Internship Report Bank Alfalah Ltd_part2

CHAPTER – 01 Introduction to the Report This Internship report is aimed at studying and analyzing Bank Alfalah LTD (BAL) in general and its branch office at Abbottabad, in particular. The main purpose of the internship is to prepare and submit a report as a partial fulfillment for the award of MBA degree from COMSATS Institute of Information Technology Abbottabad. 1.1 Background of the Study. Pakistan’s economy is growing with an appreciable rate. Sound banking system for this growing economy is the need of the day, which must meet the financial needs of the growing agriculture, industrial and commercial/services sector. Bank Alfalah since 1997 has played a pivotal role in the development of Pakistan. Like other multinational banks, BAL has adopted a customer-oriented approach, in order to provide quality products according to customer needs and stands as a role model for the other banks. In this report I have tried to cover all the aspects of BAL banking operations. 1.2 Purpose of the Internship The primary purpose of the internship is to fulfill the academic requirements of my study. The secondary purpose of the internship is to evaluate the banking practices, in corporate world and to compare these practices with the contemporary banking practices. The purpose of the study also is, to do practical work, in the field and apply the knowledge of classroom lectures to the real life situations, which thus enables a student to be a future banking practitioner. Besides this, some other purposes are associated, which includes:

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To give a comprehensive review of BAL.

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To analyze BAL organizational, financial and other aspects.

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To identify the areas of the bank where there is some room for improvement.

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To present some feasible solutions for the problems pertaining to BAL.

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To apply the knowledge gained in practical field.

1.3 Merits of the Report The study conducted will benefit the finance students in particular and banking students in general because the third chapter of this report comprehensively encompasses most of the aspects of banking, followed by SWOT analysis, conclusion and recomendations. Furthermore, BAL branch Abbottabad may also benefit from the recommendations made at the end of the report. 1.4 Scope of Work/Report Banking has a very broad scope. In only six weeks of internship, it is very difficult to understand each and every aspect of bank. Due to the barriers of limited time and space, the scope of work is usually confined. However this study of BAL will help the management to identify their weaknesses and threats and over come them by using their strengths and capitalizing on the opportunities. This internship report will be source of financial data for all those who are interested in financial statement analysis of BAL. 1.5 Methodology of the Report. This study involves two types of data for report writing. 1.5.1 Primary Sources: 

Interviews and discussion with staff members

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Personal observations

1.5.2 Secondary Sources 

Annual reports of BAL

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Brochures & Manuals.

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Websites

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Newspapers

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Previous Internship Reports.

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1.6 Limitations of the Report As mentioned earlier, six weeks of time is very limited for a complete observation of an institution like BAL. Moreover some of the data was confidential and was not made available to me. Sometimes due to the busy schedule of the bank, complete information regarding different activities was not provided in time. 1.7 Scheme of the Report This internship report is divided into five chapters as: Chapter one includes background, purpose, scope, limitations, methodology, and scheme of the report. Chapter two includes background and history of banking in Pakistan, background of BAL, roles, functions and branches. Chapter three includes organizational structure of BAL, organizational charts and departments of BAL. Chapter four includes financial, SWOT analysis and findings based on work in chapter three. Chapter five includes recommendations of the study based on the analysis in the previous chapter.

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CHAPTER – 02 Introduction to Bank Alfalah Limited 2.1

Evolution of Banking

Consensus on the origination of word “Bank” has not yet reached. According to some authors this word is derived from the words “Bancus” or “Banque” that mean a bench. The explanation of this origin is attributed to the fact that the Jews in Lombard transacted the business of money exchange on benches in the market place, and when the business failed, public destroyed the Banco. Incidentally the word bankrupt is said to have been evolved from this practice. The opponents of this opinion argue that if it was so, then how is it that the Italian moneychangers were never called Banchierei in the middle ages? Other authorities hold the opinion that the word Bank is derived from the German word “Back” which means joint stock fund. Later on, when the Germans occupied major part of Italy, the word “Back” was Italianized into “Bank” (Aslam, 1999) It is therefore, not possible to decide as to which of the opinions is correct, for no record is available to ascertain the validity of any of the opinion”. 2.1.1

Early Growth

“Banking in fact is as ancient as human society. For ever since man came to realize the importance of money as a medium of exchange. Perhaps these were the Babylonians who developed banking system as early as in 2000B.C. It is evident that the temples of Babylon were used as banks because of the prevalent respect and confidence in the clergy. (Siddiqui, 2004) 2.2

Brief History of banking

The Clay tablets of Banking have been found in Babylonia and Assyria, showing some of the functions of banker, such as money changing, advances. King Hummurabi, the founder of Babylonians Empire, developed rules and regulations for Mehraj Muhammad

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banking operations that payments were made through a banker and by drafts against deposits. Deposits bearing interest, letters of credit and other means of transferring credits from one place to another were also know in anct Greece and Rome. In Italy during the middle ages, continually from early times, it is now accepted that the first public ‘bank’ properly so called, was the Banco di Rialto, established, at Venice by acts of senate in 1584 and 1587. In 1587 Banco di rialto was formed at Genoa, the famous Bank of St George; this was a private bank of deposits. In 1619 the Banco del Giro was founded; this become the only public bank in the state, and was long famous as the Bank of Venice. Later in 1609 the Bank of Amsterdam was also formed. This bank rendered valuable services to the Netherlands trader up to the year 1820. In 1619 the Banco del Giro was founded; this become the only public bank in the state, and was long famous as the Bank of Venice. Bank of Hamburg cant into existence in Hamburg with the business of accepting deposits of fine silver or foreign currency. The bank rendered great services to the merchants as well as the countries. It dealt with them until 1873, when it was merged with the Reich bank. Their business lay in the assistance of commerce not by loans but by the local manufacturers. 2.3

Role of Banking in the Economy

Banking principal roles in the Economy are as follows: 2.3.1 The Intermediation role: Transforming savings received primarily from households into credit (Loans) for business firms and others in order to make investments in new buildings, equipment, and other goods. 2.3.2 The payments role: Carrying out payments for goods and services on behalf of their customers(such as by issuing and clearing checks, wiring funds, providing a conduit for electronic payments, and dispensing currency and coin). 2.3.3 Guarantor role:

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Standing behind their customers to pay off customer debts when those customer are unable to pay (such as by issuing Latter of Credit).

2.3.4 Risk Management role: Assisting customers in preparing financially for the risk of loss to property and persons. 2.3.5 Savings/investment advisor role: Aiding customers in fulfilling their long-range goals for a better life by building, managing and protecting savings. 2.3.6 Policy role: Serving as a conduit for government policy in attempting to regulate the growth of the economy and pursue social goals. 2.4

Banking in Pakistan

Banking started in Pakistan after the bold and emergent decisions of formulation of SBP on July 30, 1948. Thereafter this sector was witnessed enormous growth. In 1974 banks were nationalized, in the hope that new era of growth could be achieved through it. However the process is reverse since 1991, up till now MCB, ABL, ACBL and HBL have been privatized. 2.5

History of Bank Alfalah Limited

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. Bank Alfalah Limited started its life as “Pakistan Operation” of BCCI. A multi-national conglomerate based in Luxembourg and Grand Cayman. BCCI was the 7th largest bank in the world. The estimated assets of BCCI were 20 billion dollars. The operations of the Bank were in 70 different countries of the World. In July 1991, the Bank of England and International Liquidators accused BCCI of being involved in money laundering to the tune of 1.54 billion dollars.

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Upon closing down of BCCI, in 1992 the operations of BCCI in Pakistan were acquired by Habib Bank Ltd, and were run as a wholly owned subsidiary by the name of Habib Credit & Exchange Bank (HCEB). HCEB was later acquired (through the process of privatization) by the Abu Dubai Group, in 1997 and its 70% ownership was transferred to Abu Dubai Group. The agreement was signed on July 7, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. 2.6

Bank Alfalah Today

The strength and stand of Abu Dhabi Group, principal owners of BAL, have helped Bank Alfalah Limited launch high quality consumer and corporate banking operations in Pakistan. Bank Alfalah Limited have embarked upon a rapid expansion program to make sure that the services reach more and more people, BAL is headed towards an optimum sized network reaching major urban centers in Pakistan. The Bank is well positioned and geographically poised, to cater for increased business demands, from its existing and potential clientele. The bank is not only making its contribution in accelerating Pakistan’s economy. There are 238 Branches of Bank Alfalah Limited in 75 different cities of Pakistan, with the registered office at B.A.Building, I.I.Chundrigar, Karachi. With the implementation of the office automation and communication system BAL will be poised to compete with the best in quality and speed of customer services. During the period under review, Bank Alfalah made notable progress in business volume, efficiency and profitability following its increased involvement in trade finance, commercial lending, and foreign exchange and money market operations. Good clientele is at the heart of good business. The Bank is very selective of its clients and carefully checks all references. Referrals are excellent sources of new accounts as they give the Bank an opportunity to learn about a potential client before establishing a relationship. This helps protect the integrity of the Bank and ensures that the client will share values necessary for a long-term and stable relationship. Bank Alfalah Limited continually endeavors to develop wider spectrum of innovative financial products based on consumer needs.

