ACKNOWLEDGMENT

Countless thanks to Almighty Allah (The most merciful the most beneficial). The only creator of universe who enabled me to complete this project, in spite of various difficulties. All respects to the Holy Prophet (P.B.U.H) who enable us to recognize our greater and whose spiritual teaching guide us in every matter of the life. I am immeasurably, indebted to Professor Ch. Nazir Ahmed who kindly provided program in a good organization like Bank Alfalah Limited. It was valuable experience for me to do such an interesting work and it was really a delightful job for me to do. I am esteemed thankful to Professor Abdul Rahim for his guidance and suggestions in different phases of this study. A very special thanks to all the people at Bank Alfalah Limited, who helped me to collect information, which was necessary for the completion of this report. Here I would like to mention the name of Mrs.Afshan Naqvi, Mr.Qaiser, Mr.Najam-ul-Zaman and miss zehra Tayib, all of whom contributed invaluably and incompliantly to this endeavor. Once again, I am thankful to all those who directly or indirectly helped me in writing this report.

PREFACE
The internship is an essential part of M.Com degree program because through this training students come to know the real difference between theory and practice and they also introduced to the outside business world. An important requirement of this training program is to compile a report about the activities of that organization in which student has done the internship. I have done my internship in Bank Alfalah Limited, Kashmir Road, Lahore. The internship provided me great opportunity to equip myself with knowledge, techniques, application and tools used in an organization. I have tried to choose suitable words to lighter the subject of this report. Because words are the symbols used to express ideas. There are the tools of affective writing. There importance lies in the power, when they have suitably chosen and arranged to convey and through to other in language, that is the understandable clearly and understood readily. An important requirement of this report is that it should be comprehensive and written in good style, I have tried my best to make the style of this report as good, as possible, because style in writing as in other walks of life, is a quietly peculiar to the individual, as not to people write alike. Background, training, experience and the way a person thinks determine it. The source of information for the preparation of report includes the written notes extracts from banking literature and verbal discussion with bank officials. I hope this report will help in understanding various aspects and features of Bank Alfalah Ltd. and will be equally important for commerce students and persons making future banking.

Saher Mumtaz M.Com final semester.

INTRODUCTION
THE BANK Bank Alfalah during the past five years, has assumed a brand new identify thanks to a progressive and forward looking approach and revived commitment following the privatization of H.E.C.B in 1997. Since then, the Board and Management of the Bank have implemented strategies and policies to carve a distinct position for the Bank in the market place. In a bid to satisfy Bank Alfalah's shareholders and valued clients, the management initiated the process of realization of the Bank's vision by consolidating its financial position and creating a large and diversified business base. The Abu Dhabi Group, principal owners of the Bank, played a pivotal role in helping the Bank cross major milestones as a single-source financial services provider of Corporate and Retail banking solutions. THE MANAGEMENT Alfalahs management is known for their hard work, innovative spirit and dedication to create exceptional value of the Bank's clients and to keep the Bank ahead of competition. With a team of talented, and dedicated professional bankers, the Bank commits all its energies, resources and time to cater to banking and financial needs of its valued clients. THE PRODUCT LINE Banks performance over the years has seen it excel even when faced with challenging economic conditions. This has been a result of its highly prioritized and specifically tailored products and services designed to suit the needs and preferences of our highly valued customers. True to its strategy of becoming a highly effective financial supermarket, Bank Alfalah provides a complete range of products to its corporate clients, commercial enterprises and to the consumers.
3

To the larger corporate clients Alfalah offers syndicated loans and structured financial products. For commercial entities bank offer current and saving accounts, on-line services, commercial credit, trade finance and speedy and personalized service. Our Consumer Banking product range includes successful products like Car Finance, Rupees Travelers Cheques, Anmol Saving Certificates, Home Loans for NRPs, Online Banking and Money Gram Remittance service. To further strengthen our customer's trust in our innovative abilities, Bank Alfalah is soon going to launch a new range of products including Credit Cards, Leasing, ATMs Phone Banking and Debit Cards. Our primary commitment is to understand and support our client's business objectives and financial needs. At Bank Alfalah, all this is ensured through constant R & D focus and training & development of staff. COMMUNITY DEVELOPMENT Based on client's trust in our performance, our resolve today is to actively pursue enrichment of Pakistans economy through sophisticated products and high quality service customized to their needs. This serves to reinforce our vision of carving out a brighter future for Pakistan, its business enterprises and its people. The Bank sponsors a number of sporting and community development initiatives to play its part as a responsible corporate citizen. THE VISION Bank Alfalah professes to be a financial supermarket with innovative products to suit the needs of our corporate customers, commercial enterprise and consumer banking clients. Our Vision is to become a leading financial institution offering complete banking solutions to our clients, and to maintain a systematic focus in areas where we have a competitive advantage. Our focus is on improving performance in each of our businesses to achieve consistent and superior returns for our highly valued stakeholders

FINANCIAL HIGHLIGHTS Notwithstanding the taken completion and difficult business climate, the Bank made significant improvements in its operating results The Bank earned a pre-tax profit of Rs.524.164 million, a 31% growth over last year. Our goal is to be a top tier bank in terms of professionalism, profitability and market position. Returns on equity, protection of depositors funds and efficient funds and efficient risk managements are our priority concerns We were successful during 2001 on the further mobilization of resources by attracting low cost and stable deposits. Our deposit base as on December 31,2001 stood at Rs.30.207 billion as against Rs.20.482 billion at the close of year 2000.We developed innovative and attractive product for our depositors and offered them branded deposit schemes. The market response to these has been more than encouraging .We looks forward to an even greater increase in our deposit base, with the addition of new branches to our network. Our Loan & Advance portfolio grew by 23.62% to Rs.20.220 billion. Our objective is to increase revenue while limiting our exposure to risk. Through disciplined management and careful selection of clients, business and products we maintain quality and foster productive growth.

ORGANIZATION PROFILE

Name of the organization: Chairman:

Bank Alfalah Limited H.H sheikh Nahayan Mubarak Al-Nahayan

BOARD OF DIRECTORS: Mr. Omar Z.Al. Askari Mr. Abdullah Khalil Al Mutawa Mr. Abdulla NaseerHawaieel Al Mansoori Mr. Ikram Ul Majeed Sehgal Mr. Nadeem Iqbal Sheikh Mr. Mohammad Saleem Akhthar Location: Telephone: UAN: LDA Plaza,Kashmir Road,Lahore. 92-042-6306201-10 111-777-786

Fax: Telex: Email: Web Site:

92-042-6368905 44651 FALAH PK lahore@bankalfalah.com www.bankalfalah.com

BOARD ADVISORY COMMITTEE: Mr. Omar Z. Al Askari Mr. Ganpat Singhvi Mr. Bashir A. Tahir EXECUTIVE COMMITTEE: Mr. Mohammad Saleem Akhter Mr. Ikram Ul Majeed Sehgal Mr.M. Waqas Mohsin Mr. Tanveer A Khan Mr. Mohammad Yousaf AUDITORS OF THE BANK: M/s A.F. FERGUSON &CO. CHARTERED ACCOUNTANTS LEGAL ADVISORS OF THE BANK: Zafar Laws Associates Sajad Law Associates Samee & Bilal Associates Ansari Laws Associates

BRANCH NETWORK
KARACHI

Bahadurabad branch Clifton branch Cloth market Defense branch Karachi Gulshan-e-Iqbal branch Jodia bazaar branch Korangi industrial area branch M.A jinnah road branch Main branch North Karachi industrial area North Napier branch Paper market branch S.I.T.E branch Sharah-e-Faisal branch
8

 Stock market branch Timber market branch LAHORE Allama Iqbal town Badami bagh branch Circular road Credit card center Defense branch Gulberg branch LDA plaza branch Shahalam market Township branch COUNTRYWIDE Bahawalpur D.G.Khan Faisalabad Gujranwala Gujrat Head office Hyderabad Islamabad Jehlum branch Mardan Multan Peshawar Quetta Rawalpindi Rahimyar khan Sahiwal Sialkot Sargodha Sukkar

HISTORICAL BACKGROUND OF BANK

Bank Alfalah Limited was being formed after going through different changes. At first the Bank Alfalah Limited was working with the name of Bank of Credit and Commerce International (BCCI). BCCI was incorporated in Luxembourg on September 21,1972. At that time its paid up capital was US $ 2.50 million. By early 1973 BCCI has established its first four branches in three countries. 1.Luxembourg 2.UAE 3.UK with the passage of time the branch network of Bank Alfalah Limited was expand rapidly in different region of the world i.e Far east, Middle east, Africa, Europe and Western and Latin America. Its founders were an influential and professional team possessing an intimate knowledge of East Asian and Middle Eastern countries, particularly those

10

with oil resources and expertise for sophisticated operation of three most important elements in the early formation of organization, e.g. Investor from the oil producing countries of Middle East. A business connection in expanding markets. A well developed and fully equipped management structure. MAJOR FUNCTIONS OF BCCI BCCI performed the following international function along with the domestic commercial banking International banking services to meet the needs of individual. An intermediary bank between importer and exporter. Advanced loans for the persons involved in foreign trade. Domestic commercial banking services to its clients in shape of deposits advances the loans and guarantees. Due to its prominent position in the middle east the group has been instrumental in issuing bid bonds, performance bonds etc. Advanced computer system to facilitate the clients. Provisioning of effective services of foreign trade. Bills for collection, inward and outward both clean and documentary are attached by BCCI, which provide fast and efficient remittances operations from many third world countries to multinational corporations. BRANCHES OF BCCI IN PAKISTAN There were three branches of BCCI in Pakistan. These were Karachi Lahore Rawalpindi The Lahore branch was opened on 15th December 1978. This branch was opened at that time when some other international banks like Citi Bank, Bank of America, and American Express etc. were already working. But within a few years this branch crossed mostly all the other banks in case of deposits, advances, imports and exports dealings, guarantees, travelers cheque sales etc. LIQIUDATION OF BCCI

11

BCCI was liquidated on July 5,1991.At that time BCCI was opening in almost 69 countries in the world. When financial authorities launched a coordinated swoop in what was alleged to be the biggest international fund in history. INCORPORATION OF HABIB CREDIT AND EXCHANGE BANK (HCEB) In July 1991, the branches of BCCI in Pakistan at that time took over by ministry of finance and SBP. All three branches were emerged in HBL after valuation of its assets for 15 million dollars. It worked with Habib Bank Ltd. For around about 10 months from 14 March 1992 to 31st October 1992. PRIVATIZATION OF HABIB CREDIT AND EXCHANGE BANK HCEB was privatized on July 7, 1997. Management was taken over by Abu Dubai based Alnahan consortium. This consortium consists of foreign investors of UAE and highly professional Pakistani bankers. Mr.Sheikh Pervaiz and Mr. Omer Khan represent this consortium in Pakistan. The bank was sold for Rs.39 per share for buying 70% shares. The government decides to sell 10% shares to employees and rest of the shares was privatized by stock exchange.

