AL Baraka Bank

By

Zartashia Arif

2018-GCUF-068844
Research Report submitted in partial fulfillment of

The requirements for the degree of

ADP (Accounting & Finance)

SUPERIOR COLLEGE OF SCIENCE & COMMEREC TOBA TEK SINGH

GC UNIVERSITY, FAISALABAD.

NOV 2020

I
 DEDICATION
To My Graceful and polite parents All my family members , Who live in my mind and soul’
Whose love is more precious than pearls and diamonds Who are those whom I say my own
Whose love will never change Whose prayers will never die

II
 ACKNOWLEDGMENT
All praise to ALMIGHTY ALLAH. The most merciful and the most compassionate and his Holy
Prophet` MUHAMMAD`(peace be upon him)the most perfect and exalted among and even born
on the surface of earth, who is forever a torch of guidance and knowledge for the humanity as a
whole

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 DECLARATION

The work reported in this thesis was carried out by me under the supervision of Miss Sidra
Rana superior college of science and commerce Toba Tek Singh.

I hereby declare that the title of report on Al BARAKA Bank and the contents of report are the
product of my own research and no part has been copied from any published source (except the
references, standard mathematical or genetic models /equations /formulas /protocols etc). I
further declare that this work has not been submitted for award of any other degree /diploma.
The University may take action if the information provided is found inaccurate at any stage.

Signature of the Student/Scholar

Name: Zartashia Arif

Registration No: 2018-GCUF-068844

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 3: CERTIFICATE BY SUPERVISORY COMMITTEE

I certify that the contents and form of thesis submitted by

Mr./Miss/Mrs.………………………………, Registration No.………….. Has been found
satisfactory and in accordance with the prescribed format. I am recommending it to be processed
for the evaluation by the External Examiner for the award of degree.

Signature of Supervisor ………………….

Name: ……………………………………..

Designation with Stamp……………………

Co-Supervisor (if any)

Signature of Supervisor ………………….

Name: …………………………………….

Designation with Stamp…………………..

Member of Supervisory Committee

Signature of Supervisor ………………….

Name: ……………………………………..

Designation with Stamp……………………

Member of Supervisory Committee

Signature of Supervisor ………………….

Name: ……………………………………..

Designation with Stamp……………………

Chairperson
Signature with Stamp………………………

Dean / Academic Coordinator

Signature with Stamp………………………

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 Table of Content

CONTENTS Page#

CHAPTER NO 1 01
1.1 Introduction
1.2 History of AL BARAKA
1.3 Board of director
CHAPTER NO 2 08
2.1 Vision, Mission, Values
2.2 Products and Services
CHAPTER NO 3 18
3.1 SWOT Analysis
CHAPTER NO 4 22
4.1 Financial statements Analysis
4.2 Ratio Analysis
4.3 DuPont Analysis
4.4 Horizontal Analysis
CHAPTER NO 5 40
5.1 Conclusion
5.2 Recommendation

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CHAPTER NO 1

INTRODUCTION

Students of BBA studying courses leading to Bachelor degree in Business Administration are
required to undergo an internship program of six weeks to eight weeks. This is an essential
academic requirement. The purpose of this internship report is to study and analyze Al – Baraka
Islamic Bank (AIB), particularly its Branch Office working at Abbott bad where I had a chance
of working for two months (eight weeks) during February-April (2010) and observed its working
environment. The written report is a requirement to earn the BBA Degree from COMSATS
Institute of Information Technology, Abbott bad and is graded under a special course with 3
credit hours.

Objective of Study

The purpose of the study is to work in a real life situation and to apply management skills. In this
context its objectives are:

• To review the Banking environment of Al – Baraka Islamic Bank (AIB).

• To analyze different working areas associated with Bank.

• To analyze the strengths and weaknesses of the Bank and its Banking Practices.

• To suggest possible solution in front of Bank Management in order to devise their

Practices in a better way

• To analyze banking operations i.e. operational analysis, financial analysis etc

• To do practical work in field and apply the knowledge of classroom lectures to the real
life situations,

• To suggest concrete and feasible recommendations

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Limitations of the Study

• Due to the constraint of time the problem of short time period makes the analysis
restricted as one cannot properly understand and thus analyze all the operations of a bank
just in eight weeks.

• More over some of the data was confidential and was not made available to me.

• Sometimes due to the busy schedule of the bank, complete information regarding
different activities was not provided in time. During the study it was tried to include only
relevant material and avoid irrelevant material.

INTRODUCTION TO THE AL – BARAKA ISLAMIC BANK

Evolution of Banking

Like many other subjects and social sciences no any precise definition can be given for the study
of banking also keeping in view the particular function of banking. It is clear that there is a big
difference in functions performed by old institutions and modern baking. But the basic idea is
same banking has now become a multi-service organization with wider scope and area of its
influence .Mr. Gilbert says “bank is dealer in capital or more peculiarly in money. He is an
intermediate party between borrower and lender. The definition lay down in the banking
companies Act 1962 is "Bankers means a person, transacting the business of accepting for the
purpose of landing or investment, of deposits of money from public, repayable on demand or
otherwise and withdraw able by cherub, grafts or orders or otherwise and includes any "Post
office saving Bank".

In view of the above definitions, in simple words a bank can be defined as an institution dealing
in money, accepting deposits and advances loans.

Banking in Pakistan

Banking industry in Pakistan has passed through various transitional phases. The State Bank of
Pakistan regulates the banking sector, consisting of the commercial banks, along with all NBFIs,
except for the leasing companies. The IMF experts in their reports said that banking industry has

2
developed to cater to the local needs of the financial sector as well as it is highly competitive to
serve the customers globally. In the past it never attracted the customers, as the interest rates
were higher as compared to other countries in the region. Taxes were all time high. Recoveries
were hardly 25%. Political pressures damaged the efficiency. The World Bank and IMF never
lent support to the industry.

Pakistan is one of the few developing countries where the public sector banks went to the private
hands in a very short span of time. The government only owns the National Bank, while 80 % of
the bank assets are in private hands. And there is tough competition among the banks, as in the
private sector everything is performance-based. Unlike the public sector or the government, any
employee not producing results is fired because he affects profit of the organization. The bankers
these days go out of their cozy offices to market their financial products and build up customer
base. The seller market has changed into a buyer market. The customer may choose the bank
with best products and services. There was a time, only a few years back, people used to go the
banks and the staff treated them shabbily, was generally uncooperative and unfriendly. Now,
they are after the customers. Banking sector reforms were thus needed badly to address these and
other constraints so that the banks could play their due role in the economic development of the
country. Although, there is no room for complacency and a lot still needs to be done, even the
worst critics of this government do concede that if there is one sector, which has undergone basic
transformation that is the banking sector.