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2.7

Vision of BAL

Vision statement identifies where the organization intends to be in the future or where it should be to best meet the needs of stakeholder. Vision statement incorporates a shared understanding of the nature and purpose of the organization and uses this understanding to move the organization toward a greater purpose.

The Vision of Bank Alfalah is:-

VISION “To be the premier organizations operating locally and internationally that provided the complete range of financial services to all segments under one roof”

Bank Alfalah is one of the leading financial institutes; Bank Alfalah operates only in Pakistan now soon it will go internationally, and Bank Alfalah day by day increasing its products for all the segments in Pakistan i.e. for Businessmen, Industrialists, Agriculturists and for the Government bodies in the country. Bank Alfalah is trying to reach each segment in Pakistan, and trying to provide its products at lowest charges and with easiest way, under one roof.

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2.8

Mission Statement

Mission statements are "enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms." It addresses the basic question that faces all strategists. A clear mission statement describes the values and priorities of an organization. A mission statement broadly charts the future direction of an organization.

Mission statement of Bank Alfalah is:-

MISSION “To develop and deliver the most innovative products, manage customers experience, deliver quality service that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank

In the above Mission the Management of Bank Alfalah emphasis on the following areas:

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To provide the new and more innovative products than the other banks to the customers.

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To take and manage the ideas of the valuable customer for the Bank

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This is a one of the main component of Bank Alfalah Mission Statement that to deliver high quality and quick services to the customers, who are keep great value for Bank Alfalah.

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Bank Alfalah tries to promote those activities which give the fruitful result to the customers and the stakeholder of the bank.

2.9

Core objectives of BAL

Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Objectives are essential for organizational success because they state direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Bank Alfalah Limited objectives are as follows:

To create maximum economic value for share holders through a constant relationship focuses on financial services.

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Leveraging BAL Investments in the IT field.

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On going assessment of opportunities for customers, leading to the constant development of new products and services.

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

2.10

BAL Credit Rating

Pakistan Credit Rating Agency – the leading credit agency in the country – has rated Bank Alfalah very favorably. The Bank has been awarded an AA- (double A minus) and an A1+ (A one plus) in the long and short term respectively. These ratings denote very high credit quality and very low expectation of credit risk. The bank also issued TFC’s in the year 2002. These were very well received in the market and were Mehraj Muhammad 1

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oversubscribed by 6 times. PACRA awarded an A+ (A plus) rating to these certificates. 2.11

Branch Network of BAL

Since the privatization in 1997, Bank Alfalah Limited has remained consistent in its mission to excel in providing innovative products and services to its customers. As a result of that, the yare 2003 has been most favorable for bank in spite of varying market conditions. The Bank recorded significant increase in its business volumes coupled with the broadening of network and clientele base. The Bank is fully aware that the branch network has direct implications on the service that it provides to its customers. In the year 2003, nine (9) commercial banking branches and five (5) Islamic banking branches were added to the Bank. In 2004, Alfalah network extend the courage to 72 branches in 30 cities nationwide. Currently Bank Alfalah has 238 Branches in 75 different cities. Bank Alfalah is confident that a well-integrated branch network, offers greater potential for serving a larger client base through high value products.

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BRANCH NETWORK OF BAL Figure 2.1; Branch Network of Bank Alfalah Limited

2.12

O r g a n iz a ti o n a l

Structure of BAL Figure 2.2; Organizational Structure of Bank Alfalah Limited

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2.13

Departmentation

Every organization is divided into definite departments. Each department performs different kind of job and requires staff with specialized skill to handle the particular Mehraj Muhammad SP07-MBA-011 13 1

job. This increases the efficiency of workers and makes the job of the employees easier. There are several aspects on which departmentalization in an organization can be based. The division can be done on the basis of functions or product or customers or geographical location. In Bank Alfalah Abbottabad City Branch, departments are e made on the bases of functions performed by the bank. The following are the major departments of the BAL Abbottabad City Branch: 2.1.1

Accounts Department

Accounts Department is known as the backbone of any bank, this department shows the performance of a bank in a particular area. The first step towards the banker customer relationship is the opening of a customer’s account. Bank Alfalah Abbottabad City Branch provides different types of accounts for various business segments.

Figure 2.3; Accounts Department

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Procedure of Opening an Account

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Figure 2.4; Procedure of Opening an Account

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Types of Accounts a) PLS Saving (Rupee) Accounts Saving accounts are designed to mobilize savings primarily from a large number of individuals and house hold. Any one or more individuals or partners can open a PLS saving account with the Bank. Salient features of PLS account are as follows: 

Minimum initial deposit is Rs.500/-

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A smaller deposit can be accepted at the discretion of branch management if average deposit is expected to remain above Rs.5,000/-

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Profit on PLS saving accounts is calculated on minimum monthly balance basis.

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Profit rates are announced and paid biannually in January and July respectively.

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Profit rate on the PLS saving is 2.25% per annum. However profit rates are subject to change in response to change in the return earned by the Bank on deployment of funds.

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Checking Facility of the account is unlimited.

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25, 50, leaves Cheque Book is issued to the clients.

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With holding Tax is deducted from the profit and Zakat on total amount.

b) Current Rupee Account Individual, partnerships, companies, associations, clubs, societies and NGOs are eligible to open current accounts. This type of account is further classified as individual account and Joint Account. Salient features are as follows: 

Minimum initial deposit is Rs.5,000/-

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Minimum average balance is Rs.10,000/-

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There is no restriction on number of transactions.

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There is no limitation on amount of withdrawal.

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No profit is paid on credit balance in current accounts.

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Checking Facility of the account is unlimited.

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25, 50,100 leaves Cheque Book is issued to the clients.

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There is no Tax application on this type of account.

c) Term Deposit It is one of the popular account types. The amount is deposited in this account for fixed time period i.e. from one month to five years. The interest is various with the variation of time limitation. The rate of profits increases as per increase in time period. The customer cannot withdraw money before maturity. The profit on this account is paid after the maturity. But if a customer want to withdraw before maturity, so he will give a notice to the bank 7 days before borrowing. d) Royal Profit Savings (Rupee) Accounts Royal profit is a high yield rupee account intended to provide higher rates of profit to high net worth customers and greater flexibility and Mehraj Muhammad 1

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convenience in terms of transactions. Current rates of profit are as follows: Amount Proposed Rates (P.A) FFrom 50,000 To 999,999 1.50% FFrom 1,000,000 To 9,999,999 1.75% FFrom 10,000,000 To 49,999,999 2.00% FFrom 50,000,000 To 149,999,999 2.50% FFrom 150,000,000 & Above To be quoted by treasury

Table 2.1

Royal Profit Savings Account Proposed Rates

e) Royal Patriot (Rupee Term Deposit) Royal Patriot is a rupee term deposit scheme with competitive rate of profit. Current rates of profit are as follows: Tenure 1 Month 3 Month 6 Months 1 Year Table 2.2

25,000-999,999 1,000,000-4,999,999 5,000 & Above 1.50 % 1.60 % 1.70% 1.75 % 1.85 % 1.95% 2.00 % 2.10% 2.20% 2.25 % 2.35 % 2.45% Royal Profit Rates

f) Foreign Currency Accounts This Account is offered to resident and non-resident Pakistani’s as well as foreigners can open foreign currency accounts. A foreign currency account is opened either as savings account or current accounts. Foreign currency accounts are opened and maintained subject to local laws and regulations in force from time to time. Profit on foreign currency saving account is paid on half-yearly basis and on term deposit it is paid on maturity. No interest is paid on foreign currency current accounts. g) Notice Deposit Mehraj Muhammad 1