EMERGANCE OF BANK ALFALAH LTD. Following the privatization in July 7,1997 Habib Credit and Exchange Bank assumed a new identity of Bank Alfalah on February 25,1998. Bank is committed to develop products that give more value to its customers. With its deposits already soaring by more than 40% after privatization, Bank Alfalah has embarked upon expansion program to ensure physical presence in all cities of Pakistan. With a team of talented, service dedicated professional bankers, Bank Alfalah commits all its energies, resources and time to cater to all banking and financial needs. STATUS AND NATURE OF BUSINESS Bank Alfalah Limited was incorporated on June 21,1992 as public limited company under the companies ordinance 1984 and it commenced banking operation from November1,1992. It is engaged in commercial banking related services as defined in the banking Companies Ordinance 1962.
12

MANAGEMENT SYSTEM
It is fortunate for Bank Alfalah Limited that the leaders e.g. the top management is very much qualified and has the ability to lead in a good and effective manner. In Bank Alfalah Limited all kinds of policies and strategies are formulated and worked out by the board of directors and the executive committee. The leadership style at Bank Alfalah can rightly be mentioned as the customer oriented. Some individual persons have some leadership traits in their personality. The top management should have a contact with such persons, as it will help them in achieving their objectives. MISSION STATEMENT The bank has the same mission of Habib Credit & Exchange Bank and the BCCI. The following are the main points of mission statements of the Bank Alfalah. To provide best banking services to its clients. To earn maximum profit for its shareholders.

13

 To make maximum contributions in national savings. OBJECTIVES OF THE ORGANIZATION Objectives are the ends of towards which all activities of the organization are directed. Without a clear objective no organization can survive in the competitive business environment. Any organization involves in business has profit earning as the most important and primary objective. So the primary objective of Bank Alfalah is the profit earning.

MANAGEMENT HIERARCHY

CHIEF MANAGER

MANAGER OPERATIONS

Manager Accounts

Manager Credits
14

Manager Foreign Currency Manager International Manager Administration Accounts Banking

Manager SAM* Manager General Banking Manager Marketing

* SAM (Special Asset Management)

15

STRUCTURE OF VARIOUS DEPARTMENTS

1. ACCOUNTS DEPARTMENT MANAGER ACCOUNTS

Officer (1)

Officer (2)

Officer (3)

Officer (4)

BRIEF DESCRIPTION OFFICER (1) Is principally engaged in following three types of functions: Daily funds management Various type of reporting Monitoring of new and old foreign currency forward contracts with SBP. OFFICER (2) Is responsible for daily activity checking OFFICER (3) Is responsible for making daily weekly and monthly reporting to different types of Banks operation. OFFICER (4) Is responsible for applying test keys for security of foreign remittances

16

2.

CREDIT DEPARTMENT

MANAGER

CREDIT MARKETING

CREDIT ADMIN

Credit Officer (1)

Credit Officer (2)

Office In charge

Credit Officer (3)

Credit Officer (4)

Officer (1)

Officer (2)

Credit Officer (5)

BRIEF DESCRIPTION
CREDIT MARKETING o In credit marketing there are five officers who work jointly and are responsible for: o Marketing activities o Making credit proposals to send to head office for sanctioning CREDIT ADMIN

In credit admin there are two officers one of them is responsible for scrutiny of loans, which are to be dispersed, and other one is monitoring of repayments schedules as monitoring accruals of markup etc.

17

3.

FOREIGN CURRENCY ACCOUNTS

Head of Department

Officer 1

Officer 2

Officer 3

BRIEF DESCRIPTION:
OFFICER (1) Is responsible for cancellation of cheques drawn on foreign currency accounts and deposit of foreign currency. OFFICER (2) Is responsible for foreign remittances both inward and outward OFFICER (3) Is responsible for cases of Special US Dollars Bonds

18

4.

TRADE FINANCE

HEAD OF DEPTT.

EXPORT
E-Form Checking Collection Officer LC Opening Officer

IMPORTS
LC Return Officer

Export Refinance Officer

Negotiation

Scrutiny & Lodgment of Documents

Scrutiny & Lodgment of Documents

BRIEF DESCRIPTION Imports section In imports section there are two Officers one of them is responsible for LC opening and other is for LC return Exports section In exports there are six officers as follows First one is responsible for E-form certification and LC advising Is responsible for realization of exports Is responsible for collection of document under/without LC Is responsible for exports refinance Is responsible for scrutiny of lodgment of negotiable documents Is responsible for realization of negotiable document
19

ACCOUNT OPENING DEPARTMENT

The primary function of a commercial bank is to receive deposits and advance loans. Deposits are the lifeblood of a bank. These are also the main source of banks funds. WORKING OF DEPOSIT DEPARTMENT The deposit department deals with the following functions; 1. Opening of new accounts 2. Issuance of cheque books 3. Miscellaneous function ACCOUNT OPENING The bank open the account of its customers which includes An individual A firm Company Corporation or association ACCOUNT OPENING PROCEDURE In order to open the account with the Bank Alfalah Limited a proper method is followed for this purpose. For account opening a proper method is followed mainly in following steps First of all a customer must have his original identity card (in case of residents customer) and original passport (in case of nonresidents customers). The client is provided with a set of forms containing account opening form, SS card and requisition slip to be filled. The forms are properly verified. Then the customer is allocated an account no. In order to operate the account a cheque book is issued to the customer. Now we discuss the particulars of these forms one by one. 1. Account opening form This form contains the following details; Currency in which client wants to open account (e.g. local or foreign). Types of account (saving or current or royal profit account). Title of account (name of account holder) and his address.

20

 Nature of account (single or joint), in case of joint accounts the required details of joint account holder. Name & address of nominee/next of kin (the person who is legally entitled to receive the balance in case of death of account holder). Type of organization, if any (partnership, sole proprietorship, club/society/association, or company that may be either limited, or, public, or private etc. Details of other accounts, if any. Undertaking to be filled by the client to abide by the terms and conditions of bank. A mandate to be filled by the joint account holders. A list of required documents for limited co., partnership or society is given at the end. 2. SS card Along with the account opening form, specimen signature card is to be filled Requiring the following details; Type of account (saving/current/royal profit) Telephone number Nature of account Operating instructions (in case of joint account) Specimen signatures 2. Requisition slip This slip is filled for getting cheque book issues. ISSUANCE OF NEW CHEQUE BOOK After an account holder uses his chequebook completely, he can apply for another. The procedure is as follows; He takes the requisition from the old chequebook and submits to the bank after filling it. The officer will match the signature in the banks record. If the sign matches, the chequebooks according to the account type are issued, as separate chequebooks are maintained for different accounts. After issuing the entry is made in the register as well as in the computer.

21

MISCELLANEOUS FUNCTIONS The deposit department deals with several other miscellaneous functions such as; Closing of account Amendments in the account Letter of thanks Closing of account For closure of account, the customer has to request the bank by written application. He surrenders the remaining cheque book to the bank. He has to submit Rs.200 if he is closed within 6 months from opening. Amendments in account If the customer wants to make change in the address or any details or change authority for account operating, he has to fill a letter for that he changes or fill the mandate with the bank. Letter of thanks At the end of the day, the letter of thanks is issued to the new account openers and also to the introducers. TYPES OF ACCOUNT BAL opens the following accounts; Current account (both in foreign and local currency) Saving account (both in foreign and local currency) Royal profit account ( in pak. Rs.) CURRENT ACCOUNT Every bank maintains the current account with its customers; A current account is running account which is continuously in operation by the customer on all working days of the bank. The customer withdraws money from current account without prior notice to the bank. In short, in current account, the banker incurs an obligation to honors all the cheques drawn by the customer so long as there is enough money to credit of the client.

22

Interest on current account The banks dont usually pay any interest on current account in local as well as foreign currency. The amount can be withdrawn at any time, so the bank cant comply these funds due to fear of withdrawal. Who are interested in opening current account? The current account is operated by traders, business companies, institutions, public bodies, industrialists who Wish to have working capital in their custody Like to receive and make payments through cheques Are interested in keeping their money liquid and safe Utilize the agency services of the bank frequently Advantages of having current account The customer gets the following advantages on behalf of current account; The bank collects properly endorsed cheques on behalf of current account holders The bank may allow the facility of overdraft on prior arrangements to the trustworthy customers. Loans and advances may be sanctioned to the creditworthy clients with ease. On line facility alternative of cash transaction is also provided to customers having min. balance of Rs.500,000/- in their current account. Initial deposit The minimum initial deposit for current account in local currency in Rs.1000. where as for maintain current account min.Rs. 5000 is must; otherwise the bank will take Rs.200 for not maintaing account properly. Initial deposit in foreign currency current account is US$ or UK pound 500. Summing up, the current account doesnt earn but serves the cause of industry trade and commerce.

23

SAVING ACCOUNT Saving deposit account is an ideal account for those who have money to save but cannot profitably invest it anywhere else, as amount is too small. Saving deposit is an important source of fund for commercial banks. It is opened to encourage thrift among the persons of small means. Saving account is opened both in local and foreign currency. Withdrawal of amount The depositors are normally allowed to draw a limited amount of money only twice a week. If a customer wants to withdraw a large sum of money, he then has to give a prior notice of 7 to 15 days in writing to the bank. The bank can safely invest the deposits of saving account, as it knows that only the customer withdraws a small percentage of this account. Interest on saving account On Pak. Rs. Account the bank usually pays interest according to prescribed rates by the central bank. This amount is credited to the customers account after every 6 months. The rate doesnt remain the same but fluctuates due to many reasons e.g. conditions of the bank, banks total deposits position, inflationary and deflationary powers in the economy etc. The rate of interest on foreign account is as follows; US$ saving account (new) 2.25% UK pound saving account (new) 2.00% While interest rate on the old foreign currency accounts is 1.00% both for initial deposit, while in foreign currency account the minimum amount is 500$ or p.stg. ROYAL PROFIT ACCOUNT Royal profit account is just like the saving account with the following major differences; The royal profit account is opened only in local currency. Minimum balance for opening royal profit account is Rs.25000/. Rate of profit is higher.

