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1.1 Background of the Study

This study is focused the Bank of Khyber Pakistan, which is the govt. bank, owned by the KPK Provincial Govt. The bank of Khyber become a schedule bank in the year 1994. The Head Office is situated at 24-The Mall, Peshawar Cantt. KPK Pakistan. This bank has been playing an important role for the development of different sectors in Pakistan and especially in KPK. It has a network of 29 branches, which are located in different locations of our country. Despite difficult economic conditions, like lack of suitable lending opportunities, volatility of interest rate and equity prices, the bank manages to show good results for every year. An opportunity was created to understand the practical banking operations during two months of internship in The Bank of Khyber. The Bank of Khyber is one of the banks, which has agreed to provide internships under a special program, which is being jointly conducted by the State Bank of Pakistan & IMS Peshawar. Being an internee, I was deputed to The Bank of Khyber, Ashraf Road Branch in Peshawar. This internship is also, one of the requirements of fulfilling a BBA(Hons) degree.


Purpose of the Study

Being a student of business administration, especially of finance, the purpose of conducting this study is to develop some insight into the working of banks, the bank of Khyber specially here. More thoroughly, after some what understanding the procedures of the Bank, the aim is to make a critical analysis of it and suggest recommendations.


Scope of the Study

The scope of this particular study confined to the Bank of Khyber Ashraf Road Branch. More specifically, the operation department of the above mentioned bank branch is the major emphasis of the study.


Methodology of the Report

The method of data collection are mostly based on personal observations and experiences of actually working at the Bank. Dealings with customers, along with general procedures involved were observed. Moreover, as the departments are always bustling with activity, there was not enough time to carry out formal interviews or surveys, the methods used for data collection are: Primary Data Observations Discussions with Bank officers.

Secondary Data Manuals Annual Reports Information Memorandum Internet.


Scheme of the Report

The entire report is organized in the following manner. Chapter one (already covered) gives the background of the study, the purpose of the study, the scope and methodology that is used to collect all the relevant data and the scheme of the report itself. Chapter two is about the organizational review i.e. the history of the bank of khyber, mission statement, organizational structure and chart etc.

Chapter three give the Ashraf road Branch overview where the Internship is conducted. Chapter four is about the various financial products and services offered by the Bank of Khyber. Chapter five emphasis on the department of specialization i.e. operation department and the various types of facilities given by it. Chapter six covers the financial analysis of the bank Chapter seven consists of the recommendations based on the findings from the study.


2.1 The Bank of Khyber Pakistan

The Bank of Khyber (BOK) was established in 1991 under the act of the KPK assembly its objectives included promotion of savings and investment in the KPK. In 1994 it acquired the status of a scheduled bank that allowed it to open branches outside KPK, become a member of the clearing house ,and engage in trade finance activity. Advantages of scheduling have had a positive impact on the Bank after adjustments to State Bank of Pakistan (SBP) requirements during 1995. The bank has a paid up capital of Rs. 750 million out of which Rs. 652.5 million has been provided by the government of KPK, while the remaining Rs. 97 .50 million has been contributed by DEG, a German Development Bank. BOK is distinguished by the fact that it is not only a schooled commercial bank but it also plays a role of a development agent, through systematic long-term lending, specially to small and medium size business. Separate project financing departments namely, long-term projects department and Micro Finance Unit has been set up for this purpose. Several line of credit from international agencies have been arranged by BOK for meeting the funding requirements of development projects in KPK. BOK has 29 branches with 23 in KPK and 2 at Karachi, one each at Islamabad, Quetta, Lahore, and Muzzaffarabad, (Azad Jammu and Kashmir). The Bank has 630 well-qualified employees including 346 well-qualified officers, and it places great importance on their professional achievements.



Mission Statement

Mission, broadly stating, is the purpose for which an organization exists and why should it compete in certain sectors and industries. Within mission, sometimes stated as purpose, the organization addresses itself to what it intends to accomplish both in the long and short run. Mission is a very broad statement of organizational direction, and is normally summarized and documented in a mission statement. In same way, the Bank of Khyber being an organization, has a mission statement, as follow: To excel as a quality service provider, in a supportive environment with a special focus on micro-business and to exploit the indigenous resources, while maintaining a highly motivated staff.


Main Objectives of the BOK

Objectives are the ends towards which activities are aimed. In fact these are the results to be achieved. The bank of Khyber has certain objectives, which are as follows;


To mobilize private savings and public funds for diverting the same into productive channels and ensure their availability.


To promote industrial, agricultural and socio economic processes through the active participation of private and public sector in the province.


Help under develop areas and create employment opportunities, specially in the rural areas of the province. Further, to guide and assist the people of KPK serving overseas to effectively and profitably invest their foreign savings in the province as well as the other parts of Pakistan.


Create a diversified and sound portfolio for utilization of idle funds and their investment in the existing and new ventures specially in the pioneering of high-tech agro based export oriented and engineering projects to ensure maximum returns.


Participate and seek the share of the province in the capital market of Pakistan by way of subscription through locally pooled resources in the leading stock exchanges of the country and eventually paving the way for establishing a stock market in the province.


Organizational Structure

Organizational structure is the frame work that defines the boundaries of the formal organization and within which the organization operates. The organizational structure of BOK is also aimed at achieving specific corporate objectives. All the activities and functions of BOK are controlled by the Board of Directors. Board of Directors The existing board of directors comprises the following: Mr. Attaullah khan Mr. Bilal Mustafa The bank of Khyber Mr. Mir Javed Hashmat Mr. Sahibzada Saeed Ahmed Mr. Muhammad Masood Khan Chairman Managing Director Director Director Director

Mr. Muhammad Asif Mr. Maqsood Ismail Mr. Amjid Pervez Source: The Bank of Khyber Annual Report 2010.

Director Director Director


Organizational Chart

The BOK is a centralized organization in which little authority is given to the lower levels of management. The head office of BOK is divided into two divisions and each division has its own set of departments, these two are: Banking operation division Personnel and establishment division

There are also two other independent departments. Long term projects Audit department

Long term projects (LTP) handles the investment proposals of huge industrial and agricultural projects. Where as the audit department is responsible for having an internal control.

Organizational Chart THE BANK OF KHYBER Organization Board of Directors Managing Director Managing Committee Long Term Projects Resident Directors AUDIT

Banking Operation Division Branch Operations Deptt. Accounts & Treasury Deptt. Foreign Exchange Deptt. Credits Deptt.

Personnel & Establishment Division




P & E Deptt. Monitoring & Recovery Deptt. Branches 29

Source: The Bank of Khyber Information Memorandum, 1998.

Public Relation Deptt.


Human Resource Policies

Human Resource Management is the part of the organization that is concerned with the staffing, training, development, motivation and maintenance of employees. HRM is a step-by-step process, which is followed by many companies all over the world. The personnel and establishment department of BOK performs all the above mentioned functions BOK is also aware of the growing importance of personnel and its role in an organization. Therefore it lays great emphasis on this aspect of management. BOK has a personnel programme which constitutes administrative matters relating to personnel right from recruitment to selection. Salary administration, promotion, demotion, dismissal, disciplinary action, training, improving performance, motivation and developing employees and retirement matters.


Recruitment in BoK

Recruitment is the process of discovering potential candidates for actual or anticipated organizational vacancies.. Recruitment Procedures A candidate while coming to the services of BOK must be pass through a selection process. Application Forms When BOK advertise posts, the applicants are required to apply through a form, through this form the bank tries to get as much information about the candidate as possible. Test The candidate fulfilling other requirements are then called for written test. This written test is taken in three major subjects i.e. English, General knowledge and Arithmetic.

Interview The candidates who qualify the written test, are then called for interview, the main purpose of the interview is to judge the personal qualities of the candidate. Physical Examination The selected candidate are required to bring a medical fitness certificate from any registered medical practitioner, the main purpose of the certificate is to make sure the physical fitness of the candidate at the time of appointment. Appointment The selected candidates receive their appointment letter through post at the address they have given in the form. They are appointed for the period of oneyear as probationary office. At the time of appointment they have to submit the following documents. a) Bank secrecy bond, that they will not lack out secrecy to any one outside the bank. b) Surety bond. c) Service agreement bond. Probation The selection candidates remain under probation for the period of one year. They receive pre entry training at Union Bank Academy Lahore as BOK does not have its own training academy probationary office receive a fixed salary. Confirmation After the successful completion of the probation period the probation officers are confirmed and their services are secured. For confirmation they have to pass a test and fi they pass this test they are permanently recruited as office Grade-III. B. TRAINING

A learning experience that seeks a relatively permanent change in an individual that will improve his or her ability to perform on the job. Towards this main

objectives training courses have been organized, intitating a self-development process in order to accelerate organizational growth and to further improve the banks level of expertise and efficiency. C. TRAINING PROGRAM

