Alfalah Bank Internship

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ACKNOWLEDGEMENT All thanks to Allah Almighty, the benevolent and compassionate, who blessed me with the power & capabilities and remained contented on all intricacies found during the successful completion of my task. I’m grateful to my family members whose heart felt prayers and appreciation have always been an asset and a great source of inspiration of me. It could be complicated for me to accomplish to task without their shadow of love. I’m also obliged to respected Chairman Mr. Shoukat Malik who furnished me this prolific opportunity to avail a practical experience, which is application of theory in “Internship” and also to revered teacher Mr. Sadiq Shahid who provided his full support and guidance for this 6-8 week internship program.

I also extend my thanks to Mr. Mirza Aftab Baig along with all the Branch Staff for their encouraging response and guidance to make my internship as a real learning experience. Muhammad Zuhair Altaf MBC-08-36

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Table of Contents  Executive Summary……………………………….............  Introduction……………………………………………….. o Central Background Information………….. o Company Background………………………. o Vision & Mission…………………………….. o Organizational Hierarchy (Chart)…………. o Board of Directors…………………………...  Departments Worked During Internship………………..

Account opening……………………………... Remittances………………………………….. Credit Marketing …………………………… Credit Administration department (CAD)… Trade Finance……………………………….. Application of Class Room Learning……………………. Learning as an Internee………………………………....... Marketing Analysis……………...………………………... Human Resource Assessment…………………………….. SWOT Analysis…………………………………………… PEST Analysis…………………………………………….. Financial Analysis………………………………………… o Horizontal and Vertical Analysis…………... o Ratio Analysis………………………………... Recommendations…………………………………………. Conclusion…………………………………………………. Bibliography…………………………….............................. o o o o o

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Executive Summary Pakistan after getting its independence, did not inherit a strong banking industry and since then saw a number of events in the industry, like the nationalization of banks in the 1970’s. However, the banking industry of Pakistan has been grown over the past few years, mainly because of the consistent policies implemented by the Government of Pakistan, including the privatization of banks in Pakistan. Also the State Bank of Pakistan’s, monetary policy has been very friendly toward the banking industry. But in 2008 because of world economic crisis, the economy of country was in crisis so the all businesses went down so as the banks ‘business result in lower performance and profibility. There are a number of different banks established in Pakistan, including local incorporated commercial banks, foreign incorporated commercial banks, development financial institutions, investment banks, discount & guarantee houses, housing finance companies, venture capital companies, micro finance banks and Islamic banks. Bank Alfalah was incorporated in 1997 and was privatized by the Government of Pakistan. The Abu Dhabi Group bought the majority shares of the bank and so got the rights to control the bank’s operations. Since the privatization of the bank, Bank Alfalah has implement different policies to make it one of the best banks of Pakistan, which included introducing new products and services and increase its operations by opening new branches in Pakistan. Today Bank Alfalah is operating in more than 95 cities of Pakistan and operating its foreign branches in Bangladesh, Afghanistan and Bahrain. The total employees of Bank Alfalah in 2008 were 7,584.There are only 2% increase in employees this year as compared to previous year because of the conditions of Pakistan’s economy. The financial statistics of Bank Alfalah are quite good as their human resource. The profit after taxation for Bank Alfalah in 2008 amounted to Rs.1, 301 million and its total assets for 2008 amounted to Rs.348, 990 million. The book value and earning per share of the bank have decreased this year. The over all performance of BAFL is decreased in 2008. Bank Alfalah promotes its products and services through print and electronic media. Bank Alfalah also promotes itself by sponsoring different events. I did my six weeks internship at Bank Alfalah, Abdali road branch and worked in Credit administration department, Trade Finance Department, Credit marketing department, Account opening department and remittances department. The over all experience at the bank was good. A lot of things have been learnt, some of which relate to classroom learning. Alfalah is expanding its network all over the Pakistan yet there are many untapped areas. The competitors of BAFL are also in aggressive position. The Economic and Political conditions of the country are very disturbing; the high inflation and law and order situation affects every business including Alfalah. Social and technological issues are of secondary importance but they also can not be neglected. BAFL is focusing positively regarding technological issues but it should also keep its eye on the social cultural factors also. Some of the recommendations include promotion on the basis of merit, loans to students and scholarship programs for its employees. Lastly Bank Alfalah has seen a rapid growth 4

in its activities by introducing a range of products and services and showing its presence in the country by opening new branches and in future should keep this momentum and always strive to become the best.

Introduction Central Background Information Banking is one of the most sensitive businesses all over the world. Banks play an important role in the economy and are considered as the backbone of an economy in every country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in decades to come. By 1970, it had acquired a flourishing banking sector. Nationalization of banks in the seventies was a major upset to domestic banking industry of the country, which changed the whole complexion of the banking industry. With irrational decision at the top, all the commercial banks were made subservient to the political leadership and the bureaucracy. The commercial banks thus lost their assets management equilibrium, initiative and growth momentum. They ceased to be a business concern and became big bureaucracies. The era of nineties was the climax of privatization, deregulation and restructuring in the domestic banking industry and financial institutions. The Muslim Commercial Bank was the first bank to privatize. Followed by Allied Bank limited, United Bank Limited and Habib Bank Limited have all been privatized. Today, the banking sector is providing financial solutions to the masses and is growing and becoming a solid partner in the development of the Pakistani economy, this growth potential has seen different acquisitions in the banking sector, with the Standard Chartered and Union Bank being the most prominent.

Company Background Bank Alfalah has gone through different phases over the years. Its name and been changed in the following sequence. Bank of Credit and Commerce and International (BCCI)—1972 Habib Credit and Exchange Bank—1992 Bank Alfalah—1997

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Bank of Credit & Commerce International (BCCI) was a Pakistan based bank, established by Mr. Agha Hassan Abdi from UBL, in association with U.A.E and Europe. BCCI has its branches in 74 different countries of the world. It had its 3 branches in Pakistan, Karachi, Lahore and Rawalpindi. The Lahore branch was opened on 15th December1978. This branch was opened at that time when some other international banks like Citi Bank, Bank of America, and American Express etc. were already working. But within a few years this branch crossed mostly all the other banks in case of deposits, advances, imports and exports dealings, guarantees, traveler‘s cheque sales etc. In 1991, the BCCI was banned, when it was accused by European countries that the bank was involved in some illegal operations with Gulf countries. The major reason behind European accusation was that BCCI was of Islamic mode. Therefore, the bank was closed due to international pressure. In July 1991, the branches of BCCI in Pakistan at that time were taken over by The Ministry of Finance and SBP. All three branches were given under Habib Bank Limited after valuation of its assets for 15 million dollars, which were named as Habib Credit and Exchange Bank (HCEB) and these were working as subsidiary of Habib Bank Limited. Following the privatization in 1997, Habib credit and Exchange Bank assumed the new identity of Bank Alfalah on June 21st, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The bank is currently operating through 282 branches. This includes 48 Islamic banking branches and 7 foreign branches in Bangladesh, two in Afghanistan and one offshore banking unit in Bahrain with the registered office at B.A.Building, I.I.Chundrigar, Karachi. The bank is listed on the Karachi and Lahore Stock Exchange with a ticker name of “BAFL”.

Credit Rating PACRA, a premier rating agency of the country, has rated the bank For long term „ AA‟ (double A) For short term

A1+ (A one plus)

These ratings denote a very low expectation of credit risk, strong capacity for timely payment of financial commitments in the long term and by highest capacity for timely repayment in the short term, respectively. Further, the unsecured subordinated debt (Term Finance Certificates) of the bank has been awarded a credit rating of AA- (double a minus). Bank Alfalah has expanded its branch network and deposit base, along with making profitable advances and increasing the range of products and services. Bank Alfalah is the 5th largest bank of Pakistan in terms of its assets that are 6% of the total banking sector assets. The banking sector has expanded rapidly in Pakistan along with the fast paced economic growth. The increased competition in the banking sector has encouraged the Banks to come up with services that could satisfy the needs of a large consumer base. The result has been increased profitability of all banks.

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Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates its commitment to 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 twelve years, it has emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. The bank also entered into other dimensions of financial services –brokerage, asset management, and insurance – through its subsidiaries, which are in their development phase and would require sometime before emerging as material contributors to BAL‘s revenue stream.

Vision & Mission Vision To be the premier organization operating locally & internationality that provides the complete range of financial services to all segments under one roof.

Mission To develop & deliver the most innovative products, manage customer experience, deliver quality services that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank.

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Organizational Hierarchy:

Chief Executive Officer Co-Chairman Central Management Committee

Group Heads Regional Managers

Area Managers Hub Managers Branch Managers

It’s a general hierarchy of bank which is showing about the main authorities of Bank Alfalah Limited who are controlling its management in Pakistan. Bank’s management is divided into different groups, regions and areas. Co-chairman is providing supervision to 8

group heads that are responsible for controlling the affairs of different groups. After group heads in the hierarchy, there are regional, hub and area managers who are managing and guiding the working of different branches of bank.

Board of Directors The board of directors has the authority in guiding Bank affairs and in making general policies. Some directors are the personnel of the Bank Alfalah Limited follows. H.E. Sheikh Hamdan Bin Mubarak Al Chairman Nahayan Mr. Abdulla Mansoori

Nasser

Hawalileel

Al-

Director

Mr. Abdull Khalil Al Mutawa

Director

Mr.Khalid Mana Saeed Al Otaiba

Director

Mr. Ikram Ul-Majeed Sehgal

Director

Mr. Nadeem Iqbal Sheikh

Director

Mr. Sirajuddin Aziz

Director & CEO

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Departments Worked During Internship I did my internship at Bank Alfalah Abdali Road, for a total duration of six weeks and the departments that I worked during this time are as follows:  Account opening  Remittances  Credit Marketing  Credit Administration department (CAD)  Trade Finance

Accounts Opening Department Accounts opening department is one of the departments that come under the retail/general banking facilities provided by Bank Alfalah Abdali road. Some of the major deposit accounts opened by Bank Alfalah Abdali road are as follows:

Major Deposit Account Products Current Account Current Accounts are non interest bearing accounts that have a minimum account opening requirement of Rs. 10,000. No zakat is deducted on the accounts balance. Furthermore all current account holders receive a Hilal debit card and there are no restriction on the number of withdraws or deposits made to and from the account.

