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Established in 1991 and backed by a major Middle Eastern Group, Union Bank today is the preferred choice of thousands of satisfied customers throughout Pakistan. With 42 branches in 19 cities and a correspondent banking network of over 300 banks in 85 countries, Union Bank is rapidly gaining ground in the global financial market.
In year 2000, Union Bank acquired Bank of America's local operations in Pakistan. Keeping on the same strategic run, in July 2001, Union Bank signed an Independent Operator Agreement to issue, operate and market American Express Cards in Pakistan. Later, in the year 2002, Union Bank acquired Emirates Bank International's local operations. Subsequently, the bank started its foray in international banking through the acquisition of Mashreq Bank operations in Sri Lanka. Union Bank acquired both the domestic and off shore banking units of Mashreq Bank in Sri Lanka in year 2003.
With major investments in international brand acquisitions, branch network and information technology including a state-of-the-art customer contact center, Union Bank is well on its way to offer its customers innovative financial products with unmatched service quality.
Introduction of Union Bank
Directors and Chairman.
Mr. Mueen Afzal Mr. Shaukat Tarin Mr. Muneer Kamal Dr. Abdullah Mohammad Abdullah Basodan Mr. Munnawar Hamid Mr. Qazi Mazharul Haque Mrs. Lubna Majeed Chief Operating Officer Pakistan Operations Mr. Aziz Rajkotwala Chief Operating Officer International Operations Mr. Muneer Kamal Secretary Syed Liaquat Ali Audit Committee of the Board Mr. Qazi Mazharul Haque (Chairman) Mr. Mueen Afzal (Member) Mr. Muneer Kamal (Member) Mr. Munnawar Hamid (Member)
To be the premier financial institution in the Emerging Markets
To be the premiere bank, responsive to the needs of our target market customers, recognized for consistently superior service quality and innovative products, thereby delivering superior value to our stakeholders
Customer Focus: Relentless focus on understanding and fulfilling customer needs through superior service. Innovation: Continually generate, validate and implement creative solutions to business challenges. Meritocracy: Ensure a fair recruitment process and closely link recognition and reward to performance against goals, irrespective of personal relationships, gender, religion or ethnicity. Integrity: Uncompromising financial and intellectual honesty to the organization and oneself with relationships based on mutual trust and openness. Team-work: Willingness to share the glory of achievements as well as responsibility for failure.
Humility: Display self-belief as well as modesty and be respectful to all customers, colleagues and business partners
Union Bank's New Corporate Visual Identity
The new corporate identity, with bright colors yet simple outlook, is designed to reflect a premiere, modern and technology oriented bank. The bright colors not only ensure increased visibility but also create a fresh, energized and vibrant outlook. The simple font portrays a unique appeal of elegance and modernity
Union Bank International
Union Bank's vision goes beyond local operation. The bank's aim is to become a prominent Pakistani bank with substantial international presence. With a wide range of products & services and management expertise in all functional areas of banking, Union Bank finds itself best positioned to embark on international operations.
In order to establish an international network Union Bank has been evaluating several emerging economies in Europe, Southern Africa and South Asia. The criteria for the selection of the country include the level of economic activity, the demand for consumer products and the trade and economic relations with Pakistan.
Union Bank selected Sri Lanka as the first venue for commencing its international business. The historically warm relationship between both the two countries provides Union Bank a congenial platform to start its offshore operations. Sri Lanka is one of the fastest growing economies in the region and the bilateral trade agreement between Pakistan and Sri Lanka will not only help to boost trade but will further strengthen the relationship between the two countries. With economic and cultural similarities between the two Countries, Union Bank believes that it will be able to leverage its success in Pakistan to Sri Lanka as well.
Product and Services
Union Bank has a vision to provide its customers with a complete range of banking solutions. Over the course of last two years, Union Bank has launched various products and services that cater to the financial needs of thousands of customers from across Pakistan. Some of the key products and services that Union Bank boasts on its menu are American Express Charge and Credit Cards, Ready Cash, Uni-car, My Home, Business Power, Business Account, Mahana Izaafa as well as Union Bank Online.
Personal Accounts Include:
1. Mahana Izafa. 2. Business Accounts
3. Munafa Max 4. Saving Account 5. Current Account.
Personal Finance includes
1. Ready Cash 2. Uni Car 3. My Home 4. Business Power.
Bank Advances include
1. Commercial Loans A: Running Finance / Over Draft B: Small Loans C: Demand Finance or Loan 2. Non - Commercial loans A: Project Loans
Faisalabad Gujrat Gujranwala Hyderabad Islamabad Jhelum Karachi Lahore Mardan Mirpur (A. K.) Multan Peshawar Quetta Raiwind Rawalpindi Sahiwal Sargodha Sialkot Swat
Administration Audit Branch Banking Card Operations Cash Management Central Finance Division Central Operation Division Consumer Business Corporate Banking Group Credit Administration Dept. Customer Service & Quality Financial Institutions Human Resource Division Information Technology Marketing Merchant Acquisitions Remote Banking Small & Medium Entp.Group Special Asset Management Treasury Operation 7
Board of Directors
President & Group C.E.O
G.H Crd&Rm G.H H.R.D
C.H S.M.E C.H U.L
G.H R.B Dir. S.Q
G.H Con.B H.IT & Op
C.H I. Audit
Administration and Accounts
In the f-7 branch of Union Bank both the administration and Accounts is headed by one person who is responsible for looking after the accounts of the branch and forming pay orders for work or services which are used by the branch meaning a mixture of both accounts and administration. He has to make sure at everyday that the branch is a balance, in my days there; there was no one day that they had come across any problem of an unbalance. The administration department deals with all sorts of things one of there responsibilities is to make arrangements for Union bank personnel coming from other cities, hotel booking and etc. They also deal with ensuring the smooth running of the branch, that any problems of any kind occur even if it is as small as a person is not being well or has a headache or someone wants a plant in their office it is all handled by the head of administration and accounts
I had started my internship at very critical timing of the year, Union bank has two closing of accounts one is on the 31 of December which is known as the year end closing and the other is on the 30th June which is known as the half year closing. As I started my internship they did not delay in providing me with complex work after a brief interview about the accounting process and concepts which I had learned in the 1st and 2nd semester of my BBA. I was given a task to calculate the depreciation of all the fixed assets which the F-7 branch of union bank had. It was a very complex task since half of the dates and
previous depreciation very faulty. To better understand this I needed stronger and more advance concepts of accounting which I did not have. Dead line of 10 days was given to me to accomplish my task which I had met by staying long hours at the office and also by the guidance of Mr. Tanveer who is the head of accounts and administration.
