Professional Documents
Culture Documents
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Table of Content
TABLE OF CONTENT...................................................................................................................1
1 INTRODUCTION:.....................................................................................................4
1.1 EXECUTIVE SUMMARY: ..................................................................................... ..............4 1.2 OBJECTIVES OF STUDYING THE ORGANIZATION...................................................... ...4
3 ORGANIZATIONAL STRUCTURE........................................................................15
3.1 MAIN OFFICES........................................................................................................ .........15
5 CRITICAL ANALYSIS............................................................................................18
5.1 CRITICAL ANALYSIS OF THE PRACTICAL EXPOSURE RELATING TO THEORETICAL CONCEPTS................................................................................................... ..............18
5.1.1 COMPUTER SYSTEM........................................................................................................18 5.1.2 RIGHT PERSON FOR RIGHT JOB....................................................................................18 5.1.3 CUSTOMER PROBLEM.....................................................................................................18 5.1.4 DEFICIENCY IN MANAGEMENT.......................................................................................18
6 INDUSTRIAL ANALYSIS.......................................................................................32
6.1 OVERVIEW ON THE MAJOR PLAYERS OF BANK INDUSTRY.....................................32 6.2 COMPARISON OF THE BANK INDUSTRY MAJOR VS MEDIUM VS SMALL BANKS....33
7.1.16 TECHNOLOGICAL ADVANCEMENT...............................................................................37 7.1.17 STAFF RELATIONSHIP....................................................................................................37 7.1.18 IMPROPER DISTRIBUTION OF WORK..........................................................................37 7.1.19 FAVOURITISM AND NEPOTISM......................................................................................37 7.1.20 INTER DEPARTMENTAL TRANSFER.............................................................................38 7.1.21 MARKETING POLICY......................................................................................................38 7.1.22 COMPLAINTS OF CUSTOMER.......................................................................................38 7.1.23 ORGANIZATIONAL COMMITMENT.................................................................................38 7.1.24 CREDIT MONITORING ...................................................................................................38 7.1.25 EXTENDED BANKING HOURS.......................................................................................38 7.1.26 HOUSING AND HOUSE HOLD GOODS LOANS............................................................39 7.1.27 AVOIDING BAD DEBTS...................................................................................................39
8 CONCLUSIONS.....................................................................................................40 9 REFERENCES.......................................................................................................40
1 Introduction:
1.1 Executive Summary:
I have done my internship at The Bank of Punjab, Khanewal road branch Multan. There are four departments in the branch, and I worked as an assistant in that branch. For the first two weeks I worked in deposit department under the supervision of Mr. Arshad, where I have to perform following tasks: Entering information in KYC (know your customer) forms. Scanning and arranging specimen signature cards. Inform customer of essential conditions under which the account will be operated.
Afterwards I have learnt about vouchers, checking of vouchers is essential to confirm that correct calculation has been done. Vouchers are properly bind sealed, and checking by the manager. I have checked the following things: The check should not be post-dated/anti-dated. Amount in words and figures tallies. Cash paid stamps (with dates) are duly affixed in case of cash cheques and in case of clearing stamps is affixed. Cutting/over writings are duly authenticated by the account holder, etc
Then another task for me was issuing of cheques books. It is one of the most interesting works that I have learnt in the bank. Cheques books should be issued only after all the formalities of the account opening forms, which have been checked by the branch manager. Maintaining Dispatch register and Inward Mailing register was also included in duties assigned to me. I also used to help different employees in their work. My work timings were from 9am to 5pm, six days in a week.
1.2
2.Comparison of the assets of organization with other organizations. 3.Policies followed by the organization enforced through laws of SBP. 4.Study the facilities provided by the organization to common public in various forms. 5.To study the terms & conditions for fringe benefits provided to employees of the organization at the age of superannuation. 6.To get MBA (Masters in Business Administration) degree. 7.To apply theoretical concepts in practical aspects.
Reserve bank also refused to advance money to Pakistan to make essential payments such as salaries etc, also Pakistans share of Rs.75 billion in cash balance was with held by bank, causing hardships to the newly born state. In view of these hopeless state affairs it was agreed between the two countries that reserve bank would serve as monetary authority in Pakistan only up to 30th June 1948.