Profit& Loss Saving Account Profit& Loss saving accounts can be opened with a minimum balance requirement of Rs. 5,000 and profit is credited on a half yearly basis. There are no restrictions on the number of deposits and withdrawal made to and from the account and all account holders receive a Hilal debit card as well. Profit and loss saving account cannot be opened by a business corporation, however can be jointly opened by individuals. Profits are paid at 2% on all account balances.

Basic Banking Account (BBA) Basic Banking Account was introduced by banks on an order by the State Bank of Pakistan and is current in nature. There is no minimum balance requirement for BBA,

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however initial deposit must be Rs 1000. Maximum two withdrawals and deposits are allowed by cheque, while there is no restriction on ATM withdrawals.

Royal Profit Account Royal profit accounts are opened with a minimum balance requirement of Rs 50,000. The basic aim of this account is that the higher the balance the higher the return, as profit is credited on a monthly basis. The profit paid to account holders is as follows: Profits paid on Royal Profit Account Amount

Profit pa.

From Rs.50,000 to 999,999

2.50%

From Rs.1,000,000 to 4,999,999

3.50%

Rs.5,000,000 and above

Negotiable

Kifayat Account Kifayat account is another saving account product that can be opened with a minimum balance requirement of Rs 10,000, with a maximum limit of Rs 1 million. Profit is calculated on a monthly basis, while it is credited on quarterly basis. Bank Alfalah pays 7% pa interest on Kifayat Account.

Mahana Amdan Account Mahana Amdan account is Term Deposit Receipt (TDR) for three years that can be opened with a minimum balance requirement of Rs 100,000, with a maximum limit of Rs 15 million. Profits are paid at 10% pa, credited on a monthly basis. Other features of this account include free personal accident insurance and automatic renewal for another 3 years, after the expiry of original period.

Alfalah Education Alfalah education is a one year TDR that can be purchased by people having school going children’s. A person can purchase a unit for Rs 100.000, with a maximum of 3 years. This TDR pays 7%, paid at maturity and gives an additional advantage of giving monthly school fee of the children’s if the breadwinner of the family dies.

Basic Requirements for Account Opening The basic requirements to open an account for individuals/self employed are as follows:  CNIC  Source of income (salary slip etc)

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 NTN certificate (optional)  Company letterhead or authorization (as required) The basic requirement to open an account for a partnership:  Partnership Deed  Partners CNIC  Company Letterhead  NTN certificate (optional) The basic requirement to open an account for companies:  Memorandum of Association  Article of Association  Directors CNIC  Company Letterhead  NTN certificate (optional)

Internal Codes for Bank Alfalah Accounts Some of the major account opened at Bank Alfalah Abdali road and their internal codes are as follows: Internal Codes for Some Accounts Account Type

Code

Current Account

010*****

Profit& Loss Account

020*****

BBA Account

0189****

Royal Profits

029*****

Current Account USD

018*****

Major Work Done by Account Opening Department Stop Payment

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If a customer looses their cheque book, then that customer will have to come to the bank and firstly report the loss and then stop payment, by telling the series of cheque he has lost. By stopping payment, the customer is guaranteed that no illegal payment is made from their account. The process for stopping payment, after the customer tells that he has lost is cheque book is that he fills a ‘Form B’, which is same as a cheque book requisition form and an indemnity form, stating no responsibility on behalf of the bank if any illegal payment is made before the time of announcing a cheque book lost.

Bank Statement and Bank Balance A bank statement tells the whole activity of a bank account over a period of time. Customers often come and want their bank statements and have to fill a form, relating to the time period for which the bank statement is needed. As part of my internship, I was to assist the customer to fill the ‘Bank Statement Form’ and printed statement is given through the banks software. Often customers want to know their accounts balance over the phone and thus I had to tell them their account balances using the banks information system ‘Bank Smart’.

Account Opening Whenever a customer comes to open their account, they have to fill a relationship contract with the bank. As part of my internship I had to fill these forms and then use the appropriate bank stamps to complete these forms. Also as part of the relationship form, I also had to do a ‘Verisys’, a verification system started by NADRA on the CNIC of the new account opener. A ‘Verisys’ tells, if more information pertaining to the customer is needed to open the account or not. Furthermore as all relationship forms have to be sent to Karachi, a central location, for all account relationship forms.

Remittances The need of remittance is commonly felt in today’s business. A major function of any bank is to “transfer of funds form one place to another”. There are two main types of instruments that are used to transfer money, which are as follows:  Pay order: Used to transfer money within the city  Demand Draft: Used to transfer money outside the city

Pay Order 13

Pay orders are made to transfer money within the city and this is a safe way to transfer money as the person who makes the transfer through pay order pays in advance. The procedure that is carried out in transferring money through pay order is as follows:

Procedure for Transferring Money through Pay Order The customer will come to the bank and fill in the pay order application, giving in the details to which account the money is being transferred, the amount etc and attach a cheque to pay for the pay order. Pay orders can also be made through cash but mainly it is made through cheque. The officer checks all the details in the application, makes out the charges for the transfer that the customer will pay and then make the pay order for the customer and pass the following entry: Customer A/c Pay order payable When the customer in favor of whom the pay order was made gives the pay order to his branch, the entries passed are: Pay order payable Customer A/c

Demand Draft Demand Draft is another way in which customers can transfer money outside the city. There are two types of situations for transfer of money through demand drafts:

Outward DD’s When a customer comes to Bank Alfalah to make a DD to transfer money outside the city is known as outward DD. The customer will fill the details in a DD application form, and will attach a cheque or pay cash as he wish. Then the officer will check all the details and make a demand draft for the customer and pass the following entries: For Cheque:

For Cash:

Customer A/C

Sundry A/c 14

Head Office

Head Office

Inward DD’s This is the procedure adopted when the issuing branch sends copy of the instrument as an advice. When the bank receives the advice, the officer will pass the following entries: Head Office A/c DD Payable A/c When the customer comes with the DD to get his payment, the following entries are passed: DD Payable A/c Cash If that customer is a Bank Alfalah account holder then the following entries are passed: DD Payable A/c Customer Account

Foreign Remittances Another type of remittances is foreign exchange transfer from another country to a Bank Alfalah account in Pakistan, through SWIFT. Bank Alfalah for foreign exchange transfers takes the help of Citi Bank for routing.

Procedure for Foreign Transfers The customer will come to Citibank to transfer money to Pakistan. The entries passed will be: Customer A/c 15

Citibank A/c Citibank will then transfer that money to Bank Alfalah Karachi. The entries are: Citibank A/c Bank Alfalah Nostro A/c (khi) Later Bank Alfalah will transfer the Nostro A/c money into the demand account. Nostro A/c Bank Alfalah Demand A/c Now when the customer will come to take his money, the following entries will be made: Demand A/c Customer A/c

CREDIT MARKETING DEPARTMENT Credit means belief or trust. “The quality of being credible or trustworthy”. Another words we can define credit as “trust in one’s integrity in money matters and ones ability to meet payment when due”. Credit marketing department deals with extending loans (credit facility) to customers before sanction advice. State Bank of Pakistan (SBP) has prescribed regulations which are called “PRUDENTIAL REGULATIONS”. Every bank has to follow these regulations. If any bank violates the regulations it should be liable for penalties. The Bank Alfalah limited credit is extended on the basis of these rules and regulations. These regulations tells the term and conditions under which you can extend loans to the borrower and to what extent.

CREDIT FACILITIES At BAL there are two types of credit facilities  Funded facilities  Non funded facilities 16

FUNDED FACILITIES These are the facilities in which there is direct involvement of cash fund. Following are the funded facilities.  Current finance “CF”  Term finance “TF”  Finance against foreign bills “FAFB”  Finance against packing and credit “FAPC”  Finance against imported merchandise “FIM”  Finance against trust receipt “FATR”  Local bills discounted “LBD”

Current Finance “CF” The extensively used financing mode at BAL is current finance (CF) current finance is used to finance both individuals and industries. Individual take current finance for their personal use while in industries. It is taken for fulfilling the requirement of working capital.

Term Finance “TF” Term finance is for specified time period. Term finance is given for fixed asset financing.

Finance against Foreign Bills “FAFB” In FAFB facility exporter take loan from bank on the behalf of their foreign export bills. Like exporter sends shipment but at that time he needs fund for the operation of the business. He may go to the bank and surrenders all the documents including L/C, Bill of lading etc. bank checks all the documents to be in accordance with terms and conditions. If they find no discrepancy, they give money to exporter but take some margin on it.

Finance against Packing and Credit “FAPC” FAPC is taken for the preparation of consignment. It has two forms.  Pre shipment  Post shipment

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1)

Pre Shipment

Pre shipment loans are export related working capital financing.

2)

Post Shipment

Post shipment financing is essentially the receivable financing to the exporters till the period he is out of cash after the shipment.

Finance against Imported Merchandise “FIM” This facility is allowed against the commodities imported from other countries usually through letter of credit. Some time importer does not have enough amount for paying the imported merchandise therefore. He request to the bank to pay all dues to the exporter against the security of imported merchandise. Bank pays the amount and releases the goods, when the importer pays off its liability partially / fully.

Finance against Trust Receipt “FATR” Finance is extended upon the trust receipt signed by borrower. Importer has to import the product. There are three conditions.  Pay money and get thing  Get fine facility And third is that if that client is trust worthy for bank believing on him based upon his past record. He releases the goods against the trust receipt. Trust receipt is given to the bank by the customer. The customer in turn commits that I will pay on such and such date. Banks pays all taxes and gets merchandise and then gives it to client. Bank do charges markup against such financing. FATR is for specific period of time. If client does not pay with in specified time then bank will charge higher per day markup.

Local Bills Discounted LBD Payment against documents or local bills is made by the banks as payment against L/C comes due payment is made for imported documents. For example when seller of phutti (raw cotton) gives all the documents or bills to bank as to get bills discounted in which he gets immediately payment which he would receive after the season.

