Internship Report On Bal

INTERNSHIP REPORT ON BANK ALFALAH LIMITED

By REHAN KAHLID

Submitted in partial fulfillment of the requirements for the degree of Master of Business Administration

At

National University of Modern Languages Islamabad, Pakistan Feb, 2009

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NATIONAL UNIVERSITY OF MODERN LANGUAGES Faculty of Information Technology & Management Sciences

It is hereby certified that the report has been thoroughly and carefully read and recommended to the Faculty of Management Sciences for acceptance of Final Project Report by REHAN KHALID Roll No.7300 Session (Jan 2007 to Dec 2008) Evening, in partial fulfillment of the requirements for the degree of Master of Business Administration of National University of Modern Languages Islamabad.

Dated _____________________________

Supervisor _____________________________ _

Observer _____________________________ _

Head of Department 2

_____________________________ _

ACKNOWLEDGEMENT All thanks to Allah Almighty, the benevolent and compassionate, who blessed me with the power & capabilities and remained contented on all intricacies found during the successful completion of my task. I acknowledge my Mother for her prayers and Teachers for their guidance (specially Sir. Ishtiaq) because I think both are indispensable for success in every stage of life. I also extend my thanks to Mr. Habib-ur-Rehman Paracha along with all the Branch Staff for their encouraging response and guidance to make my internship as a real learning experience

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EXECUTIVE SUMMARY

Telecommunication sector in Pakistan is pioneer to experience the open market competition. Free market on innovation and technology developments for the ultimate success in long run. All business activities and strategies revolve around the consumer needs and goals are set to meet demands to the best of their satisfaction. It understood that quality of service and tailor made products, matching to different customers needs, at competitive rate, will be the hallmark of success. National Telecommunication corporation (NTC) was established on 1st January 1996 vide Pakistan Telecommunication (Re-Organization) Act 1996 to provide Telecommunication services to Government departments formally carried out by Pakistan Telecommunication Corporation (PTC). NTC to meet the present demand of current era realize changing environment. The tele-density is increasing worldwide at a faster pace and at the same time, analog microwave system is facing out with digital media. NTC Data Network for E-governance/ commerce has started functioning with a number of services—ISP, intranet and certain value added services. The corporation is also shouldering certain significant Government projects chiefly PAKSAT, and education intranet, Moreover, the corporation has successfully established its MIS department, which has now started NTC in house billing.

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Financially NTC showing improvement its operating expenses have been kept minimum level by properly analyzing requirements and streamlining functions. Emphasis is given on preventive maintenance plan, to keep the vital assets of NTC in proper working condition. Efforts are made to keep the corporation lean, new induction of essentially required staff is made only. Finance and Administration functions are also being managed through professional qualified staff to run the corporation on true corporate lines. The analysis on its financial, training, future projects, staff is also been provided at the end of report along with the recommendations.

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TABLE OF CONTENTS Title Page.........................................................................................i Approval Page................................................................................ii Acknowledgement.........................................................................iii Executive Summary......................................................................iv Table of Contents..........................................................................vi CHAPTER 1: INTRODUCTION 1. OVERVIEW............................................................................1 1.1 History of BAL...................................................................3 1.2 Vision & Mission................................................................4 1.3 Organizational Hierarchy...................................................5 1.4 Board of director.................................................................6 1.5 History of Banking..............................................................7 1.6 History of Banking in Pakistan............................................9 1.7 Role of Banking in Pakistan..............................................12 1.8 KIBOR..............................................................................13 CHAPTER 2: PRODUCTS & SERVICES 2. Products and services............................................................15 2.1 Products..................................................................................16 2.1.1 Credit cards..............................................................16 2.1.2 Debit cards...............................................................20 2.1.3 Lockers.....................................................................20 2.2 services...................................................................................21 2.2.1 Accounts opening ....................................................21 2.2.2 Credit (SME)............................................................24 2.2.3 Lease finance............................................................28 2.2.4 Accounts...................................................................30 2.2.5 Home Finance..........................................................31 2.2.6 Trade Finance...........................................................33 2.2.7 Foreign currency Accounts.......................................35 CHAPTER 3: DEPARTMENTS OF BAL 6

3. DEPARTMENTS..................................................................37 3.1 Account opening...............................................................39 3.2 Remittance .......................................................................48 3.3 Clearing ............................................................................50 3.4 Accounts ...........................................................................52 3.5 Cash..................................................................................54 3.6 Finance/credit....................................................................56 3.7 Credit card.........................................................................64 3.5 Trade finance.....................................................................65 3.6 Islamic banking.................................................................68

CHAPTER 4: FINANCIAL & SWOT ANALYSIS 4. FINANCIAL ANALYSIS......................................................70 4.1 Financial statements..........................................................71 4.2 Ratio analysis....................................................................73 4.3 SWOT analysis.................................................................83 4.3.1 Strength....................................................................83 4.3.2 Weakness..................................................................84 4.3.3 Opportunity..............................................................84 4.3.4 Threats.....................................................................85

CHAPTER 5: EXPERIENCE AS INTERNI 5. LEARNING AS INTERNEE...............................................87 5.1 Learning............................................................................87 5.2 Recommendations.............................................................89 REFERENCES…………………………………………………90

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Chapter # 1 Introduction

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Introduction 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. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. Since its inception as the new identity of H.C.E.B, the management of Bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group, and under the leadership of Highness Sheikh Nahayan Mabarak Al-Nahayan, Minister of Education, Government of Abu Dhabi, and a prominent member of Royal Family – the bank is energized with the vision, envisaging the development of consumer sector in Pakistan. Driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates BAL commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. BAL perceives the requirements of customers and matches them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. Prioritizing its product portfolio in line with consumer needs and wants the bank is committed to develop products that give more value to its customer – be it a simple bank account or complex financing of a major project. To make banking solutions become accessible to more and more people, BAL has embarked upon a rapid expansion program, aiming to provide a networking that makes its services available to any of its Customers. With its key indicators of progress already soaring to new heights, the bank is committed to put all its energies, resources and time to bring higher value and satisfaction of its customers, employees and shareholders.

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1.1 History of BAL Bank of Credit & Commerce International (BCCI) was incorporated in Luxembourg on 21st September 1972 and was in the ownership of Agha Hassan Abidi. But on July 1991 it was banned in the case of money laundering and its management was compelled to stop its operation. At that time BCCI was operating in almost 69 countries of the world including Pakistan. After the debacle of BCCI, the Ministry of Finance (Govt. of Pakistan) acquired its three branches and Habib Credit & Exchange Bank (HCEB) was incorporated on June 21, 1992 as a public limited company under the Companies Ordinance, 1984 and commenced banking operations from November 1, 1992. After some time period HCEB privatized on July 1997 and assumed the new identity of Bank Alfalah Limited (BAL). Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the

Bank

has

invested

in

revolutionary technology to have an extensive range of products and services. This facilitates our commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. We perceive the requirements of our customers and match them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. Bank Al-Falah limited was incorporated on June 21, 1992 as a public limited Companies Ordinance 1984 and commenced banking operation from Nov 1, 1992. The bank is

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growing rapidly in its equity & asset base due to strategic managerial policies and assistance of Abu Dhabi Group.

1.2 VISION AND MISSION STATMENT

Vision To be the premier organization operating locally and internationally that provides the complete range of financial services to all segments under one roof

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

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1.3 Organizational Hierarchy: Chief Executive Officer

Co- Chairman

Group Heads

Regional Managers

Area Managers

Branch Managers It’s a general hierarchy of bank which is showing about the main authorities of Bank Alfalah Limited who are controlling its management in Pakistan. Bank’s management is divided into different groups, regions and areas. Co-chairman is providing supervision to group heads that are responsible for controlling the affairs of different groups. After group heads in the hierarchy regional and area managers are working who are managing and guiding the working of different branches of bank.

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1.4 Board of director The board of directors has the authority in guiding Bank affairs and in making general policies. Some directors are the personnel of the Bank Al-Falah Limited follows. HE. Sheikh Hamdan Bin Mubarak Al Nahayan Mr. M Saleem Akhtar

Chairman Chief Executive Officer

Mr. Abdullah Naseer Al Mansoori

Director

Mr. Abdullah Khalil Al Mutawa

Director

Mr. Ikram Ul-Majeed Sehgal

Director

Mr. Khalid Mana Saeed Al Otiba

Director

Mr. Adeem Iqbal Sheikh

Director

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1.5 History of banking The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived.

Evolution of Banking: This history of banking is traced to as early as 2000 B.C. The priests in Greece used to keep money and valuables things of the people in temples. These priests thus acted as financial agents. The origin of banking is also traced to early goldsmiths. In the early ages human life and wealth was not secure. Due to fear of theft people buried their wealth under land but this method was not satisfied them. People started to search the custodians of wealth. The evolution of banking crossed through the following stages, First Stage: After a great struggle people succeeded in finding the reliable persons to deposit their money and valuable goods for safety. These people were goldsmiths. They were considered the most trusted persons due to their sounds financial position. On the other hand they had very strong iron safes for keeping gold, money and other valuable items. People started depositing their gold and cash in the safe of goldsmiths. Goldsmiths charged something for this purpose and they returned the depositors their money whenever they needed.

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Second Stage: The goldsmiths began to issue receipts for the money deposited with them. When it was found that these receipts were fully accepted in payment of debts, then the receipts were drawn in such a way that it entitled any holder to claim the specified amount of money from goldsmiths. A depositor who is to make the payments may now get the money in cash from goldsmiths or pay over the receipt to the creditor. These receipts were the earlier bank notes. The second stage in the development of banking thus was the issue of bank notes. Third Stage: The goldsmiths (the money changers) soon discovered that all the people who had deposited money with them do not come to withdraw their funds into cash. They found that only a few persons presented the receipts for encashment during a given period of time. They also found that most of the deposited with them are lying idle. At the same time, they found that were being constantly requested for loan on good security by merchants and traders. They bought it profitable to lend at least some of the money deposited with them to the needy persons. This proved quite a profitable business for the goldsmiths. They instead of charging interest from the depositors began to give them interest with them. This was the third stage in the development of banking. Fourth Stage: It was started at that time when people were tempted to deposit more and more cash to the traders, money lenders and goldsmiths to earn maximum interest. On other hand number of borrowers also increased borrowing the money. By experience, the money lenders came to know that they could keep a small proportion of the total deposits for meeting the demands of customers for cash and the rest they could easily lend. They allowed the depositors to draw over and above the money actually standing to their credit. In Economic terminology, we can say that they allowed the overdraft facilities to their depositors. This was the fourth stage in the development of banking. When every money lender/goldsmiths issued receipts and most of them allowed the overdraft

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facilities, and it creates too much confusion in the banking system. The money lenders/goldsmiths in order to earn profits could not keep adequate reserves for meeting the demands of the customers for cash. The failure on the part of money lender/goldsmiths to return money caused widespread distress among the people. In order to create confidence among the people, steps were taken to regulate the banking organization. A conference was held in NUREMBERG in 1548. It was decided that a bank should be set up by the state which should then streamline the banking organization and technique. The first central bank was formed in GENEVA in 1578. Bank of England was establishment in 1964. The modern commercial banking system actually developed in 19th century. With passage of time, the activities of the commercial banks have greatly increased. They now deal with large number of matters such as obtaining funds, advancing loans to businesses, farmers, household, making investment in stocks, discounting the bills of exchange, etc. The commercial banks now multi-service organization and play a very important role in the financial markets and economic development of the country. Keeping in view the above discussion about the evolution of bank we can say that it is the result of different activity of goldsmiths, merchants and money lenders. They are the real founders of modern banking business.