Banks in Pakistan have been catering basically to the needs of the government organizations,
subsidizing the fiscal deficit, serving a few large corporations and engaging in trade financing.
There was no lending to small and medium enterprises, to the housing sector or to the
agricultural sector, which create most of the growth and employment in Pakistan. Most
important, the financial system suffered from political interference in lending decisions and also
in the appointment of managers.

As private sector credit is rising and money demand is constantly rising from agriculture as well
as manufacturing sectors. These are now offering from 7% to 11% return to their depositors on
term deposits. So it is also giving a strong indication that the people may not withdraw their
savings from banks in an environment where banks have started to give them attractive rates
with much better service than the saving centers. Banks have a vast branch network and provide

3
convenience too. Year 2008 is going to be the fourth consecutive year for double-digit
profitability growth of the commercial banks. The excellent performance of the bank can be
attributable to the prudent fiscal and monetary measures of the government which resulted in the
increased credit demand from private sector, improved spreads, exceptionally increased in non
interest income of the bank (particularly fee income and dividends).

Some of the major reforms achieved in the banking sector to-date include:

• Strong corporate governance by SBP, enforcement of banking license regulations,

transparent financial transactions, independent appointment to Board positions and Chief
Executive Positions, arms length transactions for Board family member representations,
inside trading, regulations of external auditor’s profession, and prudential guidelines for
Board of Directors.

• Strict monitoring and reduction of non-performing loans by active involvement of the

Corporate Industrial Restructuring Corporation (CRIC) and Committee of Revival of Sick
Units (CRSU).

• SBPs removal of restrictions imposed on nationalized NCBs for commercial financing and
incentive schemes for encouragement of mortgage financing by the banks.

• Implementation of Financial Institutions (recovery of finances) Ordinance 2001, and

relaxation of licensing and regulatory environment for Micro Credit and Rural Finance
Institutions, encouraging their establishments at districts, provincial and national levels with
varying capital requirements;

• Mandatory requirement for all banks to get themselves evaluated by credit rating agencies in
order to facilitate depositors to make informed judgments about placing their savings with
the banks.

Historical Background of Al – Baraka Islamic Bank (AIB)

Al Baraka Islamic Bank (AIB) is a member of Al Baraka Banking Group (ABG) which is a
Bahraini Joint Stock Company listed on Bahrain and Dubai stock exchanges and one of the well-
known leading international Islamic banks. ABG is committed to expanding its presence in

4
Pakistan, which is evident from the rapid growth being undertaken by Al Baraka Islamic Bank in
the country and its plans to have its Pakistan operations localized as a Bank registered in
Pakistan, over the next few weeks. Building on the expertise and experience of its workforce and
the growing awareness of Shari‟ahcompliant banking solutions among the masses, AIB has
successfully developed itself as a major unit of ABG operating in the region, capitalizing on the
Group’s geographical presence and high quality research and development in Islamic financial
products for its business expansion in the country. Faced with growing challenges in this rapidly
developing market, AIB strongly relies on its ability to be an effective and efficient market
player through renewed focus on superior customer service, development of Islamic alternatives
to conventional financing facilities, and strict adherence to Shari‟ah rulings and principles.

Al – Baraka Islamic Group

Al Baraka Banking Group is the biggest Islamic banking group listed on the Bahrain Stock
Exchange in terms of capitalization. It has been rated by Standard & Poor's as BBB- with a
short-term rating of A-3. ABG offers retail, corporate and investment banking and treasury
services strictly in accordance with the principles of the Shari‟ah. The authorizedcapital of ABG
is US$1.5 billion, while the total equity amounts to about US$ 1.59 billion. With assets of
US$11.2 billion, the Group has a wide geographical presence in the form of subsidiary banking
Units in 12 countries, which in turn provide their services through more than 250 branches.
These banking Units are Jordan Islamic Bank/ Jordan, Al Baraka Islamic Bank/ Bahrain, Al
Baraka Islamic Bank/ Pakistan, Banque Al Baraka D'Algerie/ Algeria, Al Baraka Bank
Sudan/Sudan, Al Baraka Bank Ltd/ South Africa, Al Baraka Bank Lebanon/Lebanon, Bank Et-
Tamweel Al- Tunisi Al Saudi/ Tunisia, The Egyptian Saudi Finance Bank/Egypt, Al Baraka
Turk Participation Bank/Turkey, Al Baraka Bank Syria (under establishment), and representative
office, Indonesia.

History

Al-Baraka Islamic Bank (AIB) has the honor of being the pioneer of Islamic banking in Pakistan
and has been operating in the country as branches of Al-Baraka Islamic Bank Bahrain since
1991. Over the years, the bank has successfully developed and maintained its identity as one of
the leading providers of a host of banking products and services in strict compliance with

5
Shari‟ah principles. Currently operating with 20 branches in 11 major cities of the country, AIB
offers a wide array of Islamic financing products such as Murabaha, Ijara, Musharaka and
Islamic Export Refinance, etc., catering to a diverse cross-section of the economy, including the
Corporate, SME and Consumer sectors. Moreover, various Shari‟ah compliant deposit schemes
are available for customers to invest their funds in, along with a variety of other ancillary
services such as online banking, ATM/debit card, safe deposit lockers and utility bill payments
etc.

Al - Baraka’s Commitment to Islamic Banking

Al-Baraka Islamic Bank and Al-Baraka Banking Group are fully committed to develop and
promote an integrated Islamic Financial System. Compliance with the rules and principles of
Islamic Shariah is the core of the banking and financial activities and its philosophy. All its
banking activities are very closely regulated by a Board of Shariah Advisors based at the Head
Office in Bahrain and a Shariah Advisor based in Pakistan, to ensure strict compliance with the
highest standards of Islamic Banking principles.

