
It is a quick way of transfer of funds from one branch to another branch of the same bank. Apply Procedure of vouchering is same as the DD. message on the TT message and give appropriate227 222222222222222222222222222222[22mally referred as Banker's cheque. Get the application form. Issue pay order after recovering cheques. Do necessary vouchering. Make entry in PO issue register. All pay order shall be crossed "Payees account only". It may be nopted that IBCA is not involved because PO are payable at the same branch. Cancellation: Application for cancellation. Surrender of original pay order. Recover cancellation charges. Check the record to insure that payment has not been effected.

Duplicate Pay Order:

23 Get application for issuing of duplicate PO. Recover charges. Issue duplicate pay order.

Pay slips: The bank for settlement of its own payment issues pays Slips. No excise duty. No commission.

CLEARING
MEANING OF CLEARING The word clearing has been derived from the word Clear and is defined as a system by which banks exchange cheques and other negotiable instruments drawn on each other within a specific area and thereby secure payment for their clients through the Clearing House At specified time in an efficient way. 1. Since clearing does not involve any cash etc.and all the transaction take place through book entries , the number of transaction can be unlimited. 2. No cash is needed as such the risk of robbery ,embezzlements and pilferage are totally eliminated. 3. As major payments are made through clearing , the banks came manage cash payments at the counters with a minimum amount of cash in vaults. 4. A lot of time, cost and labor are saved. 5. Since it provides an extra service to the customer of banks without any service charges or costs, more and more people are inclined and attracted towards banking.

CLEARING HOUSE It is a place where representatives of all banks sit together and interchange their claims against each other with the help of controlling staff of State Bank of Pakistan And where

24 there is no branch of State Bank of Pakistan the designated branch of National Bank of Pakistan act as controlling member instead of State Bank of Pakistan Membership ceases when: It ceases to be a scheduled Bank . It is not able to meet its liabilities. State Bank of Pakistan or Central Govt prohibits it to receive fresh deposits.

Rules and regulations of Clearing House: Timing: (Monday through Saturday) i. 1st Clearing at 10:00 a.m. ii.2nd Clearing at 2.30 p.m. Each bank will send competent representative to exchange the cheques. Each bank is required to insure that all cheques and other negotiable instruments are properly stamped and suitably discharged An objection memo must accompany each and every cheque when return unpaid duly initialed. Each bank is required to maintain sufficient funds in the principal account with SBP to meet the payment obligations. The State Bank of Pakistan debit the account of each member of the clearing house with the proportionate working expenses incurred on the operation of clearing house.These expenses are very nominal.

Working of Clearing House: All the banks, which are the members of the Clearing House, maintain an account with the State Bank of Pakistan by debit and credit to which the clearing statements are made. If on a particular day a bank delivers cheques and other negotiable instruments worth more than the total amount of cheques received by it that banks account with State Bank of Pakistan will be credited with the differential amount. If on the other hand the totals

25 amount of cheques and other negotiable instruments drawn on a certain bank by other banks is more than the total amount receivable by it from other banks, then this banks account will be debited on the day.

TYPES OF CLEARING
OUTWARD CLEARING: The cho delivered to the representatives of other banks for clearing are outward clearing. INWARD CLEARING: The cheques received from the representatives of other banks for payment are called inward clearing. Procedure of settlement: Presume that ACBL got the cheques which are drawn on HBL, NBP, and MCB, for amount Rs. 50,0000/-, Rs. 30,0000/-Rs. 15,000/- respectively, its total being Rs. 95,000/-. It means that this amount is to be credited to ACBL account with SBP.On the other hand the cheques drawn on ACBL are from HBL, NBP & MCB of Rs. 15,000/-Rs. 75,000/and Rs. 30,000/-respectively, its total being Rs. 120,000/-. It means that this amount is to be debited from ACBL account .The difference between Rs. 95,000/- credit and Rs. 120,000/- debit is Rs. 25,000/-debit, which means the house, is against ACBL for Rs. 25,000/-.This is called as debit and credit rule. The amount and number of instrument received are entered in the House Book from the main schedules of the respective banks.. Outward clearing at the Branch: The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing:

26 The name of the branch appears on its face where it is drawn . It should be stale or post dated or without date. Amount in words and figures does not differ. Signature of the drawer appears on the face of the instrument. Instrument is not mutilated. There should be no material alteration ,if so, it should be properly authenticated. If order instrument suitably indorsed and the last endorsees account being credited. Endorsement is in accordance with the crossing if any. The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil. The title of the account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque). If an instrument is in order than our bank special crossing stamp is affixed across the face of the instrument.Clearing stamp is affixed on the face of the instruments, paying-inslip and counterfoil (The stamp is affixed in such a manner that half appears on counterfoil and paying-in-slip).The instrument is suitably discharged, where a bearer cheque does not require any discharge and also an instrument in favor a bank not need be discharged. The instrument along with pay-in-slip is retained while the counterfoil is given to the customer duly signed., then the following steps are to be taken: 1. The particulars of the instrument and the pay-in-slip or credit voucher are entered in the outward clearing register. 2. Serial no. Is given to each voucher. 3. The register is ACBLanced, the credit voucher are ACBLanced from the instruments and are released to the respective departments against acknowledgement in the register. 4. The instruments are arranged bank wise.

27 5. The schedules are prepared in triplicate, two copies which are attached with the relevant instrument and the third is kept as office copy. 6. The house page is prepared from schedules in triplicate. 7. The schedules and house pages are signed by the house incharge with branch stamp. 8. The grand total of the house page is taken and agreed with that of the outward clearing register. 9. The instrument along with duplicate schedule and house page are sent to the main office. However the amount is kept in float till final status of various instruments is known from respective paying banks in second dealing. The entry of the instrument returned unpaid is made in Cheques returned Register. If the instrument is not to be presented again in clearing then a covering memo is prepared. The covering memo along with returned instrument and objection memo is sent to the customer who sent the same to his account. Inward clearing of the branch: 1. The particulars of the instruments are compared with the list. 2. The instruments are detached and sort out department wise. 3. The entry is made in the inward clearing register (serial no. Instrument no. Account no. is written). 4. The instruments are sent to the respective departments 5. The instruments are scrutinized in each respect before honoring the same. Outward cheques returned unpaid: These are the cheque returned unpaid by us in inward clearing due to some objections. Inward cheques retained unpaid: These are the cheques retained unpaid to us which were lodged by us in Outward Clearing.

