Bok Report

CHAPTER 1

INTRODUCTION TO BANK

INTRODUCTION TO THE REPORT 1.1

Background of the Study Banking is an important industry in today’s world. Banks are the most

important segment of the economy. In Pakistan too, banking is considered very important. Because banking system plays a key role in the economic development of a country. Bank is inevitable for making economy stronger, efficient and to make it as good as internationally. The Bank of Khyber was established in 1991 .The network of its branches is spread all over the country. Now-a-days Bank is playing a vital role in banking sector especially in North West Frontier Province, so the primary purpose of the study is to understand the peculiar nature of the Bank. The problems faced by this organization and the possible remedial actions, as the study is to find all the facts upon, which analysis of the financial statements of the organization is to be based. For getting the master degree in business administration, each student is required to spend at least two months as an internee in a recognized organization. The students are required to work in their own field in which they have done their specialization. This internship report has been written on The Bank of Khyber Kohat branch.

1.2

Purpose of the Study The core purpose of this program is to make students familiar with the

practical work, as there is a great difference between what they have learnt during their MBA and how the job is practically done. The primary purpose of this report is to gather relevant information to compile a report on the Bank of Khyber. Along with this, the second basic purpose is to work in an organization and to compare the theory and application of management knowledge in real life situation. Another, purpose is to improve personal skills i.e. human relations and communication skills that are to interview and work with them. Similarly, the report’s purpose is also to develop analytical skills by analyzing the financial statements of the

1

CHAPTER 1

INTRODUCTION TO BANK

organization through SWOT analysis. At the end, some recommendations are also given for the improvement of performance of the Bank.

1.3

Scope of Work The internship of eight weeks is not a long time for understanding the

overall organization’s functioning. This report will be beneficial to the students in general and banking students in particular seeking guidance in future. The management of the Bank generally and officers of the Finance Division of Bank particularly may also use the information, which will be useful in their course of duty and supervision.

1.4

Methodology of the Study The research methodology is a prerequisite of carrying out research. It

defines the procedures followed during the course of research report. Research methodology provides the guidelines for collecting information. The report writer used both primary and secondary sources of data for writing this research report. 1.

Primary data collection technique: It was done through:

2.

i)

Personal observations.

ii)

Sittings with staff members.

iii)

Interviews with senior officers.

Secondary data collection technique: It was done with the help of: i)

Reference books.

ii)

Annual and semi annual reports of BoK. (2000 to 2005).

iii)

Brochures.

iv)

Website of the bank

v)

Manuals of the bank.

vi)

Internet

2

CHAPTER 2

INTRODUCTION TO BANK

INTRODUCTION TO BANK 2.1 Banking: Historical Perspective Banking practices are regarded as one of oldest activities in the history of world. These practices have been recorded since 2000 B.C., in one form or other. Some times these activities were carried out in temples, on benches and some time in shops of goldsmiths. But these activities were the beginning of the banking or it were the early stages of the modern day banking. Interestingly no exact origin of the word “Bank” exits, and different authors have attributed it to different origins. Some view that it is derived from words “bancus” or “banque” meaning a bench, referring to the benches of Jews in Lombardy, transacting their money exchange. Other researchers say that it is derived from German word “Back’’ which means “Joint stock funds”, and later on in Italy this word became “Bank”. However no exact origin exits, and this shows how old these practices are. G. Crowther in his famous book, “An outline of money” has traced that, modern English Commercial Banking has three ancestors i.e. the merchants, the goldsmiths

and

the

moneylenders. These

merchants,

goldsmiths,

and

moneylenders performed the functions of accepting of deposits/gold, issuance of notes, payment of interest and charging of interest etc. This was the beginning of the modern banking.

2.2

Development of Modern Banking The development of banking is the evolutionary process in which the

ancient banking practices evolved into present day banking. This process has been traced form 2000 B.C.; “Babylonians” were the first to develop banking system. Banking activities of the same nature were started in third century B.C. in the Roman Empire and continued through third century A.D. With the fall of the old civilizations, banking suffered heavily. Banking activities in either form remained in China, Egypt and sub-continent.

3

CHAPTER 2

INTRODUCTION TO BANK

In the sub-continent, the British Government started the modern day banking. In 1809 the “Bank of Bengal’ was given charter, it opened more branches in 1839. 1840 saw the establishment of the ‘Bank of Bombay’ followed by ‘Bank of Madras’ in 1843. “Imperial Bank of India” was founded in 1921 where as “Reserve Bank of India” was established in 1935 with all the powers as the central bank.

2.3 Banking in Pakistan Like many other institutions, at the time of independence of Pakistan, in 1947, it inherited a poor and weak system of banking. It was due to the fact, that most of the important sectors of the economy including banking were controlled by Non-Muslims. There were 487 offices of scheduled banks in the territories now constituting Pakistan. Immediately after creation, it was difficult for Pakistan to run its own banking system. The Reserve bank of India continued to function in Pakistan until 30th September 1948, as central bank of Pakistan. But it failed to safeguard the interests of Pakistan’s banking affairs. The State Bank of Pakistan was established on 1st July 1948, with its head office at Karachi. State Bank of Pakistan in addition to its normal duties as central bank plays a very important role in the development, controlling and modernizing of the banking system of the country. New banks like National Bank of Pakistan etc were established while already existing banks like Habib Bank Limited extended their network of branches through out the country and even outside the country. Moreover, specialized financial institutions like Industrial Development Bank of Pakistan, Agriculture Development Bank of Pakistan, Pakistan Industrial Credit and Investment Corporation, National Development Finance Corporation, and House Building Finance Corporation were also created to help and finance the particular sectors of the economy like industry, agriculture, and housing. In 1974, all the commercial banks including SBP were nationalized. After 1990, the banks are in the process of privatization, because of the new thinking and for the improvement of performance. Muslim Commercial Bank, Habib Bank Limited, United Bank Limited, and Allied Bank Limited are already privatized. In 4

