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MBA (Banking & Finance)
ALLMA IQBAL OPEN UNIVERSITY, ISLAMABAD.
In The Name Of
Most Merciful and Compassionate the Most Gracious and Beneficent whose help and guidance I always Solicit at every step, at every moment.
This Report is specially meant for the student of MBA. It is concerned to a brief study of the operation, Function, tasks and services of Silk Bank of Pakistan. Banking play very important role in the commerce and economic development of a country. Now-a-days banks are using different modern technologies, which influence the managerial activities, that’s why I decided to do my internship Training in the bank. In preparation of this Report is have tried my best to provide all Possible information about the operation, function and tasks of Silk bank in brief and comprehensive form. It also includes a brief department worked during internship. I have also tried my best to use simple and easy words and language. Then internship report ends with some recommendation after identification of some problems observed during the course of internship.
All praise is to Allah Almighty who granted me insight and devotion to perform such creative work. I am grateful to all those who helped me completing this internship report. I am thankful to all members of Department of Business Administration, Allama Iqbal Open University for extending cooperation to enter Silk Bank as an internee.
TABLE OF CONTENTS
Objectives of Studying the Organization 1. Overview of the Organization
2.1 History Of Silk bank 2.2 Nature of the Organization 2.3 Business Volume 2.4 Number of Employees 2.5 Product Lines & Services of Silk bank
2. Organizational Structure
3.1 Overall Organizational Structure 3.2 Organizational Structure of Silk bank G-9 Branch 3.3 Various Departments of Silk bank
3. Structure of Finance/Accounts Department
4.1 Structure of Finance/Accounts Department 4.2 Finance & Accounting Operations 4.3 Role of Financial Manager 4.4 Technical Methods (Use of Electronic data) 4.5 Funds Management
4. Theoretical and Practical Concepts
5.1 Daily Schedule For Evaluate A Bank’s Money Position 5.2 Account Opening Procedure 5.3 Customer Privacy
5. Financial Analysis
6.1 Balance Sheet 6.2 Income Statement 6.3 Ratio Analysis 6.4 Horizontal Analysis of Balance Sheet 6.5 Horizontal Analysis of Income Statement 6.6 Vertical Analysis of Balance Sheet 6.7 Vertical Analysis of Income Statement 6.8 Organizational Analysis 6.9 Future Prospects of Silk bank
6. Weaknesses of Silk bank 7. Conclusion 8. Finding and Recommendations 9. References
Chapter 1: Objectives of Studying The Organization
Why I studied the organization?
My real objectives of the studying the organization are based on following facts: • To study accounting finance issue of the organization its weakness strength • To fulfill the requirement of department of Business Administration (AIOU) for the degree of MBA (Banking Finance) • To improve my knowledge about finance department other different department of this organization • To be a better manager of finance activities of huge organization • To high light strength identify weakness residing internally with finance department of this organization • To make better understanding of theoretical financial concepts being implemented in real world setting • To have more insights into the type of situation actually being encountered in a daily organizational work
Chapter 2: Overview Of the Organization
ilk bank is the Public sector financial institution. The Silk bank was established on 1949, to serve as an agent to the SBP. Silk bank head office is in Karachi. It has 1249 regional branches and 18 overseas branches. Silk bank is a 52% share owned
by the Government of Pakistan (GOP). Silk bank's total assets stood at PKR820 billion on mid of 2009. This included total earning assets of about PKR268 billion with gross loan portfolio of PKR140 billion. The bank also has an investment portfolio of PKR171 billion, which comprises treasury securities, corporate bonds, shares and other securities.
History of Silk bank
On September15 2001 under the supervision of State Bank of Pakistan (SBP), the institution thenknown as prudential bank was acquired by management associates of Saudi Pak industrial and agriculture investment company (Pvt) Ltd (SAPICO). Silk Bank (formerly Saudi Pak Commercial Bank) came into existence when a consortium of investors, comprising Bank Muscat SAOG, Nomura European Investments Limited and International Finance Corporation signed a share purchase agreement with the Saudi Pak investment group. On March 31, 2008 the consortium acquired 86.55% of the bank for around USD 26million or $0.47 per share (Rs 29.3 equivalent per share). Under the new leadership, the bank will continue to focus on SME and consumer financing resulting in efforts of increased profitability. In December 2009, after completing all regulatory requirements, the bank announced a Rights Issue of 311% at a discount of Rs 7.5 per share to generate additional capital of Rs 7.0billion to meet the MCR of the State Bank of Pakistan (SBP).
On March 31, 2008, a consortium comprising of IFC, Bank Muscat, Nomura International and Sinthos capital and led by senior bankers Shaukat Tarin and Sadeq Sayeed acquired an 85.55% stake in Silk bank for around $ 213 million or $ 0.47 per share (PKR 29.3 equivalent per share). Under the new leadership, the bank will continue focus on SME consumer financing resulting in efforts of increased profitability. “Saudi Pak Bank name changed Silk Bank” The State Bank of Pakistan notified Friday the change of name of Saudi Pak Commercial Bank Limited to Silk Bank Limited with effect from June 1, 2009. This change has been notified by the central bank in exercise of the powers conferred on it (SBP) by clause of sub-section (2) of Section 37 of the SBP Act, 1956.
Nature of the Organization
The main objective of the bank is to accept deposits and provide loans to its customers and also to be more efficient in providing services. The bank maintained its commitment to most efficient and personalized services to its customers. Silk bank of Pakistan introduced many remunerative schemes for its depositors and introduced computer services for the first time in the banking history of Pakistan. Silk bank gives advances to small, medium and big industries, commercial establishment, agriculture, construction companies and other needy persons. Silk bank collects electricity gas and telephone bills from public and over hundred branches of Silk bank Ltd. deal in foreign exchange were facilities are given to financial and commercial so its ultimate objective is to receive funds from the depositors and provides loans/credit facilities to different sector including trade, industry and agriculture in its most branches.
Description (in Million) Share Capital Investments Deposits Advances 2005 3,848 12,465 37,136 19,513 2006 3,848 15,829 49,015 29,022 2007 5,002 17,859 42,374 25,875 2008 9,003 12,012 41,056 31,087 2009 9,003 20,179 49,610 32,097
Volume of Share Capital has been increased since 2004.Volume of investment has been increased since 2004 because of increase in long –term investments by Silk Bank. Volume of Deposits has also increased in year 2009 and the volume of Advances has also been increased since 2008. Value of contribution made by Bank in Employees’ Provident Fund schemes for the year 2009 is as under: • Provident Fund Rs 43.87 million • Gratuity Scheme Rs 34.96 million
Number of Employees
Followings are the no of employees working in 83 branches of Silk Bank in 32 cities
Staff Strength (Permanent/temporary or contractual) Support Staff Total Number of Employees of Silk Bank
1,259 700 1,959
Following is the total no of employees working in Silk Bank G-9 branch
Management Employees Support Staff Total Number of Employees of Silk Bank G-9 Branch
5 8 13
Product Line of Silk bank
Loan and Advances
M’Power Turnover is vanity, profit is sanity but cash is reality and good cash flow is the key to success of any business. Silk Bank M’Power offer running finance against your land, residential & commercial properties insuring a steady life line for your business. Convenient
Land, residential and commercial properties acceptable as security
Flexible Ever green facility with no principle repayment Affordable Mark up calculation on daily utilized amount only Accessible
Visa debit card acceptable internationally Available in all major cities of Pakistan i-e Karachi, Lahore, Rawalpindi, Islamabad
& Gujranwala Online banking facility in 32 cities of Pakistan Fast process Fast processing with simple and hassle free documentation Eligibility Resident of Pakistan Self employed professional &businessmen in going concern over 3 to 5 year Monthly income of 50,000 Age 25-60 years Real estate collateral in shape of land, residential &/or commercial properties
• Roshan Mustaqbil • Sunehra Kal • Mehfooz Her Pal • Silk Health Plan Roshan Mustaqbil A child is the most precious gift for any quality education is the best gift parents can give to their children Silk bank Roshan Mustaqbil Bancassurance is an education plan exclusively designed to cater your needs. The plan is underwritten by EFU Life Assurance Ltd.