The institute of Bankers in Pakistan (IBP) arranges training programs for all the banks including the Bank of Khyber, to upgrade their management skills. IBP also programs seminars, conferences and training programs for one to two or more days. IBP conducted three exams in the full service of a banker, part-I, part-II, and partIII. It is called DAIBP (Diploma Associates Institute of Bankers in Pakistan). If a banker clears all the papers in the first chance so he or she would get a cash prize. After clearing Part-I, a lower grade officer is given the option of their taking the cash prize or a promotion. In grade II only the cash prize is offered. For improving the skills and knowledge of its employees, the management of the BOK has on job training, job rotation and off the job training. On- The-Job Training On-the-job training is normally given by a senior employee or supervisor to the trainee in order to enhance and polish the skills of his or her. The bank provides the opportunity to take part in the courses and seminars conducted by the institute of Bankers Pakistan and other professional institutes. Job Rotation Job rotation is defined as An alternative to job specialization that involves systematically moving employees from one job to another.7 It enables the employees to work on different positions and get an overall picture of the banks operations. Off Job Training Off job training in BOK includes conferences, seminars, meetings and refresher courses. This mode to training is done to enable employees to upgrade their

knowledge to new developments in the banking profession and also to broaden their outlook. D. PROMOTION

Main criteria for promotion are the performance and skills of the individual, though seniority is also taken into consideration but it is secondary importance. BOK has defined perfect career paths for its employees and that staff gets accordingly in their grades by way of transferring from one position to the others. Promotions up to the Joint Director are approved by the MD on the recommendations of the promotion committee. Promotion of officers to the post of Director and above are approved by the Board of directors on the recommendation of the MD. To keep the employees motivated the MD may promote and officer out of turn (who has not completed 3 years of services in the grade) up to 10% of those eligible for promotion. Junior offices and officers who pass DAIBP part-1& II have the option of promotion to the next higher grade or to get the cash award. Normally employees are promoted to the next grade after 3 years but promotion is totally based on 3 years performance of the employee.


Performance Appraisal

A formal assessment of how well an employee is doing his or her job.8 Performance appraisal is evaluating the performance of employees for a given period of time. it is a systematic evaluation of the individual with respect to his performances on the job and his potential for development. The performance of employees at the BOK is appraised on the basis of annual confidential reports. A proforma made by head office is sent to immediate superior for filling. Increments are decided on the basis of these appraisal reports according to the performance of the employees. These increments or appraisals play a very important role in the development and encouragement of the staff.



Allowances Benefits Things of value other than compensation that an organization provides to its workers. The BOK allows the following benefits to its executives and managers only. G. Residential telephone Entertainment allowance Bank car Residential facilities House Rent Conveyance/maintenance allowance. Utilities allowance. Medical allowance


Discipline is a force that prompts individuals or groups to observe rules, regulations and procedures that are demand to be necessary for the effective function of the organization. Discipline; in ordinary conduct of affairs by the members is to maintain harmony and peace in organization willingly. Following are the examples of indiscipline. Absence from duty Misconduct Disobedience with any lawful and reasonable order of the supervisor i.e. transfers. Fraud and forgeries Damage or loss (bank property) Sleeping while on duty

Striking Unauthorized use of bank property

Any violation in these disciplinary rules the different types of penalties are given. H. PENALTIES

Any employee found guilty under any rule or any offense of misconduct is liable to one or more of the following penalties. Reprimand With holding for a specified period confirmation on promotion of increment. Recovery from salary of the whole or part of any particular loss caused to the bank by the employee. Demotion to any lower grade. Removal (Dismissal) from service. Termination by way of punishment. Compulsory retirement from the services with or without retirement benefits.


Separation in BOK

Any employee of the bank is separated from the service by three different ways. i. Retirement

Any employee will retire from the service either on the completion of 25 years continuous service or by attaining the age of 60 years. ii. Resignation

An employee can leave the service of the bank on his own disposal by tendering resignation in writing, but he is required to give a prior notice of 3 months in case of officer and one month in case of clerical staff. If he fails to do so 3 months pay will be forfeited in case of officer and one month in case of clerical staff.

Although the bank authorities accept resign but he has to give a genuine reason for the resignation iii. Dismissal

Any act of an employee against the discipline may lead the termination from the services. By doing wrong any employee of the bank can be separated as a punishment from the service, but this will require a proper inquiry of the case.

The bank of khyber Ashraf Road Branch Overview



Ashraf Road branch is one of the important branch of BOK. It performs all the functions of a commercial bank, form deposits to advances, and from remittances to safe custody service. Profit wise this branch is on the top and recently it has got a shield in this regard. The manager of this branch is Mr. Muhammad Humayun khan, he is a prudent and experienced banker. He manages all the activities of bank with good and effective manners with the help and support of the staff. Al the team members are very competent and highly committed with their jobs.



Departmentation is, grouping activities and people into departments make it possible to expand organizations.

Chart 3.1 The Bank of Khyber Ashraf Road Branch Peshawar Organization Chart Chief Manager

Manager Operation

Foreign Exchange Department

General Banking (Operation) Department

Credit Department

Account Opening Department

Cash Department

Remittances Department

Bills Department

Clearing Department

Source: Personal Observation.

Account Opening Department The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers. It also issues checkbooks to customers. A person who wishes to open an account with the bank has to fill an account opening form obtained from any branch of BOK at the time of opening of account. The bank officer tactfully obtains information about character, integrity, responsibility, occupation and the nature of business of the perspective customer.

Cash Department Cash department owes its important to the fact that it is a major point of contract between the bank and the customer, the banks most valued relationships. This department is the showcase of the bank and conveys the first impressions about the banks commitment to professionalism in its systems and procedures and to courteous and efficient customer service. This department performs the function of receipts and payments. Remittance Department Funds transfer facility or remittance of funds is on of the key functions of the banks all over the world. Remittances through banking channels save time, costs less and eliminate the risks involved in physical transportation of money from one place to another. BOK transfers money in the following ways. 1. 2. 3. 4. Pay orders (P/O). Demand draft (DD) Mail transfer (MT) Telegraphic transfer (TT)

Bills Department The Bills department deals with the collection, purchase and discounting of bills on behalf of the customers. The collection of cheques and other instruments has become a very important service that commercial banks render to their clients. While collecting cheques and other instruments, a bank acts as an agent of its customers and therefore, the banker customer relationship in this case changes from the debtor creditor relationship to the agent principal relationship. The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both, collecting as well as paying, banks have certain obligations to each other and to their customers. They have certain legal rights also and legal protection is available against fraudulent transactions under various sections of the Negotiable Instruments Act, 1881.

Clearing Department BOK along with their daily business activity also provides the facility of collecting credit claims for customers i.e. when a customers deposits a cheque or draft for collection which is of the some other bank. Then bank collects this instrument for its customer through clearing and similarly in case of payment the bank makes payment through clearing for the instruments (cheques or drafts) which are given by its customer for his obligation fulfillment to customer of some other bank. The function of clearing house system is operated by the State Bank of Pakistan (SBP) if SBP has no office at a place then National Bank of Pakistan (NBP) as a representative of SBP acts as a clearing house. Credit Department The bank is profit seeking institution. It attracts surplus balance from the customer at low rate of interest and makes advances at a higher rat eof interest to the individuals and business firms. Credit extensions are the most important activity of all the financial institutions, because it is the main source of earnings. Credit departments is one of the most sensitive and important department of the bank. The major portion of the profit is usually 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. Foreign Exchange Department The foreign exchange means that the amount of any foreign currency that will available in a market at any given time against or in exchange for a particular countrys currency. This value of rate or exchange may show a stable, rising or downward trend of position day to day and even at different times during the same day. Foreign Exchange Department is the main source of income for the commercial banks as well as for the State bank. Commercial banks earn commission and service charges through letter of credit and letter of guarantee. While the state Bank collects with-holding tax for the supply of goods through letter of credit and

govt. earns from stamps duties applicable to issuance bills of exchange in case of L/C. it promotes the import and export business. It facilitate the local trade and foreign trade. Foreign Exchange Department deals with foreign currency accounts (FC A/C), letter of credit (L/C) and letter of guarantee (L/G).


4.1 Current Deposit Account (Rupees)

The BOK Rupee current deposit account allows the facility of unlimited withdrawals up to the extent of the balance in account. There will be no tax deducted on the funds that some one choose to keep in these accounts. Balance in current accounts are payable on demand. Any amounts can be with drawn without prior notice. Similarly there are no restrictions on number of transactions during the day. All individuals including foreigners, firms and corporate bodies are entitled to open and maintain current accounts. No profit is paid on current accounts. Overdrafts is allowed on this account.


Saving Deposit Account (Rupees)

The BOK rupee saving deposit account allows the facility of multiple withdrawals up to the credit balance, while accruing profit on deposits. 2 Types of saving deposit account. i. ii. iii. iv. Profit and loss sharing (PLS saving) account. Special deposit account (SDA). PLS 7 days Notice Deposits. PLS 30 days Notice Deposits Profit is paid bi-annually on minimum monthly balance (Jan-June & July-Dec) which is announced in July and January respectively. Generally, withdrawals from this account are allowed on demand i.e. without any prior notice of withdrawal. Overdraft is not allowed on this account.