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The notice deposit is selected by the customer indication his intention to withdraw the funds. Notice desists are usually held for pre-specified tenors of seven days and thirty days. A deposit is placed for minimum of 7 days in order to qualify for accruing profit. h) Call Deposit It is a non interest bearing deposit account with a mandatory 7 or 30 days notice period preceding the release of funds. This account can be maintained in PKR. Call deposits are exempted from all/any encumbrances and no profits are paid on them. In this type of deposit there is no checking facility. i) Minor’s Account In respect of an account opened in the name of a minor, the bank follow those instructions which is received from the guardian named on the Account Opening Form, irrespective of whether the minor account holder continue to be a minor or not unless the Bank receives written instructions from the guardian or a notice to the contrary for an appropriate authority. The minor’s account can be opened in any type of account i.e. current or saving account. j) Statement of Account BAL issue quarterly or at such other interval as it may deem fit to send to the customer statement of account, from which the customer can check the entries made therein. In case of any discrepancy or error in the statement of account, the customer notifies the bank within the 14 days of receipt of the statement of account. k) Hold Mail Facility Upon written request of the customer, the bank in its sole discretion provide a “Hold Mail” facility whereby the Bank shall retain for periodic collection by the customer, or his duly authorized agent, all Mehraj Muhammad 1

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communications or statements of account relating to the customer’s account. l) Stop Payment Instruction BAL, in its absolute discretion, accept stop payment instruction for the customer if a cheque is reported lost or stolen, provided the necessary detail of the lost/stolen cheque are give by the customer on a prescribed form. The customer is further liable to give charges of the stop payment of a lost/stolen cheque. m) Closure of Account If a customer wants to close his account, so on closure of the account, the customer must return to the bank the unused cheque(s), relationship card, ATM card(s) and Credit Card for cancellation. And the bank has the right to close the account without assigning any reason by giving 14 days notice. 2.1.2

Remittances Department

Remittances department is a very important department in every bank. One of the most frequently used banking services is the transfer of funds through the banking channels. Transfer of funds shows the high efficiency and security of the bank. 

Local Remittances

The transfer of funds within the Country or within the city is called Local Remittances. The following are the different types of the local remittances in BAL Abbottabad City branch: a) DD (Demand Draft) Demand Draft is drawn by one branch on another branch or on the Head Office of the same bank or vice versa. Demand Draft is basically a bill of exchange, that is, an order to pay money, drawn by one office of a bank upon another office of the same Mehraj Muhammad 2

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bank for a cum of money payable o order on demand, purports to be issued by or on behalf of the payee, the bank is discharge by payment in due course. b) TT (Telegraphic Transfer) Telegraphic Transfer is a message transmitted via telegraph; fax or telephone after the customer fills in and signs the application form for transferring funds from one place to another. The bank receives the amount to be transferred, charges commission on the transfer. The schedule of charges of Tele-graphic transfer is given in the appendix. The customer is given the receipt and the TT officer sends coded instructions in the form of test numbers to the drawee branch telegraphically. The code is decoded at the drawee branch and payment made to the beneficiary at the time of presentation. The amount of TTs issued in a day are posted in the Branch’s online software system by the related officers and then verified by the supervising officers to balance the accounts in which transactions occurred in the day. After the full verification the payment is made to the customer. The following points are scrutinized: 

The full name of payee along with his address and /or account number

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The amount in words and figures should tally

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Currency in which the payment is to be made

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Signatures of the remitter/ purchaser should be present in their respective box on the form.

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The bank/branch where the payee’s account is being held.

c) MT (Mail Transfer) When the money is not required immediately, the remittances can also be made by mail transfer. In this method of Mehraj Muhammad 2

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transferring funds, the sending bank sends instruction in writing by mail to the paying bank for the payment of certain sum money. When MT received by the paying bank, be make payment. d) Pay Order

Figure 2.5; Pay Order Processing

e) Travelers Cheques Traveler Cheques are generally issued for the convenience of persons traveling in the Pakistan or abroad. These are issued to applicants without any excise duty or commission. These are the safest way of carrying cash when traveling anywhere in Pakistan. Before issuing, the officer receives an amount equal to the face value of the cheques, and also chare a small commission. The charges of traveler’s cheques are mentioned in the appendix. The traveler’s cheques are for fixed amount and are treated as order cheques payable only to the purchaser whose specimen signature appears on each traveler’s cheque

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itself. Bank Alfalah presents Rs.1, 000, 5,000 and 10,000 denominations of traveler’s cheques. Foreign Remittances

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Foreign Remittances can be either inward or outward. In case of Inward Remittances where the authorized dealers purchase foreign exchange received in the form of MTs, DDs, TTs, Travellers Cheques and Foreign Currency Notes it flows in and in case of Outward Remittances where the authorized dealers sell foreign exchange by issuing the above mentioned instruments, it flows out. Instruments of Inward Remittances

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The following are the different Instruments used for inward Remittances 

Foreign Currency Cheques and Foreign Demand Drafts deposited by BAL’s customers for collection.

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Foreign Money Transfers or Foreign Telegraphic transfers received from foreign banks to the credit of its customers’ accounts.

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Rupees, DDs, MTs, and TTs drawn by one of the banks correspondents/ branches on their Non-Resident Rupee Account maintained with the branch.

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Encashment of Foreign Currency Travellers cheques and Foreign Currency Notes.

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Export proceeds whether under Letters of credit or without Letter of credit.

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Instruments of Outward Remittances 

Foreign Demand Drafts issued by BAL, Abbottabad City Branch.

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Foreign Outward Bill for Collection (FOBC)

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Foreign Telegraphic Transfers/ Money transfers SP07-MBA-011 23 2

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Travellers Cheques Corresponding Banks for Remittance

Since Bank Alfalah does not have branches in all countries, it has correspondence with the following banks for remittance. 

US dollar ($)

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Pond Sterling

Habib Bank London

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Deutch Mark (DEM)

National Bank of

Citi Bank, American Express, ABN Amro, Banker trust and Habib Bank New York.

Pakistan Frankfurt 

Euro

Commerce Bank

Frankfurt

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Money Gram

Money gram is a world wide setup. Money gram is a machine setup, through which a customer deposit money. The customer fills a form and deposit the money, the banker gives him a message. The customer give that message to the other party either he is in the country or outside the country. He visits that bank which is listed in the money gram setup. He gives that message and takes his money. It is a type of international online facility. Bank Alfalah limited, in collaboration with Money Gram, offers remittance service to Pakistan. Money Gram is person to person money transfer service that allows consumers to receive money in just a few minutes. 2.1.3

Cash Department 

The Cash Counter

The cash counter is occupied by four cashiers which is headed by a head cashier that pay and receive cash from the customers after carefully checking the instruments presented for payment and cash Mehraj Muhammad SP07-MBA-011 24 2

presented for depositing or paying. Besides, there is a officer responsible for issuing RTCs, DDs, TTs, MTs, Pay Orders etc. and a senior Grade I officer who supervises the transactions and gives necessary advice in case of any doubtful activity. After closing of the business hours, the tellers verifies the amount of cash , physically, which is cross verified by the manager operations and tailed with the general ledger account. Tellers take extreme are to detect counter fag notes and if such notes are detected, the matter is referred to the manger operations.

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Receipt and Payment of Cash

For cash collection a cash deposit slip is filled by the customers, which include the branch name, branch code, title of account, the date, amount which is deposited in the account and the signatures of the depositor. The senior officer maintains with himself a “Cash Received Stamp” that is affixed on the paying in slip after the cashier signs it. Cash or any other instrument presented for depositing in the customer’s or a beneficiary’s account is accepted and the account credited only after the paying in slip has been signed and countersigned by the officer. For payment customer present cheque over the counter, the cheque should not be crossed. Crossed cheque payment is made after the clearing. Before the payment the cheque is verified by the officer. It is verified for staling, post dated, payee’s name, crossing, signatures, amount both in words and in figures and authentication of alterations. If there is any ambiguity in the cheque so the cheque is than returned. After making the full verification, the cheque is posted, supervised and cancelled by the authorized officers before the cashier pays cash to the presenter of the instrument.

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Counting Cash

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The authorized officer checks and counts cash in the afternoon after the transactions by the customers have been closed for the day. The number of stitched bundles and sealed bags containing coins are properly checked and the results tallied with the recorded balance in the cash register. 2.1.4

Clearing Department

Banks collect cheques for their customers that are drawn on other banks. This function of clearing its customers’ cheques by a bank is performed for settling payments through the clearing houses in the State Bank of Pakistan. In cities with no SBP coverage, the clearing is than supervised by National Bank of Pakistan. 