2.1.1
Nationalization of Banks
The principle of nationalization of banks is to stream line the operation of commercial banks in such a
way that it may be conductive to the development activities in process in the country. Since the commercial banks were owned controlled by big business groups of the country it was feared that these banks would not maintain uniformity in their operational and would be instrumental to inflationary pressure. However, the considerations behind nationalization are 1.To form uniformity in the policy of the commercial banks so they may serve the best national interest. 2.To make the operation of commercial banks highly sensitive and responsive to the policy of the government relation to financial matters. 3.To make the credit policy of the commercial banks more purpose full and effective especially in the development of economic sectors of the country. It acts as an agent of the State Bank of Pakistan 4.To make the best use of the funds available at the disposal of these banks for the economic development of the country. 5.To eliminate unhealthy and uneconomic competition among commercial banks. 6.To development strong money banks market in the country so that the value of currency may be maintained at stable level both in national facilities to exporter and agriculturists which have not been satisfactory in the past years. Table 1: Public Sector Commercial Banks Askari Bank First Women Bank Limited The Bank of Khyber ASKARI BANK FWB KB
The Bank of Punjab Table 2: Local Private Banks Askari Commercial Bank Limited Bank Al-Falah Limited Bank Al Habib Limited Bolan Bank Limited Faysal Bank Limited Saudi Pak Commercial Bank Ltd Soneri Bank Limited Union Bank Limited Muslim Commercial Bank Limited Allied Bank of Pakistan Union Bank Limited
BOP
Table 3: Foreign Banks ABN Amro Bank CITI Bank Habib Bank A. G. Zurich Mashreq Bank PJSC Oman Bank Rupali Bank Standard Chartered Bank
Table 4: Specialized Banks Zari Tarqiati Bank Ltd. Industrial Development Bank of Pakistan Punjab Provincial Cooperative Bank Limited
2.2
The Bank of Punjab is working as a scheduled commercial bank with a network of almost 280 branches at all over major locations in the Punjab. The Bank provides all types of banking services such as Deposits in Local Currency and client foreign currency, remittances, and advances to business, trade, industry and agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. The bank offers attractive rates of profit on all deposits, opening of foreign currency accounts and handling of foreign exchange business for example imports, exports and remittances, financing, trade and industry for working capital requirements and money market operations. The lending policy of bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security.
Source: http://www.bop.com.pk/
2.2.1
Mission Statement
To exceed the expectations of our stakeholders by leveraging our relationship with the government of Punjab and delivering a complete range of professional solutions with a focus on program driven products and services in the agriculture and middle tire markets through a motivated team.
Source: http://www.bop.com.pk/
2.2.2
Vision Statement
2.2.3
Business Volume
These are the quick facts of the business in October 2007. At that instant BOPs business volume is as under.
Business Volume in terms of Investment, Current & Fixed Assets, Share Capital, Revenues, Deposits, Advances, Income, and EPS for the last 5 years is as under:
2003 Total assets Revenue Shareholder's Equity Investment Deposits Advances (net) RS (M) RS (M) RS (M) RS (M) RS (M) RS (M) 43,621 3,675 3052 11,458 34,938 18,344
RS (M) Rs %
831 6.86 7
1,368 9.08 8
2,353 10.01 13
3,804 13.14 13
4,446 10.51 6
Over last five years, Pakistan economy grown with real pace. Because of which record growth in Banking sector.
450,000 400,000 350,000 300,000 Rs. (M) 250,000 200,000
BalanceSheet Overview
15,110
10,659
191,968
137,728
3052 54,724 34,938 43,621 2003 66,320 2004 Total Assets Deposits 111,154 164,855
234,974
2005
2006
2007
Shareholder's Equity
18,603
5,488
1,368
26562
1,736
3,165
3,804
4,846
4,769
2003
2006 Income
2007
4,446
Source: http://www.bop.com.pk/
2.2.4
2.2.4.1 Staff Strength The total number of employees in the organization is 3859. Which is increasing. Regular hirings are taking place.
4,500 4,000 3,500 3,000 Numbers 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 Staff Strength 2006 3,019 3,144 3,430 3,681
3,859
2007
2.2.4.2
Board of Directors (BOP) CHAIRMAN ACTING PRESIDENT DIRECTOR DIRECTOR DIRECTOR DIRECTOR DIRECTOR
01 02 03 04 05 06 07
MR. JAVED MAHMOOD MR. SAJJAD HUSSAIN MR. SOHAIL AHMAD MR. ALMAN ASLAM MR. ANEEQ KHAWAR MR. SHAFQAT ELLAHI MR. SHAFQAT MAHMOOD
01
2.2.4.3
2.2.4.4
Total number of employees in Khanewal Road branch where I did my internship is eleven. The branch was headed by Branch manager Mr Manzoor Hussain Maher. The flow of responsibilities and designations are shown in managements hierarchy.