24

CASH AND DEPOSIT

As name implies this is preliminary deals with the cash, which involves payment of cheques issued by the customer and receipt of the cash deposited by the customer and receipt of the cash deposited by the customers in their accounts. The procedure involved in payment and receipt of cash is given below. Cash payments Payment of cash to customer involves the following procedure 1. The cheque is presented to the cashier first, who takes care of following precautions a) It should not be out dated. b) There should not be any crossing on it, if so the signature should be with cutting. c) Two signature of the customer receiving the cheque should be in the back of the cheque. d) There should not be any difference between the amount and figures e) It should not be crossed. 2. The cheque is entered in the computer by the cashier and customer account is debited. 3. If the amount of the cheque exceed the customer balance in that account a note regarding this will automatically appeared on the computer screen. Such entries are immediately scratched. 4. Finally the cheque goes to the officer, who first, checks the signatures, whatever it is according to the specimen signature card, he will also check the conditions mentioned in no.1. If he has any doubt he will reject the transaction. Otherwise he authenticated the transaction and sign on the cheque. 5. The cheque is finally returned to the cashier for payment. 6. If the cheque is dishonored due to any reason Rs.200 is deducted from the account of the customer as a penalty for that return. 7. At the start of next day all the cheques, which are honored by the bank on previous day, are sent to account department for permanent record.

25

Stop check report At the end of the day, a stop check report is prepared which is used in the next day. This list is fed in the computer. This report indicates the special instructions made to honor the cheque drawn by him to any reason. Lien marked Lien marked means a certain amendment, which is freezing in the account of the customer. So the customer has to keep minimum cash balance with the bank. Lien is marked usually when the customer has taken a loan from bank or he is required to deposit a margin amount for the issuance of letter of credit. Debit Cash Vouchers When the cash is deducted from a certain account by the instruction of bank, a debit cash voucher is prepared. Debit cash voucher must be signed by the two responsible bank officers with the reason for deduction of cash mentioned on it. Usually debit cash voucher is prepared for the payment of expenses like salary of clearing staff, payment of demand draft etc. Cash Paid Register When all the cheques are paid then all entries regarding payment of cash is entered if the cash paid register by the cashier & total payment during the day is computed. This sum is then subtracted from the opening balance of the cash. The responsible officer then verifies all these entries. Receipt Of Cash Receipt of cash involves the following procedures. 1. All the cash is deposited on a specific deposit slip. The depositor has to mention specific deposit account number, name of the account holder and the amount which he wish to deposit in his account on this slip. 2. This slip is presented to the cashier along with the currency note, he count the notes and stamp the slip with cash received if he is satisfied, then he enters the slip in the computer by crediting the account. 3. Finally the trans action regarding deposit of cash is authenticated by the responsible officer and put his signature on the slip. Now the transaction is permanently stored in the computer. 4. At the start of next day all deposit slip of the previous day is sent to accounts department for permanent record.
26

Cash Received Register At the end of day when all the cash has received it is manually entered in a cash receipt register. This sum is added in the opening balance of the cash and hence closing balance is calculated. Physical Checking of Closing Balance (opening balance + receipt payment) is physical checking by cashier after closing hours. There should not be any difference between the two balances, if any he is not allowed to leave counter unless the reason for difference is traced out. Cash Required In Emergency A certain amount of cash is kept in bank lockers for meeting daily requirement but if any further cash is required in emergency due to some heavy payment, such cash is called from other branches or from ABP. Such cash reached within one or two hours.

GOVERNMENT SECURITIES This department is handling in purchase and sale of Government securities i.e. Defence saving certificate and special saving certificate. The profit for DSC is given after one and year and for SSC is given after six months.

27

CLEARING DEPARTMENT

Function: The major functions of clearing department are to receive the cheques, which are drawn on some other bank. The customers can get many cheques in his account at BAL from the cheques drawn on other banks. The bank accepts these cheques and collects the amount from other bank. Bank charges some commission of these facilities. This department is controlled by the operation Manager or the Head of the department. PROCEDURE FOR CLEARING OF CHEQUES 1.Pay-In-Slip: The customer fills pay-in slip; this slip is just like deposit slip. The cheque number, account number and amount must be mentioned in this slip. 2.Stanping and Scrutinizing: The officer on receipt of cheque will stamp cheque received and give a portion of slip to the costumer and remaining portion of attached with original cheque. The following stamps are affixed in the cheque. (i)BANK ALFALAH LIMITED (ii) OBC out ward bill for collection At the end of the day all cheques are counted and then scrutinized bank wise and sent to clearing house. 3.Clearing HOUSE: This is a facility provided by SPB by acting as clearinghouse. A representative of all bank gathered daily at evening. Each bank collects the cheque on behalf of their customers and handed over the cheques, which are not drawn on their bank, to their representatives. Clearinghouse is present in all major cities and where their branches of SPB the National Bank Of Pakistan provides this facility.

28

Types Of Clearing 1.Inward clearing 2.Outward clearing 3.With in bank transfer Inward Clearing: Inward clearing means the cheques, which are to be honored by bank, which are received through other bank representative. These cheques are honored by the same process mentioned in each department. Outward Clearing: Outward clearing means the collection of cheques on behalf of draw of customers drawn of other bank. Outstanding cheques are sent through SMS, courier or registered post to their original source. All the risk and responsibility for the lost of cheques are born by customer. With In Bank Transfer: If the cheque is drawn on BAL with in of same branch or any other branch, it is called with in bank transfer. Such cheques are marked with Transfer stamp.

29

FOREIGN CURRENCY ACCOUNTS

This department deals with foreign currency. Working in foreign currency department is as follows: 1. Account opening in foreign currency 2. US$ bonds 3. Foreign remittances Inward remittances Outward remittances 4. Issuance of foreign currency travelers cheques 5. Term deposit receipts (TDR) 6. Bills for collection 1.ACCOUNT OPENING IN FOREIGN CURRENCY BAL opened foreign currency accounts both current account and PLS saving account of its customers. The procedure for opening the foreign currency account is the same as local currency account except that minimum requirement for to open foreign currency account in BAL is US$ 500/2.US $ BONDS The US $ bonds are issued by foreign currency account department only to those account holders whose accounts were frozen on 28 May,1998. Types of US$ Bonds Special US $ bonds US $ bearer bonds The major difference between these is that any person who holds the bond can receive the profit of bearer bonds. But the profit of special US $ bonds can be received only by the legal holder of the bond whose name is written on it. May 1998 1998 to 02/09/99 3 years Libor+2% Libor+1% 5 years Libor+3% Libor+1.5% 7 years Libor+2% Libor+1%

30

LIBOR: London inter branch offered rates Denominations The worth of bond also varies. It may be of US $100,1000,10000 & 100000. These are issued for 3 years, 5 years and 7 years respectively. Profit on US $ Bonds The profit is calculated according to LIBOR that is received daily. Bondholder is entitled to receive profit after every six months. Profit is paid by two methods; 1. Cash debit vouchers 2. Party credit vouchers Encashment of US $ Bonds On maturity bank send a request to state bank for encashment of money. There are three methods of encashment: 5% premium In dollars Reinvestment 3.FOREIGN REMITTANCES Inward remittances BAL receives the inward remittances in the form of foreign telegraphic transfer only. The following procedure is applied; 1.A telex message is received from abroad showing the following details Originators name Beneficiarys name Beneficiarys bank Beneficiarys account number Value date Amount (in US$ or p. stg)

2. A particular test is applied on the face of FTT by foreign bank that has to be testified by BAL. (Test is a language of signs and symbols use by the different banks of the world and confirm that particular FTT has been received from that bank)

31

3.After the bank verifies the test, the bank will debit the account due from treasury and credits the beneficiarys account.

Outward remittances Outward remittances can be made by two ways Through foreign telegraphic transfer (FTT) Through foreign demand draft (FDD)

Foreign Telegraphic Transfer For getting foreign telegraphic transfer issued the person must be an account holder of the bank. Procedure of issuing FTT 1. First, the client has to fill an application from mentioning the following details: Originators name Beneficiarys name Beneficiarys bank Beneficiarys account number Amount in foreign currency Equivalent Pak. Rupees Value date
2. The bank will deduct its charges and prepare the telex message

showing the same details. 3. Then the test is applied and is sent to AMEX Karachi and from theyre onward to AMEX New York. 4. AMEX N.Y will pay to intermediary bank (the corresponding bank of beneficiary bank in New York). 5. On getting intimation of payment, the bank debits the partys account and credits the due from treasury account. Foreign Demand Draft The facility of outward remittances can be provided in form of foreign demand draft (FDD). Conditions 1. The originator must be foreign currency account holder. 2. The foreign demand draft must drawn on some bank;
32

 HBL N.Y (in case of US $) HBL London Procedure of issuing FDD The client has to fill an application form The bank deducts the following charges US $ or equivalent Pak. Rupees debit of account in case DD through

US $+0.5%(min. 5$ or equivalent Pak. Rupees) Against surrender of foreign currency notes A cheque is required drawn in favor of BAL to authorize it to debit the clients account. Due from treasury account (in case of new foreign currency account) Head office account (in case of old foreign currency account) After fulfilling the requirements the demand draft is handed over to the client showing all the details. Cancellation of foreign demand draft The bank deducts the following charges in this relation On the cancellation Rs.200+actualtelex and postage charges On issuing duplicate demand draft RS.200 + actual telex and postage charges 3.FOREIGN CURRENCY TRAVELERS CHEQUES BAL issues foreign currency travelers cheques in US$ to the foreign currency account holders. Types of Travelers Cheques Two types of travelers cheques are issued; Travelers cheque through foreign currency account Travelers cheque issued through travel quota

33

 Travelers cheque through foreign currency account In this case, the travelers cheque is issued through debiting the account of the client.1% commission is charged by the bank on the total amount of travelers cheques. Travelers chequs issued through travel quota In this case the travelers cheques are issued by Private travel quota Business travel quota Private travel quota In this method, travelers cheques are issued on the basis of visit visa of the client. The client has to fill the form T-I showing the following details; Name of the client Ticket Passport Visa Amount Endorsement is done on the ticket and on the passport to show that particular travelers cheque has been issued on the travel quota basis. Through travel quota max.2100 $ (51$ x 42 days) are issued on the inter-bank rates provided by state bank of Pakistan.