28 Return of cheques after clearing house: Suppose all cheques received in the inward clearing are passed and later on it is found that a cheque should have been returned, in such cases, we contact the collecting branch and request them not to make payment against the proceeds of the cheque which was not returned unpaid by us in due time. The cheque with objection memo along with a covering letter is sent to the collecting branch, making request to issue a payment order in our favour.to ACBLance the Cash-cum-day book we may debit suspense account sundry debtors with the approval of the manager. When the payment order is received, it is lodged in clearing and suspense account, sundry debtors is adjusted accordingly. Special clearing: In addition to the normal clearing function at Clearing house it is mutually agreed to hold an extra clearing at the clearing house on the particular day and time which is known as special clearing it is arranged due to the rush of work arising out of say, more Holidays declared by the Central Govt. at a time, but normally special clearing is held on last working day of our half yearly and yearly closing i.e. 30th June and 31st Dec. every year.

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CREDIT DEPARTMENT
CREDIT CREATION BY COMMERCIAL BANKS:
We must recall this point that most exchange transactions in the system are carried on today without the use of actual money,i.e,.Those are carried on by means of credit and credit instruments rather than money.While money still forms the basis of credit and deferred payments,it is necessery to examine the nature of credit operations,and the instruments and institutions through which these considerable detail. THE NATURE OF CREDIT On the surface, credit opperation appears to be of many kinds, but they all have a fundamental similarity. In credit transactions, one party to the transaction, the creditor, turns over to the debtor a certain amount of money ,commodities or sevices at the present time and relies on the debtor to repay an equivalent amount, usually the money in the future plus interest at some future time.Thus esence in the credit transaction consist in the exchange of present goods for the promise of a future equivalent. Credit may be defined as the right to receive payment or the obligation to make payment or demand or at some future time on account of the immediate transfer of goods. operations are carried on, in

THE BASIS OF CREDIT:

There has been much discussion, concering the essential basis of credit. Some writers on the subject have stoutly insisted that confiedence is the basis of all grants of credit, Others have held property, rather than confidence is the basis of all genuine credit transctions.Some insist that character is the essential factor, while still other writers have

30 indulged in a propensity of alliteration by stating that the bases of credit are character, capital and capacity; or the man and the means; or reliability and resources.

TYPES OF CREDIT:
The varities of credit may be classifed in numerous ways According to the status of debtor According to the status of creditor According to the time Purpose of credit 1.Public credit Public credit comprises the promises to pay off govermental bodies, that is, their acquistion of goods in the present in return for promises to pay in future 2.Private Credit: Private credit refers to the promises to pay all non government debtor. Among the subclasses of private credit, the most significatn are band credit, commercial credit and consumption credit.

FACTORS DETERMINING THE VOLUME OF CREDIT

The expansion and contraction of credit is determined, to the large extent, by the willingness of the creditors to lend and wilingness of the borrowes to borrow, which in their turn are detrmined by the following objective considerations: Rate of return: The higher the rate of return on investment which is both safe and secured, the greater will be the volume of credit. Trade conditions: During the boom conditions the borrowers are very keen to borrow, because they know they can not only make money but also pay a higher rate of interest on rate of high

31 profits. But during a depression period, capital becomes shy and bussiness people are not willing to risk investment because of gloomy outlook of bussiness in general. Speculative activity: The volume of credit is also determined by the speculative activities of speculators. When speculation is rise, credit expands, and when speculators lose, credit contracts. Political conditions: When there is political instability, none would like to risk his money in the new ventures. But on the other hand, peace and stability make for expansion. currency conditions: The condition of currency in the country also determine factorme of credit if there is a chance that currency will depreciate, credit will contract because no body would like to transfer his funds in the currency whose purchasing power is depreciating. But on the other hand, a sound system of currrency will be highly inducive to credit expansion. TYPES OF CREDIT INSTRUMENTS There are various types of credit instruments. The most important credit instrument are as follows: 1. Bills of exchange 2. cheque: o bearer cheque o order cheque o open cheque o crossed cheque o marked cheque 3. Drafts 4. Promissory note 5. hundi 6. letter of credit

32 7. travellers cheque

TYPES OF SECURITIES
Banker largely discounts on borrowed funds i.e deposits, therefore, he cannot afford to take undue risks.He guards his interests by tangible assests.Great care is required on the part of banker while accepting a security for securing its loans. While granting advances on the basis of securities offererd by customers a banker should observe the following basic principles: 1. 2.` 3. 4. 5. 6. 7. Adequancy of margin. Marketability of securities. Completion of documentation. Realizability. Storeability. Durablity. Stability in price.

Following are different types of securities: 1. Advances Against Goods. i. ii. iii. iv. 2. i. ii. iii. iv. v. vi. 3. food articles. Industrail raw material. Plantation products. Finished Goods. Bill of Lading. Railway Receipts Godwon Receipt. Truck Receipt. Airway Bill. Trust Receipt.

Advances Against Documents of Title to Goods:

Advances Against marketable Securities:

33 i. ii. iii. iv. v. vi. vii. viii. 4. 5. 6. 7. 8. 9. Shares. Bonds. TFCs. NIT Units. Mutual Funds. Modarba Certifiates. T-Bills, FIBs. Commercial Papers.

National Saving Scheme Certiate Prize Bonds etc. Advances Agaisnt Life Insurance Funds. Advances Against FDRs, COIs. Advances Agaisnt Book Debts. Advances Against Supply Bills. Advances Against Real Estate.