Present Status

Currently the authorized capital of Al – Baraka Islamic is US $ 1.5 billion, while the total equity
amounts to about US $ 1.5 billion. The Group has a wide geographical presence in the form of
Subsidiary banking units in, which in turn provide their services through more than branches.
Currently there are 496 employees working at different branches of Al – Baraka Islamic at
Pakistan.

Credit Rating

JCR-VIS Credit Rating Company Ltd. has reaffirmed the medium long term rating of Al Baraka
Islamic Bank BSC © - Pakistan Branches at A ( single A) with a „stable‟ outlook, the short term
rating is A-1 (Single A-one).

Auditors

Ford Rhodes sidat Hyder & Co., Chartered Accountants, being eligible, have offered themselves
to act as auditors of the Bank for the year ending December 31, 2010.

6
 Board of Directors

• Mr. Khalid Rashid Al Zayani Chairman

• Mr. Adnan Ahmad Yousif Vice Chairman

• Mr. Othman Ahmed Sulieman Board Member

• Mr. Abdul Hameed Nazer

• Board Member

• Mr. Abdul Latif A. Janahi

• Board Member

• Mr., Mousa Adbul aziz Shihadeh

• Board Member

• Mr. Adel Saud Dehlawi

• Board Member

Introduction to AIB Abbott bad branch

To provide the banking facility to people of Abbottabad Al-Baraka Islamic bank Abbottabad
branch Abbottabad was established in 2007 Silk Route Abbottabad. Mr. Tariq Mahmood is the
manager of branch. AIB Abbottabad branch started its operations smoothly and profitable and
with the passage of time, management improved its efficiency and reputation. The branch is
accessible to all remote villages and as well as the posh colonies of Abbottabad. The structure of
AIB consists of a branch manager, remittances, clearing and verification, bills department and
cash department.

7
CHAPTER NO 2

Vision Mission & Values

Vision

To be a leading and a diversified International Islamic Bank, Offering a wide range of Quality
Products and Services and forming strategic alliances for a Competitive Edge.

Mission

We strive to be a Premier Regional Islamic Bank, Dedicated to the Economic and Social
Development of our target market, Maximizing our Clients and Shareholders Value And
focusing on the Human Resource Development In an environment of Creativity and Innovation.

Values

• To enhance shareholder value whilst pursing a strategy of business growth and

geographical expansion.

• To provide innovative and high quality research and development into Islamic financial
products which comply fully with the principles of Shari‟a Law and Islamic values, for
the benefit of our customers.

• To utilize the Group’s geographical presence to distribute its products and services and
promote cross border services.

• To maintain the highest international standards of corporate governance and regulatory

compliance.

Core Values

The bank Management has identified the following core values to achieve its targets:-

• Highest quality of service

• Professionalism, Integrity and Team Work

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 • Innovation & utilization of latest technology

• Corporate & Social Responsibility

• Islamic Banking service

Corporate Profile

The Corporate Profile provides a comprehensive summary of the organization. The Profile
contains the following information:

• Company Business Description

• Industry Classification (Major and Sub Industry)

• Address (mailing), Phone Number, Web Address

• Exchanges Listed, Ticker Symbol

• Senior Officers

• Number of Employees

• Earnings/Dividends

• Financial Ratio Analysis

• Recent Stock Performance

• Sales (recent year)

• Shareholder Information

• Up to 10-year Analysis Summary (Per Share)

Market Price

Value Ratios

• Price/Earnings

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 • Price/Book Value

• Dividend Yield

Equity Capital

• % Earned Growth

• % Profit Rate (ROE)

• Beginning of the Year Book Value

Earnings

• 12 Month Earnings per Share

• Annual percentage Change

Dividends

• % Payout Ratio

• 12 Month Dividends per Share

• Proprietary Wright Quality Rating

PRODUCTS & SERVICES

Striving to develop and an integrated Islamic Financial System. Compliance with the rules and
principles of Islamic Sharia is the core of the banking and financial activities of the Bank. To this
end, Al Baraka has successfully sought the advice and expertise of Islamic scholars acclaimed
for their knowledge and piety from all over the Islamic world to guide its path and monitor its
performance. The Banks‟ activities and operations are regularly scrutinized by its Sharia
Advisory Board.

Products and Services of AIB

Al-Baraka Islamic Bank in Pakistan offers a comprehensive range of banking products and
services. They are:

10
 • Savings and Current Accounts

• Term Deposit Accounts

• Khazana Accounts

• Incentive Accounts

• Murabaha Investment Accounts

• Housing Musharakah

Other Services of AIB

Beside of these banks also offer a large range of services.

Demand Drafts

If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase
AIB‟s (D.D) Demand Drafts at very reasonable rates. Any person whether an account holder of
the bank or not, can purchase a Demand Draft from a bank branch.

Letters of Credit (L/C)

AIB is committed to offering its business customers the widest range of options in the area of
money transfer. If you are a commercial enterprise then our Letter of Credit service is just what
you are looking for. With competitive rates, security, and ease of transaction, AIB Letters of
Credit are the best way to do your business transactions.

Letter of Guarantee

The advances department also issues Letter of Guarantee. L/G is a form of advances against
guarantee. An L/G is an under taking given by a bank to be answered for the debt, default or
miscarriage of another person. It is also defined as a contract to perform the promise or discharge
the liability of third person in case of default. The L/G is opened in the name of a party when
another party with whom they are dealing business requires a bank guarantee.

Travelers Cheque
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Pak Rupees Traveler‟s Cheque are a negotiable instrument. There is no restriction on the period
of validity. Available at all branches of AIB all over the country. There is no limit on purchase.
AIB Traveler‟s Cheque are the safest way to carry our money.

Pay order

AIB provides another reason to transfer money using facilities. Pay orders are a secure and easy
way to move money from one place to another. And, as usual, charges for this service are
extremely competitive.

Foreign Remittances

To facilitate its customers in the area of Home Remittances AIB has taken a number of measures
to Increase home remittances through the banking system and Meet the SBP
directives/instructions for timely and prompt delivery of remittances to the beneficiaries.

Islamic Export Financing

This facility is encouraged to boost exports of the country. Funds are made available from SBP
at lower rates.

Foreign Currency Accounts (FCAs)

Foreign Currency Account in AIB can be opened in three major currencies of the world, i.e.,
U.S. Dollars, European Euro and UK Pound Sterling. Only authorized branches of AIB can deal
in foreign currency account. The accounts can be opened both by Pakistan citizens and
foreigners by introduction and following other procedures required for general accounts with one
exception for foreigners that they will have to submit a copy of their passport. Amount deposited
in the foreign currency account must be in four currencies, which are mentioned earlier. When
the customer will withdraw the money, he/she will receive the amount in the same foreign
currency/profit will also be in the same foreign currency.