Term Deposit Account (Rupee)

The BOK Rupee Term Deposit Account offers the dual benefit of attractive returns with high liquidity. Options to take profit monthly, quarterly, bi-annually, annually or at maturity. Profit is accrued on a daily balance basis. There is no penalty for premature enchasement. However in case of an early enchasement the rate of the previous tender will be applied. The option of partial liquidity is allowed i.e. with drawl to a certain percentage from the fixed deposit without disturbing the remaining deposit is allowed. Term or fixed deposits are accepted by BOK mature between one month to five years. Profit on fixed deposits is paid on the maturity of deposits. Each fixed deposit account is considered as a separate contract.


Foreign Currency Account

All individuals including resident citizens, firms and corporate bodies can open and maintain foreign currency savings and current accounts. Formalities for opening FC accounts are similar to those of rupee accounts. Facility is presently available in four major currencies i.e. US dollar ($), Pound sterling, (L), deutsche mark (DM) and Japanese Yen (Y). Foreign currency saving accounts are interest based. Interest rates are fixed by bank every month within the parameters given by SBP. The rates so announced unchanged during respective month.


Khyber Monthly Scheme (KMS)

On KMS the BOK gives monthly interest on amount deposited with the bank. This is a sort of fixed deposit and the customers will have to keep the deposits for the five years.


Security Deposit Receipts (SDRS)

This is a receipt issued by the bank, at the instructions of the depositor, confirming that amount of the SDR is held by the bank to be paid whenever called upon to do so by the beneficiary named in the SDR. A SDR is a non-negotiable instrument. SDRs are generally used to make advance payments or as earnest money, retention money or security deposits etc. No profit is paid on call deposits. A SDR can be repaid to a named beneficiary or the

purchaser/depositor upon proper identification.


Khyber Rupee Travellers Cheques

They are generally issued for the convenience of persons travelling abroad, but some Pakistani banks issue them in Pakistan currency for use within the country as well. Before issuing, the bankers receive an amount equal to the face value of the cheques, and also charge a small commission. The travelers cheques are for fixed amount and are treated as order cheques payable only to the purchaser whose specimen signature appears on the travelers cheques itself. Foreign currency travelers cheques are issued and encashed in accordance with the provision of the exchange control regulation Act 1947. Khyber Rupee Travelers cheque (KRTC) is a negotiable instrument, which can also be used for remittance fund and as an alternate to cash. KRTC is available in the denomination of Rs. 5,000, Rs. 10,000, and Rs. 50,000.

THE BANK OF KHYBER PAKISTAN HALF YEARLY PROFIT RATES ON PLS DEPOSITES Profit rates on various types of PLS deposits for half year ended June 30 2012. 01.01.2012 to 30.06.2012 Notice deposits 7 to 29 days 30 days Special deposits Special deposits account (SDA) Saving account PLS Saving account Term Deposits Three months TDR Six months TDR One year TDR Two year TDR Three year TDR Four year TDR Five year TDR Khyber monthly scheme Khyber monthly scheme Regular Amdani scheme Regular Amdani scheme (5 years) Zabardast Amdani scheme Zabardast Amdani scheme Maala Maal Munafa scheme Maala Mall Munafa scheme 1.25% 1.50% 5.00% 5.00% 5.20% 6.30% 6.50% 8.30% 10.50% 12.00% 14.25% 5.50% 7.25% to 11.30% 10.60% 1st year 2nd year 10.00% 11.00% 11.25% 11.50%

1st year (senior citizen) 2nd year (senior citizen)

Be-Baha Mahana Amdani scheme Three months Six months One year TDR 10.50% 11.00% 11.50%

Deposits from Banks/ Financial institutions Deposits 1.50%

Source; BOK website;


Consumer Financing
Fund Base Facilities

Fund base facilities are those which involve a cash disbursement at the time of allowing the facility. Running Finance This is a working capital finance facility available for one year and renewed subject to satisfactory utilization there of. Markup is charged on outstanding balance. Demand Finance It is a term loan disbursed in lumpsum and repayable in 2 years in the form of monthly or quarterly installments.

Advance Against Salaries This facility is available to government and semi-government employees up to five gross salaries. 4.8.2 Non-Fund Base Facilities

The non fund base facilities are those in which the bank does not invest its own funds rather its commitment is involved against which the bank chargers a certain amount in shape of commission. These facilities are available in the form of letter of credit and letter of guarantee. Letter Off Credit Letter of credit is required in the settlement of international trade some times local transactions are also done through the letter of credit which are termed as inland LCs. Usually, there are four parties are involved in LCs. 1. Importer 2. Exporter 3. Importers bank 4. Exporters bank LCs may be on sight or issuances basis. In sight based LCs, the importer has to pay the amount upon payment of the value. In case of issuance LCs the exporter extends credit to the importer. The documents are handed over to the importer against his acceptance of the bill and assurance of payment on the maturity date of acceptance. Letter of Guarantee The bank provides assurance to the beneficiary of the guarantee about the satisfactory performance of a certain act by the applicant of the guarantee. In the letter of guarantee three parties are involved i.e. 1. Bank (provider of guarantee)


Applicant of the guarantee (Banks customer on whose behalf the bank issues a guarantee).


Beneficiary (in whose favor the guarantee is issued).

The banks at the request of applicant issues the guarantee and charges commission for its commitment from the applicant at the exposure is secured against some security.


5.1 ACCOUNT OPENING REQUIREMENTS AND DOCUMENTATION Account opening is the first step towards establishing Banker-Customer relationship. Any individual, who has attained the age of majority and is of sound mind can open and maintain his/her account. Two or more individuals may open an account jointly. Similarly, business organizations such as sole proprietary concerns, partnership firms, and limited liability companies as well as non-profit organizations like clubs, trusts, societies, associations and NGOs etc, may open their accounts. The following requirements are necessary for opening an account. Identification of the new customer. Ascertaining the genuineness of the stated occupation business of the customer. Determining the correct residential and permanent address. Completion of all relevant columns of the AOF. Proper completion of documentation.

Personal Accounts Accounts opened by individuals in their personal capacity are termed as personal or private accounts. A personal account may be a PLS saving or current account in local currency or saving or current account in foreign currency. There is no restriction as to number of accounts that an individual may have with the bank.

Verification of Identity a) Under recognized legal principles, banking conventions and SBPs prudential regulations (Regulation XI & XII), banks are required to institute effective procedures to ensure true identity of their customers. b) Federal Ombudsman also, vide his ruling on a complaint, directed the banks to retain a photocopy of the NIC with AOF of the person desiring to open an account as well as of the introducer. c) Account opening procedures at Bank of Khyber, therefore, have been adopted to fulfill above requirements. d) Authorized officers, therefore obtain NICs and photocopies of the new account holder as well as of the introducer and then return the originals after attesting the retained copies. Inquires are necessary to avoid potential frauds and losses not only for our own bank but also to save other banks and general public and to claim legal protection in the case of any such happening. e) The identity of an individual can also be established by obtaining a copy of their passport, driving license, or any other documents that certifies the customers name, address, date of birth, citizenship, photograph, and signature etc. Introduction a) Whether introduced by a customer or banker, proper introduction is a mandatory requirement under SBPs BCD circular No. 29 of 1968. b) Generally, new customers are introduced by the existing customers, Staff members themselves may introduce new accounts, provided they know the new customer, his/her occupation and permanent residence etc. and are otherwise satisfied with his/her past conduct or record with respect to financial dealings and bank relationships.

Following Steps Are Taken To Ensure Proper Introduction a) Introductions from saving account holders for current accounts normally discouraged. However, an introduction from a savings account holder who is well know to the manager and whose account has been well conducted may be accepted, under the managers authorization. b) Whether the introducer/referee accompanies the account holders to the branch or not, he/she properly identified by an authorized officer under his signature written across the rubber stamp reading Signature Verified affixed in close proximity to the introducers signature. A letter of thanks sent to the introducer. A copy of the letter retained in the Account File. Some Basic Information Regarding Account Opening Form & Procedures The bank officer takes the interview of the customer to know his purpose of account opening, identity and status. The full name of the individual or the business is given as title to the account. The permanent (Corresponding) address of the client is required in this regard. The account holder describes his occupation in definite and adequate terms. In case of employee the name and address of the employer is noted on AOF. Clear instructions are obtained regarding operations on the account and for repayment of the balance in the event of the death of any of the joint account holders and in case of single account holder. Signatures of the account holders are taken on AOF and SS Card. An account in the name of minor may opened jointly with a parent or guardian with the condition that account will be operated by the guardian. No overdraft is allowed in a minors account.

An illiterate person can open account with banks. This account will be Photo account one photo is pasted on AOF and one is on SS Card. Left thumb impression in case of male and right thumb in case of female account holders is obtained in place of specimen signatures on SS Card. Such a person will put his thumb impression in the cheque in the presence of bank officer.

The married women can open bank account with banks. However, they cant bind their husbands for any debts or borrowings obtained without their consent except necessities of life.

Joint Accounts: Two are more persons may open an account jointly. AOF & SS card are signed by all the parties. Special instructions are required for the operation of account at the time of opening the account. Similarly instructions regarding operation of account and payment of balance to the survivors are required in case of the death of one party or more.

Sole proprietor ship account is the individual account in the name of business concern. All the partners of the Partnership firm will sign the AOF & SS card and it is operated by any one or more partners. The account of the company is opened on the resolution of the Board of Directors, which nominates the persons authorized to operate upon the account. The signs of all the members of the Board of directors will be provided to the bank.