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Credit
Remittances
Advances
Foreign Trade
Short-term loans
Import
Mortgage Loans
Export
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2.2.5
Products
CONSUMER PRODUCTS
2.2.5.1
These types of accounts are designed to encourage the saving habit of the customer and lead to long term or invest relationship. Bank saving account are in the nature of deposit accounts and are not normally available for drawings. Rates of interest are typically ahead, by a small margin. Savings accounts with the banking sector represent a very small proportion of total deposits. Customer can make withdrawals from this type of account. The cash reserve ratio is typically low then the current account because the withdrawals against this account are very low. 2. CURRENT OR DEMAND ACCOUNT
These are those deposits, which can be drawn by the depositor at any time by representing a cheque to the bank. People deposits their money in this account they gave a ready command on their account in developed countries of world, a very significant part of money is kept under current or demand account. On this type of account of interest transfer of cash or by at sight. The cash reserve ratio for his account is very high. The operating cost for the handling of this type of account is very regular. 3. FIXED OR TERMS ACCOUNT
Fixed accounts are those which are deposited for a fixed period of time and repayable after the expiry of stipulated time to the customer. Those people who have surplus funds and want to have save investment deposit the amount in the fixed account. The rate of interest given to depositor varies with the length of deposit, i-e. It is higher for longer period and lower for shorter period. The rate of this type of deposits is higher the saving bank accounts. The cash reserve against this deposit are vary low because there no fear of with draw of a month before the stipulated of time.
2.2.5.2
FINANCE PRODUCTS
1. Agriculture Schemes 2. Business Promotion Finance Schemes 1. Agriculture Schemes There are many agriculture promotion schemes provided by BOP.
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Kissan Dost Agricultural Finance Scheme Kissan Dost Tractor Finance scheme Kissan Dost Aabiari Scheme Kissan Dost Mechanization Support Scheme Kissan Dost Farm Transport Scheme Kissan Dost Eslah-E-Arazi Scheme Kissan Dost Live Stock Development Scheme Kissan Dost Live Stock Scheme
Such type of schemes provides farmers a real plate form to accelerate. Some facilities given by Kissan Dost Agricultural finance scheme are: - Purpose Provision of financial facility to farmers for purchase of inputs (Seed, fertilizer, pesticides, fungicides etc). - Amount Maximum of Rs.500000 according to per acre limit of the crop. - Security Charge on Agriculture Land through Agriculture Pass Book. - Insurance The borrower will have to arrange life assurance under the Banks charge. - Mark-up 9% mark-up per Annum. 2. Business Promotion Finance Schemes BOP Quick Cash BOP Car Loan BOP House Loan BOP SME Loan BOP Assaish Loan BOP House Loan For Federal Govt
2.1. BOP CAR LOAN BOP car loan is a demand financing facility to purchase brand new locally manufactured/Assembled cars for personal use. This facility can be availed by salaried person of different nature and by the business persons. All must have the holdings of NIC. 2.2. BOP Aasaish Loan BOP Aasaish loan is demand finance facility for purchase of consumer durable goods like TV, Refrigerators, Mobiles, Microwave Oven, Fans, Audio/Video system etc with no down payment, in addition with the free
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home delivery. The financing tenure of this product is max 36 months. The nature of employment should be salaried or the business man.
2.3
SERVICES
These are the services provided by the BOP. ATM Facility Letter of Credit Pay Order On-Line Banking E-Banking Debit Card Consumer Financing Agriculture Financing Corporate Financing Commission free Remittance Demand Drafts Collection of Utility Lockers Facility
3.1. Automated Teller Machine (ATM) Through the ATMs Customers have access to the various services such as withdrawal, balance enquiry and mini statement? Complete security is ensured because access to the account is only possible by entering a four digit personal identification number (PIN) known only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card. 3.2. Online Banking BOP is currently offering window-based online banking to its customers, which gives access to information on their accounts and the liability to act on the latest information received over the net. 3.3. Lockers It is one of the utility services that BOP provides to their customers for keeping jewellery, important documents and other valuables. 3.4. Demand Drafts BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 3.5. Letters of Credit BOP is offering its business customers the widest range of option in the area of money transfer. BOPs letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter of credit is the best way to do the business transactions. 3.6. Pay Order BOP provides transfer of money using different facilities. Its pay orders are a secure and easy way to move the money from one place to another. The charges for this service are extremely competitive.
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3.7. Mail Transfer Moves money safely and quickly from BOP Mail Transfer service. The rates for this service is quiet impressive as compare to the market. 3.8. Short Term Investment BOP offers excellent rates of profit on all its short term investment accounts. The packages are starting from 3 months. BOPs rates of profit are extremely attractive, along with the security and service only BOP can provide. 3.9. Agricultural Finance It help farmers utilize funds efficiently to further develop and achieve better production. Provides farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.
2.4
3 Organizational Structure
3.1 Main Offices
Head Office and the main branch of BOP is in Gulberg 3, Lahore & Egerton, Lahore Respectively. The Bank has been divided into seven regions Each consisting a number of branches. Lahore Region Faisialabad Region Gujranwala Region Rawalpindi Region Karachi/Quetta Region Multan Region Peshawar Region
Rest are the branches working under these regions. Which are almost 270 in all over Pakistan.
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The management of BOP comprises of two types i.e. Chairmans Secretariat & President Secretariat. Chairmans secretariat deals with finance division. Mr Nadeem Amir is general manager of finance division of mentioned secretariat. The financial analyst related to BOP matters of chairmans secretariat is Mr. Masroor Zaigham. The manager of finance division is Mr. Muhammad Ijaz Aziz. Mr. Muhammad Arshad is the head of finance division of BOP. The finance department deals in authenticity of cheques, proper utilization of funds, preparation of day end statements, online banking, collection of mails, opening & closing account of customers & companies etc.
