Introduction To The Report: Internship Report On Bank of Khyber Chapter - 1

Internship Report on Bank of Khyber CHAPTER -1
INTRODUCTION TO THE REPORT
1.1
BACKGROUND OF THE STUDY For the completion of Bachelor Degree in Business Administration, every student
is required to undergo eight weeks internship within organization. I selected the Bank of Khyber of Pakistan for my internship, and this report is concerned with the banking function in Bank of Khyber. The internship is to serve the purpose of acquainting the students with the practice of knowledge of business administration. 1.2 PURPOSE OF THE STUDY The main purpose of this study is to fulfill the requirements of Bachelor Degree in Business Administration (Major Finance) at University of Peshawar, and to get the relevant information in order to complete this internship report. 1.3 SCOPE OF THE STUDY The scope of the study is to inform the banking function of IBD of BOK as well as its entire department, its products, services and on its functions and procedures. 1.4 RESEARCH METHODOLOGY Two months rigorous internship in the BOK, give me knowledge and confidence to write this report. Every effort has been made to collect data and information about the working of the organization however the following data collection methods have been mainly used for the completion of this report.
Institute of Management Studies, UOP
Internship Report on Bank of Khyber 1.4.1 a. PRIMARY DATA Observation Being an internee in Head Office of the Bank of Khyber, I observed all the practices and dealing in the whole office, which helped me to have deep insight about the problems and issues concerning the bank. b. Discussions To know about employees commitment, motivation and their out look towards the management of the bank, I Discussed many issues with the Head of the department, senior member and with lower level management member. 1.4.2 SECONDARY DATA The data collected earlier by someone else and which has gone through mathematical and statistical techniques after its collection, is called secondary data. Secondary data has been collected from different sources of the bank including Annual reports, Information memorandum, Bank manuals, training manuals, Service role of the bank and all the other documents provided to me by the bank. News papers and magazines Internet websites
Internship Report on Bank of Khyber
1.5
SCHEME OF THE REPORT
Section-I Chapter One contains the background of study, purpose of study, scope of study and research methodology. Section-II: Chapter Two containing History of Banking. Chapter Three containing Banking Sector. Chapter Four containing Introduction, vision, mission, objectives and organizational structure of BOK. Chapter Five containing Products and different departments of the head office. Section-III Chapter Six containing Recommendations and Implementation. Section-IV Chapter Seven containing financial analysis, Ratio Analysis, SWOT analysis, and Suggestions.
CHAPTER- 2
Chapter 1
HISTORY OF BANKING
2.1
WHAT IS BANK? A federally regulated financial institution that, in general, engages in the business
of taking deposits, lending and providing other financial services. Institution for receiving, lending and safeguarding money. It may receive money on deposit, cash checks, or bills of exchange, make loans, discount commercial paper, and issue bank notes (promissory notes payable to bearer). An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.
2.2
EVOLUTION OF BANKING It has not so far been decided as to how the word 'Bank' originated. Some authors
opine that this word is derived from the words 'Bancus' or 'Banque' which mean a bench. The explanation of this origin is attributed to the fact that the Jews in Lombardy transacted the business of money exchange on benches in the market-place; and when the business failed, the 'Banco' was destroyed by the people. Incidentally the word 'Bankrupt' is said to have been evolved from this practice. The opponents of this opinion argue that if it was so, then how it that the Italian money changers were naver is called 'Banchierei' in the Middle Ages?
Other authorities hold the opinion that the word 'Bank' is derived from the German word 'Back' which means 'joint stock fund'. Later on, when the Germans occupied major part of Italy, the word 'Back' was initialized to 'Bank'. It is therefore, not possible to decide as to which of the opinions is correct, for no record is available to ascertain the validity of any of the opinions. 2.3 MODERN BANKING Despite the classical origin, banking in its modern form and structure started in Britain when many of the Lombardy merchants came to England in the fourteenth century and settled in the parts of the city of London now called Lombard Street. They were so resourceful that even the Kings had to depend on them for loans despite the fact that the Church was firmly against usury. They with not only keeping the money in safe custody but also changed money for the travelers or merchants engaged in foreign trades. Consequently this business was taken over by the goldsmiths who, up to that time, were dealing only in gold and silver. They introduced necessary facilities of safe-keeping of the valuables and cash of their customers. These goldsmiths issued receipts or notes to their depositors in respect of the cash or articles left with them. These were called Goldsmiths Notes, and carried an undertaking to return the money and articles to the depositors or bearers on demand.
CHAPTER 3
Chapter 1
BANKING SECTOR
3.1
BANKING IN PAKISTAN At the time of independence, the areas which now constitute Pakistan were
producing only food grains and agricultural raw material for Indo-Pakistan subcontinent. There were practically no industries, and whatever raw material was produced was being exported from Pakistan. However, commercial banking facilities were provided fairly well here. As a new country without resources it was very difficult for Pakistan to run its own banking system immediately. Therefore, in accordance with the provision of Indian Independence Act of 1947, an Expert Committee was appointed to study the issue. The Committee recommended that the Reserve Bank of India should continue to function in Pakistan until 30th September 1948, so that the problems of time and demand liability, coinage, currencies, exchange etc. be settled between India and Pakistan. It was also stipulated that Pakistan would take over the management of public debt and exchange control from Reserve Bank of India on 1st April, 1948, and that the Indian Notes would continue to be legal tender in Pakistan till 30th September, 1948. Following the announcement of Independence Plan in June 1947, the Hindus residing in the territories now comprising Pakistan started transferring their assets to India. There were 19 non-Indian foreign banks with the status of small branch offices which were engaged solely in export of crops from Pakistan, while there was 2 Pakistani institutions i.e. Habib Bank and the Australasia Bank. The panic of uncertain future shook the confidence of people. The Government, therefore, promulgated the Banking
Internship Report on Bank of Khyber Companies Ordinance, 1947, to safeguard the interests of both the bankers and the customers. The Imperial Bank of India which had been acting as the Agent of Reserve Bank of India closed down most of its offices in Pakistan, and also was not willing to purchase even token amounts of Government of Pakistan securities on the plea that these securities were not marketable. In order to make necessary arrangements for the assumption of control an Expert Committee was appointed to recommend necessary steps, including the required legislation to establish a Central Bank for Pakistan. Consequently the Governor- General of Pakistan and the Father of the Nation, Quid-i-Azam Mohammad Ali Jinnah, inaugurated the State Bank of Pakistan on July1, 1948, after the State Bank of Pakistan Order was promulgated on May12, 1948.Thus the State Bank of Pakistan assumed full control of Banking and currency in Pakistan. The first important task which the State Bank of Pakistan had to attend to was the issue of currency notes and withdrawal of Reserve Bank of India notes with over-printing there of Government of Pakistan, which had been in circulation in Pakistan so far. As the Central Bank of the country, the State Bank addressed itself with the equally urgent task of creating a national banking system. In order to attain this goal it provided very help and encouragement to Habib Bank to expand its network of branches, and also recommended to Government the establishment of a new bank which could serve as an agent of the State Bank. As a result, The National Bank of Pakistan came in to being in 1949; and by 1952 it became strong enough to take over the agency function from the Imperial Bank of India. In order to develop sound banking and weeding out weak institutions, the banking companies (Control) Act was promulgated in 1949, empowering the State Bank to control the operations of Banking Companies in Pakistan, including preparation of the required trained man-power. Further, the State Bank restricted the opening of new
Internship Report on Bank of Khyber branches by foreign banks in port towns or in big cities from where trade was being carried out with foreign countries, while Pakistani banks were allowed to open as many branches as possible within the country. Pakistan now entered into a phase of planned economic development in 1956; and naturally, further expansion in the banking and credit facilities was essential. Though there had been a remarkable expansion in the number of offices of Pakistani banks since Independence, it has remained heavily concentrated in large cities. Therefore, the State Bank had to accord priority to the establishment of branches in the interior of the country. Development of agriculture largely depends on agricultural finance, but the scheduled banks were not very willing to undertake this risky venture. Therefore, the State Bank sponsored the establishment of Agriculture Development Bank to attend exclusively to agricultural finance. Moreover the functions of the State Bank were also broadened by the State Bank of Pakistan Act, 1956, conferring the powers to increase credit facilities for both agriculture and industry. All these measures had positive effect on Pakistans economy during 1956-58. Money supply increased greatly as the Government borrowed heavily against treasury bills from State Bank; but the credit demand in the private sector did not rise so sharply due to rigorous restrictions on imports. During this period a new Pakistani bank was registered and scheduled as the National Commercial Bank Limited; and Government also established Pakistan Industrial Credit and Investment Corporation- a new institution in the field of industrial finance. In 1958, when the Government liberalized imports and transferred the food grain trade to the private sector, the commodity market became firm, and demands for funds became very acute. This caused some stringency to the banks during the busy season. Therefore, the banks had to reduce down their excess reserve and increased their indebtedness to the State Bank. The expansion in the banking and credit facilities was further enlarged when during 1959-60 two more Pakistani banks, namely Eastern Mercantile Bank Limited and the United Bank Limited were established and scheduled.
Internship Report on Bank of Khyber Another very important event in the development of banking in Pakistan was the appointment of the Credit Enquiry Commission in 1959 to examine the scope and working of the institutions providing credit facilities to agriculture, trade, commerce and industry, and recommend measures for further improvements. More Pakistani scheduled banks continued to be established, which included the Commerce Bank Limited and the Standard Bank Limited. However, despite the pressing needs, private enterprise was not forthcoming in East Pakistan. Consequently the State Bank established a regional bank by the name of Eastern Mercantile Bank by contributing 40 percent of its share capital. In June 1948 (West) Pakistan had only 81 offices of scheduled banks; but by June 1993 their number has been increased to 7100 in every nook and corner of Pakistan. Besides this growth, specialized credit and financial institutions have also developed over the years, and cater to the needs of the specific sectors. National Investment Trust, Peoples Finance Corporation, Equity Participation Fund, and National Development Finance Corporation, Banker's Equity Ltd., Small Business Finance Corporation etc. are contributing their due share in the country's economic life. The nationalization of banks in Pakistan since January 01, 1974, has heralded a new era of development and progress. It has taken a completely new turn with the phased introduction of interest free banking system with effect from January, 1981. At present the banking structure in Pakistan comprises of the following: 3.1.1 STATE BANK OF PAKISTAN As the Central Bank of the country with its offices at Karachi, Lahore, Peshawar, D.I.Khan, Quetta, Faisalabad, Rawalpindi, Islamabad, Multan, Gujranwala, Sialkot, Sukkar and Hyderabad.
