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1. Objective of the studying the Organization:
Banking is one of the most sensitive businesses all over the world. Bank play very important role in the economy of a country and Pakistan in bi exemption. it influences and facilitates many different but integrated economic activities like resources mob imitation, poverty elimination, production and distribution of public finance, the economy of Pakistan is growing day by day with an accelerated pace, to meet the requirements of these pace sound banking system is needed so that one can meet the financial needs of individuals and corporation also the agricultural, industrial, business sectors. Allied bank was formally known as the Australasia bank established on 3rd December, 1942 in the city of Lahore, this is before the formation of Pakistan. it was formed with a paid up share capital of RS.0.12 million under the Chairmanship of Khawaja Bashir Bux, the bank had attracted deposits, equivalent to RS.0.431 million in its first eighteen months of business. Total assets then amounted to Rs.0.572 million, deposits come to RS.101.554 billion and total assets equal Rs.121.164 billion. In this report I have tried to cover all the necessary aspects of banking by ABL. The primary purpose of the internship is to fulfill the academic requirements of my study as it is compulsory to do practical work in an organization and to implement the tools that they have studied for the analysis, there are some secondary purposes associated like To gain practical knowledge and experience that will help in future to get good opportunities (jobs).Another objective of my work experience was to relate the gained knowledge from books and institute with working organization so that I can see the different between concepts and their implementations. To gain confidence, which usually lack when any one enter in any, firm for the first time, therefore work experience removes certain fears and flaws that can create problem for any student. This internship will provide me with the exposure of the finance field. The internship is considered as the most efficient tool for learning the procedures and processes of any sort of profession. As I being the management student, this internship would prove to be as the most suitable method of teach the management practices have studied the world class courses here at A.IO.U which I think will definitely be found in actual practice in any organization. The courses will relate to the real work in one or other aspects. The internships are meant to provide the students to apply their
learning's that they do in classes to the real situations. As I have intended to do my majors at finance so I will try to seek my personal attitude towards finance during this internship. Generally, it is noticed that there is remarkable difference between market knowledge and bookish knowledge although the concepts are same but their application is different. During my internship i tried to delineate this difference, and was personally curious about the feeling of professional financial work in an office environment. Banking is a wide field and the whole aspects of banking cannot be covered in the eight week period so i tried to cover the important aspects by using most important most fusible technique. However this study of ABL’s will help the management to identify their weakness and strengths so that they can minimize the threats and can avail the benefit from the opportunities. This internship report will be source information for all those who are the interested in the study of financial and competitive position of ABL. The source of data in this report included interviews of management, customer response interviews and discussion with staff members and personal observation personal observations. In the way to write report required different secondary data sources included ABL annual reports brochures, manuals, website and business reviews. Time is the major factor which hinders the dynamics of bank processing's. Lack of documented material provide to be another constraints in this regard as most of the material is confidential, therefore, internees are not allowed to get "handouts" Most of the times people were not free to answer my queries or they were not interested it all in my work. No one is entitled to retrieve its result for any purpose except authorized bank I personnel for official purpose. Research student are not allowed to retrieve and use any confidential material for any purpose, as it is again the bank policy. Banks play a central and very important role in the monetary life of a country, that’s why they are well thought-out as the livelihood of modern economy. Today no one can deny the importance of Banking in the economy. They facilitate and expedite trade and commerce and provide a variety of services that one can’t imagine with out Banks. The requirement of the Master degree in Business Administration is fulfilled when an internship of eight weeks has been done. The dedicated students polishes there professional skills in there specialized field. Main purpose of this program is to make students familiar with the personal interaction in career settings and practical work as it fosters the development of communication skills to work practically
To analyze the performance of ABL at the branch level and bank level. To highlight the important features of financial products offered by ABL
To analyze the bank through different techniques i.e. Horizontal, Vertical. To apply the knowledge gained in practical field.
This report is a reflection on my experience when I was internee in ABL, main branch Abbottabad. Since its inception in 1942, ABL has maintained a steady growth over the sixty years span of its operations. After its nationalization in 1974, it was denationalized in 1991 and the employees became the owners of ABL, through the unique concept of ESOP (Employees Stock Ownership Scheme)
Overview of the Allied Bank Limited
2.1 Brief history of the Organization
Established in December 1942 as the Australasia Bank at Lahore with a paid-up share
capital of PKR 0.12 million under the Chairmanship of Khawaja Bashir Bux, and his business associates, including Abdul Rahman Malik who was amongst the original Board of Directors, the bank had attracted deposits, equivalent to PKR 0.431 million in its first eighteen months of business. Total assets then amounted to PKR 0.572 million. Today Allied Bank's paid up Capital & Reserves amount to Rs. 10.5 billion, deposit exceeded Rs. 143 billion and total assets equal Rs. 170 billion. The Allied Bank's story is one of dedication, commitment to professionalism, adaptation to changing environmental challenges resulting into all round growth and stability, envied and aspired by many. In the early 1940s the Muslim community was beginning to realize the need for the active participation in the field of trade and industry. The Hindus had since the late 1880s established a commanding presence in these areas and industry, trade and commerce in the undivided Sub-continent was completely dominated by them. Banking, in particular, was an exclusive enclave of the Hindus and it was widely believed, and wrongly so, that Muslims were temperamentally unsuited for this profession. It was particularly galling for Khawaja Bashir Bux and Abdul Rahman Malik to hear the gibe that Muslims could not be successful bankers. They decided to respond to the challenge and took lead in establishing this first Muslim bank on the soil of Punjab that was to become Pakistan in December 1942; by the name of Australasia Bank Limited. The initial equity of the Bank amounted to Rs 0.12 million, which was raised to Rs 0.5 million by the end of first full year of operation, and by the end of 30th June 1947 capital increased to Rs. 0.673 million and deposits raised to Rs 7.728 million. Australasia Bank was the only fully functional Muslim Bank on Pakistan territory on August the 14th, 1947.It had been severely hit by the riots in East Punjab. The bank was identified with the Pakistan Movement. At the time of independence all the branches in India, (Amritsar, Batala, Jalandhar, Ludhaina, Delhi and Angra (Agra)) were closed down. New Branches were opened in Karachi, Rawalpindi, Peshawar, Sialkot, Sargodha, Jhang, Gujranwala and Kasur. Later it network spread to Multan & Quetta. The Bank financed trade in cloth and food
grains and thus played an important role in maintaining consumer supplies during riot affected early months of 1948. Despite the difficult conditions prevailing and the substantial set back in the Bank’s business in India, Australasia Bank made a profit of Rs 50,000 during 1947-48.By the end of 1970 it had 101 branches. Unfortunately it lost 51 branches in the separation of East Pakistan which became Bangladesh. The bank did well in despite losing lot of its assets. By the end of 1973 the bank had 186 branches in West Pakistan.
Allied Bank from 1974 to 1991 In 1974, the Board of Directors of Australasia Bank
was dissolved and the bank was renamed as Allied Bank. The first year was highly successful one: profit exceeded the Rs 10 million mark; deposits rose by over 50 percent and approached Rs 1460 million. Investments rose by 72 percent and advances exceeded Rs 1080 million for the first time in bank history. 116 new branches were opened during 1974 and the Bank started participation in the spot procurement agriculture program of the Government. Those seventeen years of the Bank saw a rapid growth. Branches increased from 353 in 1974 to 748 in 1991. Deposits rose from Rs 1.46 billion, and Advances and investments from Rs 1.34 billion to Rs 22 billion during this period. It also opened three branches in the UK. ESOP Revolution (Employee stock ownership plan) under the philosophy of ESOP ownership of an enterprise is transferred to its employees who are in an advantageous position in running the enterprise. The added advantage of ESOP that it strengthens the workers stake in the free enterprise system, in job securities, better profitability & unique corporate culture symbolizing family feelings & professional fraternity. September 10,1991 is the historical date as on this date the bank became the country’s 1st bank to be reconstituted as an institution jointly owned by its employees through the unique concept of Employees Stock Ownership plan [ESOP] developed by the Allied Management Group headed by Mr. Khalid Latif enabled the bank staff to react creatively to the privatization challenge. More that 7500 staff members acquired a share in the bank. The articulation of the ESOP is a landmark in the financial history of Pakistan-indeed of the entire world .It is a practical step ensuring an increase in workers participation and in productivity a means for enhancing an equitable redistribution of financial assets & an effective strategy for achieving the cherished goal of national self-reliance.
Privatization 1991 to 2008
As a result of privatization in September 1991, Allied
Bank entered in a new phase of its history, as the world’s first bank to be owned and managed by its employees. In 1993 the First Allied Bank Modaraba (FABM) was floated. After privatization, Allied Bank registered an unprecedented growth to become one of the premier financial institutions of Pakistan. Allied Bank’s capital and reserves were Rs. 1.525 (Billion) and assets amounted to Rs. 87.536 (Billion) and deposits were Rs. 76.038 (Billion). Allied Bank enjoyed an enviable position in the financial sector of Pakistan and was recognized as one of the best amongst the major banks of the country. In August 2004 as a result of capital reconstruction, the Bank’s ownership was transferred to a consortium comprising Ibrahim Leasing Limited and Ibrahim Group. Today the Bank stands on a solid foundation of over 63 years of its existence having a strong equity, assets and deposits base offering universal banking services with higher focus on retail banking. The bank has the largest network of on-line branches in Pakistan and offers various technology based products and services to its diversified clientele through its network of more than 700 branches. In May 2005 Ibrahim Leasing Limited was amalgamated by transfer to and vested in with and into Allied Bank Limited. ILL shareholders were issued ABL shares in lieu of the ILL shares held by them. Application for the listing of ABL shares in all the Stock Exchange Companies of Pakistan was made. ABL was formally listed and trading of the shares of the Bank commenced w.e.f. the 8th , 10th and 17th August in ISE,LSE & KES. Muhammad Aftab Manzoor has taken charge as CEO and President of the Bank on August 13 2007. He is an ex-president of MCB Bank Ltd. Today, with its existence of over 60 years, the Bank has built itself a foundation with a strong equity, assets and deposit base. It offers universal banking services, while placing major emphasis on retail banking. The Bank also has the largest network of over 700 online branches in Pakistan and offers various technology-based products and services to its diverse clientele
2.2 Nature of the Allied Bank Limited
Allied Bank Limited (ABL) is one of the dynamic commercial Bank of Pakistan by capturing largest market share amongst new Banks and has provided good value to its shareholders. Allied Bank limited (ABL) is principally engaged in the business of Banking (“banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise;) as defined in the Banking companies’ ordinance, 1962 over the year; ABL has proved its strength as a leading Banking sector entity. Allied bank engages in following function The borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips (participation term certificates, term finance certificates, and such other instruments as may be approved by the State Bank) and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller’s cheques and circular notes; the buying, selling and dealing in bullion interest the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities (participation term certificates, term finance certificates, and such other instruments as may be approved by the State Bank) and investment of all kinds; the purchasing and selling of bonds, scrips or other forms of securities (participation terms certificates, term finance certificates, and such other instruments as may be approved by the State Banks) on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips of valuables on deposit or for safe custody the collecting and transmitting of money and securities;
2.3 Business Volume of ABL:
Rs in (Million) 2,005 2,006 2,007 Total Revenue Deposit Advances Investments Pre-tax Profit After tax profit 5,027 61,657 44,778 22,104 1,902 1,103 8.78 6,120 83,319 69,838 17,239 28,243 1,923 12.76 10,333 118,795 , 85,977, 25,708 2,859 2,022 13.42 2,008 14,736 131,83 9 99,179 28,625 3,347 2,250 7.48 2,009 19,708 143,037 100,780 39,431 2,210 2,681 8.92
Return per Share
Source: ABL website (www.abl.com.pk)
25000 20000 15000 10000 5000 0 2005 2006 2007 2008 2009
From deposit point of view it can be concluded that from the year 2005 to 2009, the total deposits has increased about 100-110%, which shows a tremendous growth in deposit. From the table we also conclude the result of pre-tax profit which also show increase from 1.9 billion to 2.2 billion in 2008 it was 3.3 billion but in 2009 it decrease due to opening of new branches all over the Pakistan. The overall progress of the bank is very good in private sector. From the above table a conclusion can be made that bank sees up and down from earning per share but it is only due to opening of new branches, as the number of required branches once achieved the bank will increase its earning per share.
T. Revenu 5027.468
6120.734 10333.264 14736.175 19708.737
3 Employee in ABL Bank
Staff Strength Permanent Temporary/on contract Bank’s own staff strength at the end of the year Outsourced Total Staff Strength
Total 8,713 142 8,855 2,835 11,690
No of Employee in ABL Abbottabad (BISE) Branch
Assistant Voice President Officer in Grade-I Officer in Grade-II Officer in Grade-III Senior Assistants Massagers Total
2 12 10 5 1 5 35
Product/ service Lines of Allied bank of Pakistan
Allied Bank has introduced the Allied Cash last year also referred to as ATM card. The customer will now have the convenience of withdrawing cash from any of ABL’s ATMs (Auto Taller Machine) conveniently located in major cities at any time of the day or night even on closed days/holidays. Other services include customer being able to inquire about the balance of his/her account or printing an abbreviated (mini) statement showing the most recent eight transactions up to the previous working day. In order to obtain Allied Cash+ Card, the customers simply have to fill out prescribed Application form available at selected Allied Bank Branches in Karachi and Lahore. The dully-filled form should be handed over the Manager of the Branch where the customer is maintaining his account. Non-account holders would first have to open an account with Allied Bank to have access to this facility. The Customer can feel absolutely safe his Allied Cash + Card because it can only be used with the Personal identification Number (PIN), which is given to him by the bank. Graphical representations have been employed, where appropriate, for ease of understanding.