VALUATION OF SECURITIES:
Valuation of Securities may be based upon the following 1. Govt. Securities Shares and Stocks. All important news-papers give market quotaions of Govt. Securities, Shares and Stocks trade on Stock Exchange. 2. Seasonal Commodites Wheat-gram-Gur-Paddy Cotton of oilseeds on basis of current market prices or controlled prices whichever is lower. 3. 4. Gold & Silver: Finished/Manufactured goods in Factories The price can be verified from the News-papers. The best mode of valuation of manufactured goods would be on the basis of cost price to the manufactures if it is lower than the market value. The second best way would be to the valuation on the price at which the manufacturer sells his products to the whole sale dealers less any trade discount allowed on selling prices.

34 5. Finisged Goods with Dealers

The basis of valuation is invoice price or market price whichever is lower. 6. 7. Controlled commodities Immoveable Property

The valuation is to be according to the controlled prices. The market and forced sale values of immoveable property are evluated through the approved surveyors.

ADVANCES AND DEPOSITES

TYPES OF ADVANCES
A commercial bank makes numerous types of advances to its customers. A few of the important advances are discussed below. 1. RUNNING FINNANCE It is allowed to the borrower under a pre-sanctioned limit.A Current Account is opened and the conduct of this account is kept under review for a period of three to six months. The borrower can draw cheques from his Current Account but maximumally upto the amount of limit sanctioned to him.The amont outstanding against the borrower is shown as debit in the 'ACBLance' column of the running finance accunt.The borrower may draw cheque on this accuont for a partial amount..In case a Running Finance Account is fully adjusted on particular date before the expiry of the stipulated period, the limit will have to be got renewed if a letter of continuity is not obtained from the borrower at the time of sanction. 2. CASH FINNANCE

35 This type of finance is allowed to the borrower against the hypothescation or pledge aof moveable property/stock of teh borrwer. In majority of cases this finance is allowed against pledge of stock.The amount of finance is credited to borrower CD account and he/she utilizes it for business purpposes.The pledge is allowed against cash repayment. 3. TERM FINNANCE It is a loan account opened in the name of the borrower.The amount of finance is credited to borrower's personal account by debiting the Term Finance Account.The amount of Finance is bursed in lump sum. Partial transactions are not allowed in the Term Finance account.The repayment of Term Finance is usually in installments and besides other documents a letter of installments is taken from the borrower at the time of disbursement. By that letter, the borrower binds himself to pay the installments at regular intervals.The amount of installments includes principal plus markup for repayment period.

ADVANCE PROPOSALS
While making a lending decision we are basically guided by certain principles known as Clemens Approach of 3 C's are: character capital capability. cover colletral

In yet another approach two more C's have been added i.e.

An objective assessement is, therefore, important for the banker in order to detrmine the viability of the advance proposal. If we look over the ACBLance sheet of any bank we come to know that total funds of the bank availACBLe for the purpose of its bussiness consist of: Paid up capital Resesrve fund Profit and loss account ACBLance, representeing undistributed profit carried forward.

36 Deposits.

Of the first three sources of the funds, between 50% to 75 %are generally are deployed in the banks fixed assets constituting premises, furniture and fixtures and the reminder is utilized in other asset mainly stationary, deposits, advance payments etc. However the bulk of the funds available at the banks disposal is represented by the fourth source of funds listed above. Advances are mainly granted out of this source. This source represent the depositor stake wich the bank ultimately has to repay them back. Since the funds do not belong to the bank, as such in deploying these funds, the banker is guided by two main considerations: liquidity Profitability

The banker is supposed to make judicious judgement which should be based on critical study of advance purposals. It is very necessary that the banker should have complete confidence in the intgegrity and ability of the customer to use the money to his advantage and to repay it within a reasonable period. In the absence of such confidence, it is preferable to decline to lend, no matter how much security may be available should the perspective borrower meet with the initial requirements of character, capital and capability, attention is then given to other details of the purposal such as: Purpose for which the advance is required How much amount is required? For how much period, the borrower require the loan? Borrower's self stake in the business Credit control aspect, if any. Borrowers source of liquidation of his liabilities. Repayment terms etc. Since the branch manager is usually the person, in contact with the prospective borrower, it his duty to collect, confirm and put down in logical sequence, all necessary information so that the head office may arrive a correct decision. To assist him in the task, banks provide a performa outlining the manner in which a proposal should be put forward for consideration.

REVIEW OF LOAN PROPOSAL

37 Advance proposals of all kinds come to a branch manager. Some proposals are thoroughly drawn up while others may be quite vague. The branch manager or concerned officer has to sort out patiently and skillful, the bits and pieces of information, measuring them in the light of principles of good lending in order to assess the strength and weaknesses of a given proposal. The main points to be given careful attention in an advance proposal are: 1. THE AMOUNT OF ADVANCE REQUIRED It should be in a reasonable proportion to the borrower stake in the business. 2. THE PURPOSE OF BORROWING The purpose for which the facility is required should be spelt out in detail .It must be a desirable one from the social ,economic and lending point . 3. THE PERIOD OF LOAN Short term advances are always favoured. The bank can assist more borrowers if loans are repaied within reasonable time. The period of loan of one year is considered desirable. 4. THE SOURCE OF REPAYMENT Repayment of the loan must primarily come from the productive use of the money borrowed .The business for which the loan is made must have sufficient liquidity to service the debt. 5. VIABILITY OF THE BUSINESS In addition to the experience and personal qualities of the borrower, the business should be prosperous one and be able to absorb shocks. It should have steady and growing demand for its products.