1.2 History of Banking in Pakistan: At the time of partition, the total number of commercial banks was 38. Out of these, the Pakistani banks were 2, Indian banks were 29 and exchange banks were 7. The total deposits of Pakistani banks stood of Rs.880millions whereas the advances were Rs198million. Effects of Partition on Banking: Before partition of the subcontinent the entire banking business was almost controlled and managed by non-Muslims. The wealthy Hindu community deliberately kept the Muslims out of banking profession. When Hindu capitalists became sure of the division 16

of sub-continent, they secretly began to transfer their capital to the safe places in India. When Pakistan was declared an independent State in August 1947 the funds and other valuables were transferred at an accelerated pace to India. There was mass scale migration of non-Muslims from West Pakistan to India, which also caused drain on the bank deposits. The Hindu in order to ruin the economy of the newly established State closed down most of head offices and branches of the schedule and non-schedule banks in Pakistan. The number of scheduled bank branches was reduced from 619 to 213 only on both wings of the country after independence. The non-scheduled banks also suffered a sever jolt, and their number were reduced from 411 to 106 over the same period. West Pakistan where there was greater exodus of non-Muslims to India suffered a great deal as the number of branches fell down from 487 to 69. In the East Pakistan though the number of branches were not closed in such a great number as in West Pakistan, a large portion of the deposits were withdraw from the bank and transferred to India by the non-Muslims. The mass scale closure of branches and withdrawal of deposits caused a deadlock in the banking business in Pakistan. Steps to Restore Normal Banking Facilities: The Government of Pakistan was quite aware of the serious banking problems caused by withdrawal of deposits and wholesale migration of banking staff to India. It took up challenge and started reorganizing the crippled banking structure. The steps below were taken to rehabilitate commercial banking immediately after partition:  In order to create confidence and sense of security among the Hindus bank and the non-Muslims banking staff, the Government of Pakistan declared that all bank properties of non-Muslims who wished to continue banking functions would not be treated as an evacuee property.  The banks would be free to avail police protection.  A moratorium of 3 months ease also allowed to banks that had financial difficulty due to sudden withdrawal of deposits.

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 Each bank was to declare one of its offices both in India and Pakistan as a clearing house for transfer of accounts.  Each bank was to open at least one central office in Pakistan where it could consolidate work of all its branches and start paying out to depositors.  The Government took some effective measures for providing banking facilities to Muslims.  There were some complaints that Hindus banks are not honoring the cheques of Pakistani nationals and are also refusing to give securities kept in their custody. The Government issued an ordinance, which empowered it to investigate all such complaints, and if satisfied of their bona fides, the payments should be released. In case the bank insists to non-payments, the Government should realize the assets of the banks, which are sufficient to discharge such liabilities.  The Government of Pakistan also allowed the removal of valuables kept in safe deposits and lockers by submitting an application and getting necessary approval from the custodian of Evacuee Property. Inter-Dominion Agreement on Banking: The Government of Pakistan tried to provide all kinds of facilities with sincerity to the non-Muslims bankers for restoring normal banking facilities in the country but the response was discouraging. An International Dominion Agreement was reached between India and Pakistan in April, 1949.The Inter Dominions Agreement could not fully implement. India delayed the transfer of Muslim deposits to Pakistan. The nondevaluation decision of Pakistan further led to the supervision remittance facilities through normal banking channels. Due to panic withdrawal of deposits, some banks went into liquidation and the payment could not be made to the depositors.

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1.3 Role of banking in Pakistan Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a flourishing banking sector. SBP acts as a nucleolus in the financial system of the country. To day, a central bank is the central arch of the monetary and fiscal framework in many countries of the world and its activities are essential for the proper functioning of the economy and critical for the fiscal operations of the government and Pakistan’s banking system is no exemption. Will Roger (1992) describe a central bank as one of the great inventions of the 20th century. State Bank of Pakistan was established on the first of July 1948 under the SBP order 1948 as the central bank of the country State Bank of Pakistan reins the monetary and credit system in Pakistan. The SBP is performing many useful functions like custodian of cash reserve of commercial banks, custodian of foreign currency reserves, bank of rediscount, central clearance, settlement and transfer, and conducting monetary policy for the stability of the entire banking industry of Pakistan. There are 17 listed banks in Pakistan 2007.

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1.4 KIBOR The State Bank of Pakistan (SBP) and the Pakistan Banks Association (PBA)have asked the banks to use Karachi Inter bank Offered Rate (KIBOR) of one, three, six month and longer tenors, as made available, as the benchmark rate for all corporate lending in Pak. rupee after 31st January, 2004. This was decided at a meeting held in Karachi today under the Chairmanship of the Deputy Governor, State Bank of Pakistan, Mr. Tawfiq A. Husain and attended by the Chief Executives of all banks and senior SBP Officials. A press release jointly issued by the SBP and PBA after the meeting said that this benchmarking has been done with a view to encourage transparency, promote consistency in market based pricing and improve management of the market risk undertaken by banks. According to the press release, the benchmarking will apply to all Pak Rupee denominated Floating and Fixed Rate Time Loans, Term Finance Certificates (TFCs) and Commercial Papers (CPs) with reset dates (where applicable) within the available KIBOR tenors of unto six months presently, which is to be increased to twelve months tenor by March 31, 2004 and thereafter to three years by December 31, 2004. The benchmarking requirement will also apply to Overdrafts (ODs) and Running Finance obtained/renewed after 31st January, 2004.The SBP & PBA have issued the following instructions to banks for benchmarking their corporate lending rates to KIBOR: KIBOR has been defined as the Average rate, Ask Side, for the relevant tenor, as published on Reuters page KIBOR or as published by the Financial Markets Association of Pakistan in case the Reuters page is unavailable. The banks and the borrowers will be free to decide the relevant tenor of KIBOR and the spread over KIBOR at their discretion. KIBOR will be set for the lending facility on the date of drawdown or on the markup reset date. The offer letters from the banks to their clients should clearly indicate the KIBOR’s tenor and the agreed spread, frequency of revision etc The press release said

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that it has been also decided that the requirement to use KIBOR as the benchmark rate will not be applicable for the following: (a) Export Finance Scheme (EFS)of the State Bank of Pakistan (b) Consumer Financing and SME Lending, as defined in SBP Prudential Regulations (c) Overdrafts and Running Finance facilities existing before January 31, 2004 (d) Term Finance Certificates/Commercial Papers approved by the Securities and Exchange Commission of Pakistan (SECP) and/or submitted to any Stock Exchange prior to January 31, 2004 and (e) all Time Loans with agreements executed before January 31, 2004. However, if the pricing is renegotiated, the pricing of such loans will need to be benchmarked to KIBOR within the available tenors The press release pointed out that the financing rates under EFS will continue to be determined as per instructions issued by the Banking Policy Department of the State Bank of Pakistan and Overdrafts and Running Finance facilities extended prior to 31stJanuary, 2004 must be benchmarked to KIBOR at the time of renewal of the facility or when the same is due for reprising. The State Bank of Pakistan, through a circular, has asked the banks to comply with the above-mentioned requirements regarding benchmarking of their corporate lending to KIBOR. It also asked the concerned quarters to report the instances where the banks do not follow the requirements of using KIBOR as a benchmark. The State Bank has cautioned the banks that it will take appropriate regulatory actions, if any violation is committed in his regard, the press released added.

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Chapter # 2 Product & Services

2.1 PRODUCTS 22

2.1.1 CREDIT CARDS There are two types of credit cards which are offered by bank • •

VISA CARD MASTER CARD

Visa card This card further divided into different categories • Platinum • Gold/Silver • Young Professional • Women Exclusive • Student Card • Supplementary Card • Visa Mini

Features: •

No Joining Fee

•

No Annual/Renewal Fee

•

Balance Transfer Facility

•

Global Acceptability

•

Cash Advance Facility

•

Revolving Credit

•

Free Supplementary Cards

•

Card Expiry Period

•

24-Hours Phone Banking Service

•

Zero Loss Liability

•

All Billing in Pak Rupees

•

Comprehensive Travel Protection

•

Statement of Account

•

Fortunes

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•

Acceptance at 1Link ATMs

•

Instant SBS Monthly Installment Plan

•

Utility bill Payments

•

Call and Pay Facility

•

Prepaid Mobiles Top ups

•

Alfalah Credit on Phone

•

Credit Card bill Payment through Hilal Card

•

Special Offer on Warid post paid connection

•

Step By Step Plan

•

Non Alfalah Card members

. Schedule of charges: (i)

Service fee:

3.33% Per month (40% APR) on Cash Advance 3.33% per month (40% APR) on Retail Transactions 2% per month(24% APR) on BTF Transactions

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3.33% Per month (40% APR) on Cash Advance 3.33% per month (40% APR) on Retail Transactions 2% per month(24% APR) on BTF Transactions

1.75% per month (21% P.A. flat rate) on SBS Transactions (APR 31.23% to 36.74%) SBS Factors & APR details: Installment Plan Factor APR 3 months 0.350833 31.23% 6 months 0.184167 35.15% 9 months 0.128611 36.36% 12 months 0.100833 36.74% 18 months 0.073056 36.68% 24 months 0.059167 36.22% 30 months 0.050833 35.66% 36 months 0.045278 35.07% 0.99% per month (11.88% P.A. flat rate) on BTF to SBS 25

(ii)

Late Fee:

Rs.600 or 10% of minimum amount whichever is higher

(iii)

Cash payment processing fee

Rs.100/- per transaction

(iv)

Merchant Discount Charges

Upto 5% of Transaction amount

(v)

Visa Minicard Supplementary Fee

Rs.500/- per supplementary card

(vi)

Cash Withdrawal Fee:

a)

Cash advance fee / Call & Rs.500/- or 3% of cash advance amount whichever is Pay fee: higher.

b)

Acquiring bank charges

c)

Counter fee of other cards 1% or Rs.300 whichever is higher

1 % of cash advance amount

(vii)

Cheque / Cash pickup fee:

Rs.200/- (available in cities having Bank Alfalah branches)

(viii)

Over limit fee:

2% Of the over limit amount or Rs.600/- whichever is higher

(ix)

Voucher retrieval fee:

Local RS.350/- and international Rs.800/-

Card replacement fee:

Rs.500/-

(xi)

Cheque return charges / Rejected Auto pay service fee

Rs.800/-

(xii)

Duplicate statement charges:

Rs.200 (whenever 1 month old)

(xiii)

Step by Step / Credit on Phone to SBS processing charges

2% of transaction amount

(xiv)

Step by Step / Credit on Phone to SBS premature settlement charges

5% on balance amount or Rs.1000 whichever is higher

(xv)

Credit Cover Premium

0.55% of outstanding amount

(xvi)

Utility bill payment

Rs.30/- per utility bill (Below 5,000) Rs.50/- per utility bill (Above 5,000)

(x)

(xvii)

Visa Platinum / Titanium Priority Pass Fee:

a)

Annual Fee

US$ 10.00

b)

Airport Lounge Visit Fee

US$ 28.25 per visit

SMS Alert Fee

Rs.30/- per month

(xviii)

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(xix)

Mobile Banking Fee

Rs.100/- per month

(xx)

Merchant Cash Advance Incentive

Rs.25/- per transaction

(xxi)

Mobile PIN issue Charges

Rs.10/- per pin

(xxii)

Foreign transactions

Up to 5% over prevailing market rate or as per SBP directive.