Roshan Mustaqbil is a flexible, tailor-made, complete financial package that facilitates you to plan your children’s future education requirements and guarantees a financially secure tomorrow even in case of any mishap.
Sunehra Kal Silk Bank Sunehra Kal bancaassurance is a saving and investment plan exclusively designed to cater all your needs. The plan is underwritten by EFU Life Assurance Ltd. Sunehra Kal is comprehensive financial planning package that gives you the dual benefit of protection along with potentially higher returns over a long- term on your saving and investment. The most important benefit of Sunehra kal is its flexibility to suit your needs. Sunehra Kal is an ideal, regular premium unit-linked plan, to all your dreams into reality. Mehfooz Har Pal Silk Bank Mehfooz Har Pal bankassurance is a simple yet comprehensive accident and hospitalization plan providing 24 hour worldwide coverage to the entire family. Mehfooz Har Pal guarantees your financial well by paying out cash on death, disSilkbankement or prolonged absence from work as a result of an accident or hospitalization due to an accident. The plan is underwritten by EFU Life. Silk Health Plan Health is undoubtedly the real wealth. In fact, good health is a treasure that every individual cherish the most .but unfortunately illness and disease are part and parcel of life and always exist. With the health care costs, sickness may not only lead to mental distress for the whole family but could also adversely affect the finance for a long time to come. The implications become even more severe if the illness result in prolonged hospitalization.
With a mission to help people live healthier, wealthier and more successful lives Silk bank offers Silk Health Plan, a comprehensive healthcare package that provides financial protection in case of illness or accident that leads to hospitalization. The plan is underwritten by Allianz EFU.
All branches of the Bank collect utility bills of electricity, gas and telephones. For convenience of the customers, Utility Bills are collected by the branches during banking hours and also in the evening banking on all working days. Bills can be paid through cash or checks. Consumers may drop bills with crossed checks into a drop box available at the branches under “Checks Drop-in” system.
Foreign currency transactions
Transactions in foreign currencies are translated to rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the balance sheet date except that certain deposits, which are covered by forward foreign exchange contracts, are translated at contracted rates. Forward foreign exchange contracts and foreign bills purchased are valued at forward rates applicable to their respective maturities. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined.
• Visa Debit Card • Mobile Banking • E-Statements • Sms Alert • Silk Bank-Direct Visa Debit Card
With Silk Bank Debit Card get 24-hours access to cash anytime and anywhere around the world. Silk Bank Debit Card offers international acceptance and enables to draw cash, direct from account anywhere, any time. In case of stolen or lost cards, you can protect against fraudulent transaction made on your card after you report the lost. Mobile Banking Silk-Direct Internet Banking is accessible through GPRS enable mobile phones. Facilities of Mobile Banking are: • Balance Inquiry • Mini Statement • Check Book Request • Account Statement Request E-Statement E-Statement facilities • No Hassles • Simple Registration Process • Desired Frequently Options Customers can request e-statement on a daily, monthly, quarterly, half-yearly and annually frequency. SMS Alert: Silk Bank Sms Alert offer to customers the ability to stay informed around the clock, any time.
Once enrolled for SMS Alert, you will receive alert on transactions you select, from the following set of option: Banking Transaction: • All Transactions • Transaction of Rs.50, 000 & above • Transaction of Rs.250, 000 & above Internet/ATM Transaction: • All Transactions • Transaction of Rs.10, 00 & above Silk Bank-Direct With Silk Bank Internet banking service we can access and manage our accounts anywhere, any time. With Silk Bank-Direct we can enjoy these amazing convenient internet banking facilities: • Balance Inquiry • Mini Statements • Transaction Details • Low Balance Alerts • Accounts Statements Requests • Fund Transfers • Pay Order/Demand Draft Requests • Cheque Book Requests
• Current Accounts o Online Express With Silk Bank Online Express you can enjoy complete online banking solution, all under one roof. And that’s not all; your online Express account opens the doors of the world for you with the power of the Silk Bank Visa Debit Card. o Basic Banking Account Opening an account was never so easy. Now open an account with Silk Bank with no premium balance requirement, with only Rs. 1,000. Two deposit transaction and two cheque withdrawals are allowed, free of charges, per month. Bank will charge Rs.100/- per transaction over and above the allowed free transactions. ATM withdrawals from all Silk Bank ATM free. In case of withdrawal from BBA through the ATM machine of other banks. Switch charges will apply in accordance with Schedule of charges. In case where balance in BBA remains ‘nil’ for continuous six-month period, the account will be closed. o Al-In-One Account Silkbank All-in-one Account provides you the ultimate security and protection, amazing banking facilities and much more convenience……all absolutely free. Unmatched Auto-Insurance Benefits! Now can avail an unbeatable auto-insurance rate as low as 2.5%, offered exclusively for Silk bank All-in-one customers!
Worry-free Cash Withdrawals
Liberate yourself from the fear of being robbed of your cash. Silk bank All-in-one Account provides you free snatching and holdup cover of up to Rs.25, 000 per annum for ATM and over-the-counter cash withdrawals across Pakistan. Use your Mobile Phone without Fear Free yourself from the in securing of having your mobile snatched. Silk bank All-in-one Account provides you free cover of Rs.5, 000 for mobile snatching. This facility can be utilized once a year. Lost Your Document? No Problem! Liberate yourself from the stress of losing your vital documents, such as CNIC, Credit Card, Driving License and Passport. Silk bank All-in-one Account provides you free cover of Rs. 5,000 for theft or loss of your vital documents. This coverage can be utilize once a year and is designed to reimburse you for the cost of re-insurance of these documents. Liberate yourself from the fear of Home Burglary Feel protect at home with silk bank All-one-one Account. Your account provides you free cover for burglary of your house valuable up to Rs.100,000. Protect for your Family in case of Accidental Death or Disability o Silk bank All-in-one Accounts provides you free world-wide cover of up to Rs.200, 000 for accidental death and permanent disability. What’s more, you get the following benefits free: Free Pay Oder & Demand Drafts Free Intercity Transactions Free VISA Debit Card
Free withdrawals from all ATMs Free Internet Banking Free SMS Alerts Free Statements through Your Email • Saving Accounts o Super Saver Highest Returns VISA Debit Card Higher the deposit, higher the returns Profit calculated on Daily Product Basis Can be operated by Individuals or Companies
Profit is Payable monthly
o PLS Account Through Silk Bank Saving PLS account, can avail now the benefit of saving of a Saving Account with the convenience of a current Account Profit paid out twice a year Monthly Profit of 5% on all Tiers VISA Debit Card Profit calculated on minimum balance every month Can be operated by Individuals or Companies Minimum balance required is Rs. 50,000 o Foreign Currency Account Invest in Silk bank Foreign Currency Account to earn remarkable profit twice a year. Profit calculated on the minimum balance during the month
Profit credited after every 6 months Can be operated by Individual or Companies • Term Deposits o Munafa Hi Munafa With Silk bank Munafa Hi Munafa Term Deposit Account can earn now the highest profit on a monthly basis Munafa Hi Munafa Term Deposit Account can open now with minimum balance of only Rs. 100,000. o Salana Munafa With Silkbank Munafa Hi Munafa Term Deposit Account can now earn the highest return on the lowest investment and the following returns: Overdraft facility of up to 90% ATM/Debit Card with account Online banking, E-Statement and Internet banking facilities Pay Order/Demand Draft facility with base account o 7 Days Notice Deposits Silk Bank Special Notice Account is also available for 7 and 30 days. o Other Term Deposits With Silk bank Term Deposit Account can choose from a wide of tenures of 1 month, 3 months, 6 months and 1 year, based on customer requirements. With a minimum deposit of only Rs. 100,000, have the opportunity to earn higher returns on your deposits
Automated Teller Machine (ATM)
The Silk Bank Automated Teller Machine (ATM) launched means of providing customers with 24 hour cash convenience. Over the years its success has encouraged the bank to expand its network to major cities. In the past years, Silk Bank installed this convenience in Karachi, Lahore, Hyderabad, Islamabad / Rawalpindi, Faisalabad, Multan, Gujranwala, Quetta, Sialkot and ISLAMABAD. Further expansion plans to other cities are on the way. Debit Card Facilities 1. Funds transfer on ATM A cardholder can transfer funds on the ATM from his account to any other account in any branch of Silk Bank up to a maximum of Rs. 100,000 per day. 2. ATM Daily Withdrawal Limit Previously the card holders were allowed to withdraw Rs 25, 000 per day, which has now been enhanced as follows: ATM Cash Withdrawal Limit: Per transaction limit Rs. 25,000 3. Other Enhancements For the convenience of the Cardholders the following enhancements have also been incorporated: Daily limit Rs 100,000
Screens have now become bilingual and the card holder has the option to Fast cash maximum amount, which was previously Rs. 10,000, has now been
operate the ATM in English or Urdu language. enhanced to Rs. 25,000. Guide Lines for Standardization of ATM Operations. 1. Cash Balancing Procedure The actual cash in ATM is to be balanced with ATM Journal Roll, in order to identify the suspect transaction Following steps must be taken before end of day o Put the ATM in Supervisory mode. o Obtain ATM Cash position on ATM Journal Roll The physical Cash in ATM must b equal to the amount appearing in the ATM Receipt. Under no circumstances the physical Cash should be placed shot in ATM while checking the cash in ATM, cash in the Reject Bin should also be checked and taken into account and the print in ATM journal for Reject Cash should also be verified. In case the physical / actual cash in ATM is more than the cash appearing in the journal then it means that customer’s account has been debited without cash disbursement, now the individual suspected transactions are to be identified on the basis of the verification from ATM Journal Roll, Branches should immediately complete process of “Automatic Credit” as per procedure and time frame mentioned below.