4.1.2Allied Umrah Aasan
This unique scheme facilities those persons, who cannot afford to incur the lump sum expenses for Umrah. It allows the intending pilgrims (Aazmeen) to make payment of Umrah charges in monthly installments. Its salient features are:
o o o o o
It is free of interest and markup. Using this scheme family, relatives and household servants can be sent for Umrah. Around 2500 Aazmeen are to be sent for Umrah every month. Lucky winners of the draw are duly informed by their respective branches. Total package for Aazmeen from Karachi is being Rs. 45,000. Aazmeen from Lahore and Islamabad will have to pay an extra Rs. 3,000/- for Airline fare. Umrah packages are of 10 days duration. The charges include Airline return ticket. Fee Visa, family accommodation and traveling within Saudi Arabia (Jeddah to Application for whole Family/Group can be filed through a single Application form. member of that
Makka, Makka to Madina and Median to Jeddah).
All applicants of a family/group are sent for Umrah even if only one family/group is declared successful in the draw.
Due to any reason if Umrah Applicant needs to withdraw his/her application, he/she will given a refund of all money deposited through installments till that time. At the time of submitting the application Aazmeen has to deposit Rs. 2,000 per
person as first installment. Rest of the money is to be deposited through monthly installments of Rs. 2,000/- person on every 5th day of the month.
If an Applicant wins in the draw he/she is required to pay the balance amount through monthly installments on returning from Umrah. Aazmeen have to submit a copy of their NI Cards and Passports with the application. Applicants have to deposit the monthly installment using deposit slips still 5th of
every month. Defaulters will not be included in the draw.
The customer can now become the holder of a true Credit Card here in Pakistan. Allied Bank under license from Master Card International, U.S.A. issues its Master Card to
anyone meeting the eligibility criteria. With the Allied Bank Master Card the customer is assured of a service meeting the highest international standards maintained by Master Card. The Allied Bank Master Card helps the customer pay without the complications of cash or checks. It doesn’t cost the customer anything if he pays in full within the due date, but if he decides to spread the payments over several months a service charge @ 2.50% per month is charged. Allied Bank – Master Card is safer than cash and simpler than checks. The customer has been an account holder with the Allied Bank to apply for the Allied Bank – Master Card that is available to the customer for an initial fee of Rs. 2,000/- (Rs. 500/membership fee + Rs. 1,500/- annual fee). Once the customer obtains his card, he simply presents it at Shops, Supermarkets, Hotels, Pharmacies, Nursing Homes, restaurants, Petrol Pumps and hundreds of other establishments which display the familiar Master Card sign throughout Pakistan and abroad. Once purchases are made, the customer signs a voucher and that’s it he is not required to take extra troubles. Every month the customer receives a statement showing details of transactions, outstanding and the minimum amount due. The statements also give the last date for payment so the customer can avoid paying service charges. In order to avoid disruption in use of the card, it is essential that a least minimum payable amount of the bill be paid regularly. In case the required payment is not received the operation of the Master Card is automatically, suspended by the system. In such case, the card is activated after receipt of overdue payment only.
4.1.4Allied Tahafuz Deposit Scheme
Brings the customer unparalleled life insurance covers along with attractive monthly profit. Minimum Deposit amount – Rs. 50,000/- or multiples thereof. Insurance cover up to Rs. 5,000,000/. As Competitive rate profit. The features of this scheme are: Prospective client who will maintain a return free deposit for at least 3 months shall eligible to avail interest free/mark-up free finance. Payment of profit on monthly basis, automatic renewal on face value. Life insurance up to 5 times of the customer’s deposit amount with no extra cost. Premium shall be paid by the bank. Full payment of claim in case of Death Permanent total Disability. Eligibility Age – 18 to 64 years. No medical examination for deposit up to Rs. 500,000/- and age up to 60.
4.1.5Allied Karzas Scheme (No Interest/Markup)
Allied Bank moves a step forwards by introducing interest free banking through Allied Karzas Scheme. The aim of this scheme is to provide an opportunity to the depositors to take advantage of a real Riba Free economic environment and avail Prospective client will maintain a return free deposit for at least 3 months shall be eligible to avail interest free/mark-up free finance. Deposit amount Rs. 100,000/- and multiples thereof. Minimum deposit period, 3 months with automatic rollover facility. Premature encashment allowed, without any penalty/charge. Minimum deposit period for eligibility of finance, 3 months. Maximum period of finance, 6 months. Maximum period to avail finance 12 months from the maturity of deposit. Every month (30 days) completed by the deposit shall be taken into account for calculation of entitlement of finance. Finance proposal processing fee Rs. 100/- (non-refundable) plus documentation cost on actual basis. In case of default/delay in repayment @ 0.055% per day (20.075% p.a._ to be placed in charity A/C. Formula for calculation of entitlement of finance. Same amount of finance for half the period of deposit or same period of finance for half the amount of deposit.
The Bank having a network of 755 branches all over Pakistan, undertakes to provide safe and instant payment of remittance from expatriates, routed through designated foreign exchange companies and correspondent banks with whom special arrangements have been made in this regard. Through the Allied Express Services, ABL ensures that beneficiaries’ Accounts in ABL branches are credited with in 48 hours of receiving home remittance information from overseas.
The Bank serves the intending pilgrims by helping them in performing this religious obligation. The Hajj forms and other related services are provided by the bank. However, the
terms and conditions for accepting the Hajj forms from intending pilgrims are in accordance with the Hajj Policy announced by the government, each year. Hajj applications are available with all branches during Hajj season, immediately after the Hajj policy is announced by the Government of Pakistan.
All branches of the Bank collect utility bills of electricity, gas and telephones. For convenience of the customers, Utility Bills are collected by the branches during banking hours and also in he evening banking on all working days. Bills can be paid through cash or checks. Consumers may drop bills with crossed checks into a drop box available at the branches under “Checks Drop-in” system.
Bank under Agricultural Financing Schemes envisaged by he State Bank of Pakistan extend short, medium and long term, farm and non-farm credits. The farm credits are extended for production (inputs) and development purposes. Non-farm credits are allowed for livestock (goats, sheep and cattle), poultry, factory including social forestry and fisheries (inland and marine excluding deep sea fishing).
Allied Bank Lockers are available in three different sizes Small, Medium and Large on a yearly fee. Locker holders need not have an account in the Bank. 4.1.11 customer.
Imp clients/customers through large number of authorized branches
where trained and motivated staff is available to handle the business on behalf of
Allied Bank Rupee Travelers Checks
Carrying cash to strange alien location can prove to be risky as a single incident can render one without monetary backup of any sort. Hence banks introduce traveler’s checks in order to protect against any contingency.
Running Finance is a short-term loan allowed by the bank for a period of one year. The running finance account can be operated and daily sale proceeds can be deposited into the account. The markup is recovered on the products of daily outstanding balance. The running finance is suitable for meeting day-to-day financial needs of the business. Cash Finance is allowed against pledge of goods. The delivery of goods is made against payment. Demand Finance is disbursed in lump sum or in accordance with the agreed disbursements schedule and it is repayable as per the agreed installments, which could be monthly,quarterly, biannual or annual.
Comments on Structure of ABL
Successful and profitable banking management depends on two principal factors. The manner in which the functions of banking, that is the acquiring of deposits, the investing or converting such deposits into earning assets, and the servicing of such deposits, are performed. The degree to which officers and employees contribute their talents to the progress and welfare of the bank in discharging duties and responsibilities.
The management hierarchy represents the different positions and designations in the hierarchy of the ABL. However, this is not the reporting hierarchy but merely represents the positions and grades on the basis of seniority and grades.
Senior Vice President
Vice President Senior Executive Vice President
Executive Vice President Regional General Manager
Managerxecutive Vice President
5.2 Functional Hierarchy Branch Manager
The functional hierarchy represents the reporting order in the hierarchy of ABL. The hierarchy has president and directors at top management level and officers Grade I, II and Grade III at the lower level management of ABL. The middle level management consists of regional general Manager and Regional Controller of Operations. These positions are not fixed. Any person in the hierarchy above the branch manager can be appointed as RGM and controller operations.
President and CEO
Board of Director
Head of Departments Regional General Manager Controllers of operation Branch Manager
Office G-I, II and other lower Staff
Structure of Head Office
Allied Bank of Pakistan Head Office is situated in Karachi having branches, regional functionality, money circulation, and their human resources and so on. ABL has its offices and corporate branches spreader all over the country. Head Office is an administrative office to manage all its branches and offices, to manage their policy making body/decision making bodies which are given as under: a. Board of Directors b. Executive Committee c. Divisional Head Offices and Provincial Headquarters The head office has nine divisions which are divided in to different wings. The Head Office is responsible for central affaires and delegation of powers / authority to the Regional Headquarters. (Annexure Attached)
Board of Directors
The Board of Directors (BOD) of ABL is comprises of President, 3 SEVPs, 1 Representative of PBC, 1 representative of GOP, and 1 for private sector so it comprises of 7 persons.
The executive committee consists of President and nine members and one of the members also perform the functions of Secretary of the committee. The executive committee nominates the divisional Heads. This body monitors day to day affaires of the Bank and is sanctioning authority of financial and business proposal.
The Bank has nine division which are working under SEVP, EVP and divisional chiefs. These nine divisions are: Management Support Audit and inspection Treasury Management Marketing and Development Credit Policy Management Overseas Banking Special Assets Management Bank Secretariat
To enhance and manage the performance of banking system, the administration also has divided the power of sanctioning finance and other credit facilities through provincial chiefs by province-wise. The provincial head quarters of these chiefs are situated in Lahore, Karachi, Quetta and Peshawar. The ABL has 29 regions in four provinces and Azad Kashmir.
Regional Management Committee
The management has designed the banking structure into regions and their sub-divisions. To manage these regions, a Regional Management Committee is allocated which consists of the following designations, looks after the affaires of the regions. • • • Business Chief Operational Chief Risk Management Chief
6 Organization Branch Structure
6.1 Structure of Balakot Branch.
In ABL Balakot branch Balakot was opened in 1997. “Mr. Shahid” SVP is the chief Manager and Mr. Asim is operation manager who is AVP. There are 10 employees in Bank. At present branch is providing services in all areas of banking. (Annexure-III shows this relation at end of reports.) There are six departments in Abbottabad Branch i.e. Credit department Accounts department Deposit department Remittances department Cash department IT department Credit and Accounts department directly comes under the supervision of chief manager the rest of department answerable to manager operation and manager operation responsible to chief manager. There is foreign exchange department which works under deposit department
6.2 Staff order of this Branch
The staff order of the branch is as follows: Branch Manager
Customer Service Manager
Branch Manager is a head within the branch. Under branch manager there are four main designations i.e. Offices Grade-I, Officers Grade-II, Customer Service Manager and HR Manager. Officers Grade-II & II are also divided into these departments like credit department, account department, remittances department, cash department and IT department having their proper designations while customer service manager is also under branch manager has to take the responsibility to handle and motivate customer. Teller works under customer service manager. HR manager is also works under branch manager having responsibility to hire contract employees within local community and also to handle and manage payroll system for branch employees. Messenger and teller also works under HR manager.
6.3 ABL Various Departmental Review:
Different departments of ABL are working which are given as under:
Current Saving Department
In ABL current saving department mainly deals with cheques, vouchers and advices. First of all a cheque holder have to present his/her cheque to the person responsible for issuing the tokens. . Then cheque is passed on to the computer operator to entry it in computer. Afterward it will go for signature verification after which it will be given to cashier for payment.
Computer Operations: In ABL the computer section have several duties that are as under. Daily Transactions: To record all the transactions in case of deposits made by the people and also to record all the withdrawals made by the people or customers. Each transaction has to be recorded in its appropriate head of account with the help of prescribed codes. Vouchers: To record all the vouchers made by the remittance department, Remittance department have to prepare debit and credit vouchers for about every transaction recorded in their department. Then these vouchers are sent to computer operator to record those in computer. Advices: To record all advices received from other branches. Most of the-inter branch or intra branch- remittances are subject to ultimate receipt of advices from the corresponding branch to materialize the transactions. These advices also have to be recorded in computer. Statements: To close the daily record a number of statements have to be printed out. Statements like: Day’s transactions (sequence) Overdrawn facilitated a/c statement Markup sheet Inter branch transactions Detail of PLS and Current a/c Day’s transactions (a/c wise) Operative, Dormant, Inoperative and Unclaimed a/c All ATM transactions Detail of GL entries (official & non customer transactions) Summary of all a/c (debits, credits & balances) Profit due, transferred, disbursed, etc.