(xxiii)

Arbitration Charges

US$ 500/-

(xxiv)

Insurance Plans Cancellation Charges (Life & Education Insurance Plan)

Rs. 100/-

(xxv)

Chip Maintenance Fee

Rs. 300/- for Principal Member, Rs. 300 for Supplementary Card

xxvi)

Platinum Card Fee :

Rs. 2,000/-

xxvii)

Platinum Supplementary Card Fee :

Rs. 1,000/-

2.1.2 Debit Card Alfalah Hilal Card is the revolutionary, new-age form of cash that provides you greater freedom, security and convenience, combined with the wide reach of Visa Network. This single card brings just about everything within your reach. Now, you can use your Alfalah Hilal Card for all your financial needs around the world, round the clock, wherever Visa cards are accepted, locally and internationally. The Alfalah Hilal Card is an International Visa Debit Card which gives you an unlimited access to your current / savings account with a simple swipe, at millions of retail shops and ATMs, worldwide

Features: •

No Interest

•

No Minimum Income Requirement - all you need to do is open an account in any branch of Bank Alfalah Limited

•

No PIN required for Retail Transactions

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•

Accepted at more than 1 Million ATMs and 29 Million retail outlets around the world

2.1.3 Lockers Bank Alfalah provides safe deposit locker facility to its customers for safe keeping of their valuables like documents, securities and jewellery etc. Features •

Various sizes to choose from small, medium & large.

•

Annual 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 in current account or above US $25,000/- in a current account or US $50,000/- in a savings account.

Locker Rates The annual license fees of the following sizes of lockers will be as follows:

Locker Size Small Medium Large Special

Key Deposit:

Charges Rs.1000/Rs.1500/Rs.3000/Rs.3500/-

Rs.1000/- (Refundable)

The license fees lockers will be payable in advance every year and no part of the same shall be refundable in any circumstances.

2.2 SERVICES

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2.2.1 Accounts Opening Account opening is one of the basic services provided by banks. Bank Alfalah brings innovation in this field and offering variety of account options for customers. Details of these accounts are given below. Current Account: This type of accounts is non interest bearing checking account. Minimum account opening requirement is Rs. 10,000 only. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. No restriction on number of withdrawals and on number of deposits

PLS Savings Account: This is Profit & Loss Sharing Saving Bank Account and minimum amount required to open this account is Rs. 5,000 only. No restriction on number of withdrawals and number of deposits. Profit on saving accounts is credited to the customer account on half-yearly basis. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. Royal Profit: Minimum deposit requirement of Royal Profit a/c is Rs. 50,000 only and bank higher returns on higher balances. No restriction on number of withdrawals and on number of deposits. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. Profit is credited to the customer account on monthly basis. Basic Banking Account (BBA): Initial deposit required for BBA opening is Rs. 1,000 with no minimum balance requirement. BBA is non interest bearing checking account. Maximum 2 deposits and 2 withdrawals through Cheques are allowed. Free debit card can be used to withdraw cash 29

and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. No restriction on ATM withdrawal. Alfalah Kifayat: Any Pakistani resident over the age of 18 can open this account. This account is for individual/joint customers only. Other customers like companies, corporate etc are not eligible for opening of this account. Minimum balance requirement for opening this account is Rs. 10,000/- with a maximum of Rs.1, 000,000/-. Three debit transactions are allowed in a month either through Cheques or Debit Card/POS machine. There is no restriction on deposit transactions. The bank will issue the first Cheques book of 25 leaves and a Debit card free of cost. Only one account per customer will be allowed across all branches of Bank Alfalah. Profit will be calculated on monthly minimum balance basis and will be credited in the account on quarterly basis. No profit shall be payable for a particular month, if the minimum balance for any particular day of said month falls below the amount of Rs. 10,000/-. Alfalah Mahana Amdan: Alfalah Mahana Amdan is a 3 year TDR with expected rate of profit of 10% p.a. This term deposit will provide an opportunity to individual/joint customers to enjoy higher returns that will automatically be credited to his/her current/PLS/RP/BBA account on 1st working day of each month. This facility is not available for business and corporate customers. Minimum placement limit is Rs. 100,000/- and maximum placement limit is Rs.15, 000,000/-. Free Personal Accident Insurance coverage up to the deposit amount or Rs. 1,500,000/whichever is lower. Customer can avail financing facility up to 90% of the deposit (as per banks policy). Alfalah Mahana Amdan TDR will be issued for three years tenure with auto renewal facility of principal amount i.e. the facility will be renewed automatically on maturity (i.e. 3 years). Alfalah Mahana Amdan TDR will be subject to Zakat, Withholding Tax as well as any other applicable taxes Alfalah Education: 30

Alfalah Education is a Term Deposit product with No Additional Cost (NAC) education insurance cover for account holders with school going children. Alfalah Education Account , beside offering competitive return on TERM DEPOSIT , offers tuition fee reimbursement of children for 15 years of schooling or up to their 20th birthday, in the unfortunate event of the death (either through accident, illness or natural causes) of the main breadwinner (account holder) parent. It creates a contingency provision for school going youth’s education in the hapless event of the death of any major breadwinner. The product seems rewarding in the current scenario of increasing number of children of school going age and the general public interest in quality education of their off springs. Deposits can be placed in multiple of 100,000 units with maximum 3 units allowed per depositor, i.e. a maximum deposit per customer of Rs. 300,000 across all BAL branches. All 3 units can be purchased for 1 child or each for up to 3 children. No evidence of insurability (medical examination/health decoration) is required. Benefit payment increases with age/class of the child. The product will be offered as a 1 year term deposit at up to 7 % profit to be paid at maturity. Regular Zakat and WHT would apply on the deposit. Monthly payments set forth will be paid directly to the mother/guardian, regardless of the actual school fee. In case of joint account holders, only main breadwinner account holder would be covered under the policy.

2.2.2 Credit (SME) BAL’s Credit Department divided into three portions, •

Corporate

•

Commercial

•

SME

Under SME bank deals with those customer who requires financing up to 75 Million. In Commercial portion bank handle customer needs greater than 75 Million but not exceed than 150 million. Corporate team deals with the customer who requires financing greater than 150 million.

Small and Medium Enterprise (SME):

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Small and Medium Enterprise (SME) means an entity, ideally not a public limited company, which does not employ more than 250 persons (if it is manufacturing / service concern) and 50 persons (if it is trading concern) and also fulfills the following criteria: (a) A trading / service concern with total assets at cost excluding land and building up to Rs 50 million. (b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million. (c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements. Realizing its corporate social responsibility and carrying forward the image of "The Caring Bank", Bank Alfalah started a separate department at the Head Office level in early 2004. The SME Department was established with a mandate to foster SME finance at BAL, explore opportunities for developing structured product programs for SMEs

BAL’s Products for SMEs: Bank Alfalah offering following product to SME

Alfalah Karobar Finance (AKF): Alfalah Karobar Finance is a running finance facility based on projected cash flows. Under AKF, bank offer working capital finance to SME’s at highly competitive rates. Bank has a team of professional credit officers who provide expert financial advice along with customized packages to a diverse range of business clientele. Features: These are the some salient features of AKF:  AKF is a running finance facility between Rs 0.50M to Rs 10.0M.  The purpose of the AKF is financing procurement of raw material, finished goods and receivables of SME businesses.  Validity of the AKF shall be initially for a period of one year.  Quarterly mark-up shall be serviceable within 15 days of its becoming due.

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 Turn-around-time for the approval of AKF would be 20 working days from the date of receipt of complete LAF along with its attachment.  At least 25% of the AKF approved limit shall be required to be cleaned-up for two days in six months.

Eligibility Criteria for AKF: SME Customers with following acceptable criteria are entertained in this product:  Resident Pakistanis  Individuals/ sole proprietors aged up to 60 years.  In the same business for the last three years  Could offer mortgage urban residential/commercial/ industrial properties (third party collateral also allowed)  Overall debt burden not to exceed 40% of the projected cash flows over the period of financing.

AKF - Rates & Charges:

Loan Processing Charges under AKF Processing fee (Up-front with LAF)

Rs.2,000/-

Documentation charges

Actual cost of revenue and special adhesive stamps

Legal charges

Actual & approved charges of lawyers on the Bank’s approved panel.

Valuation charges

Actual & approved charge of valuators on the Bank’s approved panel.

Business & Financial Appraisal charges

Rs. 4,000/-(approx)

Bank Alfalah 86 branches are designated to deal with AKF business in the entire country. BAL claims that better pricing, quicker TAT and low processing charges are its edge.

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Alfalah Milkiat Finance (AMF): Bank Alfalah took another step towards addressing the needs of the industry by introducing Alfalah Milkiat Finance. AMF is aimed at strengthening the Small and Medium Enterprises in their business premises. Alfalah Milkiat Finance (AMF) is a unique long term financing facility offers comprehensive and flexible financing packages from Rs. 0.5M up to Rs. 20 million for the purchase, renovation and expansion of business premises. It is being offered keeping in mind requirements of the small business owner who needs to take his/her business to the next level.

Features: These are the some salient features of AMF:  AMF 1, 2 & 3 shall be repayable in 2-12 years whereas AMF-4 shall be repaid in 2-4 years.  Mark up shall be (SBP discount rate + 4%)  Monthly installments will be hassle free through post dated cheques.  AMF shall be disbursed approximately within one month after completion of documentary requirements by you.  The property being financed shall be mortgaged in favor of the bank.

Eligibility Criteria for AMF: The prospective customer should meet the following acceptance criteria:  They should be resident Pakistani(s).  Their constitution can be individuals, sole proprietorships, partnerships, private limited companies & public limited companies.  Age of the prospective customer (individuals/proprietor) should not exceed 65 years at the maturity of loan.  Customers should be operating the existing business at least for the last 3 years.  The security against Alfalah Milkiat Finance should be mortgage of urban commercial/industrial property .

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 Minimum equity participation of the SME shall be 30% under AMF 1 & AMF 3. No equity participation required for AMF 2 & AMF 4.

AMF - Rates & Charges:

Loan Processing Charges under AMF Processing fee (Up-front with LAF)

Minimum of Rs.5,000/- or 0.1% of the loan amount, whichever is higher.

Documentation charges

Actual cost of revenue and special adhesive stamps.

Legal charges

Actual & approved charges of lawyers on the Bank’s approved panel.