3.1.2
COMMERCIAL BANKS Commercial Banks have been the most effective mobilizers of savings and have
been providing short-term requirements of working capital to trade, commerce and industry. Presently these commercial banks are operating in the nationalized and private sectors both, after the amendments in the Bank's Nationalization Act, 1974 in 1991. 3.2 WHAT IS ISLAMIC BANKING? Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Shariah. Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid unethical practices and participate actively in achieving the goals and objectives of an Islamic economy. 3.2.1 BASIC PRINCIPLES OF ISLAMIC BANKING The fact that a global network of Islamic banks, investment houses and other financial institutions has started to take shape based on the principles of Islamic finance laid down in the Quran and the Prophets traditions 14 centuries ago. Islamic banking, based on the Quran prohibition of charging interest, has moved from a theoretical concept to embrace more than 100 banks operating in 40 countries with multi-billion dollar deposits worldwide. Islamic banking is widely regarded as the fastest growing sector in the Middle Eastern financial services market. Exploding onto the financial scene barely thirty years ago, an estimated $US 70 billion worth of funds are now managed according to Shariah. Deposit assets held by Islamic banks were approximately $US5 billion in 1985 but grew over $60 billion in 1994. Institute of Management Studies, UOP 10
Internship Report on Bank of Khyber The rules regarding Islamic finance are quite simple and can be summed up as follows: a. Any predetermined payment over and above the actual amount of principal is prohibited Islam allows only one kind of loan and that is Qard-el-hassana (literally good loan) whereby the lender does not charge any interest or additional amount over the money lent. Traditional Muslim jurists have construed this principle so strictly that, according to one commentator this prohibition applies to any advantage or benefits that the lender might secure out of the Qard (loan) such as riding the borrowers mule, eating at his table, or even taking advantage of the shade of his wall. The principle derived from the quotation emphasizes that associated or indirect benefits are prohibited. b. The lender must share in the profits or losses arising out of the enterprise for which the money was lent. Islam encourages Muslims to invest their money and to become partners in order to share profits and risks in the business instead of becoming creditors. As defined in the Shariah, or Islamic law, Islamic finance is based on the belief that the provider of capital and the user of capital should equally share the risk of business ventures, whether those are industries, farms, service companies or simple trade deals. Translated into banking terms, the depositor, the bank and the borrower should all share the risks and the rewards of financing business ventures. This is unlike the interest-based commercial banking system, where all the pressure is on the borrower: he must pay back his loan, with the agreed interest, regardless of the success or failure of his venture. Islam encourages investments in order that the community may benefit. However, it is not willing to allow a loophole to exist for those who do not wish to invest and take risks but rather content with hoarding money or depositing money in a bank in return for receiving an increase on these funds for no risk (other than the bank becoming insolvent). Islam encourages the notion of higher risks and higher returns and promotes it by leaving no other avenue available to investors. The objective is that high-risk investments provide a stimulus to the economy and encourage entrepreneurs to maximize their efforts.
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c.
Making money from money is not acceptable in Islamic Money is only a medium of exchange, a way of defining the value of a thing; it
has no value in itself, and therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else. The human effort, initiative, and risk involved in a productive venture are more important than the money used to finance it. Muslim jurists consider money as potential capital rather than capital, meaning that money becomes capital only when it is invested in business. Accordingly, money advanced to a business as a loan is regarded as a debt of the business and not capital and, as such, it is not entitled to any return (i.e. interest). Muslims are encouraged to purchase and are discouraged from keeping money idle. In Islam, money represents purchasing power, which is considered to be the only proper use of money. This purchasing power (money) cannot be used to make more purchasing power (money) without undergoing the intermediate step of it being used for the purchase of goods and services. d. Investments should only support practices or products that are not forbidden Islam discourages it. Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could not be made for the construction of a casino; and the bank could not lend money to other banks at interest.
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CHAPTER 4
Chapter 1
AN INTRODUCTION TO BANK OF KHYBER
4.1
BRIEF HISTORY The Bank of Khyber was established in 1991 as a provincial commercial bank
through an act of the NWFP Assembly. The Bank of Khyber reached the status of scheduled bank in 1994. The provincial government is its major shareholder, owning 87% of the capital. It has a network of 34 branches serving more than 100,000 account holders. The micro-finance operations of The Bank of Khyber started in 1995, aimed at the provision of micro credit to small and medium enterprises. In 1997 The Bank of Khyber extended its operations to rural areas, providing smaller loans to microenterprises and individual clients through its cooperation with NGOs and Rural Support Programs (RSP). In 1999 The Bank of Khyber created its Micro finance Unit as a separate profit centre, developing specific products. The Bank of Khyber is the first formal and structured initiative by a commercial bank in Pakistan to broaden its client base and reach the micro-enterprise market. 4.2 METHODOLOGY & DISTINCTIVE FEATURES The Bank of Khyber provides micro credit services through its branch network where credit officer of the micro finance unit are based. Bank of Khyber adopts a fourpronged strategy in its lending methodology: Direct lending to individual micro-entrepreneurs Group lending through facilitators in rural areas Lending through business clusters in urban centers and small towns
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Internship Report on Bank of Khyber Wholesaling of funds to facilitators (NGOs, RSPs) for on lending in rural areas The Bank of Khyber is currently a partner to an ADB project, lending to NGOs in Malakand region. The Bank of Khyber is able to provide micro finance services to clients with no previous banking history. For micro finance services, The Bank of Khyber does not require physical collateral. 4.3 CHALLENGES AND DEVELOPMENT PLANS Providing micro finance services through a commercial banking structure, not adapted to service grassroots clients, The Bank of Khyber has to cover high costs in its lending delivery. Moreover, The Bank of Khyber has a limited outreach in micro finance, particularly amongst women. The Bank of Khyber is restricted by its practice of lending through branches, but is planning at developing mobile banking.
MISSION AND VISION OF BANK OF KHYBER Allah has permitted trade and forbidden usury 4.4 VISION Gradual conversion into ISLAMIC BANKING for development and promotion of true Islamic Economic System. 4.5 MISSION To increase shareholders' value and provide excellent service and innovative products to customers through effective corporate governance, friendly work environment, and contributing towards an equitable socioeconomic growth. 4.6 CORE VALUES
Highest quality of service. Professionalism, integrity and team work. Innovation and utilization of latest technology.
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Internship Report on Bank of Khyber Risk mitigation. Corporate social responsibility. 4.7 ACHIEVMENTS The bank has shown in deposits and achieved the deposit target set for 2007. To increase outreach, the Bank has successfully opened 5 new branches in 2007, with 4 branches in major business area viz Karachi, Lahore Faisalabad & Rawalpindi. This takes the total number of branches of the bank to 34. The Bank expects to receive further license for branches in the forthcoming year. The Banks paid up capital as on December 31,2007 stood at Rs. 4.00 billion which was raised successfully by offering 100% Right Issue at Rs. 12.75 per share. 4.8 BANKS PERFORMANCE REVIEW In the year under purview, the performance of the bank was satisfactory but it could not extract its share from the Banking sector. As compared to last year the profit was lower but the bank still earned an after tax profit of Rs. 219.437 million after absorbing impact of provision of Rs. 655.624 million as required by the State Bank of Pakistan under the new provisioning regulations. Apart from profit the Bank has shown positive growth in Deposits and Advances. During the year, Bank maintained its strategy of concentrating on growth while placing its customers at the centre of its activities. This was achieved with the consistent dedication shown by Banks team of committed professionals. Long term customers relationship has been developed through enhancement in service quality. To avoid any unexpected losses, a Risk Management Division has been set up and the integrated Risk Management framework is in line with the evolving tends and growing avenues of business. Thus it aims to align its systems and processes with best international practices.
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Internship Report on Bank of Khyber The banks rating has improved from BBB and A-2 to BBB+ and A-2; and increase of one notch, as rated by JCR-VIS rating Agency. This up-gradation is due to improvement in the management and assets quality of the Bank.
4.9
FUTURE OUTLOOK The economic outlook for the coming year is promising. The government is
expected to continue with its proactive policies and executive corrective measures if and when required. Though strong inflationary pressure persist but they are likely to ease off due to tight monetary posture by the State Bank. Bank is determined to grow in view of the structure improvements introduced in the bank and is well poised for all around 4.9.1 PEOPLE A well trained and industrious work force is our most important assets. Our aim is to manage this asset in such a way so as to improve its competitive advantage. Though the journey has begun, we are confident that we will be able to strengthen our performance culture, provide greater value to the organization and promote employees satisfaction and growth. The bank laid special emphasis on development of its human resources. We are striving towards making our human resources fit to respond to the challenger that lies ahead. 4.10 OBJECTIVES OF THE BANK OF KHYBER Under the Bank of Khyber act of 1991of the provincial Assembly of N.W.F.P the banks objectives are as follows To mobilize private savings and public funds for diverting the same into productive channels and ensure their availability. To promote industrial, agricultural and socio-economic processes through the active participation of private and public sector in the province. Help under-developed areas and create employment opportunities, especially in the rural areas of the province. Further, to guide and assist the people of N.W.F.P serving overseas to effectively and profitably invest their foreign savings in the province as well as in other parts of Pakistan.
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Create a diversified and sound portfolio for utilization of idle funds and their investment in the existing and new ventures especially in the pioneering of high-tech agro-based export oriented and engineering projects to ensure maximum returns. Participate and seek the share of the province in the capital market of Pakistan by way of subscription through locally pooled resources in the leading stock exchanges of the country and eventually paving the way for establishing a stock market in the province.
4.11
ORGANIZATIONAL STRUCTURE Organization is a group of people working together in a structured and co-
ordinate fashion to achieve a set of goals. The essence is that the people who are structured and coordinated will definitely be working in a proper system. This system includes both organizational hierarchy and organizational chart.
4.11.1 Organization hierarchy