NON FUNDED FACILITIES The facilities where there is no direct involvement of banks fund. There are two types of unfunded credit line facility, which are as follows: 18

 Letter of Credit (LC)  Letter of Guarantee (LG)

Letter of Credits A letter of credit is a written undertaking by a bank (issuing bank) given at the request and accordance of a buyer (the applicant) to the seller (the beneficiary) to a fact payment up to a stated amount of money within prescribed time limit provided that the terms and conditions are complied with. Letter of Credits issued in the international trade business. There are two types of Letter of Credits:

Usance LC Usance LC is a form of LC, whereby the bank engages to honor the beneficiary usance draft on an acceptance that the items are in accordance with the conditions. Payment is made against acceptance.

Sight LC Theses are letter of credit where the bank engages to honor the beneficiary’s sight draft upon presentation provided that the documents are in accordance with the conditions of the L/C. This is a more safe form of letter of credit as payment is made against the documents.

Letter of Guarantees Letter of guarantees is a guarantee that the bank gives to an organization on behalf of the bank. Letter of Guarantee’s are mainly used when a tender for a specific job is filled by a customer. There are three main types of LG’s:

Bid Bond Bid Bond are filled at the time of filling out the tender and states that if the company is given the tender, it will start working on it and will not walk away.

Performance Bonds Performance Bonds are issued to the beneficiary, to guarantee him that the applicant of the tender will perform the contract under a specific period of time. Performance bonds are issued after the tender is approved of the applicant.

Mobilization against LG (MALG): This is a guarantee that the bank gives when the beneficiary (the firm that issued the tender) that pays an advance of tender to the applicant (the firm that gets the tender), that he will return that advance amount. 19

1. Interview prospective borrower

2. Receipt of request

Flow Chart of Processing of fresh proposal

Prepare visit report

Viabl e

3a. Refuse Request

4. Request given to credit officer

A

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1. Interview prospective borrower in the presence of credit Manager.

2. Receive request stating the amount, type, tenor and purpose of facilities as well as repayment and securities offered.

3. Prepare visit report to assess whether the borrower is a good credit risk.

3a. Where proposal is not viable then refuse request.

4. Where proposal is viable allocate task to credit officer.

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A

C

5. Request CIB and other credit report from SBP and other banks respectively.

B

5. Request Credit Report

12. After necessary review and discussion with credit manager, Irregulari sign and forward documents to ty the secretary BCC.

13. Receive proposal form, enter in the relevant register and allot number. 6. Returncontrol proposal

13a.Ascertain whether the proposal is within the predefined sanctioning limits of BCC. Regulariz e

6a. Decline proposal

14. Make photocopies of CLP and provide to members of BCC.

7. Prepare Credit Present CLP with audited Line15. Proposal (CLP) financial statements etc. in session held by BCC to discuss risk/ rewards and other factors associated with credit proposal.

B 22

12. Sign CLP/ Pass documents to BCC 8.8. Spread PerformSheet a comparative analysis of audited three years reports. 6. Where irregularity found return Also prepare spread sheet proposal to customer forfor various ratios. regularization/ rectification. 13. Enter Proposal Prudenti 8a. Check proposal for al compliance 8a. Refer with case Regulati prudential regulations. ons 6a. Where the above not regularized decline proposal. 9. Where regulation complied with13a. Conform Scrutin and credit manager gives hislimits y and forward CLP approval, sign 9. Sign / Forward to Credit Manager. 7. Where irregularity not found prepare CLP providing all 10. Receive the above and cross necessary details. 10.check Crosscheck information in CLP with 14. Make copies Information that financial statements and spread sheet.

11. Sign/ forward with attachments 15. Present CLP 11. Sign and forward CLP with attachments to Branch manager where financial analysis proves to be favorable.

C

D

15a.Seek consensus of member of BCC where consensus not obtained reject proposal.

16. Where consensus obtained if within the pre-defined limits of BCC. If not recommend sanction and forward to credit division for approval of H.O.

17. Retain a set of photocopy of CLP.

18. On receipt of sanction advice from credit division retain one copy for record and forward original to concerned credit officer. Prepare “Offer Letter” and proceed with other documents.

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D

Consens us/Satisfi ed

15a. Reject proposal

16. Forward CLP

17. Retain photocopy

18. Receive Sanction advice from credit division

END

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Alfalah Branded Products Karobar Finance Alfalah Karobar Finance is short term facility that is only provided to individuals and sole proprietors. This facility also has one year validity with markup charged on the amount used. This facility again provides individuals to maintain their working capital management and is again given to individuals for a security. Karobar finance is type of current financing with difference i.e., in karobar finance, the individual has to clear all his balance in his account, once in a year.

Milkiat Finance Alfalah Milkiat Finance is a long term facility that is provided to SMEs and there are four main types of facilities provided:  Acquisition of rented commercial/industrial property  Construction on an owned commercial/industrial plot  Purchase of a commercial/industrial property  Renovation of owned commercial property Some of the features of Milkiat finance are as follows:  Tenure of 2-15 years except for renovation, which is for 2-4 years  Mark up of (KIBOR+5%)  Financing from Rs 0.5 million to Rs 30 million  Eligibility age should be less than 65, with 3 years of existing business

Quick Finance Alfalah Quick Finance is another short term and a type of current financing facility that is only provided to individuals for the fulfillment of personal or family needs. The financing is given against the deposits and government securities up to the 90% of the cash value of security. Financing is made from 50,000 up to 25 million.

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The five C’s of Credit i) Capital: The capital & resources of the borrower his capital structure and the gearing ratios either borrower Under-capitalized? Does the borrower have its own resources to fall back on, in case of need?

ii) Capacity: Capacity or the capability of the borrower to manage his business profitably and the capacity to repay the advances and service the facilities according to agreed terms. Is the borrower in a capacity to borrow? Or is there any legal complication?

iii) Collateral: The security provided against the facilities. Is the security provided: Adequate, Realizable, Marketable, Valuable, Storable, Non-perishable, Durable, and Transferable/with clear Title.

iv) Character: Are the borrower's personal character, market standing and reputation impeccable? Has he met his part commitments? Does he have good bank reference?

v) Conditions: Have the conditions of lending been drawn up taking into account all possibilities Is the sector/industry in decline, is growing or it has reached at plateau? Is there a market for the products and the market size to justify production plans and sales forecasts? Are the economic conditions feasible generally and for the business, in particular?

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Credit Administration Department (CAD) Taking cognizance of the sustained progression of the bank business and the inherent risk factors attached to expansion, the management felt a need for setting up of independent Credit Administration Department (CAD) in its branches so as to minimize the losses occurring from giving credit. According to the Bank Chairman Review “Conservative yet dynamic credit policy” While adhering to the above policy it is imperative that the perfection of security and enforceability of support documents are ensured for affective Management. Its main purpose is to streamline the working of CAD to mitigate the chances of losses arising from incomplete security and documents covering advances. It is suggested that CAD headed by a manager is to be set up in branches meeting the following criteria “Aggregate funds and non-fund based credit portfolio of RS.500 million and above and minimum number of borrowing customers being twenty five”. The personnel of CAD are furthered advised to keep themselves update by the latest instruction/regulation issued from Head Office, State Bank of Pakistan and Other regulatory institutions.

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Flow Chart

Pre-Disbursement Functions

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Start

Receive sanction advice from credit manager

Obtain Security as per Sanction advice

Check all Facilities Documents

A

Complete registration of the Bank’s charge over security with SECP/ Gov authorities Complete Standard facilities and security documentation Appraise Relationship/ If credit manager and Complet branch managerLodge security and documents attested by the e concerned credit manager

Any exception to the terms and conditions Feed limits in the system of sanction advice, ensure waiver obtained for competent authority Release facilities

A

END 29

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Flow Chart

Post-Disbursement Functions

Start

Obtain relevant reports such as stock report, insurance report etc. As per sanction advice

Review and monitor system generated reports and other instruction periodically

Correct recovery mark up and other changes relating to credit facility (ies)

Preparation and submission of statements to SBP, HO, and other institutions 31 Safe keeping and periodical balancing of prestamped documents/stamps papers

Issuance of guarantees

END Credit Administration Process

1. Registration of charge The CAD manager has to register charge with security and exchange commission of Pakistan (SECP) of mortgage/ hypothecation within 21 days from the date execution of documents.

2. Securities/ Facilities Documentation The CAD manager has following options while securing credit.  First exclusive Charges: In first exclusive charges, first the claim of bank is satisfied in the case of default of the borrower.  Ranking Charges: In this, the ranking is given. The first on the ranking is satisfied and then comes the second and so on.  Pledge: It confers physical possession of movables but not ownership.  Hypothecation: It is a security for a debt, which remain in the possession of the borrower.  Mortgage: It is a claim against real estate or fixed assets. The deposit of title deeds without documentation can create a mortgage.  LCs, Bank Guarantees, other guarantees

3. Valuation A CAD manager can take value and evaluate security worth from the following sources Security Deposits

Source Computer prints out showing actual amount

Government securities

Face value or encashable value rates published by the government of Pakistan

Shares

Stock exchanges rates in daily newspaper

Mortgage of property/ assets

Valuation report by bank’s showing market value

Stock( under pledge, hypothecation)

For pledge Karachi Cotton Association issues its rates. For hypothecation stock report submitted by borrower 32

evaluator

Book Debt/ Receivables

Life of book debts/receivable submitted by the borrower.

Life Insurance Policy

Surrender value of life policies issued by insurance company

Any other security

As per terms of sanction advice

4. Stock report Frequent submission of stock reports is necessary as per term of sanction advice.

5. Stock Inspection Verification of stock is made and it should be the same as given in stock report. The following are usually checked.  Stock break up  Evidence of ownership  Quality/condition of warehouse  Fire Protection adequacy  Adequate protection from theft, burglary etc.

6. Insurance Assets charged to the bank should be insured through an approved insurance company. One month before expiry of the insurance policy, the concerned customers should be reminded to renew the policy.

7. Search report All public/private limited companies are required to register bank’s charge over its current and fixed assets with SECP. Search report is prepared from the records of SECP showing the ranking of charges over borrower’s assets to different banks.