Valuation charges

Actual & approved charges of valuators on the Bank’s approved panel.

Business & Financial Appraisal Approx. Rs. 5,000/charges

2.2.3 Lease Finance: In modern days leasing has now become an economic and financial reality of primary importance. It is the originality of the leasing techniques and its economical advantages, which has enabled it to enter the world of industrial investment in Pakistan and on the international scene. Lease finance provides a significant source of funds for companies to acquire or use assets. Leasing provides additional earning opportunities to acquire assets and to get the inflows simultaneously out of the operations of the same assets. The ownership of the asset is vested with the Bank (lesser) and in return for rental payments; the client (lessee) has full use of the asset. Being a medium to long term mode of financing, it allows the lessee to use the funds for other profitable purposes which otherwise would have been tied up in case of immediate payment for purchase of the asset.

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Bank Alfalah recognizes the importance of leasing so it’s providing different Lease Finance facilities to customer. BAL works closely with its existing and prospective business partners to deliver most comprehensive and tailored leasing solutions to meet all asset needs. BAL offers the most competitive and flexible terms & conditions for lease concerning choice of assets, repayment, pricing, and tenor which range between 3 to 5 years commensurating with the specific requirement of the lessee, useful life of the assets and client’s ability to repay the lease rentals. The lease finance facilities are available for a variety of assets (imported/local) conforming but not limited to the following categories:  Vehicles (Private & Commercial)  Plant, Machinery and equipment  CNG Equipment  Generators(Industrial & Commercial)

Eligible for Lease Facility: Following customer can avail the lease finance facility of BAL:  Sole Proprietors  Partnership Firms (Registered / Un-registered)  Private Limited Companies  Public Limited Companies (Listed / Unlisted)  Govt./ Semi – Govt. Organizations/ Autonomous Bodies

2.2.4 Accounts Accounts department work mainly divided into two portions. 

Daily Activity Checking



MIS Reporting

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Daily Activity Checking: Accounts department deals and checks the entire work of the branch. All the vouchers that have been posted by different departments check in accounts department next day to rectify errors. In order to facilitate double-checking of all the transactions done, all departments passes vouchers to account department. Vouchers sorted out head wise and then match with “Activity Report” i.e. computer print of all postings of different departments. If any mistake found then take corrective actions. Accounts department is also responsible for proper handling and maintenance of vouchers of all departments.

MIS Reporting: The accounts department, in the form of reports, clubs the details of various departments together. These reports prepare daily, weekly, monthly and annually basis according to bank requirements.

Accounts department prepares many reports, of which the most common are: •

Statement of Affairs

•

Income & Expenditure

•

Foreign Currency Report

•

Royal Profit Report

•

Outstand Receipt Report

•

Subsidiary Statement

•

Currency Wise Deposits Report

•

Reconciliation Statements

The accounts department also performs some other miscellaneous functions like  Checking and distribution of all system reports

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 Preparation of monthly, quarterly, semiannually, and yearly balance sheet of the branch.  Calculations of profits and markups on different investment schemes  Calculation of taxes deducted on deposits, services and supply of goods.  To calculate expense of the branch and to check that expenses should be within the estimated budget.  Preparing different types of reports for SBP.  Preparing the statement of accounts as per the requirement of our head office and SBP.

2.2.5 Home Finance Home Finance lies under the head of Consumer Finance. Home finance department provide loan for residential purpose to all types of customers. These are some types of facilities provided by BAL’s Home Finance department

 Alfalah Home Purchase  Alfalah Home Construction  Alfalah Home Renovation  Alfalah Home Start  Balance Transfer Facility

Alfalah Home Purchase: Under this facility BAL will provide you up to 80% of the purchase price of the property, it can be already constructed housing unit or residential plot. Payment period ranges from 3 to 20 years. With this facility, you no longer need to just dream about the home you want for yourself and your family

Alfalah Home Construction: 38

You own a plot but need financing to construct a home. BAL will provide up to 100% of the construction cost. Even if you don't have a plot, bank will provide up to 60% of the value of the plot that you have selected to purchase. This facility payment period also ranges from 3 to 20 years.

Alfalah Home Renovation: Alfalah Home Renovation facility provides you loan for maintenance and repair of your home. Customer can apply for financing of up to Rs. 3.50 million or 40% of the surveyed value of your home and can stretch payments for up to 10 years.

Alfalah Home Start: The crown jewel of BAL Home Finance scheme is Home Start. Home Start is specially designed for young professionals to own a quality asset. It provides golden opportunity for professionals, starting career to buy an already constructed housing unit early in life. Bank offer a moratorium of up to 3 years in principal payments, for a financing of up to 20 years. Customers service only the mark-up element initially, and principal repayment starts after the end of moratorium period.

Bank Transfer Facility (BTF): BTF provide an opportunity for customer to change their creditor bank. If customer takes home loan from another bank, Alfalah has a facility to pay off the outstanding balance on behalf of borrower to first bank and transfer his remaining outstanding balance to Alfalah. Now customer becomes the client of BAL and is liable to pay his installments to the bank. Under this facility customer can transfer up to 100 % of the existing finance and stretch repayment period up to 20 years once again.

Mark-Up Rate Options: BAL also provided flexibility to choose mark up rates. Two options are available: 1. Variable Rate Options 2. Fixed Rate Options

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1. Variable Rate Options: 1 Year KIBOR + 2% for salaried person. 1 Year KIBOR + 3% for Business People / Self-employed and Overseas Pakistani. 2. Fixed Rate Options: 14.00% per annum for salaried person. For Self-employed Professionals & Businessmen and Overseas Pakistani (both salaried and self-employed) 15.00% Per Annum.

Eligibility Criteria of Home Finance: You may apply for Bank Alfalah Home Finance.  If Customer are a Pakistani National.  If Customer age is between 23 and 60 years at the time of application. (Subject to maximum age of 65 at the time of maturity).  If Customer are in continuous employment in a permanent position for the last 2 years or more.  If Customer have existing 3 years (or more) of business or professional experience.  If Customer gross annual income is Rs: 240,000/ — or more [Your spouse’s income (up to 50%) can also be combined with yours].  If Customer require a financing requirement starting from at least Rs: 500,000/ If Customer have been a Bank Alfalah borrower for past one year with clean payment record.

2.2.6 Trade Finance Bank Alfalah in a position to provide extensive Trade Finance services to its customers due to its healthy correspondent relations with over 400 banks. BAL persistence during the past four years allowed it to make significant inroads into the arena of correspondent banking. Large international banks, after critically evaluating bank, agreed to enter into

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relationship. BAL geographical coverage now extends to over 100 countries, which is adequately compatible with trade flows. BAL’s correspondents, during the year extended unqualified support, which enabled it to undertake a healthy quantum of foreign trade business. There are many challenges ahead for the bank, in the coming year, bank will not only continue to review its efforts on existing correspondents to make the relationship more beneficial, but will also add more correspondents to establish a comprehensive international networking to facilitate our customer’s transaction as well as the Bank’s proprietary needs. Bank would like to emphasize that correspondent arrangements do not necessarily imply the existence of account relationship. BAL shall continue to open new accounts in various currencies based on our trade flows and business requirements. Trade Finance department divided into two portions  Import  Export

Import: Import section provided services to costumers who want to import raw material, machinery and equipment to run their business. For this purpose bank offer a facility of Letter of Credit L/C.

Letter of Credit: A letter of credit consist of an undertaking by a bank authorized the seller to draw in accordance with certain terms and stipulating legal forms, that all such bill will be honored. A letter of credit thus is a i.

Written undertaking by an importer’s bank to exporter’s bank.

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ii.

That it will pay or accept draft drawn upon it up to a stated amount with a specified time.

iii.

The payment will only be made to the exporter if he compliers with the terms of credit.

Banker is issues the letter of credit normally in the response of the Performa/ Commercial Invoice. The seller sends this invoice to the buyer and it contains seller name, product quality, and rate, mode of shipment, and other terms and conditions.

Export: Export portion provided three types of services/ facilities

1) Foreign Bills Purchase (FBP): If term of payments is L/C for exported goods, then BAL provides financing against foreign bills under FBP.

2) Foreign Documentary Bill for Collection (FDBC): BAL also provides services for the collection of foreign bills. In this case bank not provides any sort of financing facility but it just plays an intermediary role in collection.

3) Refinancing: Under this option bank provide financing facility to exporters at low mark up rate. This facility offers on the basis of last year performance of exporter and it also available for Indirect Exporter.

2.2.7 Foreign Currency Accounts Foreign Currency Accounts (FCA) department not deals with foreign accounts opening but it deals with foreign remittances. FCA operations mention below: I. Foreign Demand Draft II. Foreign Telegraphic Transfer 42

III. Credit Card Payments IV. Money Gram V. Collection of Foreign Currency Cheques

Foreign Demand Draft (FDD): Simple Demand Draft is a written order drawn by one branch of a bank upon the other branch of the same bank or upon another bank to pay certain sum of money to specified person. FDD is same like DD but it involves foreign currency and country. BAL has arrangements with specific banks for payment of FDD. BAL’s LDA plaza branch only deals with outward FDD. Requirements: These are the some requirements to make Foreign Demand Draft (FDD)  Customer should have foreign currency account in the branch  Customer should present a cheque in favor of bank to FDD  Requisition for DD issuance

Foreign Telegraphic Transfer: In Telegraphic Transfer funds are transferred through telephone or fax. This is a fast mode of transferring funds. Banks deals with both Inward and Outward telegraphic transfer.

Information Required  Name of Beneficiary  A/C number of Beneficiary  Branch and Bank name of Beneficiary  SWIFT code of Beneficiary Bank

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Chapter # 3 Departments

DEPARTMENTS As far as Bank Al-Falah Ltd is concerned, it is one of the top in all-domestic commercial banks in Pakistan. The rapid increase in branch network shows the Bank’s performance within seven years, which is worth considerable.