Business travel quota Through business travel quota, the client fills the form T-II verified by any trade union that the particular persons aim is to expand the business abroad on behalf of his firm/organization. 1% commission is charged by the bank. Encashment of Tavelers cheques The encashment is only done in the following cases: It travelers cheques had been issued by the same bank. If party has the good credit standing. Cancellation of Travelers cheques The cancellation is done in the following conditions: The client surrenders unused quota.
34

 Reported to Sate Bank of Pakistan. Passport is endorsed showing the number of unused days. Travelers cheques can be cancelled if more travelers cheques have been issued by mistake of the bank officer. 4.TERM DEPOSIT SCHEME (TDR) The term deposit receipts (TDR) is very similar to term/fixed deposit in which money is kept for a certain specified period (Maximum up to 1 year) on fixed rates. These rate varies with the duration. The following rates are applied: New foreign currency accounts currency accounts 30/90 days 180 days 365 days TDR deals with Royal Patriot Term deposit ROYAL PATRIOT This is the one of banks products. The main difference between royal patriot and term deposit is that rate for royal patriot varies with period of deposit as well as amount. TERM DEPOSIT These are classic profit & loss-based deposits, where bank and client share profit and loss. Minimum limits for these schemes are: Royal patriot Rs.25000 Term deposit Rs.25000 (classic PLS deposits) Cancellation of Term Deposit Receipts 2% charges are deducted on cancellation, on the remaining period of TDR. 2.50% 2.75% 3.00% 1.25% 1.75% 1.50% Old foreign

35

6. BILLS FOR COLLECTION This department deals with the outstation cheques and payments. All clearing of these cheques and payment is done by clearing section of cash department through NIFT. The department keeps record and prepares vouchers for incoming & outgoing cheques for collection purposes. So this department has two major dealings in 1. Outward bills for collection (OBC) 2. Inward bills for collection (IBC) Outward Bills for collection These are the cheques presented Bank Alfalah Lahore branch but are drawn on different banks/or our bank branch outside Lahore. The amount is collected on these cheques. Inward Bills For Collection These are the cheques drawn on different banks/Bank Alfalah in Lahore but are presented in our banks outside Lahore. So, tha bank has to pay the amount on these cheques.

36

CREDIT DEPARTMENT

INTRODUCTION The credit department plays a key role in a bank it earns considerate income in form of mark up on its advances. SECTIONS The credit department has been sub-divided into two sections 1.Credit Marketing 2.Credit administration & Monitoring 1.CREDIT MARKETING The main function of this department is to market a customer for the bank. Credit Policy of the Bank The credit policy of any banking institution is the combination of certain globally and locally accepted time standards and other dynamic factors dictated by realities in ever-challenging market and industry. The extension of a credit facility should add value to the banks assets should be borne by the bankers. For this purpose the bank takes special care for judging the 1.Ability to repay 2.Willingness to pay 1.Ability to pay The ability of a client to repay can be judged by the financial statements of the customers company. To avoid the danger of fake statements the SBP has put on some regulations on all the banks, which are called as prudential regulations. Every financial institution is bound to follow these rules in advancing loans, e.g. all the credit institutions is bound to lend the customers having current ratio of their assets equal to minimum 1:1. 2.Willingness to repay
37

The willingness to repay can be determined by verbal discussion with him or CIB (credit information bureau) report. TYPES OF BORROWER Individuals Existing account holders Staff members Relatives of staff members Employees of other banks Joint account Business entities Sole proprietorship Partnership Limited companies Joint ventures Group accounts Other accounts Traders Club/associations Federal, provincial, local government bodies Manufactures Steps Taken in Advancing Loans The following are the steps taken in advancing loans to its borrowers; When customer is marketed, the officer takes a sort of interview from its prospective customer. The request is written form is received and a visit report is prepared. If viable, the request is given to the credit officer. Then the bank request is given to the credit officer. Then the bank requests the SBP to provide him the CIB report of the customer. If irregularity occurs the proposal is returned to the customer for regularization/rectification, and if not then CLP (credit line proposal) is prepared. Facilities provided by the Bank The credit marketing provides the customer only with non-funded facilities, i.e. Letter of Guarantee.

38

GUARANTEE A guarantee may be defined as An undertaking given by a person to be answerable for the debt, default or miscarriage of another person. Advances against guarantee Guarantee as a security for advances arises only when the borrower is not able to satisfy the bank for his credit worthiness. The banker will ask for guarantee only if acceptable collateral securities are provided to him. Parties of a guarantee Are as follows I. Guarantor The person who gives the guarantee. II. Creditor The person to whom the guarantee is given. III. Principal debtor The person for whom the guarantee is given. TYPES OF GUARANTEE Performance bond When the contact is on performance basis. Bid Bond When the applicant is bidding for a contract. In this case.2% of the amount of bid has to be substituted to the bank. Retention Money Guarantee In which certain %age of money is withheld pending for satisfactory performance. Advance Payment Guarantee In which, the applicant assures the beneficiary for an advance payment up to signing a deal.
39

PROCEDURE FOR ISSUING LETTER OF GUARANTEE The letter of guarantee is opened on request of customer, who is a current account holder of the bank. In letter of guarantee all the relevant details are mentioned. A customer guarantee is taken from the customer authorizing the bank to sell out the securities held with the bank in case of default. The bank requires a letter of Lien, pledge and authority for shares, stocks and securities in case the security is deposited is other than margin (cash). The guarantee is issued in the name of creditor on a stamp paper after all the legal documentation showing the date of issue, expiry amount, reference of the contract between debtor & creditor. Commission of the Bank The bank charges commission at a fixed rate i.e. . 0.5% per quarter on the amount of guarantee. EXPIRY OF LETTER OF GUARANTEE When the period for which the letter of guarantee was issued expires, the customer brings the letter of guarantee back to the bank. The bank cancels the letter of guarantee by drawing two lines across the face of it.

2. CREDIT ADMINISTRATION & MONITORING The credit administration & monitoring department performs many functions. Some of them are a) Perfection of securities b) Perfection of legal documentation c) Management information system (MIS) d) On going monitoring of account
40

e) Facilities provided by the bank (a) Perfection of securities The main function of this department is the security consideration. SECURITY A security is an interest or right in property given to the creditor to convert it into cash, in case debtor fails to meet the principal amount & interest on the loan. MODES OF SECURING ADVANCES Hypothecation Pledge Mortgage 1.Hypothecation It may be defined as A legal transaction whereby goods may be made available as security for a debt without transferring property or possession to the lender (bank). The advancing against goods without taking their possession is very risky for bank on two grounds; As the goods are in the custody of the customer (owner), the borrower may take out the goods without informing the bank. Secondly, the bank does not have legal claim as it does not have a valid charge over the goods. Therefore the bank takes special care in this case. Rights of the Bank The bank can exercise the following rights in case of hypothecation; The bank has the right to inspect the godowns. It can also demand periodic report of the stock. The hypothecation goods are to be issued by customer. In case the are not insured the bank has right to get them insured and recover those charges from the borrower. In case, the bank finds the contract is being violated, it has the right to obtain stop orders from appropriate authority. 2.PLEDGE It can be defined as:

41

A pledge is a contract whereby a good is deposited with the lender as security for repayment of the loan. Transferring the goods from owners godowns may make the delivery of goods or keys of owners godowns are handed over to the bank or his appointed Muccaddam. (Muccaddam is the organization providing the facility of agents on behalf of banks. The appointed Macadam must be on the list of approved Macadams). Rights of the Bank The bank can exercise the following rights in case of pledge; The bank can retain the goods pledge not only for payment but also for the interest and other charges incurred by bank. In case of default of customer the bank can dispose of the goods after giving proper notice to the borrower. The bank has the right of full value of goods till such time; the entire debt is not discharged. 3.MORTGAGE It s means A mortgage is the transfer of interest in a specific immovable property for the purpose of securing money advanced by the way of loan, an existing of future debt. Condition The main condition for mortgage is that only the immovable property can be secured. The lending of money on real estate (immovable property) is not very popular with most of the commercial banks. However in the last few decades the loan on real estate are growing. Difficulties faced by the bank in case of mortgage The bank has to lock their funds in the loans having long-term maturity. The loans on real estate lack liquidity. In case of their default, there are no organized markets where that property and amount recovered to pay off the loan. Since other for unpopularity are as under; Legal hindrances Heavy expenses of legal mortgage Lack of liquidity Difficulty in valuation Delay in recovery of loans Finding of tenants and their repairs costs
42

Preliminary inquires for advances against mortgage To secure its position, the bank takes into account the following inquires in case of real estate; Proper valuation of real estate Inquiry about title to property Preparation of title deed Search for prior charges (b) Perfection of legal documentation In this department the documentation is checked and analyzed, whether all the terms and conditions are as per the contract between the customer and bank and no clause of contract causes may harm to banks interest. (c) Management Information system The basic purpose of this department is 1. Reporting to state bank of Pakistan about various details of banks advance position that helps in preparing the ultimate CIB report. 2. Reporting to government about total financing of bank for various purposes. 3. Reporting to head office on daily, weekly and monthly basis about Credit position of each and every customer Total financing of the bank in the cotton & textile sectors etc. (d) On Going Monitoring of Customers Account It is the inspection of customers account and monitoring securities from time to time.e.g. Godowns inspection in case of pledges Analyzing clients report about hypothecated goods Project examination for which the guarantee has been taken Interim review (e) Facilities provided by the bank The credit administration provided the customers with the following fund based facilities; 1.Current Finance/Running Finance/Overdraft

43

An overdraft is the right given by a bank to his customer to draw in excess of his current account up to a certain fixed limit. Condition The bank gives the facility to overdraw by cheques allowed only in current account. The CF or overdraft facility enable a customer to draw over and above his own balance up to the extent of limit as agreed, e.g. if there is a credit balance of Rs.6000/- in the current account of Mr. A and he is sanctioned an o/d limit of Rs.10,000/-, he can draw up toRs.16,000/- by cheques. Interest The customer is given the option to withdraw this amount either in installment or in lump sum. The interest is charged only on the ve balance. Procedure of granting Current finance The bank does not provide the facility of CF to all the customers. The bank scrutinize the application Examine the credit worthiness of client Then approves the upper limit to overdraw the current account with or without the security. But generally security is demanded. 2.Term Finance/Cash credit A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit The banker determines the limit of TF on considering The nature and scope of activities of customer Total turn over of business Value of assets & liabilities Evaluation of securities offered The purpose of loan applied for Condition Term finance is self-liquidity commercial loan. Arrangements are usually made against the securities of goods hypothecated or pledge with the bank. Procedure of granting Term Finance 1. It is a contractual advance and is operated through a separate TF account.