Types of Clearing a) Inward Clearing The process where instruments drawn payable on Bank Alfalah Abbottabad City Branch are deposited by the holder with other banks/ branch and presented for payment. b) Outward Clearing The process where the instrument drawn payable on some other bank/ branches is deposited for collection with Bank Alfalah Abbottabad City Branch.

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Process of Clearing A clearing house is a place where clearing officers of all scheduled banks get together to settle payments and receipt of cheques drawn on each other. Cheques received at BAL Abbottabad City Branch are sorted and entered in the outward registers by the officers and is sent to the BAL Abbottabad Supply Branch. Than in the Supply Branch a copy of the clearing schedule prepared sent to the clearing house supervised by the State Bank of Pakistan in all the

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major cities of Pakistan and in the smaller ones by the National Bank of Pakistan as an agent of the central bank. In the Clearing House each bank receives from other banks cheques drawn upon it and delivers to other bank cheques drawn upon them. The net difference is settled by Dr, Cr. To their account with the supervising bank.

2.1.5

Credit Department

MANAGER

Figure 2.6; Hierarchy of Credit Department Commercial banks are so named because they specialize in loans to commercial and industrial businesses. Banks make three types of loans: commercial and industrial loans, consumer loans, and mortgage loans. Commercial and industrial loans are loans to businesses or industrial firms. These are primarily short-term working capital loans (loans to finance the purchase of material or labour) or transaction or longer-term loans (loans to purchase machines and equipment). Mehraj Muhammad 2

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Whether a bank will make a loan or not depends on the credit and loan history of the borrower, the borrower’s ability to make scheduled loan payments, the amount of capital the borrower has invested in the business, the condition of the economy, and the value of the collateral the borrower pledges to give the bank if the loan payments are not made.



Types of Advances a) Running Finance This is the most common for m of bank advances. When a borrower requires temporary accommodation, the BAL allows withdrawals on his account excess of the balance with the borrowing customer have in credit, and a running finance thus occurs. This accommodation is generally allowed against collateral securities to reduce risk of the bank. The borrowing customer is in an advantageous poison in running finance, because he has to pay service charges only on the balance outstanding against him. In case of default the bank has the right to sell off the collateral and recover the amount outstanding. b) Term Finance This is very common form of borrowing by commercial and industrial concerns, and it is made available either against pledge or hypothecation of goods, produce or merchandise. In term finance, a borrower is allowed to borrow money from the bank up to a certain limit, either at once or as and when required. The mark-up is only given on the amount actually utilized. It is a short term, selfliquidating commercial loan. It is given for one year and renewed after one year. c) Loans When a customer borrows a fixed amount repayable either in periodic instalments or in lump sum at a fixed future time, it is

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called a “loan”. BAL Abbottabad city branch allows loans to their customers. The bank first takes collateral securities against the loan. Bank Loans are classified into: i.

Loan by Security This type of loans is secured by security. The main types of securities pledged with the bank are as follows: 

Equipment



Real Estate



Ware House Receipt



Stock Bonds

ii. Loan by Maturity This type of loans is classified according to maturities, which are as follows: 

Short term Loans (payable within one year or on short notice)



Intermediate term Loans (It is paid in instalments, it is for one to five years)



Long term Loans ( This type of loans is for longer period than the intermediate loans, it can be paid before maturity)

iii. Loan by Purpose A borrower can get the loan from BAL for various purposes; BAL Abbottabad City Branch advances loans for the following purposes to its customers:

2.1.6



Commercial Loans



Industrial Loans



Personal Loans

Credit Cards Department

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Bank Alfalah visa cards introduced in 2002. During the fierce competition in the market today, the Alfalah Visa Credit card has captured a significant make share. It is accepted at nearly 30 million merchants and 870,000 ATMs in more than 150 countries around the globe and over 10,000 establishments in Pakistan. Alfalah VISA helps to pay for shopping, travel, entertainment, meals and much more. Card members are facilitated through a number of promotions from time to time like Matchless Discounts (discounts at nationwide merchants’ outlets, making each shopping spree an exciting one), Dine’a’ Discount (the best discounts at a wide range of selective restaurants) , Fortunes Rewards Program (exchange of fortune points against an array of attractive products and services), etc. In addition, there are a number of strategic business partnerships with leading local and international brands for purchase of home appliances at exciting Step-BY-Step (SB S) monthly installment plan with free home delivery at lowest interest rates. Features No Joining Fee No Annual/Renewal Fee Lowest Markup Mehraj Muhammad 3

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Auto Debit Card Global Acceptability Cash Withdrawal Revolving Credit Free Supplementary Cards 24-Hours phone Banking Service. Zero Loss Liability. All Billing in Pak Rupees. Comprehensive Travel Protection .



Categories of Alfalah Visa Credit Card i.

Alfalah gold card (Is impressive combination of higher spending limits and superior card services)

ii.

Alfalah classic cards (An extremely appealing product with features not available on any other credit card in Pakistan)

iii.

Alfalah blue card (This card is specially for Graduates or the persons who has just started his career)

iv.

Women exclusive (For the first time in Pakistan, BAL has introduced a credit card exclusively for women. this card has its unique features which have been tailor-made for the women in Pakistan) (Forget your wallet and chill out with Alfalah Visa Mini)

v.

Auto Debit Card

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(This is especially designed for the BAL account holder, giving option of making minimum or full payment through BAL saving and current PKR account specified on Alfalah Visa monthly statement)





Young Professional card



Student card



Scholarship card

Supplementary Cards All Bank Alfalah basic card members can apply for supplementary cards in separate categories like;

2.1.7



Daughter’s card (children who are above 13 years of age)



Son’s card



House staff card(for the cook and driver etc )

Auto Finance & Leasing Department 

Car Finance

Alfalah car scheme enables customers to own a car at easily affordable and flexible installments with minimum down payment and insurance.



Corporate & Individual Car Leasing BAL recently introduced car leasing facility for individuals and corporate sector has set new dimensions for the product. Now customers are provided with the option of either to get the vehicle leased or financed.

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2.1.8

Home Finance Department

Home finance scheme as launched BAL during last quarter of 2003. This product has received overwhelming from the customers due to its lowest mark-up and high quality services provided by bank. Home finance Department started its operation in September 12, 2003



Major Purposes of Home Finance

Bank provides the loan for three major purposes:

2.1.9



Purchase



Construction



Renovation

Foreign Exchange Department

BAL Abbottabad City Branch Foreign Exchange Department deals almost in all types of foreign banking transactions such as: a) International Trade Banks play a very important role in settlement of rights and claims that arises as a result in the contest of international trade between sellers Mehraj Muhammad 3

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and buyers. There are four methods available through which international trade debts are settled 

Payment Against Documents



Documentary Credits (Revocable, Irrevocable and Confirmed L/Cs)

b) Authorized Rates for Foreign Exchange Transactions State Bank announces the rate for foreign exchange transactions. The authorized dealers are given general permission to determine their own rates of exchange, both for spot and forward transactions for the public subject to the condition that the margin between the buying and selling rate should not exceed 50 paisa per US Dollar or its equivalent in other currencies. This condition does not apply to inter bank transactions. c) Collection Services BAL provides collection services on foreign bills for collection to its clients such as Foreign Currency Cheques, Travelers Cheques, Foreign Demand drafts deposited by its customers for its collection. d) Payment against Documents (PAD) Payment against Documents is created at retirement of L/C or Acceptance. It is a temporary loan to the importer and is adjusted as soon as the payment is received and documents are delivered to importer. At the lodgments are delivered to importer. At the lodgment date the L/C amount is converted at prevailing or booked rate. e) Documentary Credits (Letter of Credit) International trade involves numerous factors such as payment for imports in the exporter’s country; shipment of goods within the limitation prescribed under Trade Control regulations, and difficulties of enforcing legal rights in a foreign country, etc. therefore, with a view to overcome these impediments a system has been enforced in Mehraj Muhammad 3

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order to deal with the above and other related factors so as to protect importers and exporters of goods against unwanted risks. The system is represented by ‘Letter of Credit’ and their operation is controlled under the articles of the “Uniform Customs and Practice for Documentary Credits” as adopted by the Council of the International Chamber of Commerce and enforce with effect from January, 1994 in the Brochure No 500

Figure 2.7; L/C Flow Chart



Types of Credit

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There are various types of documentary credits and its commercial value depends on its type but the two main classifications are: i.