4.2
4.3
As the largest regional bank of Pakistan according to asset base with specialized in Agriculture has a large deposits with 80% from the rural areas of the Punjab. The Banks major source of funds is from the Public. Money Market
Figurative expression for the informal network of dealers and investors over which short-term debt securities are purchased and sold. Money market securities generally are highly liquid securities that mature in less than one year, typically in less than ninety days. Corporate treasuries and Government Institutions
Corporate sector is one of the major sources of funds in all types of Banking. All major organisations, financial institutions and government & private organisations are the major sources of the funds e.g., WAPDA.
4.4
4.4.1
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4.4.2
4.4.3
Agriculture financing
The bank provides adequate and timely financial assistance to the farmers to improve production potential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are all source of money for the bank.
4.4.4
E-Banking
The bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service.
4.4.5
Utility bills
The bank also makes possible the payment of electricity, gas and telephone bills for its customers charging some commission on each payment.
4.4.6
bank.
Lockers
Commission charged on lockers provided by bank for customers, is also a source of inflow for the
4.4.7
Consumer financing
Personal Finance, mortgage finance, business finance, smart cash, auto financing and travelers cheques are all sources of funds for the bank. The bank finances all these loans and facilities on competitive mark up rates.
4.4.8
Agriculture financing
The bank provides adequate and timely financial assistance to the farmers to improve production potential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are all source of money for the bank.
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5 Critical Analysis
5.1 Critical Analysis of the practical exposure relating to theoretical concepts
This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. So for a internee it is more important to learn new things which he/she has never heard about in his/her course book. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firms environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.
5.1.1
Computer system
The system has not totally shifted on computer. Manual procedure is still there hence computer facility is not fully availed. There should be a system at each counter for quick processing.
5.1.2
During my internship I have observed the person who has came as customer Relationship Officer was acting as Cashier. It should not be like this. The person should be posted according to his qualification, profession skills and experience.
5.1.3
Customer problem
People have to wait for en-cashing their cheques for about 10-20 minutes, which is not good for the reputation of bank, the delay is due to manual work. Therefore I suggest that computers and other electronic machines should be installed in bank so that time could be saved.
5.1.4
Deficiency in management
I felt at some places the BOP need to have employees, because a lot of work is to be done by a single employee that will result in work overload and employee might not perform his/her job with full devotion.
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5.2
Financial Analysis
To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years.
5.2.1
Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owners equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis.
5.2.2
5.2.2.1
Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets - Other assets Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans - Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Net Assets Represented By Share capital Reserves Unappropriated profit
14,054,859 3,722,089 11,846,823 28,233,211 101,319,954 2,068,744 3,609,457 164,855,137 856,448 6,989,424 137,727,606 40,988 298,616 2,816,341 148,729,423 16,125,714 2,902,490 4,537,232 3,219,246
14210302 1927662 2450000 73461695 133893585 3252759 5778192 234974195 937647 17842915 191968909 40321 2205530 2983079 215978401 18995794 4230379 7427232 3452842
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5.2.2.2
Income Statement Income Statement As of the year ended Dec 31, 2007 2006
2007 11,579,036 7,508,795 4,070,241 340,626 33,000 100 17,539,094 13,939,377 3,599,717 1,616,421 24,479 246,869 1,887,769 1,711,948 653,512 1,804,878 377,233 2,039,535
Rupees in 000 Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/ interest income Provision against non-performing loans and advances Provision for diminution in the value of investments Bad debts written off directly 373,726 Net mark-up/ interest income after provisions Non Mark-up/interest Income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale and redemption of securities Unrealized gain / (Loss) on revaluation of investments classified as held for trading Other income Total non-markup/interest income 6,650,904 Non Mark-up/interest Expenses Administrative expenses Provision against lending to financial institutions Provision against off balance sheet items Other charges Total non-markup/interest expenses Extra ordinary/unusual items Profit Before Taxation Taxation - Current - Prior years (19,921) - Deferred Profit After Taxation Unappropriated profit brought forward Transfer from surplus on revaluation of fixed assets net of tax Profit available for appropriation -
466,435 2,954,389
547,635 5,422,793 7,134,741 2,250,777 292 37,950 2,289,019 4,845,722 4,845,722 169,252 250,772 400,103 4,445,619 3,219,246 5,866 3,225,112 7,670,731
1,751,970 130,000 175 38 1,882,183 4,768,721 4,768,721 880,997 83,469 964,466 3,804,255 169,817 6,174 175,991 3,980,246
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Basic Earnings per share - Rupees Diluted Earnings per share - Rupees
9.01 9.01
10.51 10.51
5.2.2.3
Financial Business Summary (5Yrs) 2003 2004 2,555 719 1,836 1,097 1,150 47 1,736 1,368 2005 6,125 2,669 3,456 1,331 1,291 331 3,165 2,353 2006 11,579 7,509 4,070 2,954 1,882 374 4,769 3,804 2007 17,539 13,939 3,600 5,423 2,289 1,888 4,846 4,446
Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Balance Sheet Total Assets Advances (net) Investments Shareholders Equity Revaluation Reserve Deposits Borrowings from FIs
Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m
Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m
5.2.2.3.1
BOPs income statement for the last five years represents a high growth in it.