There are two types of foreign currency accounts:

• Current Account

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 • Saving Account

These accounts are treated in the same manner as Pak Rupee Accounts.

Online Banking

You now have access to your account 24 hours a day, 7 days a week. You transfer funds or even
pay bills even if it's a holiday; AIB Online is a unique service offering from Al – Baraka Islamic
Bank. Through AIB Online, your account in Al – Baraka Islamic Bank is available to you from
any of our branches country-wide. No matter where you are in the country and which branch
your account is maintained, you can have your cheque encased at any of our branches located in
any cities. You can also use the service to deposit cash for instant credit into your account or any
other account in Al – Baraka Islamic Bank any branch. Similarly account-to-account Funds
Transfer facility is also available for instant remittance.

ATM Network

Al – Baraka Islamic Bank also provide the facilities of ATM card (Barakash). Customers now
have the convenience of withdrawing cash from any of multiple ATMs ("All-Time Banking"
locations) conveniently located in major cities like Karachi and Lahore at any time of the day or
night even on closed days/holidays. Other services include customer being able to inquire about
the AIB balance of his/her account or printing an abbreviated (mini) statement showing the most
recent eight transactions up to the previous working day.

Lockers

Al – Baraka Islamic 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.

Utility Bills

All branches of the Bank collect utility bills of electricity, gas and telephones. For convenience
of the customers, Utility Bills are collected by the branches during banking hours and also in the
evening-banking on all working days. Bills can be paid through Cash or cheques. Consumers

13
may drop bills with crossed cheques into a drop box available at the branches under "Cheques
Drop-in” system.

Departmentalization

The Al-Baraka Islamic Bank has number of interrelated departments that works together to
achieve the specific goals and objectives of the organization. The AIB has built a hierarchical
system that includes the sub departments.

The AIB‟s exiting system includes following departments.

• Deposits department

• Cash department

• Clearing department

• Advances department

• Remittances department

All these departments come under the operations, which is headed/ controlled by the Manager
Operations.

Deposit Department

Basically this department is the pillar of the whole banking system. This is the department which
initiates the relationship between the customer and the bank. Here it the responsibility of the
officer that there is no element of fraud by the customer. For this purpose the bank fulfills the
KYC (Know Your Customer) policy related regulations issued by SBP.

Types of Accounts

Major types of accounts offered in AIB are following:-

• Current Account

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• PLS Saving Account

• Term Deposit Account

Current Account

This type of account is payable to the customer on demand, hence called current liabilities due to
their nature. No profit is given at this account. Minimum amount for opening these types of
accounts is normally about Rs: 5,000/-.

PLS Saving Account

The objective of saving account is to inculcate the saving habit in the general public because
profit is paid on this type of account calculated on every month basis. Minimum amount for
opening these types of accounts is normally about Rs: 2,000/-.

Term Deposit Accounts

In this category Fixed or Term Deposit accounts are offered by the bank. In these types of
accounts the deposit can be withdrawn after a specified period of time. Since the amount in these
types of accounts is deposited for a fixed period so the bank can easily invest them in any
profitable activity and can get return because there is no burden of with drawl by the customer.

Khazana Accounts

• Minimum balance Rs. 250,000

• Higher expected returns then saving account

• Profit: Quarterly

Incentive Accounts

• Minimum balance Rs. 100,000

• Higher expected returns then saving account

• Profit: Half Yearly

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Types of accounts:

bank offer following type of account to their customers.

Individual accounts:

Individual accounts are the most common personal investment accounts. Opened by single
person.

Joint Account

A joint account occurs when two or more than two customers have one account. The parties to a
joint account are considered in law as they are one person.

Business accounts:

Business accounts can be opened by institutions, companies, partnerships, trusts and nonprofit
organizations. Following documents are required.

Departmentalization

The Al-Baraka Islamic Bank has number of interrelated departments that works together to
achieve the specific goals and objectives of the organization. The AIB has built a hierarchical
system that includes the sub departments. The AIB‟s exiting system includes following
departments.

• Cash department

• Deposits department

• Clearing department

• Advances department

• Remittances department

• Government department

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Location

The branch is located at Alfateh shopping plaza, Mansehra road, opposite Radio Station, Jhangi,
Abbottabad. This is very appropriate location because it is in the centre of the city located on a
busy road having offices of many companies and easily accessible to all the inhabitants of the
city.

Number of Employees

Total no of employees that are working in AIB Abbottabad branch is 15.

Assets and Liabilities Management Committee (ALCO)

Assets and Liabilities Management Committee Include Head of Treasury , Head of operation and
Chief financial Officer.

• Mr. Waqas Bin Khalid (Head of Treasury)

• Mr. Khawar Khursheed (Head of operation)

• Mr. Ayyaz Ahmad (Chief Financial Officer)

Credit Committee

Credit Committee consist Of Country Head, Regional Manager, Chief Financial Officer, Branch
Manager, Branch Operational Manager and Branch Credit Officer. At branch level case is
prepared and approved by the first three authorities.

The Credit Committee consists of following people.

• Mr. Shafqaat Ahmed (Country Head)

• Mr. Kaleem Iqbal

• (Regional Manager-North)

• Mr. Ayyaz Ahmad

• (Chief Financial Officer)

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CHAPTER NO 3

SWOT ANALYSIS

SWOT stands for Strength, Weaknesses, Opportunities and Threats. SWOT is useful tool for
providing a framework for analysis of an organization. It is widespread approach to make
assessments in terms of internal and external environment of the organization and to formulate
strategies by analyzing its internal strengths and weaknesses, external opportunities and threats.

SWOT analysis for Al – Baraka Islamic Bank is as follow:

STRENGTHS

Commitment to Islamic Shariah

Striving to develop and an integrated Islamic Financial System . Compliance with the rules and
principles of Islamic Shariah is the core of the banking and financial activities of the Bank. To
this end, Albaraka has successfully sought the advice and expertise of Islamic scholars acclaimed
for their knowledge and piety from all over the Islamic world to guide its path and monitor its
performance. The Banks‟ activities and operations are regularly scrutinized by its Shariah
Advisory Board.