To avoid the conflict in the organization, all organizational positions are detailed described and the duties, goals, functions, responsibilities and authority at each position are made crystal clear. The channel which delegates these activities is called organizational hierarchy and this must be set in such a manner to best accomplish the organizational goals. The Bank of Khyber ultimate governing body is the Board of Directors while the day to day affairs of the Bank are managed by a Managing Director appointed by the Board of Directors for a term of three years on contract with the consent of the Government of N.W.F.P. Under the supervision of MD, there are EVP's the senior most officials in the bank hierarchy each heading a Bank unit, after EVP there are SVP's and VP's heading their respective divisions and Departments. At the branch network of BOK there are Branch Managers and Assistant Branch Managers. Under Branch Managers there are Branch Departmental Heads responsible for their respective Branch Department. The nomenclature of various posts in the Bank is as under: Board of Directors Managing Director Institute of Management Studies, UOP 17
Internship Report on Bank of Khyber Executive Vice President Senior Vice President Vice President Assistant Vice President Branch Manager Assistant Branch Manager Officer Grade-1 Officer Grade-II Officer Grade-III Junior Officer. Driver. ORGANIZATIONAL CHART OF THE BANK OF KHYBER
Board of Directors
Managing Director
Shariah Supervisory Committee/ Shariah Advisor
Islamic banking Division
Marketing
Risk Management Deptt.
Operations Deptt.
Product/ Business Development
Credits
Treasury MIS
Account s Section
IBB(s)
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4.11.2 BOARD OF DIRECTORS The bank ultimate governing body is the "Board of Directors" comprising of eight members including a Chairman and MD. The Chairman of the Board is nominated by the Govt. of N.W.F.P who will be a senior banker/ diplomat of repute. The two members of the board are also nominated by the Govt. as Govt. is the major stakeholder of the bank. Usually these two members are secretary finance Govt. of N.W.F.P and Assistant chief secretary N.W.F.P. One member of the board is nominated by DEG (A German Development Bank) a 15% Stakeholder of the bank. While two members are selected by the Government from public / private sector. The Managing Director of the Bank represents the bank in the Board and acts as a member of the Board. Board of Directors of BOK Mr.Javed Iqbal Mr.Bilal Mustafa Mr.Zia-ur-Rehman Mr.Muhammad Maqsood Khan Mr.Muhammad Asif Mr.Muhammad Shakir Siddiqui Chairman Managing Director Director Director Director Director
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CHAPTER -5
DEPARTMENTATION OF THE BANK

