Internship Report-Akbl
1. Objectives of Studying the Organization
Purpose of studying this organization because of good reputation of this bank and Askari Bank Multan branch is the key business holding branch in the Multan city. I think this bank provide better jobs opportunity as compare to other organizations, that 's why I choose this organization for internship.
Another reason for studying this organization is that, the Multan branch is carrying corporate status and better learning opportunities are available there for me, therefore I preferred to perform my internship in this bank and here I gained practical experience related with my course and I come to know how bank use the policies and strategies and how evaluate its performance.
I feel pleasure and honor that I got the opportunity to work in such a privileged and reputable bank of the country. During my internship program I tried my every best to equip myself with all important knowledge. Furthermore I also learned a lot that how to deal with corporate clients and what their requirements are. In this report, I have tried to humble endeavor to cover various aspects of bank like, introduction, its history, main departments, culture, objectives and working financial analysis.
2. Overview of the Organization
2.1 Brief History of the Organization
Askari Bank Limited works as a Unit of Army Welfare Trust was established for the Welfare of Army Officials. The office of Army Welfare Trust is situated at AWT Plaza, Rawalpindi. AWT offers the "AWT Saving Scheme" to the army officials only. AWT has its units as under: • Askari Associates. • Askari Leasing. • Askari General Insurance. • Askari Cement. • Askari CNG. • Textile Mills. • Askari Bank Limited.
Askari Bank Limited was incorporated on October 9, 1991, as a Public Limited Company, and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The Bank obtained business commencement certificate on February 26, 1992 and started operations form April 1, 1992. Askari Bank limited is scheduled Commercial Bank and is principally engaged in the business of Banking as defined in the Banking Companies Ordinance 1962.
Askari Bank Limited continues to scale new heights in all areas of its operations. The safety and security of depositor 's funds, high productivity and optimum use of technology are the hallmarks of its corporate strength. In 1994, Askari bank limited earned international recognition as Asia Money Award and the title of "Best Bank of Pakistan” for the year 1995. In 2009, the bank has won the best award in agriculture sector performance.
2.1.1 Askari Bank Limited Multan
Askari Bank Limited was inaugurated on December 28, 1994. It is located on Abdali Road Opposite to PIA Office. The location is connected to all the main trade centers in Multan. It is a prosperous branch streaming towards great achievements. At the time of its establishment the factors that were considered are as follows • Multan is zone covering a large population. • Multan is the main city of Southern Punjab. • Multan City is linked to many big cities. • Multan is the textile city because of cotton ginning factories and textile mills. • Multan has one of the biggest Fertilizers Company named as Pak Arab Fertilizers Ltd. • Agro based area constituting growers and gainers. • Multan is Army 02-Corpse Head Quarter. • Educational Institution.
2.2 Nature of the Organization
It is a commercial bank providing lending services to consumers and corporate bodies, the basic purpose of the bank is to earn profit. This bank is known as Askari Bank Ltd. The head office of Askari bank Ltd. is situated in Rawalpindi. Multan is a cotton city, so to get the export market of cotton Askari Bank Ltd. open its branch in Multan in December, 1994. In a short span of time this branch increases their business remarkably. In 2001 this branch gets the trophy of highest profit for the year 2001. This branch has highest deposits and advances as compare to other banks working in Multan. In 2009, the total numbers of branches are 177 all ever the country. Every bank deals in money, accept the money from those people who have spare it, and give them who have need it, basically bank is a business of money.
Askari bank Ltd, like other commercial banks deals in money accepts the deposits from people and lends them who need it.
2.3 Business volume of the Askari Bank Limited In 'Million '
Business Volume
|Rupees in '00 | |
|2006 |2007 |2008 |2009 |2010 | |
|4,688,057 |5,452,898 |6,630,349 |7,101,372 |6,376,997 |Revenues |
|83,318,795 |118,794,690 |131,839,283 |143,036,707 |167,676,572 |Deposits |
|69,838,392 |85,976,895 |99,179,372 |100,780,162 |128,818,242 |Advances |
|1,255,848 |1,507,018 |2,004,333 |3,006,499 |4,058,774 |Share Capital |
In 2008, the profit of the Askari Bank Ltd. Abdali road Multan Branch was 146 Million. The business volume in terms of revenue, deposits, and advances of the Askari Bank of all branches is such as given bellow:
1. Deposits.
Customer deposits increased to Rs. 167 billion by end 2008, an increase of 11% over last year. A compensation of deposits by type reveals that current accounts i.e. non remunerative accounts increased by 19% followed by saving deposit accounts, which increased by 11% over the previous year. The fixed deposits increased by 6%.
2. Advances
Advances of the bank rose from Rs.68.838 Billion in year 2004 to Rs. 128.818 Billion which is a great achievement of the bank and the bank did it in just five years. It also shows the borrower 's confidence on bank schemes and policies.
3. Share Capital
The share capital of the bank also rose from Rs. 1.255 Billion in the year 2004 to Rs.4.058 Billion in the year 2008 which clearly shows the investors confidence on the bank 's policies and management.
3. Earnings per share.
Earnings per share increased by 11% fro Rs. 10.09 last year restated for issue of bonus shares during the year, to Rl. 1123 at the dose of year.
3. NPLs and provisions against NPLs.
NPLs increased by 54% during the year to Rs. 3825 million from Rs.3920 million from last year due to further downgrade of few large exposures. While these NPLs are being closely monitored for recovery, Rs.1128 million has been appropriated as provisions against non-performing advances, against previous year 's Rs. 639 million. During the year, the base of general provision was revised from judgmental to consistent vases and now general provision is maintained @ 5% on all performing advances except consumer advances-general provision on consumer advances is maintained as per SBP prudential regulations for consumer finances.
2.4 Number of Employees
Total number of staff in the Askari Bank Limited, Abdali Road Multan is 57, including five Executive, three peons, one president and remaining are the employees. Total number of employees of all the branches of Askari Bank Ltd is almost 6500. The cadre wise break up of employees is as follows,
Number Cadres
|01 |President & CEO |
|08 |SEVP |
|16 |EVP |
|32 |SVP |
|84 |VP |
|170 |AVP |
|240 |Manager Grade |
|580 |Assistant Manager Grade |
|1100 |OG-I |
|1580 |OG-II |
|2056 |OG-III |
|633 |Clerical and Misc |
|6500 |Total |
2.5 Product Lines/Services offered by the Askari Bank Limited
Askari bank offered the following products and service to its customer,
2.5.1 Consumer Banking Services
The Consumer Banking Services offered by the bank are reorganized by combing consumer financial business and credit card business under one umbrella and was renamed as consumer banking services group. Consumer financing offers auto, mortgage, personal and business financing as the core products.
1. Personal Finance
One can avail unlimited opportunities through Askari Bank 's Personal Finance. With unmatched financing features in terms of loan amount, payback period and most affordable monthly installments, Askari Bank 's Personal Finance makes sure that everyone gets the most out of loan. No matter what need is, Askari Bank has more ways to serve than ever before.
2. Mortgage Finance
Ever since the inception of life, shelter has been rated among the primary needs of mankind. Owning a home for oneself still remains an exclusive dream for many. Askari Bank has made the realization of dream to have a house very own possible. Whether anybody plans to build a house, tailor made to his requirements or buy a constructed house, Askari mortgage finance enables everybody to pursue its goal without any problems.
3. Business Finance
The customers always want to put in that extra money into business, which makes it grow and grow.
4. Smart Cash
It is a cash finance facility in which the borrower can overdraft some sanctioned amount. It is a running finance facility, in which the borrower can withdraw the amount which he needs, and after satisfying its need he can repay the amount. The mark-up is charged only the outstanding amount. It is time bound facility and expires after some specific time.
5. Askari Debit card
Askari Debit Card means freedom, comfort, convenience and security, so that you can have retail transactions with complete peace of mind. Askari Debit Card is your new shopping companion which enhances your quality of life by letting anybody do shopping, dine at restaurants, pay utility bills, transfer funds, withdraw and deposit cash through ATM anywhere, anytime.
6. Travelers ' cheques
Askari Bank offers its "Rupee Traveler Cheques" eliminating all financial risks while traveling. So avoid risk of carrying cash through Askari Bank 's Rupee Traveler Cheques.
7. Value plus Deposits
These are the unique deposit accounts in which profit rates are relatively high and insurance is also available to the borrower up to the extent of the deposit kept in the account.
2.5.2 Islamic Banking Services
Islamic Banking was launched under the brand 'Askari Islamic Banking ' by opening 6 dedicated Islamic banking branched in major cities of the country.
1. Islamic Corporate Banking
These are the banking facilities which are specifically offered to corporate customers of big firms.
2. Islamic Investment Banking
These are the banking facilities which are offered to the investors like investment funds.
3. Islamic Trade Finance
These are the banking services which are offered to the import and export companies like LC, Pre-shipment or Post-shipment facilities.
4. Islamic General Banking
These are the general banking facilities like account opening, Pay order or demand draft issuance etc, which are offered to all customers.
5. Islamic Consumer Banking
These are the consumer banking services which are offered to small customers like personal finance, mortgage finance, car leasing etc.
2.5.3 Agriculture Finance
Askari Bank 's Agriculture Credit Schemes ware launched in 2004 under the umbrella of Agriculture Credit Division continue to be an attractive Products for meeting ON Farm and OFF Farm financial requirements of the farmers.
l. Kissan Ever Green Finance
Askari Bank has launched this program with the sole motive to provide dignity, prosperity and freedom to the tiller of the land. The program is designed to help small, medium and large farmers in meeting their short-term input requirements against one time sanction and automatically renewable up to 3 years subject to its stipulated utilization/periodical adjustment. The credit line is sanctioned in the light of available cash flows and input requirements i.e. Seeds, Fertilizer & Pesticides etc.
2. Kissan Farm Mechanization Finance
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
3. Kissan Aabpashi Finance
Agriculture farming is impossible without adequate water. Askari Bank has started a program for farmers, to finance installation of Tube-Wells (electric, diesel and solar energy units) water management equipments and water channel development etc., which will help farmers to make optimum use of limited water resources.
4. Kissan Livestock Development Finance
Askari Bank has launched a program enabling the farmer to purchase Milk Animals, Goats, Sheep, Poultry and Fisheries without incurring extra expenditure because of availability at his farm. This program has the added advantage that besides fulfilling his own family 's consumption needs he will be able to market the surplus and earn additional income. This will further improve their cash flows to repay their other Loans / Revolving Credit on due date.
5. Kissan Farm Mechanization
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
6. Kissan Farm Transport finance
Askari Bank has launched an Askari Kissan Farm Transport Finance. A grave handicap that afflicts the farmers is their inability, due to lack of proper facilities, to take their produce to the market through efficient means of transportation. One can safely conclude that if provided with appropriate and speedy transport, the farmer can benefit by enhancing his selling ability and thus increase his income / cash flow, it is pertinent to mention that a number of Banks, Leasing Companies and Private Agencies have geared their marketing efforts to concentrate on and have mainly captured the urban markets.
2.5.4 Corporate & Investment Banking
Corporate Banking is managed by a central corporate banking division based at head office Rawalpindi and supported by dedicated marketing and back office unites in Karachi, Lahore and Rawalpindi.
The investment banking activity mainly covers debt/capital markets, advisory services and trading. The division also offers advisory and loan syndication services.
3. Organizational structure
3.1 Main offices (Head office and Branches)
The head office of the Askari bank Ltd is situated at AWT Plaza, The mall, Rawalpindi and the total branches are 177. The branch network is given in Annexure-III. During the year, Islamic Banking was launched under the Askari Islamic Banking, by opening 6 dedicated Islamic Banking branches in major cities of the country. Further expansion is planned with improved capabilities for offering products conferring to the shariah principles.