Experienced and Qualified Staff

During the research it has been observed that the staff/personnel of the organization is qualified
and experienced. Many of the bank officials have got advance knowledge and experience in the
fields of management, banking law and practice.

Good PR with Customers

The relationship of the manager and the other staff of the organization is really good with the
customers, which results in good will and loyalty of the customers towards the organization.

18
Good Managerial Skills

The managers are fully aware of the recent managerial concepts and are able to deal with any
type of scenario.

Job Satisfaction at All Levels

Job satisfaction is one of the important factors for the employees to be motivated. The people in
the organization under consideration were found highly satisfied with there jobs.

Quarterly Performance Appraisal

Performance appraisal is the way by which one can evaluate the employee's performance; it
results in the enhancement of the organization's overall performance. The performance appraisal
is done on quarterly basis in this organization, which results in better performance.

Friendly environment

The environment of the organization is very friendly. People over here are very cooperative, not
only with the customers but among themselves as well.

Competent senior management

The senior management in the organization is very much competent and experienced; they
successfully handle different internal and external affairs.

WEAKNESSES

No HR department level at zonal and branch level

Human resource department is one of the foremost requirements of any organization of this age.
The organization under consideration, though contain a HR division at headquarter but there are
no sub divisions at the provincial or branch level. So when different problems related to HR are
raised, they are left unaddressed.

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Centralized decision making

The decision making in the organization is completely centralized which results in the loss of
confidence of the employees over the management, employees may not want to follow the
dictates, rules and regulations.

Lack of frequent training

Though there is training academy at head office, but the training programs are usually confined
to the managerial staff, there is a need of training at all the levels.

Lengthy recruitment process

The recruitment process is quite lengthy which can discourage the new comers. So, there is a
need to shorten the whole process.

Less internal recruitment for new posts

It has been found that in the organization under consideration, if new vacancies are allocated
there is a trend of external recruitment, which results in the dissatisfaction of the current
employees.

Lack of Marketing Effort

The bank does not promote its corporate image, services, etc on a competitive way. Hence lacks
far behind in marketing effort. A need for aggressive marketing is there in the era marketing in
now becoming a part of every organization.

OPPORTUNITIES

More qualified people in the market

Due to the increase of interest of people in business field, many business institutions have been
established, which produces a good lot of qualified and competent business professionals. So, the
organization under consideration can hire more qualified people from market.

20
Effective utilization of internal human resources

People working in the organization get use to the norms and values of the organization, so these
expirees can be utilized within the organization whenever required.

Training can enhance the employee’s skills

Training and development is one of the important functions of human resource management. If
the staff of the organization are properly trained and developed they will add to the value of the
organization.

THREATS

Increase in Competition

The increasing competition in local as well as national and multinational level also lower down
the profitability of the bank and compelling the bank to use a large amount of funds to meet out
competition.

Good job opportunities outside

The other organizations of similar nature are offering more salaries and benefit packages to their
employees. So, there is a threat to the organization that their current employees may leave it.

Uncertainty about future change

An uncertainty about the future changes has been noticed among the employees of the
organization, it results in dissatisfaction and demotivation of the employees, which is a serious
threat to the organization.

Other organizations are using better HR techniques

Other organizations of similar nature are using better and recent HR techniques, so they have got
an edge to facilitate their employees whenever they need. It can be a serious threat to this
organization as their employees would not be satisfied of their own organization which will
affect their performance.

21
CHAPTER NO 4

Financial Statement Analysis

Financial measures are also used to rank a company's performance. The analysis of financial
data employs various techniques to emphasize the comparative and relative importance of the
data presented and to evaluate the position of the firm. These techniques include ration analysis,
common –size analysis, study o differences in components of financial statements among
industries etc.

The information derived from these types of analysis should be blended to determine the overall
financial position. No one type of analysis supports overall findings or serves all types of users.
Financial statement analysis is a judgmental process. One of the primary objectives is
identification of major changes (turning points) in trends, amounts, and relationships and
investigation of the reasons underlying those changes. Here only two type of analysis is done.

• Common size Analysis

• Ratio Analysis

Common Size Analysis

Common-size analysis expresses comparisons in percentage. The use of percentages is

usually preferable to the use of absolute amounts. The use of common-size analysis makes
comparisons of firms of different sizes much more meaningful.

It has the following types

• Horizontal Analysis

• Vertical Analysis

Horizontal Analysis

Horizontal analysis compares each amount with a base amount for a selected base year or
we take each item of base year as 100% and compare with other items.

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 AL Baraka bank of Pakistan

Balance Sheet

As on 31st December 2018 & 2019

2018 (Rupees in 2019 (Rupees in
Narration
000 ) 000 )

ASSETS

Cash and balances with treasury

banks 14934799 26319937

Balances with other banks 854171 2850550

Lending to financial institutions - 14598633

Investments - net 21345325 24194885

Advances – net 75011976 75443721

Operating fixed assets 2310578 4877578

Deferred tax assets 3238909 2839139

Others assets – net 9544420 9389888

Total Assests 127240178 160514331

LIBILITIES

Bills payable 3697477 3223721

Borrowings 3836022 4278132

Deposits and other accounts 99915011 129654288

Sub ordinated loan 3746377 3460661

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Deferred tax liabilities – net - -

Other liabilities 6913069 8633860

118107956 149250662

NET ASSESTS 10705083 12731564

Net Assets 10705083 12731564

Represented By:

Share capital 13106862 14500490

Reserves 159348 179384

Unappropriated profit 8031610 12923326

Surplus on revaluation of assets -

net of tax 353212 1185540

21651032 28788740

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 AL Baraka Bank of Pakistan

Profit and Loss Account

For the Year ended 31st December, 2018

2018(Rs. In 2019(Rs. In
Narration
000) 000)

Mark-up /return / interest earned 8031610 12923326

Mark-up /return / interest expensed 3872299 7912215

Net spread earned 4159311 5011111

Other income

Fee and commission income 682801 748419

Dividend income 36269 31473

Foreign exchange income 441738 734556

Loss on securities 31330 95086

Other income 24757 10841

Total other income 1154235 1430203

Total income 5313546 6441314

Other expenses

Operating expenses 4782531 5214659

Workers welfund - 155

Other charges 5998 28499

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 Total other expenses 4788529 5243303