CHAPTER 2

INTRODUCTION TO BANK

addition, Government has allowed the establishment of new private banks, of which many new banks like Indus Bank, Union Bank, Faysal Bank, Bank AlFalah, The Bank of Khyber etc. are established, having their branches almost in all important cities of the country.

2.4 Banking in N.W.F.P The N.W.F.P is a land of geographical diversity ranging from glacial mountain ranges in the north to arid and semi arid regions in the south. This geographical diversity holds a significant potential for development of agricultural, industry, forestry, hydroelectricity and tourism. The Bank of Khyber is the first N.W.F.P based bank and assists in the development of sound business in these areas of growth. There are about 22 Pakistani scheduled banks operating in N.W.F.P having 1147 branches or about 15% of all the branches of scheduled Pakistani banks, in the country. In addition 3 foreign scheduled banks with a total of 3 braches are also operating in the province. Historically banks in N.W.F.P have been able to mobilize substantial amounts on the total deposits of the country. However their share of investment in the province has not been proportional. As the development process has gathered pace over the years, investment within the province has also increased creating a demand for banking services. A large expatriate community from N.W.F.P residing overseas especially in the Middle East are also offering opportunities to banks operating in province

References: 1. Siddiqi. S. Asrar, 2003, Practice and Law of Banking in Pakistan, edition 7th , Royal Book Company, Pakistan, P 2. 2. Siddiqi. S. Asrar, 2003, Practice and Law of Banking in Pakistan, edition 7th, Royal Book Company, Pakistan, p3. 3. Money Banking and Finance

5

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

INTRODUCTION TO THE BANK OF KHYBER 3.1 The Bank of Khyber The Bank of Khyber (BoK) was established in 1991 under the act of the N.W.F.P assembly its objectives included promotion of savings and investment in N.W.F.P. In 1994 it acquired the status of a scheduled bank that allowed it to open branches outside N.W.F.P, become a member of the clearing house, and engage in trade finance activity. Advantages of scheduling have had a positive impact on the Bank after adjustments to State Bank of Pakistan (SBP) requirements during 1995. The Bank has a paid up capital of Rs. 750 million out of which Rs. 652.50 million has been provided by the government of N.W.F.P, while the remaining Rs. 97

.50

million

has

been

contributed

by

Deutsche

Investitions-und

Entwicklungsgesellscha (DEG), a German Development Bank. The Bank has 29 branches with 23 in N.W.F.P and 2 at Karachi, one each at Islamabad, Quetta, Lahore, and Muzzaffarabad, (Azad Jammu and Kashmir). The Bank has 360 well qualified officers, and it places great importance on their professional achievements.

3.2 Reaching for Excellence Directing efforts with precision on maintaining client and employee focus, Bank is in the process of upgrading its technological infrastructure to allow its branches to provide a higher standard of service to its customers. For the future, The Bank is fully geared to become one of the most dominant financial institutions of Pakistan. Thus reflecting the Vision:

“Gradual Conversion into ISLAMIC BANKING to develop and promote a true Islamic economic system. ” 6

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

3.3 Mission statement of the Bank Mission, broadly stating, is the purpose for which an organization exists and why should it compete in certain sectors and industries. Within mission, sometimes stated as purpose, the organization addresses itself to what it intends to accomplish both in the long and short run. Mission is a very broad statement of organizational direction, and is normally summarized and documented in a mission statement. In same way, Bank being an organization has a mission statement, as follow:

“To increase shareholders’ value and provide excellent service & innovative products to customers through effective corporate governance, friendly work environment, and contributing towards an equitable socioeconomic growth.”

3.4 Core Values of the Bank •

Highest quality of services

•

Professionalism

•

Integrity

•

Team Work

•

Innovation & utilization of latest technology

•

Corporate & Social Responsibility

3.5 Main Objectives of the Bank Objectives are the ends towards which activities are aimed. In fact these are the results to be achieved. Bank has certain objectives, which are as follows; a.

To mobilize private savings and public funds for diverting the same into productive channels and ensure their availability.

b.

To promote industrial, agricultural and socio economic processes through the active participation of private and public sector in the province.

c.

Help under develop areas and create employment opportunities, especially in the rural areas of the province. Further, to guide and assist the people of 7

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

N.W.F.P serving overseas to effectively and profitably invest their foreign savings in the province as well as the other parts of Pakistan. d.

Create a diversified and sound portfolio for utilization of idle funds and their investment in the existing and new ventures especially in the pioneering of high-tech agro based export oriented and engineering projects to ensure maximum returns.

e.

Participate and seek the share of the province in the capital market of Pakistan by way of subscription through locally pooled resources in the leading stock exchanges of the country and eventually paving the way for establishing a stock market in the province.