5.1 5.1.1 DEPARTMENTS INFORMATION TECHNOLOGY DEPARTMENT The Bank of Khyber was established in 1991. In order to have an edge over its competitors and to provide quick and efficient service to the customers, it was considered mandatory to computerize banking network in the branches. IT Department was established in 1994 and all the branches were successfully automated by the year 1998. IT Department has progressed in the last eight years and trying its best to stay abreast in the field of fast developing technology. In order to achieve its goals, the IT Department has started on-line banking in almost all of its Branches. IT Department of the Bank is working dedicatedly and with full enthusiasm to provide best services by efficiently handling the in-house software development/maintenance, hardware/software trouble shooting and uninterrupted support to 29 Branches. Besides, IT Department is playing an important role in development and deployment of Islamic Banking Application and timely support to the end-user. Moreover, The Bank of Khyber has joined 1Link ATM Switch and has also installed ATM machines at 12 branches. Branches where ATM has been successfully installed are: Corporate Main Branch Hayatabad Branch G.T Road Branch Islamabad Branch Kohat Branch D.I Khan Branch
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Internship Report on Bank of Khyber Karachi Branch Abbotabad Branch Mingora Branch Civil Secretriate Branch Mansehra Branch Mardan Branch 5.1.2 RISK MANAGEMENT DEPARTMENT Risk Management Department (RMD) oversees the risks faced by the Bank in its internal operations and from external environment. The Department initiates steps for early identification of risks inherent in the Banking activities/functions; and recommend remedial measures to the Banks Senior Management. Presently, key risk areas like credit, operation, market and liquidity are focused on consolidated and integrated basis. The Bank has been presently aligning its Risk Management framework while using Risk Mapping technique, which has been diverted to remold the Job Descriptions of all important functions. At Branch level, certain amendments have been made to improve supervisory level of Branch Managers. Risk Management has been ensured at Branches by introducing the Key Risk areas in close supervision and monitoring through important checklist, which have been implemented at Branches and its performance and implementation is monitored at the Risk Management Department. The Department has also been working actively on the implementation of Basel-II. While the Banks risks assessments at Treasury have been ranked as per Basel-II, the Credit portfolio is under process for external rating in order to assess the total Risk Weighted Assets and Banks Capital Adequacy, as per State Bank of Pakistan guidelines. The Department also conducts regular review of Banks Risk assets under stress situations in order to assess the Banks shocks absorption capability. 5.1.3 CREDIT ADMINISTRATION DEPARTMENT The Banks Credit Monitoring Cell was converted into a full fledged department as Credit Administration. Being Middle Office of credits, the Department looks after the risks identification, recommending, necessary remedial measures and act as control function of credits. Credit Administration Department ensures complete and error free Institute of Management Studies, UOP 21
Internship Report on Bank of Khyber documentation as per sanctions and simultaneously would work on the Internal Rating of the borrowers. Department maintains comprehensive Management Information System relating to credits to cater for requirements of Senior Management, External Auditors and State Bank of Pakistan. The Department is also responsible to monitor all credits which include proper documentation, adequate collaterals, stock Inspection, and effective Insurance/Risk coverage. NPL preparation is also within the ambit of the Department for collection and classification of the information according to the prescribed criteria... 5.1.4 MICRO FINANCE DEPARTMENT Micro Finance has proved to be one of the most effective tools for facilitating socio-economic development through increased access to financial services. The economic landscape of NWFP is characterized by a number of flourishing small-scale economic activities scattered throughout the cities, towns and rural areas. However, these smaller enterprise entities have never been a focused market for formal financial institutions operating in this region. Contributing significantly to income and employment generation, The Bank of Khyber (BOK) considers the promotion of micro-enterprises as one of the alternative economic development strategies for the province. For this purpose the BOK launched its micro business development in 1995 and rural financial services in 1997. This was the first formal and structured initiative by a commercial bank to broaden the base for micro enterprise market. The initiative was further strengthened and encouraged by various multilateral institutions such as Asian Development Bank (ADB), International Fund for Agricultural Development (IFAD), KFW (German Development Bank) and Swiss Agency for Development Cooperation (SDC) through credit lines and technical assistance. Encouraged by these developments a new unit called micro finance unit was instituted in November 1999, which presently functions as Micro Finance Department (MFD) under
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Internship Report on Bank of Khyber the umbrella of Credit Division. BOK aims to be the largest Micro Finance provider in NWFP on sustainable basis. Our main Objective is providing access to financial services to the low income and disadvantaged segment of the society to raise their standard of living with specific emphasis upon women. The pursuit of this objective will significantly contribute to the improvement of employment opportunities, income generating activities and subsequently poverty alleviation. Pursuing its objective the BOK provides micro enterprise and group loans for existing and new enterprises engaged in value addition process, requiring technology improvement or working capital. MFD offers the following loan products: Micro-enterprise Loans to a maximum of Rs. 100,000 however fresh loans are considered for below Rs. 50,000. Group Loans to members of organized rural communities and urban clusters to a maximum of Rs. 30,000 per member. Domestic Consumption Loans to a maximum of Rs.100, 000 to employees of government / semi government organizations subject to prior Institutional Arrangements. Tea Development Loans for tea growers in Mansehra. Motorcycle financing to individuals and Institutions. CNG Auto Rickshaw finance CNG Kit Conversion finance Credit Line to qualifying Rural Support Programs and NGOs for on lending in rural areas. BOK has made a modest beginning but a great potential for growth is still to be explored. As of June 30, 2006, BOK has disbursed total loans of Rs.1.2 billion to more than 24,000 borrowers with majority of the loans below Rs.50,000 per client. Current outstanding portfolio remains at Rs.207.7 million with an active clientele of 6,587. 5.2 DIVISIONS
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Internship Report on Bank of Khyber 5.2.1 FINANCE DIVISION The Finance Division is responsible for overall fiscal managing, financial control, financial reporting and accounting functions of the Bank. Division ensures that the accounting records and system are maintained in accordance with internal policies, regulatory requirements and international accounting standards. It establishes policies and procedures relating to the finance function, monitors returns on earning assets and reports on various performance indicators including assets/liability mismatch. The Division directs control of the budgeting process in accordance with the annual plans, policies, management directives and strategy, ensuring that quality budgets and forecasts are drawn up and consolidated for approval. Finance Division exercise budgetary control on all expense and income items at both Head Office and branch level, ensuring the effective monitoring arrangements are in place in respect of adherence to budgets/forecasts. It continually reviews the accounting and control system, ensures that they are appropriate to the requirements of the business and that they generate financial information necessary for effective decision-making. It monitors capital adequacy in accordance with regulatory directives. It liaises with external auditors, tax authorities and SBP inspectors, and facilitates their duties. It provides necessary assistance to the rating agencies. The Division maintains financial databank and carries out industry financial analysis vis-a-vis Banks strength and opportunities. The Division has well-trained, experienced and qualified human resource, automation of processes and effective communication with all operating units. The future focus of the Division would be to improve automation of the accounting processes and enhance the quality and effectiveness of MIS. 5.2.2 COMPLIANCE DIVISION Under the directives of the State Bank of Pakistan and the Board of Directors had appointed a senior officer as Chief Compliance Officer in January, 2004. The bank has now hired the services of an officer from SBP on deputation as CCO for effective implementation of the directives of SBP particularly on KYC and Anti Money Laundering. The Compliance Division directly reports to the Managing Director of the Institute of Management Studies, UOP 24
Internship Report on Bank of Khyber bank. We have designated Compliance Officers in all our branches who perform their function as per TORs provided to them and report to Chief Compliance Officer. The bank prepared a Compliance Manual in 2004 which is now being updated in the light of best international practices. Compliance divisions consist of the following departments headed by Chief Compliance Officer: 5.2.3 Compliance Department & Monitoring and Implementation Department In order to enhance capacity building of Compliance Officers, a comprehensive training program on Compliance will be held in May, 2006. Furthermore, a consolidated training material was prepared on the basis of SBP's Prudential Regulations, Banking Operations Instructions, Bank's Own Policies etc and the same disseminated to all Compliance Officers for meticulous compliance of SBP's as well as H.O. instructions.
5.2.4
HUMAN RESOURCE DIVISION It is imperative for the Human Resource Division to not only provide educated
and trained manpower so as to enable them to handle their jobs more professionally and efficiently in all areas of banking but to develop talent and add value to staff potential to enhance output improve profitability as well. The Human Resource Division (HRD) puts in its concerted efforts to train, develop and groom a sound human resource base for the Bank and to work for continuous learning, adaptation and application of knowledge. The HRD tries to create an environment of mutual trust and dignity so as to ensure best positive results. It is playing a proactive role in capacity building, experience sharing, strengthening analytical and policymaking, skill up-gradation to help the staff in their endeavors to make BOK competitive, dynamic and one of the best banks in the country. The HRD aims to transform BOK into a modern and dynamic bank, highly professional and efficient, fully equipped to play a meaningful role, on sustainable basis, in the economic and social development of NWFP as well as the country 5.2.5 INTERNAL AUDIT DIVISION