Hierarchy of complete organization is attached in annexure-I. and Branch level hierarchy is at annexure-II.
3.2 Review of the Various Departments of the Organization
The bank has following department:
1. DEPOSITS • Account Opening department • ATM Department • Cash Department
2. ADVANCES • Credit Department • Credit Card Department • Foreign Trade Department
4. Remittance Department • Remittance Department • Clearing Department
5. Others • Accounts Department
DEPOSITS
3.2.1 Account Opening Department
Askari Bank Ltd accepts/collects deposit from their accountholders. The deposits are the life blood of any bank. Deposits are of great importance to banks. Deposits are the blood of banks because banks lend these deposits to other needy people or invest these funds in different projects and earn income. This is distributed among the depositors and the banks themselves. The bank earns the difference amount between the lending rate and the deposit rate.
Individual bank deposits provide the least expensive cost of new money for the bank to loan out. The large amounts of people and deposits help the banks make lots of profit since the banks charge at prime rate (set indirectly by the country 's bank) and the banks pay a low nominal interest on the deposits. Money is needed to add new infrastructure (road, bridges, sewers, factories, etc) and capital equipment (machinery, assembly robots, etc) in order to grow the economy. The banks are reluctant to borrow from other banks or other sources (such as rich persons) since the interest rate charges is much higher than the banks would pay individual deposits.
For obtaining a deposit and account in the bank must be there where the deposit is placed. For this an account opening form is provided to prospective Customer. At the same time introduction of that Customer is an integral condition so that provided information by that Customer may also be got Authenticated. Borrowing funds from different sources has become an essential feature of today 's business enterprises. But in the case of a bank borrowing funds from outside parties is all the more vital because the entire banking system is based on it. Now its importance is higher, as the SBP has imposed the equity limit for lending purpose. This year the banks must reach the equity of Rs.6.00Billion which will be increase gradually. It means the bank can finance up to the limit of their own equity as prescribed by the bank. The borrowed capital of a bank is much greater than its own capital. Banks borrowing is mostly in the form of deposits. These deposits are lent out to different parties. Such deposit creation is done through opening an account in the Bank.
3.2.1.1 Types of Accounts
In Askari Bank Limited, there are the following types of accounts: • Current account. • Saving Account. • Basic Banking Account • Value Plus account • Askari Special Deposit Account.(ASDA) • Term Deposit.
3.2.1.1.1 Current Account
In current account there is no profit on it. It is for only transaction purposes. They are paid on demand. When a banker accepts a demand deposit, he incurs the obligation of the paying all cheques drawn against him to the extended of the balance in the account. As there is no profit paid on this account it is also called chequing account because cheques can be drawn on it. Current account is mostly opened for business.
3.2.1.1.2 Saving Account
The purpose of this account is to induce the habit of saving individuals in the neighborhood. The minimum deposit for opening the account is Rs.5000/- Though individuals open such accounts for saving purpose, persons belonging to Armed forces and different military institutions are free to use this account on current basis.
3.2.1.1.3 Askari Special Deposit Account
ASDA account is an interest bearing current account profit is paid. It is a unique product. The payment of return is on daily basis, where as the rate of return with respect to the amount of minimum deposit clear. It is also chequing account because cheques can be drawn on it. It is necessary for this account that the client must maintain a minimum balance of Rs. 50,000 at the end of the month. That 's why it is similar to current account. It is mostly opened by Business but individuals too open this account.
3.2.1.1.4 Term Deposits
A term deposit is a deposit that is made for a certain periods of time at the end of the specific period. The customer is allowed to with draw the principle amount. AKBLs Term deposits are of two types as cleared in the deposit scheme. One of them is "Askari" Advantage one month. The rate of return on this account is set by head office. The term deposit account varies one month to 1 year for all following accounts. • The amount of profit is given to depositors in three ways: • By cash • By sending a bank Draft to depositors Home address or Officers or whichever is specified as mailing Address. • The amount is credited in any one of the checking Accounts of the depositor.
3.2.1.2 Account Opening Procedure
The depositor can open the account with the Bank in the following ways: • Individually • Jointly • Sole proprietorship • Partnership • Corporation
3.2.1.3 Individual 's Account
When a single man or woman opens an account in his/her own name and has the right to operate it is called individual Account.
Documentation
For literate person copy of National Identity Card is required as a primary requirement. For illiterate person and Veiled Women, along with the copy of National Identity Card requirement he or she must come in person for opening the account.
Operation
A person can open account with the Bank in Pak-rupee or in selected foreign currencies in nominated Branches of the Askari Bank Ltd. First of all he has to fill the account opening Form provided by the Bank. If the account holder is illiterate then he provides two photographs to the Bank and thumbprint is used instead of signature. In order to stop the payment from the account it is necessary for him to give the instruction to the Manager in the black and white. He may get the statement of account from the Bank according to his own will.
3. 2.1.4 Joint Account
When two or more persons, either partners, or trustees, open an in their name is called Joint Account. Husband and wife or two persons of same sex can open joint account.
Documentation
For joint account copy of National Identity Card of all the persons is obtained other things remaining same as in individuals account.
3.2.1.5 Proprietorship Account
When an owner of a firm operating singly, opens an account in his firm name, this account is called a proprietorship Account the proprietor himself liable for all his acts.
Documentation
For this kind of account, an application for opening the account on the firm letter -pad (having the firm name) is required along with the NIC of proprietor.
3.2.1.6 Partnership Account
The account is opened in the firm name and all partner designate one two persons to act on behalf of the partner ship firm all acts on behalf of firm. The partners in the partnership firm are liable for the acts of the firm jointly and severely. Every partner has in a firm has an implied authority bind his co. partners by drawing and enclosed cheques.
Documentation • Copy of N.I.C card of all partners • Application to open the account on the firm letter pad. • Partner ship deed in case registered partnership firm. • Letter showing the implied Authority of one or more partners to act on behalf of the firm. • In case of non -registered partnership firm, understanding on behalf of the firm to remain liable for all acts of the firm. • Name, address of all partners is written on the pad.
3.2.1.7 Limited Company Account
This account is for limited companies whether private or public. In order to facilitate their transaction with outside parties, bank provides many facilities.
Documentation • Memorandum of Association. • Articles of the Association • Resolution of the Board of Director. • Certificate of Incorporation. • Certificate of commencement of business • N-I-C
3.2.1.8 Account Closing
Account is closed on the written request of the customer Askari Bank Limited free of cost. But the account holder has to surrender the cheque book if some leaves are yet to be used to the bank as a necessary requirements for closing the account.
3.2.1.9 Procedure • The customer for individuals account write an application to the manager of the bank an a simple paper about the closing of his account with the bank (In case of proprietor ship partnership and limited company account the application should be written an firm or company letter -head) • The individual or in case of other type of firm and company surrender the cheque book to the bank. • The cheque book is then torn from one side and is attached with the application. • In case of Ltd. Company account resolution of the board of directors is also obtained to attach it with the application. • The account opening form of the account holder is taken from the account-opening file, and the application, cheque book, and resolution of board of directors in case of limited company account are attached with the form. • Lastly, it is written in "Red Ink on the form that account closed" and "Date of account closing."
3.2.2 ATM- Cards Department
This department deals in issuing ATM-Card, term deposits and Askari Bachat Certificate. Mr. Khurram Faiz deals this department.
3.2.2.1 ATM Card
ATM - Cards are only issue to Account Holder
Issuing Procedure • The person, first open the account within the blank. • Then he fills the ATM application form in which name of account holder, Fathers name account number and N.I.C number are mentioned. • A copy of N.I.C card is also attached with the application form. • After completing this process, the application package is sent to head office • Askari Bank Limited head office takes a period of 3-4 days for preparing and processing of ATM - cards. First, list of card holder is issued and then after 15 days cards are send to Askari Bank Limited issuing branch. The card and list are not sent simultaneously in order to avoid any mishandling. • Askari Bank Limited takes Rs. 350/- for 1st time issuance as charges for a $card • Biannually takes Rs 250/-.
3.2.3 Cash Department
Cash department deals in deposit and withdrawal of cash and cheques. Three Officers are operating the cash department at Askari Bank Bank Limited, Multan.
CASH DEPOSIT PROCEDURE
A customer comes to deposit cash in his account. The procedure followed in the cash department in this case as follows:
• The customer fills the pay-in slip. There are two types of pay-in slips. The red slip is filled if he is a saving account holder black slip is filled if he is current account holder. The cashier receives the pay-in slip and cash. • He counts the cash and makes the detail of the notes at the bank of the pay-in slip. • Then he compares the detail with amount written on the pay-in slip. • Signs the pay-in slip. • Puts the stamp of the "Cash Received" on the pay-in slip of writes the serial number from the receiving cashbook. • The first portion i.e. the Receipt is taken and given to the customer. While the latter portion handed over to the person for the entry in order to update the data.
3.2.3.1 Cash Payment Procedure
When a customer comes to withdraw a certain amount from his account, he brings a cheque along with him. In this case the following steps are taken. • The cashier receiving the cheque and check it whether it is postdated or predated. Cheque can be cashed within six months. A repeated cheque cannot be cashed. • He takes two signatures at the back of the cheque from the bearer. • He gives the cheque for "posting" at the computer. The computer checks out whether there is balance in the account or not. Other instructions are also received e.g. blocked, frozen, etc. The posting is done the account is debited and the cheque is stamped "posted" with the serial number and date. • The person hands it to the head of bills and remittances department OG 2 for cancellation if the amount is up to Rs. 50,000 and OG 2 cancel it. • Manager Operations, cancels if the Cheque is Greater than Rs. 50,000. if it is greater than Rs. 1,000,000 than Vice president cancels it. The signature of the drawer is verified for the signature specimen cards. • After cancellation, OG 2 hands over it to the cashier and then slightly interrogates the bearer about amount of payee. • The cashier counts the cash and makes the detail at the back of the cheque. The cash is paid to the person and the cheque is stamped "Cash Paid" immediately. • The entry is made in the Paying Cashbook and the Serial Number is written on the cheque.
3.2.4 Credit Department
Lending or financing is one of the basic functions of banks of all categories, through which they gain major part of their profit-;. A bank accepts deposits of money and repays cash to its depositors on demand. But this is not to say that; bank gives this service for nothing. Bank borrows money at a lesser rate of interest and lends to the borrower at higher rate of interest. And the difference between these two is the profit of the bank.
CREDIT MANAGEMENT CYCLE:
Credit Management is composed of six steps: 1. Proposal 2. Processing 3. Decision 4. Documentation 5. Disbursement 6. Review
PROPOSAL:
The first step in the Credit Management is receiving a credit request, which is a lending proposal for the bank each borrower has a purpose for borrowing. Some borrow to fulfill their working capital needs, others wants to finance any project. The customer presents his idea to the banker and wants the information on bank 's facilities. Then after collecting information if the customer deems it beneficial he makes a loan request.
This bank customer relationship should be mutually beneficial.
PROCESSING OF LOAN PROPOSAL:
Managing a safe, healthy and profitable credit portfolio depends on the quality of judgment exercised by the officer and the depth of their risk associated with the nature of the borrowers business. The banker is supposed to make a judicious judgment, which should be based on a critical study of advance proposals. It is very much necessary that the banker should have a complete confidence in the integrity and ability of the customer to use the money to his advantage and repay it within a reasonable period. Information must be collected and confirmed by investigation and negotiation during processing of the proposal.
In respect of fresh (ending proposal, the CLP is the end result of a series of internal and external investigation exercises following the identification of a potential customer, beginning with the first call on the customer.
EVALUATION:
To assess the risk and estimate the potential of a particular business, a series of investigative exercise is undertaken. This evaluation stage include knowing the purpose of borrowing, knowing business prospects of a customer, visiting the business place, analysis of financial statement, visiting the collateral securities etc.