Profit before provisions

Provisions and write offs – net 770029 1190441

Extra ordinary /unusual items - -

Profit / (loss) before taxation 245012 7570

Taxation 199256 8716

Loss after taxation 253725 191686

Loss per share – basic/diluted

AL Baraka bank of Pakistan

STATEMENT OF C0MPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

2018(Rs in 2019(Rs in
Narration
000) 000)

Less after taxation for the year 253728 191686

Other comprehensive income

Items that may be reclassified to profit

and loss account in subsequent periods:

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 Movement in surplus on revaluation of 181978 924794
investments – net of tax

Items that will not be reclassified to profit

and loss account in subsequent periods:

Remeasurement (loss)/gain on defined 14817 8084

benefit obligations – net of tax

Movement in surplus on revaluation of non 205 92171

banking assests – net of tax

14612 100255

Total comprehensive income / (loss) 57138 632853

ANALYSIS OF FINANCIAL RATIOS

RATIOS

Ratios are a valuable analytical tool when used as part of a through financial analysis. They can
show the financial standing of a particular organization, with in a particular industry. But ratios
alone can sometimes be misleading. Ratios are just one piece of the financial jigsaw puzzle that
makes up a complete analysis. They cannot be used in isolation. Seasonally can distort ratios, as
a demographic and economic factor like cyclicality. Many balance sheet ratios are not as helpful
with service organizations that don’t carry much inventory in interpreting financial ratios to
assess the firm’s performance and status. The basic inputs to ratio analysis are the firm’s income
statement and balance sheets for periods to be examined. Ratio analysis of an organization’s
financial statement is of interest to its shareholders, creditors and the firm’s own management.
Both present and prospective shareholders are interested in the organization’s current and future
level of risk and returns. These two dimensions directly affect share price. The firm’s creditors
are primarily interested in the short-term liquidity of the organization and in its ability to make

27
interest and principal payments. A secondary concern of creditors in the organization’s
profitability, as they want assurance that the business is healthy, and will continue to be
successful. Management, like stockholders must be concerned with all aspects of the
organization’s financial position. Thus, it attempts to operate in the manner that will result in
financial ratios that will be considered favorable by both owners and creditors.

CAUTIONS FOR DOING RATIO ANALYSIS

A single ratio does not generally provide sufficient information from which to judge the overall
performance and status of the organization. Only when a group of ratios is used can reasonable
judgments be made. If an analysis is concerned only with certain.

specific aspects of an organization’s financial position, one or two ratios may be sufficient.

The financial statements being compared should be dated at the same point in time during the
year. If they are not, the effect of seasonally may produce erroneous conclusions and decision.

1. It is preferable to use audited financial statements for ratio analysis. If the statements have not
been audited, there may be no reason to believe that the data contained in them reflect the
organization’s true financial conditions.

2. When the ratios of one organization are compared with those of another or with those of the
organization itself over time, result can be distorted due to inflation. Inflation can cause the book
values of inventory and depreciable assets to differ greatly from their through replacement
values.

GROUPS OF FINANCIAL RATIOS

Financial ratios can be divided for convenience into the following groups:

1. Liquidity ratios

2. Debt ratios

3. Profitability ratios

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Liquidity, activity and debt ratios primary measure risk. Profitability ratios measure return. In
the near term the important elements are liquidity, activity and profitability, because these
provide the information that is critical to the short-run operation of the organization.

Analyzing Liquidity of the organization is measured by its ability to satisfy its short-term
obligations as they come due. Liquidity refers to the solvency of the organization overall
financial position-the case with which it can pay its bills.

The two basic measure of liquidity are

1. Networking capital.

2. The current ratios.

TABLE-E

2018 (in 000 Rs) 2019 (in 000 Rs)

Current Assets 15,788,970 29,170,487

Current Liabilities 7,533,499 7,501,853

Current Ratios

A measure of liquidity calculated by dividing the organization’s current assets by its current
liabilities i.e.

Current ratios=current assets/current liabilities.

The current for the previous year that is 31st December 2018

Current ratio = 15,788,970/7,533,499

Current ratio = 2.0958

The current for the previous year that is 31st December 2019

Current ratio = 29,170,487/7,501,853

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Current ratio = 3.8884

Conclusion

The current ration of Al Baraka bank in 2018 is 2.0958 and in 2019 the current ratio is 3.8884 it
means the ratio increase in 2019.The financial position of Bank is more stable in 2019 compare
to 2018. In 2019 Bank has easily mange its short term liabilities because in 2019 ration is better
than 2018 that is good sign for the Al Baraka bank in 2019.

Analyzing Debt

The debt position of an organization indicates the amount of other people’s money being used in
attempting to generate profits. In general, the financial analyst is most concerned with long-term
debts, because these commits the organization to pay interest over the long run as well as
eventually repaying the principal borrowed. Because creditors claims must be satisfied before the
distribution of earning to shareholders & prospective shareholders pay close attention to degree
of indebtedness and ability to repay debts. Lenders are also concerned about the organization’s
degree of indebtedness and ability to repay debts, because the more indebted the organization,
the higher the probability that the organization will be unable to satisfy the claims of its
creditors.

Management obviously must be concerned with indebtedness in recognition of the attention paid
to it by the stockholders and the increased interest in keeping the organization solvent.

There are two general types of debt measures:

• Debt to total Assets ratio.

• Debt to share holder equity ratio.

Debt to Total Assets Ratio

The debt ratio measures the properties of the total assets financed by the organization’s creditors.
The higher this ratio, the greater the amount of other people’s money being used in an attempt to
generate profits.

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Debit ratio=Total liabilities/Total assets

TABLE-F

2018 ( in 000 Rs) 2019 ( in 000 Rs)

Total Debt 13266210 1467874

Total Assets 128813039 161982226

The debt total assets ratio for the previous year that is 31st December 2018.

Debt to total assets Ratio=Total Debt/Total Assets

Debt to total assets Ratio =13266210/1467874

Debt to total assets Ratio =9.0377

The debt to total assets Ratio for the year that is 31st December 2019.

Debt to total Ratio assets Ratio =128813039/161982226

Debt to total assets Ratio =0.7952

Conclusion

In the year 2018 debt ratio is Rs.9.0377 and in 2019 debt ratio stands at Rs 0.7952.So this
proportion shows that the bank has effectively used the assets in the year 2018 as compare to
2019.