RS in Millions
25,000
20,000
Its all due to the increase in equity , and increase in the deposits of the bank. Rise in the Markup Interest earning income results rise up in the profit of bank represents increase in lending by the bank.
15,000
10,000
5,000
0 2003 Total Income/ Revenues 2004 Total Expenses 2005 2006 2007
5.2.2.3.2
200,000 Rs in Millions
150,000
100,000
50,000
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2003 2004 2005 Deposits 2006 2007
Total Assets
Investments
Shareholders Equity
Deposits are almost rose upto around 300% in last 5 years. As last 5 years were really good for banking sector. Assets of the banks are risen upto 400% particularly in 2007 just because of crescent towers.
5.2.3
5.2.3.1 Horizontal Analysis This type of analysis represents the percent change in specific line item of the Income statement or the balance sheet from the last year. This analysis is used to comment on the growth of specific line item in the industry or the firm.
2003 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Balance Sheet Total Assets Advances (net) Investments Shareholders Equity Revaluation Reserve Deposits Borrowings from FIs % % % % % % % % -24.399 -105.78 5 9.0678 54.994 4.09182 -575 56.8862 58.7808
2004
2005 58.2857 1 73.0610 7 46.875 17.5807 7 10.9217 7 85.8006 45.1500 8 41.8614 5 40.3350 3 38.0123 9 10.1409 1 34.7794 50.3989 6 38.1405 1 58.2977 5
2006 47.1025 1 64.4559 9 15.086 54.9424 5 31.4027 6 11.49733 33.6338 9 38.1440 6 32.5746 9 37.2049 36.1527 3 36.4199 3 -26.0838 35.7683 3 2.83302 3
2007
34.8728 32.6842 8 35.7298 5 24.2479 5 12.8695 7 82.9787 2 42.28111 49.6345 34.2264 8 53.4876 6 29.2628 7 30.9502 3 36.9698 7 36.1559 8 5.22598 9
% % % % % % %
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5.2.3.1.1
Total earnings mark-up & non mark-up were rising 33% from last year. As deposits and the lendings of the banks are rising up. Income Statement Administrative expenses are increased with a great pace in last few years because of high rate of inflation. Rise in expenses results decrease in the 22% percent profit from last year.
Percentage 180.00 160.00 140.00 120.00
5.2.3.1.2
Graphical Sheet)
Representation
(Balance
Total assets were increased in last few years. 22% increase in the assets from the last year represents growth in the Bank. As bank increase their paid up capital because of which SOE increase at the end of 2006. BOP is grabbing the confidence of their customers results increase in the deposits.
Balance Sheet
45.00 40.00 35.00 30.00 Percentage 25.00 20.00 15.00 10.00 5.00 0.00 2003 2004 Total Assets 2005 Shareholders Equity 2006 Deposits 2007
5.2.3.2 Vertical Analysis It represents the percent of a line item (expenses, tax, interests, dividends) impacts on total revenues.
2003 Markup/ return/ interest earned Non-markup based Income Markup/ return/ interest expenses Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax % % % % % % % 66.69 33.31 19.40 40.16 0.32 40.16 27.62
5.2.3.2.1
Graphical Representation
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Markup interest earned is increased because of increase in 30% lendings from the last year. Net profit before and after tax is decreased because of huge rise up in the admin expenses.