DOCUMENTATION
The availability of proper documents, legally validity and enforceability ,is a prerequisite for the disbursement of an advance by the Branch Manager.It mainly depends on the following aspects: Type of Borrower Nature of Facility Kind of Security

38 Mode of Charge. The documents are executed by the persons in either or more of the following capacities . a. b. c. In their individual capacity In their offical capacity In the capacity as agent to the principal

RECOVERY OF BANK's ADVANCES & RELATED LAWS

In whatever form bank advances are granted ,they are repayable on demand .The Bank allows short term advances usually for one year to two years to meet the working capital requirements of the borrower. So the advance will become stuck up when it was due according to the terms of sanction advice and is not paid back .The banker should try to prevail upon the borrower by giving repeated visits,by pressurizing the borrower from the corners he honours .He should also try to obtain tactfully the documents, if any missed or oversighted at the time of disbursement. Following points must be kept in mind for recovery of an advance . A. RECALLING OF ADVANCE

As explained earlier the advances are repayable on demand.so following are the instances where banker can demand adjustment of outstanding liability. B. Death of borrower or guarantor. In solvency of the borrower / guarantor or liquidation of borrowing company. Dissolution of the partnership. Want of satisfactory turnover or determination of security. Failure to abide by the terms and conditions offered through sanction advice inspite of repeated requests. Deterioration of the financial position of the party. Failure to keep the required margin. REMINDING THROUGH LETTERS

39 If an advance is called back before maturity or is not adjusted after its due date, bank should send letter to borrower asking him to adjust his liability so as to avoid litigation. On the lapse of reasonable time send him another another reminder followed by final reminder.

RECOVERY THROUGH COURT Then serve the borrower or guarantor if any, with legal notice through your approved lawyer. Failure to comply with legal notice would result in filing a recovery suit against the borrower. This is done usually with the consultation of higher authorities. Types of suits: Simple money suits against the borrower rand the guarantor. Suit under original consideration where the advance has been allowed without getting any security and without execution of any charge documents. Interim attachment of the property of the borrower. Attachment of the property of the guarantor, if any. In the event of the borrower who is about to leave the country, impounding his passport or other travel documents. If the borrower is about to dispose off his business, court order for the maintenance of status quo can also be obtained. Recovery suit can be filed in the following courts: a. Banking tribunals. b. Criminal courts. c. Civil courts.

40

FOREIGN EXCHANGE DEPARTMENT

Import Department Export Department Foreign Exchange Department

FOREIGN EXCHANGE DEPARTMENT

INTRODUCTION:
With the development of international trade and the subsequent international division of labor it has become imperative for countries to devote more and more attention to the complicated mechanism of foreign exchange. The term "foreign exchange" is used to denote either a foreign currency or the rate at which one currency is converted into another or the means and methods by which one currency is exchanged for another. Thus foreign exchange is concerned with the settlement of international indebtedness, the methods of effecting the settlements and the instruments used in this connection, and the variation in than rate of exchange at which settlement of international indebtedness is made. International trade demands a flow of goods from seller to buyer and payment from buyer to seller.The

41 goods movement may be evidenced by appropriate documents.Payment however, is influnced by trust between the commercial parties, their need for finance and possibly,by governmental trade and exchange control regulations.

LETTER OF CREDIT
A letter of credit is a financial instrument issued by a bank on behalf of one of its customers, which authorizes individual or business firm to which it is addressed to draw drafts on the bank for its account under certain conditions as set forth in the document. In a letter of credit the financial strength or the credit of the bank is substituted for the banks customer simply known. PARTIES TO A LETTER OF CREDIT From the above definition of LC., it is clear that there are number of parties thereto. These are : A customer It is on his account and on his request and according to his instruction that the LC is opened. Usually he is importer of goods from a foreign country. He is also known as importer or accountee. Bank The bank which opens or issues LC at the request of the customer is known as the issuing bank .The issuing bank is granting the facility of opening the LC, to the customer for importing goods from abroad. Therefore, this bank is also known as importer's bank. Third party The person whose favour the LC is opened is a third party who is an exporter in a foreign country. He is also known as benificiary as it is he who drives the benifit of the LC. Another bank

42 Which may be a branch office of the issuing bank or agent or correspondent or the benificiary's own banker if the paying banker has not been named in the LC. This bank is situaited in the exporter country and is also known as "paying" or "negotiating bank". Advising bank In this connection, another term notifying or advising bank is also used. When the issuing banker opens a LC then it informs the benificiary of such a facility through its branch or some correspondent bank in the benificiary's country by a letter or cable telex. This bank or correspondent in the exporter's country is known as the advising or notifying bank. DOCUMENTRY LETTER OF CREDIT Documentry credit is the method which is now mostly used for settlement in international trade.the operation of the documentry credit is governed by ICC publication on uniform customs and practice for documentry credits UCP-500. The documentry credit is a commitment on the bank's part to place an agreed sum at the seller's disposal on behalf of the buyer under precisely defined conditions. When the seller receives a documentry credit, he knows that party, independent of the buyer will make payment as soon as he has delivered the goods and handed over the prescribed documents after fulfilling the conditions of the credit to advising bank. The buyer on the other hand is sure that the credit amount will onlybe released against receipt of documents which he has specified. ADVATAGES TO THE EXPORTER Dependance on credit worthiness of an importer is replaced with dependence on credit worthiness of the bank. If the credit is revocable, it can not be cancelled without the exporter express agreement and notice of revocation can be rejected by exporter if received after shipment. The documents and therefore the goods will not be released untill the paymrnt or the commitment to payment is made (in terms of the letter of credit).

43 Where credit has allowed the accepted bill of exchange can be used to obtain the financer.

DISADVANTAGES TO EXPORTER The exporter has to produce correct documents, accurate in every detail. Even a minor discrepancy can cause delay. If the credit is revocable it can be canceled between shipment and payment period, provided it specifically states so. Where the advising bank does not has immediate access to reimbursement by the issuing bank, the payment may be delayed. However if the documents have been negotiated, payment cannot be held for lack of receipt of payment. ADVANTAGES TO IMPORTER The importer can negotiate better terms as the exporter is assured of payment. importer is assured that no fund will be released unless the documents are received correct and are in order. Protection is provided under UCP for documentry credits.

DISADVANTAGES TO IMPORTER Since the bank deals in documents only, they provide no protection against poor quality and defective goods. If the credit is revocable it can be cancel without the consent of the exporter. The importer take the liability of the credit and remain liable regardless of changes in circumstances. Documentry credit can be expensive.