8. Credit Information Bureau (CIB) State Bank of Pakistan requires banks to obtain detailed information from CIB, SBP when considering proposals of over Rs. 0.5 million to any borrower. In case CIB report indicates over exposure/ default in meeting obligation etc. The accommodation to the concerned borrower can be derived.

9. Borrower Basic Fact Sheet SBP requires that all facility application should be accompanied by the Borrower’s Fact Basic Sheet as per approved format of SBP. 33

Borrowers The following are the categories of the borrowers

1. Corporate Body The term “Corporate Body” will include:  A company incorporated under the companies act.  A corporation created by a ordinance/ a statute/ act of legislature

a. Obtain memorandum and Articles of association of the company  Whether company is public limited and quoted on stock exchange, not quoted on stock exchange is a private limited.  Whether it is empowered to borrow?  Are there any restrictions on the company’s power to borrow?  What are directors’ powers?

b. Obtain board resolution and ensure that it contains  Authorization to raise facilities  Create Charge on company assets/pledge securities which are in companies name

2. Partnership The partnership deed is obtained. In its absence bank’s standard letter of partnership, duly signed by partners is obtained. Although all partners are jointly and severally liable for the debt of the firm, however, it is considered inexpedient to obtain personal guarantees for good business reason.

3. Sole proprietorship It is owed by an individual and there being no formal procedure to be followed for setting the business so a declaration on the firm letter head evidencing proprietor’s name etc is taken.

4. Individual

34

It is ensured that borrower is not suffering from any incapacity and is not a minor, insane or insolvent. These people are not capable of contracting and therefore any borrowing by them is unlawful.

5. Clubs, Associations, Trusts, Charitable societies Extra care is taken as these borrowers may enjoy legal protection, which is not available to others.

Trade Finance Department Trade Finance involves the import and export activities. This department provides protection to the rights of importer and exporter. The function of this department is to serve as a bridge between the importer and exporter in order to settle a transaction. When trade is taking place between the representatives of two countries (exporter and importer), the exporter involves his bank (the Advising Bank) in the transaction, as he wants to feel secure regarding timely payment of his goods in the required currency. On the other hand the importer involves his bank (the Issuing Bank), in order to get a sense of security regarding timely supply of the required product, in the required manner.

Trade Finance Department handles two activities: Import  Export

IMPORT Import Department of BAL deals with the import of merchandise. Import can be defined as: “The bringing of commodities into Pakistan from outside by sea, land or air.”

Requirement for the Importer These requirement / document must be fulfilled from importer before doing the import:35

 NTN (National Tax Number) certificate  Sale Registration Certificate  Membership from Chamber Of Commerce  Questionnaire duly filled in  NIC (attested copy)

Exports Exports are major sources of earning foreign exchange and play an important role in the economic development of the country. It helps to utilize excess resources of the country. “Exports mean selling goods to another country.” Exports of all eligible commodities through authorized banking channels are admissible under exchange control regulation.

Requirement for the Exporter These requirement / document must be fulfilled from exporter before doing the export: Account holder of Bank Alfalah Limited  Must be a Pakistani  Membership from Chamber Of Commerce  NTN (National Tax Number) certificate  The person must have the Sales Tax Registration Certificate.  Form E ( export form) dully filled in  Sale Registration Certificate

Methods of Doing International Trade  Letter of Credit  Contract

36

LETTER OF CREDIT (L / C): 1) LETTER Of Credit (L / C) ADVISING Letter of Credit (LC) is a written and conditional undertaking by a bank on the behalf of applicant to the beneficiary to pay a certain amount at a certain date; if the stipulated terms and conditions are complied with. The process of International Trade starts with asking of importer to its bank for L/C. Then importer’s bank will be called as issuing bank. The issuing bank sends the L/C to Bank Alfalah Limited. A bank that receives the L/C is called an advising bank because after receiving the L/C, it performs the L/C advising function. A cover letter is prepared and is sent to the beneficiary of the L/C, advising him his L/C has reached Bank Alfalah Limited and he should collect it immediately. A copy of the L/C is sent along with the letter.

2) ISSUANCE OF E-FORMS Government has provided facility to exporter in taking E-Form from any bank and is a part of the exchange control mechanism of the State Bank of Pakistan. When an exporter receives an L/C, his next job is to get an E-form from an authorized Bank. On the E-form sent by the commercial bank following things are mentioned  Description of the commodity  Quantity of the commodity exported  Amount realized  Foreign bank charges  Country of the importer

3) CERTIFICATION OF THE E-FORM After filling in the complete information about the goods to be exported, the exporter brings the E-form to the bank for verification. Bank issues E-form certification to exporter and he submits it to the custom officer along with E-form certification to certify E-form. 37

4) THE DOCUMENTS After getting the E-form verified the exporter starts preparing his shipment. Banks only deal in documents. In order to receive payment from his goods the exporter has to send certain documents to the issuing bank via his negotiating bank. These documents are.

Bill of exchange: A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or the bearer of the instrument. It is drawn by the exporter (drawer) and orders the importer or the importer’s bank (drawee) to pay to the order of Bank Alfalah Limited (payee) a specific amount. If the draft is drawn at sight, the importer must make the payment on receipt of the documents. If it is time draft, the payment must be made within the specified time limit.

Commercial Invoice The exporter prepares it. Its amount must tally with that of the L/C. It shows the name and address of the importer as well as the invoice number. This number is very significant as it is used in all the correspondence between the exporter and his bank. It also contains all the specifications of the commodity being exported. The standard definition of commercial invoice is that it is an itemized list of goods shipped to a buyer, stating quantities, prices, and shipping charges.

Bill Of Lading The shipping company or the airline that has been assigned the task of transporting the goods issues these. The shipper must ensure that the goods are shipped and handed over the right person when documents are presented to him. The standard definition of a bill of lading is contract between the seller of the goods and the carrier. The following are types of bill of lading:  OCEAN Bill Of Lading  Air Waybill  Inland Bill Of Lading 38

Packing List / Weight List The exporter prepares these lists in order to show that the consignment is according to the order of the buyer. It gives a detailed account of the manner in which the goods have been packed and the number of cartons they have been packed in.

Certificate of Origin This document certifies the origin of the exported goods. In the case of exports from Pakistan, the certificate of origin shows that the country of origin of the goods is Pakistan. The certificate of origin is a document in which the exporter certifies to the place of origin of the goods to be exported.

E-Form It is a necessity for all exports out of Pakistan. All commercial banks always issue the Eform in quadruplicate.  Original: is sent to the custom officer  Duplicate: Bank receive the duplicate  Triplicate: is sent to the State Bank Of Pakistan  Quadruplicate: is kept by the exporter for his personal record.

Export Visa This document is required when the destination of consignment is Canada, America, and U.K. Different countries fix quota for different commodities and restrict imports of those goods with in a specific limit. There fore visa is required which is in fact a permission to export goods to the specified countries.

Payment by importer 39

Exporters bank sends all the documents negotiated in LC to importers bank. Once the shipment arrives in importing country, documents are kept with the bank until the importer makes full payment to bank.

COLLECTION / NEGOTIATION: When the exporter comes to the bank with the documents, he has two options.  Send them for collection  Get Them negotiated

Collection: The bank sends the documents on behalf of the exporter to the importer’s bank for payment. The payment is made in Pak Rupees and the exchange rate is the Buying rate of the day normally called the T.T. Clean Buying Rate. When the reimbursing bank is to pay Bank Alfalah Limited it credits its nostro account maintained with it (the reimbursing bank), and afterwards bank debits the exporter’s account with the local equivalent of the export proceeds calculated at the TT clean buying rate.

Negotiation: The bank purchases the documents from the exporter i.e. the exporter gets them discounted before their maturity. For example, the drafts are at 90 days from B/L date. In simple words, the payment for the exports would be received after three months. The exporter might not want to block his funds for such a long time. He can get his documents negotiated the day he presents them to the bank. The exchange rate he will get will however be lower than the TT clean buying rate because the bank is paying him an amount that it is going to receive after three months itself. Contracts are not negotiated however in any case. This is because they are unsafe documents and the bank does not take the risk.

Dispatch:

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The documents brought by the exporter are in the form of sets containing an original and a number of copies. The number of each document required by the importer is mentioned on the credit. Usually they are:  Manually signed commercial invoice  Bills of lading  Packing list in quadruplicate  Bill of exchange

Filing: A separate file is maintained in each case and if the documents have been negotiated, it is titled FDBP that is the abbreviation of Foreign Documentary Bills Purchased. If the documents have been sent for collection, a file in the similar fashion is kept but it is labeled FDBC i.e. Foreign Documents Sent For Collection.

CONTRACT: The exporter might export the goods based on a CONTRACT with the importer. In such a case, there is no surety to the exporter that the importer will make the payment. The importer might reject the goods on receipt and deny and payment to the exporter. Therefore, the contract is an unsafe document. There are two types of contracts.

CAD (Cash against Documents): The documents are sent to the issuing bank. The issuing bank informs the importer that his documents have arrived. The importer deposits the amount of the contract with the bank and takes possession of his documents have arrived. The issuing bank then makes the payment to the exporter’s bank.

DA (Documents Acceptance): Drawee takes documents and possession from the issuing bank and signs a bill of exchange in return giving his acceptance for payment on a specific maturity date. Now, if he does not make the payment to the issuing bank no payment is made to the exporter and there is no liability on either bank.

41

Application of Class Room Learning During my Internship at Bank Alfalah Abdali Road, I saw some practical application of some class room learning. I saw most of knowledge application in Trade finance department, Credit Administration and Credit marketing. Operation department had less knowledge application.

Trade Finance Department: At Trade Finance Department, I got a lot of practical exposure of studying International Finance. Since this department mostly deals with imports and exports, I saw the processing of letter of credit and the documents needed for imports and exports. Customers were coming for the purpose of their business and they were informed about the rules and regulation for importing and exporting. Letter of guarantees were also issued by the department.

Credit Department: At the Credit Department, my practical learning was excellent. At this department, the loans are to be disbursed. So for this purpose a complete interview with borrower is conducted and borrower is asked about its financial strength then a CLP is made. Loan is disbursed after the complete study of financial reports such as balance sheet and income statement. Making of installments, interest charging and calculation and others all were practically performed at the department.