Vertical Analysis
90.00 80.00 70.00 60.00 %age 50.00 40.00 30.00 20.00 10.00 0.00 2003 2004 Markup/ return/ interest earned Markup/ return/ interest expenses Provision against NPLs Net profit after tax 2005 2006 Non-markup based Income Non-markup based expenses Net profit before tax 2007
5.2.4
Ratio Analysis
Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of BOP has been calculated: Ratios Gross spread ratio Profit before tax to total income Markup/ Interest cover ratio Profit after tax to total income Total assets turnover Return on avg total assets (after tax) Price earning ratio EPS (Non dilutive) Dividend per share Market value per share Capital adequacy Ratio No. of branches Staff Strength Gross margins Net margin Net Interest Margin Total revenue Equity / Assets RoE Cost/Income 5.2.4.1 % % times % times % times Rs./share Rs./share Rs./share % No. No. % % % % % % % 2003 71 49.8 5.15 34.26 0.06 1.88 5.09 6.86 2.5 34.95 15.5 241 3,019 4.00% 3.30% 3.23% 5.50% 11.60% 16.20% 49.80%
2004 72 59.19 5.08 46.65 0.06 2.49 7.25 9.08 4 65.9 12.83 253 3,144 3.51% 3.41% 3.34% 5.34% 11.90% 21.00% 38.10%
2005 56 66.11 2.79 49.16 0.07 2.65 10.23 10.01 5.2 102.45 12.78 266 3,430 4.19% 3.99% 3.90% 5.39% 12.10% 21.90% 26.90%
2006 35 67.89 1.94 54.16 0.09 2.76 7.71 13.14 3.25 101.25 10.09 266 3,681 3.10% 3.03% 2.95% 4.81% 10.80% 25.50% 26.40%
2007 21 53.71 1.65 49.27 0.1 2.22 9.31 10.51 3.5 97.8 9.69 272 3,859 3.30% 3.16% 3.09% 4.91% 10.30% 25.40% 24.70%
Gross spread ratio defines the total spread of interest between borrowing and lending. Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.
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2007
24
The higher the spread the higher will be the profit margin. GSR= Rev/CGS GSR= (Mark-up earned Mark-up Expense)/Mark-up earned GSR is 2nd highest all over the globe in Pakistan. GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits.
5.2.4.2
Operating income less operating cost (profit before tax). This ratio tells what percent of total income is earned before paying all the taxes. BOP has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts.
2003 2004 The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking.
2005
2006
2007
5.2.4.3
This ratio tells what percent of interest is covered from the total income of a firm or a bank. It tells the ability of a bank to pay its markup to the depositors.. MP/Interest cover ratio= EBIT/Mark-up
6 5 4 3 2 5.15 5.08
2.79 1.94
1.65
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5.2.4.4
This ratio analysis tells profitability of a firm after paying all the taxes to total income. Profitability of BOP is increased because of decrease in the tax paid to the govt and of high spread ratio. BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%
60 50 40 30 20 1 0 0 2003 2004 2005 2006 2007 34.26 54.1 6 46.65 49.1 6 49.27
5.2.4.5
Asset turnover= Net Income/ Total assets This ratio tells the turnover of the asset to generate income. This ratio is increased during last few years which represent increase in the turnover by assets.
0.1 2 0.1 0.09 0.08 0.07 0.06 0.04 0.02 0 2003 2004 2005 2006 2007 0.06 0.06 0.1
5.2.4.6
This ratio gives an idea of returning net profit generated by the bank in comparison with assets. Return on assets= Profit after tax / Total Assets
1 .88
1 .5
This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.
0.5
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The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
5.2.4.7
12
Price Earning Ratio= Market price of a share/ EPS From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm.
10
1 0.23 9.31
8 7.25 6 5.09 4
7.71
5.2.4.8
EPS = Net Income/ total shares Through this ratio it can be analyzed what percent of 1RS share is earned.
34.95 9.08 4 2004 10.01 5.2 2005 13.14 3.25 10.51 3.5 2007
2006
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5.2.4.9
Capital adequacy ratio informs lending up to a certain ratio of equity. This ratio is set by the State Bank of Pakistan.
Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.
4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2003 2004 2005 3.30% 3.41%
3.99%
3.03%
3.16%
2006
2007
5.2.4.11
Return on equity
30.00% 25.00% 21.00% 1 6.20% 21 .90% 25.50% 25.40%
The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
RoE
60.00%
50.00%
49.80%
5.2.4.12
Cost/Income
40.00%
38.10% 26.90%
30.00%
26.40% 24.70%
20.00%
10.00%
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Cost/ Incom e
Operating cost includes all expenses charged to arrive at profit before tax excluding cost of funds, provisions and head office expenses. Head office expenses are not considered since all banks do not account for head office expenses in their financial statements. Operating income means funded and non-funded revenue less cost of funds and provisions. As administrative costs are increased because of which results decrease in the cost to Income ratio.
5.3
5.3.1
Organizational Analysis
Hierarchical Flow
BOARD OF DIRECTORS
PRESIDENT
CORPORATE HEAD
COMMERCIAL HEAD
CONSUMER HEAD
RETAIL HEAD
REGIONAL HEADS
BRANCH
BRANCH
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5.3.2
SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis is careful evaluation of an organizations internal strengths and weakness as well as its environment opportunities and threats. SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affect organizational performance. The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOT analysis. In SWOT analysis the best strategies accomplish an organizations mission by: 1. 2. 3. Exploiting an organizations opportunities and strength. Neutralizing it threats. Avoiding or correcting its weakness.
SWOT analysis is one of the most important steps in formulating strategy using the organization mission as a context; managers assess internal strengths distinctive competencies and weakness and external opportunities and threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralize threats and avoid weaknesses.