DOCUMENTS REQUIRED FOR ACCOUNT OPENING FOR DIFFERENT PARTIES Individual/Joint Accounts a) Account opening form (AOF) and specimen Signature (SS) card. b) A copy of NIC (National Identity Card).

Sole Proprietorships a) AOF & SS cards. b) A copy of NIC c) Letter / declaration of sale proprietor ship. Partnership a) AOF & SS cards b) Copies of NICS c) Letter of partnership d) Partnership deed. e) Mandate form, if applicable. Limited Companies a) AOF & SS cards. b) Copies of NIC ARE of the directors & authorized officials. c) Memorandum and articles of association. d) Certified true copy of the Resolution of the board of directors authorizing opening of the account. e) Certificate of incorporation original may be returned after inspection and a certified true copy retained. f) Certificate of commencement of Business (applicable only in case of public Ltd. Companies) g) Copies of the latest audited balance sheet and profit and loss account. Trusts a) AOF & SS cards. b) Copy of the trust deed. c) A certified true copy of the certificate of registration of the public trust. d) A certified true copy of the resolution of the board of trustees for opening and operation of the trust account with the Bank.

Societies, Associations, Clubs Etc. a) AOF & SS cards. b) Certified true copy of by laws/ rules and regulations. c) Certified true copy of the resolution by the society / association or club, authorizing opening and operation of the account. d) A list of members of the executive / managing committee. Local Authorities, Municipal Corporations Etc. a) AOF & SS cards. b) Certified true copy of the statute under which the body was created by governed. c) Mandate authorizing designated persons who would operate the account.



Funds transfer facility or Remittance of Funds is one of the key functions of the banks all over the world. Remittances through banking channels save time cost less and eliminate the risks involved in physical transportation of money from one place to another. Besides earning commission, banks also get much-needed short term (cost free) liquid funds right from the receipt of value till final payment. Any person who is of sound mind and can sign the application form as a contracting party may make a remittance. Customers, in order to remit money from one place to another, have a variety of options or modes available to them according to their needs. Types of Remittances Remittances can broadly be classified as Outward and Inward remittances. When a bank / branch instructs another bank/branch to effect a remittance or payment, it is said to be effecting an Outward remittance. While when a bank/branch is itself affecting a payment/disbursement at the instructions of another bank/branch,

it is said to be handling an Inward remittance. Different modes and means of remittance are discussed below. DIFFERENT MODES & MEANS OF REMITTANCES Demand Draft A demand draft is basically a bill of exchange. It is an order to pay money Drawn by one office of a bank upon another office of the same bank or another bank. When it is drawn upon another office of the same bank it is covered under Sec. 85 A of the Negotiable Instruments Act. However, when it is drawn upon an office or branch of another bank it is considered as a bill of exchange under Sec. 5 of the same Act. Also called DDs meaning local Demand Drafts and FDDs meaning Foreign Demand Drafts. Salient Features a) Demand draft is a negotiable instrument. b) An order instrument payable on payees identification or through credit into payees bank account. c) Legal provisions as to crossings, endorsements, collections and payment in due course are similar to those for cheques and other negotiable instruments. Parties to a Draft Following are the parties to a bankers draft: The person who pays the value and on whose behalf draft is issued is called the purchaser. The branch/office, which issues a draft on another branch or office, is called the drawer/issuing branch. The branch/office on which draft is drawn is called the drawee branch. The person entitled to receive the payment is called the payee.

Telegraphic Transfer The transfer of funds from one branch of a bank to another branch of the same bank or to a correspondent bank/office for payment to the beneficiary through telex/fax or telegram is called a telegraphic transfer. It is also called TT. Salient Features a) TTs are affected through internal procedures of the bank and no instrument is given to the remitter. b) Telegraphic transfers are not negotiable. c) Funds remitted through TTs cannot be paid to order/bearer. Payment can be made to the payee only upon identification or through a bank account. d) TT instructions are sent under a coded number known as Test Number. e) Telegraphic transfers are not affected on the branches within the same city. Mail Transfer The transfer of funds from one branch to another branch/office of the same bank or a correspondent bank through mail or courier service is known as Mail Transfer (MT). Salient Features a) Mail Transfer is not negotiable. b) Like TTs, funds remitted through MTs are not payable to the bearer/order. c) Mail transfer is internal instrument of the bank and, therefore, unlike DD, it is not handed over to the remitter. Pay Order Pay order is also called bankers cheque, drawn upon the issuing branch/office itself. It is not negotiable and, therefore, the instrument should be crossed,

Payees Account only to avoid the possibility of dealing with instruments with forged endorsements. Main Characteristics a) It is not negotiable under The Negotiable Instruments Act. b) Protection available to collecting bankers in case of promissory notes, bills of exchange and cheques under the above mentioned Act is not available in case of pay-orders. c) It is issued by, drawn upon and is payable at the same branch of the bank. d) Pay order is used as a substitute for demand draft within local/city limits. e) Being a bankers cheque, pay order is also used to make the banks own payments. Basic Procedure In Case Of Issuance & Payment Of Different Remittances Instruments The remitting bank collects the actual amount of remittance plus the commission, postage charges and tax amount if the tax form is not attached with the application form. these amounts may be collected by cash, Cheque or by authority letter (given by the customer to debit my account for actual amount plus charges etc). Application &Agreement of Test Cod When TT & MT is issued then on the advice the special test code is applied. For this purpose special test keys are provided to every branch and the HO also has. In case of payment of TT & MT test is checked either it is agreed or not. If it is agreed then customers A/C is credited or TTR is issued in case when the customer doesnt have the A/C with the bank. When the amount of DD exeedsRs10, 000 then test code is applied to it. Not over Rs ---------- only

When DD, P/O &Pay slip is issued this statement is protect graphed or is written with red ink/ ballpoint on the instrument. e.g Not over RS 10,000 only.

For the issuance &payment of any instrument an entry is passed in their respective register and the particulars are fed to the terminal and authenticated the transaction and proper vouchers are prepared.



The collection of cheques and other instruments has become a very important service that commercial banks render to their clients. While collecting cheques and other instruments, a bank acts as an agent of its customers and therefore, the banker customer relationship in this case changes from the debtor creditor relationship to the agent principal relationship. The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both, collecting as well as paying, banks have certain obligations to each other and to their customers. They have certain legal rights also and legal protection is available against fraudulent transactions under various sections of the Negotiable Instruments Act, 1881. Duties of a Collecting Bank To act in Good Faith To exercise due care and diligence and not be negligent To act according to the instructions of the customer/principal To follow the accepted norms and practices of banking To abide by all the rules and regulations governing collections. To account for the proceeds and charges/levies deducted from it, to the customer.

Duties of Paying Bank The paying bank, in order to claim proper discharge. Should make the payment according to the apparent tenor of the instrument Should act according to the instructions of the Collecting Bank Payment should be in good faith Should act expeditiously and without negligence Payment should be in the normal course of business. Outward Clean Bills For Collection Cheques and other instruments, which are drawn on other banks or BOK branches in other towns/cities or countries (outside clearing or transfer delivery arrangements), received for account of the banks customers, are lodged in Outward Collections Register either as OBCs or FBCs. The procedure for handling these bills is discussed below. Initial Scrutiny On receipt of bills for collection from the customers an initial scrutiny is conducted with the following consideration. Date Cheques and other instruments should not be without a date, post-dated that is bearing a future date or stale that is bearing an old date that is no more legally valid or is outdated. Payee Payee should be a customer of the bank whose account is required to be credited with the proceeds of collection. In case a customer wants to deposit a cheque/instrument, which shows someone else as the payee, there should be an appropriate endorsement by the named payee in favor of our customer. Amount

Currency and amount of the cheque/instrument should be mentioned both in words and figures and the amounts in words and figures should be the same. Drawer(s) Signatures The drawer(s) should properly sign the cheques/instruments. Material Alterations Date, payees name, drawers signature, and amount are all material parts of a cheque. Full signatures of the drawer(s) should confirm any material alterations, in these parts. Crossings Cheques/instruments must be crossed before processing them for collection. Sec. 125 of the Negotiable Instruments Act allows a collecting banker to cross a cheque generally as well as especially for collection/clearing purposes. An uncrossed cheque is liable to be misused/appropriated, since it would be payable to the bearer. Endorsements Order cheques should be properly endorsed if being collected for 2nd or subsequent payees. Mutilations Cheques/instruments should not be mutilated to the extent that they can be misinterpreted or not be correctly read. Procedure for Handling Outward Bills3 After scrutiny, if instrument is found in order, a Special Crossing stamp of the bank is affixed on the face of the instrument. Where a cheque bears across its face an addition of the name of a banker, with or without two transverse parallel lines, the cheque shall be deemed to be crossed specially to that banker. Payment of an instrument which bears special crossing of a bank cant be made to any one except the named bank or another bank who acts as a collecting agent of the first

one a bank which acts as a collecting agent for some other bank is also authorized to put its own special crossing. In addition to the special crossing, the collecting bank has to give a certificate/discharge on the reverse side of the cheque/instrument to the effect that proceeds of the instruments will be credited to the payees account. A stamp containing discharge is affixed as under: Payees Account will be credited on realization. For The Bank of Khyber Manager Officer

In case, cheque or instrument is endorsed by the first payee in favor of another person discharge will be as under: First payees endorsement Confirmed, Second payees Account Will be credited on realization. For The Bank of Khyber Manager Officer Another stamp known as OBC STAMP is also affixed on the face of the cheque/instrument, which indicates name of the collecting bank, OBC reference number and date of lodgment for further reference. Form or style of an OBC stamp may differ from bank to bank and even branch to branch, however, contents remain the same. A specimen is given below. The Bank of Khyber OBC NO. . DATED Lodgment After initial scrutiny and stamping, bills are lodged for collection by being recorded in the OBC Register or by using an appropriate computer option. An officer authorized to authenticate who uses an appropriate computer option to authenticate the transaction should authenticate the entry. Upon authentication, the computer generates an accounting entry (Vouchers are manually passed where the branch is not fully computerized.)