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Learning as an Internee My internship experience has given me a realistic preview of my field of education. Now I feel that I am better prepared to enter the world of professional work. I have come to know and been appreciated by a number of professionals who are lending their services to the banking sector for more than a decade. I feel honored that I have worked with such experienced professionals. I must admit that such interaction in this respectable professional community will help me in seeking out job opportunities in the near future. Each task I performed was a different experience in itself. By the end of it, I must say I realize my potentials, I have realized that earning money is not so easy after all, it takes a lot of hard work and devotion, and not to forget time. And I now know that if I want I can make things possible, and I also know how good it feels to having accomplished something and being appreciated for it. I definitely have learnt things, which will impact my career and my character. The overall experience of my internship was very good; I have learnt the sense of responsibility in its literal meaning. I am now capable of dealing with different sort of customers, and how to be patient while doing so. Besides this I also gained knowledge about banking which I previously lacked and many more products being offered by the bank. So in a nutshell, this internship gave me the experience, which would no doubt boost my confidence to work in future.

43

Marketing Analysis This is an age of competition. Numerous organizations are providing financial services to the customer. These days everyone is facing pressure of competitors. In this world of growing competition, the only way to survive and grow, for an organization, in the market place is the proper marketing and promotion of its products. Same is the case with banking companies. There is large number of foreign and local banks working in the country and it has been noticed that they are emphasizing much on their marketing strategies. In this scenario, the key for a bank to succeed and attract its customers is adequate promotion of its products &services. BAFL for the promotion of its new and existing products invest heavily, it advertises its product through:  Electronic media i.e. television  Print media i.e. newspaper  Billboards  Business magazines  Website  Sponsorship

Electronic The major way in which today’s organizations promote its products and services is through television, not only because it’s economical but also because the visual and audio aids help in promoting its product.

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Television ads for Bank Alfalah mainly try to emphasis the ‘The Caring Bank’, message in its advertisements, by showing how its services can help you with the different financial problems that you face in your every day life. For example, an advertisement showed how Bank Alfalah Credit Cards helped a couple when they had no cash left during a shopping trip or how a father happily shows his family a new car that he had financed from Bank Alfalah. Another major way in which Bank Alfalah advertises its products electronically is through its website, which is designed in an effective manner with detailed information, so that visitors can effectively know about the different services that the bank provides.

Print Print advertisements are another major way in which Bank Alfalah advertises its product to the masses. Print media advertisements are mainly printed in major English and Urdu newspapers across Pakistan. The messages of these advertisements are mainly of new financial services that the bank may introduce over time.

Sponsorships Bank Alfalah also gives a significant consideration not only to its product publicity but also to the creation of public relations. Bank has proves its public goodwill by contributing money and time to public service and activities. Bank Alfalah has been sponsoring different sporting tournament, especially cricket which is the most popular sports activity of Pakistanis and is watched by millions whenever there is a tournament featuring the Pakistani cricket team and is thus a great way to advertise their products. Some of the tournaments that Bank Alfalah has sponsored over the year are as follows: Series Sponsored By Bank Alfalah Series

Year

Pakistan Vs England

2005

Pakistan Vs West Indies

2006

Pakistan VS South Africa

2007

Now a days, BAFL is sponsoring the cricket rankings updates on Ten Sports. 45

No. of Employees 2001-2008 8000

6543 5218

6000 4000 2000

7371 7584

959 1504

2133

3352

0 2001 2002 2003 2004 2005 2006 2007 2008

Human Resource Assessment Bank Alfalah Ltd. has worked hard to build its human resource team and ensure that the quality of newly inducted staff is not comprised with growth. For recruitment and selection bank‘s policy is to hire suitable candidates. By suitable candidates bank refers to candidates having proper educational qualification, experience and background. Bank Alfalah not only is one of the fastest growing bank in Pakistan, that provides its customers with a number of financial services, but is also a great employer of human resources, that provides its employees with a conducive environment that not only is challenging but also helps them in applying and gaining knowledge. The above figures show that all prospect employees feel confidence in Bank Alfalah as their prospective employer. Bank Alfalah, as a response to this confidence has three ways of employing prospect employees for their organization.

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Batch Trainees BAL prefers to hire candidates having MBA degree for credits. For relationship officers, education qualification is not very important. Their family background and communication skills are more important. Bank hires fresh MBAs from prestigious Universities in batches of 20-25 officers. Bank hires officers in range 1. Then depending upon their job performance they are promoted to next range. More facilities and increments are given along with promotion. Bank‘s policy is to give cash rewards and salary increments for increasing the employees ‘satisfaction.

Direct Induction of Fresh Candidates Through direct induction of fresh candidates, Bank Alfalah is able to employ fresh postgraduate candidates for its organization and the process is registering one’s CV on their data base on their website, it automatically becomes a part of their resource pool that allows them to match applicant’s skills and competencies with the right placement options. Every year Bank Alfalah opens its doors for about 30 fresh post-graduates to join the ranks of Management Trainee officers’ with the Bank. The MTO scheme is a highly competitive and sought after induction scheme, in which short-listed applicants appear in a written test followed by a panel interview. Successful candidates then receive comprehensive training in essential areas of branch banking at the Bank‘s state-of-the-art training facility at Karachi and Lahore, prior to their posting at various branch locations. Preferred educational background for entry into the MTO scheme includes an MBA degree, MA Economics or M.Com from reputable Pakistani or foreign institutions with GPA of 3 plus, or equivalent. Strong personal character, as well as communication and interpersonal skills are essential pre-requisites to succeed as an MTO.

Experienced Professionals Based on requirements of experienced staff, Bank Alfalah also recruits talent from the marketplace. Bank Alfalah offers competitive salary / benefits to worthy professionals at all levels who wish to join hands with Bank Alfalah.

Training Bank Alfalah’s management believes in developing the potential of the Bank’s employees to the fullest extent. Training & Development Centre of the Bank are housed in state of 47

the art facilities at Karachi and Lahore of provide training to its employees. It is obligatory for each staff member of the bank to attend at least two days of training in a calendar year, with training programs in the following areas:  Consumer Banking and Operations  Credit Marketing & Proposals  Credit Administration/Documentation  Marketing and Selling Skills  Customer Service Skills  Leadership and Management Skill  Personal Effectiveness and Skills Furthermore training programs have also been introduced for fresh entrants into the bank, to help them in learning and performing their new tasks.

Benefits provided by Bank Alfalah Some of the monetary and non monetary benefits that Bank Alfalah provides to its employees are as follows:  Attractive Salary Package  Employee Provident Fund  Gratuity Fund  Medical Insurance  Bonuses  Life Insurance  Promotions  Various types of Staff Loans  Assistance in Pursuing Higher Education  Cash Rewards on completing IBP Diploma

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SWOT Analysis SWOT is stands for strengths, weaknesses, opportunities and threats. SWOT analysis is a careful evaluation of an organization’s internal strengths and weaknesses as well as its environmental opportunities and threats. In SWOT analysis the best strategies accomplish an organization’s mission by exploiting an organization’s opportunities and strengths while neutralizing its threats and avoiding its weakness. During my internship I also observe these factors of bank and made a conclusion which is as follows:

Strengths: Main strengths of bank are describe follows due to which bank is becoming successful day by day and now is on the fifth largest and successful bank in Pakistan in the bank’s ranking after NBP, MCB, UBL and HBL.  Being the private organization its main aim is not to earn profit but also to satisfy its customers and slogan of BAL is also the representative of this purpose as Bank Alfalah “The Caring Bank”.  Bank has AA (Double A) and A1+ (A one plus) Credit Rating for long term and short term loans respectively.  Main source of profit for any financial institution is public saving which only comes from public confidence and BAL is getting this confidence which is one of the main strengths of bank 49

 Bank Alfalah is also getting fame in the market due to its name “ALFALAH” which is leaving the Islamic and favorable impact on the minds of public.  BAL is providing the facility of Money Gram to its entire people who are its customer or not and through this service it has got the leadership in Money Gram because any other bank is not offering this service.  With in very short period it has got a superb accomplishment which shows the competency of top management.  Personnel of Alfalah are well trained and highly skilled.  Bank Alfalah has a wide network of branches at the ideal locations, catering the financial needs of its clients.  The management of the bank is very much concerned with the development and improvement of the working environment. The bank has state of the art and purpose built branches where all the modern technologies are provided to get the efficiency of the workforce and the customer satisfaction.

Weaknesses: Beside all these strengths I also noted some weaknesses in the operations of bank Alfalah which are described below:  BAL is that it is not offering the loan facility to newly established businesses because it’s the BAL policy that it will loan only to that people who are running their businesses from 3 years.  BAL’s lending procedure is quite complicated that some people hesitate to come as they are requiring a huge file of documents.  Bank Alfalah is not offering any credit facility for students.  BAL is not offering the online facility to account holders having photo account.  Bank Alfalah is charging online charges for transfer of money but some other banks not charge online transfer charges.  Majority of the workforce consists of young professional, they lack in their experience. And sometimes lack of experience becomes a hurdle while serving to 50

the customers. It is the point where they feel difficulty while competing with the other banks.  It was observed that at present the motivation level of the employees is not very much.  The increased workload has resulted in the reduced efficiency of the employees. Because now the time required for completing the tasks for a single customer has been increased. As a result the environment of the branch has become very messy. .

Opportunities: It is mandatory to try to make progress with consistency as well as to adopt changes with needs of time, in order to cope up with both conditions.  Bank Alfalah is spreading its network outside the boundaries of Pakistan and it has more opportunities to extend this network as State Bank of Pakistan has prescribed new policies in the prudential regulations.  In addition to excellent routine banking, it has earned a good name by offering special products like car, home and credit cards facility. So the penetration of these products could enhance market shares.  There is a very good growth trend in the Islamic banking in the country and in the world as well. BAL has the advantage of having Islamic Banking network and the growth in this particular field can be very fruitful for the bank, bank has an opportunity to introduce new products and services in Islamic banking.

Threats: Threats are the negative trends in external environmental factors. As on one side environment provides opportunities to one organization, on the other hand it also has to face some threats. Bank Alfalah also has to face this situation.