COLLECTION

44 Collection is one of the method of settlement of internal trade transactions. It is extensively used in a competitive market where buyer is in a position to influence the terms and the seller is inforced to provide credit to the buyer. It operates between the two extremes "open account " and advance "payment method ". The collection mechanism is governed by the uniform rules for collection ICC-522 which discuss the liabilities and responsibilities of the collecting and the remitting banks, the manner in which the documents are to be presented to the drawee or the payment / acceptance collection of bank interest and other charges etc., the "case-of-need" and protection of goods. PARTIES INVOLVED IN COLLECTION The principal or drawer or the exporter or the seller. The remitting bank The collecting bank The presenting bank The drawee or buyer or importer.

COLLECTION MECHANISM STEP BY STEP Step 1 Exporter and importer conclude sales contract. Step 2 The exporter ship goods to the importer country. Step 3 The exporter through covering letter and lodgement from forwards his bill of exchange alongwith the supporting commercial and transport documents to the remitting bank. Step 4 The remitting bank forwards the documents to its branch or corresponding bank in the importer countrry called COLLECTING BANK, under cover of its collection schedule called the COLLECTING ORDER.

45 Step 5 The collecting bank if it is not the importer bank will forward the documents to the importer's bank for presenting them to importer for payment or acceptance of the bill of exchange, as the case may be. Step 6 The importer pays the sight bill or accepts if it is the usance bill. Step 7 The collecting bank present the accepted bill to the drawee (importer) on the maturity of the bill for making payment. Step 8 The collecting bank remits proceeds to the remitting bank. Step 9 The remitting bank credit the proceeds to the exporter's account.

DOCUMENTS IN FOREIGN TRADE

Documents are actually proof or information used for evidence of some transaction. In foreign trade two countries and two currencies are involved therefore every transaction is required to be supported with some document(s). These documents prove helpful in solving disputes of non payment or non receipt of required goods. In international trade the banks play a significant role. Bank helps both importer and exporters. Both the parties sometime do not know each other so the bank provide assurance to the exporter for the payment and to the importer for the delivery of the goods. In other words the bank avoide the mutual mistrust and the misunderstanding between both the parties and this is done only through documents which should be flawlass and free from any ambiguity. Dealing of banker in relation to whole process o fforeign trade is concerned with the documents and not with the goods. CATEGORIES OF DOCUMENTS The documents in international trade are classified into four broad categories: 1-Financial documents.

46 2- Transport documents. 3- Commercial documents. 4- Insurance documents.

Financial documents Bills of exchange Promissory note Trust receipt Delivery order Bills of lading Airway bill Air consignmennt note Post parcel receipt Truck receipt Railwayreceipt Performa invoice Commercial invoice Certified invoice Consular invoice Consular invoice / legalized invoce Certificate of orgin Weight note Packing list Inspection certificate Manufacturer's analysis certificate.

Transport documents

Commercial documents

47 Black list certificate Health and sanitary certificate. Insurance cover note Insurance certificate Insurance policy Copies of letter notifying shipment of goods to insurance co.

Insurance document

PAYMENT AGAIST DOCUMENTS

Following is the procedure for payment aginst documents: SCRUTINY OF DOCUMENTS ON THE COUNTER OF OPENING BANK A documentry letter of credit is opened by the opening bank in favor of a foreign supplier through an advising bank. The supplier after effecting shipment of goods, present shipping and other document as required under terms of the credit to the negotiating bank. If documents are found in order,the negotating bank pays the amount to supplier and claims reimbursement as per instructions / arrangements of the openning bank .sometimes these documents are negotiated under indemnity from supplier due to some discrepancy. The documents are forward under covering letter to to openning bank in two sets viz. Orignal and duplicate under seperate covers.generally following documents are received from negotiating bank: Covering schedule Bills of exchannge Commercial invoce with required certificate Bills o flading or other transport documents Certificate of origin Shipping scedule Packing list Weight note

48 Copy of advice to inssurance companies and shipping advice to oppener as required by LC. Any other required in term of LC.

Opening bank has its own liability to scrutinize the documents independently within a reasonable time, not to exceed 7 banking days followiing the day of receipt of documents and to decide whether to take up or to refuse the documents and to inform the party from which it received the documents accordingly. On receiving the documents, the oppeninig bank scrutinize them and lodge them without any delay.

49

ASKARI COMMERCIAL BANK LIMITED ACBLANCE SHEET HORIZONTAL ANALYSIS AS ON DEC 31, 2005
Particulars 2005 2004 CHANGE %

Assets Cash Balances with other banks Money at call & short notice Investments Advances- net of provision Other assets Opening fixed assets Deferred tax Assets Liabilities Bills payable Borrowing from other banks, agents etc. Deposits & other accounts Other liabilities Total Liabilities Net Assets Presented by Share capital Reserve fund, other reserves Unappropriated profit 5 Particulars Surplus/(deficit) on 3,885,612 1,081,208 1,698,699 11,396,616 19,131,494 1,180,775 1,424,883 298,538 40,098,095 305,558 6,709,054 30,207,324 716,475 37,938,411 2,159,684 750,000 361,591 249,701 1,361,292 2005 198,392 2159684 2044825 1797986 2260315 4874700 15242317 1090918 1287355 256216 28854632 106,353 5,916,603 20,481 632,006 27,136,530 1,718,102 600,000 299,469 1,211 900,680 2004 817422 1718102 1840787 -716778 -561616 6521916 3889177 89857 137528 42322 11243463 199,205 792,451 9,725,756 75,469 10,801,881 441,582 150,000 62,122 248,490 460,612 CHANGE -619030 441582 90.02 (39.86) (24.85) 133.79 25.51 8.24 10.68 16.52 38.96 187.3 13.39 47.48 13.36 39.80 25.70 25 20.74 20519.4 51.14 % (75.73) 25.70