3.6 Pattern of Shareholding Table no. 3.1 Institution Name

No. of Shares as at January 01,2005

Bonus shares received during the year

Number of shares as at December 31, 2005

Government of N.W.F.P DEG

91,350,000

15,750,000

107,100,000

13,650,000

2,353,448

16,003,448

TOTAL

105,000,000

18,103,448

123,103,448

3.6.1 Total No. of Shares and Bonus Shares Graph no. 3.1

100,000,000 80,000,000 60,000,000 40,000,000

Shares @ 01,01,2005

0

DEG

20,000,000

N.W.F.P

No. of Shares held

120,000,000

Bonus shares

Institute

8

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

3.6.2 Total Shares held by N.W.F.P and DEG in percentage Chart no. 3.1

13%

0%

N.W.F.P DEG 87%

3.7 Employees of the Bank (No. of total permanent employees) Table no. 3.2 Year

No. of Employee

1999 2000 2001 2002 2003 2004 2005

340 358 365 376 368 360 370

Graph no. 3.2

No. of Employees

Permanant Employess of Bok 380 370 360 350 340 330 1999 2000 2001 2002 2003 2004 2005 Years

9

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

3.8 Branches Network of the Bank Chart no. 3.3

2

1 1

N.W.F.P

1 1

Balochistan Islam abad karachi

23

A. J. Kashm ir Lahore

No. of Branches Table no. 3.3 N.W.F.P 23

Islamabad

Lahore

Karachi

Balochistan

A. J. Kashmir

1

1

2

1

1

3.9 Risk Management at Bank The financial institutions are exposed to various risks in pursuit of their business objectives; the nature and complexity of which has changed rapidly over time. The failure to adequately mange these risks expose financial institutions not only to business losses, but may also render them unsuccessful in achieving their strategic business objectives.

3.10 Future Outlook 1. The bank plans to open new braches during the year 2007 in the important cities and business hubs. 2. All the banking activities are under process to execute one of the major Banking activities are under process to execute one of the major Risk

10

CHAPTER 3

INTRODUCTION TO BANK OF KHYBER

Management techniques of “Segregation” for effective management controls. 3. The bank is required to raise its Share Capital to Rs. 1.5 billion during 2005.

References: 1. The Establishment Department of The Bank of Khyber. 2. The Shares Department of The Bank of Khyber. 3. The Micro Finance Department of The Bank of Khyber. 4. The Bank of Khyber Annual Report 2005.

.

11

CHAPTER 4

DIVISIONS AND DEPARTMENTS

DIVISIONS AND DEPARTMENTS The following are the Divisions and Departments of the Bank.

Marketing Division Banking Operations Division

R&D Department

Customer relations Department

Commercial Lending Division Product promotion Department

Internal Audit Division Islamic Banking Division Finance Division

Information Technology Department

Micro Finance Department

RRMC & RD

Treasury Division

12

CHAPTER 4

DIVISIONS AND DEPARTMENTS

International Banking Division

13

CHAPTER 4

DIVISIONS AND DEPARTMENTS Chart no. 4.4

Human Resource Division

14

CHAPTER 4

DIVISIONS AND DEPARTMENTS

Compliance Department

15

CHAPTER 4

DIVISIONS AND DEPARTMENTS

4.1 Banking Operations The Banking operation Division is mainly responsible to manage the operations i.e. work processing functions in the Bank. This division has pivotal role, as it has to work in close coordination with almost all the other Divisions/Departments for a smooth functioning of the Bank. The Banking Operations Division controls branch operation and international banking departments. The role played by the branch operations department is important they propose operational polices procedures and ensure strict compliance of the same through liaison with internal audit Division.

4.2 Marketing Division The Marketing Division of the Bank is responsible for the formulation and implementation of Marketing Strategy of the Bank's products both on assets and liabilities side keeping in view the business environment of the province. Accordingly the division works to popularize the Bank's deposit schemes and loan products among the people with a view to improve business and over all image of the Bank. The Division works in close coordination with the Branches and other Divisions/Department of the Bank towards the implementation of the marketing strategy and achievement of the assigned targets.

4.3 Islamic Banking Division Aims and target of the Islamic Banking Division is to implement the decision of the Board of Director to gradually convert the whole Bank into an Islamic Bank within three years under the supervision of the Shariah Supervisory Board as per Rules and Regulations of the State Bank of Pakistan. To achieve the target, Islamic Banking Division has devised an action plan for expansion and conversion of the whole Bank by December 2006 and to develop the business in various areas. According to the plan three new braches will be opened and six branches of the Bank will be converted into Islamic Banking Branches in 2004. 16

CHAPTER 4

DIVISIONS AND DEPARTMENTS

Islamic Banking Division plans to convert 12 more branches in 2005 and the remaining in 2006.

4.4 Human Resource Division It is imperative for the Human Resource Division to not only provide educated and trained manpower so as to enable them to handle their jobs more professionally and efficiently in all areas of banking but to develop talent and add value to staff potential to enhance output improve profitability as well. The Human Resource Division (HRD) puts in its concerted efforts to train, develop and groom a sound human resource base for the Bank and to work for continuous learning, adaptation and application of knowledge. The HRD tries to create an environment of mutual trust and dignity so as to ensure best positive results. It is playing a proactive role in capacity building, experience sharing, strengthening analytical and policymaking, skill up-gradation to help the staff in their endeavors to make Bank competitive, dynamic and one of the best Banks in the country.