Revocable Credit It can be amended or cancelled at any time without prior warning or notification to the seller. It therefore, involves risk as the credit may be amended or cancelled while the goods are in transit and before the documents are presented or although presented, before payment has been made. The seller would then face the problem of obtaining payment directly from the buyer. On the other hand it gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment by the bank at which the issuing bank has made the credit available.

ii.

Irrevocable Credit This type can be amended or cancelled only with the agreement of all parties thereto. It gives the seller greater assurance of payment, but he remains dependent on an undertaking of a foreign bank. It is lesser flexible as the credit can be only amended or cancelled if all parties agree.

iii.

Confirmed Irrevocable Credit As there are often two banks involved, the issuing bank and the advising bank, the buyer can ask for an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit. It gives the seller a double assurance of payment, since a bank in the seller’s country has added its own undertaking to that of the issuing bank. Since it

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represents an additional requirement on the part of the seller, it is more costly. iv.

Sight Letter of Credit In this type of Credit, when the document is received by the importer, after the receiving of document he makes payment to the other party. Sight Letter of Credit is also called PD (Payment against documents).



Parties to a Letter of Credit Usually the following five parties are involved in a letter of credit: 

The buyer who is the importer and the account party, this party request the bank for opening of Letter of Credit.



The bank issuing the Letter of Credit or the opener bank i.e. BAL



The advising bank or the correspondent in the exporter’s country, which advises the exporter of the opening of a Letter of credit



The negotiating bank to which the beneficiary presents his documents for payment.



The confirming Bank adds it conformation (for a fee), thereby guaranteeing that it will pay if the terms of L/C met irrespective of the opening banks’ ability to pay.



The reimbursing Bank is the correspondent bank of the issuing bank for reimbursing funds to the negotiating bank. It only provides the services.



The seller or exporter who is the beneficiary of the credit



Credit Application

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The instruction to be given by an applicant (customer) to BAL covers the following The full and correct name and address of the beneficiary



(seller) 

The amount of the credit



Whether the credit is to be available by payment, acceptance or negotiation The party on who drafts, if any are to be drawn and the



tenor of such drafts A brief description of the goods, including details of



quantity and unit price, if any 

Details of the documents required



The place of shipment or dispatch or taking in charge and the destination Whether the transfer of the goods from one vessel to the



other, or from one mode of transport to another i.e. transshipment is allowed or not Whether partial shipments are prohibited or it is a



transshipment The latest date for shipment, dispatch or taking in charge



(if applicable) The period of time after the date of issuance, for the bills



of lading or other shipping documents within which they must be presented for payment, acceptance or negotiation 

The date and place of expiry of the credit



How the credit is to be advised, i.e., by mail, or by cable, telegram or telex



Chick List for Applicant 

Category of import----to understand and describe category example commercial sector, industrial sector

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and public sector and sub-field of interest to which credit will relate. 

The importing item must be a regulated one.



National Tax Number of applicant.



National identity card of the applicant.



Client of the issuing bank ----must have current account.



Client must have sanctioned limit for opening letter of credit.



Application form of credit



Is the Performa invoice/indent/purchase order which shows



i.

Description of goods

ii.

Specification of goods

iii.

Unit price of goods

iv.

Total price of goods

v.

Terms of sales of goods

“Form I” in triplicate----is forwarded to SBP for reporting of sale of foreign exchange.



Draft or Bill of Exchange, which include i.

Amount of draft is checked

ii.

Tenure of L/C

iii.

Name of the importer and account number

iv.

Date of draft not later than validity date of L/C and date of negotiation

v.

The period between date of draft and date of shipment on Bill of Lading should not exceed 21 days.

vi.

Draft should be signed by the beneficiary and drawn on opener

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

Insurance cover note/ Marine insurance policy must be issued in the joint name of the issuing bank and the importer.



Amount in the insurance cover note must be equal to L/C amount.



The date on the insurance policy must not be later then that of the shipment date.



Marks if asked to be put on packages must be clearly defined



Transport Documents (Bill of Lading for import of goods on ship, Airway Bill for import Air Cargo, or truck receipt if the import is by road)





Packing List

Issuing a Credit i)

The buyer and the seller conclude a sales contract providing for payment by Letter of Credit.

ii)

The buyer instructs BAL, the issuing bank, to issue a credit in favor of the seller, the beneficiary.

iii)

BAL asks Bank “X”, usually in the seller’s country to advise or confirm the credit.

iv)

The advising or confirming bank informs the seller that the credit has been issued.

v)

The seller then sends the documents evidencing the shipment to the bank where the credit is available (this may be the issuing or the confirming bank or any other named in the credit as the paying, accepting or negotiating bank). Suppose, the credit is available at BAL.

vi)

As soon as the seller receives the credit and is satisfied that he can meet its terms and conditions,

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he is in position to load the goods and dispatch them. vii)

BAL checks the documents against the credit. If they meet the requirements of the credit, it either 

effects payment in accordance with the terms of the credit, either to the seller if he has sent the documents directly to BAL or to the bank that has made funds available to him in anticipation



reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit after checking the documents by BAL, they are released to the buyer upon payment of the amount due, or upon other terms agreed between him and the bank. The applicant sends the transport document to the carrier who will then proceed to deliver the goods.



Settlement The following are the methods for settlement of a Letter of Credit’s transaction: i)

By Payment/Sight/DP In this method of the settlement the seller sends the documents to BAL evidencing the shipment. After checking that they meet the credit requirements, BAL makes payment.

ii)

By Acceptance/Usance The seller sends the documents to BAL evidencing the shipment accompanied by a draft drawn on it at the specified tenor. After checking that they meet the credit

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requirements, BAL accepts the draft and returns it to the seller. By accepting, the bank signifies its commitment to pay the face value at maturity. In this method bank take some collateral securities because title document are released just against acceptance. 2.14

Management of BAL

BAL is managed by a 6-member Board of Directors headed by a Chairman. There is an Executive officer, who runs the Executive Committee. In Executive Committee there are 7 members. The names of members of the Chairman, Board of Directors and Executive Committee along with their designations are given in the annexure.

CHAPTER – 03 Bank Alfalah Services and Products 3.1

Bank Alfalah Products

Bank Alfalah has achieved a competitive advantage over other banking institutions by offering a complete range of banking solutions for its valued clients. The concepts entail creation of a financial super Market where a large variety of banking products and services are available to meet diverse needs of the customers. A summary of Bank Alfalah products and services is as follows: 3.1.1

Deposit Products a) PLS Saving (Rupee) Accounts 

Saving accounts are designed to mobilize savings primarily from a large number of individuals and house hold. Any one or more

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individuals or partners can open a PLS saving account with the Bank. )b Current Rupee Account 

Individual, partnerships, companies, associations, clubs, societies and NGOs are eligible to open current accounts. This type of account is further classified as individual account and Joint Account.

)c Term Deposit It is one of the popular account types. The amount is deposited in this account for fixed time period i.e. from one month to five years. The interest is various with the variation of time limitation. The rate of profits increases as per increase in time period. The customer cannot withdraw money before maturity. The profit on this account is paid after the maturity. But if a customer want to withdraw before maturity, so he will give a notice to the bank 7 days before borrowing. d) Royal Profit Savings (Rupee) Accounts Royal profit is a high yield rupee account intended to provide higher rates of profit to high net worth customers and greater flexibility and convenience in terms of transactions. Current rates of profit are as follows:

Amount From 50,000 To 999,999 From 1,000,000 To 9,999,999 From 10,000,000 To 49,999,999 From 50,000,000 To 149,999,999 From 150,000,000 & Above

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Proposed Rates (P.A) 1.50% 1.75% 2.00% 2.50% To be quoted by treasury

SP07-MBA-011

Table 3.1

Royal Profit Savings Account Proposed Rates

e) Royal Patriot (Rupee Term Deposit) Royal Patriot is a rupee term deposit scheme with competitive rate of profit. Current rates of profit are as follows:

Tenure 1 Month 3 Month 6 Months 1 Year

25,000-999,999 1.50 % 1.75 % 2.00 % 2.25 %

Table 3.2

1,000,000-4,999,999 5,000 & Above 1.60 % 1.70% 1.85 % 1.95% 2.10% 2.20% 2.35 % 2.45%

Royal Patriot Competitive Rates

f) Foreign Currency Accounts This Account is offered to resident and non-resident Pakistani’s as well as foreigners can open foreign currency accounts. A foreign currency account is opened either as savings account or current accounts. Foreign currency accounts are opened and maintained subject to local laws and regulations in force from time to time. Profit on foreign currency saving account is paid on half-yearly basis and on term deposit it is paid on maturity. No interest is paid on foreign currency current accounts. g) Safe Deposit Lockers Bank Alfalah provides safe deposit lockers facilities to its customers for safe keeping of their valuables like documents, securities and jewellery etc. Important features of lockers facility are as follows: 

Various sizes to choose from small to extra large: small, medium & large

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

Annul locker rent ranges from Rs.1,000/- to Rs.3,500/-.