44

2. It is advanced to commercial and industrial concerns against hypothecation and pledges of goods and produce. 3. Before granting TF facility the bank takes special care in Trust & credit worthiness of customer Familiarity salable commodities Familiarity with the fluctuation of prices of goods to be secured against TF Proper valuation of goods Insurance of goods pledge Interest In TF, the customer is given the facility of withdrawing the whole amount of loan at one time or partially as and when required. Interest is charged only on the amount actually withdrawn by the customer. The bank then loses the interest on the un-utilized amount. To avoid the loss, the bank binds the client in TF agreement to pay interest on the prevailing rate on or portion of the amount of TF limit. Difference between Current & Term Finance The term finance is an arrangement for a long period for industrial and commercial concerns doing regular business with the bank, while Current finance facility is given for a shorter period. The rate of interest is high in case of Term finance and low in case of current finance. The overdraft facility is provided only in the current account, while separate account to be maintained in the case of cash credit. FIM (finance against import merchandize) FATR (finance against trust receipt) LBP-D (local bills purchased) Summing up the credit department helps in Development of bank by earning income in the form of mark-up. Development of whole economy by financing the development projects both in private and public sector and help in accelerating the rate of growth. This department facilitates the trade activities both inside and outside the country

45

ACCOUNTS DEPARTMENT INTRODUCTION The accounts department deals with various routine activities for the bank. The main activities performed by it are 1.Budgeting 2.Reporting 3.Maintainance & depreciation of fixed assets 4.Miscellaneous function 1.BUDGETING Accounts department of a bank, for a year makes budget of every branch. Fiscal year of bank starts from January and ends on December. The accounts department starts preparing budget from October the next year. Procedure The budget is based on forecasting through past performance. First of all, the bank reviews what are its sources of funds and where it can utilize these funds? The main sources of the bank are deposits, securities issued by the bank, borrowing from other banks, borrowing from SBP, banks paidup capital, its reserve fund, profit generated by the bank. The bank may employ these funds in lending to others at a high rate of mark-up. Investment in securities, placement in inter-bank markets etc. It also takes into account the income from other sources, cost of funds, administrative expenses, and utilities expenses. Then the budget is submitted to the head office for recommendation and modification. Monthly budget meeting is held by branch managers to analyze the monthly performance. Budget and actual performances are employed and variance is computed for analysis. Variance can be negative or positive. Variance does not mean that it will have positive effect on the overall profitability e.g. positive increase in deposits is not always coupled with positive increase in advances.
46

 The management will then drive the reasons for the variance and take remedial measures to achieve the targets.

2.REPORTING The accounts department in the form of reports clubs and details of various departments together. Each and every minute detail is provided in weekly, monthly and annual reports. The reports are submitted to head office, SBP and to the government. Kinds of Reports Following reports are prepared by the accounts department on daily basis. Statement of affairs Income & expenditure New FCY report Royal profit report Outstand receipt report Subsidiary statement Currency wise deposits report Subb 66 report Following are the reports that are prepared on the basis of reports granted from mainframe. These are very important for proper analysis and feedback. Daily advance and deposit position Daily exchange position Daily fund management Closing Reports Monthly assets & liabilities Monthly budget review report Monthly monitory statement Monthly performance review report Schedule of maturity distribution 3.MAINTAINING OF FIXED ASSETS & THEIR DEPRICIATION

47

Accounts department maintains the record of all the assets and charges depreciation on them. The bank normally uses the straight-line method to compute the depreciation. Department prepares asset purchase report and asset sale report after every 6 months that helps in changing the depreciation. It is calculated on monthly basis and charged yearly. Bank not only depreciates the existing assets but also the assets but also the assets transferred in and transferred out. The rate of depreciation for different fixed assets is as follows: Equipment 20% Building 2.5% Vehicles 25% Furniture 10% Carpets & curtains 25% 4.MISCELLANEOUS FUNCTION The accounts department also performs some other miscellaneous functions: a. Daily activity checking b. Reconciliation statements c. Test keys d. Closing entries e. Foreign exchange forward transaction (a) Daily Activity Checking The accounts department the vouchers with daily activity report generated by the computer. The vouchers are then sorted out into bundles according to their categories and comparing with the activity report checks the posting of transaction. (b) Reconciliation statements The bank prepares reconciliation statement with head office and SBP. Head office Reconciliation with head office is done in reconciliation department. The branches sent out the head office. They check the posting of all the entries if outstanding, which has not been posted by branch or head office. The reconciliation is carried out in the head office and accounts department handles quarries.

48

State Bank of Pakistan The SBP keeps the record of every scheduled bank. The bank statements and statements of SBP are reconciled on daily basis. Reconciliation is basically setting of outstanding entries. The reconciliation statement contains two sides. One contains entries originated from bank but not responded by SBP and on the other side entries originated by SBP but not responded by bank.

(c) Test Keys Test keys are used to authenticate and secure the transaction. These keys are used for both inward and outward transactions. In local transfer double coding is used while in foreign transaction single coding is used. Each bank to arrive at the code uses separate test keys. Four things must be carefully checked because code is based these four items; Branch name Date Currency Amount The basic purpose of test is to secure the transaction. (d) Closing Entries Accounts department also passes the closing entries on monthly, 6 monthly and yearly bases to calculate the profit and analyze the overall performance for a certain period. (e) Foreign Exchange Forward Transaction In the past, the banks has to keep their foreign exchange with SBP on the agreement that SBP will purchase the foreign exchange on book rate and charge a fee for covering the risk. This whole transaction was known as foreign transaction. Now this facility is not available. To bank on new accounts, but they can avail it by renewing their limit on old accounts with SBP. Bank carries out this transaction through Treasury has two options: They can invest foreign exchange in the international market but they will have to pay high-risk fee. They can also deposit with SBP that will offer 3.15% on these new foreign currency accounts. The bank offers 2.25% to its customers; net saving by the ban is almost 0.9%.
49

But it is up to treasury where to invest foreign exchange. Summarizing up We can say that the accounts department holds a sort of internal check on the branch relating to its income and expenditures.

TRADE FINANCE
TRADE Trade deals with entry/departure of goods into/from one country to another country International trade basically is a consequence of an agreement between buyer and a seller separated by geographical boundaries. To ensure secured transfer of goods to the right buyer and a right seller, the services at the financial institutions are of great importance. In this relation the banks have proved to be not merely dealers but also the leaders. Summing up, the banks are the nerve center of all the economic activities including international trade. SECTION OF TRADE DEPARTMENT This department deals in trade financing. It has further two departments: 1. Import section 2. Export section IMPORT SECTION Introduction: In the common words import means bringing of commodities into a country from outside by sea or air. Requirements to be fulfilled: When a person wants to import, he must have to register his name, his company name. The EPB makes a registration with an application. There are two requirements that he has to fulfill; Importer must have a current account in that bank. He should be the member of chamber of commerce.
50

Letter of Credit: It is a conditional bank undertaking of payment. It is defined as; An L/C is a commitment on the part of buyers bank to pay or accept draft drawn upon it provided draft doesnt exceed a specified amount.

TYPES OF LETTER OF CREDIT: There are various types of L/Cs used in trade. The main kinds are as follows; 1- Revocable Letter of Credit: It is the one, which can be cancelled or modified by the issuing bank at any time without any notification to the seller. Since it offers little security to the seller, it is hardly used in foreign trade by the exporter. 2-Irrevocable Letter of Credit: It is the L/C that can be amended or cancelled only with the agreement of issuing bank, confirming bank and seller. This L/C gives more security to exporter as compared to revocable L/C.

3-Confirmed Letter of Credit: The letter of credit is that which has the protection of credit standing of importer as well as exporters bank. The exporters bank that confirms the Letter of credit takes the liability of paying agents, in case of issuing ban fails to make payment to the exporter. 4-Unconfirmed Letter of credit: Under the un confirmed Letter of credit the advising bank (through whom the credit is negotiated) does not give any kind of guarantee to the exporter that, the bill drawn will be honored by the issuing bank. Parties of Letter of Credit: It has following parties: Importer (buyer) Opening bank (bank that issues L/C)
51

 Exporter Negotiating bank (who makes the payment) Condition for opening Letter of Credit The bank will open Letter of Credit only if importer has an import license. Import license in Pakistan is issued on the following basis: C&F (Cost and Freight) Insurance of shipment is borne by importer, while exporter pays the freight under this condition. CIF (cost insurance and freight) Exporter has to pay both insurance and freight under this condition, but not applicable in Pakistan. CIF & C.I When goods are shipped on CIF and C.I (commission and interest) basis, it means the price quoted includes cost, freight, insurance, commission and interest. FOB (Freight on Board) When freight of goods shipped, is not realized in advance by shipping company, it is then to be paid by the importer on delivery of goods at the port of destination. PROCEDURE FOR OPENING LETTER OF CREDIT Buyer and seller enter into a sale contract providing for payment through Letter of credit. The importer will request his own bank or some other bank that deals in foreign trade transactions to issue a Letter of Credit in favor of exporter. The issuing bank asks for another bank to advice for confirm the letter of credit (advising bank is the bank that takes reasonable care to check the apparent authenticity of the credit that it advises). When seller receives the Letter of credit and it satisfies with its terms and conditions, it is the position to dispatch the goods. After making the shipment the seller sends the documents evidencing the shipment to bank where credit is available.