17

CHAPTER 4

DIVISIONS AND DEPARTMENTS

4.5 Credit Division The credit policy of the Bank is reviewed on periodic basis according to the target market. It is communicated down the line and clearly spells out the roles and responsibility of the individuals involved. The Bank’s credit portfolio is diversified for different client segments. The consumer finance, car finance and house finance schemes have successfully been introduced and are in real sense helping common folks in upraising their standard of living.

4.6 Remedial Risk Management Collections and Recovery Division RRMC & RD started functioning under its new name in February 2004,

and assumed the responsibilities for the Recovery of all irregular as well as bad debts of the Bank. RRMC & RD coordinates closely with Credit Department, as ongoing feed back on performance of various segments of the portfolio is critical for fine tuning/amendment of underwriting credit initiation criteria. The Division also coordinates with IT Department for the automation of most of the processes and preparation of MIS containing information of all the branches on different types of loans in order to bring effectiveness and cost control in the Division. One of the primary responsibilities of RRMC & RD is to develop performance, monitoring, and evaluation criteria for Lawyers to optimize the litigation strategy. It also coordinates with National Accountability Bureau for high balance and political cases..

4.7 Internal Audit Division The internal audit Division of a Bank is an extension of the management and is a tool through which they gauge the qualitative and quantitative output of

18

CHAPTER 4

DIVISIONS AND DEPARTMENTS

the field offices. The Internal Audit Division works independent of the management and reports to Audit Committee of the Board of Directors. The Internal Audit Division consists of two departments namely Audit and Inspection and Compliance and Implementation. The Audit and inspection reports are passed on to the implementation department for implementation/compliance and followup. The fundamental objective of internal audit is to assist the management in materializing their pre-determined goals through established and clearly defined plans, policies and programs, SBP regulations and also to assist them in the effective discharge of their responsibilities, by providing them with reports, information, analysis, appraisals, recommendations, and pertinent comments on the activities reviewed. In short the internal auditor renders services to the management to attain their over all objectives and to ensure. •

Adequacy and soundness of internal controls within the Bank.

•

Implementation of management policies and procedures.

•

To safeguard Bank’s assets from all type of losses including fraud.

•

To recommend improvements in the systems and operations and pinpoint inefficient and uneconomical operations.

•

Accuracy and reliability of management data.

4.8 Treasury and investment Division Treasury was a main source of revenue generation during the year 2004, for the Bank. The year 2004 was marked gradual rise in interest rates of the country was seen. Keeping in view gradual rise trend in the interest rates, the treasury moved quickly to invest in the medium to long-term government papers, which was giving relatively higher yields. The treasury also traded in the secondary markets and maintained trading portfolio of Treasury Bills and Pakistan Investment Bonds (PIBs), which had, generate trading profits.

19

CHAPTER 4

DIVISIONS AND DEPARTMENTS

4.9 International Banking Department During first half of the year 2005, the Foreign Trade and Exchange Business of the Bank show a significant increase, which has not only contributed towards solid earnings of the Bank but also broadened the clientage base on qualitative basis. The Bank across the border business has effectively been instrumental towards the income growth of the Bank, which includes Imports, Exports Foreign Remittances, Negotiation of Foreign Bills, Collection of Foreign Bills, Export Refinance and export of Foreign Currency cash in hand. The Bank correspondent relationship at 1320 destinations of renowned international banks around the globe, has not only been supportive to Bank in meeting all kind of business requirements of the customers but also in strengthening the rapport with them by pledging future business commitments. The acquired latest mode of financial communication, i.e. “SWIFT” system has enabled the Bank to remit to and receive funds from anywhere in the world with in the same business day, which eventually has benefited the clients in terms of their time constraints in business. Bank is planning to further expand the network of “foreign exchange dealing” branches in near future, which will, Inshallah, play a positive role in further enhancing the profitability of the Bank.

4.10 Compliance Department Under the directives of the State Bank of Pakistan and the Board of Directors, a Senior Officer was designated as Chief Compliance Officer in January 2004. He was given the task to appoint/designate Compliance Officers down the line at all Branches and give a complete Compliance Program which would cover the areas of Legal Compliance, Know Your Customer (KYC) and Anti-Money Laundering (AML) system under the head of Customer Due

20

CHAPTER 4

DIVISIONS AND DEPARTMENTS

Diligence. The Bank developed a Compliance Manual for the general use by all staff involved at the Bank and especially for the benefit of the Compliance Officers who were specifically made responsible to monitor and ensure compliance at their respective areas.

4.11 Information Technology Department Bank was established in 1991. In order to have an edge over its competitors and to provide quick and efficient service to the customers, it was considered mandatory to computerize banking network in the branches. IT Department was established in 1994 and all the branches were successfully automated by the year 1998. IT department has progressed in the last eight years and trying its best to stay abreast in the field of fast developing technology. In order to achieve its goals, the management has decided to start on-line banking in the very near future. IT Department of the Bank is working dedicatedly and with full enthusiasm to provide best services by efficiently handling the in-house software development/maintenance, hardware/software trouble shooting and uninterrupted support to 29 Branches. Besides, Information Technology Department is playing an important role in development and deployment of Islamic Banking Application and timely support to the end-user.

4.12 Micro Finance Department The economic landscape of N.W.F.P is characterized by a number of flourishing small-scale economic activities scattered throughout the province. However, financing needs of these entities have not been met by formal sector financial institutions due to various reasons, which include perceived risks, high costs and lack of special skills associated with micro finance. Bank has taken up this challenge and has become the lead Bank in the country as a provider of these services by not only being the pioneer of micro financing in the formal sector but also its strong advocate.