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Internship Report on Bank of Khyber The internal audit Division of a bank is an extension of the management and is a tool through which they gauge the qualitative and quantitative output of the field offices. The Internal Audit Division works independent of the management and reports to Audit Committee of the Board of Directors. The Internal Audit Division consists of two departments namely Audit & Inspection and Compliance & Implementation. The Audit and inspection reports are passed on to the implementation department for implementation/compliance and follow-up. The internal Audit Division conducts risk based Audit of the bank on the risk matrix mechanism including compliance audit, IT Audit and Management Audit. The fundamental objective of internal audit is to assist the management in materializing their pre-determined goals through established and clearly defined plans, policies and programs, SBP regulations and also to assist them in the effective discharge of their responsibilities, by providing them with reports, information, analysis, appraisals, recommendations and pertinent comments on the activities reviewed. In short the internal auditor renders services to the management to attain their over all objectives and to ensure. Adequacy and soundness of internal controls within the Bank. Implementation of management policies and procedures. To safeguard Bank's assets from all typed of losses including fraud. To recommend improvements in the systems and operations and pinpoint inefficient and uneconomical operations. Accuracy and reliability of management data. 5.2.6 ISLAMIC BANKING DIVISION
ALHAMDULILLAH
The Bank of Khyber has started Islamic Banking by converting all assets and liabilities of Hayatabad Branch Peshawar on 27th Ramadan (22nd November 2003). The Branch is now working according to the guideline of Shariah Supervisory Board. Aims and target of the IBD is to implement the decision of the Board of Director to gradually Institute of Management Studies, UOP 26
Internship Report on Bank of Khyber convert the whole Bank into an Islamic Bank within three years under the supervision of the Shariah Supervisory Board as per rules and regulations of the State Bank of Pakistan. To achieve the target, Islamic Banking Division has devised an action plan for expansion and conversion of the whole bank by December 2006 and to develop the business in various areas. According to the plan three new branches will be opened and six branches of the Bank will be converted into IBBs in 2004. Islamic Banking Division plans to convert 12 more branches in 2005 and the remaining in 2006. Apart from branch expansion, Islamic Banking Division is planning to start accepting deposits from all branches of the Bank of Khyber as per standing instructions of the State Bank of Pakistan. Disbursement of funds under Islamic Financing Modes through other branches of the Bank will also be started very soon. Development of Business through Internet is also under active consideration. This will cover the dissipation of information on the Internet, collection of information, applications (mainly for consumer products Car, House, and consumer goods), and disposal of application. Presently Islamic Banking Branch is offering Ijara, Murabaha. Diminishing Musharaka and Guarantees as Islamic Finance Services and investing the idle funds through Treasury in the Capital Market as well as placing funds with other Islamic Banks. While Consumer Financing Schemes under Islamic modes of financing, Housing Finance Scheme, House Construction Scheme is in launching phase. Future products under planning are Export Finance Scheme, Foreign Exchange Accounts, Musharakah business etc. 5.2.7 MARKETING DIVISION The Marketing Division of the Bank is responsible for the formulation and implementation of Marketing Strategy of the Bank's products both on assets and liabilities side keeping in view the business environment of the province. Accordingly the division works to popularize the Bank's deposit schemes and loan products among the people with a view to improve business and over all image of the Bank. The Division works in close coordination with the Branches and other Divisions/Department of the
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Internship Report on Bank of Khyber bank towards the implementation of the marketing strategy and achievement of the assigned targets. The Division is comprised of three departments viz Research and Development Department, Customer Relations Department and Product Promotions Department. The responsibility of the Research and Development Department is to search and develop new products according to the requirement of the market and Banks' marketing strategy as well as to make the existing products more attractive for the customers. Research & Development Department studies the offerings of the competitors for making the Bank's products more competitive. The Customer Relations Department is responsible for the implementation of the marketing strategy. For this purpose the Department has to maintain a liaison with the Branch Customer relation Officers and Managers, hold meetings with corporate clients for business and coordinate the activities between Branches and Head Office for better services provision to clients. The Product Promotion Department has been assigned with the promotion of the products through electronic and print media and various other means of promotion in vogue. 5.2.8 TREASURY & INVESTMENT DIVISION Treasury & Investment Division has been the main earning during 2005. Main source of income of the Division are Government Securities, Shares Investment and CFS portfolio, Corporate Bonds and Forex Transactions. BOK Treasury & Investment Division is an active player in the local inter bank market. Activities of Foreign Exchange Desk includes ready and spot purchases/sales, Swaps and Arbitrages. Money Market Desk mainly deals in purchase/sales of Government Securities, Corporate Bonds, Repurchase Agreements, Call Lending/Placements transactions. Investment Division Includes shares Trading both ready and future markets, CFS transactions and strategic investments. The BOK Treasury & Investment reiterates its pro active role in serving its customers, both individuals and corporate clients 5.2.9 RESEARCH AND DEVELOPMENT DIVISION
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Internship Report on Bank of Khyber RDD started functioning under its new name in February 2004, and assumed the responsibilities for the Recovery of all irregular as well as bad debts of the Bank. RDD coordinates closely with Credit Department, as ongoing feed back on performance of various segments of the portfolio is critical for fine tuning/amendment of underwriting credit initiation criteria. The Division also co-ordinates with IT Department for the automation of most of the processes and preparation of MIS containing information of all the branches on different types of loans in order to bring effectiveness and cost control in the Division. One of the primary responsibilities of RDD is to develop performance, monitoring and evaluation criteria for Lawyers to optimize the litigation strategy. It also coordinates with NAB for high balance and political cases. RDD is also responsible for the capacity planning and hiring of the staff based on number of accounts & training programs in order to ensure that Collection Officers understand the imperatives of handling the customers according to the policy of the bank. They must also understand the product in order to negotiate with the customers effectively. As a part of action plan and recovery strategy, the Bank's BOD has conferred powers upon Settlement Committees at different levels, which is used as a major tool to affect recovery by offering out of court settlement to NPL customers. Moreover, the Provincial assembly has recently amended BOK Act 1991 and put the bank under the ambit of Land Revenue Act of the Province, which will be utilized as a deterrent tool for recovery of infected loans of the bank. A Vice President, who took over charge early this, year, leads the division. Due to his able leadership, professional qualities and expertise in the recovery field, the division has achieved remarkable results in reduction in NPLs amounting to Rs.262 million up to June 30, 2004. Based on its half yearly performance, it is hoped that the Division will achieve its annual recovery target of Rs.480. Million with considerable margin. 5.2.10 COMMERCIAL LENDING DIVISION The credit policy of the bank is reviewed on periodic basis according to the target market. It is communicated down the line and clearly spells out the roles and
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Internship Report on Bank of Khyber responsibility of the individuals involved. Our credit portfolio is diversified for different client segments. The consumer finance, car finance and house finance schemes have successfully been introduced and are in real sense helping common folks in upraising their standard of living. We significantly finance to corporate sector and actively participate in syndication-bridge financing type of business opportunities. The commercial lending is our regular feature and is always tailored according to current requirement of business community. Lending under the mode of Islamic Banking is another addition to our credit portfolio and we feel proud to mention that we have started Murabaha and Ijara financing. Under consumer financing we plan to include some new household items that will further facilitate the common man. A policy to finance agricultural sector is being formulated and should be part of our credit portfolio in near future. We are also playing our due role in poverty alleviation by offering credits at micro level and our micro finance unit has specially been established in this regard, through which we have significantly financed in undeveloped areas of NWFP. To ensure quality lending we conduct pre disbursement audit and Credit Administration Department has been established for proper monitoring of the process of documentation. A) CONSUMER FINANCE DEPARTMENT
Under the umbrella of Consumer Finance BoK offers following type of Credit facilities Home Loan Car Finance Consumer Durables Finance Salary Loans for (Govt. Employees) B) AGRICULTURE CREDIT DEPARTMENT Pakistan is blessed with one of the most unique land features spread over an area of 79.61 million hectares of which around 28% is under cultivation. The Country also possesses one of the best irrigation systems in the world supplemented by ideal climatic conditions and plenty of hard working and dedicated manpower. All these factors add up Institute of Management Studies, UOP 30
Internship Report on Bank of Khyber to create an ideal situation for a vibrant agriculture sector that can contribute towards the economic growth of Pakistan. Moreover the need to encourage use of modern techniques in the shape of improved seeds, tillage methods and utilization of farm machinery cannot be over-emphasized but this requires availability of adequate capital. The Bank of Khyber, being fully committed to this cause of National concern has established a separate Agriculture Credit Department for provision of required capital to the agriculture sector. The Agriculture Credit Department of the Bank has introduced the Sada Bahar Zari Loan Scheme. The salient features of the scheme are as under: Purpose of loan Loan limit Purchase of agriculture inputs like seed, fertilizers, pesticides etc. Maximum Rs.500,000/- assessed under SBP per acre credit limits for various crops. Charge on Agriculture land through Agriculture Pass Book. Or Registered / Equitable Mortgage of urban property. Or Two Personal guarantees of reputable persons (at least one guarantor should be a government servant.) Note: The Credit facility in this case will be up to a maximum of Rs. 30,000 only. Crop loan insurance cover from an approved Insurance Company. Market based (linked with KIBOR.) Mark-up payment on half-yearly basis against out standing amount & once in a year full adjustment of Principal + Mark-up at the end of the year.
Security
Insurance Mark-up Repayment
Following Branches of the Bank have been designated to offer agriculture Loans. Dera Ismail Khan Mardan Kohat G.T Road Chitral Charsadda