52

The bank checks them against the Letter of Credit. If documents are as per Letter of Credit, the bank will pay. The bank will send the documents to issuing bank. Issuing bank will check the documents and if they are as per the requirement of Letter of Credit, it will affect payment. Issuing bank after it is satisfied will send the documents to the importer upon terms agreed between buyer and issuing bank. Buyer takes the transport documents to the transporter of goods to have delivery of shipment. Documents required by L/C: It includes; 1.Transport documents B/L (incase of sea) WB (incase of air transport) 2.Insurance documents (issued by insurance co.) 3.commercial invoice (description of goods) 4.Other documents Certificate of origin Packing list Bills of exchange Modes of payment: The payment of goods may be in the following ways; 1.Sight/CAD The Letter of credit in which the payment is received with in two weeks from dispatch of documents. 2.Usance The payment is made after a specified number of days after the presentation of required documents by beneficiary. 3.Short-term finances FIM (finance against importer merchandize) FATR (finance against trust receipt) EXPORT SECTION Introduction:

53

Export plays the major role in the economic development of the country; it is the one of the major sources of earning foreign exchange without additional burden of the economy. Exports means export of all eligible commodities through authorized banking channels admissible under exchange control regulation. SECTION Export department has three branches; (a) Collection-registration (b) Negotiation (c) Export refinance (a) Export Registration Procedure: The exporter must have export license and a current account with bank. When party has registered then either he enters into a contract with reporter or receives L/C. then he prepares goods and ship them, but before shipment and after contract he comes to bank and gets 4 copies of E-form against invoice fills out and takes them to custom department after getting certified by the bank, where the E-forms are verified documents required for exports: E-form (duplicate & triplicate) Request letter by party Insurance certificate Invoices Packing lists Bills of exchange Bills of lading or air way bills Certificate of origin

E-form: E-form is the first and foremost requirement of export. It confirms that exporter is known to bank. It is a form whereby a exporter a declaration about; Full details of receipt quantity and value of goods Term of sale CAD L/C CIF (cost insurance & freight) C&F (cost & freight) DA basis (documents against acceptance)
54

Trust receipt Name & address of importer and exporter Modes of transport & transport documents Destination

Copies of E-form: E-form consists of 4 copies; 1-orignal copy is for custom authority (sent to SBP at time of shipment) 2-duplicate copy is for banks record 3-triplicate is sent by bank to SBP at time of realization 4-quardruplicate is for exporters (client) on record Issuance of E-form: E-form is issued to exporter after receiving the documents bank attaches recovering letter with them that contains the instructions for payments and documents are sent to foreign banks. All payments are received through telex then clients account is credited. Triplicate copy of E-form is completed and attached, bank charges are filled on it and documents are submitted to SBP and thus export file is close. (b) Negotiation Negotiation means discounting of a foreign bill of exchange. Bank provides another facility by providing finance in the form of negotiation of a bill. The bank purchases the bill and provides funds to party against; Process: The exporter receives his L/C form importer through advising bank. Then he ships the goods and comes to bank for negotiation i.e. he sells the documents to bank and gets payment after complete checking of documents. Now bank is responsible for further process. The bank receives the payment and the file is closed. But if client does not negotiate the document and gets a loan against the documents then he will be responsible till the amount realized at maturity. The bank receives mark-up on the loan. Scrutiny of documents The most importer job is to scrutinize the documents whether they are according to the requirements of Letter of Credit or not. Cases of Negotiation:
55

The bank negotiates in 3 cases; 1.If the bank is satisfied with documents, it makes payments on the spot. 2.when exporter has sent documents for collection and bank receives acceptance through telex it will pay. 3.Without getting acceptance the bank may negotiate depending on the will of the customer. 4.In case the bank is not satisfied it takes an Identity from client. Discounting the Bill: Exporter has to meet various payments & expenses, so in order to meet the customers needs; the exporter avails this facility and discounts the bill. After discounting the bill amount is credited to customers a/c, the discounted amount is expense of party and on the other side, income of the bank documents required for negotiation: Only those documents are required that are backed by Letter of Credit because only in this case bank is secured for receiving the payment. Uniform customs and practice for documentary credits 1993 revision, ICC publication no.500 shall apply to all documentary credits. If documents are correct, payments made to party the foreign currency a/c amount is converted into Pak. Rupees, on the OD buying rate. In case of usance bill the foreign currency is converted into Pakistani rupees at relevant export buying rates. In case of both sight & usance when their proceeds are credited to banks abroad a/c, in books of branches the conversion is made at T.T documentary buying rates. It yields the bank considerate exchange earning. Discrepancies in the documents: After checking the documents discrepancies are pointed out, the exporter takes them back & remove them. Then again presents documents for negotiation. If documents with discrepancies are sent to foreign banks, it informs the importer if importer accepts the documents with error then importers bank is authorize to deduct the discrepancy fee under foreign bank charges. Normally discrepancies are of nature as follows; Late submission of documents Late shipment L/C expired Invoice mistakes L/C overdrawn Name and addresses of exporter are not as per L/C
56

(c)Export Refinance: State bank of Pakistan introduced this scheme this year 1975 to facilitate and encourage Pakistani export. The salient features of export finance scheme envisages the provision of financing facility to exporter by schedule banks types of export refinance (a) Part I (b) Part II (a) Part I There are two types of part I 1. FAPC (pre shipment) 2. FAFB (post shipment) FAPC (pre shipment): It is financing against patching list. The purpose of this financing is to provide funds to exporter to produce or purchase goods for export. The loan has to be repaid by exporter within 180 days. If exporter does not pay, the bank repays it to SBP. The facility is also called percipient. The following documents are required; D.P note (demand promissory paper) Annexure A (on stamp paper) Contract of sales E.C form (prepared by exporter for details of contract) D.E form Undertaking FAFB: (post shipment): If is financed against foreign bills and also known as post shipment finance. This facility is achieved after exporter shops the goods and sends shipping documents in collection. The rest of the condition remains same as under FAPC. The documents required are; Original contract Annexure A D.P note Invoices AWB or B/C EC form When payment is received, we adjust our loan a/c with the balance. Then amount is paid to SBP accompanied with a covering schedule.

57

Part II: This facility is provided to clients who have shown special performance in exports last year. The SBP established a limit for financing. Maximum limit is 180 days. The performance is checked by EE statement in which details are clearly mentioned. Then statement is verified by SBP. The exporter can get max.% of last years exports. This is to be paid in one year e.g. if total worth of exports in 2001 was 5million he will get a part II limit up to % i.e. 2.5 million in 2002, also exporter will be required to show export performance of at least 5 million in 2002, to get a borrowing of up to 2.5 million in 2003. Mark up calculation: (Total amount x mark up % age) x number of days/360 Summing up, trade & finance department is one of the most important department of the bank, as it determines the Fluctuation in foreign currencys rates Balance of trade Methods of exchange Control

58

INTERNSHIP ACTIVITIES
This chapter is based on my observation and experience during my internship in Bank Alfalah Limited, Kashmir Road, Lahore. ACCOUNT OPENING DEPARTMENT: In account opening department I learnt about: Account opening procedure The persons who are eligible to open an A/C Kinds of A/C offered by BAL Information about Royal profit Documents required by different categories of persons Issuance of cheque book Preparation of debit and credit vouchers Details about loose cheques Procedure of closing an A/C Information about zakat exemption formations REMITTANCES DEPARTMENT: In remittances I have learned about transfer of money through Demand draft (D.D) Pay order (P.O) Pay slip (P.S) Telegraphic transfer (T.T) Mail transfer (M.T) Local remittances and outgoing remittances Schedule of bank charges for remittances Calculation of taxes on remittances Calculation of taxes on remittances
59

 How to prepare pay order, demand draft TERM DEPOSIT AND O.B.C DEPARTMENT: In term deposit department I learnt about: Notice of deposit Term deposit (TDR) Calculation of profit Information about royal group Information about Royal Patriot Outstation bills for collection Maintenance of O.B.C register Procedure of O.B.C Commission for O.B.C Lockers facility & its charges GOVERNMENT SECURITIES: In government security department I learnt about: Defense saving certificate Special saving certificate Calculation of profit Commission of BAL Zakat implementation of DSC & SSC Preparation of credit voucher CLEARING DEPARTMENT: In this department I learnt about: Procedure of clearing a cheque Checking of cheques Inward and outward clearing Within bank transfer Different reason of returning a cheque Types of clearing stamps CREDIT DEPARTMENT: In this department I learnt about: Credit facilities for customers Long term & short term loans Employees loan Securities for credit How to give credit to customers
60

Five Cs of credit How to prepare credit line proposal Parts of credit file Facilities for borrowers Study the prudential register How to recover the loan Funded facilities Non funded facilities Letter of guarantee and its types

IMPORT DEPARTMENT: In import department I learnt about: Issuance of import registration certificate Parties of L/C Letter of credit opening procedure Types of L/c Import license (registration of import in EPB) Import bill Checking an scrutinizing of documents Mode of payment EXPORT DEPARTMENT: There are three sections in export department namely documentation collection and refinance section in documentation and collection section. Here I learnt about: Procedure of registration as an exporter Documents needed for export Form E Checking of documents Exchange control regulation How to make foreign documents bills for collection How to make export payment realization certificate How to fill covering letter Mode of payment EXPORT REFINANCE DEPARTMENT: In this department I learnt about: Different kinds of refinance scheme Procedure of getting the facility
61

 Documents required for the avail the facility Different fines from SBP Mark up calculation

BALANCE SHEET AS AT DECEMBER 31, 2002

Note ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax asset LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities NET ASSETS REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of assets CONTINGENCIES AND COMMITMENTS 6 7 8 9 10 11 12 13 14 15 16 17 18 13 2002 (Rupees in 000) 4,540,486 232,728 4,634,398 24,694,397 28,319,401 984,847 1,760,774 65,167,031 758,961 6,037,576 51,684,984 650,000 1,196,342 1,186,501 61,514,364 3,652,667 1,000000 365,727 250,050 1,615,777 2,036,890 3,652,667 2001

3,885,612 1,081,208 1,698,969 11,396,616 19,131,494 1,180,775 1,424,883 298,538 40,098,095 305,558 6,709,054 30,207,324 716,475 37,938,411 2,159,684 750,000 361,591 249,701 1,361,292 798,392 2,159,684

19

20 21

The annexed notes form is integral parts of these accounts.