PURPOSE OF BORROWING:
The borrower must disclose factual purpose for seeking financial accommodation from bank without such, the proposal should not be given due consideration.
1. The possible purpose may be as follows: 2. Export Financing / Packing Credit. 3. Import Trade Financing. 4. Working Capital need for Trade and industry. 5. Fixed Investment for Industry (Project Financing). 6. Purchase of Industrial or Commercial Vehicles. 7. Construction of Residential, Industrial and Agricultural 8. Buildings. 9. Finance for movement of Goods / Crops within the country. 10. Purchase of Agricultural Machinery. 11. Development of Agricultural Land.
Different Advance Facilities are offered according purpose of borrowing. Some facilities may be used for specific purposes because of their very nature and therefore, risk involved in extending them can be accurately identified; for example; an LC Facility can be used only for imports and depending on the items being imported, risk can be assessed reasonably and accurately. But other facilities however may be used for a variety of purposes and it may not be possible to assess the risk as accurately. It is, therefore, important that in all cases facilities are extended only after understanding precisely the use to which they will be put, and monitoring systems devised to ensure that their use is confined to disclose purposes only. Because without these safeguards, risk involved in extending them would not remain the same as envisaged at the time of extending he facility.
KNOWING THE BUSINESS PROSPECTS OF THE BORROWER:
Aside from fluctuating market conditions caused by temporary imbalances in demand and supply, which result in unusual growth or slump in sales, there is a gradual impact of the natural life cycle of industries and their products. Product life cycles are characterized by an initial period of rapid sales growth followed by the period of decline in growth rate signifying weakening of demand, either slowly or rapidly, forced by any one or all of the following: 1. Market saturation due to increased competition. 2. Innovation or the development of better / cost effective substitute. 3. Technological changes, which render older models obsolete. 4. Changes in import / export tariff which affect pricing structure.
Thus while preparing CLP, the concerned officer must look at these trends to identity both short term as well as long term prospects of the business of the borrower in the market place and the economy as a whole. He must also satisfy himself about capacity of the borrower to survive these shocks as and when they surface before recommending establishment of a lending relationship.
FINANCIAL STATEMENTS ANALYSIS;
The purpose of analysis of Financial Statement (FS) is to examine past and current financial data so that a company 's performance and financial position can be evaluated and future risk and potentials can be estimated. The analysis can yield valuable information about trends and relationship, the quality of company earnings and its financial strengths and weaknesses.
Financial Statements among other things include balance sheet and income statement. Balance sheet represents assets and liabilities of the business at a given data. Besides showing the ability of the business to service the loans on the strength of its financial structure. It also helps in evolving secured basis for extending financial support. Apart form showing the profitability of a business, income statements disclose how the business has been conducted and determines factors behind a rise or decline in the net worth.
VALUATION OF COLLATERAL SECURITIES:
Valuation of collateral securities is an area which is fraught with dangers because there can be errors of judgment or deliberate over estimation for ulterior purposes. As far as cash and other liquid securities are concerned, there is not difficulty in disposing them of because their merits are self-evident. However, in respect of real estate, there are some important aspects, which need special examination.
An additional problem with collateral securities are that there is many security types whose valuation remains subjective because of the fact that there are no verifiable market prices quoted for them.
When any asset of the customer is taken into charge with the bank, the concerned officer visits the security and examines the suitability of the security for the facility required by the borrower. Banker must also check whether there are any existing charges on the asset because is that case the institution which has registered the charge first will have prior claim on the proceeds on the event of borrower 's liquidation.
After that a surveyor examines those fixed assets and estimates their value. It should be remembered that not every surveyor is competent to value every type of asset. So reliable experts competent to assess particular type of asset must carry out valuation.
NEGOTIATION:
While processing a loan proposal, a banker has to do a detailed negotiation with the customer, to have first hand knowledge about certain things and then confirm them. The negotiation phase is very important for creating a safe credit portfolio. The information collected in this phase may include the type of advance, the mode of creating charge over securities, the source of repayment and period for which the facility is needed.
Credit department deals in the following categories.
3.2.4.1 Consumer Banking Services
3.2.4.1.1 Personal Finance
One can avail unlimited opportunities through Askari Bank 's Personal Finance. With unmatched financing features in terms of loan amount, payback period and most affordable monthly installments, Askari Bank 's Personal Finance makes sure that every one gets the most out of loan. No matter what need is, Askari Bank has more ways to serve than ever before.
3.2.4.1.2 Auto Finance
Askari Bank offers the most convenient and affordable vehicle financing scheme to help in owning every one 's own favorite brand new car.
3.2.4.1.3 Business Finance
The customers always want to put in that extra money into business, which makes it grow and grow.
3.2.4.1.4 Debit card
Askari Debit Card means freedom, comfort, convenience and security, so that you can have retail transactions with complete peace of mind. Askari Debit Card is your new shopping companion which enhances your quality of life by letting anybody do shopping, dine at restaurants, pay utility bills, transfer funds, withdraw and deposit cash through ATM anywhere, anytime.
3.2.4.1.5 Mortgage Finance
Ever since the inception of life, shelter has been rated among the primary needs of mankind. Owning a home for oneself still remains an exclusive dream for many. Askari Bank has made the realization of dream to have a house very own possible. Whether anybody plans to build a house, tailor made to his requirements or buy a constructed house, Askari mortgage finance enables everybody to pursue its goal without any problems.
3.2.4.1.6 Travelers Cheques
Askari Bank offers its "Rupee Traveler Cheques" eliminating all financial risks while traveling. So avoid risk of carrying cash through Askari Bank 's Rupee Traveler Cheques.
3.2.4.2 Agriculture Finance
3.2.4.2.1 Kissan Ever Green Financing
Askari Bank has launched this program with the sole motive to provide dignity, prosperity and freedom to the tiller of the land. The program is designed to help small, medium and large farmers in meeting their short-term input requirements against one time sanction and automatically renewable up to 3 years subject to its stipulated utilization/periodical adjustment. The credit line is sanctioned in the light of available cash flows and input requirements i.e. Seeds, Fertilizer & Pesticides etc.
3.2.4.2.2 Kissan Aab-Pashee Financing
Agriculture farming is impossible without adequate water. Askari Bank has started a program for farmers, to finance installation of Tube-Wells (electric, diesel and solar energy units) water management equipments and water channel development etc., which will help farmers to make optimum use of limited water resources.
3.2.4.2.3 Kissan Tractor Finance
Askari Bank has launched a Askari Kissan Tractor Finance for the assistance of the farmers and provides finance for the Tractors.
3.2.4.2.4 Kissan Farm Mechanization Finance
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
3.2.4.2.4 Kissan Farm Transport Finance
Askari Bank has launched an Askari Kissan Farm Transport Finance. A grave handicap that afflicts the farmers is their inability, due to lack of proper facilities, to take their produce to the market through efficient means of transportation. One can safely conclude that if provided with appropriate and speedy transport, the farmer can benefit by enhancing his selling ability and thus increase his income / cash flow, it is pertinent to mention that a number of Banks, Leasing Companies and Private Agencies have geared their marketing efforts to concentrate on and have mainly captured the urban markets.
3.2.4.2.4.1 Kissan Live Stock Development Finance
Askari Bank has launched a program enabling the farmer to purchase Milk Animals, Goats, Sheep, Poultry and Fisheries without incurring extra expenditure because of availability at his farm.. This program has the added advantage that besides fulfilling his own family 's consumption needs he will be able to market the surplus and earn additional income. This will further improve their cash flows to repay their other Loans / Revolving Credit on due date.
3.2.4.3 Fund Based Loan
3.2.4.3.1 Running Finance (R/F)
It is popularly known as overdraft (OD) facility or cash credit created in current account adjustment made from time to tome uptil on expiry of loan. This is revolving type of facility. Customer can borrow to a specific limit at any time he needs the funds. This facility is extended against different securities like Govt. Securities, National Saving and Regular Saving Certificates, Hypothecated Goods in trade, etc. Periodical statement of hypothecation of goods must be obtained by bank officer and physical checking on fortnightly or monthly or quarterly basis must be exercised.
3.2.4.3.2 Cash Finance (C/F)
It is a sort of loan in which the client is given cash in lump sum and total amount is credited in borrower 's current account, adjustment is linked with the delivery of goods kept under bank 's pledge. Generally cash finance is allowed for locally produced raw material, normally Cotton. Adjustment ir connected with the value of goods released for delivery which actually determines the D/P i.e. drawing power of borrower e.g. if pledged material with bank is cotton and the value of cotton in the market increases, then borrower with either get released the excess value cotton stock or will enhance its financing due to increased D/P (Drawing Power). The bank changes the markup at the rate advised by the State Bank of Pakistan.
3.2.4.3.3 Term Finance (T/F)
Term finance is offered to client for investment in any project or business. It is issued for fixed time period. The amount of finance is credited to borrower 's personal account by debiting the Term Finance Account. The amount of finance is credited to borrower 's personal account by debiting the Term Finance Account. The amount of Finance is disbursed in lump sum. The repayment of Term Finance is usually in installments and with other documents a letter of installments is taken from the borrower at the time of disbursement. By that letter, the borrower binds him to pay the installments at regular intervals. Monthly repayment amount is calculated by dividing the principal amount by time period plus mark-up.
3.2.4.4 Non-Fund Based Facilities
3.2.4.4.1 Letter Of Credit
Letter of Credit issued by the bank can broadly be classified as under: - • Sight letter of credit. • Usance letter of credit.
The sight L/Cs calls for the draft to be drawn 'at sight '. Documents negotiated and received against sight are held as security till their retirement. Drafts drawn under usance are for a tenure specified in the L/C and are payable by the customer on due date. Credit line proposal must clearly state the type of letter of credit the branch is intended to issue.
3.2.5 Credit Card Department
I was told that the bank is authorized to issue the credit card of two companies, which are under bank of America. • Master Card • Visa Card
But due unavailability of visa card machine in Multan, AKBL Multan branch deals n only
3.2.5.1 Master Card
There are following types of master card. • Silver card • Local silver card • Gold card
These are different due to their credit amount limit. For example for silver card, cardholder can take the maximum amount ranging between Rs. 25,000 to Rs, 200,000. While the local silver cardholder can use this card up to Rs. 25,000 to 500,000 for gold cardholder this limit has been extended to Rs. 300,000.
3.2.5.2 Issuing Charges
When the card is given to cardholder, there are certain fee charges to by the bank, which is different for different cards. • Local cardholder is charged Rs. 1200 but if the cardholder is Army officer there is special discount for him. And he is special charged Rs. 750. • Silver cardholder is charged Rs. 2500. • Gold cardholder is charged Rs. 3500.
3.2.5.4 Issuing Procedure
Credit card is issued to three types of parties. • Professional (Govt & private officers) • Business man • Landlord.
3.2.5.4 Professionals
For professionals, bank requires authorized letter from the concerned organization in which he works. This letter shows all particulars about the person, on the basis of these particulars; bank open on account and some feasible amount is required.
3.2.5.5 Business Men
In the case of businessman bank need • Balance sheet of businessman. • Type of business. • Turnover of 5 years.
And then when it is sured that the business has the ability to cover the expenses of credit card and to pay it at any time, the bank issues the credit card.
3.2.5.6 Land Lord
In the case, the person is totally new, and the bank doesn 't know anything about him. For this bank need an account having the amount over and above the credit card limit of that credit card. Usually, there is more chance of default in this case; so, the bank avoids issuing credit card to that person.
3.2.5.7 Payment Procedure
The cardholder should have to pay all the amounts what he has consumed. But in order to facilitate the cardholder, 5% is the minimum limit that the bank requires and that should be paid monthly. If you paid only 5% then 2% interests will be charged on remaining amount and it is added into the next month payments.