Locker rent is waived for customers maintaining a minimum deposit of Rs.2 million. Current account or above US $25,000/- in a current account or



US $ 50,000/- in a savings account. The key deposit of the Locker is Rs.1,000/- which is refundable



Locker Size Charges per annum Small Rs.1000/Medium Rs.1500/Large Rs.3000/Special Rs.3500/Table 3.3 Locker Rates 3.1.2

Consumer Finance Products

Consumer finance is a fast growing segment of banking business in Pakistan. Credit cards, car finance, personal loans, loans for purchasing household appliances, computers and related accessories and housing financing are the principal consumer finance products. Being a market oriented bank; Bank Alfalah also has a strong focus on consumer banking and consumer finance. A brief description of products is as follows: a) Auto Leasing and Financing Car Finance



Alfalah car scheme enables customers to own a car at easily affordable and flexible installments with minimum down payment and insurance. 

Corporate & Individual Car Leasing BAL recently introduced car leasing facility for individuals and corporate sector has set new dimensions for the product. Now customers are provided with the option of either to get the vehicle leased or financed.

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b) Credit Cards Credit Cards are increasingly becoming way of life in Pakistan. Bank Alfalah (visa) Credit Card product was launched in Dec, 2002. In a short period of time, it has achieved a unprecedented success. BAL Credit Card is unique in the sense that there is no cared issuance fee as it is free forever. c) Alfalah Hilal Card Bank Alfalah through its commitment to provide superior and improved services to its valued customers, has unveiled a nationwide network of ATMs. Bank Alfalah introduce Alfalah Hilal Card the revolutionary, new-age form of cash that provides greater freedom, security and convenience combined with the wide reach of Visa Network. This card can be use for all financial needs around the world, round the clock, wherever; Visa electron cards are accepted locally and internationally. It gives an unlimited access to the current/Saving account with a simple swipe, at millions of retail shops or ATMs, worldwide. Bank Alfalah Limited ATM network is geared up to exploit the latest technology, and is equipped to meet the highest standards of security andefficiency. d) Consumer Durables Bank Alfalah continually strives to improve and add products to its consumer Banking service. BAL launched Micro-Financing of consumer durables on August 04, 2003, which is yet another milestone towards its commitment of meeting all the financial needs of esteemed customers. The scheme is basically a term finance facility repayable in monthly installments, giving customers an opportunity to own housed products.

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In this way, this product is facilitating the customers and helping them out to improve their standard of living. e) Home Finance This product which was launched on September 01, 2003, provides a wider range of Home Finance tailor-made plans, designed specially to meet customers’ need at a very competitive rate. At present, Bank Alfalah is the only Bank in the market, which offers a house finance scheme for non-resident Pakistani customers based in the UAE besides Pakistani residents. Housing finance is available from Rs.0.500 million to Rs.7.50 million to purchase, renovate or construct a house/apartment. Important points are as under: 

Payment period ranges from 3 to 20 years.



Owner only invest 30% of the value of property.



Loan can be repaid before maturity without any penalty.



Borrower’s age must be between 25 to 65 years.



Salaried persons, businessmen and self-employed people are eligible.



Financing is also available for purchase of residential land.



Complete freedom to move between floating and fixed rates.



Financing available to resident & non-resident Pakistanis.



Minimum amount will be Rs.05.500 million & maximum of Rs.7.50 million.



Mark-up option available for floating & fixed rates.

f) Alfalah Karobar Finance Alfalah Karobar Finance is a new Product of BAL, which is launched recently. It is a hassle-free running finance facility for SMEs that meets all the business needs like no other. Mehraj Muhammad 4

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g) Alfalah Zarie Sahulat Bank Alfalah Ltd. (BAL) agri finance program has been named as "Bank Alfalah Zarie Sahulat”. Bank Alfalah is extending this service to the clients on a competitive markup rate. The scheme now covers financing of a multitude of activities related to crop production, harvesting, transportation, marketing, storage, processing, packing, export, agri development, working capital and fixed investment financing of agri non crop activities, storage, silos, etc. making it quite exhaustive and comprehensive. The products have been, therefore, designed keeping in mind objectivity of practical applicability in market scenario and to cater to the most commonly demanded items of agricultural financing by farmers. Products: Products of Alfalah Zarie Sahulat along with the nature of facility and their purpose are quoted below. Table 3.4

Alfalah Zarie Sahulat Products

Product

Nature Of Facility

Purpose

Alfalah Paidawari Zarie Sahulat

Short Term

Processor, agri producer, exporters and other eligible items.

Alfalah Musalsal Zarie Sahulat

Short Term (Running finance

Credit needs under working capital

limit for 3 years with annual clean up) Alfalah Tractor and Transport

Medium Term

Purchase of tractors, trolleys, pick-

Zarie Sahulat

up, motor cycle, trucks, milk van or other such items including repair of tractors, as per eligible items.

Alfalah Machinery & Equipment Medium/Long Term

To finance machinery and

Zarie Sahulat

equipments, such as, combine harvester, thresher, picker, digger, trolley, planter, sowing drill, cultivator, plough, power tiller,

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harrow, sprinkler, cane crusher, tobacco curing equipment etc. Alfalah Aabpaash Zarie Sahulat

Medium Term

To meet irrigation water needs of the farmers.

Alfalah Islah-e-Araazi Zarie

Medium Term

Land development and improvement,

Sahulat

land leveling laser leveling, clearance of jungle, farm field layout, terracing, contouring, soil reclamation, embankment, land formation, bund construction, water management, water course improvement etc.

Alfalah Poultry Zarie Sahulat

Short/Medium Terms

Working capital and fixed investment needs for broiler and layer production, breeder flock, GP flock, hatchery, product processing, packing, transportation, storage, compound feed making etc.

Alfalah Dairy & Livestock

Zarie Sahulat Short/Medium

Working capital and fixed

Term

investment financing of dairy and milch animals, feed lot and fattening station structure and equipment, livestock farm structure and equipment, fattening of animal, milk chilling plant, construction of sheds for animal, opening of private veterinary clinics (veterinary equipment), opening of veterinary store, milk plant and other eligible items.

Alfalah Fisheries Zarie Sahulat

Short/Medium Terms

Inland: Fish seed and feed, manure charges, running charges of tube well pumps, construction excavation, expansion and rehabilitation of pond, installation of tube wells, water channels, fencing, boats, net twine,

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rope, fish yards etc and other eligible items. Marine: Fuel, ration, and ice for marine fisheries, engine and spare parts, new boat and trawler, boat equipment etc. and other eligible items. Alfalah Silos/Storage Zarie

Short/Long Term

Construction of cold storage,

Sahulat

godown, bins, silos, structure for storage of wheat, steel/metal capsules, hire charges for storage of raw agri product etc. and other eligible items.

Alfalah Marketing Zarie Sahulat

Short Term

To facilitate the marketing of the produce and also for export of cotton, cotton yarn, mutton, beef, fruits, vegetables etc and all other eligible items.

Alfalah Agri Industrial Zarie

Medium/Long Term

For setting up seeds processing units,

Sahulat

installation of fruit and vegetables machinery, milk chilling units, polishing , grading, packaging of fruits and vegetables cotton ginning factories under BMR, Bio – gas plant etc.

Alfalah Bills / Guarantees Zarie

Short Term

Financing against agri produce

Sahulat

procurement receipt, purchase of

(For growers’ corporate client

bills, deferred payment leaf vouchers

only)

issued by tobacco companies, continuing guarantees etc.