Bank borrowing funds from outside parties is more important because the entire banking system is based on it. Receiving of deposits is a basic function of all commercial banks. Commercial banks do not receive these deposited for safekeeping purpose only. When the bank receives the amount of deposited as a depositor, it become the owner of it. The bank may therefore use these deposits, as it deems appropriate. But there is an implicit agreement that the amount owned by the bank will be paid back to the depositors on demand or after a specified period of time. The borrowed capital of the bank is than the bank own capital. Bank’s borrowing is mostly in the form of deposits. These deposits are lend-out to different parties. Larger the difference between the rate at which these deposits are borrowed and the rate at which they lend-out the greater will be the profit margin of the bank. Larger the funds lend-out the greater will be the return earned on them and greater the amount of return on these deposits earned greater will be the profit for the bank. It is because of this interrelated relationship. Deposits are referred to as the “life blood small” for any banking sector. Kinds of Account: There are numbers of account that ABL offers to its customer keeping in mind their needs and dealing. Saving Bank & PL Account: In Pakistan the saving Bank accounts are know as profit and profit and loss sharing accounts (PLS A/C) fowling the illumination of bank. The owners of such account are not allowed to withdraw money more than once are twice a week. In case of withdrawal of large sum, the depositor is required to give to prior notices a week or two. Thus the bankers are not required is always available to bank for giving to loans to their customers. Thus these deposits also serves as source of credit certain by the commercial banks. The rate or profit on this type of account varies from time to time. All the commercial banks declare the rate of profit every year that is paid on these accounts on the basis of their monthly credit balance. The bank will determine the proportion of profit & its decision will be final. Profit will be determined on daily product basis while it will be paid on monthly basis & will be paid on the minimum balance between the first day & last day of the month. Zakat will be deducted on the exceeding amount as exempted from the Zakat deduction. Taxes will be imposed according to the rules & regulation. In Pakistan post offices &
national saving centers also maintain this savings bank account to encourage saving habits among the people. At the time of opening this account, a minimum amount of Rs.500 is to be deposited. Subsequently the account is opened & account number is located. The depositor is given a cheque book. The depositors who are wishing to close his account are required to present his cheques to the bank in order to draw the credit balance and to close the account. This type of account you can open joint account also which can be operated by anyone. Current Account: There is no limit of withdraw of money from these accounts. In practice the bankers do not allow any profit to such deposits in Pakistan. The customers are required maintaining the minimum credit balance in their account in case of failing incidental charges are recovered from defaulters. This is because the depositors may withdraw current deposits at any time and as such the bank is not entirely free to employ such deposits. In general, the bank allows the overdraft facilities to current account holders & the prevailing rate of markup is charged from these customers. In ABL the minimum amount required to open the current account is Rs. 500. No profit is paid to account beside this that the account holder has the facility to taking s much money as he wants. Individual account is opened in the name of the single personal one person on whose name it is opened only conduct it. While two opens joint account and partnership account are more person and the bank fallow their instructions for the conduct of the account. Similarly limited companies can also open their current account. Fixed Deposit Account/Term Deposits: These deposits are also called as time deposits because these deposits are based on the fixed duration. The period for which these deposits are kept with bank are ranged from seven days to ten years in light of the agreement between the customer and the banker. The profit allowed on these account depend on the duration longer the duration of the deposits the higher will be the rate of profit. The operation of fixed account is different from saving & current accounts. Every time money is deposited with the bank an application from filled and the bank issue a fixed deposit receipt for amount deposited along with specific period. Fixed deposit receipt is given to the depositor and the bank retains the counterfoil of the same receipt. Fixed term deposits may be in the joint names of two or more person. The payment to one of those people will not discharge by the bank without the authority of others.
Opening and operation of bank account: As discuss earlier there is a prescribed procedure for opening different types of account. Following steps re followed while opening a new account. Application from for Opening of Accounting: A person who wishes to open a bank account is required to complete this from the personal information is to be furnished. The application signs the declaration to and regulation of the bank. Introduction: As required by the banking law the new customer needs to be introduced by the account holder of the same branch where the account is being opened. The manager or any other bank officer may introduce the new customer if they know them personally. Signature card: At the time of opening an account a specimen signature card containing two signature of the customer is required which the manager of the branch attaches with application form. During the operation of account the signature is verified when the cheque is presented for payment. Cheque Book: After completing formalities for opening saving and current a cheque book s issued to the customer for withdrawing cash from his or her account at the time of need. The cheque contains minimum 25 pages & maximum 100 pages. The bank also charges excise duty on cheque book. effect that he has understood the rules
Lending Principles: The basis function of the bank is to accept deposit and lend money to the borrowers against a spread so to be able to give some profit to the depositors as well as to earn profit for the bank. While lending the money to the borrowers the bank should observe the following lending principals: Safety Principle: It means that the landed money will come back along with interest or service charges etc. The borrower should not invest the money borrowed in unproductive or speculative business. Liquidity Principle: The money which has been landed to the borrower should be returned to the bank on demand or as per repayment schedule provided by the client. The sources of repayment should be clear and definite Purpose Principle: The purpose of the advances should be legitimate and productive. It should be ensured that the banks, funds are not being utilized for speculative business. The credit restrictions by the central bank should not be violated & it should also be ensured. It is always beneficial for the bank to finance for short-term requirements. Profitability Principle: The end result of every business activity should be to earn some profit. Similarly the bank must get some profit out of the activity of lending so that the depositors could get their shares as well as the shareholders could earn something for their investments.. Security Principle: The proposal should be dealt on its merit not on security. The security should be considered a safety for the bank only in case of unexpected emergencies. All the relevant documents of securities must be obtained & got valuation of the property or any other security should be assessed correctly. Spreading of Risk Principle: It is always safe for the bank to spread the risk in large number of borrowers instead of loaning huge amount to few big shots, it is better to obtain different types of securities instead of concentrating on one security.. National Interest and Suitability Principle: It is our moral as well as legal obligation to ensure that no loaning is running counter to national interest. It is also our duty to ensure that our lending policies are not against the social conditions or bindings
The main function of the credit department is to lend money to the customer. Allied Bank Ltd. Lends money in the form of clean advances against promissory notes as well as secured advances against tangible and marketable securities. Beside these ABL also lend money against life policies and immovable property. Lien: Lien is the bank right to with hold property until the claim on the property is paid. The bank looks at their lien as a protection against loss or overdraft or any other credit facility. In ordinary lien the borrower remains the owner of the property, but the actual or constructive possession remains with the creditor or bank though the borrower has no right to sell it. By Cash Credit: In this the bank lends money to the borrower against tangible security. The total amount of the loan is not paid in one installment. The borrower has to pay markup on the amount borrowed. Cash credit is favorite loan for large commercial & industrial concern. By Overdraft: This the most common type of bank lending. When a borrower requires temporary accommodation, ABL allows its customer to withdraw an excess of the balance form their account which the borrowing customers have in credit and thus called overdraft. This facility is given to regular reliable & well established customer. When it is against collateral securities, it is called “Secured Overdraft” & when borrowing customer can not offer any collateral security except his personal security then the accommodation is called “Clean Overdraft”. Short Term Finance: Allied Bank Ltd. receives the saving of the people and lends it for short term to its customers. Short-term finance is generally given for a period of one year or less in durationdium Term Finance. The duration range of the intermediate term finance is from one year to three years. It is also called term loan. Intermediate term finance is usually given for the expansion of an existing business or for the purchase of new equipments. Long Term Finance: This type of finance is required for the period of more than five years. Long term finance is generally given for the compilation of big projects, for the construction of building and for the purchase of machineries.
Producer of Applying for Loan: Any customer who applies for loan should have an account (usually current account) with ABL branch concerned. That account must be in running position. When approval from head office is given, branch gives tern & condition to the party. Bank does not advance 100% loan against a security, rather the profit margin is different in different type of loan.
Another important department in ABL Khyber Bazar Branch is Remittances Department. The remittances department transfers the funds from one bank to other bank and from one place to another place. In remittances department the collection take place. The ABL made payment of only open cheques on the counter and prohibits the payment of crossed cheques. ABL transfers money from one place to another by the following means: Mail Transfer: When a customer requests the bank to transfer his money from this
bank to any other bank or the branch of some other bank, the first thing he has to do is to fill an application form. In which he states that he/she wants to transfer the money from this bank to that bank by mail. If the customer is the account holder of the bank, operating personal will proceed further with steps like: Writing a debit voucher for a/c holder’s a/c Preparing an advice in favor of stated bank/branch Writing credit voucher for GL Mail the advice If the customer is not the account holder of this bank, then firstly, he has to deposit the money and than above procedure will be adopted to transfer his money.
With the changing requirements of the customer, ABL has
introduced the fastest transfer of money. The sender is required to apply through a form in which he will give all the necessary details about the sender and beneficiary. The sender deposits the money to be transferred plus bank charges at the bank counter. The remittances officials send a telegram to concerned branch with specified code words and the receiving branch makes payment to the beneficiary. Vouchers are sent by ordinary mail to keep the record. On TT, no excise duty is charged only commission and telegram charges are charged. Pay Order: Pay order is the most convenient simple and secure way of transfer of money. It is issued by, drawn upon and payable by the same branch of the bank. It is neither transferable nor negotiable and as such it is payable to the payee named there in. The following are the parties to a pay order. Purchaser is a person, firm, company or local authority. Issuing/paying branch is one which issues/pays on presentation. Payee is a person named there in.
Demand Draft: Demand Draft is another way of transfer of money from one bank to another bank. Unlike pay order, a form is required to be filled for the issuance of the demand draft in which necessary particulars about the beneficiary and sender are given. The sender deposits the amount of DD plus commission and other charges on the bank counter, from where he is given a receipt and in accordance with this receipt he is issued The following are the main essential of draft: It is a Negotiable Instrument. Filling a form and depositing the amount written on it prepare 2} Draft. It is a written order to its branches or to another bank to pay the stated amount on draft.
This is the most important and critical department in a Bank. There are two basic functions performed by the cash department. These are
Receipts: An individual who has account in the Bank can deposit money in his account. For deposit of the money the individual has to fill the deposit slip in which the account holder writes his name, Account number, amount of the money both in figures and in words. After filling the deposit slip the Cash amount along with the deposit slip is submitted with the cashier. The cashier collects the cash and counts it and after verification the cashier stamps the deposit slip. One part of the deposit slip is given back to the customer and the other part of the deposit slip remains with the bank for the record purposes. The cashier also record the deposits made by the customers in credit sheets daily. The deposits of all customers of the bank are controlled by mean of ledger account. Every customer has its own ledger account and has separate ledger cards in which his / her total record is kept. Bill collection is also one of the main functions of bank. Cashier has to prepare a list of bills’ serial number, a copy of which is to be sent to the corresponding organization. Payments: The procedure of clearance of a cheque or payments is as following. First of all the customer presents his cheque to the cashier The cashier records the account number and the amount, which is to be drawn. Then the cashier check the cheque number in the computer for the verification whether the account holder has such amount in his account which he is demanding or not. If the computer passes the cheque, the Passing officer signs the cheque and sent it to the cash counter then cashier pays the written amount to the customer and then in the end cashier records the amount paid in computer.
Foreign Currency Department
Like Pak rupees account the foreign currency has many accounts like Saving account Current account Term deposit account.
The bank deal in three type of foreign currency account Dollar, Euro & Pound The account is open with 1000 dollar if it is less 5-dollar per month is deducted. For opening the account NIC & introduction is required of the same bank. If any person wants to import
goods from foreign, an account is required and for international trading the FC is needed. ABL provide foreign currency on Pak rupee at booking rate and the central office sent Rates In foreign currency department the remittance is sent through Foreign Telegraphic Transfer. The account holder can sent the amount in foreign bank account. If any transaction is made the daily report is given to the central office Karachi daily. Different accounts can b open like joint account or company account. The thankful letter is sent for opening the foreign currency account to account holder and introducer. When any transaction is made the bank inform stock exchange daily. The foreign currency note is counted and recorded in the cash memo book. The people in the foreign country sent the amount through S.W.I.F.T. Weekly and monthly report of all the transaction is given to the stock exchange. Cheque book is also issued to the account holder & the foreign currency Account number is given to him. In this FBC & FBR is done. Debit Credit Voucher is used. The charges are deducted while closing the foreign currency account. And the cheque book is return while closing the account. The branch sent excess foreign currency to its main branch. If any branch needs foreign exchange they sent to this branch.
In clearing process, if the account holder of ABL receives the cheque of other bank like City Bank, Habib Bank Limited etc, and he submits it in ABL branch to be cashed. At the same time the clearing process starts. First the bank name. Cheque number and the amount are written in the register. After this three kind of stamps are required first bank name stamp, secondly clearing stamp of next date and If the cheque is not local then the inter city clearing stamp is required. Some cheques are local and some are outstation. The institution N.I.F.T. provides the services in clearing the cheque. They send the different cheque to different banks. The N.I.F.T service is only in few cities, like Karachi, Lahore, Rawalpindi. The cheque of inter city is send through N.I.F.T. And where, the N.I.F.T service is not available so the cheque is sent through T.C.S.
The clearance of cheque is informed through advice. Some cheque is not passed so they should return so Rs. 100 is deducted and if the cheque is inter city then the postage charges is deducted. For this purpose the Debit & Credit voucher is used. When the cheque is cleared the today stamp is required. Some cheque is drawn on ABL. This is called outward clearing. These cheques will be entered in the outward clearing register. And the advice is sent for the clearance of cheques. The account holder account is credited.
Out Ward Bill for collection: OBC means the cheque of other banks. When they sent OBC the OBC is credit & OBR is debited and the advice is made on that time, one copy is remain in the bank and the other copy is sent to the related branch. When they realized the opposite entry is made. It is entered in the OBC register. The income A\c commission is credited, and postage
FINANCE & ACCOUNT DEPARTMENT
Structure of ABL Finance & Account Division:
ESVP heads finance division. This ESVP is also DH (Divisional Head) of this department. This division is responsible for keeping the records of all the transaction of different branches. There are 15 people working in this department for all branches of Allied bank and the final authority in this department is ESVP. Finance division is further divided into subdivision, which are Budget and Finance & DRC. The Finance Division (FND) is the hub of all financial information for maintaining statutory accounts and measuring the performance of the Bank. While ensuring overall financial management, financial control, financial reporting and accounting function, FND is responsible for maintaining the account records and systems in accordance with internal policies, regulatory requirements, corporate governance and international accounting standards. It also establishes policies and procedures relating to finance function, monitors returns / spreads and reports on various performance indicators including asset / liability mismatch.