62

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2002
Note Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against non-performing loans and advances-net 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 Other income Total non-mark-up/interest income NON MARK-UP/INTEREST EXPENSES Administrative expenses Other provisions/write offs Other charges Total non-mark-up/interest expenses PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION Unappropriated profit brought forward Transfer from general reserve Transferred from surplus on revaluation of fixed Assets - Prior year - Current year net of tax Profit available for appropriation APPROPRIATIONS Transfer to statutory reserve Issue of bonus shares interim @ 33.33% (2001: Nil) Cash dividend @ 25% (2001: Nil) Unappropriated profit carried forward Basic and diluted earnings per share 28 22 23 10.4 2002 2001 (Rupees in 000) 4,630,494 3,112,313 1,518,181 (53,619) (1,447) (55,066) 1,463,115 316,368 62,077 95,165 141,808 615,418 2,078,533 1,182,887 993 1,183,880 - 894,653 (448,974) 445,679 249,701 85,000 38,098 20,708 58,806 839,186 (89,136) (250,000) (250,000) (589,136) 250,050 4.46 3,391,935 2,515,074 876,861 13,705 13,705 890,566 147,277 41,910 113,923 74,756 377,865 1,268,432 743,602 666 744,268 524,164 (213,552) 310,612 1,211 311,823 (62,122) (62,122) 249,701 365

24

25 26 27

The annexed notes form an integral parts of these accounts. Chief executive Officer Director Director Chairman

63

CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2002
Note CASH FLOW FROM OPERATING ACTIVITIES Profit/(Loss) before taxation Less: Dividend income Adjustments for non-cash charges Depreciation Amortization intangible assets Amortization deferred cost Provision against non-performing advances Bad debts written off directly Gain on sale of fixed assets Provision for gratuity (Increase)/Decrease in operating assets Lendings to financial institutions Advances Others assets (Increase)/Decrease in operating assets Bills Payable Borrowings from financial institutions Deposits Other liabilities Gratuity paid Income tax paid Net cash flow 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 fixed assets disposed of Net cash flow from investing activities CASH FLOW FROM FINANCING ACTIVITIES Issue of share capital Issuance of Term Finance Certificates Dividend paid Net cash flow from financing activities Increase/(Decrease) in cash and cash equivalents Cash and cash equivalent at beginning of the year Cash and cash equivalents at end of the year 2002 (Rupees in 000) 894,653 (62,077) 832,576 141,235 1,898 7,989 53,619 1,447 (2,568) 15,925 219,545 1,052,121 (2,535,429) (9,242,973) 77,083 (11,701,319) 453,403 (671,478) 21,477,660 196,464 21,456,049 10,806,851 (3,490) (277,366) 10,525,995 (13,584,669) 3,012,810 78,714 (481,755) 5,299 (10,969,601) 650,000 650,000 206,894 5,116,820 5,323,214 2001

524,164 (41,910) 482,254 80,862 347 7,989 (13,705) (401) 11,646 86,738 568,992 (178,654) (3,875,472) (70,355) (4,124,481) 199,205 792,451 9,725,756 285,498 11,002,910 7,447,421 (2,675) (270,633) 7,174,113 (5,346,241) (1,194,705) 29,178 (221,688) 3,352 (6,730,104) 150,000 (210,000) (60,000) 384,009 4,932,811 5,116,820

29 29

The annexed notes form an integral parts of these accounts. Chief executive Officer Director Director Chairman

64

AUDITORS REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Bank Allah Limited as at December 31, 2002, and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof (here in after referred to as the financial statements) for the year ended December 31, 2002, in which are incorporated the un audited certified returns from the branches except for fifteen branches which have been audited by us and we state that we have obtained all the information and explains which, to the best of our knowledge and belief were necessary for the purposes of our audit. It is the responsibility of the banks management to establish and maintain a system of internal control, and prepare and present the internal statements in continuity with approved accounting standard and the requirements of the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit. We conducted, our audit in accordance with the International Standard on Auditing as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also included assessing accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and after due verification, which in case of loans and advances covered more than sixty percent of the total loans and advances of the bank, we report that: (a) in our opinion, proper books of account have been kept by the bank as required by the Companies Ordinance, 1984 (XLVII of 1984) and the returns referred to above received from the branches have been found adequate for the purposes of our audit; in our opinion: the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984), and are in agreement with the books of account and are further in accordance with which we concur; The expenditure incurred during the year was for the purpose of banks business; and The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the bank and the

(b) (i)

(ii) (iii)

65

(c)

(d)

transactions of the bank which have come to our notice have been within the powers of the bank; In our opinion and to the best of our information and according to the explanations given to us the balance sheet, profit and loss account, cash flow statements and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and give the information required by the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984), in the manner so required and give a true and fair view of the state of the banks affairs as at December 31, 2002, its true balance of profit, its cash flows and changes in equity for the year ended December 31, 2002, and In our opinion Zakat deducible at source under Zakat and User Ordinance, 1980 (XVIII of 1980) was deducted by the bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance. A.F. Ferguson & Co.
Chartered Accountants

Karachi:
Dated: 10 March 2003

66

BALANCE SHEET
AS AT DECEMBER 31, 2002
Note ASSETS Cash Balance with other banks Money at call and short notice Investments Advances net of provision Operating fixed assets Other assets LIABILITIES Deposits and other accounts Borrowings from other banks, agents etc. Bills payable Other liabilities Deferred liabilities staff retirement gratuity NET ASSETS REPRESENTED BY Share capital Reserve fund and other reserves Unappropriated profit Shareholders equity Surplus (deficit) on revaluation of investments Surplus on revaluation of fixed assets MEMORANDUM ITEMS Bills of collection Acceptances, endorsements and other obligations Contingent liabilities and commitments 4 5 6 7 8 9 10 11 12

ANNUAL REPORT

2002 2001 (Rupees in thousands) 2,044,725 1,798,086 890,000 4,967,542 15,242,317 1,231,161 1,403,328 27,577,159 20,481,568 4,639,130 106,353 625,312 6,694 25,859,057 1,718,102 600,000 299,469 1,211 900,680 (13,528) 887,152 830,950 1,718,102 3,528,206 4,586,797 1,687,250 1,161,434 100,000 4,993,035 10,327,325 1,153,607 1,596,952 21,019,608 15,820,473 2,972,240 120,868 372,855 6,892 19,293,328 1,726,280 600,000 286,399 8,931 895,330 895,330 830,950 1,726,280 1.9 1.1

13 14 15 16 17 18

The annexed notes form an integral part of these accounts

Chief Executive Officer

Director

Director

Chairman

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED DECEMBER 31, 2000
Note Mark-up/interest and discount and / or return earned Less: Cost/return on deposits, borrowings etc. Fees, commissions and brokerage Profit from investment securities Dividend income Other operating income Operating expenses: Administrative expenses

ANNUAL REPORT
2000 1999 (Rupees in thousands) 2,258,527 1,905,808 1,724,041 1,474,343 534,486 431.465 103,838 58,043 19,617 13,792 8,951 138,963 114,250 271,369 186,085 805,855 617,550 503,256 402,559

19

20

67

Provision against non-performing advances net Bad debts written off directly Provision for other losses Other income Profit before taxation Taxation - current - prior - deferred

7.2

21

(103,950) 7,619 406,925 398,930 1,420 400,350 (170,000) 175,000 (190,000) (185,000) 215,350 8,931 224,281 (43,070) 30,000 (210,000) (223,070) 1,211

(136,076) 175 266,658 350,892 3,523 354,415 (22,000) 58,663 (36,554) (197,891) 156,524 3,712 160,236 (31,305) (120,000) (151,305) 8,931

Profit after taxation Unappropriated profit brought forward Profit available for appreciation Appropriations: Transfer to statutory reserve Transfer from general reserve Proposed dividend @ Rs.3.5 per share (1999: Rs.2 per share) Unappropriated profit carried forward

Chief Executive Officer

Director

Director

Chairman

68

CASH FLOW STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2000
Note CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Profit from investment securities Dividend income Adjustment for non-cash charges Depreciation Amortization of deferred cost Provision against advances written back Provision for gratuity Profit on sale of fixed assets (Increase)/Decrease in operating assets Government securities Other securities Advances Other assets Increase/(Decrease) in operating liabilities Deposits and other accounts Bills payable Other liabilities Cash flow before gratuity and tax Gratuity paid Income tax refunded/(paid) Net cash inflow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of term finance certificates Proceeds from the redemption of term finance certificates Profit received on investment securities Dividend income Fixed capital expenditure Sale proceeds of fixed assets Net cash inflow/(outflow) from investing activities CASH FLOW FROM FINANCING ACTIVITIES Borrowings from other banks, agents etc Dividend paid Net cash inflow from financing activities Increase in cash and cash equivalents during the year Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash and cash equivalents Cash

ANNUAL REPORT
2000 1999 (Rupees in thousands) 400,350 (19,617) (8,951) 371,782 60,169 7,989 (103,950) 12,469 (1,420) (24,743) 347,039 86,538 (160,031) (4,870,043) (206.051) (5,149,587) 4,661,095 (14,515) 153,052 4,799,632 (2,916) (3,262) 214,020 207,842 144,458 19,617 1,617 (138,502) 2,199 29,389 1,666,890 (120,000) 1,546,890 1,784,121 2,948,690 4,732,811 2,044,725 354,415 (13,792) 340,623 26,668 7,989 (136,076) 7,824 (3,523) (97,118) 243,505 (1,535,869) (2,433,540) (120,818) (4,090,227) 3,942,252 69,131 79,535 4,090,918 224,196 (11,642) (144,385) 88,169 (114,875) 64,223 13,792 (86,355) 4,313 (118,902) 1,623,927 1,623,927 1,593,194 1,355,496 2,948,690 1,687,256

69

Balances with other banks Money at call and short notice The annexed notes form an integral part of these accounts

1,798,086 890,000 4,732,811

1,161,434 100,000 2,948,690

Chief Executive Officer

Director

Director

Chairman

70

AUDITORS REPORT TO THE MEMBERS

ANNUAL REPORT

We have audited the annexed balance sheet of Bank Alfalah Limited as at December 31, 2000 and the related profit and loss account, statement of changes in equity and cash flow statement, together with the notes forming part thereof for the year then ended, in which are incorporated the unaudited certified returns from the branches except for nineteen branches which have been audited by us and we state that we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit and, after due verification thereof, found them satisfactory and we report that: a). In our opinion, proper books of account have been kept by the bank as required by the Companies Ordinance, 1984, and the returns referred to above received from the branches have been found adequate for the purposes of our audit: In our opinion: The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance. 1962 and the Companies Ordinance. 1984 and are in agreement with the books of account and are further in accordance with accounting policies consistently applied except for the change in accounting policy as explained in note 3.3 with which we concur: The expenditure incurred during the year was for the purpose of the banks business: and The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the bank, and the transactions of the bank which have come to our notice have been within the powers of the bank.

b). (i)

(ii) (iii)

(c)

In our opinion and to the best of tour information and according to the explanations given to us the balance sheet. Profit and loss account statement of changes in equity and cash flow statement together with the notes forming part thereof give the information required by the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984. In the manner so required and give a true and fair view of the state of the banks affairs as at December 31, 2000 and its true balance of profit, changes in equity and cash flows for the year then ended: and (d) In our opinion. Zakat deductible at source under the Zakat and Ushr Ordinance. 1980 was deducted by the bank deposited in the Central Zakat Fund established under section 7 of that Ordinance. A. F. Ferguson & Co. Chartered Accountants Dated: March 27, 2001

71

RATIO ANALYSIS
Ratio means one number expressed in term of another a ratio is statistical yardstick by mean of which relationship between two or various figures can be compared or measured. The ratio analysis can be done under 1. Profitability ratios Net profit margin Return on equity Return on total assets Return on fixed assets Earning per share 2. Liquidity ratios Current ratio Current asset to total deposit 3. Coverage ratio Debt ratio 4. Activity ratios Fixed asset turnover ratio Total asset turnover ratio 5. Special bank ratios Total advances to total deposits Total advances to total deposits Fixed assets to total assets

72

NET PROFIT MARGIN

Net profit margin = Net profit after tax * 100 Total Revenue 1999 Net Profit Margin 8.21% 2000 9.53% 2001 9.16% 2002 9.62%

INTERPRETATION The ratio provides us with the percentage net profit after tax of the total revenue of the business. In Bank Alfalah Limited profit margin has increased from 8.21% in 1999 to 9.62% in 2002. Which is good sign its mean; the bank has enough caution to meet its further obligation. The increase in the net profit margin also shows management efficiency to control the internal as well as external factors affecting the profit of the organization.