If that 5% is not paid then Rs. 100 are the additional charges charged to the next month payment a part form the 2% interest.
3.2.6 Foreign Trade Department
Foreign trade department deals in: • Foreign currency account • Exports • Imports
3.2.6.1 Foreign Currency Account
Mainly this account deals in individual, personal and companies account
Criteria for Opening Foreign Currency Account
There are not hard and fast rules for becoming the Foreign Currency Account holder. Bank wants only introduction of the Client and very little about the background. I.D card is also not necessary, if someone has; well and good, otherwise no restriction will be there for him.
Features of Foreign Currency Accounts • There will be legal protection for the account holders. • According to foreign exchange rules and regulation every citizen of Pakistan, either within the Pakistan or outside the Pakistan, can open the foreign currency account. • Resident firms and Resident Companies including investment Banks can open Foreign Currency Accounts. • All foreign nationals and foreign Companies in Pakistan or abroad can open Foreign Currency Accounts. • Opening of Foreign Currency Accounts in the joint names of residents/non-residents is permissible. Foreign Currency can be deposited by: • Remittance received from abroad • Foreign Currency Notes • There will be no restriction and questioning to him about the currency, which he wants to deposit that from where he got that money. • No Zakat will be deducted on these accounts; no Income Tax deduction, no Wealth Tax deduction will be there. • These incentives reinforce and motivated the people to invest in foreign currency accounts rather to keep the foreign currency idle. • Foreign currency accounts can easily be transferred from one person to another, one place to another, with in the AKBL Branches or in other Bank. • The account holder can transfer the funds freely, in any currency to any part of the world.
Facilities
This account provides following facilities: • Traveling quota • Out ward remittances • In ward remittances receiving • To make remittances procedure flexible
3.2.6.2 Export
Usually the exporter does not rely on the credit of a banker in the country of importer, and insist on a confirmation from a banker carrying on business in his own country. Thus this department of a bank helps the exporters to settle down their financial affairs. For exporting it is necessary for exporter to get export license from the chief controller of import and export after registration.
Documents are required for the registration such as N. I. C. Card, income tax certificate, bank certificate which shows that the exporter is his account holder and have a good dealing with them. In response to the letter of credit exporter submit the following documents to the negotiating bank.
• Bill of exchange • Invoice • Bill of lading or Airway bill/railway receipt/truck receipt • Insurance documents • Packing list • Any other documents, if so required.
The negotiating bank will send the same documents to the issuing bank. In accordance with the terms and condition laid down in letter of credit.
3.2.6.3 Foreign Bill Purchased (FBP)
Following requirements must be fulfilled before the purchase of Foreign Export Bills. Exporter should be account holder of the bank. Bank issues the Form-E. Form-E should be filled correctly and then bank authenticates the E-Form. Exporter goes to the custom authorities for custom clearance. Shipping Company issues Bill of Lading or Airway Bill. Exporter should bring other documents like certificates of Origin, commercial invoice, packing list etc. Bank scrutinizes the documents.
After fulfilling these requirements, bank purchases the export bill and makes payment for the value of goods in Pak Rupee to the Exporter.
Lodgment
Lodgment means making the payment to exporter by bank against the purchase of bill. Before the lodgment, bank records the export bill in the FBP register where name of exporter, importer, the name of bank which open the LC, Tenor of bills maturity. Two types of rates are used in evaluating the amount:
OD Buying rate/At sight rate It is the rate of export bill, payment of which is to be received within 12 days from the date of lodgment.
Usance rate It is the rate payment of which is to be made at a future date, normally within 30, 60, 90, 120, 150, or 180 days.
Realization
Realization means receiving the payment from the foreign bank for the export of goods. AKBL receive the credit advice from the treasury office situated in Karachi that the payment of the FBP Number this receive. If the payment FBP is less than the amount it was lodged than remaining amount will receive from the exporter.
Foreign Documents Bill for Collection (FDBC)
In FBP bank purchases the export bills from the exporter and makes payment to the exporter before the maturity of that bill, while in FDBC banks collect the export bill on the behalf of exporter on the date of maturity. In FDBC bank acts as a intermediary party. Bank gets little amount of commission for the collection of FDBC. Like FBP exporter deposit all the important documents of export bill to the bank, bank lodged this FDBC, it means bank record this export bill in the FDBC register where name of exporter, name of importer, bank which open the LC, Tenor, maturity date is written.
Advance Payment of Bills
This is another function which the export department of AKBL Multan branch performs. In advance payment bank pay the amount of export bill to the exporter before the shipment of goods. For this purchase of bill bank gets more charges as compare to FBP. Mainly export deals in: • Negotiation of documents • Sending the documents for collection • Pre-shipment financing • Post-shipment financing • Remittance against agent commission • Forward covered booking • Handling the documents for negotiation according to the UCP 500 (uniform custom and practices) • Handling the documents for collection according to URR (uniform rules for collection) • Submission of monthly returns to SBP regarding the export on form A-2/0-2
3.2.6.4 Import • Opening the letter of credit • Scrutinize the documents receive from flowing bank under letter of credit. Account to UCP 500 and extending the credit facility to the importer informs FIM (finance against imported merchandise) FATR (finance against trust receipt). • Arrange forward cover booking regarding import payments • Also arrange forward cover booking for letter of credit open other then AKBL • Submission of monthly returns to SBP regarding the import on form I
The international trade transaction, in which one country buys goods from other country, is called import. Import and Export Act of 1950 govern 's the import trade in Pakistan. Previously, the regulating body of imports was controller of Import and Export. But this function has been shifted to Trade Development Authority. Foreign Exchange Departments of all banks are restricted to work under the rules and regulations of government.
Import License and Registration
The individuals and firms who are interested to import goods from the foreign countries are required to obtain import license. Import licenses are a type of artificial restraint on the import trade of a country. To acquire import license, the importer has to submit applications to the licensing authority. The importers can only get their merchandize cleared from the custom authorities if they have the import license duly issued in their names. The import licenses issued by the Import Trade Controller are required to be registered with the State Bank of Pakistan.
Contract of sale
After getting the license, the importer then negotiates with the exporter. When they reach to an agreement on all terms of sale, they sign a contract. Thus contract includes all information of terms and condition of sale.
Letter of credit
Foreign trade payment problems are mainly solved by a letter of credit. A letter of credit is issued by the importer 's bank. If the guarantees payment to the exporter up to specified amount of money provided the terms and conditions laid down the L/C are fulfilled. A letter of credit is a commitment on the part of buyer 's bank to pay or accept draft drawn upon it, provided drafts do not exceed a specified amount.
A letter of credit thus is a (I) written undertaking by an importer 's bank to exporter 's bank. (II) That it will pay or accept draft drawn upon it up to a stated amount with a specified time. (Ill) The payment will only be made to the exporter if he compliers with the terms of credit.
Parties to a letter of credit
There are four parties involved in letter of credit. • Account party: The buyer or the importer on whose account and request the letter of credit is opened is known as account party or opener. • Issuing bank: The bank which issues or opens a letter of credit at the request of importer is called issuing bank. • Exporter or seller: The seller or the party in whose favor L/C is drawn is the exporter. He is also called beneficiary. • Negotiating bank: The paying bank in the exporter 's country, on which the draft is drawn, is called negotiating bank or paying bank.
Opening of letter of credit
The main steps involved in the opening of the letter of creditor as follows:
Application for letter of credit
The importer will request with own bank or any other bank, which deals in foreign trade transactions to issue a letter of credit in favor of the exporter. He will prepare an application on the prescribed form available from the bank. The information, which are supplied in the application are based on the contract of sale and include only the important feature of contract, such as value of merchandise, port of shipment, documents to be presented, port of unloading, brief description of goods, import license etc.
Scrutiny of application
Before issuing a letter of credit, the bank will scrutinize whether the importer is of good financial standing, possesses the import license issued by import control. Authorities, the amount available covers the letter of credit applied for, market demand of goods, collateral offered to cover the credit etc.
Cash margin
The bank asks the importer to deposit cash or securities with the bank. The bank depending upon the credit worthiness of the importer decides the proper margin of cash or securities to be deposited.
Issue of the letter of credit
The importer bank after being fully satisfied will issue a letter of credit in favor of the exporter. The L/C may be sent directly to the exporter or the advising bank in the exporter 's county. In such a case, the advising bank will inform the exporter about opening a letter of credit.
Shipment of goods
When the exporter receives L/C, he examines it to ensure that it conforms to the terms of contract of sales. He then shifts the goods and presents all required documents along with the bill to negotiating bank.
Role of negotiating bank
The negotiating bank after receiving all the documents and the bill from the exporter will scrutinize them whether these conform with the terms of letter of credit. If the documents of title accompanying the bill are in order, these will be sent to the importers bank for payment.
Liability of the issuing bank
On receipt of documents and the bill, the issuing bank will examine them. If the documents on the face appear to be in order, the payment would be released by the bank. In case any defect is found in the documents and the draft is honored by the issuing bank the importer can claim damages on the issuing bank. The issuing bank is only accountable for the completeness of documents, not to see whether goods conform to the contract of sale.
Payment by importer to the bank
First the importer pays all his obligations to the bank then the bank releases the documents. In case of sight draft, the importer 's bank pays the amount on the same day charging the importing customer 's account. In case of a time draft, the importer discharges his obligations to the accepting bank on or before the maturity date of acceptance. The accepting bank will then release all the shipping documents to the importer.
Payment to the exporter
The exporter can obtain payment from the negotiating bank by discounting the draft (L/C) immediately after shipping the goods and obtaining shipping documents.
Submission of Monthly Returns
It includes reporting of Form-M and Form-E to SBP.
Reporting of Form-E
Every Exporter is required to submit a declaration to custom authorities for goods exported. This declaration is submitted on prescribed Form-E in quadruplicate, which is certified by authorized dealer. Four copies of Form-E are maintained. Form-E is reported to SBP at the end of the month, in which the amount is realized. There is a prescribed Performa used for the reporting of Form-E. It includes the reporting period, currency, Serial No. of Form-E, amount, Code No. of country and commodity.
Reporting of Form-M
Every foreign bank deducts some charges from the value of goods. It is for miscellaneous purposes like foreign bank charges or foreign agent commission. Form-M is used to declare this outflow of foreign currency. At the end of the month of realization of the amount, Form-M is reported. It includes the list of Serial No, amount and purposes of every Form-M.
3.2.7 Remittance Department
The need of remittance is commonly felt is commercial life particularly and in everyday life generally. The main function of the remittance department is to transmit money from one place to another. By providing this service to the customer, Bank earns a lot of income. Also customer is able to meet its day to day financial requirements.
3.2.7.1 Demand Draft
It is an instrument payable on demand for which value has been received, issued by the branch of the Bank drawn i.e. payable at some other place (branch) of the same Bank. If two Banks are involved then the DD is sent to other Bank but in other case it is handed over to the applicant.
Issuance Procedure • A demand draft application is given to the customer; he fills in relevant information and signs it. • The officer checks the information form. • The Bank charges such as commission, excise duty is charged as per effective schedule of charges. If he fills the tax exemption form, tax is not charged. • In case of cash deposit, the cashier counts the amount and signs the DD application and enters it in the register. • Then the officer of remittance department signs it and operation manager counter signs it. • The entry is made in the DD issuing register, DD is given to the customer. • Vouchers are prepared and posted. • DD advises are printed and mailed to the respective branch.
Payment Procedure • The Bank receives DD. • The DD credit advice is received through mail. The numbers are checked and signatures are verified. • An entry is made on the DD payable register and the vouchers are made. • DD credit is attached with the vouchers and given for posting to the computer. • When DD is received the test numbers are checked and the payment is made. • Vouchers are given for posting and the entry that was made in the register is closed i.e. DD payable is Nil.