The entry is made to record the fact that the bank has accepted the liability for collection of a certain bill and simultaneously has obtained the right to receive the payment as a collecting agent. When collection is realized or is returned by the drawee this entry is reversed since the liability of the collecting banker as well as the right to receive payment does not exist any more. Collection Schedules The next step after computer processing is to prepare collection schedules/orders addressed to the bank/branch, which we have chosen as our collecting agent. Dispatch of Items for Collection After completion of above procedure, collections are sent to the designated collecting agents or drawee banks/branches, as appropriate. Commission & Charges Commission on clean bills should be recovered strictly at the rate specified in the Banks schedule of charges. Collecting agents charges will be extra if the collecting bank is other than the Bank of Khyber. Mail/telegram/trunk call/fax charges should also be recovered, as per the schedule of charges if fate of the instrument is asked for by telegram/telephone or fax etc. Cheque returning charges should be recovered as per the schedule, in case the instruments are returned unpaid. If collections are send by courier service, courier charges are also recovered. Normal postal charges/registered mail charges for bills sent for collection are in-built in the commission. Realisation If a collection is realized through one of our own branches, proceeds are received by means of a credit advice (IBCA) or telephonic/fax message depending upon instructions contained in the collection schedule. Where collections are sent directly to the drawee banks/branches other than our own branches or correspondent banks with whom we have agency arrangements, proceeds are received by means of a demand draft which is finally collected through clearing.

Bills Returned Unpaid If a cheque/ Instrument is returned unpaid by a drawee bank/branch due to any procedural mistake made by the collecting bank such as banks discharge irregular/required, endorsement requires banks guarantee/confirmation or OBC stamp or special crossing required etc., the mistake is rectified immediately and collection is presented again by fastest available means such as courier service/urgent mail service etc. If collection is returned due to lack of funds in the drawers account or due to stop payment made by the drawer or difference in drawers signature etc., the customer is immediately contacted and informed. Proper entry is made in the Cheque Return Register. The returned instrument together-with objection memo is handed over to the customer or his/her authorized representative after getting acknowledgement on cheque return register. If a customer is not available, the returned instrument may be send by registered mail or local express mail/courier service etc. depending upon situation and circumstances in each case. Inward Clean Bills For Collection Bank receives cheques, drafts and other instruments for collection from its own branches or from branches of other banks, which are not included in local clearinghouse arrangements. These bills would be its outward bills for collection (OBCs) or bills purchased but they become inward bills for collection (IBCs) for it. Initial Scrutiny Immediately upon receipt, all instruments are scrutinized on the following points: Whether or not all instruments are apparently in order viz. a viz. genuineness, date payees name, amount, and drawers signatures etc? Whether or not instruments are drawn on our branch or banks/branches with whom we have arrangements through clearing or transfer delivery procedures?

If the answer is yes only then instruments are processed further, otherwise they are returned to the concerned banks or branches with relevant objection.

PROCEDURE FOR HANDLING INWARD BILLS Recording Receipt Mail Received stamp is affixed on all collection schedules received which indicates the date of receipt of each and every inward collection. All inward collections are entered in the IBC Register and every collection is allotted a serial number called IBC Number. IBC stamp is also affixed on the face of the instrument. Instruments are segregated department-wise Cheques, TDRs, ad CDRs, etc. are handed over to the Deposits department while DDs TTRs, MTRs and POs are given t the Remittance department. Instruments, which are drawn on other banks or branches, are handed over to the clearing department. However, only designated branches perform this last function. Computer entry is made where a branch is computerized, otherwise manual entries are passed. Commission & Charges No commission or service charge is recovered from the collections received from bank own branches except withholding tax, if applicable. Only collecting branch is supposed to recover commission and other charges. However, commission at the prescribed rate for the issuance of draft plus courier charges and government levies like withholding tax and excise duty are recovered, in case collections are received direct from other Banks. DD along with a covering letter is sent to the bank concerned, mentioning their Ref. No. or OBC No. and details of commission, charges, taxes etc. deducted from the bill amount. If any instrument is drawn on some other Branch or other

Bank in the city, it is processed in the transfer delivery or clearing respectively, to pay the proceeds. Inward collections are generally routed through the Main Branch or some specially designated Branch. 5.4 CLEARING

As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques/instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from an number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent by the collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement.

Working of the Clearing Process Under the clearing arrangements, the Central Bank or the State Bank of Pakistan (SBP) in our country, offers a Clearing House or a centralized exchange facility, which works on the following general lines: All the banks operating in a city who are members of the Clearing House maintain an account with the SBPs Clearing House. Every day representatives of all the banks in every city meet the Clearing House, first meeting in the morning, at an appointed time, for the purpose of depositing their own customers , cheques/instruments to be collected from other banks and receiving cheques/instrument drawn on their account holders from the others banks. At the Clearing House accounts of all the banks are debited by the total amount of cheques/instruments drawn on their customers accounts and credited with the amount of their customers cheques/instruments drawn on other banks, as per the list of cheques submitted by each bank. The cheques/instruments received, also called Inward Clearing, and are take back by each bank to its bank/branch. The amounts of each cheques/instrument is debited or recovered from each drawee customers account and credited to the Clearing House account. Similarly, against the amount credited by the Clearing House as Outward Clearing, the appropriate customers accounts are credited and clearing House account is debited. Any cheques/instruments received by a bank that cannot be paid, due to insufficient balance in its customers account or for any other reason, are returned back to the Clearing House and a credit is claimed and obtained there against. Thus the Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-

ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area. First Clearing & Second Clearing The business of the Clearing House is normally conducted in two sessions called First Clearing and Second Clearing. During first clearing, receipts/payments are adjusted arising out of cheques delivered and received against each other. In the second clearing, cheques which could not be paid due to any reason, accompanied with objection memo, are also handed over or received back form the member banks and adjustments made accordingly. Where There are no Clearing Houses At places where there are no clearing houses or clearing arrangements, local cheques drawn on other banks are presented for clearance through and authorized representative under cash received/payment received discharge arrangement. Under this arrangement the cheques/instruments have to be presented by an authorized officer of a bank over the counters of the drawee/paying bank and the cash so received is credited to the customers/beneficiaries accounts. Outward Clearing Cheques received by a bank from its customers to be collected from other banks are considered to be in the Outward Clearing arrangement. The procedures and considerations that apply to Outward Clearing are discussed below: Initial Scrutiny While accepting cheques for collection/clearing, the pay-in-slips and the cheques and other negotiable instruments are properly scrutinized with respect to following points. Payee/beneficiary must be customer of the Bank.

Separate pay-in-slips should be filled out for local cheques drawn on our own Branches and on other Banks. Title and account number should be mentioned. Amount of the pay-in-slips tallies with that of the cheque. There are no unauthorized alterations. The amount, account number and the title of account on the counterfoil are the same as on pay-in-slip. The pay-in-slip bears the signature of the depositor at the specified place.

In addition to the above, cheques/instruments are scrutinized on the following points: Endorsements (if any) must be regular. There are no previous special crossings. The cheque is not post-dated, stale or undated. The cheque payable to a firm, company or institution should not be accepted for credit to the account of a partner, director, agent/attorney or manager of the firm, company or institution. Cheques/instruments crossed Payees Account only should not be deposited or collected in any other account. The first payee in favour of the depositor, if collected for another account, must have properly endorsed order cheque. Stamping After conducting initial scrutiny and being satisfied in all respects, the special crossing stamp of the bank and clearing stamp are affixed on the face of the cheque/instrument without spoiling material contents such as date, amount, payees name and drawers signatures etc. given below is the specimen of the stamps.

THE BANK OF KHYBER Branch ____________ Date ______________ CLEARING The Clearing Stamp Bankers Discharge

The Bank of Khyber Ashraf Road Branch PESHAWAR

Crossing Stamp

According to the type of cheque/instrument, appropriate discharge or endorsement on the reverse side of the cheque/instrument has to affixed. Which is referred to as the Bankers Discharge. If an instrument is being collected for the payee named on the instrument, discharge would be simple as payees account credited. In case of endorsements, there may be second or subsequent payees involved, in which case the discharge would be like First payees endorsement confirmed, second payees account credited or All endorsements confirmed, final payees account credited etc., depending upon the nature and type of the instrument. The Discharge stamps look something like this: Payees Account Credited. For The Bank of Khyber ______________Branch OFFICER First Payees Endorsement Confirmed Second Payees Account Credited For The Bank of Khyber _________Branch OFFICER


All Endorsements Confirmed. Final Payees Account Credited. For The Bank of Khyber _________ Branch OFFICER

Segregation of Instrument and Forwarding Schedule All cheques are sorted out and segregated bank-wise and Branch-wise. A schedule or summary is prepared bank-wise, in triplicate, which gives the total number of cheques and the total amount receivable form a particular bank. This schedule is prepared manually or generated on computer.