2. Procedure and Timelines for Automatic Credit • Same Bank-Same Branch: Branch to credit customer account on next business day. • Same Bank-Different Branch (within same city) ATM acquiring branch after verification of the transaction from their ATM Journal Roll, must issue Credit Advice to the card issuing branch (the branch from where the card was issued / account of the card holder is maintained) on next business day. • Same Bank – Different branch (different cities) ATM acquiring branch after verification of the transaction from their ATM Journal, Roll, must issue Credit Advice to the card issuing branch (the branch from where the card was issued / account of the card holder is maintained) on next business day. This whole process should be completed within maximum 4 business days. 3. ATM Cash Replenishment • • • • limit. ATM cash replenishment is done on daily basis, which is joint operation. The locking / opening of ATMs for replenishment are under dual control of All remaining physical cash in ATM shall be taken out and counted. Fresh currency notes shall be fed in to ATM according to assigned branch
the officers assigned by the customer services manger.
Silk bank dedicated team of professionals truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer’s best resource in making Silk bank’s products and services work for them.
TRADE FINANCE OTHER BUSINESS LOANS
There are two types of trade finance. AGRICULTURAL FINANCE Silk bank provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. a. Agricultural Finance Services: “I Feed the World” program, a new product, is introduced by Silk bank with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. b. Agricultural Credit: The agricultural financing strategy of Silk bank is aimed at three main objectives:• •
Providing reliable infrastructure for agricultural customers Help farmers utilize funds efficiently to further develop and achieve better production
Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.
c. Agricultural Credit (Medium Term):
• • • • • •
Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing
Chapter 3: Organizational Structure Of Silk bank
Organizational Structure of Silk Bank
PRESIDENT RegionalPRESIDENT Offices MEMBER BOARD MEMBER BOARD SENIOR EXECTIVE VICE-PRESIDENT SENIOR EXECTIVE VICE-PRESIDENT EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT BRANCH HIERARCHY BRANCH HIERARCHY
VICE PRESIDENT VICE Silk Bank Overall Organization Structure ofPRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT
The day-to-day affairs of Silk bank are managed by Management of Silk bank who has to report to Board of Directors of Silk bank.OFFICER GRADE OFFICER GRADE
OFFICER GRADE OFFICER GRADE II
Their reporting lines are given as follows:
OFFICER GRADE OFFICER GRADE 3 3
Organizational Structure of Silkbank G - 9 Branch
I did internship in (Silk bank), G-9 Branch, Islamabad. This branch was founded in July 1962. From last many years this branch is not only achieving its targets of deposits and advances rather it remains above the targets. According to the financial record of last year this branch was earning more than 20% of total profit of the region. Every year the targets of this branch are increasing by 20 to 25 percent but still there is a potential in the market to meet these additional targets. This branch is performing its functions in traditional style and now it has been converted into an online branch. First two weeks I worked in operation department, for next two weeks I worked in credit department and for rest of the time I worked with Business Manager where I learned lot of things including how to deal with corporate customers, with individual customer and how loans can be recovered from the customers. During the internship session I got the chance to perform on different activities, which are listed below, and short explanation is also given.
Account Opening Department
To open an account the customer have to meet the general banking manager with an introducer (the person who is going to introduce that person in the bank) and get an application form used for account opening. Different color-coded application forms are available for each type of account. Along with the form a card for specimen signature is also supplied to customer. Manager has every right not to accept this contract if he is not satisfied by the details provided by the customer. In case the contract is acceptable to both, now it is ready to open the account formally. Account Types
Though in theory they’re many types of accounts but commonly account operators can be classified in one of the following categories, each have different documentation requirements: Single Joint Partnership Private Limited
The earning of a commercial bank is chiefly derived from interest charges on loans and discounts it. Now loans are recognized as advances or finances. The advances are made through the deposits that are kept in the bank by the customers. The bank pays profit on the deposited amount and receives mark up on the advances made of different amounts. Silk bank introduced the mark up based advancing in Jan1, 1985 when the Islamization of the economy was influence under this system of advancing the bank is entitled to receive a constant sum of money on the amount that is outstanding on the account of the party.
To promote flow of foreign exchange in the country, the Government of Pakistan started a new scheme of opening of bank accounts in foreign currency. These accounts were entitled to receive profit percentage in shape of the currency in which the account was kept (Dollar account shall be paid profit in dollars). This has increased the flow of foreign currency especially from the Pakistani foreign residents, who used to send money to their
families at home. The State Bank of Pakistan was given special rights to control and monitor the performance of the “Authorized Dealers” in foreign exchange accounts. Authorized Dealer is a person or an institution, which can deal with the foreign exchange. The authority is given by SBP to all those scheduled Banks who have adequate trained staff and facilities. These scheduled banks are given license to deal in foreign currency transactions.
Remittance department provides services to the customer of the bank. The main function of this department is transfer of funds. Instruments of Bills and Remittance Department The instruments that are handled in the Remittance department are as follow: • Demand Draft. • Mail transfer. • Telegraphic transfer. • Pay order. • Pay slip. • OBC (outward bill for collections). • IBC (inward bill for collections).
There is no legal obligation on a banker to collect cheques drawn upon other banks for a customer. However it is function of almost every modern bank of the collection of cheques and bills on behalf of the customer. Clearing department services are provided in order to make arrangements for the economic collection of the cheques, DD and other negotiable instruments. A large part of this work is carried on through the clearinghouse. After joining the bank in internship I got the practical exposure of all the above-described activities. The mechanism is not too simple to understand easily but still lots of complexities have been solved.
Various Departments of Silkbank
Cash department performs the following functions Receipt The money, which either comes or goes out from the bank, its record should be kept. Cash department performs this function. The deposits of all customers of the bank are controlled by means of ledger accounts. Every customer has its own ledger account and has separate ledger cards. Payments It is a banker’s primary contract to repay money received for this customer’s account usually by honoring his cheques.