21

CHAPTER 4

DIVISIONS AND DEPARTMENTS

Bank believes that poor are bankable and micro finance is commercially viable. Micro lending operations are structured in a separate department called Micro Finance Department (MFD) under the Credit Division of the bank. MFD aims to be the largest Micro Finance provider in N.W.F.P on sustainable basis. Its main objective is providing access to financial services by the low income and disadvantaged segment of the society with adequate emphasis upon women. The pursuit of this objective will significantly contribute to the improvement of employment opportunities, income-generating activities. This ultimately supplements government interventions of poverty alleviation in N.W.F.P. Bank has been lending in remotest inaccessible parts the province under the government area development projects

4.13 Finance Division The Finance Division is responsible for overall fiscal managing, financial control financial reporting, and accounting functions of the Bank. Division ensures that the accounting records and system are maintained in accordance with internal policies, regulatory requirements, and international accounting standards. It establishes policies and procedures relating to the finance function, monitors returns on earning assets and reports on various performance indicators including assets/liability mismatch. The Division directs control of the budgeting process in accordance with the annual plans, policies, management directives, and strategy, ensuring that quality budgets and forecasts are drawn up and consolidated for approval. Finance Division exercise budgetary control on all expense and income items at both Head Office and branch level, ensuring the effective monitoring arrangements are in place in respect of adherence to budgets/forecasts. It continually reviews the accounting and control system, ensures that they are appropriate to the requirements of the business and that they generate financial information necessary for effective decision-making.

22

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH. The basic functions of a Bank of Khyber kohat branch, as we all are aware are, accepting deposits, and lending of money. But banks, with the passage of time, development, and growing competition, realized that only these services are not enough. So banks started providing other services and introducing newer products to increase their customers in the growing competition. The Bank is committed of providing innovative and competitive solutions to all its customers according to their banking needs and a level of service that is more efficient and personalized. Learning about the needs of its customers is a continuous process at the Bank. To bring the high quality of banking services to its customers is the first priority of Bank. At present, The Bank of Khyber Kohat Branch has the following products and schemes for its valued customers; •

Assets Products

•

Liabilities Products

•

Non-Fund Based Services

5.1 Assets Products Assets products mean advances which are created to attract the people to borrow from the Bank and start or expand the business to enhance the economic growth of the country and increase the Gross Domestic Products. To secure the against interest risk the rates of most of the products have been linked with Karachi Inter Bank Offered Rate. The following are the asset products of Bank Of Khyber Kohat Branch.

20

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

5.1.1 Running Finance The bank of Khyber Kohat Branch provide special type of product i.e. running finance which is offered for businessmen holding Pakistan National Identity Card and resident/residing in N.W.F.P in order to meet their recurring expenses and their existing business. The repayment is one to two years and renewal

on

yearly

basis.

Mark-up

rate

is

charged

on

outstanding

balance.Securities for this type of scheme are Registered/Equitable Mortgage, Personal Guarantee acceptable to Bank and other acceptable securities. The insurance of property and asset financed is essential.

5.1.2 Demand Finance The other schemes which are provided by the bank of Khyber Kohat branch is the demand finance scheme which is introduced to provide opportunities to all Pakistani Nationals, to start their new businesses or expand the existing businesses. The eligibility is so simple and that is Pakistani Nationals, holding National Identity Card and Resident/Residing in N.W.F.P. The loan is sanctioned as per client’s requirements. The repayment period is upto 2 years.

5.1.3 Micro Finance Operation Micro finance refers to provision of a wide range of financial services including loan and saving products to low-income households and micro enterprises. Loan products characterize smaller loans made to low-income individuals to sustain self-employment. These loans may serve a number of purposes like working capital for covering day-to-day expenses, seed capital for starting up a business or investment capital for purchasing fixed assets. 5.1.3.1 Micro Enterprise Loans: Micro enterprise loans are provided to individual clients without involving intermediaries/facilitators; however, lending through organized clusters is encouraged for its proven advantages. Cluster is taken as a geographical

21

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

concentration of enterprises engaged in similar or complementing activities, which plays an important role in promoting entrepreneurial and industrial culture. Besides mobilizing finances, these clusters can facilitate its members in access to specialized labor and technical support. Following are the salient features of micro enterprise loans; •

Financial

requirement

are

met

for

fixed

investment

like

machinery/equipment and working capital. Skilled craftsmen are also encouraged for establishing new enterprises •

Maximum loan limit under this category is Rs. 500,000 for repeat loans and first time loans are considered for up to Rs. 50,000.

•

Loans up to Rs. 50,000 may be considered against hypothecation of stocks and two personal guarantees acceptable to the Bank. Additional societies are required for loans exceeding this limit.

•

Loan period shall not extend beyond three years repayable in equal monthly installments. Lump sum repayment and quarterly installments are considered in specific business situations and sectors.

•

Finances under this category are provided at commercial rate. However, loans financed from credit lines under areas development projects are charged as per specific agreement.

•

Repayment plan is drawn in consultation with clients keeping in view the nature of the business and payback potential of entrepreneur.

•

Other terms and conditions as per specific nature of the business are settled with prospective clients on case-to-case basis.