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Internship Report on Bank of Khyber Mingora Haripur Mansehra 5.2.11 RISK MANAGEMENT DIVISION Risk Management Division (RMD) was formed in November 2005, in order to implement the directives of the Regulatory for monitoring, and timely remedial measures of Risk Management functions at various levels in the areas of Operations, Market, Credits and Liquidity etc. The Division was also assigned the task of implementing Base I-II in the Bank. Risk Management Division was entrusted with the responsibility to identify risks, suggest risk mitigation policies, review Bank's Policies, Procedures, Methods etc in collaboration with the related functional Department/Division and coordinate with Credit Division and Treasury Division to cover risks in the areas of macro Lending/Borrowing, Investments and the lateral operational risks. Under the umbrella of Risk Management Division, the following four departments report to the Head of Risk Management Division: 1. Risk Management Department 2. Credit Administration Department 3. Method, Procedure and Policy Department 4. Treasury Middle Office Risk Management Division undertakes to monitor risks, critically analyze, evaluate negative impact, suggest mitigation methods in collaboration with the functional Department/Division and report Bank's Risk Level to Senior Management and the Board's Risk Management Committee.
5.3 5.3.1
PRODUCTS OF BANK OF KHYBER RUNNING FINANCE This is a working capital finance facility available for one year and renewed
subject to satisfactory utilization thereof. Markup is charged on outstanding balance. Institute of Management Studies, UOP 32
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Internship Report on Bank of Khyber 5.3.2 DEMAND FINANACE
It is a term loan disbursed in lump sum and repayable in 2 years in the form of monthly or quarterly installments. 5.3.3 LOAN AGAINST SALARIES BOK provides loan against salary to employees of Government / SemiGovernment organizations for domestic consumptions. The employee must be confirmed having minimum of three years of service. However, the remaining service period of the employees must not be less than three years. To avail this facility, the employee must be account holder of the bank. Loan limit is up-to 5 gross salaries but not exceeding Rs.50, 000. This facility is available for a period of 2 years but it can be allowed for shorter period. 5.3.4 WORKING CAPITAL FINANCE Working Capital Funds are provided to traders and manufacturers for their operational requirements. 5.3.5 EXPORT FINANACE This facility is encouraged to boost exports of the country. Funds are made available from SBP at lower rates. Please email here for further queries. 5.3.6 MICO FINANCE UNIT This facility is available at the counter of our Micro Finance Unit, which in the true sense reinforces the support to grass root level development. The purpose is to empower the lower strata of the economy by providing speedy access to funds thus generating employment and eradicating poverty.
5.3.7
DOCUMENTARY LETTER OF CREDIT
Import and Export Letter of Credit Facility enhances trade with our countries.
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Internship Report on Bank of Khyber Standby Letter of Credit It is approved as and when the need is felt. Letter of Guarantee Guaranties are issued on behalf of customers to meet their commitments. 5.3.8 SCHEMES The Bank of Khyber is pleased to launch a Consumer Finance Scheme for general Public with immediate effect. Under this scheme House hold product like electronics, audio-visual equipment home appliance shall be financed to the customers on easy installments.
SALIENT FEATURES Eligibility for the scheme shall be as under: a) Citizen of Pakistan aged between 25 to 60. Scheme will be opened to all permanent employees of Govt. & Semi Govt. Local Govt., NGO, Autonomous Bodies, University, Banks, Reputed Industries , Corporations and self employed professionals or business men. Applicant should be resident of the city where Bok's Authorized Branch is operating. The monthly installments should be maximum of 1/3 of take home salary of the applicant. (Take home salary is to be determined by the branch manager). The Borrower will provide a personal guarantee of a third person as a security. b) Guarantor can be a person Aged between 25 to 55 years. Preferably residing in a same area as of applicant. Applicant must not be immediate family member of the borrower. BoK's Account holder will be preferred. Shall not be a Bok's Employee. Two Borrowers can not provide guarantee to each other. c) Tenure: The tenure of the scheme shall be for 36 months, 24 months, 18 months and 12 months.
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Internship Report on Bank of Khyber Amount of Loan: Amount of loan shall be from Rs.5000/- to Rs.99,000/-. Advance Payment: A sum of 5% shall be received from the customer as advance payment. Processing Fee: No Processing fee will be charged. d) e) Mark up Rate: Mark up rate is 14%. per annum. Charge Documents to be obtained by the Branch. Agreement for financing. Letter for comfort / Guarantee from employer. Letter of personal Guarantee. Comprehensive insurance of assets (Premium to be borne by customer). D.P note for marked up price. f) g) Documents to be submitted by customer along with applications . Attested For Salaried Persons. Employment Certificate from HR/Personnel Deptt
copy of N.I.C Copy of any recent Utility Bill. Bank statement for the last six months. (stating Designation, Tenure of employment Gross and net salary) or latest salary slip duly attested by HR. h) For Self Employed Persons. Professional Association certificate for self employed professional like doctors, Lawyers, Charted Accountants , Engineers etc stating the number of years in profession. i) Guarantor's Documents. Copy of N.I.C duly attested by branch manager. Bank statement for last six month. Copy of last paid utility bill. Detail of Business or Profession. Bank's Performa showing worth of Guarantor duly filled in (attached) Customer shall have to open an account with branch (if not already open) and post dated cheques for all installments due will be obtained from him.
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Internship Report on Bank of Khyber 5.3.8 ATM SERVICES In order to keep pace with advancements in the field of technology, The Bank of Khyber has joined the electronic platform of MNet switch. This will facilitate consumers by providing them access to their funds through the existing ATM network of the country. Also, BOK has installed its first ATM at Corporate Branch Peshawar.
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RECOMMENDATION AND IMPLEMENTATION
6.1
RECOMMENDATIONS In the end of this report I am giving the recommendation in order to improve the
efficiency of the bank. These recommendations are primarily based on the analysis. These recommendations, if followed will have a positive effect on the profitability, and the role it plays in the development of province. 6.1.1 Better Training Program It has been noticed that the training program of BOK is not adequate. Special marketing training should be given to employees for motivating customers. The training program of bank should include scientific techniques to improve decision making and inter-personal as well as individual needs of an employee. 6.1.2 Enhance Customers Services Constant improvements in customers services are needed in todays competitive environment. Personalized banking should be introduced to attract more customers. Equal respect should be given to all the customers. 6.1.3 Automated Teller Machines (ATM) The bank should provide a (ATM) facility to its customers at some branches. This facility will enable the customers to use the card facility, within the same branch where they have account. This facility is used in holidays and other than banking hours. Customers can get information and with draw their money with the help of this facility at any time.
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6.1.4
Job Rotation The employees of BOK are specialists in their fields but they need straightening
in general banking. They generally confine to their own work and do not give sufficient consideration to other department. They must have some basic information of other departments; it is recommended that there must be proper job rotation. 6.1.5 Proper job Analysis A detailed and systematic study of the job should be done to know the nature and characteristics of the people to be employed. This will help in identifying the training needs, evaluating the job and in appraising the performance of the employees. 6.1.6 Introduction Career Planning As a matter of personnel policy, personnel department of BOK should prepare a career plan showing their future growth, potential, depending on the job performance and evaluation, which should be made known to the employees. In this regard the employees should be given opportunities to show their performance. 6.1.7 Better Working Condition The working are is comparatively smaller as compared to the needs of the branch. As a result there is lesser working space provided to employees. They have to work from 8P.M and some time even longer time period. The congested places affect their efficiency at work. It is suggested that better working conditions should be provided for effective and efficient out-put. 6.1.8 Promotions and Publicity BOK should advertise itself and introduce its services in detail through media to people. This is the best way to enhance its business like other successful banks. They should adopt strong strategies for promotion and publicity of their services they offer. 6.1.9 International Banking Bok should expand its branches. They should expand their branches not only in Pakistan but also outside the country.
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6.1.10 Use of Media Bok is new organization in order to increase its customers and add to its publicity, it is recommended that the bank should advertise itself and introduce its services in detail through media. 6.1.11 Latest Computer Equipment Latest software should be installed in the bank so that the data processing speed of computers can be enhanced. 6.1.12 Proper Distribution of work In Bok the distribution of work needs further streamlining. Some employees have more work to do and are under stress while others are not fully occupied. The work should be distributed in such a manner that there should no undue load or burden on any one. 6.1.13 Friendlier Environment Most friendly environment should be created because it will help to gain the interest of employees in work. Noise in the office should be reduced because it has unfavorable impact on the working environment. Separate place or section should be created for each separate task and more space should be provided. It would also be of greater help in establishment of friendly environment.
6.2
IMPLEMENTATION PLAN The recommendations of any report are useless unless there is proper
implementation. We are, therefore, giving the implementation recommendations of my report, which is as follows.
plan of the
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Internship Report on Bank of Khyber 6.2.1 Better Training Programs There are many training institutions in the province imparting training in various themes. A training calendar may be devised and every officer of BOK should undergo two weeks training in a year in various disciplines. This will enhance the quality and performance of the officials. 6.2.2 Enhance Customer Services The training imparted by the officers of BOK will automatically enhance customer services. More clients will be attracted though enhancing customer services. 6.2.3 Job Rotation A comprehensive plan must be prepared and every officer of BOK must be transferred to other departments after every one-year and their rotation should continue. Every employee will get to know about the working of each department. 6.2.4 Better Working Condition The working conditions are not conducive. There is a space problem and longer duty hours. Both the problems must be rectified. A bigger building must be acquired and main branch be shifted there within one year. The hours should be curtailed by one hour. This will encourage the employees of BOK to work with more dedication. 6.2.5 Promotion and Publicity The BOK must allocate funds for publicity. At least one-minute advertisement on daily basis must be launched on PTV for the publicity of BOK. This will increase the business of the BOK.