6.4 Finance & Account Operations:
The Bank’s management is responsible to establish and maintain an adequate and effective system of internal controls and procedures. The management is also responsible for evaluating the effectiveness of the bank’s internal control system that Covers material matters by identifying control objective and reviewing significant policies and procedures. The scope of Audit and Credit Risk Review Group (A & CRRG), independent from line management, inter-alia includes, review and assessment of the adequacy and effectiveness of the control activities across the bank as well as to ensure implementation of and compliance with all the prescribed policies and procedures. All
significant and material findings of the internal audit reviews are reported to the Audit Committee of the Board of Directors. Note: Structure and Functions of the Finance Department
The Audit Committee actively monitors implementations to ensure that identified risks are mitigated to safeguard the interest of the bank. The Internal Controls Division under the ambit of Operations Group is entrusted with the responsibility of expediting rectification of irregularities and control lapses in branches’ operations and various controlling offices pointed out through audit reviews. Vigorous efforts are made by Operations Group to improve the Control Environment at grass root level by continuous review & streamlining of procedures to prevent & rectify control lapses as well as imparting training at various levels. The Compliance Group, through its regional offices, ensures adherence to the regulatory requirements and bank’s internal policies and procedures, with specific emphasis on KYC/AML. The Bank’s internal control system has been designed to provide reasonable assurance to the Bank’s management and Board of Directors. All Internal Control Systems, no matter how well designed, have inherent limitations that they may not entirely eliminate misstatements. Also projections of evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may eteriorate. However, control activities are ongoing process that includes identification, evaluation and management of significant risks faced by the Bank. Recognizing it to be an ongoing process, the management of Allied Bank is in the process of adopting an internationally accepted COSO (Internal Control – Integrated) Framework with the assistance of a reputable advisory firm in accordance with SBP Guidelines on Internal Controls. The bank has already completed the detailed documentation of the existing processes and controls, together with a comprehensive gap analysis of the control design. The bank has addressed some of the major gaps identified during the exercise and is at an advanced stage of developing and implementing remediation plans for the remaining gaps. In addition, comprehensive management testing plans and framework are being developed for ensuring on-going operating effectiveness of key controls.
Allied Bank expects the complete various stages of its Internal Control Program and achieve external auditors’ certification on internal controls over financial reporting in 2010. The Board of Directors being ultimately responsible for the internal control system endorses the management evaluation and efforts to adopt above mentioned internationally accepted standards in improving controls and processes to ensure better risk mitigation.
6.5 The Role of Financial Mangers:
Almost every firm, government agency, and other type of organization have one or more financial managers. Financial managers oversee the preparation of financial reports, direct investment activities, and implement cash management strategies. Managers also develop strategies and implement the long-term goals of their organization. Work environment in Allied bank for financial manager: Working in comfortable offices, often close to top managers and to departments that develop the financial data those managers need, financial managers typically have direct access to state-of-the-art computer systems and information services. They commonly work long hours, often up to 50 or 60 per week. Financial managers generally are required to attend meetings of financial and economic associations and may travel to visit subsidiary firms or to meet customers. Financial managers of the bank play an increasingly important role in mergers and consolidations and in global expansion and related financing. The financial manager of the bank has specialized knowledge to reduce risks and maximize profit. ABL bank financial managers advise senior managers financial and other matters. The role of the financial manager, particularly in the bank, is changing in response to technological advances that have significantly reduced the amount of time it takes to produce financial reports. The CFO of the bank work on teams, acting as business advisors to top management. The team of CFO of the bank is will equipped with the latest computer technology to increase the efficiency of the bank financial operations. The CFO of the bank monitor and control the flow of cash receipts and disbursements to meet the business and investment needs of the bank. The example is cash flow projections
are needed to determine whether loans must be obtained to meet cash requirements or whether surplus cash should be invested in interest-bearing instruments. The CFO of the bank also responsible of Risk and insurance programs to minimize risks and losses that might arise from financial transactions and business operations. They also manage the organization’s budget. The other function of the bank CFO such as lending, trusts, mortgages, and investments, or programs, including sales, operations, or electronic financial services. He also establishes relationships with other financial institutions in terms of accounts, cash management and credit management to get new market for the bank and to attract business.
6.6 Use of Electronics data in decision making:
The Electronic Technology Division (ETD) is responsible for managing the Bank's technology needs. This includes not just establishing and maintaining technology infrastructure for providing operational support to all units of the Bank, but also encompass introducing latest state-of-the-art technology-driven products and service delivery systems. In an age of ever increasing competitive pressures, technology support impacts service delivery standards and customer satisfaction levels. The value addition from this area has made a significant contribution towards successfully expanding and managing the customer base of the Bank. The ABL has a countrywide communications network utilizing Satellite, Radio and Leased Line links. Through it, the Local Area Network (LAN) in each branch is connected with the Wide Area Network (WAN) of the Bank. This has provided the Bank with on-line country wide ATM / Inter-branch transaction capability. The Bank, along with a foreign partner Bank, is the original co-founder of the first inter-Bank ATM switch in Pakistan, which is now known as "One-Link". During the year, a large number of new technology initiatives were successfully implemented. The every new branch opened during the year was operational with on-line Banking from day one. This included the ABL bank Offshore Banking Unit in Bahrain, ( which was linked to the Head Office and the Treasury via a Virtual Private Network (VPN). The Bank's existing systems were also updated. The list covers a wide range from upgrading the SWIFT connectivity of the Bank; to enhancing an Oracle based Human Resource
Management Information System. New initiatives include developing an Oracle based application for State Bank of Pakistan reporting, Electronic Bills Payment System via the Bank's ATM network and the Internet. The technology area has ambitious plans for the future. The list includes Call Centers, Data Mining and Warehousing Project, and enhancement of the ATM network to the international CIRRUS network standards. The range of utility bills presently payable via the Internet and the ATM network is to be increased, subject to agreements with the utility companies. In addition to the above, the Bank will focus on improving customer service standards and products range by focusing on new and emerging e-commerce and internet related technologies. ABL has an Electronic Technology System at Head Office Rawalpindi. This system provides services to the individual-to-individual Accounts Holders, information required by upper Management / State Bank & Government Departments. The Electronic Technology System provide following services: Online Banking Internet Banking Auto Teller Machine (ATM) Phone Banking Balance Transfer facility Online Availability Of Different Application Form Technology has played a pivotal role in meeting customer expectations, particularly with respect to speed and quality of service. ABL has fully automated transitive processing systems for back-office support. Its branch network is connected online real time and its customers have access to off site as well as on site ATMs, all over Pakistan. Its phone Banking services and Internet Banking facility allows customers to enjoy routine-Banking services from any here any time in the world.
Mobilization of funds in ABL:
The basic function of bank is accepting deposit and lending advances and the difference is the bank profit. For lending advances bank need money and this money comes from customer through deposit. So main source of funds in bank is deposit and same with Allied bank for mobilization of funds Allied bank top management make policies in the guidelines of SBP policy. The Allied bank top management, expert management and CFO do lot of working before introducing any scheme once they work on that scheme and take final decision than they launch that scheme. In Allied bank following schemes are used for mobilization of fund. Through which Allied bank raise fund. 1: Current Account. 2: Saving Account. 3: Term & fixed Deposit Account. (Rs. In Million) YEAR Fixed Deposits Saving Deposits Current Accounts Other Deposits Total Deposits 2005 6,762 42,241 11,406 66 163,140 2006 13,275 49,911 18,463 97, 81,748 2007 37,999 57,854 20,089 125 116,068 2008 40,349 64,698 23,925 290 129,264 2009 29,997 81,605 28,465 415 140,484
www.abl.com.pk Fixed Deposits are continuously increasing from 2005 to 2008 while in 2009 it is decreasing. Saving deposits are increasing from 2005 to 2009 as well as current assets are increasing. The major change is in other deposits i.e. in 2005 these are 66,550, in 2006 these are at 97,829 have a continuous increase up till 2009 i.e. 415,904 a great change.
Generation of funds in ABL
Financial institution works for profit and specially commercial bank the primary objective is profit. And Allied bank also works for profit and this profit mostly comes from markup income and non markup income. Markup income means the difference between interests paid to depositors and receives interest from loan. And non markup income means the income receives by giving different types of services to customers receive commission on the services.
Allied bank also generates funds through loaning / Investment & Commission / Exchange. Allied bank also invests in stock exchange and earns dividend this dividend income also the generation of funds of Allied bank. Allied bank also generate fund by dealing in foreign currencies.
(In Million) S.# Generation of Fund 1 2 3 4 5 Net Mark-up / Interest Income Fee Commission & Brokerage Income Dividend Income Income from dealing in foreign currencies Other income Total Income 200 5 407 3 524 37 112 278 502 7 200 6 448 7 708 26 180 177 558 1 2007 8780 838 51 356 206 1023 3 2008 1259 6 1013 109 5844 321 1462 6
2009 1514 3 1072 137 655 336 1734
Sources of Fund in ABL:
1. Paid up capital, the reserve fund. 2. Deposits 3. Borrowing from non-deposit sources.
The sources by which Allied bank get fund are following.
All these sources are very important sources and through this bank have generated lot of fund. And through this Allied bank balance sheet figure goes up and these funds are used for advances and for investment purpose. These are main sources besides these main sources, Allied bank also gives different services to its clients which are in the shape of advances and also bank help them in there business in return of these loans bank gets interest and its commission which is also the source of funds. Allied bank make very strong policy in raising fund that’s why every year the figure of these funds increase upward. (In Million)
S.# 01 02 03
YEAR Reserve Fund Deposits Borrowings
2005 2759 61656 15903
2006 4317 83318 13781
2007 5862 118794 10562
2008 5814 131839 14964
2009 6948 143036 17553
The bank has main three sources of funds: In 2005 reserve funds are 2759 which is increased to 6948 in 2009 which shows the growth of bank. In 2005 deposits are 61656 which is also in increasing up till 2009 i.e. 143036 and also the borrowings are 15903 in 2005 increasing continuously to 2009 i.e. 17553.
S.# 01 02 03 04 05 06
Allocation of Funds in ABL:
SECTOR Cash & balances with treasury Bank Balance with others Bank Lending to financial institutions Investment Advances Fixed assets 2005 6678 2650 5770 22104 44777 1979 2006 8762 4847 2324 17239 69838 2595 2007 11766 5550 10172 25708 85976 3192 2008 14879 7333 8392 28625 99179 3810 2009 13356 3497 14444 39431 100780 5128
Bank accept deposit and on these deposit bank gives interest for this interest and for his own profit bank allocate these fund in different sector. The main allocation of fund in Allied bank is lending advances from these bank earn interest income through which he pays to depositor and remaining difference is bank profit. Beside this bank also invest in other businesses but in the guideline of state bank. Allied bank always invests in safe investment due to which risk of loss is minimized. In Pakistan all the financial institution works under the guideline of state bank same with Allied bank that strictly follows the policies and restrictions of state bank of Pakistan. State bank of Pakistan has check and balance on banks that they not invest fund of depositor in risky investment. Due to these policies every bank maintain 8% of CRR (cash required return) with state bank of Pakistan which now 6% due to liquidity. Throw
which depositor has trust on banks. Allied bank also maintains 6% CRR with state bank of total demand/time liability which help them in case of emergency.
Critical Analysis of Theoretical Concepts
Financial statements (or financial reports) are formal records of a business' financial activities. These statements provide an overview of a business' profitability and financial condition in both short and long term. There are four basic financial statements:
1. Balance Sheet - Also referred to as statement of financial condition, reports on a company's
assets, liabilities and net equity as of a given point in time.
2. Income Statement - Also referred to as Profit or loss statement, reports on a company's
results of operations over a period of time.
3. Cash Flow Statement - Reports on a company's cash flow activities, particularly its
operating, investing and financing activities.
4. Statement of Stockholder's Equity - Reconciles the difference between net equity at two
different points in time. Financial statements provide information of value to company officials as well as to various outsiders, such as investors and lenders of funds. Publicly owned companies are required to periodically publish general-purpose financial statements that include a balance sheet, an income statement, and a statement of cash flows. Some companies also issue a statement of stockholders' equity and a statement of comprehensive income, which provide additional detail on changes in the equity section of the balance sheet. Financial statements issued for external distribution are prepared according to generally accepted accounting principles (GAAP), which are the guidelines for the content and format of the statements. In the United States, the Securities and Exchange Commission (SEC) has the legal responsibility for establishing the content of financial statements, but it generally defers to an
independent body, the Financial Accounting Standards Board (FASB), to determine and promote accepted principles. Users of Financial Statements Financial statements are used by both internal and external users. 1. Internal Users: Are owners, managers, employees and other parties who are directly connected with a company. Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's report to its stockholders, as it form part of its Annual Report. Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings. 2. External Users: Are potential investors, Banks, government agencies and other parties who are outside the business but need financial information about the business for a diverse number of reasons. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analysis are often used by investors and is prepared by professionals (Financial Analysts), thus providing them with the basis in making investment decisions. Financial institutions (Banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a long-term Bank loan or debentures) to finance expansion and other significant expenditures. Balance Sheet A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's
financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.
How the Balance Sheet Works The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is: Assets = liabilities + shareholders' equity This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings. Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business. It is important to note, that a balance sheet is a snapshot of the company’s financial position at a single point in time. It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity). The balance sheet is one of the most important pieces of financial information issued by a company. It is a snapshot of what a company owns and owes at that point in time. The income statement, on the other hand, shows how much revenue and profit a company has generated over a certain period. Neither statement is better than the other - rather, the financial statements are built to be used together to present a complete picture of a company's finances.