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However, this branch works with mostly all banking operations, which are normally performed by every commercial bank. It has basically following departments under which it operates all functions of bank diligently. These are mainly: 1. Account opening department 2. Remittances department 3. Clearing department 4. Accounts department 5. Warid telecom department 6. Cash department 7. Car financing department 8. SME/Credit department 9. Credit card department 10. Trade financing department

3.1 ACCOUNTS OPENING DEPARTMENTS This department is responsible for the opening and closing of accounts. In consideration of Bank Al-Falah Limited, opening and/or continuing to maintain any account, the Account Holder/Depositor or Investor would be bound by the terms and conditions written on the account opening form. The first part establishes the preference regarding the type of account to be maintained. The various choices offered in this regard are: •

Current Account

•

Saving/ PLS Account 46

•

Royal Profit Account

•

Term Deposit Account

•

Basic Banking Account

•

Alfalah Mahana Amdan Account

•

Alfalah Kifayat Account

•

Alfalah Education Account

Procedure of opening an account The Account Opening Form:When a client comes to the bank, and makes a request for opening of an A/C. The officer says that first fill up a prescribed application form. Completion of The Form:The name, occupation, and complete address of the person opening the account are written in the columns that are provided in the form. Signatures are obtained from the customer where it is required. These signatures should be usual signatures and he would operate the account with them. Introduction:The introduction of a current account holder is accepted for the opening of either a current account or a saving account. The introducer should be Account Holder. The signature of the account-holder introducing the account is obtained at the place provided for in the account opening form. Specimen Signature Card, Cheques Book Requisition, Online Form:The signatures of the client are obtained on a specimen Signature card Cheque book requisition and online form. These specimen signature cards are obtained in duplicate with two signatures on each card from the customer. Every time a Cheque is received for a payment from the client, the signature on the Cheque are verified by comparing them with the Specimen Signature Card. Signature Difference Form:The signatures of the client are obtained on a signature difference form if his / her signatures differ from the computerized National Identity Card. Vernacular Form:47

The signature of the customer is also obtained on the vernacular form if he / she signs in a language other than English. Account Number:When all the formalities are completed then the final approval of account has to be taken from the Branch Manager. After obtaining approval of the branch manager an account number is allotted to the customer all the information is entered into the computer. Then that account number is written on the Cheques Book, Specimen Signature cards and account opening form. Send the form to Head Office:After fulfill the entire requirement and verify the form from operation manager the form send to Head Office Karachi and make request to issue the printed Cheque book. Issuance Of A Cheques book:After opening an A/C with the bank, the A/C holder receive a letter of thanks from Head Office Karachi then after receiving this letter client come to bank and makes a request in the name of bank for the issuance of a Cheque book. The A/C holder mentions title of A/C, A/C number, signs it properly. Normally BAL issues a Cheque book having 25 leaves for Saving Account and 50 leaves Cheque Book to Current Account Holder. Every Cheque book also contains one leaf that is used for another issue of a Cheque book.

TYPES OF ACCOUNT Accounts Of General Customers  Minor Account  Illiterate Person Account  Joint Account

Accounts Of Special Customers  Individual Account  Proprietorship Account 48

 Partnership Account  Limited Company’s Account  Account of Club Societies and Association  Agents Account  Trust Account

Minor Account The natural guardian who signs both Account Opening Form and Specimen Signature Card can open account in the name of minor.

Title of Account:The title of account should clearly indicate both the names of minor as well as guardian in the following manner:e.g.

Imran Rafique ( minor) Muhammad Rafique (Guardian)

Special Instructions:The guardian will continue to operate the account even if minor attains the age of majority.

Documents: Computerized National Identity Card of Guardian  Form “B” of minor  In case guardian is appointed by the court of law then attested copy of guardianship certificate be obtained and placed on record.

Illiterate Person Account Before opening such account the illiterate person should be informed that he / she cannot issue Cheques in favor of any other person.

Title of Account:Name of account holder should be written in block form.

Special Instructions:Personal Withdrawal

Documents:49

 Copy of Computerized National Identity Card  Two attested photographs to be obtained for pasting on AOF and other on Specimen Signature Card.  Thumb Impressions Male -------- Left Hand Thumb Impression Female ------- Right Hand Thumb Impression

Joint Account These are the account of two or more persons who are neither partners nor trustees. Account Opening Procedure:Title of Account:Title of account holder should mention the names of all the joint account holders. Special Instruction:At the time of opening the account clear and specific instructions should be obtained regarding operation of the account and payment of the balance at the death of one or more joint account holders in the following manner:•

The account shall be operated by any joint account holders singly.

•

By either or survivor singly

•

By any two or more joint account holders or by any two or more survivors jointly.

•

By all the joint account holders jointly

•

By all the survivors jointly.

These instructions as far as possible should be obtained in handwriting of the parties concerned, under the signature of all the joint account holders. Documents: Computerized national Identity Card of all the joint account holders. Mode of Signature: All joint account holders are required to sign as applicant and in the column of special instructions.  Specimen Signature of only those joint account holders are required who are authorized to operate the account. 50

Individual Account When a single man or woman opens an account in his or her own name and has the right to operate, it is called individual A/C. [

Title of Account:[

Title of Account should mention the name of the person who operates the account. Special Instructions:At the time of opening the account clear and specific instructions should be obtained regarding the nominee of the account holder means after the death of the account holder who will operate the account. Documents:[

 Computerized national Identity Card.  Proof of Income if he / she is a salaried person then the pay slip or salary certificate of that person. 

Proprietorship Account When the owner of the firm operating singly, open an account in his firm name. Title of Account:Title of account must be in the name of the proprietorship concern.

Special Instructions:In case of proprietorship concern, the special instruction should cover the style of the account and the name of the person who will operate the account as sole proprietor. For example, if the account to open is in the name of “Islamabad Cloth Store”, the person who is the sole proprietor should declare as such. Documents: Computerized National Identity Card (CNIC) of proprietor.  Declaration for proprietorship concern.  Proprietorship Stamp

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 Letter of request to open the account on the letterhead of proprietorship.  Third party Mandate, in case any other person has been authorized by the proprietor to operate the account.  National Tax Number (NTN) but it is optional.

Partnership Account “Partnership” is a relationship between persons who have agreed to share profits of a business carried on by all or any of them acting for all. Title of Account:Title of account must be in the name of the firm as declared by the partners. Operational Instructions: Operations on the account must be allowed strictly in accordance with the instructions given in partnership mandate and Declaration (Part III) in terms of section 25 of Partnership Act 1932.  According to Partnership deed, if given. Documents: Copy of Computerized National Identity Card of all the partners.  Copy of registration Certificate (if a registered firm)  Letter of request to open the account on the letterhead of partnership.  Partnership Stamp  Partnership Deed  Third Party Mandate, if third party is authorized to operate the account.  NTN (optional)

Limited Companies Account Section 2 of the Companies Act, 1913, defines companies as:“An association of individuals for the purpose of profit, possessing a common capital contributed by the members constituting it, such capital being commonly divided into shares, of which each possess one or more and which are transferable by the owners.” 52

Title of Account:Title of account should be exactly in the same name and style as mentioned on the memorandum and article of association. Special Instructions:All the special instructions should be given to the bank in the form of Resolution of Board of Director. Documents: Computerized National Identity Card (CNIC) the entire Director attested by company CEO.  Resolution of Board of Director passed under Company’s seal to open account.  Memorandum and Article of Association  Certificate of Incorporation Form 29 (B) (Lasted Copy). Company secretary will certify all these copies.  List of Directors and authorized signatories.  Certificate of Commencement of Business (for Public limited company’s only)

Trust Account According to section 3 of Trust Act, 1882: “A trust is an obligation annexed to the ownership of property and arising out of a confidence proposed in and accepted by him for the benefit of another, or of another or owner.” Title of Account:-

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The account should be opened in the name of the trust. However, if the account is opened in the name of the trustees, the account should not be treated as a joint account, rather it should be treated as a trust account. Special Instructions:The Banker should examine the trust deed very carefully. Particular attention should be paid to the borrowing powers, status of account in case of death of any trustee or signatory, and provisions for the appointment of new trustees. Documents: Attested photocopy of Computerized National Identity Cards (CNIC) of all the trustees.  Attested copy of Certificate of Registration.  Certified copy of Instrument of Trust / Trust Deed Mode of Signature:All the trustee are required to sign the account opening form, Specimen Signature Card, and Cheque book requisition slip in their official capacity. Clubs, Societies and Associations Account These are non- trading / non- profit organization and are formed for the promotion of culture, education, recreational activities and charitable purpose etc. Title of Account:Account must be opened in the name of organization in the following manner:e.g. Islamabad Cricket Association

Operational Instructions: All the parties must be in accordance with the clauses of the resolution.  In case of death of office bearer, account should be blocked until new resolution is received.

Documents:-

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 Copy of bye- laws / regulations.  List of members of managing / executive Committee.  Copy of certificate of Registration (if registered)  Copies of CNICs of the members of Executive Committee.  List of names of officials authorized to sign on behalf of the organization along with the Specimen Signature under the signature of the Secretary of the club/society.

Agent Account Title of Account:Account must be opened in the name of agent. Special Instructions: Manager should ensure compliance of contract between principle and agent.  Agent cannot delegate powers to third party.  Transfer between principle and agent account should be in accordance to agreement.  In case of death / insolvency / insanity of principle agency transactions are automatically terminated. Documents: Attested photocopy of Computerized National Identity Card (CNIC) of the agent.  Certified copy of Power of Attorney.

3.2 REMITTENCE DEPARTMENT “Remittance is transfer of funds from one place to another or from one person to another.”

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A Remittance is an important service provided by banks to customers as well as noncustomers. Since it is not a free service it is a source of income for the bank. Parties involve in remittances Four parties involved in remittance: Remitter  Remittee  Issuing Bank  Paying Bank Remitter:One who initiates, or requests for a remittance. The remitter comes to the issuing or originating branch, asks for a remittance to be made, and deposits the money to be remitted. The bank charges him a commission for this service. He may or may not be the branch’s customer. Remittee:A Remittee is also called the beneficiary, or the payee. The person in whose name the remittance is made. A Remittee is also the one who receive the payment. Issuing Bank:The bank that sends or affects the remittance, through demand drafts, telegraphic transfers, or Mail Transfers. Paying Bank:Paying Bank also knows as the drawee branch. The branch on which the instrument is drawn. It has to make the payment (usually located in a different city country).

Kind of remittances  Transfer within the branch  Transfer from one branch to another

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 Transfer from one bank to another bank in the same city  Transfers from one bank to another bank in two cities. Instruments used in remittances  Demand Draft (DD)  Pay Order (PO)  Pay Slip  Call Deposit Receipt (CDR)  Telegraph Transfer  Rupees Traveler Cheque (RTC)  Cancellation of PO, DD & CDR  Advance Tax against Remittances

.

3.3 CLEARING DEPARTMENT The word clearing has been derived from the word “clear” and is defined as:

57

“A system by which banks exchange cheques and other negotiable instruments drawn on each other within a specific area and thereby secure payment for their clients through the Clearing House at specified time in an efficient way.” By clearing means sometimes the account holder of Bank Al-Falah Limited present cheques, which is not drawn on Bank Al-Falah but the person, has an account in Bank AlFalah Limited. In this case bank accepts these cheques in clearing department and later on collets the amount from bank on which cheques is drawn through clearing house. This function is called clearing.

Clearing House It is a place where representatives of all banks sit together and interchange their claims against each other with the help of controlling staff of NIFT. It is one of the services provided by NIFT to other commercial banks. NIFT acts as a clearinghouse. Different banks are the members of the clearinghouse. A representative of each bank represents his bank in the clearing house. Each bank has collected cheques as behalf of their customer but these cheques are not drawn on their own bank so in the clearinghouse, they hand over these cheques to respective banks on which these cheques are drawn. Similarly each bank receives cheques from other banks if any. Instrument to be presented  Cheques  Demand Drafts  Pay Orders

There are four types of clearing:1. Inward Clearing 2. Outward Clearing

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3. Intercity Clearing 4. Same Day Clearing

Inward Clearing Those Cheques and other negotiable instruments which are drawn on BAL Urdu Bazar Branch Lahore, sent by other banks, constitute the inward clearing of Bank Al-Falah Limited. After having all the stamps and dates of Cheques confirmed, the concerned drawer’s accounts are debited in BAL Kachahri Road Branch M.B.DIN.