5.1.3.2 Motorcycle Finance Loans: Bank Motorcycle Finance Scheme is another big achievement of the Bank of Khyber kohat branch. This scheme has facilitated all those lower level of income employees who couldn’t afford to buy a motorcycle on lump sum amount. All adults residents of N.W.F.P, getting regular monthly income and have sufficient repayment capacity to meet their investment obligations are eligible for

22

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

this scheme. The minimum age limit is 21 years. At loan maturity age should not exceed 60 years. The mark-up rate is 16%. The repayment period is fixed and that is one year, two years and three years. The minimum down payment is Rs. 10000. Two personal guarantees + registered mortgage should be provided as securities. The documentation includes mortgage and legal documentation, charges to be borne by the client. Insurance is on lessee’s cost from the selected companies.

5.1.4 Consumer Finance Scheme Bank of Khyber Kohat Branch has launched a Consumer Finance Scheme for general Public. Under this scheme House Hold products like electronics, audio-visual equipment and home appliance to be financed to the customers on easy installments.

5.1.4.1 Eligibility 1. Citizen of Pakistan aged between 25 to 60 years. 2. Scheme will be opened to all permanent employees of Govt. & Semi Government,

Local

Government.,

Non-Government

Organizations,

Autonomous Bodies, University, Banks, Reputed Industries, Corporations and self employed professionals or business man. 3. Applicant must be resident of the city where Bank's Authorized Branch is operating. 4. The monthly installments must be up to of 1/3 of take home salary of the applicant. (Take home salary is to be determined by the branch manager). 5. The Borrower has to provide a personal guarantee of a third person as a security. 5.1.4.2 Guarantee Guarantor can be a person between the age of 25 and 55 years. Preferably

23

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

residing in the same area of applicant. Applicant must not be immediate family member of the borrower. Account holder of Bank is preferred. The applicant shall not be a Bank's Employee. Two Borrowers cannot provide guarantee to each other.

5.1.5 Khyber Salary Loan Scheme Bank Salary Loan Scheme has been introduced to facilitate the employees of the Bank and other organizations in government sector either provincial or federal. This loan is provided to the individuals against their salaries. The eligibility for this scheme is, all employees of Provincial/Federal Government /Semi Government Autonomous bodies, Corporations etc. the age limit is18 to 55 years. The size of loan is Rs. 100,000/- or up to fifteen Take Home Salaries whichever is lower. The markup on this scheme is 11%. The maximum repayment period is two years. 5.1.5.1 Other Conditions  To be allowed to regular employees of Government / Semi Government.  Departments having minimum 3 years service.  Salary Slip.  Salary must be routed through client’s account maintained with Bank.  Employer’s confirmation that in an adverse situation, Bank’s loan shall be adjusted through terminal benefits of employee.  Installment amount should be 25% or less of the Net Take Home Salary (where take home salary is less than or equal to Rs. 15,000/-)  Installment amount should be 30% or less of the Net Take Home Salary (where take home salary is greater than Rs. 15,000/-)  Processing Fee is Nil.

5.1.6 Khyber – Car Car Lease Scheme another product of Bank of Khyber kohat branch for 24

CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

their valued customers. The eligibility is all adult residents of N.W.F.P getting regular monthly income and has sufficient repayment capacity to meet their investment obligations. The minimum age limit is 21 years. At loan maturity, age should not exceed 60 years. The maximum size of loan is Rs. 1200,000/-. Mark- up rate is 14% Repayment period for this scheme is fixed. And that is period of 24 months, 36 months, 48 months, and 60 months. Minimum borrowing equityis

10%

and

there is no need of any type of securities.

5.1.7 Suhana Ghar Scheme This scheme is introduced for construction, purchase, extension and improvement / renovation of house. The eligibility is like all other schemes that are all adult residents of Kohat getting regular monthly income and have sufficient repayment capacity to meet their investment obligations. The age limit is 18 to 55 years. Size of loan is up to Rs. 1 million. Markup rate is 12.5%. Repayment period for this type of scheme is up to 15 years in easy installment. Securities include mortgage of the property for which the facility is allowed. In case of employees of organizations, lien on terminal benefits. Third party guarantee, if required. Mortgage and legal documentation charges to be borne by the client and insurance policy of the property offered as security covering all the related risks. Processing fee for this scheme is Rs. 100/- per application, for amount up to Rs. 1 million and for above Rs. 1 million, Rs. 500/- per application are to be charged.

5.2 Liabilities Products It means those products or scheme introduced by the Bank of Khyber Kohat Branch to inculcate the people to save and invest their idle funds in the Bank in order to earn profit. Some schemes of Bank are mentioned below;

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5.2.1 Current Deposit Account (Rupees) “The Bank Rupee current deposit account allows the facility of unlimited withdrawals up to the extent of the balance in account. There will be no tax deducted on the funds that some one chooses to keep in these accounts”. •

Balance in current accounts are payable on demand. Similarly there are no restrictions on number of transactions during the day.

•

All individuals including foreigners, firms and corporate bodies are entitled to open and maintain current accounts.

•

No profit is paid on current accounts.

•

Overdrafts are allowed on this account.

5.2.2 Saving Deposit Account (Rupees) “The Bank rupee saving deposit account allows the facility of multiple withdrawals up to the credit balance, while accruing profit on deposits”. Types of saving deposit accounts. i.

Profit and loss sharing (PLS saving) account.

ii.

Special deposit account (SDA). •

Profit is paid bi-annually on minimum monthly balance (January-June & July-December) which is announced in July and January respectively.