Financial statement analysis is the principal mean of reporting the financial condition and the result of operations of an organization, or in other words we can say that financial analysis are carried out for the purpose of identifying the financial strengths and weaknesses of an organization by properly establishing the relationship between the balance sheet and income statement items. This analysis helps many parties in making decision who are interested in business activities. To improve the quality of decision making, proper analysis of these statements helps a lot. The firm itself and outsider providers of capital, creditors and investors all undertake financial statement analysis. The type of analysis varies according to the specific interests of the party involved. For example, suppliers are interested in liquidity of the firm. There claims are short term, and the ability of the firm to pay these quickly is best judged by an analysis of the firm’s liquidity. The claims of the bondholders, on other hand, are long term. So bond holders are more interested in cash-flow ability of the firm. Investors are commonly concerned with present and future earnings. As a result, investors usually focus on analyzing profitability. They would also be concerned with the firm’s financial conditions insofar as it affects the ability of the firm to pay dividend and avoid bankruptcy. Management also analyzes financial analysis for the purpose of internal control and to check the performance of the firm. Similarly government agencies analyze financial data for the tax purpose.
Allied Bank Limited Balance Sheet From 2005 to 2009
Cash & balances with treasury Banks Balances with other Banks Lending’s to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets
6,678,026 2,650,166 5,770,842 22,104,425 44,777,538 1,979,919 1,425,986 85,386,902
2006 2007 2008 Rupees in thousands
8,762,866 4,847,899 2,324,839 17,239,156 69,838,392 2,595,023 1,459,716 107,167,540 1,227,093 13,781,555 83,318,795 1,000,000 14,159 526,866 1,282,980 101,151,448 6,016,092 1,255,848 4,317,301 5,573,149 442,944 6,016,093 11,766,925 5,550,148 10,172,242 25,708,194 85,976,895 3,192,862 2,732,641 145,099,907 1,315,680 10,562,338 118,794,690 2,999,700 1,459 567,217 2,271,393 136,512,477 8,587,430 1,507,018 5,862,074 7,369,092 1,218,338 8,587,430 14,879,230 7,333,002 8,392,950 8,625,915 99,179,372 3,810,331 3,812,788 166,033,588 1,839,077 14,964,087 131,839,283 2,998,500 736,298 2,603,113 154,980,358 11,053,230 2,004,333 5,814,754 1,799,979 9,619,066 1,434,164 11,053,230
13,356,055 3,497,054 1,444,143 39,431,005 100,780,162 5,128,428 5,535,038 182,171,885 2,627,051 17,553,525 143,036,707 2,997,300 471,519 3,219,796 169,905,898 12,265,987 3,006,499 6,948,336 2,144,810 12,099,645 166,342 12,265,987
Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities
973,703 15,903,055 61,656,607 37,350 806,753 962,592 80,340,060 5,046,842 1,141,680 2,759,599 3,901,279 1,145,563 5,046,842
NET ASSETS Share capital Reserves Un-appropriated profit Surplus on revaluation (Net to Tax)
Allied Bank Limited Profit & Loss From 2005-2009
www.abl.com.pk 2005 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision(Non-performing loans & Advances) (Reversal) / provision for impairment in the value of investments Bad debts written off directly Net mark-up / interest income after provisions Non mark-up / interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of investments Other income Total non-markup / interest income Non mark-up / interest expenses Administrative expenses Other charges Total non-markup / interest expenses Profit before taxation Taxation – current – prior years' – Deferred Profit after taxation Un-Appropriated profit brought forward Profit available for appropriation Appropriations: Statutory reserve Capital reserves (reserve for issue of bonus shares) Revenue reserves Proposed cash dividend 1,436,304 1227 1437531 1901800 1901800 873,639 – -74,904 798735 1103065 1103065 220,613 114,168 539,948 228,336 1,103,065 1,845,179 138 1,845,317 2,842,740 2,842,740 876,089 – 43,611 919,700 1,923,040 – 1,923,040 384,608 251,170 1,036,092 251,170 1,923,040 2,591,985 1,832 2,593,817 2,859,081 2,859,081 828,774 -188,247 196,558 837,085 2,021,996 – 2,021,996 404,399 497,315 894,229 226,053 2,021,996 3277353 6141 3283494 3346855 3346855 983875 113006 1096881 2249974 1617597 3867571 4789536 12051 4801587 2299785 2299785 98535 -233950 -245812 -381227 2681012 1799979 4480991 4,073,715 1,379,609 2,694,106 308,528 – – 308,528 2,385,578 524,775 37,658 112,808 278,512 953,753 3,339,331 2006 4,487,206 1,117,206 3,370,000 277,398 38,066 7 315,471 3,054,529 708,377 26,318 180,992 540,193 177,648 1,633,528 4,688,057 2007 8,780,698 4,278,374 4,502,324 638,547 -36,555 601,992 3,900,332 838,561 51,143 356,218 99,825 206,819 1,552,566 5,452,898 2008 12596921 6977313 5619608 1128137 376 1128513 4491095 1013660 109326 584344 112474 321758 2139254 6630349 2009 15143241 8685624 6457617 3920240 1501 3921741 2535876 1072868 137079 655761 2361251 336809 4565496 7101372
With a greater understanding of the balance sheet and how it is constructed, it can be
looked now at some techniques used to analyze the information contained within the balance sheet. The main way this is done is through financial ratio analysis. Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance sheet, using financial ratios (like the debt-to-equity ratio) can show a better idea of the company’s financial condition along with its operational efficiency. It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement. The main types of ratios that use information from the balance sheet are financial strength ratios and activity ratios. Financial strength ratios, such as the working capital and debt-to-equity ratios, provide information on how well the company can meet its obligations and how they are leveraged. This can give investors an idea of how financially stable the company is and how the company finances itself. Activity ratios focus mainly on current accounts to show how well the company manages its operating cycle (which include receivables, inventory and payables). These ratios can provide insight into the operational efficiency of the company.
7.3.1 Current Ratio
This ratio indicates the business liquidity position over specific period of time. It measures ability to meet current debts with current assets. It is calculated as. Current Ratio = Current Assets / Current Liabilities C. Assets C. Liabilities Current Ratio 2005 15,099,034 16,876,758 0.89 2006 15,935,604 15,008,648 1.06 2007 27,489,315 11,878,018 2.31 2008 30,605,183 14,964,087 2.05 2009 31,297,252 20,180,576 1.55
As we see the current ration of Allied bank we increase every year from 2005 to 2008 but if we see 2009 in that year downward tread current ration decrease from 2.05 in 2008 to 1.55 in 2009. in 2003 the current ratio is 0.89 which increase in 2006 to 1.06 due to decrease in current liabilities although current assets decreases in 2006 but current liabilities decrease
more than current liabilities the reason of decrease in current assets is due to decrease in lending to financial institutions also in this year bank made less investment compare to last year. In 2008 bank also borrow less compare to last year. In 2009 current ration increase very high compare to other years. The reason is same that in this year current assets increase very much and current liabilities decrease very much compare to last year. This is due to the same reason of last year. In 2007 again current ration increase which is good sign for Allied bank. But in 2009 it decrease due to liquidity problem and this year Allied bank clear its bill which are due on him. ABL has maintained and constructed funds to settled short debts and is in sound position.
2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009
Last five year financial statements of ABL
7.3.2 Leverage Ratio
Financial leverage is the extent to which a company is financed with debt. The amount of debt a company uses has both positive and negative effects. The more the debt, the more the company will have trouble in meeting in its obligations. Thus the more debt, the higher is the profitability of financial distress and bankruptcy. On the other hand debt is the major source of financing and banking industry typically uses the higher percentage of debt. Debt financing provides significant tax advantage and its transaction costs are low than that of equity. Leverage ratios measure the amount of financial leverage. Commonly used leverage ratios are debt to ratio, and debt to equity ratio. Financial leverage is concerned with the proportion of debts to its equity. Higher the leverage, higher the profitability as with the increase in leverage the financial risk increases.
7.3.3 Debt Ratio
This ratio shows the percentage of debt to the total assets. It also indicates the proportion of rights of the outsiders on the assets of the business. Debt Ratio Total Debts Total Assets Debt Ratio = Total Debts / Total Assets 2,005 80,340,060 85,386,902 0.94 2,006 101,151,448 107,167,540 0.94 2,007 136,512,477 145,099,907 0.94 2,008 154,980,358 166,033,588 0.93 2,009 169,905,898 182,171,885 0.93
The debt ratio of Allied bank is very constant through out the last 5 years only little bit change in last 2 years compare to 2005, 2006 and 2007. this ration exhibit that slight increase in 2006 with gradual decrease over the next few years up to 2009, balance sheet indicates that substantially less than 95% of the organizations assets were financed by out side which has shown gradual decrease in 2007,2008,2009 from 94.08% in 2007 to 93.27% in 2009.
0.942 0.94 0.938 0.936 0.934 0.932 0.93 0.928 0.926 0.924 2005 2006 2007 2008 2009
7.3.4 Debt to Total Capitalization Ratio
It is the ratio which is also used to measure the financial leverage or risk of any business. It shows a proportion or percentage of business total debts to its shareholders funds.
Debt to Equity Ratio =
Total Debts / Share holders Equity + debt 2005 2006 2007 2008 2009
Total Debts Equity(D+E) Debt to Equity Ratio
80,340,06 0 3,901,279 20.59
101,151,44 8 5,573,149 18.15
136,512,47 7 7,369,092 18.53
154,980,35 8 9,619,066 16.11
169,905,898 12,099,645 14.04
The debt to equity ration shows Conservative approach to debt/equity ratio indicates smaller amount of funds came from shareholders equity than outsiders provided comparison between the year’s shows that the ratio has considerably decreased which shows credibility of the organization and stakeholders’ protection. In 2005 debt to equity ratio is 20.59 which decrease in 2006 to 18.15 in 2006 again rise due to increase in total debt in this year bank total deposit increase very much due to change in rate before this bank pays less interest rate but due to rate change in market Allied bank also change it and attract more customer. In 2008 this ration goes down and same trend in 2009 the reason is stakeholders investment in bank.
25 20 15 10 5 0 2005 2006 2007 2008 2009
INTEREST COVERAGE RATIO
Any business may measure its ability to pay interest out of its annual profit interest and taxes in number of times with the help of interest coverage ratio. If the ratio’s trend shows increasing trend, then definitely the business ability to pay interest enhances.
Interest Coverage= Earning before interest and taxes / Interest Expense 2005 2006 2007 2008 2009
Interest Expense Interest Coverage
2005 1,379,60 9 1.37
2006 1,117,206 2.54
2007 4,278,374 0.66
2008 6,977,313 0.47
2009 8,685,624 0.26
Profits before taxes available to cover interest expense have been fluctuating unevenly through 2005-2009. 1.37 In 2005, it increased to 2.54 in 2006. the reason of this increase is that this year Allied bank make huge profit this not only Allied bank but every bank this year make huge profit due to grooming of banking sector. Decrease was indicated in 2007 to 0.668, 0.479 and 0.264 in next respective years. sector.
3 2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009
In next all year this ration trend is
downward the main reason of this is increase in interest rate and also competition in banking
TOTAL ASSET TURNOVER
This ratio shows the efficiency of the business in relation to its total assets. In other words it indicates the revenue generated in number of time by utilizing all assets. TAT= total revenue / Total Assets
Net sales Total Assets TAT
2005 4,073,715 85386902 0.04
2006 4,487,206 107,167,540 0.04
2007 8,780,698 145,099,907 0.06
2008 12,596,921 166,033,588 0.07
2009 15,143,241 182,171,885 0.08
ABL has shown consistent development in ability to general sales using available assets. With slight decrease in 2007 as compared to 2006 and 2005. ABL has shown improvement and increase in total assets turn over which is a healthy contribution. 6% in 2007, 7.6% in 2008 and 8.3% in 2009. The reason of improvement is that total assets of Allied bank goes up every year which due to opening of new branches.
0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2005 2006 2007 2008 2009
NET PROFIT MARGIN
This ratio indicates the earning capacity of business in percentage against its total revenue. In other words, we can say that a company is earning net amount in rupees against every Rs.100 of revenue generated. If the net margin profit increases its shows the increase in the profitability state of business.
Net profit margin= Net profit after taxes / total revenue *100
Net profit after taxes Net sales Net profit margin
1,103,065 4,073,715 27.07
1,923,040 4,487,206 42.85
2,021,996 2,249,974 8,780,698 12,596,921 23.02 17.86
2,681,012 15,143,24 1 17.70
Return on sale increased from 27% to 42.85% in 2006. In the following years despite of increase in sales, net profit has decreased, to 23.03% in 2007, 17.86% in 2008 and 17.7% in 2009. Possible reason may be increase in operating expenses and increase in inflation rate.
45 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009
LIQUIDITY QUCIK RATIO
Quick Assets refer to the most liquid assets which readily be converted into cash. Quick assets to deposits ratio show how much liquid money is in hand to meet obligations without going to the creditors or the money market. The minimum Cash Reserve Requirement by SBP for commercial banks is 5% & 15% in the form of Govt. securities. Liquidity Quick Ratio = Quick Assets / Total Deposits x 100 Quick Assets Total Deposits Liquidity Quick Ratio 2005 6,678,026 61,656,607 10.84 2006 2007 8,762,866 11,766,925 83,318,795 118,794,690 10.51 9.90 2008 14,879,230 131,839,28 3 11.28 2009 13,356,055 143,036,707 9.34
In our case, the ratio is much above the benchmarked level and ranges between 38 – 48%. It reflects very positively on the liquidity of the Bank. Bank is well equipped to pay back in case all the deposits are called without going to the debtors.