The Requisites of Cheque There is no prescribed form of words or design of a Cheque, but in order to fulfill the requirements mentioned in Section 6 above the Cheque must have the following. a) b) c) d) e)
It should be in writing The unconditional order Drawn on specific banker only Payment on Demand Sum Certain in money Payable to a specific person Signed by the drawer
Parties to Cheque The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no payee but bearer. a) b) c) The Drawer The Drawee The Payee
A clearinghouse is an association of commercial banks set up in given locality for the purpose of interchange and settlement of credit claims. The function of clearinghouse is performed by the central bank of a country by tradition or by law. In Pakistan, the clearing system is operated by the SBP. If SBP has no office at a place, then Silk bank, as a representative of SBP act as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken place. The use of cheques in making payments has also widely increased. The collection as settlement of mutual obligations in the form of cheques is now a big task for all the commercial bank. When Cheque is drawn on one bank and the holder (payee) deposits the same in his account at the bank of the drawer, the mutual obligation are settled by the internal bank administration and there arises no inter bank debits from the use of cheques. The total assets and total liabilities of the bank remain unchanged. In practice , the person receiving a Cheque as rarely a depositor of the cheque at the same bank as the drawer. He deposits the cheque with his bank other than of payer for the collection of the amount. Now the bank in which the cheque has been deposited becomes a creditor of the drawer’s bank. The depositor bank will pay his amount of the cheque by transferring it from cash reserves if there are no offsetting transactions. The banks on which the cheques are drawn become in debt to the bank in which the cheques are deposited. At the same time, the creditors’ banks receive large amounts of cheques drawn on other banks giving claims of payment by them. The easy, safe and most efficient way is to offset the reciprocal claims against the other and receive only the net amount owned by them. This facility of net inter bank payment is provided by the clearinghouse. The representatives of the local commercial banks meet at a fixed time on all the business days of the week. The meeting is held in the office of the bank that officially performs the duties of clearinghouse. The representatives of the commercial banks deliver the cheques payable at other local banks and receive the cheques drawn on their bank. The cheques are then sorted according to the bank on which they are drawn. A summary sheet is prepared which shows the names of the banks, the total number of cheques delivered and received by them. Totals are also made of all the cheques presented by or to each bank.
The difference between the total represents the amount to be paid by a particular bank and the amount to be received by it. Each bank then receives the net amount due to it or pays the net amount owed by it.
Advances department is one of the most sensitive and important departments of the bank. The major portion of the profit is earned through this department. The job of this department is to make proposals about the loans. The Credit Management Division of Head Office directly controls all the advances. As we known bank is a profit seeking institution. It attracts surplus balances from the customers at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Credit extensions are the most important activity of all financial institutions, because it is the main source of earning. However, at the same time, it is a very risky task and the risk cannot be completely eliminated but could be minimized largely with certain techniques. Principles of Advances There are four principles, which must be duly observed while advancing money to the borrowers. • Safety • Liquidity • Dispersal • Remuneration
Forms of Loans In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the form of cash finance, overdrafts and loans. Silk bank provides advances to different people in different ways as the case demand. a) Cash Finance This is a very common form of borrowing by commercial and industrial concerns and is made available either against pledge or hypothecation of goods, produce or merchandise. In cash finance a borrower is allowed to borrow money from the banker up to a certain limit, either at once or as and when required. The borrower prefers this form of lending due to the facility of paying markup/services charges only on the amount he actually utilizes. If the borrower does not utilize the full limit, the banker has to lose return on the unutilized amount. In order to offset this loss, the banker may provide for a suitable clause in the cash finance agreement, according to which the borrower has to pay markup/service charges on at least on self or one quarter of the amount of cash finance limit allowed to him even when he does not utilize that amount.
b) Overdraft/Running Finance
This is the most common form of bank lending. When a borrower requires temporary accommodation his banker allows withdrawals on his account in excess of the balance, which the borrowing customer has in credit, and an overdraft thus occurs. This accommodation is generally allowed against collateral securities. When it is against collateral securities it is called “Secured Overdraft” and when the borrowing customer cannot offer any collateral security except his personal security, the accommodation is called a “Clean Overdraft”. The borrowing customer is in an advantageous position in an overdraft, because he has to pay service charges only on the balance outstanding against him. The main difference between a cash finance and overdraft lies in the fact that cash
finance is a bank finance used for long term by commercial and industrial concern on regular basis, while an overdraft is a temporary accommodation occasionally resorted to.
It controls the following activities: a) b) a) b) c) d) A/C opening. Issuance of cheque book. Current a/c Saving a/c Cheque cancellation Cash
Types of Accounts Following are the main types of accounts 1) 2) 3) Individual Account Joint Account Accounts of Special Types Partnership account Joint stock company account Accounts of clubs, societies and associations Agents account Trust account Executors and administrators accounts Pak rupee non-resident accounts Foreign currency account
Chapter 4: Structure and Functions of Finance Department Of Silk bank
Structure & Function Of Finance Department Of Silk bank
Structure of Finance/Accounting Department of Silk bank
Silk bank has separate departments for accounts and finance. Both of these departments are controlled by CFO. Accounts Department has further Accounting and Operation Department, Accounting & Audit Department and Control Department whose officers report to CFO. Finance Department has further Portfolio Management Department and Investment and Finance Planning Department whose officers also report to CFO. Portfolio Department has further sub-department of lending who report to Portfolio Officer. Investment and Finance Planning Department has further sub-department of Funds Raising who report to Financial Planning Officer.
Finance & Accounting Operations:
o Generation of Accounting Information
Finance and accounting policies and procedures are strictly followed. With them departments and divisions to help management more effectively focus and control the bank’s resources e.g. fund raising and fund management division, funds allocation department, portfolio management department, personal financial services division, investment and funding group etc. These departments and divisions require the appointment of bank management and staff that can devote more time to surveying customer surveys, and modifying old service offerings to reflect changing customer needs. The technology of financial services production and delivery has shifted more and more in recent days towards computer-based system and electronic service delivery.
Automated bookkeeping has reduced the time managers spend in routine operations, thus allowing greater opportunity for planning new services and new operations.
o Recording of Accounting Information
Accounting information handle by preparing journal, ledger and trial balance and information recorded electronically. The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and income and expenses. It also requires management to exercise its judgment in the process of applying the accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Role of Financial Manager
Financial manager mainly emphasize on maximize shareholder’s wealth. All important decisions related to finance and investment that must improve the success of the organization. Financial manager also perform several tasks as follows: Advice institutions on high net worth individual customer on investing funds, managing assets, reorganizations, raising capital.
Purchase short term assets (mainly accounts receivable) from business in exchange
for supplying temporary financing.
Purchase short term credit to improve commercial use. Offer saving deposit plans and housing related credit predominantly to individual.
Execute customer buy and sell orders for marketable securities and exchange traded
financial futures and option contracts and provide other full service brokerage functions. Control of the composition of a bank’s assets to provide adequate liquidity and earnings. Control over a bank’s liabilities, usually through changes in interest rates offered to provide the bank with adequate liquidity. Invest in corporate stock to help finance the start of new branches to support the expansion of existing business.
Use of Electronic Data
Any new technology in banking sector has its own effects because new technology indicates the improved operation and performance of the sector. Introduction of new technology has an extensive effect on customers. So the quick adopters of new technologies have an edge over others in the industry. Silk bank use Linux and UNI BANK. Silk bank uses new technology in different department, which improved the quality of services of that department.
Cash department involves receipts and payments process manually. But now ATM is used which has affected the cash department in some extent. Before
Before ATM and online technology SILK BANK was able to provide only 8 hours services for payment.
• Customers were enforced to wait in huge lines for getting payments. • To check the total amount of account customer had to give application to the bank • Needs number of cashier and clerks • Everything took a long time. After
Now SILKBANK can provide 24 hour banking to its customers so that customers can withdraw money at any time.
• Now customers have no need to wait for the payment in long queues. • When customer withdrawal the money and mini statement of his account is shown to the customer. • ATM technology reduces the extra burden on the cashier, and now bank don’t need extra cashier and clerks
The remittances department transfers the funds from one bank to other bank and from one place to another place. ATM and online banking has also effected the remittances department and increased its efficiency. Before • Before ATM if customer wanted to transfer his fund to other bank account or other branch account, then he had to submitted a cheque which takes a lot of time for clearance process
Before online banking to transfer the funds to other branches or to other banks bankers had to use demand draft, telephonic transfer pay order and mail transfer etc.