50

ASKARI COMMERCIAL BANK LIMITED BALANCE SHEET VERTICAL ANALYSIS AS ON DEC 31, 2005 Particulars 2005 % 2004
Assets Cash Balances with other banks Money at call & short notice Investments Advances- net of provision Other assets Opening fixed assets Deferred tax Assets Liabilities Bills payable Borrowing from other banks, agents etc. Deposits & other accounts Other liabilities Total Liabilities Net Assets Presented by Share capital Reserve fund, other reserves Unappropriated profit 3,885,612 1,081,208 1,698,699 11,396,616 19,131,494 1,180,775 1,424,883 298,538 40,098,095 305,558 6,709,054 30,207,324 716,475 37,938,411 2,159,684 750,000 361,591 249,701 1,361,292 9.69 2.69 4.23 28.42 47.71 2.94 3.55 0.74 0.80 17.68 79.62 1.88 2044825 1797986 2260315 4874700 15242317 1090918 1287355 256216 28854632 106,353 5,916,603 20,481 632,006 27,136,530 1,718,102 600,000 299,469 1,211 900,680

%
7.08 6.23 7.83 16.89 52.82 3.7 4.46 0.88 38.96 .39 21.8 754.76 2.32

55.09 26.54 18.34

66.6 33.24 0.13

51

ASKARI COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNT VERTICAL ANALYSIS AS ON DEC 31, 2005
Particulars
Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up internets income Provision against non-performing loans and advances-net reversals Provision for diminution in the value of investments Bad debts written off directly Net mark-up/interest income after provision NON MAR-UP/INTEREST INCOME Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Other income Total non-mark up/interest income NON MAR-UP/INTEREST EXPENSES Administrative expenses Other provisions/write offs Other charges Total non-mark up/interest expenses Extraordinary/unusual items

2005
3,387,377 2,515,074 872,303 13,705 13,705 886,008

%
388.32 288.32

2004
261,828 1,724,041 537,787 1.57 103,950 103,950 641,737

%
420.58 320.58

19.32 19.32 119.32

1.57 101.57

147,277 41,910 113,923 79,314 382,424 1,268,432 743,602 666 744,268

11.61 3.3 8.98 6.25 30.15

103,838 8,951 69,195 87,504 269,488 911,225

11.39 0.98 7.59 49.6 529.57

5.88 0.052 58.67

503,028 7,619 228 510,875

55.20 0.836 0.025 56.06

52
PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION Unappropriated profit brought forward Profit available for appropriation APPROPRIATIONS Transfer to statutory reserve Transfer from revenue reserve Dividend Nil (2000:Rs. 3.5 per share) Unappropriated profit carried forward Basic earnings per share Diluted earnings per share The annexed notes 1 to 40 form an integral part of these accounts.

524,164 (213,552) 310,612 1,211 311,823 (62,122) (62,122) 249,701

41.32 (16.8) 24.48 0.095 24.58 (4.89) (4.89) 19.68

400,350 (185,000) 215,350 8,931 224,281 (43,070) 30,000 (210,000) (223,070) 1,211

43.93 (20.30) 23.63 0.980 24.61 (4.72) 3.29 23.04 (24.48) 0.132

Basic earnings per share Diluted earnings per share

5.16 5.16

3.59 3.59

53

ASKARI COMMERCIAL BANK LIMITED PROFIT AND LOSS ACCOUNT HORIZONTAL ANALYSIS AS ON DEC 31, 2005
Particulars Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up internets income Provision against nonperforming loans and advances-net reversals Provision for diminution in the value of investments Bad debts written off directly Net mark-up/interest income after provision NON MAR-UP/INTEREST INCOME Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Other income Total non-mark up/interest income NON MAR-UP/INTEREST EXPENSES Administrative expenses Other provisions/write offs Other charges Total non-mark up/interest expenses Extraordinary/unusual items 2005 3,387,377 2,515,074 872,303 13,705 13,705 886,008 2004 261,828 1,724,041 537,787 103,950 103,950 641,737 CHANGE 1,125,549 791,033 334,516 -90,245 -90,245 244,271 % 49.76 45.88 62.20 (86.8) (86.8) 38.06

147,277 41,910 113,923 79,314 382,424 1,268,432 743,602 666 744,268 -

103,838 8,951 69,195 87,504 269,488 911,225 503,028 7,619 228 510,875 -

43,439 32,959 47,728 8,190 112,936 357,207 240574 (7619) 438 233393 -

41.83 368.21 64.64 (9.3) 4.90 39.20 47.82 -1 192.10 45.68 -

54

PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION Unappropriated profit brought forward Profit available for appropriation APPROPRIATIONS Transfer to statutory reserve Transfer from revenue reserve Dividend Nil (2004:Rs. 3.5 per share) Unappropriated profit carried forward Basic earnings per share Diluted earnings per share The annexed notes 1 to 40 form an integral part of these accounts.

524,164 (213,552) 310,612 1,211 311,823 (62,122) (62,122) 249,701

400,350 (185,000) 215,350 8,931 224,281 (43,070) 30,000 (210,000) (223,070) 1,211

123814 95262 -7720 87524

30.9 44.23 (86.44) 39.03

5.16 5.16

3.59 3.59

55

PROFITABILITY RATIOS

1.

NET INCOME / CAPITAL FUNDS

2003 = = 2004 = = 2005 = =

[354,415 / 1,726,280] * 100 20.53% [400,350 / 1,718,102] * 100 23.30% [524,164 / 2,159,684] * 100 24.27%

COMMENTS
This ratio i.e. return on equity shows the return the owners of the business enjoy after paying all the financial expenses and other liabilities of the business. The return on equity increased from 23.30% to 24.27%, which is a tremendous increase and has resulted due to the growing profits of the banks. In 2003, pre-tax profit has increased almost by 5 times of previous years profit. So, a consistent increase in profit shows a positive and a very healthy and pleasing news for the owners.