5.3.3
STRENGTH
The Bank officers of BOP are considered as one of the most able professionals in the banking world (some belong to BCCI). However, they have added some local flavour in accordance with their targeted segmented. In my observation that they interact with their clients as if they are their personal friends and discuss about their problems as their own. As a result of the compassionate and personalized services of the officers, the clients perception for BOP is very high. They have trust and feel themselves to be secure while dealing with BOP. BOP has opened all its branches at commercial areas so that the customers or clients face no problems in reaching to the bank. For example, Khanewal Road Branch is being situated in business and commercial hub of Multan as big volume in trade. BOP has got a reliable and easy to use internal computer system. Every information regarding the transactions in customers deposits has been computerized. Data are properly maintained. Good security system Not excellent but good facilities are given to employees
5.3.4
WEAKNESSES
Lack of proper internal controls is one of the major weakness of BOP. It is also pointed by the auditor in his review. BOP has formulized a lot of products and services for its customers, even more than other commercial banks, but any advertisement on electronic media has not been seen. I observed during my internship that some of the employees were burdened with over work. So I think that the work should be distributed according to their post and capabilities. Biased selection of employees.
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5.3.5
OPPORTUNITIES
Satisfy dynamic consumer needs, BOP has made significant in roads in its entire service spectrum. A lot of products have been introduced especially in Retail Banking (Agriculture side) and people are increasingly becoming loyal to the bank and because of feasible transactions. Optimum pricing and branding strategies of the bank are helping to make customer feel secure and convenient. All the opportunities of the 21st century are to be availed in the information technology. Information technology is the future of this dynamic world. Therefore BOP should emphasize much on IT, especially on E-Banking. Bank can design a universal account like other foreign banks, to enhance online facilities. BOP has introduced a number of financial schemes including special Deposit Accounts. These accounts have their unique features. During the last three years, BOP deposits have been increasing @ 40%, which is a very healthy sign. Therefore, with the commencement of new schemes there can even be a greater increase in its deposits
5.3.6
THREATS
Despite the difficult circumstances that confronted the banking sector in particular and the country in general, BOP has been still highly profitable. But, the facts cant be denied and there might be an adverse impact of such situation. BOP is facing a strong competition by its competitors, Business of all these Banks are growing at very high pace.
5.4
5.4.1
Future Prospects
Financial Valuations and the future prospect of BOP
BOPs share is currently trading at PKR 97.80 (On closing of fiscal year at 30 th June, 2007). And by looking at the growth track of BOP it can be analyzed that it will real grow up. Through different estimations and by viewing remarks of analysts it is expected that it would grow up to PKR 125 by DEC. It shows real future profit. This evaluation is based on a normalized ROE of 25.3% (ROA of 2.7%), cost of Equity of 17.0 % and a long-term growth rate of 11.2%. A sensitive analysis shows: With every 10% change in credit costs, fair value would change by 3.3%.
Rs/ Share Market value per share 140 120 102.45 100 101.25 80 60 40 20 0 2003 2004 2005 2006 2007 E 2008 65.9 97.8 125
For every 10% change in NIM, BOPs fair value would change by 7.5%. A100bp change in loan growth estimates for 2007, 2008, and 2009 would cause a Change of 1.0% in fair value.
34.95
The calculations made in sensitivity of changes in the cost of equity and the
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Terminal growth rate. The cost of equity is based on a 10.2% risk free rate, a 6% equity risk premium, and a fundamental risk-weighted of 1.13. The perpetual growth assumption implies a dividend payout ratio of 25%. For every 50% change in the cost of equity, and the terminal growth rate the banks fair value would change by 4.6%. It can be confirmed by looking at share price performance. BOPs share price has performed well in the last year. It is up 31.2% in the past 12 months, and is up 21.1% YTD. The stock has outperformed the local benchmark KSE-100 by 5.0%. Performance is quiet amazing.
6 Industrial Analysis
6.1 Overview on the Major Players of Bank Industry
The brief overview on the bank industry and the major players involved on it. The combined values of all major players are collected from their financial statements of 2007.
Assets
900,000 800,000 700,000 600,000 Rs in M 500,000 400,000 300,000 200,000 100,000 0 NBP HBL UBL MCB BAF ABL SCB BOP Cash & bank Investments Lendin To Financial Institutions Advances Op Fixed Assets & Intangible Assets Other assets Total
As graphical shows NBP (National Bank of Pakistan) is the key player and the leader in the industry with total assets and liabilities of RS. 764,609. While BOP is RS. 234,991. Major Player Includes NBP, HBL, UBL, BAF, ABL, SCB and BOP. Total Assets of the major players in the industry are RS. 3,561,195 (M). BOP is considered as one of the major banks in Pakistan by assets. Like major Player NBP has the largest Profit before and after Tax i.e., 28,452(M) and 19,405 (M) respectively. While BOP has PBT RS. 4,856 (M) and PAT RS. 4,454 (M) only The total Profit before and after tax of the major players are RS. 99,835 (M) and RS. 70,045 (M) respectively.