In order to make my work simpler I broke it down into parts and sections. Due to a change in the accounting system of Union bank the head office in Karachi had grossed up all the provision of deprecation on September 30th and a new record of depreciation was made. The reason for the bank to do this was that some branches even the head office had been calculating depreciation on Assets for the whole month when the asset was purchased after the 15th of the purchasing month and also some other reasons. So I had divided my task in first calculating the depreciation of each asset that the F-7 branch had before September and then calculating after September and separating the grossed up amounts from a sum total into months of each asset for a whole year (June 03 to June 04). Once completing this I had to then counter check that each amount which I had calculated was correct by tallying it with the statement by the head office Karachi. After accomplishing this task I was assigned to a new task of calculating the month’s telephone bills and with holding tax. After the calculation I was asked to create a proper statement which would be kept in the records.
Every non contractual employee has a medical benefit. A married employee can with withdraw up to Rs. 20,000 in a year for medical purposes and a unmarried employee can take up to Rs. 10,000. For keeping a proper record of this the Bank maintains a register and then that register is entered on excel sheets to have an updated record at all times. This task of maintaining and creating excel sheets for this year was given to me. Although it was a very simple task but had be dealt with extreme care since a wrong entry in this would be problems for the employee who is withdrawing the medical fund and the person who has entered the amounts. This was the only proper record of the withdrawals and with faulty entries in it would be loss for the organization or for the employee and in order to rectify it one would have to go through all the medical bills which the employee has to had over in order to claim his money. I first entered all the information on to the register and then from that register I made excel sheets of the same information. The experience I was able to again in the department was on a higher scale than compared to the other departments. The working hours here were extremely demanding and long altogether is was a wonderful experience working here.
Union Banks Policies for fixed Assets and Depreciation
Individual items costing Rs.10, 000 or less will be classified as revenue expenditure expect where the amount to a material total as part of any single project.
Bulk Purchase of assets
Asses purchased in bulk will be written off to revenue where the gross unit price is Rs. 10,000 or less. Where the gross unit price is in excess of Rs.10,000 the assets will be capitalized under the appropriate category of fixed asset.
Accounting Policies for Fixed Assets
Assets carrying a unit value greater than Rs.10, 000 shall be capitalized as fixed assets in the books. Assets carrying unit value equal to or less than Rs. 10,000 shall not be capitalized.
However, if any assets forming a component part of a main assets, despite having unit cost equal or less than Rs. 10,000 shall be capitalized, provided that total cost of such main asset is greater than Rs.10,000.
Assets which are not capitalized according to the rule just mentioned a Rs.1 token value shall be booked under appropriate had while balance amount shall be charged off to profit and loss account.
Full month depreciation shall be charged for the assets booked before the 15th of that month. Assets booked after the 15th depreciation shall commence from next month. Deprecation rates and method of deprecation shall be in accordance with the banks standard Accounting Policies.
Monthly depreciation shall be accounted for by debiting related depreciation expense account and crediting related provision for deprecation account. Written off assets will be valued as Rs.1 which is known as the token value and shall be carried till they are disposed off.
At the time of disposal original cost of asset and its up to date provision for depreciation shall be reversed against the sale proceeds and gain /(loss) shall be booked accordingly.
Assets booked as fixed assets should simultaneously be entered in fixed asset register for physical monitoring.
Asset transfer from one branch to another branch should be properly reversed and booked in both branches with full cost & provision and also properly existed and entered in both the fixed asset register.
Types of Fixed Assets & Depreciation Rates
Tangible Assets Sr# 1. 2. 3. 4. 5. 6. 7. Typed Of Asset Land Buildings Furniture & Fixtures Vehicles Computer and Peripherals Office Equipment Lease Hold Improvements Dep. Rate 0% 5% 10% 20% 20% 20% N/A Tenure Of Asset Unlimited 20 years 10 years 5 years 5 years 5 Years 5 years
1. Land Freehold 2. Land Leasehold
All expenditure incurred acquiring land and preparing it for use, including the cost of demolishing existing buildings prior to redevelopment, will be considered as part of the land cost to be capitalized.
1. Building Freehold 2. Leasehold Premises Cost incurred on the construction of “freehold Buildings” shall include all costs incurred for civil works, masonry work, basic electrifications, and sanitation and plumbing etc. For Purchased premised the purchase consideration paid for building shall be capitalized as “freehold premises”
Where substantial building and construction work is undertaken, all costs pertaining to the project will be debited. Upon completion the building contractor or consultant will be required to provide a detailed breakdown of expenditure to enable the balance on the account to be appropriate categories of fixed asst accounts and revenue expenditure.
When land and building are purchased as a unit at a single lump sum price, the total cost be apportioned between land, building and premises fixed equipment. Separate costs will
be assigned to the assets on the basis of their relative market value, which will be determined by the cost of acquisition as stated in the purchase contract.