Now customer can transfer money from his account to any other account at any time anywhere in Pakistan, without waiting for the clearance process.
• Through online banking bankers has no need to send cheque or money through demand draft or telephonic transfer etc. the banker can access any branch and transfers funds to it with in no time.
In online transaction the account holder has account in another bank. The account holder sent the amount to his account. Online transaction is made only SILKBANK to SILKBANK. So they can transfer the amount, they can cash the amount they can find the balance & receive the statement of his account in another branch. In this type of transactions the application is filling for this purpose.
Date Name Remote Account number Amount
Allied Online Banking is a unique service being offering from Silk bank. Through this service, account in Silk bank is available to from any of branches countrywide. SILKBANK is the first bank in the history of Pakistan which connects with each branch of it through online banking. These branches can offer the facilities of remote cheque encashment, cash deposit, funds transfer, balance enquiry and statement of account printing to customers of other online branches besides issuance of ATM cards to their own account holders. Rules With the introduction of online banking services in branches, the computerized operations of the banking system in branches has become even more sensitive that’s why the top management has set some rules and given some guidelines to each and every branch to be followed: 1. Only authorized persons should be allowed access to the computer system of the branch. Physical access to the branch server machine should especially control. All maintenance activity, whether by IT Centre personnel for trouble-shooting or by authorized service providers for hardware / communication support should be documented. For this purpose, a separate register should be maintained in the branch where in the name / identity of the person concerned along with the date and time of such activity should be recorded.
2. Personnel of the branch who have been authorized to use the system to enter transaction or carry out end of day processing should not divulge their password to anyone under any circumstances, in case, it is felt by the password holder that his password has become known to someone else, it should be changed immediately.
3. It is the responsibility of the branch to take back-ups on daily basis and to ensure
that these are sent to the IT Center as per laid down procedure, Taking of backup or restoring of backup of the branch based system should never be allowed to be carried out by an outsider, Under no circumstances, should a backup be carried out of the branch by and unauthorized person, The dispatch of backup of IT Center/Division should only be handled by designated couriers in sealed envelopes.
4. Use of PC workstations having removable drives and/or modem is not allowed,
Internet access / Internet mail I not permitted on any workstation of the branch system. Strict compliance of this must be ensured.
5. In case of any problems related to end-of-day processing or in respect of hardware/
software, the matter should invariably b referred to the IT Centre. Attempts to the fix problems without the knowledge of IT Centre staff must b avoided. Transaction Amount Limits
1. Cash Withdrawals: As per standing instruction the online transactions are
restricted to a maximum of Rs. 500,000/- per instance for Cash Withdrawals.
2. Third Party Cheques Encasement: The customers can encash third party
cheques of an account holder of Silk bank subject to a maximum of Rs. 25,000/per instance.
3. Funds Transfer: The maximum amount is restricted to Rs. 500,000/- for funds
transfer except when the customer is transferring funds from the branch where his account is maintained, to any other account in any SILKBANK branch.
4. Deposit of Third Party Cheques for Instant Credit: The account holders can
deposit third party cheques, either drawn in his favor or bearer, at the branch where he holds an account for instant credit. The maximum value of each third party cheque, which is being deposited, should not exceed Rs. 500,000/- and utmost precautions must be undertaken to ensure authenticity and genuineness of the third party cheques. Physical Presence Of Account Holder It is essential for the account holder to present a cheque in person at the remote branch for encashment from his account at the parent branch, The presence of customer is necessary in case of Funds Transfer transactions, however customer presence is not necessary for cash deposit or third party encashment of cheques up to Rs 25,000/- . Fund Transfer The customers will be allowed to transfer funds from an account in the local branch to an account in the remote branch and vice versa. In this case the “from” account must b Customer’s own account whether in the local branch or the destination branch and a cheque for the transfer would be required to be presented. Supervision Of Transactions
All cash and Fund Transfer transactions require immediate online supervision at the local branch before being transmitted to the remote branch for acceptance; Supervision requires re-entry of all transactions particulars by the Supervisor, Transactions relating to Balance Enquiries and Display of statements of account do not require and supervision KYC / Customer Due Diligence The banks are required to perform KYC / customer Due Diligence as per Prudential Regulation issued by State Bank of Pakistan, Accordingly, all abnormally high / suspicious transactions particularly cash transactions, are required to be examined and reported to the concerned departments.
Funds management deals with following aspects; Sources of funds Generation of funds Allocation of funds
Sources of Funds
Following are the sources of funds of Silk bank and their figures for last 5 years:
Descriptio n (in millions) Share Capital Reserves 2005 2006 2007 2008 2009
Deposits 49,015,090 49,015,090 42,373,710 41,056,630 Inter bank 5,481,288 4,236,775 6,880,449 8,738,616 borrowings
Bank’s major source of funding is individuals who deposit their funds. Bank also have other sources e.g. borrow from other banks and financial situation and in time of need it also approach state bank of Pakistan for extra funds and state bank provide funds after fulfilling basic requirements according to prudential regulations.
Generation of Funds
Following figures shows the generation of funds in last 5 years of ABL:
Description (in millions) 2005 2006 2007 2008 2009
Interest Earned Fee, Commission, Brokerage Income Capital Gain & Dividend Income Non-interest Income
2,632,485 3,712,420 4,799,853 4,588,299 275,685 305,464 369,468 188,596
Funds are mostly generated from the interest income earned by banks. Other places from where funds are generated include commission earned, capital gain and dividend income and non-interest income earned by bank.
Allocation of Funds
Following are the places where funds are allocated and their figures for last five years:
Descriptio n (in millions) Interest Expensed Operating Expenses Taxation 2005 2006 2007 2008 2009
The main place where banks allocate its funds is in interest expenses. Other main place of allocation of funds is the operating expenses. Banks are heavily taxed which is a major portion of allocation of bank’s funds.
Chapter 5: Theoretical And Practical Concepts
Application of Learned Concepts
After getting entered into practical life this is a common complaint that practically things are quite different from theoretical learning, but I did not face such big difference because the concepts I got from the course of “Money and Banking” and “Business Institutions” were so much close to the real world. In management and marketing style of the employees there were somehow differences exist. While doing internship I got lot of experience and I got the chance to apply my knowledge practically, which helped me in getting interest in learning new concepts. After doing this practice I feel that I can even compare my practical knowledge in further studies.