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 Other foreign financial institutions like City Bank, HSBC etc also having strong banking policies and there’s a chance that people might move toward these financial institutions to secure their investments, transactions and related services.  For last seven year there is political stability in Pakistan but now again a new layer of political instability arises which effects almost all industries including Banks.  Due to economic instability like currency depreciation and inflation, the bank is constantly facing a threat e.g. in case of inflation the people have low disposal income which means lower deposits in banks.  Other investment opportunities like investment in property and gold are giving people more return as compare to banks; it can decrease the deposits of bank.

PEST Analysis A broad view of market is important when management is interested in introducing better services for customers. Rapid technological change, global competition and the diversity of buyers preferences in many markets require the constant attention of the market vouchers to identify promises business opportunities, see the shifting requirements of the buyers, evaluate changes in competitors positioning and guide the choice of which buyers to target and classify them according to respective segments. Identification of external and macro factors that influence buyers and thus change the size and composition of market overtime involves initially building customer profiles. These influences include:  Political environment  Economic Indicators  Socio cultural environment  Technological factors

Political Environment

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The events in the last couple of years; ever since the sacking of Chief Justice Iftikhar Choudhary, Pakistan has faced crisis after crisis, including the lawyers’ movement, violence in Karachi, the Lal Masjid debacle, militancy in FATA and NWFP and its impact on other parts of the country, the return of Benazir Bhutto and her subsequent assassination, and current ongoing military operation in Swat– all the above events indubitably made a huge impact on the economy. Stability and law and order situation under the political regime is very important for the economy as a whole. The present state of the government in Pakistan is directly affecting the policies of banks. Continuous political changes have disrupted the policies and objectives as each regime brings with it its own agenda. Organizations need time to adjust to one regime and then work with it towards economic enhancement. Due the wrong policies of the government, the talibanization also develop in Pakistan and become the international issue in Pakistan and badly affected the Pakistan repute in the world and promote the uncertain conditions for the business in the Pakistan. Due to this the investors are not interested in the Pakistan.

Economic Indicators The economy of any country directly influences any financial organization. Economic indicators include Gross Domestic Product (GDP), inflation, balance of payment, debt of the government. Pakistan’s economy has witnessed the most challenging period after posting six consecutive years of healthy economic growth. However, the strong fundamentals were compromised to prevailing global crises that’s shacked the confidence of global investors and FDI flowing in the country. The steep rise in oil prices to U$ 147 a barrel, soaring inflation hitting a 24% mark, huge fiscal deficits and balance of payments issues coupled with plummeting forex reserves added to the economy’s move to an unstable growth trajectory. Also the load shading is another factor that affects the Pakistan economy badly. This not the end of the story after this Pakistan’ economy face lot of problems like bomb attacks in Pakistan no electricity and the unstable government, due to this the investor are not invest in the Pakistan and the existing business men are loosing their business unit due to the loss. Due to this poor economy, businesses are reaping low profits and stock market is in great danger. Pakistan’s foreign debts are rising day by day so such a situation is a big

53

challenge for banking institution to survive. The financial crisis in Pakistan has made the management of BAFL tensed to work in such an environment.

Socio cultural environment A low saving culture has offset the huge population advantage this is enjoyed by Pakistan. Also culture is dedicated by the religion, and in Pakistan a significant segment of the population is reluctant to accept interest for their deposits due to the negative religious implications of such an act. About 70% of Pakistan’s population is based on rural areas and literacy rate of the country is very much low, thus making it harder for banks to mobilize their deposits within these regions. However, in today world, the customers are becoming more intelligent and through media they keep themselves up to date. Thus, the lifestyle and expectations of the customers from the service provider is increasing day by day.

Technological Factors Banks in the developed world have been turning to heavy IT investments, which differentiate their products, provide response times, enhance accessibility and improve customer satisfaction. Though investing in state-of-the-art host banking solution, ATM and POS (point of sale) networks, visa, MasterCard, and, smart cards, telebanking, internet banking and now mobile banking are common IT investment in the developed world, it is now that these products and services are gaining faster acceptance in Pakistan. In BAFL technology has great effect on the working environment. BAFL is always willing to introduce new computer systems for keeping its staff up to date. With the successful implementation of new centralized database system, the bank also achieved remarkable progress in business process re-engineering, turnaround time compliance by centralizing outward remittances, account opening and credit administration.

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Financial Analysis Horizontal &Vertical Analysis Balance Sheet of Bank Alfalah Limited

55

Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES & EQUITY Bills payable Borrowings from financial institutions Deposits and other accounts Subordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities TOTAL LIABILITIES REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of assets Total EQUITY Total Liabilities and Equity

2004

2005

2006

2007

2008

19,708,518

24,788,625

27,859,360

29,436,378

32,687,335

3,183,957

9,713,369

12,731,952

18,380,738

21,581,043

27,050,493

12,456,653

3,452,059

3,315,500

35,503,196

57,425,700

56,502,210

88,491,564

75,973,238

88,931,400

118,864,010

149,999,325

171,198,992

192,671,169

3,226,959

3,851,529

5,633,051

6,013,097

8,989,186

4,280,504

6,620,067

10,502,990

11,922,324

13,773,293

154,834,534

248,313,793

275,685,541

328,895,152

348,990,764

2,233,671

3,733,124

3,091,135

4,138,243

3,452,031

12,723,830

5,844,389

8,394,130

21,230,697

13,690,222

129,714,891

222,345,067

239,509,391

273,173,841

300,732,858

1,899,480

3,223,355

3,222,106

3,220,858

2,571,169

-

-

-

-

-

-

2,725,344

5,219,666

7,305,496

9,531,860

11,291,280

275,834

484,066

1,921,338

1,379,809

208,465

149,573,050

240,849,667

263,443,596

312,675,308

331,946,025

2,500,000

3,000,000

5,000,000

6,500,000

7,995,000

1,008,772

2,351,218

2,749,533

2,414,833

3,166,056

860,300

1,386,845

2,823,072

4,851,840

3,447,467

892,412

726,063

1,669,340

2,453,171

2,436,216

5,261,484

7,464,126

12,241,945

16,219,844

17,044,739

154,834,534

248,313,793

275,685,541

328,895,152

348,990,764

Income Statement of Bank Alfalah Limited

56

2004

2005

2006

2007

2008

Mark-up/return/interest earned 5,620,203 12,246,811 NON MARK-UP /INTEREST INCOME Fee, Commission and brokerage income 675,868 1,158,747 Dividend income 52,539 52,014 Income from dealing in Foreign currency 218,820 290,091 Gain on sale of securities Unrealized (loss) /gain on revaluation of Investments Other income 572,822 744,518 Total Non mark-up/ Interest income 1,520,049 2,245,370 TOTAL INCOME 7,140,252 14,492,181 EXPENSES Mark-up/return/interest earned expensed 2,434,459 7,204,992 Provision against nonperforming loans and advances-net 370,208 402,298 Provision for the diminution in the value of investments 2,165 (23,163) Bad debts written off directly 351 512 NON MARK-UP/ INTEREST EXPENSES Administrative expenses 2,677,635 4,313,023 Other Provisions/Write Offs 10,125 Other charges 1,700 21,104 Total non mark-up/ Interest expenses 2,679,335 4,344,252 Extraordinary / Unusual items PBT 1,653,734 2,563,290 Taxation -Current 586,159 592,635 -Prior years (20,751) 1,037 -Deferred (3,663) 267,524 TOTAL EXPENSES 6,048,263 12,790,087 PAT 1,091,989 1,702,094

21,191,470

25,783,871

31,046,583

1,804,998

2,429,599

2,539,321

37,393

64,722

300,943

386,997

474,510

914,845

180,751

2,053,192

424,220

(27,599)

(14,929)

(181,571)

842,099

1,031,372

1,247,669

Horizontal Analysis of Balance Sheet 57

3,224,639

6,038,466

5,245,427

24,416,109

31,822,337

36,292,010

15,232,886

16,620,963

20,331,194

697,690

2,370,867

2,035,997

-

-

1,479,062

1,537

5,844

28,298

5,874,745

8,272,587

10,471,399

6,959

28,582

43,306

9,565

122,758

5,918,051

8,289,111

10,622,739

2,565,945

4,535,552

1,794,720

476,226

1,726,810

1,730,051

-

(221,797)

-

(100,874) 427,902

-321,487

(1,014,835)

22,653,418

28,692,108

34,990,709

1,762,691

3,130,229

1,301,301

Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES & EQUITY Bills payable Borrowings from financial institutions Deposits and other accounts Subordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities TOTAL LIABILITIES REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of assets Total EQUITY Total Liabilities and Equity

2004

2005

2006

2007

2008

100.00

125.78

141.36

149.36

165.85

100.00

305.07

399.88

577.29

677.81

-

100.00

46.05

12.76

12.26

100.00

161.75

159.15

249.25

213.99

100.00

133.66

168.67

192.51

216.65

100.00

119.35

174.56

186.34

278.57

100.00

154.66

245.37

278.53

321.77

-

-

-

-

-

100.00

160.37

178.05

212.42

225.40

100.00

167.13

138.39

185.27

154.55

100.00

45.93

65.97

166.86

107.60

100.00

171.41

184.64

210.60

231.84

100.00

169.70

169.63

169.57

135.36

-

-

-

-

-

100.00

191.52

268.06

349.75

414.31

100.00

175.49

696.56

500.23

75.58

100.00

161.02

176.13

209.05

221.93

100.00

120.00

200.00

260.00

319.80

100.00

233.08

272.56

239.38

313.85

100.00

161.20

328.15

563.97

400.73

100.00

81.36

187.06

274.89

272.99

100.00

141.86

232.67

308.28

323.95

100.00

160.37

178.05

212.42

225.40

Comments on Horizontal Analysis of Balance Sheet Assets: 58

The assets of the BAFL have been growing very fast since its inception. This growth is the result of the massive expansion policy the management has been following ever since the inception of BAFL. One of the important ingredients of any commercial bank‘s growth is increase in most of current assets that is a good sign as it increases their liquidity. Let us first have a look at the liquid assets. In earning asset, the lending to financial institutions is decreasing whereas the other investments and advances continuously. However the investments have increased in 2008 with decreasing rate. Increase in the fix assets might be due to branch expansion.