Inward Return:•

Presentation Flaw e.g. Clearing stamp not affixed or wrong discharge given by collecting banker.

•

Defect in the Cheques i.e. Post dated Cheques, unauthorized cutting.

•

Insufficient Balance

Outward Clearing When Cheques and other negotiable instruments drawn upon other banks like City Bank, MCB, ABN-AMRO or Askari Bank of the same city (M.B.Din) are presented in BAL Branch to deposit them in the respective payee’s accounts, these instruments are lodged in outward clearing of BAL Branch. Outward Return: Cheques return will be treated as inward Cheques.  In case the Cheques is returned because of wrong presentation e.g. clearing stamp not affixed or wrong discharge given on the cheques etc. it should be relodged in the next day clearing after rectification of the mistake.  Enter the cheques in cheques return register, mentioning the reason as appearing on the cheques return memo received from the paying bank.  Advice the customer about fate.  Return the cheques to the customer after getting sign on the register.  Collect the cheques return charges as per S.O.C (Schedule of charges).

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Inter City Clearing The cheques that are presented in inter city clearing are of another city and received by air. In this type of clearing the bank confirm at that time that the cheques are clear or not and give to the rider. Same Day Clearing The cheques that are presented in same day clearing are the local cheques and these cheques are clear in same day. Basically it is the benefit that is provided to customer.

3.4 ACCOUNTS DEPARTMENT This department is responsible to keep the record of each and every transaction and prepare reports about the amount of deposits and advances and sent to Head office or State Bank of Pakistan on monthly, quarterly and yearly basis. Activities The accounts department deals with various routine activities for the bank. The main activities performed by it are:•

Budgeting

•

Reporting

•

Maintenance & depreciation of fixed assets

•

Miscellaneous functions

Budgeting Accounts department of a bank, for a year makes budget of every branch. Fiscal year of bank starts from January 01 and ends on December 31. The accounts department starts preparing budget from October for the next year.

Reporting

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The accounts department, in the form of reports, clubs the details of various departments together. Each and every minute detail is provided in weekly, monthly and annual reports. The reports are submitted to head office, SBP and to the government. The accounts department prepares many reports, of which the most common are:•

Statement Of Affairs

•

Income & Expenditure

•

Business Report

•

SBP Report

•

Outstand Receipt Report

•

Currency Wise Deposits Report

Maintaining of Fixed Assets & Their Depreciation Accounts department maintains the record of all the assets and charges depreciation on them. The bank normally uses the straight-line method to compute the depreciation. It is calculated on monthly basis and charged yearly. Bank not only depreciates the existing assets but also the assets but also the assets transferred in and transferred out.

Miscellaneous Functions The accounts department also performs some other miscellaneous functions like i.

Closing Entries

ii.

Daily activity checking

iii.

Report Generation

iv.

Minor expense recording

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3.5 CASH DEPARTMENT The cash department is the most important department of the bank. It receives cash from customers and then deposits it into the accounts of the customers and maintained their balances. The officers in this department are called teller and there were four tellers at the counter. This department involves in two activates:Deposit Cash In Customer’s Account:When the customer want to deposit amount in his account at opening of account or after that then he has to fill a deposit slip that shows the amount and the account in which the cash will be deposited. Then teller will receive amount and credit the customer’s account that shows increase in customer’s bank account. Make Payments From Customer’s Account:When the customer draws a cheque on the bank to pay a certain amount then teller will debit the customer’s account that shows reduction in his account balance. There are two main types of cheques that are •

Open Cheques

•

Crossed Cheques Open Cheques:-

Open Cheques are those cheques, which are paid across the counter of the bank. Open cheques may be •

Bearer Cheques

•

Order Cheques. Crossed Cheque:The amount of this cheque is not paid at counter. The amount of this cheque is transferred to the person’s account whose name is specified on the cheque. Two parallel transverse lines are drawn across the face of the cheque.

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Cheque encashment procedure Receiving Of Cheques:The cash is paid against the cheques of the client. The following points are important. 1. Cheque is drawn on BAL 2. Cheque is not post dated. 3. Amount in words and figure are same. 4. It should be bearer cheques so the word bearer should not cross. Verification Of Signature:After receiving the cheques the cheques the officer verify the signature of the account holder and the signature on the cheques. If the signature is not same it is returned back otherwise forward to computer terminal. Computer Terminal Process:The cheque is received in computer terminal, where the computer operator checks the balance of the account holder. The operator also sees the stop payment instructions are received from account holder or not. After considering these points computer operator post the cheque in account holder ledger and returned back to the officer. Payment Of Cash:After posting the cheque the officer cancelled the cheque and returned back to cashier. The cashier enters the cheque in cash paid registered and pay against the second signature of receiver on the back of the cheque. If the payment is of Rs. 50000 the cashier can make it on its own. If the amount is greater than Rs. 50000 to Rs. 100,000 the cashier and cash deposit Incharge will verify the check and will sing it. Then the payment will be made. But, if the amount is greater than Rs. 100000 to Rs. 1000,000 the manager operation will also verify the check and sign it so that the payment can be made. If the amount is greater than Rs. 1000,000 the Branch Manager will also verify the check and sign it. Otherwise the payment will not be made.

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3.7 FINANCE/CREDIT DEPARTMENT

Car finance Quickest processing No hidden charges Minimum down payment Complete repayment at any point of time Balance transfer facility {BTF} for existing as well as new clients from other Banks Tenure period ranging from 1 to 5 years. Financing of all brand new locally assembled vehicles and used cars. Financing limit ranging b/w Rs. 200,000/- to Rs. 2000,000/- for brand new cars

Corporate and individual car leasing BAL’s recently introduced car leasing facility for individuals and corporate sector has set new dimensions for the product. Now you are provided with the option of either to get the vehicle leased or financed.

Insurance Renowned and reliable Insurance companies are offering the competitive rates of Insurance. Pay year insurance premium in advance {at the time of down payment} and remaining in the subsequent equal monthly installment.

Mark-up Bank Al-Falah's mark-up rates are as follows: Pak Suzuki Cars All other local assembled Cars Imported Cars

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11.9 % 12.9 % 12.9 %

Repayment Easily affordable installments on monthly basis in the form of postdated cheques will set you free of depositing your rental cheques every month.

Security Hypothecation of vehicle in the name of the Bank Al-Falah Limited

Documents required Two passport size photographs. Copy of NIC. Bank statement for the last six months. Salary certificate {for salaried individual}. Business proof {for a business person}. N.T.N Certificate. Co borrower’s NIC copy {if the car is to be in the name of the co-borrower}.

Eligibility Yes you get a car loan form bank Al-Falah to purchase a brand new car if you are: Pakistani National Identity Card holder. Over 20 years of age (Maximum 60 years in case of salaried and 62 in case of a business person at the time of maturity of the loan). Salaried, Businessman or self employ

Credit department A good financial support when officials of this department invest money of depositors into feasible projects by lending loans to various business concerns. As the core activity of Commercial bank is to provide short-term finance, which is mostly for working capital requirements. As business concerns have money to complete the one production cycle, but it is not necessary that amount would be received just after sale, but credit sales are also made. So to finance next production cycle they obtain loans from commercial banks on short-term basis, for continuity in operations.

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Evaluation of client This is the first requisite for team of credit department, to evaluate the client's position regarding the financial and business performance concern. As for as, credit policy of Bank Al-Falah Ltd. is concerned, it doesn't given loan to individuals & business concerns. i) Financial Statement Analysis: This is the main source to evaluate the client of business concern, Annual Reports of last 2 to 3 years are obtained from enterprise, which is requesting for credit/loan. These are examined by various techniques like; Horizontal Analysis, trend, ratio analysis are conducted to get true and fair view of the final statements of that concern. ii) Nature of Business to be Considered: Secondly, nature of business should be considered because if business concern to which we are giving loan related with that industry which is not growing and declining and we sanction loan to that concern would lead to definite bad debts. So if we examine the nature of business properly and make sure about its growing trend, then loans can be sanctioned to that concern. iii) Bank References: By correspondence BAL makes confirm to send letters to various banks in order to know about client's record/dealing with them. If they give proper information about client then decision made for loan becomes more strong and healthy. iv) Plant Visit: This is another source of evaluating client. In this technique credit department team visit the plant of concern to assure that plant is actually in a position to get market value as which mentioned in Balance Sheet. To get real picture of that business is obtained through personal visit. v) Credit Rating: From various credit rating agencies reports are obtained which show the past record of that firm regarding the paying capacity and dealing to discharge liabilities. If credit rating is good enough then that symptom will also lead to sanction loan. vi) Report From SBP:

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From State Bank of Pakistan, report is required regarding that client. SBP has record of every client past and present scenario. So it is essential to examine that report. However, some other techniques are also used to evaluate the performance of business like, credit vetting and information from peer concerns. After this appropriate examination, credit department makes credit appraisal report and sends to head office corporate division (Credit Division) for sanctioning that amount to concern.

Processing of a credit line proposal form When client fills the credit line proposal form for getting loan. Then credit officer conducts financial statements analysis and with his own views statement refer to head office for sanctioning credit limit. Businessmen make arrangement with banks for credit line, which is used for future needs. They pay some commission on that fixed credit line. In this way, they secure their money for future working capital requirements.

Principle of lending Before describing principles of lending basic considerations in primary evaluation of credit proposal is necessary to be mentioned here. i) Purpose of Facility: -

Should be Legally/Morally Valid/Legitimate.

-

Should conform to the Bank's Credit Policy guidelines.

-

Should conform to the guidelines provided by the State Bank of Pakistan.

-

Should be geared towards meeting national economic priorities.

ii) Amount of Facility: -

Should be within the actual requirements of the borrower.

-

Should be such that the principle of maintaining a diversified portfolio is not sacrificed,

without any extra ordinary considerations. -

Customer should not be working on borrowed capital only, there should be substantial

own stake of the customer.

iii) Period of Facility: 67

-

Should match the availability of resources.

-

Should conform to the bank's policies/guidelines.

-

Should conform to the actual requirements of the customer.

iv) Repayment: -

Period of repayment should be specific and should match the cash flow of customer's business.

-

Primary and secondary sources of repayment should be specifically identified.

v) Security: -

The facility should be fully secured, in light of security and margin requirements

determined by the bank and the SBP. vi) Market Reputation: -

The customer should have good market reputation & standing.

Now we will discuss on the principles of lending. Based on the aforementioned considerations, following principles of lending have been evolved. 1) SAFETY Covering the elements of character, capacity, capital, and security offered/held. Security should be identifiable, enforceable, realizable and valuable, in order to ensure safety of the facilities committed. i. The borrower should have impeccable character market standing and reputation. He should be reliable and dependable for meeting his commitments and the terms of the facility. ii. The capacity or capability of the borrower to manage his business and generate enough profits and cash flows to meet his commitments for repayments and debt servicing is of pivotal importance. iii. By capital is meant the monetary worth of the customer and his own resource base.