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Income Comparison
50,000 45,000 40,000 35,000 Rs In Million 30,000 25,000 20,000 15,000 10,000 5,000 0 NBP HBL UBL MCB BAF ABL SCB BOP Tax Profit after Tax Spread Provision Non Markup Interst Income Operating Income Operating Expenses PBT
6.2
Liability Comparison
Rs In Millions
2500000 2000000 1500000 1000000 500000 0 Investments Advances Lendin To Financial Op Fixed Assets & Cash & bank Other assets Total
Major Players in the Medium category of the Banking industry are AB, NIB, ABN, Citi, SB BAH, FB. Total Assets and liabilities of this level comprised on RS. 1,091,083(M) Net Income of this level is RS. 9,567 (M) This level is giving a tough competition to the major players and trying to grab there share.
Bi
ls
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Few mergers are taking place and in future it is expected to be more because to maintain SB Standard reserve ratio.
Incom e Com parison 200,000 150,000 Rs in Million 100,000 50,000 0
T Pr Sp ov re is N io ad on n/ R M ev ar ku er sa p/ In ls te rs tI nc O pe om ra e tin O g pe In co ra tin m e g E xp en se s Ta x af te rT
-50,000
PB
Major Players in the Small category of the Banking industry are ATLAS KASB, JS etc. Total Assets and liabilities of this level comprised on RS. 411,077 (M) Net Income of this level is RS. (2,176) (M) These Banks are going in loss overall in 2007. Since they are new players in Pakistani Market. It is expected that they will give return in future.
Pr of it
ax
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Recommendations
(Financial
&
To me the major and the most important flaw in the BOP is lack of internal controls and inter communication between different branches of the bank. As far as financial aspect is concerned there is no proper system is configured thats why there is always a risk of big frauds with in the bank. I during my internship also pointed out that point but no one bothered. To me the bank should install some proper resource planning and controlling systems like other banks do i.e., oracle financials etc.
7.1.2
Professional Training
BOP staff lacks professionalism. They lack the necessary training to do the job efficiently and properly. Although staff colleges are in all major cities of the Punjab but they are not performing well. For this purpose these staff colleges should be reorganized and their syllabus should be made in such a way which can help the employee understand the ever-changing global economic scenario. Banking council of Pakistan should also initiate some programs to equip the staff with much needed professional training.
7.1.3
Delegation of Authority
Employees of the bank should be given a task and authority and they should be asked for their responsibility. The sense responsibility in employees mind is one of the most important factors in the success of any organization.
7.1.4
Performance Appraisal
During Internship I felt that there is no or very less appraisal of any ones cool performance. The manager should strictly monitor the performance of every staff member. All of them should be awarded according to their performance and result in the shape of bonuses to motivated and incite them to work more efficiently.
7.1.5
In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a special section should be made inside the branch. Which should only handle the treasury function, salaries and pensions of federal personnel or the bank should do these functions in the evening time. Also management should purchase more furniture and arrange them in such a way which provides maximum space and convenient especially in deposit department and there should also be convenient sitting place for customers.
7.1.6
Transfer
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Transfer is not properly carried out. Some of the employees are continually serving at the same post. They are simply rotated at the same branch. Therefore it is recommended that evenly rotation of every employee should take place after every three years in different braches of the bank.
7.1.7
Changes in Policies
There should not be any abrupt policies change by the upper management, as this practice hurts the customer confidences in the bank. Government should make long-term policies
7.1.8
Required, qualified staff should be provided to branch in order to improve the functioning of the branch. Especially a telephone operator should be appointed.
7.1.9
Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite this working resulting in a loss to then Rs 3 to5 per transaction. These charges should be increased to RS 10 per bill to enable the branch to cover their handling costs and make some profit.
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Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year 2007. That can be done by lying off the surplus pool of employee with golden hand shakes scheme. The branches that are not much used could also be closed. That will give positive results in the future.
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7.2
In this section some recommendations for those students who are planning for an internship at BOP particularly and in any other bank generally. The most important of all is the difference between what we learn from the books i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below:
7.2.1
During my internship I observed that other internees in the bank use to stick with one department only. An internee with specialization in Finance was of the view that he should be in Finance department same was the case with other specialized Internees. But I would suggest that one must work in every department for some time to gain a hand on experience of all the departments. As in real working environment employee have to coordinate with other departments, so he/she must know what the other departments operations are and how they work.
7.2.2
This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. So for a internee it is more important to learn new things which he/she has never heard about in his/her course book. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firms environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.
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8 Conclusions
By analyzing the financial statements of the bank, I came across to know that it is one of the most growing bank in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hirings and between colleagues should be removed.
9 References
Reference material used for compiling this report is gathered from these sites. www.bop.com.pk www.jpmorgan.com www.kpmg.com.pk www.sbp.gov.pk www.globalbanking.com
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