Liabilities: As regards the liability section of the balance sheet chief liability of commercial bank is its deposits it generates from its customer. The ratio of increase in deposits in 2008 is 21.24% which is low as compare to increase in 2007 which is 25.96%, it is concluded that the deposits are increasing but at decreasing rate. . The other encouraging ratio we observe in liability section is borrowing from financial institution which shows decreasing in 2005 and 2006 but it shows an increase 2007 and 2008 which proves financial strength and its credit worthiness in the money market.

Equity:

Bank‘s Share Capital as well as unappropriate profits is increasing at increasing rate till 2007 but in 2008 the capital share decreased slightly by 0.2% and unappropriate profits by 163%.

Vertical Analysis of Balance Sheet 2004

59

2005

2006

2007

2008

Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset TOTAL ASSETS LIABILITIES & EQUITY Bills payable Borrowings from financial institutions Deposits and other accounts Subordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities TOTAL LIABILITIES REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of assets Total EQUITY Total Liabilities and Equity

12.73

9.98

10.11

8.95

9.37

2.06

3.91

4.62

5.59

6.18

10.89

4.52

1.05

0.95

22.93

23.13

20.50

26.91

21.77

57.44

47.87

54.41

52.05

55.21

2.08

1.55

2.04

1.83

2.58

2.76

2.67

3.81

3.62

3.95

-

-

-

-

-

-

100.00

100.00

100.00

100.00

100.00

1.44

1.50

1.12

1.26

0.99

8.22

2.35

3.04

6.46

3.92

83.78

89.54

86.88

83.06

86.17

1.23

1.30

1.17

0.98

0.74

-

-

-

-

-

1.76

2.10

2.65

2.90

3.24

0.18

0.19

0.70

0.42

0.06

96.60

96.99

95.56

95.07

95.12

1.61

1.21

1.81

1.98

2.29

0.65

0.95

1.00

0.73

0.91

0.56

0.56

1.02

1.48

0.99

0.58

0.29

0.61

0.75

0.70

3.40

3.01

4.44

4.93

4.88

100.00

100.00

100.00

100.00

100.00

Comments on Vertical Analysis of Balance Sheet:

60

After analyzing the Balance Sheet, we can see that balances with other banks are increased in percentage from 5.59 to 6.18 as well as the cash balance with the bank is also increased 8.95 to 9.37 that is a good sign for management. Lending to Financial Institutions is continuously decreasing from 10.89 in 2005 to 0.95 in 2008. There is a decrease in percentage of lending to financial institutions is not a good sign. On liability side, borrowings from financial institutions are also decreased that is very positive sign as far as banks financial health is concerned. Borrowings are decreased by 6.46% in 2007 to 3.92% in 2008. More over there is an increase in deposits from year 2007 to 2008 which shows the faith and trust of people on BAL. Deposits are increased from 83.06% in 2007 to 86.17% in 2008.

Horizontal Analysis of Income Statement

61

2004

2005

2006

2007

2008

Mark-up/return/interest earned 100.00 NON MARK-UP /INTEREST INCOME Fee, Commission and brokerage income 100.00 Dividend income 100.00 Income from dealing in Foreign currency 100.00 Gain on sale of securities Unrealized (loss) /gain on revaluation of Investments Other income 100.00 Total Non mark-up/ Interest income 100.00 TOTAL INCOME 100.00 EXPENSES Mark-up/return/interest earned expensed 100.00 Provision against non-performing loans and advances-net 100.00 Provision for the diminution in the value of investments 100.00 Bad debts written off directly 100.00 NON MARK-UP/ INTEREST EXPENSES Administrative expenses 100.00 Other Provisions/Write Offs Other charges 100.00 Total non mark-up/ Interest expenses 100.00 Extraordinary / Unusual items PBT 100.00 Taxation -Current 100.00 -Prior years 100.00 -Deferred 100.00 TOTAL EXPENSES 100.00 PAT 100.00

217.91

377.06

458.77

552.41

171.45

267.06

359.48

375.71

99.00

71.17

123.19

572.80

132.57

176.86

216.85

418.08

100.00

1,135.92

234.70

100.00

54.09

657.89

129.97

147.01

180.05

217.81

147.72

212.14

397.25

345.08

202.96

341.95

445.68

508.27

295.96

625.72

682.74

835.14

108.67

188.46

640.41

549.96

-

(1,069.88)

-

-

145.87

437.89

1,664.96

8,062.11

161.08

219.40

308.95

391.07

0.69

282.29

100.00

-

1,241.41

2,547.41

562.65

7,221.06

162.14

220.88

309.37

396.47

155.00

155.16

274.26

108.53

101.10

81.25

294.60

295.15

(5.00)

486.12

0.00

1,068.85

(7,303.41)

(11,681.74)

8,776.60

27,705.02

211.47

374.54

474.39

578.52

155.87

161.42

286.65

119.17

Comments on Horizontal Analysis of Income Statement:

62

68,316.95

Income: The income of the BAL shows the increasing trend till 2007 but in 2008 its over all income has decreased by 167.48% as compare to 2007 mainly because of the perceiving world economic crisis and also by the Pakistan’s economy crisis. Due to increasing provisions, the profibility of the bank decreases a lot.

Expense: The expenses of the bank are increasing as operations of the bank increases. The expenses have been increasing with an increasing rate since last three years. The expenses increased 104%in 2008 as compared to 100% increase in 2007.

Vertical Analysis of Income Statement 2004

2005

2006

2007

2008

Mark-up/return/interest earned 78.71 NON MARK-UP /INTEREST INCOME

84.51

86.79

81.02

85.55

63

Fee, Commission and brokerage income 9.47 Dividend income 0.74 Income from dealing in Foreign currency 3.06 Gain on sale of securities 0.00 Unrealized (loss) /gain on revaluation of Investments Other income 8.02 Total Non mark-up/ Interest income 21.29 TOTAL INCOME 100.00 EXPENSES Mark-up/return/interest earned expensed 34.09 Provision against non-performing loans and advances-net 5.18 Provision for the diminution in the value of investments 0.03 Bad debts written off directly 0.00 NON MARK-UP/ INTEREST EXPENSES Administrative expenses 37.50 Other Provisions/Write Offs Other charges 0.02 Total non mark-up/ Interest expenses 37.52 Extraordinary / Unusual items PBT 23.16 Taxation -Current 8.21 -Prior years (0.29) -Deferred (0.05) TOTAL EXPENSES 84.71 PAT 15.29

8.00

7.39

7.63

7.00

0.36

0.15

0.20

0.83

2.00

1.59

1.49

2.52

0.00

0.74

6.45

1.17

(0.11)

(0.05)

(0.50)

5.14

3.45

3.24

3.44

15.49

13.21

18.98

14.45

100.00

100.00

100.00

100.00

49.72

62.39

52.23

56.02

2.78

2.86

7.45

5.61

-

-0.16

-

-

4.08

0.00

0.01

0.02

0.08

29.76

24.06

26.00

28.85

0.02

0.08

0.07

-

0.15

0.18

0.03

0.34

29.98

24.24

26.05

29.27

17.69

10.51

14.25

4.95

4.09

1.95

5.43

4.77

0.01

(0.41)

0.00

(0.61)

1.85

1.75

(1.01)

(2.80)

88.26

92.78

90.16

96.41

11.74

7.22

9.84

3.59

Comments on Vertical Analysis of Income Statement: The vertical analysis of income side of income statement demonstrate that major factor of the total income is interest earned which contributes more than 75% in 2004 and 80% in 2005 to 2008, whereas fee, commission and brokerage income makes major part of total non-mark up interest income and its proportion to total non-mark up interest/income is 64

decreasing every year but in 2006 it increased little, here we observe that total non mark up income is decreased in 2008, which is good sign for the bank as bank is earning more from its primary functions. Non- mark up interest expensed is the major component of total expense in 2004, and in non mark up expense admin expenses contribute 44.27%. But from 2005 till 2006, interest expensed in the major part because the deposits of the banks shows increase and as bank has to pay on interest bearing liabilities.

RATIO ANALYSES Ratio simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. It is defined as a systematic use of ration to interpret the financial

65

statements so that the strengths and weaknesses of a firm, as well as historical performance and current financial condition, can be determined.

Profibility Ratios BAFL is following the trend of industry in terms of declining profits due to rising provisions.

ROA ROE

The mark-up increased by 20.4%, while the mark-up expense increased by 22.3%, limiting the net mark-up growth to 17% to Rs 10,715 million. Provisions showed a considerable increase and a new provision for diminution in value of investments is included in 2008 which valued Rs. 1,479 million. The bad debts directly written off increased by 4.8 times in 2008 compared to last year and valued Rs. 28 million. The non-mark-up interest income declines slightly, thus contributing insignificantly towards creating a variance in the two years. Administrative expenses swelled by 26.6% due to the expansion in branch network during FY08, inline with the inflationary pressures. PAT was Rs 1301 million in FY08 as compared to Rs 3130 million in FY07 which is down by 58.4%.

Net profit margin Gross spread ratio

2004 2005 2006 2007 2008 0.86 0.84 0.67 1.04 0.38 26.8 30.6 20.3 25.7 9 5 7 2 9.17 19.1 13.8 12.1 4 9 8.31 4 4.19 56.9 41.1 28.1 35.5 6 7ROA 2 4 34.51

1.2 1 0.8 0.6 0.4 0.2 0 2004

ROE

2005

2006

Net profit margin

2007

2008

Gross spread ratio

60 50 40 30 20 10 0 2004

2005

2006

2007

Return on Average Total Assets= (Net Profit after Tax / Avg. Total Assets)*100

66

2008

Return on assets (ROA) measures the firm’s overall effectiveness in generating profits with its available assets. This ratio indicates how well management is utilizing firm’s assets to make profit. ROA shows decreasing trend in starts but it increased in 2007 and reaches 1.04% to its peak and now it decreases drastically and reaches 0.38%. Return on Equity (ROE) = (Net Profit after Tax / Shareholder’s Equity)*100 ROE measures the shareholder’s return earned on their investment in the firm. This ratio indicates how profitable a company is by comparing its net income to its average shareholder’s equity. ROE was at maximum 30.65% in FY05 but in 2008 it reaches to lowest 9.17% from 25.72% of FY07. Net Profit Margin = (Net Profit after Tax / (Sales))*100 Net profit margin measures the percentage of sales revenue remaining after all cost and expenses, including interest and taxes have been deducted. The net profit margin has also decreased to considerable low level of 4.19% from previous year’s 12.14%. Gross Spread Ratio = Net Mark up Income / Gross Mark up Income Gross spread ratio measures the percentage of sales revenue earned to the gross mark up after deducting the markup expense. Gross spread ratio has decreased slightly compared to 2007 and it was lowest 28.12% in 2006.