2) LIQUIDITY 68

i. Covering the element of capability to liquidate or repay on maturity and also prior to maturity, in case of need, Ask how "Liquid a loan is, not just how good". ii. Does he have an identified primary liquid source of repayment? This will determine his ability to repay the bank's facilities. iii. It is also important to determine the amount that can be lent as a one time transaction or as a continuing credit line, depending upon customer's requirements, capacity to repay, trade cycle, business turnover, cash flows and the regulatory guidelines.

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

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

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

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

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

Documents required 69

Documents we mean those papers which are essential to provide facility. In this connection, following are the documents in case three types of business concerns: In case of sole proprietorship i) Security/lien paper ii) Collateral iii) Demand promissory note. iv) Letter of continuity. v) I.D card In case of partnership i) Security/lien paper ii) Collateral iii) Demand promissory note. iv) Letter of continuity. v)

Partnership deed.

In case of cooperation (private limited) i) Personal Guarantee (Director) ii) Charge Registration form (form 10). iii) Memorandum & Articles of Association etc.

Creation of charges When an asset/property is identified as a security against facility in an agreement or document creating a borrowing relationship, a charge is said to have been created. This charge can either be registered formally or remain unregistered. A registered charge obviously provides a higher degree of security. A charge can be further classified according to its ranking, in the event of default or liquidation. Thus it can be a First Charge, in case a lender's right of appropriation of the property or its rates proceeds, in the event of default/liquidation, is prior to any other lender's right. Similarly there can be second or subsequent charge-holder would be entitled to recover his dues only after the first charge-holder's dues are settled.

Monitoring/renewal of credit facility 70

When credit team sanctions some loans to different clients then it becomes essential for it to monitor the affairs of credit given to them, any during such period if customer wants to extend his loan by accepting some other conditions from credit team, then role of credit officer is very important to monitor such affairs. However, this team looks after the condition of his business as the repayment with markup amount can be assured to get. If this feels that such concern is not doing well from certain period, then it would take some measures to get loan back with markup immediately and restrict to sanction loan further. Personal visits are also made by credit team as to know the actual worth of property asset mentioned or deposited for security.

Application of Mark-up Markup is like interest rate, but it describes some what different from interest rate. Entire interest rate was received by borrower either loosing or gaining but in markup bank purchases goods from borrower by lending money on the terms of repurchase the goods by banks from customer. In this way, bank gains some amount on sold goods and makes sure to its receipts. From following calculation of mark up we can understand the application of mark up. Mark up

=

PxRxD 365

3.7 CREDIT CARD DEPARTMENT 71

There are two Types of Credit Card. •

MASTER

•

VISA

Further types of Visa Card:Bank Al-Falah visa card offering five types of cards. •

Visa Gold

•

Visa Classic

•

Visa Classic Blue

•

Women Exclusive

•

Al-Falah Mini

Documents Required •

Copy of NIC

•

Computerized personal bank statement (on bank letter head in original) for last six month.

•

Partnership deed & personal account statements of the partners (if any) for last six month.

•

Bank letter / certificate confirming Proprietorship.

•

Memorandum / Articles of Association /Form A.

•

Financial Statements

•

Recognized professional degree / membership certificate to professional association.

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3.9 TRADE FINANCE DEPARTMENT Trade Finance involves the import and export activities. This department provides protection to the rights of importer and exporter. The function of this department is to serve as a bridge between the importer and exporter in order to settle a transaction. Trade Finance Department handles two activities:•

Import

•

Export

Import Import Department of BAL deals with the import of merchandise. Import can be defined as: “The bringing of commodities into Pakistan from outside by sea, land or air.” Requirement for the Importer:These requirement / document must be fulfilled from importer before doing the import: NTN  Sale Registration Certificate  Membership from Chamber Of Commerce Methods of Doing Import  Letter of Credit  Contract  Advance Payment  Open Account

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Import Process  An L/C form is filled.  The customer prepares insurance document from any insurance company.  Filled the SBP Application form that is called Appendix B.  Performa Invoice is Prepared.  Undertaking from the customer on letter Head.  Prepare four copies of Form I (Form I explain the detail of import that are helpful for the SBP.  Approval From Area Office  Prepare voucher and make entries in the system.  Preparation of L/C  These forms are then sent to the Swift Centre of BAL.

Exports Exports are major sources of earning foreign exchange and play an important role in the economic development of the country. It helps to utilize excess resources of the country. “Exports mean selling goods to another country.” Exports of all eligible commodities through authorized banking channels are admissible under exchange control regulation. Requirement for the Exporter:These requirement / document must be fulfilled from exporter before doing the export: NTN  Sale Registration Certificate  Membership from Chamber Of Commerce As well as the market stability, reputation, financial position of the exporter is first of all checked. 74

Documents to Be Attached For Export  Commercial Invoice  Bill of lading  Packing list (a) Total quantity (b) Net weight/carton (c) Gross weight/carton (d) Total net weight/carton (e) Total gross weight  Bill of exchange (original or draft)  E-form: Initial document on which total export proceeding is based. In this form, all the conditions are given, which are necessary for exports.  Letter of credit: It is written agreement between importer and exporter.  Certificate of Origin (Form –A)  Insurance (if any)

Procedure: Receipt of Letter Of Credit:  Issuance of E-Forms that is verified by an authorized signatory. There are four copies of it.

Copies of E-Form  Original: is sent to the custom officer  Duplicate: Bank receive the duplicate  Triplicate: is sent to the State Bank Of Pakistan  Quadruplicate: is kept by the exporter for his personal record.  Verification of E-Form  Export Documents  Scrutiny Of The Documents  Dispatch  Realization of Export Proceeds.

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3.10 ISLAMIC BANKING DEPARTMENT A key feature of Islamic banking is that unlike conventional banks which deal primarily in money and financial securities, Islamic financing is related to an asset that is a feature of the transaction, and quite often the principal feature itself. From this springs an important distinguishing feature of Islam wherein Islamic financing is always based on illiquid assets that have intrinsic value. Profit to Islamic financing is generated through bonafide sale of these assets. Conventional banking, on the other hand, is free of such limitations. It lends money and makes its earnings through this act of lending. Its earnings are unconcerned with the economic fate of its lending.

Principle Islamic Instruments Musharakah: Musharakah is one of the two ideal modes of Islamic financing. The other one being Mudarabah. Musharakah is a contractual relationship formed through mutual consent of the parties for sharing of profits and losses in a joint venture. Assets in the venture are jointly owned in proportion to each partner’s contribution. The profits are shared in a preagreed ratio. Losses, however, are incurred in proportion to each partner’s investment. Islamic Bank representing share of its depositors invests funds in the joint venture along side other investor(s). Mudarabah: Like Musharakah, Mudarabah is also a form of partnership. Whereas all partners in Musharakah contribute capital, under Mudarabah partnership is formed between provider of capital and provider of expertise or human resource. Proportions for sharing profit are

76

decided upfront. Losses are incurred solely by the partner contributing capital.

Murabaha: Murabaha is a non-participatory mode of Islamic financing where the bank sells the asset required by its client to the client on cost-plus basis. The asset is first purchased by the bank and the bank incurs the risk of any loss or damage to the asset as long as the asset remains under its ownership. Upon sale of the asset, the Islamic bank is obligated to inform the client of the exact cost incurred in the purchase of the asset and the margin of profit incorporated in the sale price. Payment by the client of the sale price may be deferred in which case it would become Muajjal. The selling price once agreed cannot be changed

even

when

the

client

fails

to

pay

on

the

agreed

date.

Ijara Under this facility a client may take on rent, property, vehicle or any other real asset belonging to the bank. The bank transfers the right of use of the asset to the client, while retaining the ownership of the asset. The client pays periodic rent to the bank for the use of the asset. Basis for rentals can be fixed as well as floating. Any change is rental may be made through mutual consent.

Salam Salam is a contract of advanced payment against deferred delivery of goods. Goods paid for in advance by the buyer are delivered by the seller after an interval of time. The Seller receives in advance fully paid price of the goods at the time of contract undertaking to deliver the goods specified by the buyer at a future date.

Istisna

77

Manufacture of a specific product against precise specifications by a manufacturer for delivery to buyer. It is necessary that the price of the product and product specifications are fully agreed upon by the manufacturer and the buyer, and that the material required for manufacture is arranged by the manufacturer.

Chapter # 4 Financial & SWOT Analysis

78

79

80

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4.2 RATIO ANALYSES Ratio simply means one number expressed in terms of another. A ration is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. It is defined as a systematic use of ration to interpret the financial statements so that the strengths and weaknesses of a firm, as well as historical performance and current financial condition, can be determined. Ratios can assist management, in its basic functions of forecasting, planning, coordination control and communications. The ratios are helpful in deciding about their efficiency or otherwise in the part and likely performance in the future. The basis of ratio analyses is to compare the performance of there companies and with the industry.

Purpose: The purpose of ratio analysis depends upon the event for which the analysis is made. The following paragraph briefly explains the purpose of ratio analysis. “Management” would like to know about the operational efficiency and would think of such ratios as return on investment, turnover of fixed assets, and net profit to sales etc. While “Creditors” would like to know the ability of the company to meet its current obligations and therefore, would think of current and liquid ratios, turnover of receivables, coverage of interest by the level of earnings, etc. and on the other side, “Investors” will be interested in such ratios as earnings per share, book value per share and dividends per share etc.

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ACTIVITY RATIOS: Activity ratios show that how efficiently an organization is using its resources. 1. Total Asset Turnover = Sales (Revenue) / Total Assets 8 7 6

YearTotal Asset Turnover20043.620054.9 20067.620077.8

5 4

Total Asset Turnover

3 2 1 0 2004

2005

2006

2007

Total asset turnover indicates the efficiency with which firm uses it assets to generate sales (revenue). The higher the firm’s total assets turnover the more efficiently its assets have been used. This measure is probably of greatest interest to management, because it indicates whether the firm’s operations have been financially efficient.In last four years Total Asset Turnover has become double and its shows increasing trend, so it’s good sign and shows that bank using its assets efficiently.

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DEBT RATIO: Debt ratios tell us about the firm’s overall debt position and as well as it mixes of equity and debt. These ratios will also give general idea about the level of financial risk faced by firm. 1. Debt Ratio = Total Liabilities / Total Assets Year 2004 2005 2006 2007

Debt Ratio 0.97 0.97 0.96 0.95

0.97 0.965 0.96 0.955

Debt Ratio

0.95 0.945 0.94 2004

2005

2006

2007

This ratio measures the portion of total assets financed by the firm’s creditors. Higher this ratio, the greater the amount of other people’s money being used in an attempt to generate profits. Even though debt ratio is in decreasing trend but this ratio is very high. Higher this ratio means higher the financial risk so it’s a negative sign for bank.

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PROFITABILITY RATIOS: Profitability ratios relate profit to sales and investments. These ratios indicate the firm’s overall effectiveness of operations and give us idea how well firm utilized its resources in generating profit and shareholder value.