Procedure at Clearing House Bank-wise schedules together with the cheques are delivered to the representatives of drawee banks and master schedule is delivered to the In-charge of the Clearing House. In-charge of the Clearing House obtains acknowledgement from each drawee bank and passes a consolidated accounting entry for the total amount of outward clearing. Dishonour or Returns In case any cheque is not paid or honored then it is send back to the clients. Completing The Process After realization and accounting for returns, an appropriate option is used to close the clearing process on the computer terminals. Then through another appropriate option a new schedule is printed for the newly received items for the next days clearing. INWARD CLEARING Procedure at Drawee Branches The Drawee branches immediately scrutinize the cheques and other instruments received under inward clearing on the following points: Whether all cheques/instruments are drawn on/payable at the receiving branch? Whether all cheques/instruments are genuine, properly dated and made out? If answers to the above questions are yes then instruments are segregated department-wise. Cheques and CDRs etc. are handed over to the deposits department while DDs, Pay Orders, are given to Remittances Department.

Appropriate accounting entries are passed for the Inward Clearing items. If there are any cheques/instruments to be returned unpaid, due to any reason, appropriate computer entries are passed and it is ensured that the original cheques/instruments returned unpaid are delivered to the collecting bank in second clearing.

Returns After Clearing Hours If a cheque or instrument is not returned in time (during second clearing) then it cannot be returned through the Clearing House. The Branch concerned immediately contacts the collecting Bank/Branch and requests them not to release the funds against said collection item. The cheque/instrument in question along with an objection memo is returned to the Collecting Bank through a special representative/staff member. The Collecting Bank is requested to issue a Pay Order in favor of the Bank for the amount of the cheques/instrument returned.


6.1 Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of balance sheet and profit and loss account. The analysis of bank statements is undertaken by analyst, depositors, regulatory authorities, stockholders, borrowers, the bank management etc. A depositor is interested in the solvency of the bank, i.e. The safety and availability of his funds. The regulatory authorities desire to essure themselves that the banks are operating in accordance with the requirements of the law and are in sound financial conditions. Stock holders are interested in the general financial condition of the bank and the earnings, the dividends, and the managements policy with reference to the accumulation of surplus. The borrower is interested in knowing the extent of available funds and the use that is made of the banks resources. Financial ratio that relates two accounting numbers and is obtained by dividing one number by the other. 6.2 ASSUMPTIONS 1. 2. 3. Ratios are calculated for three (3) years i.e. 1999, 2000 and 2001. All the figures are taken in thousands i.e. Rs. In thousands . Figures are rounded off up to 2 decimal points.


Financial Ratios

Cash ratio is the ratio of cash and its equivalents to current liabilities. It shows that how much cash is available to cover the current liabilities.

Cash Ratio Ratio for 1999 = For 2000 For 2001 Analysis

Cash Current liabilitie s

818 ,000 x 100 11,769 ,737

6.95% = = 2.78% 5.35%

= =

389 ,907 x 100 14 ,042 ,592

810 ,424 x 100 15,146 ,407

The cash ratio for the year 2000 decreased as compare to 1999. The exact decrease is 4.17% and in the year 2001, the cash ratio increased. The exact increase is 2.57%. This shows that bank has improved its liquidity in the year 2001 as compare to 2000. 2. RETURN ON ASSETS AFTER TAXES

This ratio is used in evaluating whether management has earned a reasonable return on the assets under its control. It measures the over all effectiveness of the available assets in generating profits. Return on assets after taxes = Ratio for 1999 = For 2000 For 2001 Analysis ROA ratio in 2001 is higher than that of 2000 i.e. There is a sufficient increase in the ratio. This shows that the bank has efficiently managed its assets portfolio to earn a reasonable return on total assets in the year 2001 as compare to 2000.

Net Income(profit after tax) Total Assets

38,554 x 100 = 0.29% 13,200 ,097

= =

157 ,375 x 100 = -1.02% 15,356 ,007 231,040 x 100 = 1.34% 17 ,228 ,792



It is a ratio of total income to total assets. This ratio tells us that how much total income is generated on available total assets. Total income to total assets =
Total Income x 100 Total Assets

Total income = Mark up earned + non-mark up income Ratio for 1999 = For 2000 For 2001 Analysis There is a persistent decrease in this ratio in the previous two years. In the year 2000 the exact decrease is 0.5% as compare to 1999. While in the year 2001 it is 1.2% as compare to 2000. This shows that bank has poorly utilized its total assets to generate total income. 4. TOTAL EXPENDITURE TO TOTAL INCOME RATIO = =
1,662 ,123 x 100 = 12.6% 13,200 ,097 1,861489 x 100 = 12.1% 15,356 ,097 1,877 ,917 x 100 = 10.9% 17 ,288 ,792

This ratio shows the relationship between total expenditure and total income i.e. how much expenditure is incurred to generate total income. Total expenditure to total income =
Total expenditure Total income

x 100

Total expenditure = Total operating cost + Mark-up expensed Total operating cost = Non-mark up expense + provision against nonperforming advances + reversal of provision for diminution in value of investments + bad debts written off directly. Ratio for 1999 =
1,598 ,794 x 100 = 96.19% 1,662 ,123

For 2000 For 2001 Analysis

= =

2,017 ,412 x 100 = 108.38% 1,861,489 1,715 ,195 x 100 = 91.33% 1,877 ,917

This ratio is high in 2000 as compare to 2001 and 1999. The exact decrease in 2001 is 17.05% as compare to 2000. This shows that bank has managed efficiently its operation to earn total income with low total expenditure.


Operating Cost to Total Income Ratio

It shows the relationship between operating cost and total income. It tells us that how much operating cost is incurred in generating total income. Operating cost to total income = Ratio for 1999 = For 2000 For 2001 Analysis In the year 2001, this ratio is decreased by 11.16% as compare to 2000. This shows that the bank is efficient in its operation in the year 2001 and it generates its total income with low operating cost. = =

Operating cost Total income

x 100

277 ,254 x 100 = 16.68% 1,662 ,123 519 ,034 x 100 = 27.88% 1,861,489
314 ,050 x 100 = 16.72% 1,877 ,917


Debt to Equity Ratio

This ratio shows the extent to which the firm is financed by debt. Debt to equity ratio =
Total debt (total liabilitie s) Total equity

Ratio for 1999 = For 2000 For 2001 Analysis = =

12 ,491,192 = 17.62 times 708 ,905

14 ,909 ,976 = 33.43 times 446 ,031 16 ,253 ,780 = 16.67 times 975 ,012

This analysis shows that bank is trying to reduce dependence on debt financing i.e. bank is trying to finance its assets more by equity.


Return on Equity

This ratio shows that how much profit is generated by shareholders equity. Return on equity Ratio for 1999 For 2000 For 2001 Analysis The analysis shows that the return on equity has been improved in 2001. The exact figure of improvement is 58.98% in 2001. = = = =
Pr ofit after taxe s x 100 Total equity 38 ,554 x 100 = 5.44% 708 ,905 157 ,375 x 100 = 35.28% 446 ,031 231 ,040 x 100 = 23.70% 975 ,012


Operating Cost to Deposits Ratio

This ratio reflects the relative extent to which operating cost is incurred on deposits. Operating cost to deposits =
Operatin cost Deposits

x 100 = 4.21%

Ratio for 1999 = For 2000 For 2001 Analysis

277 ,654 x 100 = 2.69% 10 ,307 ,311

= =

519 ,034 x 100 = 4.21% 12 ,332 ,253

314 ,050 x 100 = 2.22% 14 ,122 ,946

This analysis shows that operating cost to generate and operate the deposits was high in 2000 while it was low in 1999 and 2001. There is 1.99% decrease in the year 2001 is compare to 2000.


Interest Expense to Deposits

This ratio shows the relationship between interest expense and deposits. It tells us about the interest expense paid on different types of deposits. Interest expense to deposits =
Interest expense Deposits

x 100

Ratio for 1999 = For 2000 = For 2001 = Analysis

1,321,140 x 100 = 12.82% 10 ,30 ,7,311

1,498 ,378 x 100 = 12.15% 12 ,332 ,253

1,401,145 x 100 = 9.92% 14 ,122 ,946

The interest expense to deposits ratio is decreasing in the previous two years. The exact decrease in this ratio is 2.23% in the year 2001 as compare to 2000. This shows that deposits of bank are increased in this period while the interest expense is decreased due to reduction in the profit rates on various accounts.


Total Expenditure to Deposits

It reflect the extent to which total expenditure is incurred on deposits.