12 10 8 6 4 2 0 2005 2006 2007 2008 2009
RE TURN ON INVESTMENT
It shows the net profit earned against utilization of total assets in term of percentage. This is an important ratio to measure the profitability as well as optimal utilization of available assets. ROI= Net profit after taxes / Total assets * 100
2005 1,103,065 85386902 1.29 2006 1,923,040 107,167,540 1.79 2007 2,021,996 145,099,907 1.39 2008 2,249,974 166,033,588 1.35 2009 2,681,012 182,171,885 1.47
Net profit after taxes Total Assets ROI
ROI has shown uneven variations in 2005, 2006 and 2007 with considerable stability in 2008 and 2009. In general again country economic condition, competition in banking sector and organizational restructuring may be the affective causes.
2 1.5 1 0.5 0 2005 2006 2007 2008 2009
ADVANCES TO DEPOSITS RATIO
A steady increase in the advances has been observed over the years. It is a very good sign as deposit money is not sitting idle and is used in a viable manner. The gap in deposits and advances figures is because of investment in securities, bank preferably invests in govt. securities, which are risk free. The Bank seems to be a regular borrower from the inter bank market; the bank borrowing are increasing over the years but this increase can be neglected because the balance sheet shows the bank borrowing figure of the last day of income year, this might have been returned the very next day, so it is not as such alarming. Advances to Deposits ratio =Advances / Deposits + Borrowed Funds x 100
Advances Borrowings Deposits Advances to Deposits
2005 44,777,538 15,903,055 61,656,607 57.73
2006 69,838,392 13,781,555 83,318,795 71.92
2007 85,976,895 10,562,338 118,794,690 64.46
2008 99,179,372 14,964,087 131,839,283 66.55
2009 100,780,162 17,553,525 143,036,707 62.75
In the year 2005 the ration is 57.73 which is increasing in the year 2006 i.e. 71.92. in the year 2007 there is a decline at 64.46 then again increase in year 2008 at 66.55. in the year 2009 it is on 62.75 which is in decrease.
80 60 40 20 0 2005 2006 2007 2008 2009
GROSS PROFIT MARGIN
The gross profit is calculated by subtracting the mark up expenses from its markup income. The above ratios indicated the amount earned by NBP against each Rs. 100 of markup in order to meet the operating expenses of the business.
Gross profit margin= Gross profit / Net sales
Gross profit Net sales Gross profit margin
2005 2,694,106 4,073,715 0.66
2006 3,370,000 4,487,206 0.75
2007 4,502,324 8,780,698 0.51
2008 5,619,608 12,596,92 1 0.44
2009 6,457,617 15,143,241 0.42
With considerable increase in 2006 from 66% to 75% profits have decreased in the following years to 42.64% in 2009 due to competition in the banking sector and fluctuation in the economic stability has caused this decrease in gross profits.
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005 2006 2007 2008 2009
RETURN ON EQUITY
The percentage earning after paying taxes by any business against its shareholder’s funds can be measured with the help of return on equity. If there is an increase in ROE, it shows the stability of the business in terms of profit earning. ROE= Net profit after taxes / Shareholders equity * 100
Net profit after taxes Shareholders equity Return on Equity
2005 1,103,065 3,901,279 28.27
2006 1,923,040 5,573,149 34.50
2007 2,021,996 7,369,092 27.43
2008 2,249,974 9,619,066 23.39
2009 2,681,012 12,099,645 22.15
Return on shareholders equity has substantially decreased in 2007 and onwards from 34.5% in 2006 to 22.16% in 2009. Again possible reasons might be increased competition among banks and fluctuating economic conditions of the country. Highest return was achieved in 2004 with increase from 28.27% in 2005 to 34.5% in 2006.
40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009
CAPITAL ADEQUACY RATIO Total eligible regulatory capital held Total risk weighted assets Capital adequacy ratio FIXED ASSETS TO NET SALE This ratio is used to calculate the relation between the total sales to total fixed assets that mean how much sales to fixed assets. the following formula is used to measured it. FAT= Net Sales / Fixed Assets Particulars Net sales Fixed Assets FAT 2005 4,073,715 1,979,919 2.06 2006 4,487,206 2,595,023 1.73 2007 8,780,698 3,192,862 2.75 (Rs in thousand) 2008 12596921 3,810,331 3.31 2009 15143241 5,128,428 2.95 38.1 76,680,848 63,960,748 38.2 586,894,116 555,979,573 13.07% 11.50%
The relation b/w the fixed assets to net sale in FY-05 is 2.06 that is almost doubled to assets which is positive sign of organization development in next FY-06 it reduced and again 2.75 in FY-07 and tend to increase in FY-08 and again decline in FY-09
3.5 3 2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009
INCOME TO EXPENSE RATIO The income to expenses ratio used to measure the efficiency of bank how much expenses paid by bank to generate the income. In other word it shows relation between total income and total expenses and the following formula is used to calculate it. Income to Expense Ratio = Total income /Expense Particular Total Income Total Expenses Debt Ratio 2005 5,027,468 2,817,140 1.785 2006 612,734 2,962,523 0.207 2007 10,333,264 6,872,191 1.504 (Rs in thousand) 2008 14,736,175 10,260,807 1.436 2009 19,708,737 13,487,211 1.461
In the above table the performance of bank is batter in FY-05 but it decreased in FY-06 to due high competition and inflation the revenue is not increased and expenses increased and lead to decrease the bank performance. However in the FY-07 the performance of bank is increased by cuts in expenses and increased in revue and reach to batter position.
2 1.5 1 0.5 0 2005 2006 2007 2008 2009
CURRENT ASSETS TO NET SALES This ratio is used to measure the performance of bank current assts to its income. What is total income in use of current assets? Hara it is concluded that how much current asset is productive to generate the sales. The following way is used to calculate it. CAT= Net Sales /Total Current Assets Particulars Net sales Current Assets CAT 2005 4,073,715 15,099,03 4 0.270 2006 4,487,206 15,935,604 0.282 2007 8,780,698 27,489,31 5 0.319 (Rs in thousand) 2008 12596921 30,605,182 0.412 2009 15143241 18,297,252 0.828
In connection to current assets to sales the performance of bank is batter in FY-05 which gradually increased in the nest four year. It shows the batter management of current utilization for generation of revenue. In FY-09 the Total current assets to income is high and almost doubled to base year of 05. in the FY-09 the international economic recession but still bank performance is batter in relation to its current assets, that show the management assets best placement
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2005 2006 2007 2008 2009
Overall ABL has best performed in 2006 with increased net profits, return on equity, it is best to compare ratios with industry averages. Onwards 2006 ABL has converted their operations into fast growing institution in Pakistan. The result can be seen in the years 2007 to 2009 but it is expected that the financial position will grow up in the year 2008.
HORIZANTAL ANALYSIS OF ALLIED BANK BALANCE SHEET FOR THE LAST FIVE YEARS ENDED 31 DECEMBER 2005 TO 2009
Rupees in thousands
Assets Cash & balances with treasury Banks Balances with other Banks Lending’s to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets Liabilities Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Net assets Represented by Share capital Reserves Unappropriated profit Surplus on revaluation of assets – net of tax
100 100 100 100 100 100 100
131.22 182.93 40.29 77.99 155.97 131.07 102.37
176.2 209.43 176.27 116.3 192.01 161.26 191.63
222.81 276.7 145.44 129.5 221.49 192.45 267.38
200 131.96 250.3 178.39 225.07 259.02 388.16
100 100 100 100 100 100 100 100 100 100 100 100
126.02 86.66 135.13 37.91 65.31 133.28 125.9 119.21 110 156.45 142.85 38.67
135.12 66.42 192.67 3.91 70.31 235.97 169.92 170.15 132 212.42 188.89 106.35
188.87 94.1 213.83
269.8 110.38 231.99
91.27 270.43 192.91 219.01 175.56 210.71 246.56 125.19
58.45 334.49 211.48 243.04 263.34 251.79 310.15 14.52
Horizontal analysis balance sheet In the above analysis, for horizontal analysis we take year 2005 as a base, and all the other values are shown/calculated in percentage in subsequent years. Assets: As we can see that cash balances at bank, with treasury and with other banks has been increased from the year 2005 to 2008 very sharply, but in the year 2009, it falls to 200 and 132. the reason of this is In the year 2009, a major investment has been made in the expansion phase. It can be clearly seen from the heading investment, operating fixed assets and other assets. The generation of funds has been invested in order to expand the business in 2009. The investment was increased from 129% to 178% operating fixed assets from 192% to 259% and other assets 267% to 388% in the same year. It is a sharp increase. Even in the previous years 2006 to 2008. The rapid increase in the above heading was seen but not as much as in the year 2009, which justifies the decrease in cash balances at bank, with treasury and other banks. Lending to financial institutions was reduced to 40% in the year 2006 and then rapid increase was seen in 2007 but in the year 2009, a tremendous fall was recovered. The same reason can be predicted. So far as the advances are concerned, there was continuous increase from year 2006 to 2008, but in the year 2009, the position looked like stagnant. It shows the reliance of the bank is to expand the business. However, if we look overall assets situation, we can see a constant growth from the year 2006 to 2009. Hence, we can conclude that the bank’s assets position had been increasing year to year which lead to stability as well as growth. Liabilities: The position of liabilities was very much similar to the assets. Bills payables, deposits and other accounts and other liabilities had shown a synonymous type of trends. The trends were continuously seen and shown in the following paragraph with figures. Bills payable were increased to 269% in the year 2009 as compare to year 2005 but from various increasing steps of 126% in2006, 135% in 2007 and 188% in 2008. Similarly, deposits were tends to increased to 135%, 192%, 213% and 231% in the years 2006, 2007, 2008 and 2009 respectively. It clearly had shown the attraction of new clients towards ABL. Other liabilities were also shown the similar trend and raised to 334% from 2005 to 2009.
However, borrowing from financial institutions had fallen in the year 2006 and 2007 but there is increased in year 2008 and 2009. it may be the change in the methods of borrowing by the treasury department of the ABL. Liabilities against assets subject to finance lease had reduced very quickly from 2005 to 2006 and even in the year 2007, the bank had no such liability. Deferred tax liabilities had shown uneven increase or decrease. It may be due to change amount of provision against deferred taxation. The net assets figure showed the best trends in the year 2006 as sharp increase were recorded. Afterwards, the trend of increase was not stopped but at a lower rate was observed. Equity: The share capital of the ABL was increased from year to year but in 2009 a rapid fund raising was seen through issuing of new shares. The trust of investors enabled to bank to raise equity and to expand the network of ABL banking system in various parts of the country. As in the ratio analysis we have also observed the expansion phase of ABL was 2007 to 2009. in the same manner, the reserves of the bank directly proportionate to the share capital. The surplus on revaluation of assets was reduced to 38% in the year 2006 and then increased very quickly in the year 2007 to 106% but in the year 2009; the surplus was reduced to 14%. The cause of reduction was transferring the surplus to reserves as well as the amortization against such surplus.
HORIZANTAL ANALYSIS OF PROFIT AND LOSS STATEMENT FOR LAST FIVE YEARS ENDED 31 DECEMBER 2005 TO 2009
Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and advances (Reversal) / provision for impairment in the Net mark-up / interest income after provisions Non mark-up / interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Unrealized gain/loss on revaluation of investments Other income Total non-markup / interest income Non mark-up / interest expenses Administrative expenses Other provisions / write offs Other charges Total non-markup / interest expenses Extra ordinary / unusual items Profit before taxation Taxation – current – prior years' – deferred Profit after taxation Unappropriated profit brought forward Profit available for appropriation
110.15 80.98 125.09 89.91
215.55 310.11 167.12 206.97
100 100 100 100 100 100
309.22 371.73 505.75 629.57 208.59 239.69 365.65 1270.63
365.77 1271.11 188.26 106.3
100 100 100
134.99 69.89 160.44
159.79 135.81 315.77
193.16 290.31 518
204.44 364.01 581.31
100 100 100 100 100 100 100 100 100 100 100 100
63.78 171.27 140.39 128.47 11.25 128.37 149.48 149.48 100.28
74.26 162.78 163.29 180.46 149.31 180.44 150.34 150.34 94.86
115.53 224.3 198.55 228.18 500.49 228.41 175.98 175.98 112.62
120.93 478.69 212.66 333.46 982.15 334.02 120.93 120.93 11.28 328.17 -47.73 243.05
-58.22 -262.41 -150.87 115.14 104.8 137.33 174.34 183.31 203.97
Appropriations: Transfer to: Statutory reserve Capital reserves (reserve for issue of bonus shares) Revenue reserves Proposed cash dividend Unappropriated profit carried B/F
100 100 100 100 100
174.34 220 191.89 110 174.34
183.31 435.6 165.61 99 183.31
0 0 0 0 0
0 0 0 0 0
Basic/ diluted earnings
100 145.33 152.85
HORIZONTAL ANALYSIS INCOME STATEMENT
Markup/return/interest earned: The markup and interest income was slightly increased in the year 2006 but rapid increase was recorded in the subsequent years and even it went up to 371% in the year 2009 as compare to year 2005. The fast increase may be due to increase in investment in those portfolio, which yielded higher returns. It may also be due to increase in the advances and loans given to the businessmen and various clients of ABL.
Markup/return/interest expensed the depositors trend towards ABL and expansion of the business put the trend over the period 2005 to 2009 in such a manner that it increased tremendously from year to year, especially this rapid trend was observed in the year 2008 i.e. 505% as compare to 310% in the year 2007. Obviously the increase in the deposits of the ABL the markup/interest expense ratio was increased. Net markup/ interest income This head of income is derived by subtracting the interest/markup expense from interest/markup income. The trend here was looked to be very attractive and consistent, 125% in the year 2006, 167% in 2007, 208% in 2008 and 239% in 2009. from this we can conclude that ABL was making optimal utilization of available deposits and able to generate attractive profits.