1. Operating Profit Margin: = (Operating Profit / (Sales))*100

2004

Operating Profit Margin 29.41%

2005 2006 2007

20.92% 12.10% 26.89%

Year

30 25 20 15

Operating Profit Margin

10 5 0 2004

2005

2006

2007

Operating profit margin measures the percentage of sales revenue remaining after all cost and expenses other than interest and taxes are deducted. Operating profits measures only the profit earned on operations and ignore any financial and government charges. Operating profit margin showing decline significantly in 2006 but after that bank performs well and it increased up to 14 % in a year,

85

2. Net Profit Margin = (Net Profit after Tax / (Sales))*100 20

YearNet Profit Margin200419.14% 200513.89%2006 8.31%200712.14%

15 10

Net Profit Margin

5 0 2004

2005

2006

2007

Net profit margin measures the percentage of sales revenue remaining after all cost and expenses, including interest and taxes have been deducted. Net profit margin shows positive trend in last year and its shows that bank is performing well and earning good profit.

3. Return on Equity (ROE) = (Net Profit after Tax / Shareholder’s Equity)*100

Year 2003 2004 2005 2006 2007

Return on Equity 79.08% 26.89% 30.65% 20.37% 25.72%

80 60 40

ROE

20 0 2003

2004

2005

2006

2007

ROE measures the shareholder’s return earned on their investment in the firm. This ratio indicates how profitable a company is by comparing its net income to its average shareholder’s equity. For last four years ROE showing mixed trend but it’s increased in last year by 5% and it is positive sign for bank

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

Year 2003* 2004 2005 2006 2007

Return on Assets 2.59% 0.86% 0.84% 0.67% 1.04%

3 2.5 2 1.5 1 0.5 0

ROA

2003

2004

2005

2006

2007

This ratio also called Return on Investment (ROI), measures the firm’s overall effectiveness in generating profits with its available assets. This ratio indicates how well management is utilizing firm’s assets to make profit. ROA shows decreasing trend in starts but it increase in last year and showing positive sign for bank.

* Due to the unavailability of data regarding 2003, I am unable to calculate all the ratios of year 2003. Some of them provided here are not calculated by me. These ratios obtain from Bank’s annual reports of 2007 financial highlight portion.

.

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5. Gross Spread Ratio = Net Mark up Income / Gross Mark up Income

60 50

YearGross Spread Ratio200349.71% 200456.69%2005 41.17%200628.12% 200735.54%

40 30 20

Gross Spread Ratio

10 0 2003 2004 2005 2006 2007

Gross Spread ratio shows an increase of about 7% in 2007 as compared to 2006 which is good indication that bank has performed better regarding its earning of interest. But analysis of previous years shows significant decline in ratio.

6. Income / Expense Ratio = Total Income / Operating Expenses 7. 5 4

YearIncome / Exp Ratio20034.1220042.67 20053.3420064.132007 3.84

3 Interest / Expense Ratio

2 1 0 2003 2004 2005 2006 2007

Income expense ratio tells us that how much income the bank is generating by vesting every one rupee. The calculated ratio tells us that bank was generating 4.12 rupees at cost of one rupee in 2003 and this ratio declines to 3.84 in 2007.

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8. Advances to Total Deposit = Advances / Total Deposit

Year 2003 2004 2005 2006 2007

Advances to Deposit 64.17% 68.56% 53.46% 62.63% 62.67%

5 4 3 Interest / Expense Ratio

2 1 0 2003 2004 2005 2006 2007

This ratio is bank’s financial ratio which is used to test the company financial position by keeping in view its advances and deposits. Strength of bank is judged that how much bank is capable to grasp the saving of people and how many people are interesting to take loan facility from bank as profit of bank depends on higher advances and advances comes from deposits of customers. This ratio tells that for every one rupee of deposits how much is advanced to others. In 2005 the Bank faces a decline in advances as proportion to its deposits of about 15%. But in last two years this ratio showing a pleasing trend which indicates that bank is using deposits efficiently.

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MARKET RATIOS: 1. Book value per Share = Total Shareholder’s Equity / No. of Outstanding Shares

Book value Per Share 18.77 17.48 22.46 21.15 21.18

Year 2003 2004 2005 2006 2007 5 4 3

Interest / Expense Ratio

2 1 0 2003

2004

2005 2006

2007

Book value is of limited to the investment analyst since it is based on historical costs. Book value per share is showing mix trend but for last two year it’s almost constant.

2. Earning Per Share (EPS) = Earning / No. of Outstanding Shares

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Year 2003 2004 2005 2006 2007

EPS(Rs) 8.49 3.90 3.92 2.91 4.82

8 6 EPS

4 2 0 2003

90

2004

2005

2006

2007

The firm’s EPS are generally of interest to present shareholders. EPS represent the earning on behalf of each outstanding share of common stock. EPS increased in 2007 significantly as compared to last year.

Summary of Ratio Analysis Ratios

2004

2005

2006

2007

7.6

7.8

0.96

0.95

Activity Ratio Total asset Turnover

3.6

4.9

Debt Ratio Debt Ratio

0.97

0.97

Profitability Ratios Operating Profit Margin

29.41%

20.92%

12.10%

17.59%

Net Profit Margin

19.14%

13.89%

8.31%

12.14%

0.86%

0.84%

0.67%

1.04%

26.89%

30.65%

20.37%

25.72%

56.96%

41.17%

28.12%

35.54%

2.67

3.34

4.13

3.84

68.56%

53.46%

62.63%

62.67%

Return on Asset ratio (ROA) Return on Equity (ROE) Gross spread Ratio Income Expense ratio Advances to Deposits

Market Ratio 91

Book Value per Share Earning per Share (Rs)

17.48

22.46

21.15

21.18

3.90

3.92

2.91

4.82

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

4.3.1 Strengths: Main strengths of bank are describe follows due to which bank is becoming successful day by day and now is on the fifth largest and successful bank in Pakistan in the bank’s ranking after NBP, MCB, UBL and HBL.

 Being the private organization its main aim is not to earn profit but also to satisfy its customers and slogan of BAL is also the representative of this purpose as Bank Alfalah “The Caring Bank”.

 Bank has AA (Double A) and A1+ (A one plus) Credit Rating for long term and short term loans respectively.  Main source of profit for any financial institution is public saving which only comes from public confidence and BAL is getting this confidence which is one of the main strengths of bank.

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 Bank Alfalah is also getting fame in the market due to its name “ALFALAH” which is leaving the Islamic and favorable impact on the minds of public.  Consumer survey has selected Alfalah credit cards as the best product in the market with the attribute of Affordability.  BAL is providing the facility of Money Gram to its entire people who are its customer or not and through this service it has got the leadership in Money Gram because any other bank is not offering this service.  With in very short period it has got a superb accomplishment which shows the competency of top management.

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

4.3.3 Opportunities: It is mandatory to try to make progress with consistency as well as to adopt changes with needs of time, in order to cope up with both conditions.  Bank Alfalah is spreading its network outside the boundaries of Pakistan and it has more opportunities to extend this network as State Bank of Pakistan has prescribed new policies in the prudential regulations.

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 In addition to excellent routine banking, it has earned a good name by offering special products like car, home and credit cards facility. So the penetration of these products could enhance market shares.  As BAL is providing the facility of Islamic banking through its separate branches, there’s a great chance to enhance its market share

4.3.4 Threats: Threats are the negative trends in external environmental factors.

As on one side

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

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Chapter # 5 Experience as Internee

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5.1 LEARNING AS AN INTRENEE I did my internship in Bank Al-Falah kachahri road branch M.B.DIN. This internship started on 10th July and ended on 21st August. It is not a very big branch but only a small retail branch of big giants... It is a new branch and working there for the customers for almost two years. First day, I reported to the manager of the branch Mr. Zafar Ullah who gave me brief introduction about the management and working of the branch, he also check my knowledge about banking by taking a little test and interview. He has also taken a Computer Test from. Then he introduced me to the other employees.

MANAGEMENT OF BRANCH DESIGNATION

NO OF EMPLOYEES

Branch Manger Operation Manager Credit Manager Officer Range I Officer Range II Officer Range III Cashier System Administrator

01 01 01 05 05 02 04 01

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Telephone Operator Gun Man Peons

01 03 03

From A/c Opening Department This Branch is having about 2000 accounts but there was only one officer, Mr. Muhammad Waseem Qaiser to handle this tough work. He has to deal different people. My experience in this department was really very good. I learnt how to handle different customers, how to fill Account Opening Form, what are the required documents that should be with you in order to open an account, what types of account Bank Al-Falah is offering to the customers, what are the facilities that an account Holder can enjoy and what are the profit rates Bank Al-Falah is giving to its customers. I have learnt the procedure that an Account Opening Officer has to follow in order to open and maintain an Account.

From Accounts & Finance Department There were two officers in this department; Mr. Atif and Mr. Nouman They have divided their work between them. Mr. Atif handles Reporting and Mr. Nouman handles daily activity checking. I used to help Mr. Nouman in Daily Activity checking, sorting and counting of vouchers and how to calculate the deprecations of all fixed assets. I learnt from Mr. Atif the items of the Balance Sheet of Bank and saw the format of different reports. He helped me to understand his work. He told me about the reports that he has to prepare & the purpose of those reports. It was one of those Departments in which Customer interaction is not involve rather paper interaction is important. In Home Finance there was one officer – Mr. Kashif. I saw few customers in this department. I learnt what the debt to equity ratio is in Home Finance, how to calculate installment, what are the documents required to get this product, what the eligible criterion is for Home Finance Agreement, and what is the procedure and activities of this department. What are requirement to apply for this Finance, what is that maximum limit.

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From the Car Finance Department One officer in this department, whose name was Mr. Shakeel used to sit the second floor of the branch. Although the Kachahri Road Branch was small but still the demand for financed cars through Bank Al-Falah lead this department to prosperity. This department handles a large number of customers daily and, without overstatement; this department is the third “busiest” department after the Account Opening Department. It requires constant customer interaction and requires high level of intelligence to screen the validity of the customers. Where as sound marketing skills are required to actually force the walk-in customer to select Al-Falah Car Financing, still stronger skills are needed to scan the incoming customer for validity. I learnt how to face the customers conveniently, how roper files should be maintained, how to apply for a car, what are requirement to apply for this Product, what is that maximum limit, what is the procedure to this department.

5.2 Recommendations: After doing internship of six weeks in Bank Alfalah Limited, I would like to give some recommendations to count over some problems.  Bank should prefer to hire worker on the basis of their talent and avoid going for reference based hiring. It can be harmful for the organization in the long run.  In Bank Alfalah, there is misdistribution of work; some people are over burdened with the work. So I suggest that there should be fair distribution of work in all the departments.  Management should not only hire new employees for relaxing other workers but they also should decrease working hours and should encourage late sitting of employees in bank.

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 Bank Alfalah is only dealing in Money Gram; it should also starting providing the service of other money transfer lines like Western Union.  BAL should provide loan to students at low mark up rate and easy terms & conditions.  Bank Alfalah should use electronic media to increase awareness of its products in general public.

RFERENCES Web References:  www.bankalfalah.com.pk  www.wekipedia.com

Book References: Lawrence J. Gitman Principal of Financial Management (9th Edition) James C. Van Horne Fundamentals of Financial Management (11th Edition)

Persons References:  Bank Employees

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