Furniture and Fixture Include
1. Furniture and fixture (Office) 2. Furniture and fixture ( Residence)
1. Owned Vehicle
Computer and Peripherals Include
1. Computer Hardware 2. Other Hardware Accessories Being Part of Computer. Qualifying expenditure includes the initial purchase price of equipment, plus any related establishment costs like carriage, installation etc. Expenditure incurred subsequently during the life of an asset like related maintenance, insurance etc should be expensed.
Office Equipments Include
1. Machinery and equipment ( Office) 2. Machinery and equipment (Residence)
3. Telecommunications 4. Air conditioners 5. Generators 6. Other Equipments
Sr# 1. Typed Of Asset Software Dep. Rate 25% Tenure Of Asset 4 years
1. Computer Software and software development 2. Software License
Cost of Buying in software and or software licenses should be capitalized. Expenditure Attributable to projects will be capitalized. The expenditure should relate to the development of an identifiable asset with an identifiable benefit to the business. Development for this purpose is defined as all activities associated with buying, defining, building, modifying, testing and implementing the software including project management and training. The definition does not include application support and
maintenance activities, nor activities associated with running the software in a production environment once it has gone live.
Method for charging Depreciation
Straight line method is used for charging depreciation on fixed assets over the useful life of these assets. The only asset which is not depreciated is land.
Depreciation expenses will be debited to the appropriate profit and loss deprecation account, with the corresponding sum credited to a provision for depreciation.
Where an asset with a book value is written off ( i.e written down to nil), the remaining book value of that asset should be charged to the profit and loss account as depreciation, and included as a fully depreciated written off in the fixed asset schedules.
Fully Depreciated Assets
When an asset becomes fully depreciated no further depreciation will be calculated. The asset will be reflecting at W.D.V Rs.1 in the books till its disposal.
Disposal of an Asset
When an asset is sold it is necessary to provide a complete accounting record of the transaction through profit and loss providing an overall net profit and loss.
Approval fro purchase of a Fixed Asset
Prior approval is required to purchase an asset above Rs. 10 million from the Management Committee/ Board of Directors.
Policy and procedures for Asset/vehicle sale/Acquisition have already been implemented which covers all the aspects of purchase, sale and transfer of assets and also covers how to maintain non-financial data in registers.
Internal Audit shall review and comment on the implementation of policy, Deviations if any will be considered while deciding the audit rating.
Capitalization Policy for leasehold Improvements
• Cost incurred on branch renovations and developments aggregating cost more than Rs 10,000 but not been part of fixed assets, should be booked as “leasehold
improvements” and cost aggregating equal or less than Rs 10,000 should be charged to the profit and loss
Full month amortization shall be charged for the cost booked before 15th of that particular month and cost booked after the 15th amortization will start next month
Amortization rate and method of amortization shall be in accordance with banks standard accounting policies.
Amortization expenses should be debited to profit and loss account and credited to lease hold improvement asset account on monthly basis. Amortization for the last month shall indicate asset at zero value.
Costs booked as lease hold improvements should be simultaneously be entered in lease hold improvement register for memorandum record.
No partial cost should be booked during renovation and development of branch. All costs should be booked at the completion of work. Till that time all expenses incurred relevant to particular project should be booked in job in progress.
The financial year of Union Bank is from the 1st of January to 31st December and even has a half year closing which happens on the 30th of June. All the branches of Union bank regardless of their locations they have to form the following reports and send it to the head office in Karachi by the end of each month.
1. Balance Sheet 2. Schedule of all assets and liabilities 3. List of Debtors, creditors, advances and inventories 4. Retained earnings summary 5. Administration and general expenses statement 6. Marketing exp statement 7. Heat, light, power and fuel expense sheet 8. Payroll taxes and employee benefit statement 9. Repair and Maintenance.
Functions of the Accounts Department
1. Maintenance of all records related to the branch 2. Maintenance of fixed assets records 3. Accurate and timely payment of employee payroll funds 4. Maintenance of all expense 5. Creating pay orders ensuring timely payments for services or goods rendered 6. Ensuring that all accounts are balanced 7. Reconciliation of all bank accounts. Union banks accounts are audited by Hameed Chaudhri and Co which is chartered accounts firm. The bank has two types of auditors external and internal. Internal auditors
are sent to unrelated branches to create an audit report on them, teams are made of internal auditors who are selected from branches in the given region. Once the internal auditors have completed their task the external auditors come in one of which are Hameed Chaudhri and Co and auditors from the State Bank of Pakistan.
Union bank is a traditional double entry system and thus forming the very famous accounting equation Assets = Liabilities + Capital. Accounting entries are made on real time basis. The journal entries are properly verified and posted to the ledger accounts and trail balance. There are two types of vouchers which are made one is the payment and other is receipts and both are recorded accordingly in them.
As with functions the accounts department has some responsibilities as well which are 1. Purchase 2. Cost Control 3. Payments to Creditors 4. Employee Payroll 5. Income Audit 6. Main Accounts
Union Bank in all together does not have any purchase department which is otherwise known as the procurement department. Every branch Accounts department is responsible for this activity they have to act as a procurement department for their branch. Two stores are maintained
1. General Store a. Printing & stationery b. Computer supplies c. Electrical & Mechanical d. Plumbing & heating e. Air conditioning and Refrigeration f. Light & Bulbs.
2. Food and Beverage Store a. Kitchen Food b. Laundry of lower staff c. Tea Union Bank maintains a proper computerized system of inventories as soon as any one items is low the accounts officer will be receiving a warning. As the types of stores there
are two types of Procurement one is the whole year one which is done for Goods/items/services which are required through out the whole year and other is the selective which is done once in a while. In both the cases the contract is awarded to the supplier who manages to bid a price lower than the rest of the bidders.