Chapter 6: Financial Analysis Of Silk bank
Balance Sheet of Silk Bank (five years data)
Current Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Total Current Assets Fixed Assets Investments - net Advances - net Operating fixed assets Deferred tax assets - net Other assets - net Total Fixed Assets
3,120,880 151,068 1,067,708 4,339,656 20,179,329 32,097,490 3,720,695 3,976,149 4,351,022 64,324,685
3,070,067 190,197 1,376,651 4,636,915 12,012,233 31,087,373 3,002,450 2,613,939 2,292,358 51,008,353
3,223,780 128,991 839,959 4,192,730 17,859,169 25,874,972 2,367,883 1,767,715 1,598,131 49,467,870
3,994,136 613,678 4,747,567 9,355,381 15,828,682 29,021,974 2,322,371 1,015,123 1,657,318 49,845,468
2,525,340 923,044 8,831,063 12,279,447 12,464,577 19,513,727 1,541,536 911,307 1,037,955 35,469,102
Total Assets Liabilities
Current Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loan Liabilities against assets subject to finance lease Deferred tax liabilities - net Total Current Liabilities Other liabilities/long term debt
637,602 15,088,332 49,610,034 10,476 65,346,444 1,554,808
431,537 8,738,616 41,056,630 39,731 50,266,514 987,394
570,756 6,880,449 42,373,710 650,000 80,155 50,555,070 925,091
408,342 4,236,775 49,015,090 650,000 63,030 54,373,237 829,573
199,143 5,481,288 37,136,042 650,000 569 43,467,042 474,905
Capital Share capital/TOS Reserves Accumulated Loss Surplus on revaluation of assets - net of tax/SOR Total Equity
9,003,150 224,649 (9,030,894) 1,566,184 1,763,089
9,003,150 218,556 (6,131,709) 1,301,363 4,391,360
5,001,750 218,556 (4,119,537) 1,079,670 2,180,439
3,847,500 218,556 (1,080,726) 1,012,709 3,998,039
3,847,500 218,556 (860,072) 600,618 3,806,602
Total Equity and Liabilities Particulars
Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision for diminution in the value of investments - net Provision against loans and advances - net Bad debts written off directly Reversal against consumer finance Impairment of available for sale security Total Provision Net mark-up / interest income after provisions Non-mark-up / interest income Fee, commission and brokerage income Income earned as trastee to different funds Dividend income Income from dealing in foreign currencies Gain on sale of securities - net Unrealized gain on revaluation of investments classified as held for trading Other income - net Total non-mark-up / interest income
5,913,317 5,855,517 57,800 6,144 2,170,738 (5,803) 138,276 2,309,355
4,588,299 4,218,901 369,398 (11,668) 1,663,314 2,610 (12,163) 1,642,093
4,799,853 4,440,116 359,737 3,074 3,134,651 (5,281) 3,132,444
3,712,420 3,260,952 451,468 (56,808) 463,988 915 408,095
2,632,485 1,849,189 783,296 671 490,471 729 26,778 518,649
Profit and Loss Account for Silk Bank (five years data)
327,949 27,921 113,733 58,640 69 133,875 662,187
188,596 27,173 53,343 19,536 95,862 384,510
369,468 44,465 64,312 210,855 87,725 776,825
305,464 59,851 56,907 145,177 138,604 706,003
275,685 41,347 43,975 265,776 626,783
Total Interest Income/Loss
Non-mark-up / interest expenses Administrative expenses Other provision / (reversal) - net Other charges Unrealized loss on revaluation of investment classified as held for trading Total non-mark-up / interest expenses Gross Income/Loss Amortization of deferred cost Extra ordinary / unusual item
2,747,856 (102,246) 17,481 2,663,091 (4,252,459) -
1,935,732 9,489 849 1,946,070 (2,834,255) -
1,270,317 38,019 14,737 1,310 1,324,383 (3,320,265) -
1,262,448 (202,435) 75,700 5,962 1,141,675 (392,299) 16,667 -
732,803 729 11,300 744,832 146,598 6,128 -
Profit/Loss before taxation
Taxation Taxation - Current year - Prior years - Deferred Share of tax of associated Total Taxation Loss after taxation Accumulated loss brought forward Accumulated Losses carried forward
(4,252,459) (2,834,255) (3,320,265)
8,414 34,616 (1,392,584) (1,349,554) (2,902,905) -
16,462 (836,449) (819,987) (2,014,268) (6,133,805) -
35,382 439,351 (754,091) (279,358) (3,040,907) 1,080,726 (4,121,633)
(105,282) (105,282) (303,684) 778,532 (1,082,216)
156,100 (80,243) 75,857 64,613 64,613
Ratio Analysis of Silk Bank (five years data)
Ratios Liquidity Ratios
1 Current Ratio CA/CL Quick/Acid 2 Inventory/CL test Ratio CA5.01% 6.49% 6.63% 8.47% 7.93% 6.64% 9.22% 8.29% 17.21% 28.25%
1 Debt to asset ratio TD/TA 2 Debt to equity ratio TD/TE 2.26% 1.77% 1.72% 1.40% 0.99% 1154.36% 3794.55% 1167.15% 2361.00% 1380.75%
1 Loan to deposits ratio Loan/Deposits 2 3 Net Profit after tax EAT/IE 4 Gross Spread ratio NMI/GMI 5 Return on Equity EAT/E -164.65% -45.87% -139.46% -7.60% 1.70% 52.95% 44.90% 83.51% -11.06% 180.53% -49.58% -47.74% -68.49% -9.31% 3.49% Return on Asset EAT/T.A 47.01% -4.23% 28.11% -3.62% 26.59% -5.67% 14.60% -0.51% 28.09% 0.14%
Interest Coverage Ratio
1 Interest coverage(before tax) EBIT/IE 2 Interest coverage(after tax) EAT/IE -72.62% -49.58% -67.18% -47.74% -74.78% -68.49% -12.54% -9.31% 7.60% 3.49%
1 Total Assets Turnover NS/TA 2 Fixed Assets Turnover NS/FA 8.61% 9.10% 8.25% 8.27% 8.94% 8.98% 6.27% 6.54% 5.51% 5.21%
1 Earnings Per Share EAT/TOS 2 3 Revaluation per Share SOR/TOS 88.83% 29.63% 49.52% 25.33% 15.78% Book Value per Share TSE/TOS -32.24% 19.58% -22.37% 48.78% -60.80% 43.59% -7.89% 103.91% 1.68% 98.94%
Debt ratio of Silk bank in 2005 was 0.99% , then continuously increase till 2009, the increase in total debt is greater whereas the increase in total assets is comparatively less. Return on assets after 2005 continuously decrease till 2009, reason behind this increase in income is less then the increase in total assets. Return on equity decrease from 2007 till 2009 so that is starts falling. Debt to equity ratio shows upward trend from 2005 till 2009, reason behind this increase in total debt increases. Current Asset in 2005 was 28.25% after that start falling till 2009, coz of decrease in current asset. Book Value/Share Ratio shows a firm’s ability to meet its current needs. Silk bank book value increase in 2007 then start decreasing till 2009, reason is that Silk bank current assets are decreasing as compared with its current liabilities.
Fixed asset shows the normal position of the bank and bank liquidity is batter position in any case of the debt payoff in emergency.
Horizontal Analysis Balance Sheet of Silk Bank (five years data)
Current Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Total Current Assets Fixed Assets Investments - net Advances - net Operating fixed assets Deferred tax assets - net Other assets - net Total Fixed Assets Total Assets 161.89% 164.49% 241.36% 436.31% 419.19% 181.35% 143.80% 96.37% 159.31% 194.77% 286.83% 220.85% 143.81% 116.54% 143.28% 132.60% 153.61% 193.98% 153.97% 139.47% 112.38% 126.99% 148.73% 150.65% 111.39% 159.67% 140.53% 123.98% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 123.58% 16.37% 12.09% 35.34% 121.57% 20.61% 15.59% 37.76% 127.66% 13.97% 9.51% 34.14% 158.16% 66.48% 53.76% 76.19% 100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00% 100.00%
Bills payable 320.17% 216.70% 286.61% 205.05% Borrowings 275.27% 159.43% 125.53% 77.30% Deposits and other accounts 133.59% 110.56% 114.10% 131.99% Sub-ordinated loan Nil Nil nil 100.00% Liabilities against assets subject to finance lease 1841.12% 6982.60% 14086.99% 11077.33% Deferred tax liabilities net Total Current Liabilities 150.34% 115.64% 116.31% 125.09%
Other liabilities/long term debt Total Liabilities Capital
Share capital/TOS 234.00% Reserves 102.79% Accumulated Loss 1050.02% Surplus on revaluation of assets - net of tax/SOR 260.76% Total Equity 46.32% Total Equity and Liabilities
234.00% 100.00% 712.93% 216.67% 115.36%
130.00% 100.00% 478.98% 179.76% 57.28%
100.00% 100.00% 125.66% 168.61% 105.03%
100.00% 100.00% 100.00% 100.00% 100.00%
Total Assets have greatly increased in 2009 on terms of increase in cash, net investments, advances and operating fixed assets. Liabilities have also increased due to a very great increase in inter bank borrowings. Total equity decrease in 2007 then increase in 2008, due to a great increase in reserves of Silk bank , but in 2009 a big decrease. These analysis shows that Silk bank is going through a growth phase due to which it is incurring great increases in various items of balance sheet. Horizontal Analysis of Balance Sheet also shows that Silk bank is in good financial health and is following proper strategies for expanding its business. Comparing the asset composition in the two years the advances of the Silk bank have increased considerably, and also the amount of the total assets has been increased. The increase in the advances shows that customers have trust over the banks money and they are getting more and more money from their bank and also the collection policy is fair and successful.