Alfalah Lease Zarie Sahulat

Medium/Long Term

For leasing tractors, farm machinery, equipment etc

Alfalah Bio Gas Zarie Sahulat

Medium /Long Term

Setting up plants. This shall be an alternate use of entry

Source: www.BankAalfalah.com

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h) Structured Finance Established in 1998 in order to provide innovative investment banking services to valued clients. A team of hand picked professionals, dedicated to syndicated loans and structured products. The team’s expertise is well known in the marketplace with its capability to assist public & private sector entities, major financial institutions,

multinational

corporations,

domestic

&

international

institutional investors in innovative financing including underwriting & private

placements.

The scope of SFU’s activities also encompasses advisory assignments, such as privatization, Mergers & Acquisitions (M&As), domestic listings, IPOs and restructuring. During the past few years, SFU has been successful in sourcing and participating in a number of prestigious transactions involving large amounts.

Some of the value added services offered by SFU include the following: 

Loan syndication



Public floatation of Term Finance Certificates (TFCs) and equity



Financial restructuring



Private placement of Term Finance Certificates (TFCs) and equity underwriting



Guarantee syndications



Mergers & Acquisitions (M&As)



Fostering joint ventures



Privatization – Sale side and buyers side advisory



Structuring new financial instruments

i) Travelers Cheques

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Bank Alfalah presents Rs.1,000, 5,000 and 10,000 denominations of travelers cheques, making it very convenient to carry money while traveling or keeping your emergency cash safe. j) Money Gram Bank Alfalah limited, in collaboration with Money Gram, offers remittance service to Pakistan. Money Gram is person to person money transfer service that allows consumers to receive money in just a few minutes. k) Online Banking Bank Alfalah now offers the facility of on-line banking to its customers through its country wide network of branches. Customers can use the ATMs or the banking counters of any branch for day-to-day banking needs, irrespective of branch where they maintain their accounts. For Corporate customers centralized Cash Management facility is also offered through on-line banking.

CHAPTER – 04 Analysis of Bank Alfalah This chapter is about the financial and general analysis of BAF based on the observation during the six week internship period and also from the discussion with the cooperative staff of BAF 4.1

Common Size Analysis BAL today represents a bank that has grown with time and experience. At present it is a major financial institution in scope and size. It symbolizes a fully grown tree, ever green, strong and firmly rooted 4.1.1

Vertical Analysis 

Based on Total Assets of Balance Sheets

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Table 3.5; Vertical Analysis Based on Total Assets of Balance Sheets



Based on Total Revenue of Income Statements

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Table 3.6; Vertical Analysis Based on Total Revenue of Income Statement

4.1.2

Horizontal Analysis/Trend Analysis

 Summarized Balance Sheets Trend Analysis (Base Year 2002) Mehraj Muhammad SP07-MBA-011 54 5

Table 3.7; Summarized Balance Sheets Trend Analysis (Base Year 2002)

 Summarized Income Statements Trend Analysis (Base Year 2002 Mehraj Muhammad SP07-MBA-011 55 5

Table 3.8; 4.2

Summarized Income Statements Trend Analysis (Base Year 2002)

Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of balance sheet and profit an loss account, Financial analysis can be undertaken by management of the firm, or by parties outsides the firm viz, owners, creditors, investors and others. The nature of analysis depending on the purpose of the analyst. Such analysis is of special interest to the following groups: 

Bankers, Creditors



Investors, Shareholders and owners

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

Management

The various stakeholders of business are all interested in the analysis of financial statements. But the focus of interest of all is not the same. For example Trade creditors are interested in firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore, confine to the evaluation of the firms liquidity position. Suppliers of long term debt on the other hand are concerned with firm’s long-term solvency and survival. They analysis the firms profitability over time, its ability to generate cash to be able to pay interest and repay interest and repay principal and the relationship between various sources of founds (Capital structure relationship). Longterm creditor do analyses the historical financial statements by they place more emphasis on the firms projected financial statement s to make analysis about its future solvency and profitability Investors who have invested their money in the forms share are most concerned about the firms that steady growth in earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firms finical structure of the extent it influences the firms earnings ability and risk. Management of the firm would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently and that the firm’s financial condition is sound. The financial growth of any organization can be measured in terms of the profits it generates at the end of its financial year. In the case of banks this financial expansion can further be measured by the increase in its base of equity, deposits and profits. The increase in its advances to customers as well as its financing of imports and exports emphasizes a bank’s financial enrichment. These factors give a clear indication of the enlargement and progression of the bank’s operations.

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4.2.1

Financial Highlights (Graphical Representation) a) Profit After Tax (in Rupees)

Graph 4.1; Profit after Tax (in Rupees) b) Earning Per Share (in Rupees)

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Graph 4.2; Earnings per Share (in Rupees) c) Investment (in Rupees)

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Graph 4.3; Investment (Rupees) d) Net Asset Value Per Share (in Rupees)

Graph 4.4; Net Asset Value per Share (in Rupees) e) Earning Assets to Total Assets Earning Assets to Total Assets= Earning Assets/ Total Assets *100 For Year 2003: 81% For Year 2004: 78% For Year 2005: 82% For Year 2006: 82% For Year 2007: 80% The ratio shows improvement in 2003, 2005 and 2006 from the previous year

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82 81 80 79

Earning Assets to Total Assets

78 77 76 2003

f)

2004

2005

2006

2007

Advances to Deposit Credit Advances Assets *100 For Year 2003: For Year 2004: For Year 2005: For Year 2006: For Year 2007:

to Deposit Ratio= Advance/ Deposits and other 70.84% 83.58% 81.54% 87.25% 83.44%

100 80 60 Credit Advances to Deposit

40 20 0 2003

2004

2005

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g) Return on Assets Return on Assets= Net Profit/ Average Total Assets *100 For Year 2004: 1.2% For Year 2005: 2.2% For Year 2006: 2.8% For Year 2007: 2.7%

3 2.5 2 1.5

Return on Assets

1 0.5 0 2004

2005

2006

2007

h) Net Interest Margin Net Interest Margin=Interest Income-Interest Income/Average earning Assets *100 For Year 2004: 3.05% For Year 2005: 5.1% For Year 2006: 6.07% For Year 2007: 5.9%

7 6 5 4 Net Interest Margin

3 2 1 0 2004

2005

2006

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i)

Operating Profit Margin Operating Profit Margin=net interest income-Operating Profit/Total interest income *100 For Year 2003: 22.8% For Year 2004: 26.2% For Year 2005: 36.0% For Year 2006: 37.8% For Year 2007: 38.4%

40 35 30 25 20 15 10 5 0

Operating Profit Margin

2003

j)

2004

2005

2006

2007

Cost to income Ratio

Cost to income Ratio=Operating Profit/Net Interest Income +Non Interest Income *100 For Year 2003: 41.4% For Year 2004: 38.0% For Year 2005: 20.8% For Year 2006: 19.1% For Year 2007: 18.6% 45 40 35 30 25 20 15 10 5 0

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2004

2005

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k) Net Non Performing Assets

Net Performing Assets= Net Performing Assets/loans given *100 For Year 2003: 1.04% For Year 2004: 0.7% For Year 2005: 0.9% For Year 2006: 0.97% For Year 2007: 1.38% 1.4 1.2 1 0.8 Net Performing Assets

0.6 0.4 0.2 0

2003

2004

2005

2006

2007

l)

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4.2.2 Financial Highlights/Financial Ratio Analysis (for Last Six Years) Table 4.1; Financial Highlights

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4.3

SWOT Analysis

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This SWOT analysis of Bank Alfalah Limited takes into consideration the external as well as the internal environment internal structure of the bank. 4.3.1

Strengths

The predominant strengths of Bank Alfalah Limited are



Humble Management



Strength And Commitment Of Sponsors



Efficiency



Phenomenal Growth



Vastly Experienced Management



Highly Professional Human Resource Department



Crucial Location Of Branches



Image Building Activities



Bank is financially strong and has a huge deposit reserve



Its cost of funds is less as compared to many of its competitors



Personnel of Alfalah are well trained and highly skilled. Majority of employees has many years of experience in banking sector and are an asset for the bank



Bank Alfalah has a wide network of branches at the ideal locations, catering the financial needs of its clients



Foreign Trade is the focus of bank. It has become an ideal bank for the importers and exporters

4.3.2

Weaknesses

The chief weaknesses are 

Small Size



Less Efficient Computer And I. T. System



Disproportionate Presence Of Old Staff In The Upper Management Hierarchy

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

Skill Set Of Employees Is Not Up to The Mark As There Is No Job Rotation



Foreign Banks Still Are A Little More Prestigious



Bank Alfalah Limited Does Not Possess Foreign Network



No Advertising In Electronic Media



It is a step behind in using new technology as compared to other banks



Most of the employees are overloaded with work. There is uneven distribution of work and promotions are not very timely

 4.3.3

It is slow in the introduction of new services Opportunities

The opportunities on which bank Alfalah can capitalize upon are

4.3.4



Extension of local branch network



Establishing foreign branch network



Capitalizing on information technology



Unexplored market of multinational corporations



Growth in textile sector



Adopt E-banking

Threats

The predominant threats Bank Alfalah is facing at the moment are discussed in the following lines. 