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Debt to Share Holder’s Equity Ratio

TABLE-G

2018 ( in 000 Rs) 2019 ( in 000 Rs)

Total Debt 12265321 13869732

Total Equity 13266210 14679874

The debt to shareholder’s equity ratio for the previous year that is 31st December 2018.

Debt to equity Ratio=Total Debt/Total Equity

Debt to equity Ratio =12265321/13869732

Debt to equity Ratio =0.8843

The debt to equity Ratio for the year that is 31st December 2019.

Debt to equity Ratio = 13266210/14679874

Debt to equity Ratio=0.9037

Conclusion

The debt to equity ratio in 2018 is more than 2019 it means the Bank is getting more of its .
means the Bank is getting more of its financing by borrowing money in 2018 compare to
2019.The higher ratio indicate that the Bank take more risk to getting more of its financing by
borrowing money 2018.

Analyzing Profitability

There are many measures of profitability. Each relates the return of the organization’s to its
sales, assets equity or shares value. As a group, there measures allow the analyst to evaluate the
organization’s earnings with respebct to a given level of sales, a certain level of assets, the
owner’s investment, of share value. With profits, an organization could not attract outside
capital. Moreover, present owners and creditors would become concerned about the

32
organization’s future and attempt to recover their funds. Owners, creditors and management pay
close attention to boosting profits due to the great importance placed on

The main two ratios are;

1. Return on total investment (ROI)

2. Net profit margin

3. Return on shareholder’s equity ratio (ROE)

Return on Total Investment (ROI)

The return on investment (ROI), measures the overall effectiveness of management in generating
profits with its available assets. The higher the organization’s return on total assets, the better.

The return of total investment is calculated as;

Return on total investment (ROI) =net profits after taxes/total assets.

TABLE- H

2018 ( in 000 Rs) 2019 ( in 000 Rs)

Net Profit/loss after taxes 770029 1190441

Total Assets 128813039 161982226

The return on total investment for the previous year that is 31st December 2018

Return on Investment Ratio = Total Assets Profit / Loss after Taxation

Return on Investment Ratio =128813039/770029

Return on Investment Ratio =167.283

Return on total investment for the year that is 31st December 2019

Return on Investment Ratio =161982226/1190441

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Return on Investment Ratio =136.0690

Conclusion

This is also known as return on assets ratio as well. The ratio analysis of return on investment shows the
Bank get more profit in 2018 as compare to 2019 in 2019 Bank get rs.136.0690 in every each rupee and
in 2018 Bank gets 167.283 that is better for Bank means Bank profit increase in 2019.

Net Profit Margin

TABLE- I

2018 ( in 000 Rs) 2019 ( in 000 Rs)

Net Profit after taxes 245012 7570

Revenue 525017 1198011

The net profit margin for the previous year that is 31st December 2018

Net Profit Margin = venues Net profit after taxes/Revenue

Net Profit Margin Ratio =245012/7570

Net Profit Margin Ratio =32.3661

Net Profit Margin Ratio for the year that is 31st December 2019

Net Profit Margin Ratio=525017/1198011

Net Profit Margin Ratio=0.4382

Conclusion

The net profit margin also known as net margin as well in term. The bank get more less revenue
in 2019 as compare to 2018. In 2018 net profit margin is 32.3661and in 2019 it decrease to
0.4382 a higher net profit margin means that bank is more efficient at converting sales into actual
profit.

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Return on Equity (ROE)

It measures the earning power on shareholders’ book value investment. A high return on equity
often reflects the firm’s acceptance of strong investment opportunities and effective expense
management. Higher the ratio more the risk for entity, and more returns for shareholders.

The return of equity ratio is calculated as;

Return on equity (ROE) =net profits after taxes/shareholder’s equity.

TABLE- J

2018 ( in 000 Rs) 2019 ( in 000 Rs)

Net Profit after taxes 245012 7570

Shareholder’s Equity 13106862 14500490

The return on equity for the previous year that is 31st December 2018

Return on equity Ratio = net profit after taxes/shareholder’s equity

Return on equity Ratio =245012/7570

Return on equity Ratio =32.3661

Return on equity for the year that is 31st December 2019

Return on equity Ratio =13106862/14500490

Return on equity Ratio =0.90389

Conclusion

Return on equity suggests that the bank is increasing its profit generation without needing as
much capital. This ratio shows that there is 15% return on equity in the year 2018 that was
increase in 2019 to 20%. A higher return on equity is usually great while a falling in Return on
equity may indicate a less efficient usage of equity capital.

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 DuPont Analysis

In the 1920s, the management at DuPont Corporation developed a model called DuPont Analysis
for a detailed assessment of the company’s profitability. DuPont Analysis is a tool that may help
us to avoid misleading conclusions regarding a company’s profitability. The analysis of a
company’s profitability involves some nuances. For example, in the ROE formula, we use
the book value of the company’s common equity. This calculation method may be misleading, as
we cannot be sure what resulted in the change in the common equity. To avoid erroneous
conclusions based on the ROE analysis, we can use a more in-depth analysis of this measure.

Profitability and ROE

Profitability is a measure of a business’s ability to generate earnings relative to its expenses and
other costs. It is one of the most important metrics for the evaluation of a business’s success.
Return on Equity (ROE) is a commonly used accounting ratio that assesses a company’s
profitability. It represents the amount of profit returned as a percentage of the amount of money
that the shareholders invested. The ROE is calculated by:

ROE may provide useful insights about the company’s performance, as we can easily define the
benchmark for this measure. For example, if you are an investor looking for new investment
opportunities, you can easily compare the ROE of different companies and choose the one with
the highest metric as it promises to return you the biggest profit for the amount of money
invested.

Basic DuPont Model

The basic DuPont Analysis model is a method of breaking down the original equation for ROE
into three components: operating efficiency, asset efficiency, and leverage. Operating efficiency
is measured by Net Profit Margin and indicates the amount of net income generated per dollar of
sales. Asset efficiency is measured by the Total Asset Turnover and represents the sales amount
generated per dollar of assets. Finally, financial leverage is determined by the Equity Multiplier.