2. Cost Control
This is another responsibility of the accounts department and that is to reduce costs. In my time there a very serious issue was raised by the head of accounts and Administration about the high amounts of phone bills of each department including his own department, he had come up with an idea of getting the non dialing phones placed with in his own department on every extension and keeping one dialing phone which would be under his strict supervision and that was what he had recommended to the other departments as well saying that all extensions should be non dialing so that phones are not misused and are kept under a strict check adding that it is not feasible for an organization paying millions of rupees each year only in phone bills which can be controlled. The accounts department is constantly on a struggle to reduce cost where ever possible for them to do so. If we look at the phrase reduce cost or cost control is looks very simple and plain but in actual it needs a lot of hard work and determination as a whole team of the people who are concerned with the issue to join hands and make it happen otherwise the whole idea is a complete waste of time and energy.
3. Payments to Creditors
These are the payments which are made to the suppliers, against services and contracts. There is proper producer which is to followed before any payment is made by the accounts department to the supplier or creditors. a. Comparison of the purchase order with the supplier invoice to ensure that item, amount and date and everything checks out perfect. b. Generation of an expense voucher is made to ensure that entry is passed on the books as well the system of Union Bank ensuring a balanced account. c. A creation of a pay order or cheque is done after deduction of tax from it d. Once this is completed then the delegated authority in this is the head of accounts verifies everything and gets it approved by the regional head. e. After the approval by the regional head the pay order or cheque is given to the supplier or creditor.
4. Employee Payroll
The Accounts Department has the responsibility of making salary payments to the employees of Union Bank. Like any company there are two types of employees permanent and contractual. The contractual employees do not get any benefits as the permanent do. The biggest benefit that the permanent employee gets is job security and
medical allowance. The employee can withdraw amounts up to Rs.20, 000 in one year if they are married and Rs.10, 000 for unmarried. Loans against provident funds are also calculated and given from this department to employees, convince allowance and rental allowances are given or can be reimbursed from here as well.
Credit Administration Department (C.A.D)
This department is also known as the Risk Asset Management (R.A.M) in various banks. In a nut shell the purpose of this department is to approve the loans which are given by the S.M.E (small and medium enterprise) and C.B.G (Corporate banking group). R.M`s of both S.M.E and C.B.G find the clients to give loans to or other facilities and these are then forwarded to C.A.D who then evaluate the value of the collaterals, verify credit histories and get legal opinions and then approve what ever facility the client has applied for.
I had interned in this department for a full week in which I was able to gain a lot of knowledge which I could have not gained form any text book. It is all thanks to Mr. Bilal Zaid who is a Risk Manager there that he explained to whole process in such a through and proper manner.
While I was there I had checked many charge documents, title documents, evaluation reports and insurance policy. All these things are properly described in the pages to come. My time here was the most interesting and by far this was the department I was able to gain the most knowledge in one week than compared to the other five weeks.
Types of Financing
1. Direct Financing (Funded Facility): This type of financing is when actual cash is given to customers or clients. Examples would be Current Finance
2. Contingent Financing (Non-Funded Facility): This type of lending does not have any transfer of cash to customer in simple it is any liability that may or may not arise. Examples would be Letter of Credit
Any type of loan which ranges from rupee 10,000 to rupee 500,000 is known as a clean loan. This is because since no type of collateral is needed in order to get this loan there examples are credit cards personal loans car finance and anything that is up to Rupees 500,000. Any loan which is above Rupee 500,000 has to be approved by the Credit Administration Department. For loans above rupee 500,000 some sort of collateral is needed to serve as a guarantee in place of no return of the funds borrowed by the client.
Credit Approval Process.
Once a person comes to the bank to get a loan above rupee 500,000 the first thing that has to be checked is if they fall in Branch Banking, SME, Retail or Corporate. A designated Relationship Manager would first evaluate the client if the loan should be given to them or not. Now the RM would get all the needed information from the client and hand it to the C.A.D department. This is when the real working of the C.A.D starts they shall first get a report from the Credit Information Bureau (C.I.B) which is located in Karachi and is regulated by the State Bank of Pakistan. This is a proper Data base of all the people who have ever taken a loan. It would have detailed information about there previous loans and payments of the loan and installments.
If a client has a bad record his loan will not be approved until he provides 100% cash collateral for the loan which will be taken. The Banks policy is to safe guard their money first no matter what. Once the C.I.B checking is done a credit approval is made by the Relationship Manager.
Types of securities
1. Property 2. Government Securities
3. Fixed Assets and Accounts Receivables.
It is the banks policy that only 70% to 90% will be lend out of the value of the security.
In order to give your own personal property as a form of security, the first and foremost thing that shall be required will be all the title documents a few of them are listed below 1. Sale deeds 2. Connivance Deeds 3. C.D.A Site Map 4. Transfer Letter
Once all of this is received all these title documents are photocopied and sent to lawyers in the case of Union Bank the lawyers are Khan and Paracha who are the official firm which deals with all legal work of Union Bank. When the documents are sent the firm does all the checking of the documents and gives an O.K or can even ask for more documents which should all so be a part of the title documents. If the lawyers say that this document is required then the bank can not give out any loan with out having that document. Now the people who work in the bank are no experts in evaluating property so they have proper evaluators who do this Job for them. Now a person can come up and give all his
documents and say that his property is worth Rupee 50 million which in reality is not true. In order to protect themselves from this kind of Fraud the bank get the property evaluated. Just to save themselves from any kind of other frauds which might arise in the process of evaluation the property the Bank gets the property evaluated by two separate firms just to make sure that no forms of bribery or other kinds of frauds haven’t taken place between the client and Evaluator.