Private sector banks



Heavy reliability on only one market segment i.e. Textile.



Network expansion by foreign banks



If Pakistani banks (especially state owned banks), backed by huge network improve the service they give and their employee skill set



Terrorist image of the country



Inconsistency in government policies

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4.4

Market Structure of BAL Definition A market consists of all the actual and potential buyers and sellers of a particular product. Market structure refers to the competitive environment in which the buyers and sellers of the product operate. 4.4.1 Types of Market Structure The following are the main types of the Market structure

4.4.2



Perfect Competition



Monopoly



Monopolistic Competition



Oligopoly

Market Structure Bank Alfalah Limited

The Bank Alfalah Limited Comes under the Monopolistic Competition Because;  There are large number of Financial Institutions in the Market. 

Habib Bank Limited



United Bank Limited



Allied Bank Limited



Muslim Commercial Bank Limited



National Bank of Pakistan



Bank of Khyber



National Saving Centre



Al-Faysal Bank Limited



Saudi Pak Bank Limited



Standard Charted Bank Limited



First Women Bank Limited

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

Bank Al-Habib Limited



PICIC commercial Bank Limited



KASB Bank Limited



NIB Bank Limited

 There is large number of customers in the Market.  In the Market there are number of substitutes are available 

National Saving Centre



Stock Exchange



Government Securities



Advances

 The products characteristics are different according to: 

Rate of Interest



Mode of delivery



Duration of delivery



Services



Communication

 The products are relatively homogenous 

Types of Accounts



Credit Cards



Debit Cards



Car Finance



Advances



Consumer Durables



Foreign Exchange dealings

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CHAPTER – 05 Findings, Recommendation & Conclusion 5.1

Findings

The findings and analysis of Bank Alfalah Limited are as follows:



Good Image

Bank Alfalah has the benefit of having better reputation and image because of having the strength of Abu Dhabi consortium and under the leadership of His Highness Sheikh Nayan Mabarak Al-Nahayan. People feel lesser risk for investing their money with the bank.



World Class Services:

The bank is providing its customers world class and excellent services. This is the main reason for the growth of the bank.



Coordination:

Meetings are held very frequently which keeps the head-office well informed about the performance of its branches and also provides officials with the opportunity to communicate, discuss and deals with different situations as they arise.



Employee Behavior:

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The employees of Bank Alfalah Limited are very committed to their work. They are very hard working and punctual but some of them have problems with he environment of the bank and they feel that the branch environment is not very encouraging.

5.2

Recommendation

Based on my six weeks stay with Bank Alfalah Limited, I want to give some suggestions for improvement in its operations as under:



Misdistribution of work:

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.



Participative management:

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.



Fax Machines and Photocopying Machine:

The number of Fax machines and photocopying machine in the bank are also less than they are needed. For photocopying one has to go upstairs. So there should be more machines and also their placement should be at the right place.



Training programs

BAL should introduce more training programs for their employees. It will help less educated and less experienced staff to grow and be a valuable part of the bank. Mehraj Muhammad 7

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5.3

Conclusion

The six weeks spent at Bank Alfalah Limited, Abbottabad branch were, no doubt a source of great learning for me about a lot of things particularly working in bank’s atmosphere and system of bank. It’s my quite first experience to do work practically in some organization. This practical training program did not only help me acquire loads of knowledge about the predominant functions performed by banking companies, but also imparted a lot of training as regards the set of behavioral traits which distinguish a particular person from the rest of the lot in a professional environment. 

During my internship I concluded that currently bank Alfalah has a high market share and is not facing any type if risk.



Due to highly trained professionals it is used to make progress leaps and bound.



The main objective of bank is to build strong relationship with the customers and make them believe that bank Alfalah is right for them by providing effective and efficient services.



It has also created a strong goodwill and trust in the market.



At this point it is significant to write a word of gratitude for the institute, which makes it sure, that all the students get an exposure to practical life in relatively well-reputed organizations



I must underscore the fact that writing this internship report was an evenly memorable experience as actually doing the internship. I

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honestly tried my level best to come up with an original piece of writing that could serve as a vivid proof of the fact that students at COMSATS Abbottabad are certainly doing the internship.

References Annual Report BAL; 2008 Aslam, S (1999); Banking & Finance. Adnan, Credit Officer , Bank Alfalah Abbottabad. Bilal Maqbool, Manager Operations, Bank Alfalah Abbottabad Hussain, S; Rana,K & Shabbir, A (1991); Banking Currency and Finance. , Lahore: Ilmi Iffland, Charles & Langueton, Pierre ; International Banking. New York: Irwin Book Co. Siddiqui, A.H; Practice and Law of Banking in Pakistan. www.bankalfalah.com http://www.bankalfalah.com/about/financial_performance.asp (last time Accessed on January 15, 2009)

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Annexure Annexure A

BOARD OF DIRECTORS & MANAGEMENT CHAIRMAN H.E. Sheikh Hamdan Bin Mubarak Al Nahayan BOARD OF DIRECTORS H.E. Sheikh Hamdan Bin Mubarak Al Nahayan Mr. Abdulla Khalil Al-Mutawa Mr. Abdulla Nasser Hawaileel Al-Mansoori Mr. Khalid Mana Saeed Al Otaiba Mr. Ikram Ul-Majeed Sehgal Mr. Nadeem Iqbal Sheikh CHIEF EXECUTIVE OFFICER Mr. Mohammad Saleem Akhtar EXECUTIVE COMMITTEE Mehraj Muhammad 7

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Mr. Mohammad Saleem Akhtar Mr. Ikram Ul-Majeed Sehgal Mr. Parvez A. Shahid Mr. Mohammad Yousuf Mr. Tanweer A. Khan Mr. Sirajuddin Aziz Mr. Mahmood Ashraf

Annexure B

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Eight years Financial Summary

[2000 - 2008]

Annexure C Mehraj Muhammad 7

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Source: Bank Alfalah Annual Report 2007

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Annexure D

Source: Bank Alfalah Annual Report 2007

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Annexure E

Source: Bank Alfalah Annual Report 2007 Mehraj Muhammad 8

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Annexure F

Source: Bank Alfalah Annual Report 2007

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Annexure G

Source: Bank Alfalah Annual Report 2007 Mehraj Muhammad 8

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Annexure H

Source: Bank Alfalah Annual Report 2007

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Annexure I

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Source: Bank Alfalah Annual Report 2007 Annexure J Formulae of Financial Ratios 1. Net Profit Margin Net Profit

x 100

Total Revenue 2. Gross Profit Margin Gross Profit x 100 Total Income 3. Return on Investment Net Profit

x 100

Total Assets 4. Return on Equity Net Profit

x 100

Total Equity 5. Total Asset Turnover Mark-Up Revenue Total Assets 6. Fixed Asset Turnover Mark-up Revenue Operating Fixed Assets 7. Current Asset Turnover Mark-Up Revenue Total Current Assets Mehraj Muhammad 8

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8. Current Ratio Current Assts Current Liabilities 9. Cash Ratio Cash Current Liabilities 10. Debt to Equity Ratio Total Debt Share holders Equity 11. Debt to Total Assets Total Debt Total Assets 12. Interest Coverage Ratio Earnings before Interest and Taxes Interest Expense 13. Advances to Deposits Advances Deposits 14. Investment to Deposits Investments Deposits 15. Op. Expenditure to Tot. Income Operating Expenses Mehraj Muhammad 8

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Total Income. 16. Interest Earned to Advances Interest Earned Advances 17. Interest Expense to Deposits Interest Expense Deposits 18. Earning Per Share Profit after Tax Shares Outstanding

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