Debt Management Ratios

Debt Ratio = Total Liabilities / Total Assets

Debt to equity Debt Ratio Deposit times capital

67

2004 2005 2006 2007 2008 28.4 32.2 21.5 19.2 3 7 2 8 19.47 0.97 0.97 0.96 0.95 0.95 24.6 29.7 19.5 16.8 5 9 6 4 17.64

Debt ratios tell us about the firm’s overall debt position and as well as it mixes of equity and debt. These ratios will also give general idea about the level of financial risk faced by firm. This ratio measures the portion of total assets financed by the firm’s creditors. Higher this ratio, the greater the amount of other people’s money being used in an attempt to generate profits. Even though debt ratio is in decreasing trend but this ratio is very high. Higher this ratio means higher the financial risk so it’s a negative sign for bank. Debt to equity compares the debt size as compared to equity. The Debt to equity is lowest in FY07 and it has increased slightly in 2008.

Debt Ratio

0.97 0.96 0.95 0.94

2004

2005

Debt to equity

2006

2007

2008

Deposit times capital

40 30 20 10 0 2004

2005

2006

2007

2008

However the deposits make the 90.5% of the total debt. The ratio of deposit time capital shows the deposit size as compare to the invested capital. The debt management figures show that the assets of the bank have become less leveraged till 2007. This was due to the fact that the debt has increased but equity has increased by a greater percentage in recent years. But it increased slightly in 2008. Equity increased by 5%in FY08. However, liabilities rose by 6.1%.

Liquidity Ratios

2004 2005 2006 2007 2008 Earning assets to assets Advance to deposit

0.80 0.82 0.79 0.80 0.77 The advance to deposit ratio 68.5 53.4 62.6 62.6 (ADR) ratio is bank’s financial 6 6 3 7 64.07 ratio which is used to test the company financial position by keeping in view its advances and deposits. Strength of bank is judged that how much bank is capable to grasp the saving of people and how many people are interesting to take loan facility from bank as profit of bank depends on higher advances and advances comes from deposits of customers. 68

The figures for FY08 show that the bank has further improved its liquidity position. Advances have grown by 12.5% from 171 million to 192 million during this period.

Advance to deposit 80 60 40 20 0 2004

Earning assets are interest generating assets. The ratio of earning assets to asset shows the proportion of interest generating assets to the total assets.

2005

2006

2007

2008

Earning assets to assets 0.84

The ratio of earning assets 0.82 to total assets for the bank 0.8 0.78 shows remarkable 0.76 fluctuation, suggesting 0.74 careful management of and 2004 2005 2006 2007 2008 investment in interest generating assets. Within earning assets, however, the bank shows a gradual trend of movement of capital into and away from lendings to other financial institutions.

Solvency Ratios 2004 3.40 4.06

2 005 3.01 3.36

2 006 4.44 5.11

2 007 2008 4.93 4.88 5.94 5.66

The solvency situation for Equity to assets the industry as a whole has Equity to deposits shown marked Earning assets to 0.98 0.96 0.97 1.03 0.90 improvement in recent deposits (times) years caused by increasing profitability and fresh inflows of capital till FY07. However, the figures for the bank show that there is a slight decline in the solvency Earning assets to deposits position in 2008 as a result of high growth in deposits. 1.1 The situation was worse in 1 2005 when the 3% of assets 0.9 was equity financed. 0.8 This situation, however, has 2004 2005 2006 2007 2008 improved in 2006 because of increases in equity, which 69

gained financed almost 4% of assets.

Equity to assets

Equity to deposits Earning assets in comparison to deposits 8.00% declined from around 6.00% 1.03 in FY07 to 0.90 in 4.00% FY08. This is caused by 2.00% the fact that while 0.00% deposits have shown tremendous growth over 2004 2005 2006 2007 2008 the period under study, the bank has maintained a consistent approach with respect to its earning assets and has not expanded them to the same extent.

Activity Ratios

Activity ratios show that how efficiently an organization is using its resources.

2004

2 005

2 006

3.6

4.9

7.6

Total Asset Turnover

2 007 2008 7.8

8.8

Total Asset Turnover = Sales (Revenue) / Total Assets Total asset turnover indicates Total Asset Turnover the efficiency with which firm uses it assets to generate sales 10 (revenue). The higher the firm’s 8 total assets turnover the more efficiently its assets have been 6 used. This measure is probably 4 of greatest interest to 2 management, because it 0 indicates whether the firm’s 2004 2005 2006 2007 2008 operations have been financially efficient. In last five years Total Asset Turnover shows its increasing trend, so it’s good sign and shows that bank using its assets efficiently.

70

Market Ratios Banks have dominated the capital markets of Pakistan because of their superlative performance. They comprise one third of the total capitalization of the KSE. Book value per Share = Total Shareholder’s Equity / No. of Outstanding Shares Book value is of limited to the investment analyst since it is based on historical costs. Book value per share is showing mix trend and 2004 2005 2006 2007 2008 in FY08 it has 21.0 24.8 24.4 24.9 decreased to 21.32 Book Value per share 5 8 8 5 21.32 because of large Earning per share 3.9 3.92 2.91 3.92 1.63 increase in no of share outstanding from 650,000 Book Value per share Earning per share in FY07 to 799,500 in 30 FY08. However equity has 25 also increased slightly by 20 5%. Earning Per Share (EPS) = Earning / No. of Outstanding Shares

15 10 5 0

2004

2005

2006

2007

2008

The firm’s EPS are generally of interest to present shareholders. EPS represent the earning on behalf of each outstanding share of common stock. EPS decreased in 2008 significantly due to lower earning which is 58.4% decreased as compared to last year.

71

Recommendations After doing internship of six weeks in Bank Alfalah Limited, I would like to give some recommendations to count over some problems.  Bank should prefer to promote worker on the basis of their talent and avoid going for personal like and dislikes. It can be harmful for the organization in the long run.  In Bank Alfalah, there is misdistribution of work; some people are over burdened with the work. So I suggest that there should be fair distribution of work in all the departments.  Bank Alfalah is only dealing in Money Gram; it should also starting providing the service of other money transfer lines like Western Union.  BAL should provide loan to students at low mark up rate and easy terms & conditions.  Bank Alfalah Limited needs to use more marketing channels such as radio to make the public aware of its products and services. In the presence of intense competition Bank Alfalah Limited has to realize the importance of marketing.  Bank Alfalah has equipped its branches with all major IT tools being used in the industry like ATM’s, fax machines, photocopiers, printers, latest computers and a good connectivity architecture, however it has been observed that when its time to work, there are many failures seen in the different devices used by Bank Alfalah, especially its connectivity architecture and remains offline with the main server, that creates problems for the customers  There are no incentive schemes for employees of Bank Alfalah like scholarship schemes for employees that want to pursue higher education. Bank Alfalah although gives a number of incentives to its employees, like personal loans at nominal markup but they are only provided to employees that are in higher ranks. Education fees are also returned by Bank Alfalah to its employees, after the have finished their studies.

72

 Bank Alfalah Ltd should continuous to expand its business, by increasing its deposit portfolio through aggressive market penetration strategies.  The top management should immediately start thinking in terms of rotating the employees in various departments, as this transforms work force into human capital, if a particular individual keeps on employing his\her efforts in one sphere of banking it would not only create a sense of monotony, but also not help improving the skills of Bank Alfalah Limited employees.  Bank Alfalah Limited should evolve a very serious management policy to attract multinational corporations as its clients. This action, if actualized, would not only prove to be highly profit generating, but it would also contribute a lot towards BAFL‘s image building.  Bank Alfalah limited has the web site, which has not been updated. The web site is very less informative and it won’t leave a good impression on the visitor. So I suggest that it should be updated to meet the requirements of the visitors.  Participative management concept should be adopted, where ideas from the employees should also be taken, not only for developing products but also on service, efficiency, employee morale etc. in order to improve them.

73

Conclusion At present there is no such organization in the world that is free from problem and challenges. Every concern has to strive and struggle a lot to be more profitable and to get more competitive edge. It has been twelve years since the establishment of Bank Alfalah, and since its establishment it has aimed to become the leading bank of Pakistan by that provides outstanding services to its customers. The bank has seen phenomenal growth in the past few years by opening more branches in the country, increasing the deposit base, while also increasing the assets and profits of the bank. The services that Bank Alfalah provides have a great market penetration not only because of their features but also the profit and markup rates that they charge. The management of BAFL is taking strategic steps to enable the bank to emerge as a strong and progressive institution. It is continuing to make efforts to refine its products and operations to make them more compatible. New deposit schemes have been introduced and an action plan to maintain revenue growth in future. As the business and economic conditions remain uncertain, BAL continues to develop the new products like it has been doing in past.

74

Bibliography Web Resources Bank Alfalah (www.bankalfalah.com) Wikipedia (www.wikipedia.com) State Bank of Pakistan (www.sbp.org.pk) Google (www.Google.com)

Reports & Papers Annual Report Bank Alfalah 2008 Issues in Pakistan’s Economy by S. Akbar Zaidi International Finance by Maurice D. Levi Bank Alfalah Limited. (2009). Alfalah Mahana Amdan Plus [Brochure]. Bank Alfalah Limited. (2009). Alfalah Quick Finance [Brochure]. Bank Alfalah Limited. (2009). Alfalah Milkiat Finance [Brochure]. Bank Alfalah Limited. (2009). Alfalah Karobar Finance [Brochure].

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