•

Generally, withdrawals from this account are allowed on demand i.e. without any prior notice of withdrawal.

•

Overdraft is not allowed on this account.

5.2.3 Term Deposit Account (Rupee) “The Bank Rupee Term Deposit Account offers the dual benefit of attractive returns with high liquidity. Options to take profit monthly, quarterly, 26

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PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

semi annually, annually or at maturity. Profit is accrued on a daily balance basis. There is no penalty for premature encasement. However in case of an early encasement the rate of the previous tender will be applied. The option of partial liquidity is allowed i.e. with drawl to a certain percentage from the fixed deposit without disturbing the remaining deposit is allowed”. •

Term or fixed deposits are accepted by Bank and having maturity from one month to five years.

•

Profit on fixed deposits is paid on the maturity of deposits.

•

Each fixed deposit account is considered as a separate contract.

5.2.4 Security Deposit Receipts (SDR’S) This is a receipt issued by the Bank, at the instructions of the depositor, confirming that amount of the SDR is held by the Bank to be paid whenever called upon to do so by the beneficiary named in the SDR. •

A SDR is a non-negotiable instrument.

•

SDR’s are generally used to make advance payments or as earnest money, retention money or security deposits etc.

•

A SDR can be repaid to a named beneficiary or the purchaser/depositor upon proper identification.

5.3 Non-Fund Based Services 5.3.1 Khyber Lockers The Bank Of Khyber Kohat Branch also provide the facility of Khyber lockers to all account holders of Bank. All accounts holders can get lockers by paying a nominal amount to the concerned branch. There are three types of lockers available, small, medium, and large. For small lockers, the annual fee is Rs. 750/- per annum, for medium Rs. 1000/- per annum and for large Rs. l500/per annum.

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PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

5.3.2 ATM Facility The Bank provides facility to its customers to Debit their Accounts electronically by means of ATM. The customers are allowed to withdraw upto Rs. 10000 in a day, and the bank doesn’t charge any sort of fee or commission on this type of facility.

5.3.3 Online Banking By adding this feature now the Bank’s customers can easily debit their Accounts anywhere in the country through the Bank’s branches. For example, if customer A has account in the Karachi-I branch so, he can easily withdraw money from his account by presenting cheque in the Kohat branch on the spot. The Bank charges only 0.1% on the debited amount.

5.3.4 Remittances The Bank transfers funds of its customers from one branch to another branch through D.D, T.T and M.T by charging small amount as commission.

5.3.5 Letter of Guarantee The Bank provides assurance to the beneficiary of the guarantee about the satisfactory performance of a certain act by the applicant of the guarantee. In the letter of guarantee three parties are involved i.e. 1.

Bank (provider of guarantee)

2.

Applicant of the guarantee (Bank’s customer on whose behalf the Bank issues a guarantee).

3.

Beneficiary (in whose favor the guarantee is issued).

4.

The Bank at the request of applicant issue the guarantee and charges commission for its commitment from the applicant at the exposure is secured against some security

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CHAPTER 5

PRODUCTS AND SCHEMES OF BANK OF KHYBER KOHAT BRANCH

References: 1. The Credit Department of The Bank of Khyber. 2. The Micro Finance Department of The Bank of Khyber. 3. The Remittances Department of the Bank of Khyber

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STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

CHAPTER 6

STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS The main purpose of doing SWOT analysis is to highlight all aspects of the Bank. We can say that it is a tool to get a quick overview of a firm’s strategic situation etc. It is an effective technique for analyzing the strengths, weaknesses, opportunities, and threats to an organization. It tells about the firm position. It helps the readers to understand the performance of the firm, bank etc vary easily. It forecasts the future status and points out the problems likely to come in achieving the specified objectives. As like the other banks the Bank has some strengths and weaknesses, opportunities and threats, which are given below:

6.1 Strengths Strengths are present within an organization and when utilized, become a means of distinction from competitors. i. The Bank of Khyber is a schedule commercial Bank with good branch networks in the NWFP. Being a provincial government Bank it is considered more secure.. ii. The Bank of Khyber Kohat branch offers new schemes and facilities from time to time which keeps not only the clients of the Bank committed but also leads to a growing sound base of deposits. iii. For the first time extending credit to the rural have-nots iv. The Bank of Khyber Kohat Branch has open communication system and friendly environment developed by the Management and staff of the Bank makes it very easy for the Management of the Bank to take the right decision at the right time.

Most of the banks in the country lack such type of

environment. v. As compared to the other Pakistani banks its staff is well qualified, skilled, knowledgeable, courteous, and can handle any situation tactfully. vi. As it is provincial Bank for N.W.F.P so it is easily access able to the business committee of the province. 29

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STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

vii. The Bank’s employees are from the same province so they understand the environment and easily meet the needs of the people etc. viii.Due to provincial Bank it is known as the provincial market very well as compared to other banks. ix. One of the major strength of the Bank is Micro Finance Unit (MFU) which ultimate goal is to finance the project in rural areas and approve small loans.

6.2 Weaknesses Weaknesses are the shortcomings in the structure or functioning of the organization and need to be taken care of immediately. It is usually because of these weaknesses that the competitors leave the firms behind in the race. i.

The Bank of Khyber has Unattractive branch’ interior and exterior.

ii.

Most of the employees are not motivated and lack technical knowledge and are scared about their carrier development.

iii.