These Evaluators come up with four forms of prices
1. Market Value: This value is the value which one is able to get by selling the house in no rush or hurry. When a seller waits for the best bidder to sell too. 2. Forced Sale Value: This is the value which a seller may get if the seller is in no a rush and is not able to wait for the highest bidder of the property 3. Land Value: The value of the land 4. Building Value: Value of the construction on the plot.
The loan which is given out will be on the forced sale value of the property and only up to 75% of the value of the forced sale value will be give out in the form of a loan. The Bank make sure that they are covered in all way possible and that they will not have to bear a loss.
After the completion of the Evaluations the Bank shall ask the client to get the property insured.
For the insure process the client must first show a Premium Payment Receipt (PPR) which is the most essential document in the insurance process. After the receipt comes the insurance policy deal. This is a document which states 5 things
1. Amount being Insured: The amount for which the insurance is done 2. What is being insured: What part of the asset is being insured, the land or construction. 3. Favoring: Who is being insured, Union bank should be insured in all cases 4. Which Clause of insurance it covers: There are four clause of insurance A, B, C, D. A covers the most kinds of damages, earthquakes, fire and so on, B covers less and that’s the way it goes till D. 5. Time and date of policy becoming effective and expiry:
The insurance and the monthly payments are all paid by the client the bank shall not pay a penny for the whole process. The interest rates are calculated on a Daily Product Basis which is
Principal x Rate x Time 33
2. Government Securities
These securities are known as cash collaterals as well since they are very liquid assets and can be very easily converted into cash. Examples of these securities are Defense Savings certificates (D.S.C), Regular Income Certificates (R.I.C) and Special Savings Certificates (S.S.C).
When this type of security is being done there are two main essential documents which are needed.
1. Authority to Mark Lien. 2. Encashment Certificates.
With out these two certificates the bank can not give out the loan the Authority to Mark Lien gives the right to the bank to hold legal possession over the documents and encashment certificate allows the bank to convert the Bonds into cash incase the client
defaults. A client is able to get up to 90% of the value of his bonds as a loan from the bank. This type of security is 100% cash collateral.
It is the most simple and quickest since very little paper work is needed to be done in this and the bank feels at easy by this kind of security. All forms of agreements have to signed on Charge Documents which is a paper with 2 rupee stamps on it this is extermily essential since if there are no charge documents we can not claim anything from the client if they ever default. All the papers which we might have of there’s will be useless with out the charge documents, The Bank cant even go to court if the charge documents are missing. Charge documents have to be signed for all kinds of loans clean or collateral loans.
3. Fixed Assets and Account Receivables
The process and form of this type of security is the exact same of the Property.
Two main things come into this 1. Letter of Credit 2. Letter of Grantee
1. Letter of Credit
A letter of credit is used by importers and exporters for example xyz a person comes to bank and he wants to import goods from New York. He would have to use the services of a bank to import the goods. In this case Union Bank will be the bank who will provide the services. Union bank will be the Opening Bank. The Bank will open a LC thus making Union Bank the bank of the importer. Like the importer the exporter will also have a Bank and for example his Bank is Abn Amro in New York and that will make that bank the negotiating bank.
The first thing that Union Bank would require would be a Performa Invoice. A Performa Invoice is a document which states the prices and items which are to be imported by the importer. This document shall be sent by the exporter’s bank. Now the LC is open and the second step in this process is that the exporter gets the goods insured and does all the other paper work which is needed. As soon as the goods sent to the importers country which is Pakistan in this example the exporter will receive a document which is know as
the Bill of Lading (if sent by sea) or Airways Bill (if sent by air). The exporter will be able to claim his money from his bank as soon as he hands over this document. Once the bank gets this document they shall send this document to Union Bank. Almost every bank has a Nostro account (Our account with them) and a Wastro account (their account with us). A Nostro account is an account which holds a part of the Banks foreign currencies. Union Bank has a Nostro account in New York. Some one has to pay Abn Amro back since they have made the payment to the exporter, what Union bank will do is that it will tell Abn to debit there Nostro account as soon as the receive the Bill of Lading or Airway Bill.
By the whole process by now the exporter has been taken out of the equation and so has been the Bank of the exporter, what left behind is the importer and Union Bank it self. As soon as Union Bank receives the Bill of lading or Airway Bill they shall call the importer and inform him that his document has reached. The importer will have about 5 to 7 days to pay the money to the bank after the arrival of the Bill. If he fails to pay with in 7 days 21% interest will be charged per day until payment is made. Even in this case the bank is fully covered from every where. The goods are in the possession of the Bank and they can sell them and regain there money.
The example above talks about a Site LC, the most common of all the LCs is the Site LC and then there is the Usance LC. The difference between the two is that in Usance the
provider of goods can give a credit to purchaser of goods. It could be 60 days, 90 days depending on what the seller or provider wants to give.
2. Letter of Grantee
This is a grantee which is issued by the bank to another organization or person on behalf of the banks client or clients that they will pay up and if they don’t pay the bank will pay on there part. Recently PTCL was having problem with Chinese nationals living in Islamabad, the problem was that these people used to get telephone connection and would make international calls and go back to there home country with out making the payment of there phone bills. So what PTCL did was that all foreign nationals had to get a bank grantee in order to get international dialing open on there phone connections.
The minimum grantee was of rupees 50,000. The Banks policy was to take 100% margin from them which meant that they had to deposit full 50,000 in order to get the grantee. The main things in this agreement are 1. Amount: How much is the grantee for 2. Date of issue: When is the start date 3. Who it favors: In whose favor is it 4. Date of expiry: When the grantee finishes 5. Claim Lodgment Date: Once this date expires the company or person is not able to claim anything from the bank.
Union Banks credit process is decentralized but guided by centrally established credit policies, rules and guidelines continuing a close to the market approach to credit initiations with corporate level direction.