Total expenditure to deposits =

Total expenditur e Deposits

x 100

For 1999 = For 2000 = For 2001 = Analysis

1,598 ,794 x 100 = 15.51% 10 ,307 ,311

2,017 ,412 x 100 = 16.36% 12 ,332 ,253

1,715 ,195 x 100 = 12.14% 14 ,122 ,946

Total expenditure to deposits ratio first increased in the year 2000 and then decreased in the year 2001. The exact decrease is 4.22% in the year 2001 as compare to 2000. This decrease is due to efficient control of cost by the banks management.


Advances to Deposits Ratio

This ratio shows the relative extent to which deposits are lended in the form of advances. Advances to deposits ratio =
Advances x 100 Deposits

Ratio for 1999 = For 2000 = For 2001 = Analysis

5,760 ,125 x 100 = 55.88% 10 ,307 ,311

5,746 ,240 x 100 = 46.60% 12 ,332 ,253

6,925 ,680 x 100 = 49.04% 14 ,122 ,946

In the year 2000 this ratio is decreased and in 2001, this ratio is increased the exact increase is 2.44% in 2001 as compare to 2000. In the year 2001 this ratio is 49.04%. This means that this year 49.04% deposits are lent in form of advances.


Interest Earned to Advances Ratio

This ratio reflects the relative extent to which interest is earned on advances. Interest earned to advance = Ratio for 1999 = For 2000 = For 2001 = Analysis The ratio of interest earned to advances in high is the year 2000 as compare to 1999 and 2001. Interest earned on advances is high in 2000 because return on deposits of the Bank of Khyber with financial institutions is high.
Interestearned x 100 Advances

1,242 ,217 x 100 = 21.57% 5,760 ,125

1,732 ,140 x 100 = 30.14% 5,746 ,240 1,728 ,599 x 100 = 24.96% 6,925 ,680


Asset Growth Ratio

This ratio highlights the percentage increase or decrease in the volume of total assets over a period of time. Assets growth ratio Current year' s total assets - previos year' s total assets = x 100 Previous year' s total assets 13,200 ,097 12 ,049 ,200 Ratio for 1999 = x 100 = 9.55% 12 ,049 ,200 For 2000 = For 2001 = Analysis Analysis shows that asset growth ratio is lower in 1999 and 2001. There is a decreasing trend in this ratio in 2001. The exact decrease is 4.13% in 2001.
15,356 ,007 13200 ,097 x 100 = 16.33% 13,200 ,097 17 ,228 ,792 15,356 ,007 x 100 = 12.20% 15,356 ,007


Deposit Growth Ratio

This ratio reflects the percentage increase or decrease in the volume of deposits over a period of time. Deposit growth ratio =
Current year's deposits - previous year's deposits x100 Previous year's deposits

Ratio for 1999 = For 2000 = For 2001 = Analysis

10 ,307 ,311 9,630 ,454 x 100 = 7.03% 9,630 ,454

12 ,322 ,253 10 ,307 ,311 x 100 = 19.65% 10 ,307 ,311 14 ,122 ,946 - 12,322,253 12,322,253

x 100 = 14.52%

The deposits growth is higher in 2000 as compare to 1999 and 2001. There is 5.13% decrease in deposit growth ratio in 2001.


Advances Growth Ratio

This ratio highlights the percentage increase or decrease in the volume of advances over a period of times. Advances growth ratio =
Current year' s advances - Previous year' s Advances x 100 previous year' s Advancdes

Ratio for 1999 = For 2000 = For 2001 =

5,760 ,125 5,512 ,194 x 100 = 4.50% 5,512 ,194

5,746 ,240 - 5,760,125 5,760,125 6,925 ,680 - 5,746,240 5,746,240

x 100 = - 0.24% x 100 = 20.53%

Analysis Advances growth was low in the year 2000. Due to better credit management and attracting new and maintaining the existing clients the advances growth ratio grew high in 2001.

Assets Cash and balances with treasury banks Balances with other banks Money at call and short notice Lemding to financial institutions Investments Advances Capital work in progress Other assets Operating fixed assets Deferred taxation Total Assets Liabilities and owners equity Bills payable Borrowing from financial institutions Deposits and other accounts Liabilities against assets subject to finance leases Other liabilities Provision for staff retirement gratuity Total equity Total liability and equity Regular (Rs. In thousands) 1999 2000 2001 818,000 389,907 810,424 697,512 602,264 1,153,708 30,000 460,000 200,000 4,123,503 926,000 4,858,310 2,894,786 5,712,887 5,760,125 5,746,240 6,925,680 2,568 1,297,689 907,421 1,010,438 114,641 110,828 133,635 11,520 18,041 88,769 13,200,091 15,356,001 17,228,792 64,798 1,397,628 10,307,311 8,245 704,278 8,932 708,905 13,200,097 42,615 1,667,724 12,332,253 2,148 865,236 446,031 15,356,007 82,975 940,724 14,122,946 28 1,107,345 975,012 17,228,792 Common Size Analysis 1999 2000 2001 6.20 2.54 4.70 5.28 3.92 6.70 0.23 3.00 1.16 26.85 5.37 36.81 18.85 33.16 43.64 37.42 40.20 0.02 6.87 6.58 7.53 0.87 0.72 0.66 0.09 0.12 0.52 100 100 100 0,49 10.59 78.09 0.06 5.34 0.07 5.37 100 0.28 10.86 80.31 0.01 5.63 2.90 100 0.48 5.46 81.97 0.00 6.43 5.66 100

Common size analysis The Bank of Khyber Profit and loss accounts For the ended December 31.
Markup/interest earned Markup/interest expensed Net markup/interest income Provision against non- performing advances Reversal of provision for diminution in Value of investments Bad debts written off directly Net markup/interest income/loss after provisions Non markup/interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currency Profit from investment securities Other income Non markup/interest expense Administrative expenses Provision against an other assets Other charges Profit/(loss) before taxation Taxation current and deferred Profit/Loss after taxation Unappropriated (Loss)/profit brought forward Profit/(loss) available for appropriation Appropriations transfer to Statutory reserve Revenue reserve Un-apprepriated profit/(Loss) carried forward Regular (Rs. In thousands) 1999 2000 2001 1,242,217 1,732,140 1,728,599 1,321,140 1,498,378 1,401,145 -78,923 233,762 327,454 77,081 309,971 79,458 -4,088 -179 -2,835 -151,916 61,156 20,510 260,226 78,025 268,001 204,661 1,020 62,320 23,766 38,554 1,351 39,905 7,711 31,000 1,194 -76,030 44,999 50,075 24,718 9,557 53,319 208,212 1030 -155,923 1,452 -157,375 1,194 -156,181 . -156,181 250,831 44,300 48,193 43,318 13,507 400,149 234,153 3,188 86 162,722 -68.318 231,041 -156,181 74,859 46,208 25,000 3,651 Common Size Analysis (%) 1999 2000 2001 100 100 100 106.35 86.50 81.06 -6.35 13.50 18.06 6.21 17.90 4.60 -0.31 -0.01 -0.16 -12.23 4.92 1.65 20.95 6.28 21.57 16.48 0.08 5.02 1.91 3.10 0.11 3.21 0.62 2.50 0-.10 -4.39 2.60 2.89 1.43 0.55 3.08 12.02 0.06 -9.00 0.08 -9.09 0.07 -9.02 . -9.02 14.51 2.56 2.79 2.51 0.78 23.15 13.55 0.18 0.00 9.41 -3.95 13.37 -9.04 4.33 2.67 1.45 0.21

Assets Cash and balances with treasury banks Balances with other banks Money at call and short notice Lending to financial institutions Investments Advances Capital work in progress Others assets Operating fixed assets Deferred taxation Total assets Liabilities and owners equity Bills payable Borrowings from financial institutions Deposits and other accounts Liabilities against assets subject to finance leases Other liabilities Provision for staff retirement gratuity Total equity Total liabilities and equity Regular (Rs. In thousands) 1999 2000 2001 818,000 389,907 810,424 697,512 602,264 1,153,708 3,000 460,000 200,000 4123,503 926,000 4,858,310 2,894,786 5,712,887 5,760,125 5,746,240 6,925,680 2,568 907,421 1,010,438 1,297,689 114,641 110,828 113,635 11,520 18,041 88,769 13,200,097 15,356,007 17,228,792 64,798 1,397,628 10,360,311 8,245 704,278 8,932 708,905 13,200,097 42,615 1,667,724 12,332,253 2,148 865,236 446,031 15,356,007 82,975 940,486 14,122,946 28 1,107,345 975,012 17,228,792 1999 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Index Analysis (%) 2000 2001 47,67 99.07 86.34 165.40 1533.33 666.67 59.58 117.59 99.76 120.23 111.35 143.01 96.67 99.12 156.61 770.56 116.33 130.52 65.77 119.33 119.65 26.05 122.85 62.92 116.33 128.05 67.29 137.02 0.34 157.23 137.54 130.52