3.2.7.2 Pay Order
It is an instrument issued for payment in same city. Pay order issued from one branch can only be payable from the same branch. It is normally referred to as Banker 's cheque. It is also called confirmed cheque, because Bank issues this on it own guarantee.
Issuance Procedure • The standard form is given to the customer. He fills in the details and signs it. • The concerned officer checks the form. • Bank charges (or commission) as per the schedule of charges and the withholding tax of 0.3% are applied. • The cash amount of the pay order is received. • A cash memo is signed, stamped and handed over to the applicant as a receipt. • Then the pay order receipt is filled accordingly. • Counter foil is also filled. • An entry is made in the pay order issue register. • Then the authorized officer signs it after checking the pay order. • The order is then handed over to the applicant after obtaining his signature on the PO Form. • A voucher is also made and posted at the computer. Payment Procedure • On presentation of the pay order receipt, two authorized officers of the branch sign the receipt. • PO entry is made in the PO issue register. • Then the amount is credited to the account of the customer or pain in cash. • PO is posted at the computer.
3.2.7.3 Outward Bills for Collection
The bills, which are received by the Bank and sent to other cities (branches) for the local clearing in that city, are called Outward Bills for Collection.
Procedure: • The cheques that are of other cities are separated. • They are entered in the OBC Register and OBC numbers are given to them. • The OBC forwarding schedules are prepared for different branches. • The respective cheques are attached with the schedule. • The office copy is filled and original schedule is mailed. • On clearing, the respective Banks send back the OBCs along with the IBCA (Inter Branch Credit Advice). • The OBC numbers are checked from the OBC register, after those entries are made. • Commission charges are deducted from the account.
3.2.7.4 Inward Bills for Collection
The bills, which are received by the Bank from other branches out of the city for local clearing, are called Inward Bills for Collection.
Procedure • The OBC of other branches will be the IBC of this branch. So an OBC forwarding schedule is received by mail. • The cheques are entered in the IBC register. The IBC numbers are allotted to them. • The cheques are lodged for clearing. • After realization, an IBCA is prepared and mailed to the branch from where the cheque was received. • At the end of the day, two vouchers are prepared and posted.
3.2.8 Clearing Department
Cheques of different banks/branches in the same city are deposited with bank for clearing called local clearing. There is no legal obligation on a bank to collect cheques drawn upon other banks for a customer. However almost every modern bank performs this function of the collection of cheques and bills on behalf of the customer to facilitate them and provide them quality services.
Advantages of Clearing • Since clearing does not involve any cash etc and the entire transaction take place through book entries, the number of transactions can be unlimited. • No cash is needed as such the risks of robbery, embezzlements and pilferage is totally eliminated. • As major payments are made through clearing, the banks can manage cash payment at the counters with a minimum amount of cash in vaults. • A lot of time, cost and labor are saved. • Since it provides an extra service to the customers of banks without any service charger or costs, more and more people are inclined and attracted towards banking.
3.2.8.1 NIFT/Clearing House
NIFT
These days clearing operations are performed by NIFT (National Institutional Facilitation Technologies). This NIFT takes cheques from banks and performs clearing house operations with State Bank of Pakistan as an agent. Now the clearing procedure has become a lot more easier just because of NIFT.
Clearing House
It is a place where representatives of all scheduled banks sit together and interchange their claims against each other with the help of controlling staff of State Bank of Pakistan and where there is no branch of State Bank of Pakistan the designated branch of National Bank of Pakistan acts on behalf of State Bank of Pakistan.
Working of clearing house
All the banks which are the members of clearing house maintain their accounts with State Bank of Pakistan by debit and credit to which the clearing settlements are made. If on a particular day, a bank delivers cheques and other negotiable instruments worth more than the total amount of Cheque received by it that banks accounts with State Bank of Pakistan will be credited with the differential amount. If on the other hand the total amount of cheques and other negotiable instruments draw on a certain bank by other bank is more than the total amount receivable by it from other banks, then this bank 's account will be debited on that day.
The cheque delivered to the representatives of other banks for clearing are called outward clearing, whereas cheques received from the representatives of other banks for payment are called inward clearing.
Procedure of Settlement
Presume that AKBL got the cheques which are drawn on HBL, NBP and MCB for amounts Rs. 50,000/-, Rs. 15,000/- respectively, its total being amounts Rs.95,000/-, it means that this amount is to be credited to AKBL A/C with S.B.P. on the other hand the cheques drawn on AKBL are from HBL, NBP and MCB of Rs. 15,000/-, Rs.75,000/- and Rs.30,000/- respectively, its total being Rs. 1,20,000/-, it means that this amount is to be debited from AKBL account. The difference between Rs.95,000/- credit and debit Rs. 1,20,000/- debit is Rs.25,000/- debit which means the house is against AKBL for Rs.25,000/-.
The brief detail is following. • AKBL has t receive Rs.50, 000/- from HBL and to pay Rs.15, 000/- to HBL so difference is Rs.35, 000/- credit. • AKBL has to receive Rs.30, 000/- from NBP and to pay Rs.75, 000/- to NBP so difference is Rs.45, 000/- debit. • AKBL has to receive from MCB Rs. 15, 000/- and to pay Rs.30, 000/- to MCB so difference is Rs.15, 000/- debit. GRAND TOTAL: 35,000-45,000-15,000 - -25,000 I.e. Rs. 25,000 debit
Hence AKBL A/C with State Bank of Pakistan will be debited with Rs.25, 000/- and the contra will be other banks accounts respectively. This called as "Debit and Credit Rule".
3.2.8.2 Outward Clearing at the Branch
The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing: • The name of the branch appears on its face where it is drawn on • It should not be stale or post dated or without date • Amount in words and figures does not differ • Signature of the drawer appears on the face of instrument • Instruments is not mutilated • There should be no material alteration if so, it should be properly authenticated • If order instrument, suitably endorsed and last endorsee 's account being credited • Endorsement is in accordance with the crossings if any • The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil • The title of account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque).
If an instrument is in order then out bank 's special crossing stamp is affixed across the face of the instrument. Clearing stamps is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on paying-in-slip and half on counterfoil). The instrument is suitably discharged, where a bearer cheque does not required any discharge and also an instrument in favor of a bank need not be discharged. The instrument along with paying-in-slip is retained while the counterfoil is given to the customer duly signed. Then the following steps are to be taken:- • The particulars of the instruments and the pay-in-slip or credit vouchers are entered in the Outward Clearing Register. • Serial number is given to each voucher • The register is balanced, the credit voucher are separated from the instrument and are released to respective departments against instrument and are released to respective departments against acknowledgement in the register • The schedules are arranged bank-wise • The schedules are prepared in triplicate, two copies of which are attached with the relevant instrument and the third is kept as office copy • The house page is prepared from schedules in triplicate • The schedules and house pages are signed by the officer incharge with branch stamp • The grand total of the house page is taken and agreed with that of the outward clearing register • The instruments along with duplicate and house page are sent to the Main Office
3.2.8.3 Inward Clearing of the Branch • The particulars of the instruments are compared with the list • The instruments are detached and sort out department wise • The entry is made in the Inward Clearing Register (serial number, instrument number, account number, amount of the instrument is written). • The instruments are sent to the respective departments against acknowledgement in the Inward Clearing Register. • The instruments are scrutinized in each respect before honoring the same
3.2.3 Accounts Department
Account department is the backbone of a bank. It plays a vital role in performing different functions of a bank. The account department of AKBL is computerized. Accounting books of different departments are maintained under this department and with the help of these, accountant prepare the monthly, quarterly, semiannually and yearly financial statement and other statements of the whole bank. The entire transaction-taking places are recorded daily in the books of accounts and in computerized ledgers. For every transaction there is voucher prepared and through these vouchers contra entries are passed under different head. Good working of accounts department mainly depend on the voucher system. Accounts department is responsible for proper handling and maintenance of vouchers of different department.
Any abnormality if occurs, is immediately dealt with. All the vouchers and instruction are checked individually are checked individually against the computer printouts. After checking they are signed by Mr. Naeem Shehzad and the internal auditor Mr. Shafiq.
3.2.3.1 Other Activities • Preparation of daily bank positions statement • Payment of salaries • Preparation of the statements • Depreciation calculation • Lockers Issuance
The above figure is the structure of finance department of Askari Bank Ltd. The Vice President of finance or Chief Financial Officer (CFO), generally reports directly to the president or Chief Executive Officer (CEO). In Askari Bank Ltd. Financial operations over seen by the CFO will be split into two branches such as: • Controller • Treasurer
Controller
The controller 's responsibilities are primarily accounting in nature. Cost accounting as well as budgets and forecasts, concerns internal consumption. External financial reporting is provided to the Internal Revenue Service (IRS), to the securities and exchange commission (SEC) and to stockholders.
Treasurer
The treasurer 's responsibilities fall into the decision areas most commonly associated with financial management: • Investment (Capital Budgeting, Pension Management) • Financing (Commercial Banking and Investment Banking relationships, Investor relations, Dividend disbursement). • Asset Management (Cash Management and Credit Management).
4.2 Finance and Accounting Operations
Askari bank deals in finance and accounting operations. They check the daily voucher and posting. They note all the banks charges and expanses. The main focus on bank financial statement, they prepare the financial statement annually and semi annually of the bank. All accounting and financing activities are checked in this department. • Preparation of daily bank positions statement • Payment of salaries • Preparation of the statements • Depreciation calculation • Expanses, Income, Liabilities • Generation and Allocation of funds
Manager Accounts • Finalize the Accounts on monthly basis.. • Preparation of special reports as per instruction by Branch Manager. • Supervise all the working of other staff members. • Verify the party 's payment & all other expenses payments
Deputy Manager Accounts • Posting in the Accounting System. • Supporting to Manager Accounts to finalize the Accounts on monthly basis. • Supporting to make the monthly budget of the company. • Preparation of Debtors and Creditors reconciliation reports and aging schedules. Preparation of Special reports for decision making of Management.
Accounts Officer • Prepare fund flow statement on daily basis. • Supporting to prepare weekly budget. • Posting of Funds Received from parties.
Tax Officer • Handle all sales tax and income tax matters. • Preparation of Refund case & Processing in department. • E-Filing of both (Sales tax & Parties tax payment) • E-Filing of both (Sales tax & Parties tax payment)
4.4 The Role of Financial Manager
Financial manager stands between the firm 's operations and financial markets. Financial manager must have considered the interest rates on the load and concluded that it was not too high. Achievement of goals and objective based on financial manager how he can get them and what activities he applies. Financial manager also involve in financing decision. Financial use the policies and strategies how to generate a fun and where have to invest. Financial manager is responsible for all kind of operations of the bank. Our financial manager uses the decision making and ratio analysis to earn a profit and decrease the expanses of the AKBL.
Financial manager is responsible for maintaining the record of accounts, cash management and credit management. He monitor all kind of cash management activities in which area more cash should be invested and for whom people should grant the loan, he control the other activities of credit management.
The role of CFO in this bank is very important. He control and monitor the all the banks department and also check the performance of the bank and make necessary decisions. He is responsible to control the bank efficiency and checks all the staff of the bank and also check the performance of financial manager.
In banks, accounts manager plays the role of financial manager, they prepare the periodical budgets of the branch. They analyze the cash in flows and outflows of the branch. They also make the expense sheet of the branch and arrange funds in order to cater those expenses. The accounts manager has a key role in the branch banking setups. They prepare the branch monthly profit and loss account statement as well. In Askari bank the account managers are the key persons and have a lot of experience of branch banking as well.
4.4 Use of Electronic Data in Decision Making
Now this is the age of information technology. So the banking system is also become computerized. For this purpose Askari bank used software which name is: • Uni-Bank Software • Its working is so simple and it is user interfering software. • It is very important for decision making and it is helpful in the following ways: 1. Used for entering the daily Deposits, Advances, Markup, A/R and Revenue. 2. Used for preparing the daily Reports. 3. Used for calculate the Profitability of the Bank. • So on the bases of these reports Manager decide the future planning for the Askari bank.