Salary and other benefit are small in number.

iv.

As it is Provincial Bank so there is some influence by the provincial government in decision process.

v.

No fix tenure for promotion.

vi.

Low level of employee’s satisfaction and commitment.

vii.

The space in the Bank Kohat Branch is very limited, The Bank has no proper marketing..

viii.

Lack of staff in micro finance department..

6.3 Opportunities Opportunities are always present in the external market whoever grabs it first, is the market leader. i. Make the MFD more efficient and accessible for the small businesses. ii. As the Bank is planning to step in the Islamic Banking System so they should capture this market before any competitor comes in.. iii. There is a good opportunity for the Bank to sponsor games on provincial and national levels for its publicity.

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STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

iv. Offering of credit facilities to middle and lower income groups can reduce the default risk and can enhance the Bank goodwill and profitability.

6.4 Threats Threats are also part of a firm’s external environment and pose a constant danger to an organization’s operations. However, a proficient is the one that converts these threats into opportunities for it. i. Increasing number of private foreign banks in the country. ii. The main treat to the BOK Micro Finance is from its own. The management of the bank at many times has changed the basic structure of the Micro Finance Department iii. The low rate of savings in the country is a serious threat to the Bank. The Bank should aware the general public about the advantages of savings and investments. iv. Global technology advancement. v. The decreasing confidence of people on commercial banks on the basis of offering low returns and charging high interest rates is a threat to the Bank also. vi. Quality services provided by the private banks. vii. Sometime loan disbursement to the blue-eyed clients viii.Traditional rift between the MFD incharge and the Manager of the Branch. ix. Misutilization of the loans by the clients

References: 1. The Bank of Khyber Annual report 2002 to 2005 2. The Bank of Khyber site www.bok.com.pk

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FINDINGS AND SUGGESTIONS

CHAPTER 7

FINDINGS AND SUGGESTIONS FINDINGS SHORT LEAVES. The leaves for an hour or two are common during the banking hours. The case becomes more severe when manager is outside the branch. The branch manager should take serious notice of this matter and employees should not be allowed to leave the bank unless there is a serious problem. BURDEN OF WORK The employees are most of the time over burdened with work. At times employees have to work even after the working hours of the bank. Sometimes employees are irritated due to excessive work and long working hours. More over, officials are not given remuneration for working extra hours.

UNJUST RECRUITMENT Some of the appointments are made on the recommendations of influential people. There education is not according to the requirement thatswhy Bank of Khyber Kohat branch is not showing profitability upto the mark. NO PROPER MARKETING There is no proper marketing department in bank of Khyber Kohat branch. This is also a great threat to the bank.

ACCOMMODATION PROBLEM The sitting arrangement in the branch is far from being efficient. So proper seating arrangement should be made for the customers especially for ladies. As an internee we also face this problem lot of times.

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FINDINGS AND SUGGESTIONS

PROPER DISTRIBUTION OF WORK In the BOK kohat branch, Some employees have more work to do and are under stress while others are not fully occupied. The work should be distribute in such a manner that there should be no undue load or burned on anyone. NO PROPER PLACING OF STAFF The most important thing which I have found that there is no proper placing of staff members according to their job requirement so the proper placing of staff is very necessary to increase profitability.

SUGGESTIONS “ADVICE IS SELDOM WELCOME!AND THOSE WHO WANT IT THE MOST ALWAYS LIKE IT THE LEAST’. Recommendations suggest improvemrnt in areas,which have room for polishing and progress. My recommendations are based upon personal observations and most of them are based upon opinions of the experts of the Bank for the improvement of profitability and overall performance. 1. The proper placing of staff in different operational areas may result in improved performance. so, if the Bank overcomes this weakness and place experts at their proper place, it will increase the success of obtaining organizational goals. 2. The Bank may increase the Micro Finance portfolio from Rs. 250 million to Rs. 500 million in order to benefit more low level income holders, and it will generate economic activities and ultimately unemployment will decrease. 3. If the Bank adopts a proper product diversification strategy i.e introduces Debit card, Credit card, and more loans products it may increase the Bank’s profit.

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FINDINGS AND SUGGESTIONS

4. Today is the age of proper marketing not only of selling. If the Bank reduces emphasis from selling and adopts proper marketing it may enhance its efficiency. 5. Today media is getting more important for a proper advertising. If the Bank adopts media for advertising it will increase the clientale base of the Bank. 6. If the Bank introduces a proper motivation and incentive plan for its employees it will fulfill their needs and organizational objectives may be achieved very efficiently. 7. If the Bank revises the salary of the existing employees the turnover of professional may be reduced. 8. If the Bank establishes a proper training division it will increase the efficiency of the employees. 9. Every organization is now focusing on customers (customer satisfaction) and it is achieved only by proper branch environment (seats arrangement, branch interior and exterior design etc.) and good employees’ behavior with customers.. 10. In order to reduce banks’ risk, the long term loans trend is reducing and most of the banks by syndicate this type of facility are providing. If the Bank adopts this policy and increase short term financing and provides long term finances by syndicate the Bank’s risk may be reduced. 11. In order to increase productivity and ensure safety the Bank may install movie cameras at branch. 12. If the Bank establishes a separate information center for students, some time the Bank may get a good report for enhancing performance without payment of money. 13. The branch manager should take serious notice on short leaves and employees should not allowed to leave the bank in working hours. 14. Employees should be selected on merit bases.

34