Markup/interest earned Markup/interest expensed Net markup/interest income Provision against non-performing advances Reversal of provision for diminution in value of investments Bad debts written off directly Net markup/interest income/(Loss) after provisions Non markup/interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Profit from investment securities Other income Non markup/interest expense Administrative expenses Provision against on other asset Other charges Profit/(Loss) before taxation Taxation current and deferred Profit/(Loss) after taxation Appropriated (Loss)/profit brought forward Profit/(Loss) available for appropriation Appropriation transfer to Statutory reserve Revenue reserve Un-appropriated profit/(Loss) carried forward Regular (Rs. In thousands) 1999 2000 2001 1,242.217 1,732,140 1,728,599 1,321,140 1,498,378 1,401,145 -78,923 233,762 327,454 77,081 309,971 79,458 -4,088 -179 -2,835 -151,916 61,156 20,510 260,226 78,025 268,001 204,661 1,020 62,320 23,766 38,554 1,351 39.905 7,711 31,000 1194 -76,030 44,999 50,075 24,718 9,557 53,319 208,212 1030 -155,923 1,452 -157,375 1,194 -156,181 -156,181 250,831 44,300 48,193 43,318 13,507 400,149 234,153 3,188 86 162,722 -68,318 231,041 -156,181 74,859 46,208 25,000 3,651 1999 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Index Analysis (%) 2000 2001 139,44 139.15 113,42 106.06 402,14 103.09 73,58 244.15 12.25 19.90 101,74 100.98 6,11 88,38 72.44 234.97 17.31 149.31 114,41 8.43 261,11 599.27 187.59 599.25 80.65 305.78


Graphical Representation of Financial Analysis

1. Balance with other banks, (Rs. In 000)

Balances with other banks

1200000 1000000 800000 600000 400000 200000 0 1999 2000

Years 697512 602264



Interpretation There is increase in balances with other banks in the year 2001, i.e. Rs. 1,153,708 from Rs. 602, 264, 264 in 2000. The net increase is 91.56%.


Investments (Rs. In 000)

6000000 5000000


4000000 3000000 2000000 1000000 0 1999 2000

Years 2894786


Interpretation There is increase in investments in a year 2001, i.e. Rs. 5,712,887 from Rs. 2,894,786 in the year 2000. The net increase is 97.35%. 3.

Advances (Rs. In 000)

7000000 6000000
Adva nces
5760125 5746240

5000000 4000000 3000000 2000000 1000000 0 1999 2000



Interpretation There is increase in the advances in the year 2001; i.e. Rs. 6,925,680 from Rs. 5,746,240 in the year 2000. The net increase is 20.53%. This increase is in advances is due to increase in loans, cash credits, running finance are etc.


Borrowings from Financial Institutions (Rs. In 000)

Borrowings from Financial Institutions

1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 1999





Interpretation There is decrease in borrowings from financial institutions in the years 2001; i.e. Rs. 940,486 from Rs. 1,667724 in the year 2000. The net decrease is 44.61%. 5. Deposits and Others Accounts (Rs. In 000)
Deposits & Other Accounts
14122946 12332253 10307311

14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 1999



Interpretation There is increase in deposits and other accounts in the year 2001, i.e. Rs.14,122,946 from 12,332,253 in the year 2000. The net increase is 14.52%. The increase in deposits and other accounts is due to increase in the fixed deposits, savings deposits current accounts and call deposits.

2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0

Markup/interest earned (Rs. In 000)



Ma rkup/interest earned





Interpretation There is decrease in the markup/interest earned in the year 2001; i.e. Rs. 1,728,599 from Rs. 1,732,140 in the year 2000. The net decrease is 0.20%. Markup/interest expensed (Rs. In 000)


Interpretation There is decrease in markup/interest expensed in the year 2001; i.e. 1,401,145 from 1,498,378 in the year 2000. The net decrease is 6.49%.

Fee, Comm & Brokerage Income
70000 60000 50000 40000 30000 20000 10000 0

Fee, Commission & Brokerage Income (Rs. In 000)





2000 Years


Interpretation There is decrease in the fee commission and brokerage income in the year 2001; i.e. Rs. 44,300 from 44,999 in the year 2000. The net decrease is 1.55%. Administrative Expenses (Rs. In 000)


Interpretation There is increase is the administrative expenses in the year 2001; i.e. Rs. 234,145 from Rs. 208,212 in the year 2000. The net increase is 12.46%.


Profit/(Loss) after Taxation (Rs. In 000)

Profit/Loss after Taxation

250000 200000 150000 100000 50000 0 -50000 -100000 -150000 -200000

-157375 Years 38554





Interpretation There is sufficient increase in profit after taxes in the year 2001; i.e. Rs. 231,041 while there is loss in they year 2000, i.e. 157,375.


The Bank of Khyber is a new emerging bank and it is trying to get the market share in the presence of national and foreign banks. It has played an important role in certain areas, but there always exists some room for improvement. The following findings and recommendations are based on personal observations and analysis. The given recommendation will help to cope the problems being faced by the bank and will enhance the efficiency and performance of the BOK.


In the BOK the decision making process is centralized. Decisions are

taken by top management. Staff at middle and lower level do not participate in decision making process. Decisions taken by top level are implemented on all the levels of organization. An entirely centralized decision making is not conducive for proper work environment because it reduces the interest and loyalty of the employees towards the organization. Due to this the communication cost increases and it causes delays in banking operations because of which ultimately customers suffer. Due to this facts some authority and responsibility should be delegated at the branch level i.e. there should be decentralization. It will improve the working condition and employees will be more confident. It may result the best and prompt improvement of the overall banks operations.


Training Academy

The BoK does not have its own training academy. The training to newly recruited employees is given in the training academies of other banks. Similar is the case for existing employees. To fulfill the requirements of training of the new and existing employees the BoK should establish the training academy. This will enable the employees to receive training of the peculiar and specific working functioning of the BoK. 3. Space Shortage

During my internship in the Ashraf Road branch I observed that there is shortage of space at branch. There is no proper and easy seating arrangement for the customers. And the cash counter is so small that employees face difficulty while working there. This thing greatly affects the operations and performance. To over come this problem, the bank simply can shift to some other place.


Increase in Number of Terminals

The BoK Ashraf Road branch is a computerized branch but still, there is shortage of terminals and personal computers. This thing also affect the speed and accuracy. For the increase in number of terminals and purchase of personal computers the branch may request to the head office. The provision of above facilities will improve the accuracy and speed and will enhance the efficient working.


Customer Care Counter

Customer is the king. Customers satisfaction is the key to success. They need proper attention and guidance. The Ashraf Road branch is understaffed and employees are over loaded, it creates more problems for them when customers disturb and interrupt them while working. So for the benefit of customers and smooth working of bank, there should a customer care counter to guide and help the customers.


Proper Checking

There is no proper checking and observation system on the entrance of Asraf Road branch. For safety purposes there should scanning checking and should install special checking instruments in the main entrance.


Branch Net Work

The BoK has 29 branches all over Pakistan and Azad Kashmir. 23 of the total branches are located in KPK. And there is only one branch for the whole of Punjab province located in Lahore. For Sindh province there are two branches both located in Karachi and similarly one branch for whole Azad Kashmir and one for Islamabad. This branch network is too small to compete with other banks. The branch network should be improved and number of branches should increase to reach and provide services to maximum number of customers.


Product Line

The product line of the BoK is narrow. It provides few services and financial products to its customer. The bank should increase its product line and should introduce the Automated teller machines (ATM) facility in the Ashraf road Branch which is in process. car financing, credit and home financing scheme etc to attract new customers and retain the existing loyal customers.


Promotional Activities

BoK is a new bank as compared to others. From marketing point of view every new organization must pay more attention to the promotional activities. The BoK management does not care about this important issue. The BoK should start a heavy promational campaign to atract more and more customers. For this purpose both the print as well as electronic media should used. In this age of competition the BoK should adopt the policy of marketing penetration through a heavy promotional and advertisement campaign. The BoK can distribute diaries,

calendars and brochures for promotion. And it should give ads on TV and news papers.


Marketing Department

In to day world of tough competition an organization has to undergo an intensive marketing campaign to win customers. The BoK does not have a marketing department. In branches the marketing task is given to branch manager who has no time to carry out the marketing activities. The BoK should establish a marketing department so that is could improve the image of the bank. In this manner, the bank will attract more and more customers. The customers need to be convinced.


Meritorious Recruitment

In the BoK mostly recruitment are done through recommendation of the employees or connecting play an important role in recruitment decisions. Recruitment should be strictly on merit basis with no other favor given to any candidates. Selection should be on the basis of test and interview as like in Muslims commercial bank Ltd (MCB) and other banks etc. this will ensure the entry of competent and worthy employees in to the bank.


Shortage of Employees

Shortage of employees increases the work load on existing employees and ultimately reduces the output and motivation level of employees. To overcome this problem job descriptions should be revised and grouped together in order to create new jobs. The Ashraf Road branch specifically faces the problem of employees shortage. Recruitment should be done in order to fill out these new vacancies. This way the work load on employees will be reduced, operations will be stream lined and employees will feel comfortable in performing their duties.


Scholarship Programs for Senior Employees

Scholarship programs should be designed for senior employees and branch managers. The BoK should get into contract with top foreign universities. Every year the bank should finance and send their senior managers for further education abroad. After completion of higher education the employees will be in a better position to attain the strategic objectives of the bank and increase the over all business and profitability portfolio of the bank.