Credit policy is a corporate entity that functions through the Credit Policy Committee (CPC). The CPC is headed by a chairman and has three other members at present the CPC is accountable to the board of directors of the bank.
The CPC functions to oversee risk and to temper and shape the lending activities by • Establishing credit policies and corporate standards that conform to local regulations • • • • Maintaining a sound and effective and an effective Risk management architecture Participating the portfolio planning and credit loss forecasting Keep aggregate credit risk well within the banks risk taking capacity Appointing senior credit officers and grant credit approval authority to skilled and adequately qualified officers.
Supervise Risk Asset Review (RAR) process and provide guidance, direction to the line management to rectify portfolio and process anomalies.
The chairman, credit policy committee is responsible for periodic reports to the both, Management committee and the Board through its sub-credit committee. Such reports may include but not limited to 1. A summary of policy exceptions that represents significant policy reports exceptions. 2. Portfolio reviews emphasizing quality assessment, risk profiles, tenors, concentrations and any such excesses over limits. 3. Significant portfolio indicators and problem credits consistent with Board’s guidelines and regulatory requirements. In the execution of its various responsibilities, the CPC exercises its write through the Country Risk Management Group, which for these functions directly reports to the President and CEO.
With in the Union banks structure, Financial Institutions (Fis`) is a separate Business Group set up to deal with matters relating purely to Fis` such as banks, development Financial Institutions, leasing companies etc. These matters include setting up lines of
exposure that may comfortably be underwritten on Fis` establishing relations with foreign as well as local correspondents and taking credit exposure on them.
It shall be the responsibility of each Business Group (C.B.G, S.M.E and Retail Banking Unit) to identify its own target market and establish risk acceptance criteria. While doing so the geographic location of the individual units, close proximity of specific industries/business activities, desirable names, healthy financial state of affairs of businesses, performance of a particular sector etc shall necessarily have to be taken into consideration, it will thus follow that the target market of Location A may differ from the location of B, location Bs from location C and so on. It also follows that target market will be open to periodic reviews and revisions. It shall be up to each business group to fix the frequency with which it wants review these target markets. The advantages of periodic review are numerous.
Two of the very important ones are 1. Marketing efforts will be focused and more energy will be spent on marketing more desirable names rather than vice versa 2. Less time will be wasted on adventures where internal approvals shall seldom be forthcoming.
It shall be essential to obtain approval of these target markets form the country risk manager before implementing them.
Corporate Banking Group (C.B.G)
Any borrower with aggregate borrowings in excess of Rs 50 million or with an annual turnover of Rs 250 million plus, qualifies to be booked under the corporate banking group umbrella. If any constituent of a group of borrowers falls into this category regardless of whether the others do or do not, shall also qualify to be booked under the corporate umbrella. However, where the exposure is 100% cash collateralized regardless of the bottom limit and has been marketed by CBG, such exposure shall be retained by them. Cases falling in the borderline areas but otherwise in the Small & Medium Enterprise Group domain should the relationship niceties demands particular handling shall be domiciled under the CBG.
Small and Medium Enterprise Group (S&MEG)
Borrowing relationships with aggregate borrowings of less than or equal to 50 million or with an annual turnover of less than Rupees 250 million shall be domiciled at the S&MEG. Should any constituent of a group of borrowers breach these limits, that entire group shall be transferred to the CBG for specialized handling of the relationship
commensurate with their size and requirements. However cases falling in the borderline areas but otherwise in the CBG domain, should the relationship niceties demand
particular handling, shall be domiciled under the S&MEG. Where the exposure is 100% cash collateralized regardless of the upper limit and has been marked by the S&MEG, such exposure shall be retained by them.
Consumer Banking Group
This business group is involved with underwriting more of a consumer oriented risk. This may include credit cards, loan products to individual. Consumer finance, vehicle finance, mortgage finance, etc. The consumer Banking group has formulated its own risk acceptance criteria and have designed specific product programs for risk assets acquisition. The competent authority of the bank shall approve shall programs.
Their sphere of activity and responsibility is to monitor the banks activities at the branch level, credit included, to gauge the level of adherence to pre-set rules and policies of the bank, and the rules and regulations that have been imposed and or maybe imposed by the State Bank of Pakistan form time to time.
The corporate department is like the big brother of S.M.E. The market of corporate customers is very small and most of the customers or otherwise known as the big players have very strong relationships with other banks. The problem with Union bank is that the interest rates which they charge are very high. Bank Alfalah which is in direct competition with union bank has very low interest to offer and its not only them other banks have low rates compared to Union Bank due to this Union Bank compared to other banks has a very limited cliental. There are about 40 to 50 in total in Islamabad but in other cities the cliental is lager.
I had spent a full week in the corporate department in which I was mostly doing reviews of financial spreads of Fauji Foundation. My tasks were fairly simple and could have been easily achieved with accounting knowledge about assets, liabilities, debtors and capital. I had to write a report on the changes in the balance sheet of Fauji Kabarwalla, Fauji Bin Qasim, Fauji Fertilizers and Fauji Foundation. I was able to complete a company a day. Mostly it was the comparison of two years of financial data given to me, once the comparisons were done I wrote detailed notes on the changes in all the items of the balance sheet and profit and loss statements. These were then checked and then discussed with my boss Ahsan Gaylania who is a Corporate Relationship Manager.
Since this data was very essential to him he wanted everything to be very detailed and correct he gave me extra notes and reasons for decreases and increases in almost all the items on the Balance Sheet and Profit and Loss statement, there were many reasons like selling of shares, payback of long term loans, taking up of new loans, increases in sales and better production methods. Once getting hold of the other data I formed reports on MS Word and then attached them on to the respective files. While working in the corporate department I learned how to fax.