73

RETURN ON EQUITY
Return on equity = Net income *100 Shareholder equity 1999 Return On Equity 17.48% 2000 2001 2002 27.58%

23.91% 22.82%

INTERPRETATION The return on equity indicates the equity utilization of the company to produce profits. The ratio tells the shares holders about their expected profit on their equity in a business. The ratio indicates sharply increasing trend of net profit from 17.48% in 1999 to 27.58%. This sharply increase in the return on equity is a favorable point for the organization and its shareholders. Moreover it shows that the bank prefer to pay dividend to its shareholders rather to create extra reserves.

74

RETURN ON TOTAL ASSETS

Return On Total Assets = Net Profit After Tax * 100 Total Assets 1999 Return On Total Assets 0.89% 2000 0.89% 2001 0.90% 2002 0.85%

INTERPRETATION Turn on total assets measures the firms overall effectiveness in generating profit with its available assets. The higher the companys return on total assets, the better. The return on total assets on Bank Alfalah is showing an decrease from 0.89 % in 1999 to 0.85% in 2002 which is not favorable.

75

RETURN ON FIXED ASSETS

Return on fixed assets = Net profit after tax * 100 Fixed Assets 1999 Return on fixed Assets 2000 2001 2002

13.57% 17.12% 18.20% 25.31% INTREPRETATION

The ratio increases from 13.57% in 1999 to 25.31% in 2002 which is a decent increase in Bank Alfalah Ltd. Return on fixed assets.

76

EARNING PER SHARE

Earning per share

Net income No. of shares outstanding 1999 2000 3.59 2001 3.65 2002 4.46

Earning Per Share

2.61

INTREPRETATION The company earnings per share are generally of interest to present or prospective stockholders and to management. The earning per share represents the number of Rs. Earned on behalf of each outstanding share. The earning per share of Bank Alfalah increased from2.61 to 4.46, which is favorable for bank.

77

CURRENT RATIO

Current Ratio = Current Assets Current liability

1999 Current Ratio

2000

2001

2002

1.03:1 1.02:1 1.02:1 1.03:1

INTERPRETATION This ratio tells us about short- term solvency of the organization. Current ratio shows the availability of the ready current assets to meet the short- term liabilities of the organization. The current ratio shows continuous increase over four years due to excessive cash available to banks and moreover the balance maintain by the Bank Alfalah Ltd. Also increased. On the other hand liabilities are decreasing. This trend improves the current ratio of the bank.

78

CURRENT ASSETS TO TOTAL DEPOSIT RATIO

Current assets to total deposits= Current assets Total deposits 1999 Current asset to total deposit 0.13 2000 2001 1.29 2002 1.28 1.23

INTREPRETATION Current assets to total deposit show the availability of liquidity to meet its obligation e.g. deposits, in case of contingencies or normal case as well. Current total assets to total deposits shows increase in the past two years but the there is a slight decline. The increasing trend is favorable for the bank.

79

DEBT RATIO
Debt Ratio = Total liabilities Total assets 1999 Debt Ratio 92.1% 2000 94.3% 2001 95.7% 2002 94.3%

INTERPRETATION The debt ratio measures the proportion of total assets financed by the companys creditors. The higher is the ratio, the greater is the amount of other peoples money being used in an attempt to generate profit. So bank is using a great deal of peoples money to generate profit.

80

FIXED ASSETS TURNOVER RATIO

Fixed assets Turnover Ratio = Markup Interest Fixed assets 1999 Fixed Assets Turnover Ratio 1.65 2000 1.83 2001 1.97 2002 2.63

INTERPETATION Fixed asset turnover indicates the efficiency with which the company uses its assets to generate sales. Generally, the higher a companys fixed asset turnover, the more efficiently its assets have been used. The ratio for bank is favorable. This ratio determines the return on investment on fixed assets. This ratio is showing an increase from 1.65 in 1999 to 2.63 in 2002 which is good for Bank Alfalah Ltd.

81

TOTAL ASSETS TURNOVER RATIO

Total assets turnover =

Markup interest Total assets 1999 2000 0.08 2001 0.08 2002 0.07

Total Assets Turnover Ratio

0.09

INTERPRETATION Total asset turnover indicates the efficiency with which the company uses its assets to generate sales. Generally, the higher a companys total asset turn over, the more efficiently its assets have been used. The ratio for bank is satisfactory.

82

TOTAL ADVANCES TO TOTAL DEPOSITS RATIO

Total advances to total Deposits = Total Advances Total Deposits 1999 2002 Total Advances To Total Deposits 65.27% 74.42% 63.33% 54.79% 2000 2001

INTERPRETATION This ratio tells us that how much of the bank has advanced. This ratio must not be less then 100% to be favorable. Otherwise it is unfavorable. Here the ratio has decreased from 65.28% in 1999 to 54.79% in 2002, which is not favorable.

83

TOTAL ADVANCES TO TOTAL ASSETS

Total Advances to total assets = Total advances *100 Total Assets

1999 Total Advances To total Assets 49%

2000 55%

2001 48%

2002 43%

INTERPRETATION This ratio shows the advances, which the bank makes as the percentage of its total assets. If the advances of the banks increasing within increase in the total assets it is favorable for the bank business. Because there are more advances, there is more income of the bank and respectively more profit. Total advances to total assets variation is showing increasing trend in the last years whish shows that the management of the bank is increasing the portion of its advances then compare to increase in the total assets which is favorable

84

FIXED ASSETS TO TOTAL ASSETS

Fixed Assets to total assets = Fixed Assets * 100 Total assets

1999 Fixed Assets To Total Assets 5.49% 2000 4.46% 2001 4.23% 2002 3.72%

INTERPRETATION

In the bank, another financial institution, fixed assets are comprised of equipment, furniture and building. These assets have great importance in banks in order to maintain the working condition that up to that mark. Fixed assets and total assets both increasing in the last two years, therefore, this ratio is increasing.

85

SWOT ANALYSIS
As the Bank Alfalah Ltd is one of the fastest growing banks, its business is growing at an excellent rate. In the light of situation we can make analysis by using following factors: Strengths Weaknesses Opportunities

1. STRENGTHS Following are the strengths of BAL 1. one of the leading banks in Pakistan due to its fastest growing rate. 2. Its increasing goodwill and loyal staff. 3. BAL has strong finical position, as its owners are always willing to inject more equity in it 4. Bank has successfully launch new product with the passage of time. 5. Increasing number of branches in different areas due to its strong financial position is also major strength. 6. Attractive and fully maintained branches 7. One of the main strength of BAL is that it have strong relationships with foreign business organizations and financial institutions 8. Each department of bank is fully allowed to take adequate decision on its own, saving the time and helps in achieving the objectives. 9. Provide facilities to all types of customers like individuals, firms, company, associations, etc. 10.Its main policy is to provide excellent customer services 11.Use f modern technology in working which results in more efficient results. 12. Well-experienced and quality staff is another strength of BAL. 13.Efficient internal communication system
86

14.The business community more relying on BAL for their business deals due to the better services of the bank.

WEAKNESSES Although the BAL is very strong bank, and one of the fastest growing bank but there are also some weaknesses in the bank which the BAL faced and should remove to enhance its business. These weaknesses are as under: 1. Lake of modern advertisement techniques 2. Inadequate staff due to which the burden on the existing staff is more which reduces their efficiency 3. The staff of the BAL is not satisfied with the salary structure given to them. 4. Lake of suing information technology 5. Negative influence of the management regarding favoritism 6. Gives its employees less record and other benefits. Its results in less efficient team of workers. STRESS AND STRAIN No work can be carried out with, mild level of stress. Therefore, it is some time more helpful to create some stressful situation for getting more productivity on making people more stress As for as Bank Alfalah Limited is concerned there are few situations present at BAL which are as follows 1. Excessive load of work. 2. Late sitting 3. Time constraint and responsibilities. OPPERTUNITIES Some opportunities BAL have are as fallows:
87

1. BAL can introduce new product 2. Can introduce Modaraba and Musharka 3. With approval of SBP more branches can be opened in different region of the Pakistan

88

SUGGESTION AND RECOMMENDATION FOR BANK ALFALAH LIMITED

Bank Alfalah, one of the leading banks in Pakistan. However, there are some suggestion for its Lahore branch in order to improve its current operation 1. BAL should improve its marketing department and tried to use modern advertisement techniques. 2. BAL should diversify its loan disbursing structure to big as well as small business houses. 3. IT techniques should be introduced in its branches and proper training should be provided to its staff. 4. Should try to enhance the public image, goodwill and attraction of customers. 5. E-commerce should be implemented. 6. Bal should launch ATM in its branches. 7. Priority should be given to the Masters in Commerce in employment. 8. BAL recently introduced car financing. This product can capture the market with proper marketing. 9. Should provide more incentive to big depositors and valued customers. 10.A good communication link between top management and the employees should be developed. 11.Recruitment for new jobs should be done fairly and on merit. 12.Smoking during working hours should be prohibited as it imparts a healthy and mannered image to customers. 13.Proper training programs should be introduced to train the less educated old staff. In the light of above suggestions, I think that Bank Alfalah Limited can improve its goodwill and reputation in the eyes of every community. More fame of bank means more trust of people and more trust means more profits of bank.

89

CONCLUSION
At present there is no such organization in the world that is free from problems and challenges every concern has to strive and struggle a lot to be the more profitable and to get a more competitive edge. The management of BAL is presently taking significant strategic steps to enable the bank to emerge as a strong and progressive institution. Concurrently it continues to make effort to refine its products and operations to make them more compatible. New deposit scheme has been introduced and an action plans to maintain the revenue growth in place. Business and economic conditions remain uncertain BAL continues its effort to develop the new products like it did during prior years and successfully launched one of them in current year. Its relative ranking with other banks and its history past success and prosperous future reveals the facts that where it is standing today.

90