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Internship Report on Bank of Khyber 6.2.6 Latest Computer Equipment This is an era of information technology. The BOK must acquire latest computers and software within 6 months to enhance its efficiency. Quick decision will be taken with the latest computer equipment.
6.2.7
Proper Distribution of Work The Bank must prepare job Description of each employee and implement it within
three months. Thus no one will feel embraced while working according to his job description.
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FINANCIAL ANALYSIS AND SWOT ANALYSIS
FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing between the items of balance sheet and profit and loss account. The analysis of the bank statement is undertaken by annalist, depositors, regulatory authorities, stock holders, borrower, the bank management etc. A depositor is interested in the solvency of the bank, i.e. the safety and availability of his funds. The regulatory authorities desire to ensure themselves that the banks are operating in the accordance of the law and are in sound financial condition of the bank and the accumulation of surplus. The borrower is interested in knowing the exact of available funds and the use that is made of the bankers resources. Financial ratio that relates two accounting numbers and is obtained by dividing one number by other. Assumptions 1. Ratios are calculated for two (2) years i.e. 2006 and 2007. 2. Figures are rounded off up to 2 decimal points.
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Internship Report on Bank of Khyber 7.1 7.1.1 FINANCIAL RATIOS Current Ratio
Cash ratio is the ratio of cash and its equivalent to current liabilities. It shows that how much cash is available to cover the current liabilities. Current assets ___________________ Current liabilities
Current ratio =
100
Ratio for 2007 =
26982365 ___________________ 23081176
100 = 1.2:1
Ratio for 2006= Interpretation
25578042 ___________________ 100 = 1:1 23552808
The current ratio is gradually increasing and is increased by 0.2 in 2007 as compared to the previous year. The gradual increase in the ratio shows that the bank has improved its liquidity from year to year. 7.1.2 Return On Assets After Tax This ratio is used in evaluating whether management has earned a reasonable return on the assets under its control. It measures the overall effectiveness of the available assets in generating profits. Net income (profit after tax) __________________________ Total assets
Return on assets after tax =
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Ratio for 2007 =
219,437 ___________________ 100 = 0.73% 29,739,717 203,013 ___________________ 100 = 0.74% 27,183,212
Ratio for 2006 =
Interpretation There is no big deference or fluctuation in the ratios of 2007 and 2006, it is 0.73% in 2007 while 0.74% in 2006. Return on assets after Tax is slightly decreases in 2007.
7.1.3
Operating Cost To Total Income Ratio
It shows the relationship between operating cost and the total income. It tells us how much operating cost is incurred in generating total income.
Operating cost to total income =
Operating cost ___________________ 100 Total income 543,763 ____________________ 100 = 88% 621,188
Ratio for 2007
For 2006
375,957 = ____________________ 100 =66.3 % 567,219
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Interpretation In the year 2007, this ratio is increased by 21.7% as compared to 2006, which shows that the bank has incurred more operating expenses in 2007 and its total income with low operating cost.
7.1.4
Debt To Equity Ratio This ratio shows the extent to which the firm is financed by debt. Total debt (total liabilities) _________________________ Total equity
Debt to equity ratio
Ratio for 2007
23,863,487 _______________________ = 4.3 times 5,568,253 24,182,304 ________________________ = 8.6 times 2,796,222
For 2006
Interpretation By analyzing this ratio we can conclude that the bank is trying to reduce dependence on debt financing and is trying to finance its assets more by equity; the trend of the ratio is reducing one from year to year.
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Internship Report on Bank of Khyber 7.1.5 Return On Equity Ratio
This ratio shows that how much ratio is generated by shareholders equity. Return on equity = Profit after Tax ___________________ 100 Total equity
Ratio for 2007
219,437 ____________________ 100 = 3.94% 5,568,253 203,013 ____________________ 100 = 7.3% 2,796,222
For 2006 Interpretation
The analysis shows that the return on equity is declining in 2007. It gives a negative indication from shareholders point of view at the beginning but is good at the end. 7.1.6 Interest expense to deposits ratio This ratio shows the relationship between the interest expense and the deposits. It tells about the interest expense paid on different types of deposits. Interest expense ____________________ 100 Deposits 1,845,360 ____________________ 100 = 8.62% 21,410,828 1,304,742 ____________________ 100 = 6.84% 19,076,564
Interest expense to deposits =
Ratio for 2007
For 2006
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Interpretation The interest expense to deposits ratio is increasing from year to year. The exact increase in this ratio is 1.78% in the year 2007 as compare to 2006. This shows that the deposits of bank are increased in this period while the interest expense is also increased due to reduction in the profit rates on various accounts. 7.1.7 Interest earned to advance ratio This ratio shows the relative extant to which interest is earned on Advances. Interest earned to advances = Interest earned _____________________ 100 Advances 2,380,380 ______________________ 100 = 23.6 % 10,085,640
Ratio for 2007
For 2006
1,924,279 = ________________________ 100 = 21% 9,189,447
Interpretation The interest earned to deposits ratio is high in 2007. The fluctuation is due to the return on deposits of the Bank of Khyber with financial institution.
7.1.8
Deposits growth ratio This ratio reflects the percentage increases or decreases in the volume of deposits
over a period of time.
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Current year deposits- previous year deposits Deposits growth ratio = ____________________________________________ 100 Previous year deposits Deposit growth for 2007 21,410,828-19,076,564 = __________________________ 100 = 12.23% 19,076,564 19,076,564-16,025,525 = ___________________________ 100 = 19% 16,025,525
Deposit growth for 2006 Interpretation
The deposits in 2007 have decreased due to the stiff competition in the bank markets. 7.1.9 Advances Growth
Current year Advances-previous year Advances Advances growth = ____________________________________________ 100 Previous year Advances 10,085,640-9,189,447 _______________________ 100 = 9.7% 9,189,447
Advances growth for 2007 =
Advances growth for 2006 =
9,189,447-8,560,250 _______________________ 100 = 7.3% 8,560,250
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Table: 7.1: Summary of Financial Ratios
SUMMARY OF RATIOS CURRENT RATIO RETURN ON ASSETS AFTER TAX OPERATING COST TO TOTAL INCOME RATIO DEBT TO EQUITY RATIO RETUEN ON EQUITY RATIO INTEREST EXPENSE TO DEPOSITS RATIO INTEREST EARNED TO ADVANCES RATIO DEPOSITS GROWTH RATIO ADVANCES GROWTH RATIO
2007 1.2 0.73 88 4.3 3.94 8.62 23.6 12.23 9.7
2006 1 0.74 66.3 8.6 7.3 6.84 21 19 7.3
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Internship Report on Bank of Khyber 7.2 TREND ANALYSIS
BALANCE SHEET
As at December 31, 2007 2007 ASSETS Cash and balances with treasury banks Balances with other banks Lending 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 Surplus on revaluation of assets 2006 Rupees in 000 1,574,531 3,755,151 2,493,430 8,565,483 9,189,447 142,002 75,365 1,387,803 27,183,212 150,435 4,325,809 19,076,564 629,496 24,182,304 3,000,908 2,000,949 728,631 66,642 2,796,222 204,686 3,000,908
1,364,853 3,728,016 2,858,000 8,945,856 10,085,640 213,025 48,683 2,495,644 29,739,717 348,952 1,321,396 21,410,828 782,311 23,863,487 5,876,230 4,002,984 1,323,077 242,192 5,568,253 307,977 5,876,230
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Internship Report on Bank of Khyber PROFIT AND LOSS ACCOUNT For the Year Ended December 31, 2007 2007 Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against non-performing loans and advances Provision for doubtful placement with a financial institution Provision for diminution in the value of investments Bad debts written off directly 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 of securities Unrealized gain/loss on revaluation of investments classified as held for trading Other income Total non mark-up/interest income NON MARK-UP/INTEREST EXPENSES Administrative expenses Other provision/write offs Other charges Total non mark-up/interest expense Extra ordinary/unusual items PROFIT BEFORE TAXATION Taxation Current Prior years Deferred PROFIT AFTER TAXATION Unappropriated profit brought forward Profit available for appropriation Basic and diluted earnings per share 2006 Rupees in000 2,380,380 1,924,279 1,845,360 1,304,742 535,020 619,537 655,624 348,995 10,000 3,700 60 659,384 (124,364) 78,790 126,878 14,856 433,333 (6,990) 98,685 745,552 621,188 522,723 21,040 543,763 77,425 91,014 22,318 (150,741) (128,423) 219,437 66,642 286,079 0.62 358,995 260,542 67,883 120,743 12,572 65,079 382 40,018 306,677 567,219 372,129 3,828 375,957 191,262 203,469 13,574 (16,340) 3,222 456 203,013 176,089 379,102 1.04
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Internship Report on Bank of Khyber CASH FLOW STATEMENT for the Year Ended December 31, 2007 2007 CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: dividend income Adjustments: Depreciation Amortization Provision against non-performing advances Unrealized gain/(loss) on revaluation of investments classified as held for trading Provision against doubtful placement with financial institution Provision for diminution in the value of investments/other assets Bad debts written off directly (Gain) on sale of fixed assets Share in results of an associate before taxation 18,214 1,758 655,624 6,990 3,700 60 (407) (13,589) 672,350 636,486 (Increase)/ decrease in operating assets: Lending to financial institutions Net investments in held for trading securities Advances Other assets (excluding advance taxation) Increase/(decrease) in operating liabilities: Bills payable Borrowings Deposits and other accounts 198,517 (3,004,413) 2,334,264 31,127 (48,345) 1,624,394 (13,000) (17,917) (1,551,877) (1,036,076) (2,618,870) (127,810) 288,593 1,023,691 (423,394) 761,080 16,534 1,768 348,995 (382) 10,000 (634) (12,207) 364,074 446,800 91,014 126,878 (35,864) 203,469 120,743 82,726 2006 Rupees in 000
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Other liabilities (excluding current taxation) Cash (used in)/ generated from operations Income tax paid Net cash (used in)/ flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securities Net investments in held-to-maturity securities Dividend received Investments in operating fixed assets Sale proceeds of property and equipment disposed-off Net cash used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Issue of right shares Share premium received against issuance of shares Net cash flow from financing activities Increase in cash and cash equivalents Cash and cash equivalent at beginning of the year Cash and cash equivalent at the end of the year
152,815 (318,817) (2,301,201) (89,225) (2,390,426) 291,150 (374,447) 126,092 (91,033) 827 (47,411)
(2,037) 1,605,139 2,813,019 (67,619) 2,745,400 (1,923,498) 485,938 121,153 (21,122) 1,657 (1,335,872)
2,002,035 550,559 2,552,594
409,915 204,958 614,873
114,757 7,513,112 7,627,869
2,024,401 5,488,711 7,513,112
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7.3
SWOT ANALYSIS