OPI (Orient Petroleum Limited) one of the banks biggest client, had a cash management (discussed later on in this department) they would send us faxes of transfer of funds which then after being approved by boss had to faxed to the banks signature verification personal who then made sure of the fund transfers were made.
Once a problem had occurred that OPI branch in Saudi Arabia had sent a fax of funds transfers and the sign came out to be faulty no one could be 100% sure that if it was the correct one or not so the fax was sent to the office in Islamabad and then it got O.K from there and the transfer was made. One has to be extremely careful since these transfers of funds are in millions and billions of rupees and a wrong transfer could cost the Client a heavy loss thus leading to an unsatisfied client which would lead to the loss of the bank as well. I was assigned to fax these documents of fund transfers, once approved by my
boss, to the concerned person in the bank and then maintaining an already made OPI file for all types of fund transfers.
The Corporate Department of Union bank of Islamabad is very small they don’t even have a team leader or a head; it is directly answerable to the authorities in Lahore where the regional head sits. Recently they were having trouble in negotiating new loans and other facilities which they have to offer and which were needed by Mobilink, even being one of the oldest clients of Union Bank they were refusing to take any new loans from them since the interest rates which were being offered by Union Bank are very high. The biggest trouble that Union Bank faces is that its cost of fund of lending is very high compared to other banks. Bank Alfalah had already made an offer to Mobilink of loans at cheaper interest rates than Union Bank.
In my time in Union Bank Corporate Department I had also learned to how to do filing, arranging files and even photocopying. Corporate Islamabad has Fauji Foundation, OPI, PTC, PMCL, Kohinoor Textile Mills, Marriot, Best way Cements, Amsons, Kamran Hamid, Karkurum Enterprises and PTCL as the major clients of the bank. Out of all of these Fauji Foundation is the biggest in total the whole Fauji has about Rupees 1 billion of Union funds with them in all forms of loans.
There are three types of clients
1. Active 2. Non Active 3. Depositors
Textile, sugar, leather, pharmaceutical, fertilizer, petrochemical, power, automotive, telecommunications, oil and gas distribution, marketing and refining and fast moving consumer goods industries. These are mainly the industries Union Bank works with in other words they try to maintain these industries as there target market. Union Bank offers a full range of financial services to support and meet all the needs of its clients. Each solution is tailored to meet the specific business objectives. By combining knowledge about the requirements with our own expertise in trade and your industry, the bank ensures that the client receive a solution that directly addresses the business objectives.
• • • Working Capital/Term Loan Loan Structure & Syndication Trade Services
Guarantees Cash Management
Working Capital / Term Loan
The corporate Relationship Manager work very closely with the client to better understand the dynamics of the business so that the Relationship Manager is able to anticipate and serve short-term and long-term funding needs in the most efficient manner, drawing from the full range of the Banks resources and capabilities. To service the financial needs and help the client to operate effectively and efficiently, Union Bank offers a variety of working capital financing facilities. In addition to standard Running Finance and Term Finance products Union Bank offers various types of short term loans and facilities which are tailored by Relationship Manager to provide maximum value to clients by meeting their needs and capabilities.
Structured Finance and Syndications
Union Bank is an active player in the syndicated loans business. There strength in loan syndications stems from there ability to forge strong relationships not only with borrowers but also with bank investors. Union Bank helps borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their
particular industry, geographic location and structure through syndicated debt offerings.
Union Bank offers a full range of documentary letter of credit services as well as discounting and reimbursements to support any or every part of the trade transaction. Experienced personnel use their specialized expertise to innovatively structure the trade transactions and process, daily trade transactions, and have end-to-end responsibility for the letters of credit, reimbursements, negotiation of documents, and inquiries. They also handle export guarantee transactions and government donor flow intermediation. Union Bank can provide clients with trade related facilities, for an appropriate period, in line with the working capital cycle, to assist clients in financing their imports/exports.
Union Bank issues the following types of guarantees depending on the needs of the customers:
• • • • • •
Tender Guarantees (Bid bonds) Performance Guarantees Advance Payment Guarantees Financial Guarantees Open ended Guarantees Back-to-Back Guarantees 49
With a branch network of 42 branches spread throughout the country, covering every major city of Pakistan, Union Bank has undoubtedly become one of the most progressive and well-networked banks in Pakistan. Union Bank has also invested heavily in information technology resources, which has now allowed the Bank to develop one of the most comprehensive and advanced systems available. With the help of this system, Union Bank has now achieved an "online" status via real time facilities and features available through our nation wide network. With a team of highly qualified professional, Union Bank is able to use its real time system resources to provide customers with a comprehensive account of their transactions on a daily basis. With the new improved system, Union Bank is able to map all transactions and is able to provide all necessary details to their cash management clients.
Cash Management Services
1. Cash Collection The concept behind this product is to facilitate customers with a large network of sales out lets/distributors in collection of cash sales proceeds and transfers of funds into a Main Collection Account that will be maintained at Union Bank Limited. The customer has the ability to choose from any branch they want to.
2. Collection of Cheques/receivables Collection of sales proceeds in the form of cheques/pay order/demand drafts etc and same will be cleared from the region where these instruments will be deposited. By using this one is bale to save on time and money.
3. MIS reporting Union Banks cash management program has the capability to generate customized MISReports as per the requirement of the customer and his given format. These reports can be electronically communicated to the office of the customer on a daily basis and there is no cost for doing this. The Bank has the capability to capture maximum data that will facilitate the reconciliation of funds received from various network points.
4. Drafts/pay orders for payments, salary and other Operation Disbursements This product envisages outward bulk transfer of funds processed through a set of instructions via email or through a Diskette.