Askari bank Ltd is handling its all customers whether borrowers and depositors with the help of this software in an efficient manner. The bank gets the statement of every kind with the help of this software for the analysis purpose with in seconds and makes effective planning with the help of this software.
The banks handles customers any kind of queries with in seconds with the help of this software. This software is very user friendly. Askari bank 's customer service is very good and this software plays a key role in that.
4.5 Source of Funds
Major sources of funds are as follows. • Share capital • The reserve funds • Deposits • Balance of profit and loss accounts • Rediscounting of bills with State Bank of Pakistan
SOURCES OF FUNDS
|Rupees in '000 | |
|2006 |2007 |2008 |2009 |2010 | |
|1,255,848 |1,507,018 |2,004,333 |3,006,499 |4,058,774 |Share Capital |
|4,317,301 |5,862,074 |5,814,754 |6,948,336 |7,667,141 |Reserves |
|83.318.795 |118,794,690 |131,839,283 |143,036,707 |167,676,572 |Deposits & Other Accounts |
|13,781,555 |10,562,338 |14,964,087 |17,553,525 |15,190,148 |Due to Financial Institutions |
Note: Reserves means banks reserves whether kept in SBP or in other banks. Due to financial Institution means the funds which are given to other financial institution in terms of loans.
Askari Bank Ltd has increased its sources of funds by increasing its share capital. In year 2007, it was three billion and now in 2008 it is over four billion, which clearly indicate the investor 's confidence over the policies of the bank. The other major reason is to increase the equity is the SBP focus and regulations in this regard.
4.6 Generation of Funds
Funds are generated from interest, markup and consumers; these are the important source of funds. AKBL generate fund from interest over loan and markup over load and consumers are the most important source of generation of funds. AKBL provide a facility of loan to its consumers and generate funds. AKBL generate funds from mark up.
The main sources of generation of funds for AKBL include the ❖ followings: Interest on loans (interest income) ❖ Banks Investment in projects or in Stock market. ❖ Fee, commission, and brokerage income ❖ Dividend income ❖ Gain on sales of securities ❖ Income from dealing in foreign currencies.
|Values |Parameters |
|( Rupees in '000 ) | |
|2010 |2009 |2008 |2007 |2006 | |
|18393313 |15143241 |12596921 |8780698 |4487206 |Interest Earning |
|1257584 |1072868 |1013660 |838561 |649988 |Commission and Fee |
|173621 |137079 |109326 |51143 |26318 |Dividend Income |
|873512 |655761 |584344 |356218 |180992 |Exchange Income |
|35677755 |39431005 |28625915 |25708194 |17239156 |Banks Investments in projects i.e |
| | | | | |Electric Power projects, and |
| | | | | |infrastructure building different Govt |
| | | | | |Projects etc |
4.7 Allocation of Funds
The Askari Bank Ltd. uses its funds profitability in the following ❖ categories: Short-term loans repayable at short notice ❖ Investment (government and other stock exchange securities) ❖ Loans and advances to trade commerce and industries ❖ Purchase and Discounting of bills ❖ Financing import and export trade ❖ Interest and non-interest expenses
|Values |Parameters |
|( Rupees in '000 ) | |
|2010 |2009 |2008 |2007 |2006 | |
|35677755 |39431005 |28625915 |25708194 |17239156 |Investments |
|128818242 |100780162 |99179372 |85976895 |69938041 |Advances |
|10650719 |8685624 |6977313 |4278374 |1117206 |Interest Expenses |
|2707000 |4565496 |2139254 |1552566 |1633528 |Non-Interest Expenses |
The Askari Bank Ltd used its most of its sources of funds in the investment in different projects, in stock exchange and in advances, which increases the revenue and ultimately profits. The above table clearly shows that the advances of the company increased from last year 100.7 billion to 128.818 billion in the current year. The investments are decreased from the last year because of the bad performance of the stock market. Overall bank 's policies are good and helping the bank in earning profits.
5.1.3 Ratio Analysis
|VALUES |PARAMETERS |
|2010 |2009 |2008 |2007 |2006 | |
|0.7869 |0.7554 |0.8046 |0.8228 |0.8391 |Earning to Asset |
|0.0214 |0.0195 |0.0168 |0.0169 |0.0214 |Return on Earning Assets |
|0.0197 |0.0165 |0.0121 |0.0104 |0.0117 |Equity Capital to Total Assets |
|0.7683 |0.7046 |0.7523 |0.7237 |0.8382 |Loan to Deposit |
|1.0027 |1.0318 |1.0446 |1.0412 |1.0371 |Current Ratio |
|0.0433 |0.2648 |0.4797 |0.6683 |2.5445 |Interest Coverage Ratio |
|2.10 |17.70 |17.86 |23.03 |42.86 |Net Profit Margin |
|0.0376 |0.0354 |0.0338 |0.0310 |0.0314 |Net Interest Margin |
|0.0892 |0.0831 |0.0759 |0.0605 |0.0419 |Average Yield on Asset |
|0.58 |0.57 |0.55 |0.49 |0.25 |Interest Expense to Interest Income |
|3.06 |23.0 |22.6 |27.7 |34.8 |Return on average shareholder 's fund |
|2.51 |15.2 |26.6 |32.5 |63.3 |Profit before tax ratio |
|12.3 |10.9 |11.0 |8.5 |9.9 |Capital adequacy ratio |
|-- |15.0 |10.0 |15.0 |20.0 |Rate of cash dividend |
|15.32 |11.2 |9.3 |9.6 |6.1 |Price earning ratio |
|-- |1.5 |1.0 |1.2 |2.1 |Dividend yield ratio |
|0.95 |8.92 |7.48 |13.42 |15.31 |Earning per share |
|-- |16.8 |8.9 |11.2 |13.1 |Dividend payout ratio |
Earning to Assets.
Earning assets are the assets which are very important and vital for the bank in increasing its profits. Ratio tells that on what percentage earning assets contribute the total assets. The bank earning to assets ration increased gradually from the year 2006 and in year 2008 it declined a little bit about 0.04, which was due to bank 's higher provision for loan losses, as per directions of the SBP but in year 2009 it was again on upper side 0.7869 higher about 0.03 from last year.
Return on Earning Assets.
Earning to assets ration indicates the how efficiently a company is utilizing its assets and how much it is earning form them.
Return on earning assets ratio in 2006 is 0.0024; in 2007 it is 0.0195 which is little increase in as compare to previous year. In 2008 are 0.0168 decreases as compare to previous year and in 2009 it be 0.0169 and it is highest in last year 2010 which is 0.0214.
Equity to Total Assets
Equity capital to assets is a common measure used to analyze capital adequacy of a bank, while bank has decreased its capital adequacy ratio in the year. But bank 's total assets has increased but increase in the equity is so small because of less profit in the year and this less profit is due to more provisions.
Equity capital to total assets in 2006 is 0.0117; in 2007 it is 0.0104 which is decreased as compare to previous year. In 2008 is 0.0121 again increased from previous year and in 2009 it is 0.0165 and in last year 2010 which is 0.0197, and an inclining trend can clearly be observed from last four year. This is because of SBP guidelines to banks and clearly saying to increase their capital and linking the financing with the capital instead of deposits. The SBP wants to do that because if increasing bad loans percentage from past few years. With these steps banks will more conscious in lending because their own equity is at stake.
Loan to Deposits
While there is a concept that bank 's loans are its assets while its deposits are liabilities. But if a bank has low deposits then obviously it will give low loans because bank gives its loans by the deposits and earn on the loans then pay mark up on the deposits to the customers.
Loan to deposits ratio in 2006 is 0.838; in 2007 it is 0.724 which is little decrease as compare to previous year. Loan to deposits ratio in 2008 is 0.752 a little increase from previous year and in 2009 it is 0.705 and loan to deposits ratio is increased in last year 2010 which is 0.7683. Both deposits and advances increased but not in line with one another. In the year 2008, 2009 the advances were almost equal with increase of one billion but in year 2010 it increased about 28 billion because of increased equity.
Current Ratio
The ratio is mainly used to give an idea of the bank ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the bank is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the bank is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
Current ratio in 2006 is 1.037; in 2007 h is 1.04 which is little increase as compare to previous year. Current ratio in 2008 is 1.0446 a little increase from previous year and in 2009 it is 1.0318 a little decrease from previous year and current ratio is last year 2010 which is 1.007, a sharp decline from past year, because of increase in liabilities.
Interest Coverage Ratio
A ratio used to determine how easily a bank can pay interest on deposits and other accounts. The ratio is calculated by dividing a bank 's earnings before interest and taxes (EBIT) of one period by the bank 's interest expenses of the same period: The lower the ratio, the more the bank is burdened by debt expense. When a bank 's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the bank is not generating sufficient revenues to satisfy interest expenses.
Interest coverage ratio in 2006 is 2.5445; in 2007 it is 0.6683 which is a sharp decline as compare to previous year. Interest coverage ratio in 2008 is 0.4797 decreases from previous year and in 2009 it is 0.2648 and interest coverage ratio is lowest in last year 2010 which is 0.0433. This ratio of the bank is not good because of increase in deposit rate and decrease in earning. The bank should decrease its higher cost deposit and should focus on low cost deposit. Therefore the ban in now focusing on low cost deposits and launching its campaigns for low cost deposit rightly.
Net Profit Margin
A ratio of profitability calculated as interest income divided by revenues, or net profits divided by interest income. It measures how much out of every rupee of interest income a bank actually keeps in earnings. Profit margin is very useful when comparing bank in similar industries. A higher profit margin indicates a more profitable bank that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage.
Net profit margin in 2006 is 42.86; in 2007 it is 23.03 which is sharp decrease as compare to previous year. Net profit margin in 2008 is 17.86 is also decreased from previous year and in 2009 it is 17.70 almost equal from previous year and net profit margin is lowest in last year 2010 which is 2.10. The profit in 2004 was very high because of low deposit cost and high lending cost. And after that the situation changed vise versa. In the last year the profit was very low, it is only because of provisioning of loan losses as instructed by SBP. But in the coming years the situation will be changed as per management.
Net Interest Margin
Net Interest Margin (NIM) is a measurement of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits). It is considered similar to the gross margin of non-financial companies.
Net interest margin in 2006 is 0.0314; in 2007 it is 0.0310 which is little decrease as compare to previous year. Net interest margin in 2008 is 0.0338 a little increase from previous years and in 2009 it is 0.0354 and Net interest margin in last year 2010 which is 0.0376. Net interest margin is almost equal in all years. It means that the spread remained steady in all years.
Average Yield on Assets
Annual or other periodic rate of return on investments because banks act as custodians of deposits for many years until money must be paid out the depositors, They invest it to achieve a yield adequate to meet these obligations. Yield is also important to the depositors that include a specific investment element.
Average yield on assets in 2006 is 0.0419; in 2007 it is 0.0605 which is increased as compare to previous year. Average yield on assets in 2008 is 0.076 a little increase from previous year and in 2009 it is 0.0831 and average yield on assets is highest in last year 2010 which is 0.0892. The above quoted figures clearly shows that the bank 's perform good in this area an yield increased steadily in all past years.
Interest Expense to Interest Income
Interest expense to interest income ratio in 2006 is 0.25; in 2007 it is 0.49 which is little increase as compare to previous year. This ratio in 2008 is 0.55 a little increase from previous year and in 2009 it is 0.57 and ratio is highest in last year 2010 which is 0.58 which clearly shows that the bank interest income was very good as compared to interest expenses in past years and bank is performing well.