Provision against non-performing loans and advances: The rapid and fast increase in provision against Provision against non-performing loans and advances caused by issuing new loans and advances to attract customers. As we have already discussed in various parts of the report that in the last few year, the competition environment has been created, which in turn competes to introduce new products. ABL was succeeded to add new clients and customers. It is a fact that increase in receivables put impact on chances of bad debts that may be the reason for increase in the Provision against non-performing loans and advances especially in the year 2008 and 2009. Fee, commission and brokerage income: The last paragraph enumerated that ABL was successful by attracting new customers. The functionality of the bank was also increased which ultimately increased the fee, commission and brokerage income. The trend of increase was very consistent as 134% in year 2006, 159% in 2007, 193% in 2008 and 204% in 2009. Dividend income Dividend income earned by the bank on account of investment made in stock markets. The rapid increase in the dividend income clearly indicates the policy of treasury department to make more investment in the risky business to get higher profitability. The policy of ABL looked very successful as the dividend income was 364% in 2009 when we compare it to year 2005. However, the major change was observed in the year 2008 when a tremendous increase was indicated. Income from dealing in foreign currencies According to an article published in the management accountant edition NOV-DEC 2009, the business of foreign currency exchange was groomed in the last five year with a swing. The same trend can be seen from this analysis. The reason is to introduce a lot of branches to deal in foreign exchange, especially in the year 2008. In the same year, another reason might be the depreciation of local currencies against world reputed currencies like US dollars, UK pounds and EUROS. Other income
Other income of the bank should be directly proportionate to increase in interest income as well as increase in the clients/customers of the bank. However, the trend in the ABL was quite opposite in the year 2006, which fell to 63% as compare to year 2005. but afterwards, the trend was established and a continuous increase was seen. The reason may be the total reliance of the bank on interest income. Non-markup/interest expenses Non markup/interest expenses head includes administrative expenses, other provisions/writeoff and other charges, but the major portion is administrative expenses. The trend was looked alike the interest and non-interest income. The growth in the ABL not only increased the income portion but also increased the expenses portion. The constant increase up to year 2008 was recorded, but in 2009, the rapid increase was seen. The reason may be the same it the expansion phase of the ABL. Profit before taxation and after taxation The profit before taxation was increased to 149% in the year 2006 as compare to base year 2005. In the year 2007, a slight increase was recorded. But in the year 2007, again a rapid increasing trend was observed. However, 2009 was the year in which before taxation profit fell down to 120% as compare to 175% in 2005. The possible reason may be introduction of new branch in various cities resulting increase in operating cost. When operating cost increasing trend was higher than revenue generation, then definitely impact in the form of reduction in profits can be there. The same was observed here. So far as, profit after taxes is concerned, it shows a similar trend of increasing. It was because of adjustments of provision for taxations current as well as provisions for deferred taxation. The continuous increase in after tax profit went up to 243% in year 2009 as compare to 2003% in 2008, 183% in 2007 and 174% in 2006 keeping in view the year 2005 as base. Basic/diluted EPS EPS in the years 2006 and 2007 was ideally increased but in the year 2008 it fell down to 85%. However, the slight increasing trend continuous. The decreases in EPS may be issue of
new shares fro fund raising and introduction of new branches of the ABL throughout the country. But year 2009 against showed the growth in EPS as compare to year 2008.
VERTICAL ANALYSIS OF BALANCE SHEET FOR THE LAST FIVE YEARS ENDED 31 DECEMBER 2005 TO 2009 Assets Cash balances with treasury Banks Balances with other Banks Lending’s to financial institutions Investments Advances Operating fixed assets Other assets
8 3 7 26 52 2.34 1.67 100
8 5 2 16 65 2.42 1.36 100
8 4 7 18 59 2.2 1.88 100
9 4 5 17 60 2.29 2.3 100
7 2 8 22 55 2.81 3.04 100
Liabilities Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Net assets Represented by Share capital Reserves Un-Appropriated profit Surplus on revaluation of assets – net of tax
1 19.79 76.74 0.74 1 1.19 100 29.26 70.73 100
1 13.62 82.37 0.99 0.23 0.52 1.26 100 22.53 77.46 100
1 7.74 87.02 2.19 0.02 0.41 1.66 100 20.45 79.54 100
1 9.65 85.07 1.93
2 10.33 84.18 1.76
0.47 1.67 100 20.83 60.45 18.71 100
0.28 1.89 100 24.84 57.42 17.72 100
VERTICAL ANALYSIS OF BALANCE SHEET
Assets In the vertical analysis the total value of assets are taken as a base in order to calculate percentage share of each head of account in the assets. The overall picture of the assets looked very stable. Cash and balance with treasury bank and with other banks showed a similar view. However, in the year 2009, the total percentage of cash balances declines to 7.33% with treasury and 1.92% to other banks. Lending to the financial institutions is only head of account under assets, which gave uneven idea. In the year 2004 it declined to 2.17 but thin in 2007 it increased to 7.01. Similarly in 2008 it reduced to 5.05 but again 2009 enhanced to 7.93. Keeping in view the base as total assets we can conclude that major portion of assets comprised of advances, about more than a half of total assets in each year. In year 2005, share of advances was 52.44% in 2006, 65.17% in year 2007, 59.25% in year 2008, 59.73% in year 2009. The total share was 55.32%. Another considerable contribution was of investment i.e. one quarter of total assets in approximation. Remaining about 25% share of total assets related to cash balances with treasury bank, with other bank lending’s to other financial institution and other assets. The overall positions of assets are not fluctuating. Liabilities The major portion of total liabilities was of deposits and other accounts that was a good sign for ABL. In 2005, the deposits were about 76.74% of total liabilities, the share in year 2006 and 2007 tend to increase as in 2007, and total percentage of total assets was recorded at 87.02%. However, in the year 2008, the share was declined by 2% and then in 2009 by 1%. The diversion was transferred to borrowings from financial institution. The share of bills payable seemed to be very much stable as 1.21% in 2005 to 1.55% in year 2009 with slight increase and even decrease in year 2007. Subordinated loans share in year 2005 was nil, but from the year 2006 to 2009, it contributed between 1% to 2% shares to total liabilities. The remaining 2% to 3% share of total liabilities comprised of liabilities against assets subject to finance lease, deferred taxation and other liabilities. The liabilities against assets subject to finance lease were terminated in the year 2008 and also not found in 2009. The percentage share of deferred tax liabilities decreased to 0.28% in the year 2009 as compare to 1% in year 2005. In short we can conclude that ABL was able to maintain its liabilities with stability. Shareholders equity
From this section one thing looked very clear that in the year 2005 to 2008, the ABL has not any unappropriated profit. It means that after distribution of dividend. Bank’s policy is to transfer all the revenue reserves to ‘Reserves Account’. However, in the year 2008, the balance sheet showed unappropriated profit of 17% to 18%. But overall reserves remained constant. The major portion of the equity section was also recorded as reserve. The portion of share capital during this period tend to decrease due to high profitability, but in 2009 the issue of large amount shares converted the share to 24.85% as against in the year 2009
VERTICAL ANALYSIS OF
PROFIT AND LOSS STATEMENT FOR LAST FIVE YEARS ENDED 31 DECEMBER 2005 TO 2009 Administrative expenses Mark-up / return / interest earned Non mark up income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of investments Unrealized gain/loss on revaluation of investments Other income Total non-markup / interest income Total markup and non mark up income Mark up expenses Non mark up expenses Administrative expenses Other provisions / write offs Other charges Total non-markup / interest expenses PROVISIONS Provision (Non-performing loans & advances) (Reversal) / provision for impairment in the value of investments Bad debts written off directly Total expenses markup and non mark up Profit before taxation Taxation – current – prior years' – deferred Profit after taxation 2005 81.03 10.44 0.75 2.24 0 0 5.54 18.97 100 27.44 28.57 0.02 28.59 6.14 2006 73.31 11.57 0.43 2.96 8.83 0 2.9 26.69 100 18.25 30.15 30.15 4.53 0.62 6.14 62.17 37.83 17.38 -1.49 57.9 21.94 5.15 53.56 46.44 14.31 0.71 82.32 31.42 2007 84.98 8.12 0.49 3.45 0.97 0 2 15.02 100 41.4 25.08 0.02 25.1 6.18 -0.35 5.83 72.33 27.67 8.02 -1.82 1.9 19.57 19.57 7.66 77.29 22.71 6.68 0.77 15.72 15.27 2008 85.48 6.88 0.74 3.97 0.76 -0.02 2.18 14.52 100 47.35 22.24 0.04 22.28 7.66 2009 76.84 5.44 0.7 3.33 11.98 0.01 1.71 23.16 100 44.07 24.3 0.06 24.36 19.89 0.01 19.9 88.33 11.67 0.5 -1.19 -1.25 -4.39 13.6
VERTICAL ANALYSIS OF INCOME STATEMENT
For the whole income statement the combination of both markup/interest and nonmarkup/income was taken as a base. As we can see in the above analysis the total markup and non-markup income showed 100% in each year. All the other corresponding figures are based on it. Income As earlier discussed, the income group was consisted of both markup income and nonmarkup income. The above analysis clearly indicated a major portion of total income was a markup income. And it should be as the business of banking is based upon it. In the year 2005, the share of markup income was 81.03% but it was reduced to 73.31% because of diversion towards gain on sale of investment. In the year 2007 and 2008 it again remained increased and stable. But again in year 2009, it fall down and the same reason was record. In short, we can conclude that ABL was succeeded to maintain the share of markup income to its total income. In the year 2006 and 2009, the decline was affected by gain on sale of investment. The non-markup income portion was about 20% in each year except in 2006 and 2009 against due to gain on Sales of investment. The non-markup income comprised of fee, commission and brokerage income, dividend, income from dealing in foreign currencies gain on sales of investment (almost negligible) and other income. The combination of all of these non-markup income portion showed same picture except fee, commission and brokerage income whose share were started to decline from the year 2007 to 2009. However, the year 2006 and 2009 figures were offset by gain on sale of investment as 8.83% in 2006 and 11.98% in 2009 as against 0.97% in year 2007 and 0.76% in 2008. The total expenses (both markup and non-markup) share to total income was 62.17%, thus leasing 37.83% profit before taxation. However, the ABL was succeeded to reduce the share of expenses to 53.56% leaving 46.44% for PBT. But from the year 2007 to 2009, the trend of expenses tends to increase. The increase in operating cost was due to expansion and introduction of new branches as discussed earlier. The tremendous increase in total expenses was recorded in the year 2007 by 18% but afterwards by 4% in 2008 and further 11% in 2009 the PBT for the year 2009 was minimum i.e. 11.67% as compare to all of the years mentioned in the profit. The decline in the PBT was not due to decrease in profitability but due to excessive operating cost incurred for expansion. Its ultimate effect is predicted to
coming one or two years. Definitely, when all the branches will operate at its capacity level, the PBT share shall increase. In the year 2005, the proportion of both markup and non-markup looked same but year 2006 showed a different picture. Its operating (non-markup) expenses portion was 30% as against just 18% markup. The reason may be again the expansion phase, but onwards, the portion of markup income was more as compare to non-markup portion. Its reasons may be that the ABL was succeeded to hold major portion of business and to attract the depositors to make their investment there. Ultimate result can be seen from portion of markup expenses enhancement. The PAT share showed the same trend as we have discussed in PBT figures. The basic emphasis of the bank is PBT rather than PAT. As it is a fact that higher profit higher taxation. The bank was also succeeded to implement the policy of provision for taxation in good manner as that can be judged from PAT. Finally we can conclude that profitability and financial position of ABL were tend to increase from year to year and showed very stable position.