5. Salary Disbursements and Employee Benefits By a company using this option employees of that company will have the option of maintaining salary accounts with in the bank. In addition the following will be available to the employees 1. American Express Credit Cards
2. Personal Loans 3. Other Bank Facilities 4. Home Loans But this is subject to the prescribed qualification criteria for corporate group clients.
6. Intra-City Payments This product gives the client/customer the flexibility to make payments (demand Drafts and pay orders) at designated cities the same day upon receiving instructions from the customer or client to the Cash Management Unit. These instructions may be electronically communicated to Cash Management Unit for immediate execution at any of the designated branches across Pakistan. Subject to the availability of Funds in the account of the client.
7. Cheque Payments Payments can be effected through, cheque i.e payable within our network through your one account subject to availability of funds and or limits if any.
I was able to spend one day in the S.M.E department in which half of my day was on a client visit with Syed Saad one of the S.M.E Relationship Managers. He took me along to give me some out of office experience and to show me how client dealing is done. The client who went to visit was Sun Foods, they are the sole importers and distributors of Hagen Daz and of so many other very extremely quality products. My boss for the day wanted to get some information on the client back ground, partnership and various other information. Mr. also wanted to talk about the credit line enhancement which the client was asking. The S.M.E department is like any corporate department of any bank. The only difference that S.M.E and corporate have is that corporate has a lending limit which is very high one could say almost unlimited and S.M.E has a limit of Rs.50 million. According to State Bank of Pakistan the bank can lend up to Rs 75 million but the Board of Directors of Union Bank decided not to loan out more than Rs.50 million, increases in loans are made on client basis if the client is an old client his needs shall be taken care off till the limit assigned by the State Bank of Pakistan. The motto of both S.M.E department and Corporate is “Our focus is simple and straightforward; we start by making your targets as our business goals to form the strategic corner of our partnership”. ”Your business problems are our business problems”.
Union Bank has handpicked a group of highly trained and professional individuals to form an exclusive Small & Medium Enterprises (SME) Group for personalized service to companies. SME Group strives to apply a unique blend of finance, industry and technological expertise to keep pace with dynamic markets and translating insights into solutions that meet the clients or prospects client’s diverse financial needs. Each Regional Head is supported by a team of talented and well-trained Relationship Managers who act as financial consultants to the SME customers to understand and offer them a result oriented package to their financial needs. A typical SME customer would be a proprietorship/ partnership/company.
In order to become a S.M.E client of Union Bank the client or customer should meet the following requirements.
Has an Annual Turnover of less than Rs. 250 Million. Requires financial assistance for Working Capital Lines, Term Loans, Bridge Financing, Underwriting, Export Refinance, Bank Guarantees and full menu of Import & Export related credit and processing facilities.
Would like to place surplus liquidity, generated through its own sources, for added income.
Is interested in wealth management of savings of its Proprietor/Partners/Directors.
Currently the F-7 branch has 250 clients. The highest rate of interest on term loans which is being charged is 18% and the lowest is 7%. The higher the risk that a client won’t pay back the higher the rate of interest on them. If 100% cash collaterals are given as security the interest rate is sure to come down to about 7%.
In S.M.E there are two types of lending. One is Funded lending and other is non-Funded. Funded 1. Running Finance 2. Term Loans Non-Funded 1. Letter of credit (L.C) 2. Letter of Guarantee (L.G)
When making a credit package the R.Ms (Relationship Managers) have to make sure that the below mentioned 14 points, which are very essential documents must be completed. 1. Credit Approval (C.A)
2. ORR ( Obligor Risk Rating) 3. Basic Information Report (B.I.R) 4. Management Assessment Form 5. Financial Spreads 6. Financial Projections 7. Credit Memorandum 8. Target Market 9. Prudential Regulations Compliance Checklist 10. Credit Information Bureau (C.I.B) 11. Bank/Market Checking 12. Register Checking/ Search Reports 13. Covenants check list 14. Account Profitability/ Account Plan
My six in Union Bank which started from the 14th of June and ended on the 26th of July gave me proper experience of what banking is like and how the real world Job is like. It was a most knowledgeable experience. From the Accounts department to any other department where I interned I loved it. Every department had its own charm and its own environment which I missed as I got rotated.
By my experience I think I joined and did the internship at the best time I had a complete balance of knowledge and expertise which was needed to full fill the tasks which were given to me. I think the only short fall I might I have was that I needed to stronger concepts of accounting but I would not blame my self was wanting to have them due to complex nature of the tasks which were given to me there.
Credit Administration department was all about gaining knowledge as mentioned by be earlier in the C.A.D department no text book would have been able to help me in this. After gaining the knowledge which I did I applied it properly and my bosses were happy with my fast learning ability.
I spent a whole week in the audit department my work was not that hard there but simple I was working directly under Tahir Gulzar Malik who is the regional head of Audit department. I helped him compile and write a Audit report on the S.A.W.T branch about
which I did not mention anything cause I felt that it was purely confidential information of the bank.
I really wanted to learn a bit more in the Corporate department but the level of work was very complex and beyond my understanding and being only to people running the show in this department both of them did not have enough time to teach me much. But still I was able to get an idea about what it is all about.
In total it was a wonderful experience which I enjoyed a lot.
1. Adnan Haider: Country Head Priority Banking and Branch Manager 2. Farooq Ahmed: Customer Relations Manager
3. Tanveer Iqbal: Head of Administration and Accounts 4. Ahsan Gaylani: Corporate Department Relationship Manager
5. Murtaza Qadir: Corporate Department Relationship Manager 6. Syed Saad: S.M.E Relationship Manager 7. Tahir Gulzar Malik: Regional Head Audit Department 8. Bilal Zadi: Risk Manager 9. Muhammad Hanif: Credit Administration Manager 10. Murtaza Qadira: Head Credit Administration Department
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