Return on average shareholder 's fund
Return on shareholder 's fund was 34.8 in year 2006 which decreased in year 2007, was 27.7 and in year 2008 it was 22.6, in 2009 it was 23.0 and in the last year 2010 it is only 3.06. This ratio declined in almost all years and remained steady almost in the years 2008, 2009 and shows a sharp decline and was only 3.06 in 2010. This was because of sharp declined banking profits and increasing loan losses. The bank must focus on the recovery of bad debts and also on the current portfolio in order to boost and attract shareholder 's confidence.
Profit before Taxes
Profit before taxes ratio was in year 2006 63.3, in 2007 32.5, in 2008 26.6, in 2009 15.2 and at last in 2010 it was only 2.51. This also shows a declining trend and the reason is same because of sharp declined banking profits and increasing loan losses. At this time the banking industry is passing through a reviving stage. The bank should focus on quality loaning and review as well as revise its current strategies.
Capital Adequacy Ratio
Capital adequacy ration tell us that how much the bank 's own capital is involved in lending besides deposits. The SBP is focusing on this ratio very forcefully. This is only because of current increasing bad loaning. The State Bank wants to increase banks own stake in the loaning so that they become more focused and vigilant in lending. The Askari Bank CAR in year 2006 was 9.9, in 2007 8.5, in 2008 11.0 in year 2009 10.9 and in the last year 2010 it was 12.3 which clearly shows the increasing bank 's own stake in loaning.
Rate of Cash Dividend
Rate of Cash Dividend in year 2006 20.0, in 2007 15.0, in 2008 10.0, in year 2009 15.0 and in the last year 2010 it was nil. This was because of declining bank profits from the past years.
Price Earning Ratio
Price to earning ratio shows that how much a share is earning on its current market value. The P/E ratio in year 2006 6.1, in 2007 9.6, in 2008 9.3, in 2009 11.2 and in year 2010 it was 15.32. The P/E ratio increased from last years and shows a healthy trend.
5.1.4 Horizontal and Vertical Analysis
An analysis of percentage financial statements where all balance sheet or income statement figures for abase year equal 100% and subsequent financial statement items are expressed as percentages of their values in the base year. A percentage analysis of financial statements where all balance sheet items are divided by total assets and all income statement items is divided by net sales or revenues.
Comparing analytical data for a current period with similar computations for prior years affords some basis for judging whether the condition of the business is improving or worsening. This comparison of data over time is called as horizontal analysis, to express the idea of reviewing data for a number of consecutive periods. It is distinguished from vertical analysis which refers to the review of the financial information of only one accounting period.
5.1.4.3 Interpretation of Horizontal and Vertical
Analysis Horizontal Analysis of Balance Sheet
|2006 |2007 |2008 |2009 |2010 | |
| | |DATA IN %AGE | | |
| ASSETS |
|100% |134% |170% |152% |183% |Cash and balance with treasury banks |
| | | | | |Balance with other banks |
| | | | | |Lending to financial and other institutions |
| | | | | |Investment |
| | | | | |Advances |
| | | | | |Other assets |
| | | | | |Operating fixed assets |
| | | | | |Deferred tax assets |
|100% |114% |151% |72% |82% | |
|100% |438% |361% |621% |193% | |
|100% |149% |166% |229% |207% | |
|100% |123% |142% |144% |184% | |
|100% |175% |244% |355% |0% | |
|100% |123% |147% |198% |0% | |
|0% |0% |0% |0% |0% | |
|100% |135% |158% |170% |192% |TOTAL ASSETS |
| |
| |Liabilities and owner 's equity |
|100% |107% |150% |214% |211% |Bills Payable Borrowings |
| | | | | |Deposits and other accounts Sub-Ordinate Loans |
| | | | | |Liability against assets subject to finance lease Other Liabilities|
| | | | | |Deferred Liabilities |
|100% |77% |109% |127% |110% | |
|100% |143% |158% |172% |201% | |
|100% |300% |300% |300% |300% | |
|100% |10% |0% |0% |0% | |
|100% |177% |208% |251% |371% | |
|100% |108% |140% |89% |2% | |
|100% |135% |153% |168% |191% | |
| |Owner 's Equity |
|100% |120% |160% |239% |323% |Share Capital Reserves |
| | | | | |Un-appropriated Profits |
|100% |136% |135% |161% |178% | |
|0% |0% |0% |0% |0% | |
|100% |132% |173% |217% |216% | |
|100% |275% |324% |38% |211% |Surplus on revaluation of assets |
| | | | | | |
|100% |135% |158% |170% |192% |Total Liabilities and owner 's Equity |
Interpretation of Horizontal Analysis
The horizontal analysis of the balance sheet clearly shows that the cash balance increased gradually from year 2006 to year 2007 and now it is 183% as compared to year 2006. The lending to financial institution has reached upto 193% as compared to year 2006 but it was at the peak in year 2009 at 621% and it was also higher in year 2006, 2007. It was because of current market crisis and declining liquidity position of the bank. Investment has reached to 207% but it has decreased from year 2009, just because of current market scenario. The advances of the bank has reached to 184% as compared to year 2006 and are at all time high in the last 5 years just because of increased deposits. The banks deposits are also increased upto 201% from year 2006. Same is the case with the bank 's share capital, reserves and surplus on revaluation of assets, all have been increased just because of the pressure and policies of state bank of Pakistan about increasing bank 's own capital. The horizontal analysis of the bank shows slightly lower bank 's position but it is just because of the current market crisis.
Vertical Analysis of Balance Sheet
|2006 |2007 |2008 |2009 |2010 | |
| | |DATA IN %AGE | | |
| ASSETS |
|8% |8% |9% |7% |8% |Cash and balance with treasury banks |
| | | | | |Balance with other banks |
| | | | | |Lending to financial and other institutions |
| | | | | |Investment |
| | | | | |Advances |
| | | | | |Other assets |
| | | | | |Operating fixed assets |
| | | | | |Deffered tax assets |
|5% |4% |4% |2% |2% | |
|2% |7% |5% |8% |3% | |
|16% |18% |17% |22% |17% | |
|65% |59% |60% |55% |62% | |
|1% |2% |2% |3% |4% | |
|2% |2% |2% |3% |4% | |
|0% |0% |0% |0% |0% | |
|100% |100% |100% |100% |100% |TOTAL ASSETS |
| |
| |Liabilities and owner 's equity |
|1% |1% |1% |1% |1% |Bills Payable |
| | | | | |Borrowings |
| | | | | |Deposits and other accounts |
| | | | | |Sub-Ordinated Loans |
| | | | | |Liability against against assets subject to finance lease |
| | | | | |Other Liabilities |
| | | | | |Deffered Liabilities |
|13% |7% |9% |10% |7% | |
|78% |82% |79% |79% |81% | |
|1% |2% |2% |2% |1% | |
|0% |0% |0% |0% |0% | |
|1% |2% |2% |2% |2% | |
|0% |0% |0% | |0% | |
|96% |95% |94% |94% |93% | |
| |Owner 's Equity |
|1% |1% |1% |2% |2% |Share Capital |
| | | | | |Reserves |
| | | | | |Un-appropriated Profits |
|2% |3% |3% |3% |4% | |
|0% |0% |1% |1% |0% | |
| | | | | | |
| | | | | |Surplus on revaluation of assets |
| | | | | | |
|100% |100% |100% |100% |100% |Total Liabilities and owner 's Equity |
Interpretation of Vertical Analysis
The vertical analysis of the bank shows that the asset side is mostly captured by the advances with 62% and investments 17%. These two items always captures major portion of assets side. Advances of the bank have increased from previous years but other items slightly decreased just because of bank 's changing scenario and policy.
On the other side deposits contributes major portion of liability side with 81% and also increased from previous year. But other things slightly decrease due to the current scenario.
Interpretation of Horizontal Analysis
An analysis of percentage financial statement where all balance sheet or income statement figures for a base year equal 100 (percent) and subsequent financial statement items are expressed as percentages of their values in the base year. So the above situation shows that the trend of progress is positive. But the Administrative expanse increase during the 2009 due to new customer services, introducing new products and car financing. Administrative expanses are increasing by year to year we need to control over it. Profit before taxation fluctuate between different years and gradually increase and in the last year 2010 it is little bit decrease. Total assets of the bank are also increasing from year to year which is useful for our bank. Liabilities of the bank are also increasing from year to year we need to control over it; we need to more focus on it.
Interpretation of Vertical Analysis
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items divided by net sales of revenues. In the balance sheet the ratio of the advances and the deposits are high which is good. Deposits are increase in 2008 due to high interest rates. Administrative expanses are fluctuating during the different years it is maximum in the year of 2010. Profit before taxation is also increasing in first four years and it is decrease in the last year 2010. The bank needs to control over the expanses and improve the performance of the bank.
5.2 Organizational Analysis With Reference to the Industry
|NAME OF BANKS |TOTAL ASSETS |TOTAL LIABILITIES |PROFIT AFTER TAX |SHARE CAPITAL |
|Standard Chartered |264617178 |221860038 |677132 |38715850 |
|Bank Al-Falah |348690764 |331U6025 |6177727 |7995000 |
|National Bank |817,758,326 |102,459,218 |15,458,590 |8,969,751 |
|Askari Bank |206191138 |12971363 |386225 |4058774 |
| | | | | |
The company’s financial year-end is DEC. Its year of listing was 2010.
When the comparison is made of the performance of Askari bank with peer banks, bank 's total assets are less as compared to standard chartered bank, Bank al-falah, and Nation Bank and it is only because of lesser number of branches as compared to peer banks and ultimately same is the case with the total liabilities, Askari bank 's liabilities are also less as compared to peer banks. If the comparison is made between the profit after taxes, Askari Bank 's profit after taxes is also less just because of small operations but the return on assets ratio of Askari bank is very high as compared to peer banks because as the amount of total assets involved in the business are low and ultimately the bank is utilizing its assets efficiently. Share capital of Askari bank is more as compared to Standard chartered Bank because of its deep roots in the common people of Pakistan and the trust of the people on bank 's policies.
Generally Askari Bank is at very good positions as compared to its peer banks like Standard Chartered Bank and Bank al-falah and utilizing its all assets very efficiently and effectively.
5.3 Future Prospects of the Organization
Going in 2008, the reduction in the interest rate environment will overall have a negative impact on the financial sector 's profitability in the short term. To meet these challenges NBP will focus on building our loan portfolio, both on corporate and retail side. On the retail side focus will be on additional fee business while maintaining stringent controls over cost. Longer term the bank will be focusing on those sectors in the country, which have traditionally received less attention from the financial sector, i.e. agriculture, small and medium enterprises and of the entire range of retail products. AKBL key strength remains its customer base of over 9 million and is confident that bank is in positioned to capitalize on the opportunities. The outlook for the rest of the year 2007 remains challenging and is dependent on the success of the Government 's economic policies and n improvement in the investment climate. The bank 's commitment and endeavor to excel in rendering contemporary banking services along with acceleration of business mobilization will, Inshallah, further enhance the portfolio of its business, and the profitability, in the ensuing half-year. The Future vision of the management of the Askari Bank Abdali Road is starting the Mobile ATM services in the Multan. This service is already provided in the Karachi Lahore and Islamabad.
6. Short-falls/Weaknesses of the Organization
• AKBL has lesser number of branches only 177 as compared to many other bank branches and only has its presence in urban areas. • Bank is not introducing new products and new schemes in order to increase low cost deposit which is desperate need of the bank in current scenario. Bank should boost the product development and increase the range of facilities offered for customers. AKBL has many competitors, which are continuously increasing its products and marketing aggressively. It may cause its customers to shift to competitors. • Bank is weak in its credit management. Bank should lend to very sound parties and increase its payment rate. Ratio of bad loans is very high. • The human resource department is not performing the function of selection and recruitment and as well as performance evaluation very effectively. Selection process is not on merit due to which competent persons cannot be selected and due to influence of internal/external persons in the performance evaluation and annual performance system creating panic and frustration among employees which was cbserved during internship period. • Most of the financing schemes of AKBL are limited just for Army employees like army personal finance, army house building finance on special discounted rates and army house hold articles finance which is the biggest weakness of bank. • Sometimes due to increase in investment by deposits there create a shortage of funds to advance for working capital and short terms loans. • Financing procedure of the bank should be very simple one, but in AKBL it is very complicated and large procedure because of which small enterprises hesitate to get loans.