56

2. 2003 = = 2004 = = 2005 = =

NET INCOME / TOTAL ASSETS

[354,415 / 21,019,608] * 100 1.70% [400,350 / 27,577,159] * 100 1.51% [524,164 / 40,098,095] * 100 1.30% 3. NET INCOME / RISK ASSETS

2003 = = 2004 = = 2005 = =

[354,415 / 10,327,324] * 100 3.40% [400,350 / 15,242,317] * 100 2.62% [524,164/ 19,131,494] * 100 2.71%

57

Profit (Rs. In 000)

500000 400000 300000 200000 100000 0 FY2003 FY2004 FY2005

58

ADMINISTRATIVE EXPENSES TO DEPOSITS

= [ADMIN. EXPENSES / DEPOSITS] * 100 [402559 / 15820473] * 100 2.54% [503256 / 20481568] * 100 2.46% [743,602 / 30,207,324] * 100 2.46%

2003 = = 2004 = = 2005 = =

COMMENTS
This ratio is very helpful in determining the relationship between the deposits and the costs associated with maintaining them. The benchmarked figure is 2% to 3% in the banking sector. The administrative expenses should exceed the level of 3%, for deposits. The ratio signifies the managements efficiency and shrewdness of maintaining deposits. In no year since 2004 this ratio crossed 3% and shows a decreasing trend. This decreasing trend, even with the increase in deposits, signifies managements commitment and professional outlook.

59

LIQUIDITY RATIOS
1. 2003 = = 2004 = = 2005 = = QUICK ASSETS / TOTAL DEPOSITS

[7,741,115 / 15,820,473] * 100 48.93% [9,570,138 / 20,481,568] * 100 46.73% [15,863,436 / 30,207,324] * 100 52.51%

COMMENTS
The main requirement for any commercial bank, according to the Prudential Regulations of State Bank of Pakistan, cash reserve (statuary reserve) should be 5% & in form of government securities should be 15% of total deposits. So to meet this collective requirement a bank should have at least 20% of total deposits in form of quick assets. Here, in this case, the ratio in all three years is above 20%, which is quite satisfactory.

60

2.

FINANCING / DEPOSITS + BORROWED FUNDS

2003 = = 2004 = =

[10,327,324 / 18,792,713] * 100 54.95% [15,242,317 / 25,120,698] * 100 60.68%

2005 = =

[1,931,494 / 36,916,378] * 100 51.82%

COMMENTS
As, continuous increase has been observed in borrowing from other banks because of expansion in branch network. Increasing trend in the ratio during the last three years indicates that the bank is utilizing its funds properly. It would lead in a decrease in the idle cost of funds. So it is a healthy sign and indicates the managements efficiency. Decrease in year 2004, due to the increase in bank borrowing. However, this is the position on the last day of the year, which might have been different during the year. As far as the advances and deposits are concerned, both have increased at a rate of 33%.

61

3.

DEMAND DEPOSITS / TOTAL DEPOSITS

2003 = = 2004 = =

[10,233,922 / 15,820,473] * 100 65% [13,438,259 / 20,481,568] * 100 66%

2005 = =

[15,245,882 / 30,207,324] * 100 50.47%

COMMENTS
This is very important ratio that contributes in the banks cost of funds. Demand deposits include the current and saving deposits, on which less return is paid as compared to fixed deposits, which leads to the low cost of funds. In this case, there must be more short-term advances given by the bank. In ACBL, there is continuous increasing trend in this ratio, which indicates that bank is emphasizing more on demand deposits. Benefit is also evident from the decreasing trend in cost of funds. Bank is also dealing in short term advances that reduce the fear of idle cost. So, here I would appreciate the management policy

62

4.

DUE TO BANKS / TOTAL DEPOSITS

2003 = = 2004 = =

[2,972,240 / 15,820,473] * 100 18.79% [4,639,130 / 20,481,568] * 100 22.65%

2005 = =

[6,709,054 / 30,207,324] * 100 22.21%

COMMENTS
This ratio signifies the financial mix of bank. In ideal situations, there should be decreasing trend or consistency in this ratio. In case of ACBL, although there is a tremendous increase in deposits but borrowing is also increasing considerably. Since, this is the position on the last day, so situation might have been different during the year. Also, the increase in bank borrowing might be due to the expansion in branch network, where more funds are required in initial years. A minor decrease shows good management.

63

5. 2003 = = 2004 = = 2005 = =

DUE FROM BANKS / TOTAL ASSETS [1,161,434 / 21,019,608] * 100 5.52% [1,798,086 / 27,577,159] * 100 6.52% [1,081,208 / 39,799,557] * 100 2.71%

COMMENTS
This ratio signifies the percentage of receivables in the total assets. In normal practices, bank usually keeps some of its funds in other banks, as it is safe source of financing. However, this percentage should not be too high. High percentage would mean that bank is not financing in open market. But, again it depends upon the market conditions.

64

6.

DUE FROM BANKS / DUE TO BANKS

2003 = = 2004 = = 2005 = =

[1,161,434 / 2,972,240] 0.39:1 [1,798,089 / 4,639,130] 0.39:1 [1,081,208 / 6709054] * 100 16.12%

COMMENTS
In ideal situations, this ratio should be 1:1 or more. Whereas, in this case, the ratio is below the standards. Receivables are less than payables to banks, which is due to increase in bank borrowing. But I have observed this scenario in most of the cases of banks including many successful foreign banks like Habib Bank AG Zurich etc. However, there is an increasing trend in this ratio, which shows better management approach towards liquidity position.

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CAPITALIZATION RATIOS
1. 2003 = = 2004 = = 2005 = = CAP. FUNDS / TOTAL ASSETS

[1,726,280 / 21,019,608] * 100 8.21% [1,718,102 / 27,577,159] * 100 6.23% [2,159,684 / 39,799,557] * 100 5.42%

COMMENTS
The ratio signifies the banks contribution of equity in total assets. Strong equity base indicates the low risk factor. In usual practice of banks, they emphasize more on deposits than injecting new equity in the business. In case of ACBL, the percentage of shareholders equity to total assets is almost consistent. However, the increase or decrease in capital funds is due to surplus or deficit on revaluation. Increase in 2004 is due to the surplus, whereas decrease in year 2005 is due to deficit on revaluation.