Horizontal Analysis Profit & Loss Account of Silk Bank (five years data)
Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision for diminution in the value of investments - net Provision against loans and advances - net Bad debts written off directly Reversal against consumer finance Impairment of available for sale security Total Provision Net mark-up / interest income after provisions Non-mark-up / interest income Fee, commission and brokerage income Income earned as trastee to different funds Dividend income Income from dealing in foreign currencies Gain on sale of securities - net Unrealized gain on revaluation of investments classified as held for trading Other income - net Total non-mark-up / interest income 118.96% nil 67.53% nil 133.35% 68.41% nil 65.72% nil 44.43% 134.02% nil 107.54% nil 479.49% 110.80% nil 144.75% nil 330.14% 100.00% nil 100.00% nil 100.00%
224.63% 316.65% 7.38% 915.65% 442.58% 0.00% -21.67%
174.30% 228.15% 47.16% -1738.90% 339.13% 358.02% -45.42%
182.33% 240.11% 45.93% 458.12% 639.11% 0.00% -19.72%
141.02% 176.34% 57.64% -8466.17% 94.60% 0.00% 3.42%
100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Total Interest Income/Loss Non-mark-up / interest expenses Administrative expenses Other provision / (reversal) - net Other charges Unrealized loss on revaluation of investment classified as held for trading Total non-mark-up / interest expenses Gross Income/Loss Amortization of deferred cost
374.98% -14025.51% 154.70%
264.15% 1301.65% 7.51%
173.35% 5215.23% 130.42%
172.28% -27768.86% 669.91%
100.00% 100.00% 100.00%
nil 357.54% -2900.76% 0.00%
nil 261.28% -1933.35% 0.00%
nil 177.81% -2264.88% 0.00%
nil 153.28% -267.60% 271.98%
nil 100.00% 100.00% 100.00%
Profit/Loss before taxation
Taxation Taxation - Current year - Prior years - Deferred Share of tax of associated Total Taxation Loss after taxation
5.39% 1735.46% -1779.08% -4492.76%
10.55% 1042.39% -1080.96% -3117.43%
22.67% 939.76% -368.27% -4706.34%
0.00% 131.20% -138.79% -470.00%
100.00% 100.00% 100.00% 100.00%
Profit and loss after taxation of Silk bank has increased/decreased in the past three years due to the following factors: • Fee, Commission, brokerage income was increased in the past four years.
Gross Income was decreased proportionally. Interest Income of Silk bank was increased till 2007 then decrease in 2008 but in 2009 also increased on account of consumer deposits.
Non-interest Income has also increased in from 2005 to 2007 then decrease in 2008 but in 2009 also increases due to increase in income dealings in foreign currencies. And loss after taxation is also increasing from 2006 to 2009 Mark-up / interest income of the Bank grew led by earning assets growth coupled with the re-pricing of assets at higher interest rates. With the quality of growth given priority, average earning assets rose. Further, the management was able to structure its assets to ensure that assets are re-priced adequately in the rising interest rate scenario.
Vertical Analysis Balance Sheet of Silk Bank (five years data)
Current Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Total Current Assets Fixed Assets Investments - net Advances - net Operating fixed assets Deferred tax assets - net Other assets - net Total Fixed Assets Total Assets 29.39% 46.75% 5.42% 5.79% 6.34% 93.68% 100.00 % 21.59% 55.87% 5.40% 4.70% 4.12% 91.67% 100.00 % 33.28% 48.22% 4.41% 3.29% 2.98% 92.19% 100.00 % 26.74% 49.02% 3.92% 1.71% 2.80% 84.20% 100.00 % 26.10% 40.87% 3.23% 1.91% 2.17% 74.28% 100.00% 4.55% 0.22% 1.55% 6.32% 5.52% 0.34% 2.47% 8.33% 6.01% 0.24% 1.57% 7.81% 6.75% 1.04% 8.02% 15.80% 5.29% 1.93% 18.49% 25.72%
Current Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loan Liabilities against assets subject to
0.93% 21.97% 72.25% 0.00% 0.02%
0.78% 15.70% 73.78% 0.00% 0.07%
1.06% 12.82% 78.97% 1.21% 0.15%
0.69% 7.16% 82.79% 1.10% 0.11%
0.42% 11.48% 77.77% 1.36% 0.00%
finance lease Deferred tax liabilities - net Total Current Liabilities Other liabilities/long term debt Total Liabilities Capital Share capital/TOS Reserves Accumulated Loss Surplus on revaluation of assets net of tax/SOR Total Equity Total Equity and Liabilities
0.00% 95.17% 2.26% 97.43%
0.00% 90.33% 1.77% 92.11%
0.00% 94.21% 1.72% 95.94%
0.00% 91.85% 1.40% 93.25%
0.00% 91.03% 0.99% 92.03%
13.11% 0.33% -13.15% 2.28% 2.57%
16.18% 0.39% -11.02% 2.34% 7.89%
9.32% 0.41% -7.68% 2.01% 4.06%
6.50% 0.37% -1.83% 1.71% 6.75%
8.06% 0.46% -1.80% 1.26% 7.97%
Deposits hold a portion of 80 to 98 percent of the total liabilities and equity this shows how much customer deposits Silk bank has. Total Equity holds only 6 to 7 percent of the total liabilities and equity which shows that Silk bank mainly generates its funds from deposits rather than equity financing. Current and fixed assets show the normal vertical trend. The vertical analyses reveal that significant portion of balance sheet comprises of fixed asset and current assets. Bank liabilities analyses shows that banks liabilities are not increasing which is good sign of the stability go the bank. In last five years bank borrowing are in same trend and bank have no much amount of liabilities.
Banks most of the shares are the property of government so the increasing and decreasing cant effect the bank position because bank have the back of government.
Vertical Analysis Profit & Loss Account of Silk Bank (five years data)
Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision for diminution in the value of investments – net Provision against loans and advances – net Bad debts written off directly Reversal against consumer finance Impairment of available for sale security Total Provision Net mark-up / interest income after provisions Non-mark-up / interest income Fee, commission and brokerage income income earned as trastee to different funds Dividend income Income from dealing in foreign currencies Gain on sale of securities - net Unrealized gain on revaluation of investments classified as held for trading Other income – net Total non-mark-up / interest income Total Interest Income/Loss Non-mark-up / interest expenses Administrative expenses Other provision / (reversal) – net Other charges
-139.06% -137.70% -1.36% -0.14% -51.05% 0.00% 0.14% -3.25% -54.31%
-161.89% -148.85% -13.03% 0.41% -58.69% -0.09% 0.43% nil -57.94%
-144.56% -133.73% -10.83% -0.09% -94.41% 0.00% 0.16% nil -94.34%
-907.76% -797.37% -110.39% 13.89% -113.45% 0.00% -0.22% nil -99.79%
1874.05% 1316.43% 557.63% 0.48% 349.16% 0.52% 19.06% nil 369.22%
-7.71% nil -0.66% -2.67% -1.38% nil -3.15% -15.57% 37.38%
-6.65% nil -0.96% -1.88% -0.69% nil -3.38% -13.57% 31.34%
-11.13% nil -1.34% -1.94% -6.35% nil -2.64% -23.40% 60.11%
-74.69% nil -14.63% -13.91% -35.50% nil -33.89% -172.63% -183.24%
196.26% nil 29.43% 0.00% 31.31% nil 189.20% 446.20% 634.61%
-64.62% 2.40% -0.41%
-68.30% -0.33% -0.03%
-38.26% -1.15% -0.44%
-308.69% 49.50% -18.51%
521.68% 0.52% 8.04%
Unrealized loss on revaluation of investment classified as held for trading Total non-mark-up / interest expenses Gross Income/Loss Amortization of deferred cost Extra ordinary / unusual item
nil -62.62% 100.00%
nil -68.66% 100.00%
-0.04% -39.89% 100.00%
-1.46% -279.16% 95.92%
nil 530.24% 104.36%
Profit/Loss before taxation
Taxation Taxation - Current year - Prior years - Deferred Share of tax of associated Total Taxation Loss after taxation
-0.20% -0.81% 32.75% nil 31.74% 68.26%
-0.58% 0.00% 29.51% nil 28.93% 71.07%
-1.07% -13.23% 22.71% nil 8.41% 91.59%
0.00% 0.00% 25.74% nil 25.74% 74.26%
111.13% 0.00% -57.12% Nil 54.00% 46.00%
From the vertical analysis, it is clear that Silk bank like any other banks earns its most income from interest income earned on giving out consumer and business loans. They hold almost 80 to 170 percentage of the gross income. Interest expenses also incur to a great deal on account of giving out deposits to consumers and businesses. The vertical analyses of the income shows that major portion of the income statement consist markup because bank give the advances to the people on interest banks markups are not much due to bank depository services not compatible. Vertical analyses show the stable trend in income of the bank.