Organizational Analysis of “Allied Bank” with other top players
Rs. ( Billion)
NBP Balance Sheet Cash& bank Bal. Invest. Advances Assets Deposits Equity Gross revenues Net interest income Non interest Income Admin. expenses Pre Tax Profit Net Income Loan deposit Mkt Share advances
2007 121 180 320 668 523 97 2008 142 140 316 635 502 82 2009 119 157 269 578 463 76 2007 84 187 346 653 528 63
2008 89 120 349 590 459 53 2009 77 107 317 529 433 41 2007 39 115 289 499 392 39
2008 49 66 255 436 344 33 2009 71 62 210 358 297 24 2007 42 125 191 385 288 50
2008 60 64 198 343 257 42 2009 35 69 180 299 229 24
32.8 23.9 8.9 10.4 22.2 14.8 61% 11% 39.9 27.8 12.2 13.4 26.3 17 63% 11% 30.5 21.2 9.4 11.2 19.1 12.7 58% 10% 29 21.8 7.2 12.9 16.1 10.2 65% 11% 36.2 27.7 8.5 15.4 18.8 12.7 76% 13% 29.9 22 7.9 14.1 13.8 9.7 73% 11% 21.9 15 6.9 9.7 11.4 7.4
26.4 19.1 7.3 11.6 14.5 9.7 74% 9%
18.5 13.1 5.4 8.4 9.7 6.2 71% 8%
19.9 15.1 4.8 4.6 16.7 11.6 66% 6%
25.1 20.1 5 6.5 18.5 12.1 77% 7%
19.6 13.8 5.8 6.5 13 8.9 79% 7%
In Percentage 200 7 12 14 2.9 20 1.8 40 315 244 709 27. 7 8.0 8 173 NBP 200 8 13 13 2.7 21 6.1 46 297 24 200 9 12 12 2.2 17 5 49 272 17.9 2 200 7 12 10 2.1 22 4.1 44 225 261. 5 19.7 13.3 180 HBL 200 8 12 9 2.2 24 5.9 45 235 690 18. 4 200 9 11 8 1.8 23 5.2 57 212 200 7 10 8 2 25 3.7 60 225 174. 3 UBL 200 8 9 8 2.2 29 6 50 227 648 14. 9 200 9 8 7 1.7 25 4.8 55 219 9.3 9 200 7 6 13 4 31 4.8 29 431 381 546 28. 3 13. 5 208 ABL 200 8 7 12 3.5 29 7.6 27 387 22. 2 200 9 7 8 3 38 5.5 44 303 17. 4
Balance Sheet Mkt share Deposit Capital adequacy Return on assets Return on Equity Interest spread Fee/Pre tax Revenue Expenses Current share price Share o/s min EPS Price earning Ratio Market Cap.Pk
15.2 11.5 113
The banking sector is dominated by National Bank Limited, Allied Bank Limited, Habib Bank Limited, United Bank Limited and MCB Bank Limited. The balance sheet indicates the trend of growth of deposits for the players. As can be witnessed from the above that the deposit growth rate has been fluctuating over the last 5 years. A major decline was seen in the growth of deposits for ABL in 2008, when it fell from 28% to 13%. The reason cited for this slowdown was the slow growth of M2.The advance growth rate for the top players has shown a similar trend, all the fluctuations for all the banks have been witnessed in the same direction. As can be observed ABL's performance in terms of advances growth rate has been better from the top players during the last 5 years. The advances of ABL grew by 11% in FY09 as compared to 5.58% of NBP and -4% of UBL and MCB each during the year under review. Another major trend seen in the banking sector has been the growth in profits after tax for the top players. It can be clearly seen that the growth in PAT of ABL has been much above the other top players. During FY09 there was a growth of 71% in ABL's PAT, as compared to 14% of UBL and 2% of MCB. Another major comparison between ABL and the other top players is that in the growth of the net interest income. Even in this area ABL has outperformed other major players. The growth in the net interest income is 41% in FY09 as compared to 18% of UBL, 16% of MCB and 3% of NBP. In case of the non-interest income, the growth for ABL has been in line with that of its peer except for NBP whose growth though has fluctuated but still is above the other players in the market. The growth in non-interest income for ABL in FY09 is around 22%, as compared to 45% of NBP
The recent economic trends suggest the possibility of a modest recovery during 2010. The major impetus for growth is expected to come from the services sector, while LSM has also lately shown signs of recovery. The positive improvement in macroeconomic indicators, mainly inflation and contraction in external imbalances bodes well for the revival of economic activity. However, risks to these improvements remain as inflationary pressures have not completely abated, the commodity prices may spur again to unmanageable levels and foreign inflows (for instance from Friends of Democratic Pakistan (FoDP) and other bilateral arrangements) may not materialize on time. Meanwhile, the severe energy shortages and the sensitive security situation remain a major threat to the potential output of the economy. The rising fiscal slippages, deficit of 1.5% of GDP for 2010 as compared to 1.1% in 2009 poses another challenge. A sizeable portion of it also relates to increasing expenditure on defense and security. The continuing pressure in the operation environment suggests that the challenges for the banking sector would persist in 2010. ABL, while remaining prudent under the circumstances would continue to emphasis on improving cost effective deposit mix, building risk weighted assets by ensuring quality and optimizing costs to pursue the strategy of maintaining steady growth.
SHORT FALLS / WEAKNESSES OF THE ORGANIZATION
A short falls/weakness is defined as an area in an organization where the organization is not as good at doing something as its competitors or a thing which an organization lacks thus putting the organization at disadvantage in comparison to its competitors. Based on the above definition Allied Bank Limited has the following weaknesses • • • • • • • Employees at branch level are not properly motivated to work by heart. They take all the routine activities as a boring job. ABL has centralized power system. Lack of international branch network There is less communication between different levels of management The selection criteria for employees are not on merit basis. It has high markup rates, thus discouraging the middle investors. Major account benefits are for army officials.
1: Total Quality Management: Ours is the age of cutthroat competition, scarcity of resources, technological advancement, integration of financial services, expansion of economic markets and cultural diversity. In these complicated and conflicting financial and economic scenarios the need of TQM in the ranks of domestic Banking industry is indispensable. The middle management should need to have basic understandings about complicated management processes, crisis management tools, marketing/product strategies, financial and treasury management techniques, financial discipline, soundness and transparency of Banking system. Human resource administration and above all genuine leadership qualities to adequately operate within a highly sensitive and complicated industry. There is urgent need of having TQM in the realm of Allied Bank. At the dawn of WTO and increasing chances of investment Banking among the SARRC countries the TQM is the need
of the hour. Allied Bank must pay attention to this shift and start thinking strategically for providing high quality products and services to customers. According to a study from Business Communications Company, Inc. the changing Global Commercial Banking Industry Structure, total commercial Banking assets are expected to climb at an average annual growth rate [AAGR] of 7.1% from $6,772 billion in 2003 to $9,537 billion in2009. The Allied Bank should determine where improvement is needed, how service can be improved and where operating system breakdowns occur, why they occur and how they can be avoided. 2: Wastage of time: There is major problem of wastage of time of customer due to less injection of stag where needed 3: Reward System: The employees are really upset about their salaries and promotions, the reward system is not up to standard as other organization are. 4: Employee Involvement: The employees are not involved in decision-making. Give very little chance to employees in decision making only those who are near to manager are involve in this procedure. 5: Wastage of Stationary: Another problem that I observed is wastage of stationary like Account opening Forms. Deposit slips, ATM forms, Online Form etc. and other type of stationary. 6: Extra telephone calls budgets: The telephone calls budget is also; very high which cannot be ignorable. Employees sometime use it as it looks like free.
ABL is a leading market player in the financial sector in Pakistan. Despite of the fast changing market conditions and narrowing of traditional lucrative margins on loans, ABL is a bit slow in committing itself to seek out new opportunities and make its existing operations more efficient. The Electronic Technology Department (ETD) needs further improvement, developments and technologies by including new products and services. Although Phonic Banking, Online Banking, Internet Banking, Balance Transfer Facility, ATM (Auto Teller Machine), Online Availability of Different Application Form. All of them continue to receive encouraging response from the consumers but still considerable attention is required for further improvement. The ETD staff working at branch level is not fully trained because their technological skills are less developed for which the Bank along with the ETD has to make a complete, sound and separate training program to develop their skills. As staff being the principal asset of the Bank, should be groomed through professional development.
Knowledge of Risk Management is Missing: The main purpose of financial and Banking organization is to create valuable system by interacting with its environments, customers, constituents, suppliers, technology, competition, economy, government, etc. A valuable system is created by the conversion of a available resources i.e. human, financial, physical, and intangible assets into goods and services that fulfill the needs of the customers and save the vest interests of Banking and financial organization. Risk management performs all these diversified but integrated work to achieve maximum out-put. Managing risk is actually managing the organization, planning, organizing, directing and controlling organization systems and resources to achieve objectives. Managing risk must come from within and act to change the organization and its response to changes in the environment.
Now many domestic Banks are hiring experts of risk management to secure their precious assets. Allied Bank Pakistan has created risk management group at head office but they must adopt this police at regional level to save the best interests of the Bank and enhance the chances of investments.
Recommendations are supposed to be the most important part of internship report. A good report is said to be completed and important only when recommendations are given. To get suggestions, discussions have been conduct with the staff of ABL officers. The cooperative staff helped me a lot and provided me the basis for recommendations and also pointed out some areas, where the change for the development is essential. Despite of the fast changing market conditions and reduction of traditional profitable margins on loans, Allied Bank Limited is a bit slow in commit itself to seek out new opportunities and make its existing operations more efficient. For that purpose, I suggest the following recommendations. The Bank should plan to enhance its ATMs and Internet Banking Services with new features like inter-branch funds transfer, and the payment of utility bills more quickly as they are doing. The Bank should also plan to setup a call center and Data Warehouse to enhance the timeliness and quality of services. The future focus of the ABL should be to improve the automation of the accounting processes and enhance the quality and effectiveness of MIS. Although the Bank’s products and Services are structured to cover and improve the quality of lives of all important towns and cities but the Bank should also start to explore new markets in the smaller towns in the rural areas of Pakistan for its Retail Banking products, supported by technology based services. The ABL should increase press coverage and advertising to create effectively market it’s corporate as well as product/Brand image. The H.R.M Department of the ABL should effectively increase its focus on providing in house training staff, which should be conducting training services all, year around to enhance professionalism and employee development.
The marketing policies and strategies should be clearly written and communicated to all the staff members. The Branch Managers must make the use of the staff in pursing the organizational objectives. 1 Employees’ training To increase the efficiency and effectiveness, the management should arrange timely training sessions so that the employees get the complete knowledge of how to deal with the customers and work well in team as well as individually. The ETD(Electronic Technology Department) staff working at branch level is not fully trained because their technological skills are less developed for which the bank along with the ETD has to make a complete, sound and separate training program to develop their skills. As staff being the principal asset of the bank, should be groomed through counties professional development. 2 Improvements needed in ETD The Electronic Technology Department (ETD) needs further improvement, developments and technologies by including new products and services. 3 New Features The bank should plan to enhance its ATMs and Internet Banking Services with new features like inter-branch funds transfer, and the payment of utility bills. The Bank should also plan to setup a call center and Data Warehouse to enhance the timeliness and quality of services. 4 Technology Although Phonic Banking, Online Banking, Internet Banking, Balance Transfer Facility, ATM (Auto Teller Machine), Online Availability of Different Application Form continue to receive encouraging response from the consumers but still considerable attention is required for further improvement. 5 Refresher courses The employees of the bank should frequently conduct meaningful refresher courses, workshops and seminars so as to improve the knowledge of staff. Because of the new
technological developments and severe competition the HRD should train their staff to cope with the new changes. This will be beneficial for the bank’s productivity. 6 Automation The future focus of the ABL should be to improve the automation of the accounting processes and improve the quality and effectiveness of MIS. 7 Explore New Markets Although the Bank’s products and Services are structured to cover and improve the quality of lives of all important towns and cities but the Bank should also start to explore new markets in the smaller towns in the rural areas of Pakistan for its Retail banking products, supported by technology based services such as online banking and ATMs. 8 Improve advertising The Allied Bank Limited should increase press coverage and advertising to create effectively market it’s corporate as well as product/Brand image. 9 Organization Environment To motivate bank’s employees and for attracting more customers, bank should maintain an attractive and effective environment so that employees feel comfortable while working and it will result in an increase in the efficiency of the bank. 10 H.R.M Department The H.R.M department of the Allied Bank Limited should effectively increase its focus on providing in house training staff, which should be conducting training services all year round to improve professionalism and employee development. The need for proper human resource is felt badly.
11 Marketing Policies and Strategies
The marketing policies and strategies must be clearly written and communicated to all the staff members. The Branch Managers must make the use of the staff in pursing the organizational objectives. 12 Participation of the Staff The Bank must ensure the participation of the staff in all the promotion activities of the bank. The Bank should encourage ownership behavior so that everyone feels responsible for performance and reputation of the Bank. To this end the bank must adhere to the policy of fringe benefits, rapid promotions of the capable managers and officials to motivate the staff. 13 Reshaping the Portfolio The Bank must reshape its portfolio of business by investing in higher growth areas, extending and developing its core competencies and moving out of week and non-core segment. 14 Provide Customer Satisfaction In order to earn a striking profit in future, and to compete in a highly competitive environment, the Allied Bank Limited must constantly provide customer satisfaction my delivering products and services through innovative technology and effective human resource management. The Allied Bank Limited can achieve all this through aggressive marketing, by adding diversified skills to its ETD team, prudent management of its risk portfolio, strong collection and recovery efforts, and a strict focus on controlling operating costs. 15 Motivation Every human being needs appreciation in every aspect. It’s the duty of management to motivate and appreciate their employees. This will result in loyalty, and improve the performance of the staff.
• • • • • • • • • • • • • • Annual Report of ABL 2009. Annual Report of ABL 2008. Annual Report of ABL 2007. Annual Report of ABL 2006. Annual Report of ABL 2005. Annual Report of ABL 2004. A Review from Daily “The News”. Iffland, Charles & Langueton, Pierre. (1996) International Banking, Irwin Book Co., New York. Khan Rana, Safdar Hussain & Khan Rana, Ahmad Shabir. (1991) Banking Currency and Finance, Ilmi Kutab Khana, Lahore. Sardar Aslam (1999) Banking & Finance Principal (Retd) Govt College of commerce Abbottabad... Saeed, M Nasir. (1994) Economics of Pakistan, Ilmi Kutab Khana, Lahore. Siddiqi, Asrar H. (1998) Practice and Law of Banking in Pakistan, 6th Ed, Royal Book Co, Karachi. www.AlliedBank.com.pk www.sbp.org.pk
Annexure – I ABL Structure
Senior Vice President
Vice President Executive Vice President Senior Executive Vice President [rosodmemtPresident Regional General Manager Managerxecutive Vice President Branch Manager
Annexure – II
President and CEO Board of Director Head of Departments Regional General Manager Controllers of Operation
Branch Manager Office G-I, II and other lower Staff
Annexure- III Structure of Branch
STRUCTURE OF ABL
Board Of Directors
Group Operation Chief
Regional Operations Chief
Operation Manager At Branch
Regional Business Chief & Regional Risk Management Chief
Regional Management Committee
Annexure – IV STAFF ORGANIZATION OF THE BRANCH
Customer Service Manager
Annexure – V
ORGANOGRAM OF FINANCE DEPARTMENT
Credit Control Officer
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