STRENGTH, WEAKNESSES, OPPERTUNITIES, THREATS SWOT an acronym that stands for strengths, weaknesses, opportunities and threats.SWOT analysis is a careful evaluation of an organizations internal strengths, weaknesses as well as its environmental opportunities and threats. In SWOT analysis the best strategies accomplish in organizations mission by: Exploiting opportunities and strengths. Neutralizing its threats and Avoiding its weaknesses. Following is a list of SWOT of BOK 7.3.1 STRENGTHS
Following are the main strengths of IBD of BoK. The main strength of IBD of BoK is that its major stake holder is the Government of NWFP so it is provincial government bank, so it has a say in the provincial government and are not facing as many difficulties in regulations etc. as faced by another banks. The provincial government has made it compulsory for all the provincial Department / Institutions to keep 33% of their deposits with BoK. Due to this order the deposits of IBD of BoK has grown substantially. Now-a-days one of the important strength of the IBD of BoK is its small branch network. The bank does not have branches in such areas where there is no business. The other private and nationalized commercial banks are closing their unprofitable branches and are passing through a paradigm shift; IBD of BoK is not facing such a situation at this time. They intend to open new branches in strategic business areas. As compared to other Pakistani banks its staff is well qualified, skilled, knowledgeable, and courteous and can handle any situation tactfully.
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The senior management of the bank is competent and takes expatriate decisions to make the bank profitable. As all the major activities of branches and head office has been computerized. Which gives a leading edge to the bank? The bank works hard to start their credit cards and online banking. Another leading point of the bank is the trust and help expressed by international financial institutions like IFC and DEG, which have opened new ways for the bank to generate funds. As BoK is not only a commercial bank but also acts as a development bank so its corporate strategy is according to the cry of the day. Which is to strengthen the SMEs and local industry to cope with globalization challenges. This leads to the increased utility and importance of the bank. The open communication and friendly environment developed by the management and staff of the banks makes it very easy for the management of the bank to take the right decision at the right time. Most of the banks in the country lack such type of environment. The banks offers new schemes and facilities from time to time which keeps not only the clients of the bank committed but also leads to a growing sound base of deposits. The Good thing in IBD of IBD of BoK that major decisions are made in light of SSC Member (means they review every decision in compliance with Shariah) 7.3.2 WEAKNESSES
Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. The major weaknesses of IBD of BoK are listed below:
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Internship Report on Bank of Khyber As it is a provincial government bank so the unwanted interruption by provincial government authorities hampers the bank good well, position and profitability. The other major weakness of IBD of BoK is that far it has not been able to receive the branch-opening license of proposed branches in the country and outside the country from SBP. The space of BoK Head Office is very limited so the bank has shifted some of their departments to State Life Building but still the departments are overcrowded which effects the employees performance at the head office. Substantial bad debts of the bank effect are liquidity and profitability. This is the weakness on the part of Recovery Department that they have not been able to recover it. Lack of transparent system of recruitment and selection. Lack of sound training system according to organizational goals. Coordinated and targeted marketing activities are lacking in IBD of BoK and also the Marketing Department has no value and presence in the bank. Most of the employees are unmotivated and lack of technical knowledge and are scared about their career development. Most of the employees are having the lack of Islamic banking knowledge. Not consistency in training programs. Non aggressive policies (due to that IBD) are losing his experienced personnel. 7.3.3 OPPORTUNITIES Organizational opportunity is defined as An area in the environment that if exploited may generate high performance. The Bank of Khyber can avail the following opportunities if they keep a vigil eye on the environment and the changes, which are occurring in the environment. As the situation in Afghanistan is getting better slowly and gradually multinational companies and other rehabilitation agencies are opening their offices in
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Internship Report on Bank of Khyber Afghanistan. To facilitate the rehabilitation process and the trade between Afghanistan and other countries including Pakistan IBD of BoK should open their branches in Kabul and Jalalabad inside Afghanistan and at Landi Kotal, Miran Shah and Para Chinar in N.W.F.P., Pakistan. As IBD of BoK is not only engaged in commercial banking but also acts as development bank, so their development banking sector is according to the current government policies and also with in accordance with the policies of international financial and development situations so they can avail this opportunity by joining hands with the government and DFIs in the investments in development sector. As BoK is planning to step in the Islamic Banking System so they should capture this market before any competitor comes in. Construction work is in progress on Deans Trade Centre the biggest Trade Centre of Asia. It will attract the business community and multinational companies to flourish over here. IBD of BoK can avail this opportunity by opening a new branch in Deans. The bank should expend their branches and lower in come groups can reduce the default risk and can enhance the bank good will and profitability. Strong promotional strategies can attract huge deposits for the bank. 7.3.4 THREATS
Organizational threat An area in environment that increases the difficulty of an organizations achieving high performance. The threat faced by IBD of BoK, if not faced tactfully it will harm the bank image, performance and profitability. These are: The Electronic banking facility offered by different national and international banks is a serious threat to IBD of BoK. IBD of BoK should soon offer the e-banking facility to maintain their customers.
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Internship Report on Bank of Khyber In modern banking the ATM facility is of immense importance. IBD of BoK should install ATMs at their major branches to cope with the ongoing competition between commercial banks. The low rate of savings in the country is a serious threat to IBD of BoK. They should aware the general public about the advantages of savings and investments. The distributed political and legal environment of the country is also a threat to the bank. The decreasing confidence of people on commercial banks on the basis of offering low returns and charging high interest rates is a threat to the IBD of BoK also. Stagnation of the industry and economy in the country in general and in the province in particular is a serious threat to IBD of BoK. The failure of other NWFP based banks has shattered the bank image and the confidence of the investors. Major Banks have started their Islamic banking system which is the major threat for IBD of BoK. Of the most banks they have adopted the aggressive policy due to which the turn over rate is very high at IBD of BoK.
7.4 SUGGESTIONS
Regardless of it that the problem is of the external nature or that of internal nature, it is necessary for the bank administration to solve them properly so that the bank can run better towards the achievements of its pre-determined objectives. Using the proper way of administration could solve both the external and internal problem. All the employees working in the bank may be granted motorcycle advance, which may be recovered in easy installments, while sanctioning the advance period of the service should not be taken into account because it closes the way for newly recruited Institute of Management Studies, UOP 59
Internship Report on Bank of Khyber employees. Also there should be one or two tea breaks for the relaxation of the employees during the working hours. Approximately one or two clerks may be appointed other than the sanctioned strength, so that one the time when one takes leave could be replaced by the person in extra. This may cause some financial problems to the bank for which an institution always tries to get rid off. But it will help the bank in negotiating the public properly, which will increase the goodwill of the bank the eyes of public that will result in the increase in the business of bank and profit of bank. The workers should give leave at any emergent time. This will increase the desires of workers for worker. Proper remuneration to a worker brings positive results for the institution. It is therefore suggested that if any employee works more than four hours, as overtime should be given full delayed assigning jobs according to their knowledge and skills. The computers should be utilized properly in order to decrease the expense of bank and increase the ratio of work done per hour. In this regard the computer literate person should be recruited and proper programs should be purchased because the computer works much faster than the human being.
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BIBLIOGRAPHY
1. 2. 3. 4. 5. 6. 7. 8. 9. James C. Van Horne & John M. Wachowicz. (2001). Fundamentals of Financial Management. India: Saurabh Print O Pack. Meiges, Robert. F. (1999). Accounting: The Basis for Business Decisions. Boston: Irvin Inc. Human Resource and personnerl Management by Werther and Davis Griffin R. W. (1997). Management. Delhi: A.I.T.B.S. Publishers & Distributors Howard, M. A. (1979). Management Essentials; Concepts and Application. Chicago: Science Research Associates, Inc. Kenney, R. D and S. Y. Mc Mullen. (1978). 6th Edition. Financial Statements: Form, Analysis, and Interpretation. London: Irwin-Dorsey International. Robert, F. M, JR. Williams, S.F. Haka, and M. S Bettner. (1999). 11th Edition, Accounting; the Basis for Business Decisions. New York: Irwin McGraw-Hill. Samuel, C. C. (1989). 4th edition, Principles of Modern Management. Massachusetts: Sayers, R. S. Modern Banking. Oxford: The Clarendon Press.
Periodicals
1. 2. Brouchers of Bank of Khyber. Manuals of Bank of Khyber.
Reports 1. 2. 1. 2. 3. The Bank of Khyber, Annual Report 2007. The Bank of Khyber, Information Memorandum 2005. www.bok.com.pk www.banking/history/pakistan.com www.google.com.pk.
Websites :
Contact: Shahab Ahmed, IMS University of Peshawar. Mobile: 03459034858 E-Mail: brown_ozar@yahoo.com
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Internship Report on Bank of Khyber CHAPTER -1

INTRODUCTION TO THE REPORT

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Internship Report on Bank of Khyber

SCHEME OF THE REPORT

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Internship Report on Bank of Khyber

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Internship Report on Bank of Khyber

AN INTRODUCTION TO BANK OF KHYBER

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4.11.1 Organization hierarchy

Shariah Supervisory Committee/ Shariah Advisor

Islamic banking Division

Risk Management Deptt.

Product/ Business Development

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DEPARTMENTATION OF THE BANK

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Insurance Mark-up Repayment

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Internship Report on Bank of Khyber 5.3.2 DEMAND FINANACE

DOCUMENTARY LETTER OF CREDIT

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Internship Report on Bank of Khyber CHAPTER -6

RECOMMENDATION AND IMPLEMENTATION

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