Although Silk bank is in an industry where it has many competitors but it is being compared as following two biggest competitors which are MCB and HBL: Description millions) Assets Liabilities Profitability
MCB 443,615 385,179 20,526
HBL 717,302 652,257 10,001
If Silk bank is compared with MCB and HBL, it is observe that HBL is a big banking group as compare to Silk bank and MCB. Deposit wise HBL is in front of both ABL and MCB. Although Silk bank is in good position as compare to HBL in deposit situation. It shows customer’s trust on bank. Silk bank ahead in case of advances portfolio as compare to HBL and MCB. Here health portfolio of advances places the Silk bank in second position which is a good indicator. But profit wise MCB is in front of both HBL and Silk bank in year 2008. Branches of HBL are greater than Silk bank and MCB. MCB has greater number of employees as compared to Silk bank and HBL. These figures show that HBL and MCB are in much better position than Silk bank in profit. Short-term liquidity, including internal operating factors and / or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan's short-term obligations.
The Bank is making every effort to meet the up-coming challenges through strategic planning and making the best use of the resources at its command. These financial figures and improving condition of the bank shows that ABL is among the leading commercial banks of Pakistan.
Future Prospects of Silk bank
Silk bank aims to offer products that will change the industry norms by providing innovations, options and flexibility unmatched so far by any other bank due to the investment made in the state-of-the-art systems at Silk bank. Silk bank plans to expand the market by its vast distribution network. Bank’s products & services are being developed keeping in view the increased level of consumer awareness due to increased accessibility of information, and hence the demand for better products and services with options. Management believes that their business process reengineering initiative supported by their customized core banking technology platform will also help them to compete more effectively in the changing landscape of the Pakistani banking sector. Bank’s Credit Risk Environmental and Monitoring system which is in its final stages of implementation is expected to assist them in more effective post disbursement monitoring.
Macro economic and political instability, going forward, will continue to impact growth and profitability of the banking sector. Management believes that political reconciliation will result in renewed attention to economic management and hence improvement in the operating environment. Management is focusing on converting the manual branches into online branching system and also to expend their branch network domestically and internationally. Management is
also keen to increase the ATM network in future and plans have prepared for it. Management believes the bank is well positioned to take advantage of the next economic upturn.
Chapter 7: Weaknesses Of Silk bank
Weak Aspects of Silk bank
Every organization has some area of improvement which is normally called shortfall/weakness. These weaknesses can be converted into strength and opportunities if these are planned and implement properly. I also noticed some shortfall and weaknesses in Silk bank as an internee. Some major weaknesses are mentioned below:-
1. Slow growth in advances. 2. Banks debts are at dangerous level. 3. Lack of investment in different sector. 4. Bank’s interest income is deceasing every year. 5. Lack of proper planning and evaluation of finance department. 6. New product are not launching as per time requirement. 7. Lack of research and analysis for availing new opportunities. 8. Bank’s performance evaluation/appraisal system is not efficient. 9. Poor network system to connecting the network and database.
There are lack of new and innovative products which can be attract the customer and will effective to the banking achievements.
If we observe the employees satisfaction scheme we can observe that the lack of satisfaction as an employee.
Silk bank has not using technological enhancement for their benefits.
The Branch has a good staff combination on the basis of experience, but their training capabilities are not up to the requirements of the fast changing banking environment.
The technical training of the staff is negligible e.g. in case of the absence of computer there is no alternate trained personal who can record the daily transactions.
Chapter 8: Conclusion
What I concluded?
It has been only one year since the establishment of Silkbank, and since its establishment it has aimed to become the leading bank of Pakistan by that provides outstanding services to its customers. The bank has seen phenomenal growth in the past year by opening more branches in the country, increasing the deposit base, while also increasing the assets and profits of the bank. The services that Silkbank provides have a great market penetration not only because of their features but also the profit and markup rates that they charge. Also the products that Silkbank provides cater to sector of the economy. The top management of the bank is always developing strategies that cope with unexpected challenges to deliver products and services more efficiently. Furthermore, as the bank is growing, the number of employees at Silkbank are increasing, which shows that Silkbank is being considered as an employer, that provides its employees with a challenging environment to work in, where they can harness their full potential and shows confidence as an employer by the employees of the bank. Lastly to become the leading bank of Pakistan, Silkbank has to benchmark its services to its major competitors in the industry or the market leader in the industry and provide a continuous mean of improvement in its existing products and services, while introducing new ones to the industry.
Chapter 9: Findings And Recommendations
What I found and What I Suggest to Silk bank?
Based on the analysis of the Silk bank, it is observed that the Bank like the other public sector industries has not been showing up to mark performance. There is a long list of weaknesses that is given on the previous page. Most of them are going along since long time and that all efforts made to remove them have not succeeded. On the basis of SWOT analysis of the Bank the following suggestions and recommendations are given.
∗ Bank should try to get rid of the political influence to be able to compete in the industry
with prudent and strong policies.
∗ The undue reliance on the public sector be minimized and ventures of private sectors
should be taken as well.
∗ Redefining of rules, regulations and policies should be made implemented at all costs. ∗ Efforts of great importance to be made for the over the counter services of general
banking making it more simple and faster to get a better response of the customers.
∗ The behavior of the employee, especially on the counter has to be strictly monitored
∗ The still existed bureaucratic approval system has to be demolished. ∗ All advances should be made by getting the maximum security and should focus on
∗ Better and comprehensive long-term and short-term planning should be made to
forecast the future needs.
∗ There is a possibility of establishing a task force to ascertain the effectiveness of the
policies being implemented.
∗ The Bank should develop a comprehensive recruitment policy to make only the
competent ones to be on the job.
∗ There is a still a vast pool of incompetent employees that has to right sized. ∗ There is a lack of promotional element in the planning and budgetary decisions of the
Bank that has to think seriously.
∗ All branches of the Bank should be computerized for increasing the effectiveness and
efficiency of its employees.
∗ Efforts should be continued to keep the powers of employees union to the minimum,
like the current situation.
∗ Promotions must not be delayed and should be made on time to further increase the
commitment and efficiency of the employees. These and many other that can make a good set of recommendations, which have to be made possible to escape from the threats and weaknesses and the risks in environment that surrounds the Bank. The management do considers the policy matter that is not helping the Bank, but is still in practice due the absence of prudentially regulated system to protect them and the Bank.
Efforts have been made with serious concern to give Silk bank a status that it has to maintain by having practices of:
∗ ∗ ∗ ∗
Right sizing of the employees. By closing unprofitable branches. By introducing a merit based selection criteria. Promotions made conditional with qualifications.
Maryam yasir. Branch manager, Silk bank G.9 Islamabad. Wajid , Relationship manager, Silk bank G-9 Islamabad. Hasnain , Branch Operation manager , Silk bank G-9 Islamabad. Imran . Cash Services Manager, Silk Bank G-9 Islamabad. Saudi Pak Bank Ltd Annual report (2006), Karachi. Silk Bank Ltd Annual report (2007), Karachi. Silk Bank Ltd Annual report (2008), Karachi. http://www.silkbank.com.pk
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