The equation for the basic DuPont model is as follows:

ROE = Net Profit Margin * Total Assets Turnover *Equity Multiplier

36
DuPont Analysis of 2018

DuPont Analysis = Net Profit Margin*AT*EM

0.29955*0.13770*49.1284

=2.02644

=202.644%

DuPont Analysis of 2019

DuPont Analysis = Net Profit Margin*AT*EM

=0.2406*0.16522*0.6177

=0.02455

=2.455%

We can also represent the components as ratios:

The first two components assess the operations of the business. The larger these components, the
more productive the business is. However, it is worth mentioning that, depending on the industry
in which the company operates, Net Profit Margin and Total Asset Turnover tend to trade off
between each other. For example, a machinery manufacturer is likely to generate a low turnover
of assets and require some heavy investments; thus, this company will probably see a high profit
margin to offset the low turnover.

On the other hand, a fast-food restaurant is likely to see high asset turnover but a much smaller
profit margin due to the lower prices. The last component, financial leverage, captures the
company’s financial activities. The more leverage the company takes, the higher the risk of
default.

Nevertheless, even if the company operates in the world in which there is no probability of
default, additional leverage still results in a negative effect on ROE. Additional leverage means
that the company needs to pay more interest, which lowers the net income. Subsequently, the
company sees a lower Net Profit Margin.

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 Horizontal Analysis

2018 2019 Amount

Assets

Cash and 14,934,799 26,319,937 1138513 76.2322

balance 8 %

Balance of 854,171 2,850,550 1996379 233.721

other banks %

Due from _ 14,598633 1459863 1.459%

financial 3
institution

Investment 21,345,325 24,194,885 2849560 13.3498

%

Islamic 75,011,978 75,443,712 431734 0.57555

financing %
and related
assets _net

Fixed assets 2,310,578 4,877,576 2566998 111.097

%

Intangible 1,572,861 1,467,904 -104957 -6.6729%

Assets

Deferred tax 3,238,909 2,839,139 -399770 -12.342%

Other assets 9,544,420 9,389,888 -65532 -0.6866%

128,813,03 161,982,22
9 6

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Liabilities

Bills payable 3,697,477 3,223,721 -473756 -12.812%

Due to 3,836,022 4,278,132 442110 11.5252

financial %
institution

Deposit or 99,915,011 129,654,28 2973927 29.7645

account 8 7 %

Subordinate _285517 -7.6211%

d debts 3,460,860
3,746,377

Deferred tax - -
liabilities

Other 6,913,069 8,633,860 1720791 24.8918

liabilities %

118,107,95 149,250,66
6 2

Net Assets 10,750,083 12,731,564

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CHAPTER NO 5

CONCLUSION AND RECOMMENDATIONS

Conclusion

The Al – Baraka Islamic Bank is a new emerging bank and it is trying to get market share in the
presence of national and foreign banks operating in the country. It has played an important role
in boosting the economy of the country but there always exists some room for improvement.
After observing this AIB very closely and its HR department in particular, following outcomes
have been concluded.

• The decision making is still centralized as the middle and low level management is not
taken into confidence.

• There are no sub divisions at the provincial or branch level. So when different
problems related to HR are raised, they are left unaddressed.

• Most of the employees working in this branch are not much familiar with
computer. They just know how to use their part of software if any problem comes
in the computer they can't fix it.

• The spacing requires expansion. The employees are seated congested .If the
customers exceed more than fifteen in number, then the branch get filled with lot
of disturbance.

• The recruitment process is very lengthy it should be trimmed.

• The marketing efforts at the branch level are less disciplined and there are no
integrated efforts from all the staff members. The mobilization of deposits is
mainly considered as the responsibility of the branch manager but the rest of the
staff is usually least interested.

40
Recommendations

As I have spent two months in AIB Abbottabad Branch for the Internship purpose. During this
period I have tried my best to observe the banking environment in the AIB. I have observed a lot
of strengths and weaknesses in the branch. On the basis of this observation I have come up with
certain recommendations particularly related to the AIB, Abbottabad Branch but generally can
be applicable to the whole banking system of Pakistan including all other branches of Al –
Baraka Islamic Bank for improvement. These recommendations will help to cope with the
problems being faced by the Bank and will enhance the efficiency and performance of the AIB in
particular and all the banking sector of the country in general.

From the previous analysis of the financial statements I have realized that that Al – Baraka
Islamic Bank is performing very well since its inception. It is quite difficult to give suggestion to
improve the banking conditions AIB. As we know that nothing is perfect, there is always a room
for improvement, so I will recommend following suggestions for AIB:

• Employees Training programmers must be introduced on continuous basis so that Employees

have understanding with the latest developments especially with the customers.

• Bank should introduced incentive plans for employees on regular basis so that if employees
may work whole heartedly for the welfare of their organization. While giving incentives
qualification, work, experience, hard work and such other factors must be considered.

• Mismanagement of resources must be avoided as much as possible as it decreases profit but

also discourage hard worker and honest employees.

• Fresh graduates must be recruited. As the combination of Experienced and fresh can produce
better results and it will improve the efficiency of management.

• AIB is going towards mobile banking but the problem is that a common client has no idea of
its usage due to lack of marketing. I think that a proper marketing programmed must be
launched for client's awareness.

• Banks different schemes must be conveyed to the targeted customers so that to have a
reasonable share in market

41
• To motivate the employees their remuneration / salaries should be made at par with top tier
Banks.

•
Aggressive publicity campaign must be introduced through press and Electronic media for
new products and scheme by initiating vigorous marketing policy.

• Bank should adopt such an induction plan that when a customer opens his account with the
bank he should be supplied with a booklet which enables him to know the procedure of filing
the cheques, pay-in-slip etc. It will save a lot of time of the bank staff afterward during the
conduct of the account of that customer.

• The attitude of the bankers with all of their customers is not the same; they pay more
attention and good service to some of the customers and neglect a major portion of them.
Some of the customers approach to the bank officials and get their work done before others;
it is not a good practice. All the customers should be treated equally.

• AIB should increase its communication with customers about the terms and conditions of its
different products and services.

• Misuse of telephone internet, fax machines and other facilities available to the employees of
the bank must be handled properly

• In AIB mostly recruitments are done through recommendations or references of employees.

Recruitment should be strictly on merit with no other favor given to any candidate. Selection
should be on the basis of test and interview as like Muslim Commercial Bank (MCB) and
other banks etc. this will ensure the entry of competent and worthy employees into the bank.

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

42