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2. 2003 = = 2004 = = 2005 = =

CAP. FUNDS / RISK ASSETS

[1,726,280 / 10,327,324] * 100 16.72% [1,718,102 / 15,242,317] * 100 11.27% [2,159,684 / 19,131,494] * 100 11.28%

3. CAP. FUNDS / TOTAL DEPOSITS 2003 = = 2004 = = 2005 = = [1,726,280 / 15,820,473] * 100 10.91% [1,718,102 / 20,481,568] * 100 8.39% [2,159,684 / 30,207,324] * 100 7.14%

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COMMENTS
These are very crucial ratio and have great importance especially for the creditors. These show the long-term solvency of the organization. In all the capitalization ratios, one thing is common during the last three years, that with the expansion in branch network, and increase in business operations in the form of advances and deposits, banks capital base has been consistent. The change (decrease) in year99 is just because of the revaluation. It is because, that the bank is on the way of expanding its business and for this purpose it is relying much on its deposits. But I think that the bank should also increase its level of reserves to sustain the trust of creditors.

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SWOT ANALYSIS
An analysis indicating towards the organizations strengths, weaknesses, opportunities and threat is termed as SWOT Analysis. Such an analysis is very important for the management in retaining the strength, overcoming the weaknesses, capitalizing over the emerging market opportunities, and carving ways to successfully tackle with the threats and ultimately converting them in the strengths for the organization. During six weeks of my stay, I have come across the following SWOT analysis of the bank.

STRENGTHS
LEADING PRIVATE SECTOR BANK T Askari commercial bank is the leading private sector bank.in the banking network in Pakistan with many of them online branches in major cities of the country

AUTOMATIC OPERATIONS: The operations performed by the bank are highly automated that result in assurance for the customers that their transactions are completed reliably, efficiently and securely.

FULL DAY BANKING One can avail the benefit of the services provided at the bank till 5:00 P.m. which is highly useful for those customers who find it difficult to leave their officers in the morning..

ATM NETWORK

69 The bank has the largest ATM Network cross the country. The customers of ACBL withdraw access their funds any time at all the ATM Sites with ASKCASH Logo.

CUSTOMIZED SOLUTIONS The management of the bank believes in customer focussed banking rather than the product oriented banking. The products and services designed by the bank are specifically tailored to the individual needs of its customers.

CUSTOMER ORIENTED BANKING The priority banking centres of the bank offer an unmatched where the customer receives highly privileged services in a highly elegant environment. It gives the chance of experiencing new standards in banking. Designed specially for those who appreciate only the finest things in life, Priority Banking offers the very highest levels of personalised banking to match customers unique status.

ELECTRONIC BANKING The revolution in the banking in the form of electronic banking operations have opened avenues of excellent, efficient and quick services saving the time and costs of the customers and fortunately ACBL is among those few banks who are already reaping the benefits of electronic transactions.

ELECTRONIC FUNDS TRANSFER ACBL management is quite prepared to adopt the latest advancements in technology resulting in revolution in the banking operations such as check clearing process, computer based teller equipment, automatic teller machines, and electronic funds transfers among the others.

PHONE BANKING

70 Phone banking service is very attractive for those classes of customers who dont have time to personally come to the bank i.e. banking on the phone line thus saving the precious time of the customers. ETHICAL CONCERNS AND PUBLIC IMAGE The organizations showing concern for the people, ethics, and environment enjoy good public reputation and are able to reap the benefits in the long run. ACBL management is quite sensitive to this issue.

WEAKNESSES
NOT HIGHLY AUTOMATED The bank has still some of the traditional ways of operations inthis advanced technological environment. MANUAL BOOK-KEEPING Although the bank has computerized accounting system but, still the bankers use to make their enteries in the accountingregister. LOW JOB SATISFACTION Understanding and the effective management of the human resources is the most difficult challenge faced not only by the bank but by all the organizations. Even though the people have been sacrificed in the new organizational developments, it is becoming clear that the true lasting competitive advantage comes through humn resources and how they are managed. ACBL seems to not focussing on this highly critical issue as the job satisfaction level of the employees working at ACBL, was quite low.

LACK OF SPECIALISATION

71 This famous and useful concept given by Adam Smith in 1776 seems to be missing in the bank. The employees are constantly rotated from one job to another job of totally different characteristic in the view of giving them the know-how of the working in all the departments. But I think this is not a very good tactics used by the management. Otherwise the situation might be like this Jack of all and master of none. CENTRALIZATION There is a high degree of centralisation in the bank. Almost all the decision making is in the hands of the upper management. But centralisation is effective up to a certain level otherwise it becomes inefficient and at times costly too. I personally observed that delay occurred in the operations of the employees only due to the fact that they had not got any instructions from the head office. LACK OF TRAINING FACILITIES Presently there is no specific training program arranged for the new recruiters. They have to learn based on their observations and also their mistakes. It takes a bit time for the fresh one to learn the banking the result is huge amount of blunders, mistakes etc. resulting in monetary and non-monetary losses for the bank. There is pressure not only on the new learner but also on the person placed upon with this responsibility.

OPPORTUNITIES
SUPPORT FROM THE ARMY The bank has the support from the army and has good financial position in the market therefore having a good position to expand their business.

THREATS

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HIGH EMPLOYEES TURNOVER As discussed above, the job satisfaction level of the employee is very low resulting in high turnover which is bad for any organization as there are huge monetary and nonmonetary costs involved in the fresh recruitments. HIGH CHARGES The schedules of charges indicate that the fees charged by the bank on the various services it provides are extremely high. It may result in decrease in the number of its exiting customers. Further more, this could be very alarming situation for the bank in case some of the competitors grasped the opportunity and lowered its rates. The result would be either the lost of market share or decrease in the charges resulting in lowering the banks income. LESS ATTRACTIVE RATE OF RETURN Commercial banks face considerable competition in attracting deposits from individuals or small investors. In contrast, the Govt. of Pakistan national saving scheme offers attractive rates of return (approx. 16 to 18 percent annually) on 10-15 year fixed accounts, which banks find difficult to match. COMPETITION ACBL is currently facing strict competition from the other banks. LESS EXPERIENCED STAFF Owing to huge turnover of the employees, the no. of experienced and well trained staff is very low. Majority of the staff working in the bank branches is quite young and inexperienced. If the bank failed to bring down its high employees turnover, then it would be lacking the most important resources of any organization i.e. the experienced staff.