7. Conclusions
I conclude from my internship that the Askari bank is a growing organization It provides all the possible services which the customer wanted The behavior of the employee 's are very good with the customer and their dealing are very good , Due to this internship I learn many things Such as: • Dealing with customers. • Working Discipline. • Punctuality of time. • Commitment with task. • Financial Statement analysis. • Business communication.
In operation department I learned about account opening procedures and formalities and analysis of depositors worth and capacity. In cash department I have learned how to handle customer 's cash cheques and their payment procedures. I also learned about the bank closing cash procedures. In accounts department I have learned about the branch budget preparations, the making of expense sheets and checking and scrutiny of daily vouchers. In credits department, I have learned about the initiation of credit proposal and its pre disbursement security matters handling and post disbursement maintenance of stocks and insurance and in foreign trade department I have learned bout LC opening and post shipment finance handling as well.
After this internship I learn many more about the banking organization which I not know before my internship.
During the internship I compare my theoretical knowledge to my practical knowledge and clear the many concepts. Due to Internship I feel that I can face the people with confidence. So the net result is that it improves my confidence and my theoretical concepts.
8. Recommendation
No doubt Askari Bank is one of the leading banks of the country and upholds its name but still I have a few suggestions in my mind which I think it is my duty to mention. First of all, in order to make a good working environment of the bank, some recommendations are given. • The bank has to increase its number of branches and should open their new branch in rural areas because almost 70% population of the country lives in rural areas and they desperately need banking services at their door steps. • Because of increasing competition, the bank should focus on developing new unique products in order to attract low cost deposit because it is the need of the hour of the bank because of increasing pressure of the state bank and as well as to decrease the cost of deposit. • The bank should focus on credit recovery and should develop strategy in order to recover its bad loans. The bank should frequently held meeting with the defaulters in order to asses their repayment capacity and should offer them incentives in order obtain speedy recovery. The bank 's bad loans ratio is very alarming. • The bank should introduce ordinary customers on lesser rates as it is offering to army officials. The bank should devise a strategy in order to attract the other customers as well. • The bank should develop a fool proof and error free performance evaluation system and selection and recruitment policy in order to increase employee 's loyalty and confidence because the human capital of any company is vital to organization success. • The bank should not increase investment in long term projects because it creates liquidity crunch which a lot of Pakistani banks faced in the current season. The bank should invest its major funds in short term or working capital loans which are readily realizable. • The bank should make some strategy in order to attract small borrowers and make their credit approval and disbursement procedure a lot easier and user friendly. The bank should develop a booklet providing guidelines about loaning products and their procedures and requirement for the convenience of borrowers.
9. References 1. www.askaribank.dom.pk/products/cbd 2. www.askaribankjcom.pk/products/rbg 3. www.askaribank.com.pk/products/agriculture 4. www.askaribank.com.pk/products/pf 5. www.askaribank.com.pk/careers 6. www.askarilpank.com.pk/intranet/hrpolicies 7. www.sbp.ofg/prs 8. www.google.com.pk/askaribank 9. www.nift.com.pk/operations
References: 1. www.askaribank.dom.pk/products/cbd 2. www.askaribankjcom.pk/products/rbg 3. www.askaribank.com.pk/products/agriculture 4. www.askaribank.com.pk/products/pf 5. www.askaribank.com.pk/careers 6. www.askarilpank.com.pk/intranet/hrpolicies 7. www.sbp.ofg/prs 8. www.google.com.pk/askaribank 9. www.nift.com.pk/operations
Purpose of studying this organization because of good reputation of this bank and Askari Bank Multan branch is the key business holding branch in the Multan city. I think this bank provide better jobs opportunity as compare to other organizations, that 's why I choose this organization for internship.
Another reason for studying this organization is that, the Multan branch is carrying corporate status and better learning opportunities are available there for me, therefore I preferred to perform my internship in this bank and here I gained practical experience related with my course and I come to know how bank use the policies and strategies and how evaluate its performance.
I feel pleasure and honor that I got the opportunity to work in such a privileged and reputable bank of the country. During my internship program I tried my every best to equip myself with all important knowledge. Furthermore I also learned a lot that how to deal with corporate clients and what their requirements are. In this report, I have tried to humble endeavor to cover various aspects of bank like, introduction, its history, main departments, culture, objectives and working financial analysis.
2. Overview of the Organization
2.1 Brief History of the Organization
Askari Bank Limited works as a Unit of Army Welfare Trust was established for the Welfare of Army Officials. The office of Army Welfare Trust is situated at AWT Plaza, Rawalpindi. AWT offers the "AWT Saving Scheme" to the army officials only. AWT has its units as under: • Askari Associates. • Askari Leasing. • Askari General Insurance. • Askari Cement. • Askari CNG. • Textile Mills. • Askari Bank Limited.
Askari Bank Limited was incorporated on October 9, 1991, as a Public Limited Company, and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The Bank obtained business commencement certificate on February 26, 1992 and started operations form April 1, 1992. Askari Bank limited is scheduled Commercial Bank and is principally engaged in the business of Banking as defined in the Banking Companies Ordinance 1962.
Askari Bank Limited continues to scale new heights in all areas of its operations. The safety and security of depositor 's funds, high productivity and optimum use of technology are the hallmarks of its corporate strength. In 1994, Askari bank limited earned international recognition as Asia Money Award and the title of "Best Bank of Pakistan” for the year 1995. In 2009, the bank has won the best award in agriculture sector performance.
2.1.1 Askari Bank Limited Multan
Askari Bank Limited was inaugurated on December 28, 1994. It is located on Abdali Road Opposite to PIA Office. The location is connected to all the main trade centers in Multan. It is a prosperous branch streaming towards great achievements. At the time of its establishment the factors that were considered are as follows • Multan is zone covering a large population. • Multan is the main city of Southern Punjab. • Multan City is linked to many big cities. • Multan is the textile city because of cotton ginning factories and textile mills. • Multan has one of the biggest Fertilizers Company named as Pak Arab Fertilizers Ltd. • Agro based area constituting growers and gainers. • Multan is Army 02-Corpse Head Quarter. • Educational Institution.
2.2 Nature of the Organization
It is a commercial bank providing lending services to consumers and corporate bodies, the basic purpose of the bank is to earn profit. This bank is known as Askari Bank Ltd. The head office of Askari bank Ltd. is situated in Rawalpindi. Multan is a cotton city, so to get the export market of cotton Askari Bank Ltd. open its branch in Multan in December, 1994. In a short span of time this branch increases their business remarkably. In 2001 this branch gets the trophy of highest profit for the year 2001. This branch has highest deposits and advances as compare to other banks working in Multan. In 2009, the total numbers of branches are 177 all ever the country. Every bank deals in money, accept the money from those people who have spare it, and give them who have need it, basically bank is a business of money.
Askari bank Ltd, like other commercial banks deals in money accepts the deposits from people and lends them who need it.
2.3 Business volume of the Askari Bank Limited In 'Million '
Business Volume
|Rupees in '00 | |
|2006 |2007 |2008 |2009 |2010 | |
|4,688,057 |5,452,898 |6,630,349 |7,101,372 |6,376,997 |Revenues |
|83,318,795 |118,794,690 |131,839,283 |143,036,707 |167,676,572 |Deposits |
|69,838,392 |85,976,895 |99,179,372 |100,780,162 |128,818,242 |Advances |
|1,255,848 |1,507,018 |2,004,333 |3,006,499 |4,058,774 |Share Capital |
In 2008, the profit of the Askari Bank Ltd. Abdali road Multan Branch was 146 Million. The business volume in terms of revenue, deposits, and advances of the Askari Bank of all branches is such as given bellow:
1. Deposits.
Customer deposits increased to Rs. 167 billion by end 2008, an increase of 11% over last year. A compensation of deposits by type reveals that current accounts i.e. non remunerative accounts increased by 19% followed by saving deposit accounts, which increased by 11% over the previous year. The fixed deposits increased by 6%.
2. Advances
Advances of the bank rose from Rs.68.838 Billion in year 2004 to Rs. 128.818 Billion which is a great achievement of the bank and the bank did it in just five years. It also shows the borrower 's confidence on bank schemes and policies.
3. Share Capital
The share capital of the bank also rose from Rs. 1.255 Billion in the year 2004 to Rs.4.058 Billion in the year 2008 which clearly shows the investors confidence on the bank 's policies and management.
3. Earnings per share.
Earnings per share increased by 11% fro Rs. 10.09 last year restated for issue of bonus shares during the year, to Rl. 1123 at the dose of year.
3. NPLs and provisions against NPLs.
NPLs increased by 54% during the year to Rs. 3825 million from Rs.3920 million from last year due to further downgrade of few large exposures. While these NPLs are being closely monitored for recovery, Rs.1128 million has been appropriated as provisions against non-performing advances, against previous year 's Rs. 639 million. During the year, the base of general provision was revised from judgmental to consistent vases and now general provision is maintained @ 5% on all performing advances except consumer advances-general provision on consumer advances is maintained as per SBP prudential regulations for consumer finances.
2.4 Number of Employees
Total number of staff in the Askari Bank Limited, Abdali Road Multan is 57, including five Executive, three peons, one president and remaining are the employees. Total number of employees of all the branches of Askari Bank Ltd is almost 6500. The cadre wise break up of employees is as follows,
Number Cadres
|01 |President & CEO |
|08 |SEVP |
|16 |EVP |
|32 |SVP |
|84 |VP |
|170 |AVP |
|240 |Manager Grade |
|580 |Assistant Manager Grade |
|1100 |OG-I |
|1580 |OG-II |
|2056 |OG-III |
|633 |Clerical and Misc |
|6500 |Total |
2.5 Product Lines/Services offered by the Askari Bank Limited
Askari bank offered the following products and service to its customer,
2.5.1 Consumer Banking Services
The Consumer Banking Services offered by the bank are reorganized by combing consumer financial business and credit card business under one umbrella and was renamed as consumer banking services group. Consumer financing offers auto, mortgage, personal and business financing as the core products.
1. Personal Finance
One can avail unlimited opportunities through Askari Bank 's Personal Finance. With unmatched financing features in terms of loan amount, payback period and most affordable monthly installments, Askari Bank 's Personal Finance makes sure that everyone gets the most out of loan. No matter what need is, Askari Bank has more ways to serve than ever before.
2. Mortgage Finance
Ever since the inception of life, shelter has been rated among the primary needs of mankind. Owning a home for oneself still remains an exclusive dream for many. Askari Bank has made the realization of dream to have a house very own possible. Whether anybody plans to build a house, tailor made to his requirements or buy a constructed house, Askari mortgage finance enables everybody to pursue its goal without any problems.
3. Business Finance
The customers always want to put in that extra money into business, which makes it grow and grow.
4. Smart Cash
It is a cash finance facility in which the borrower can overdraft some sanctioned amount. It is a running finance facility, in which the borrower can withdraw the amount which he needs, and after satisfying its need he can repay the amount. The mark-up is charged only the outstanding amount. It is time bound facility and expires after some specific time.
5. Askari Debit card
Askari Debit Card means freedom, comfort, convenience and security, so that you can have retail transactions with complete peace of mind. Askari Debit Card is your new shopping companion which enhances your quality of life by letting anybody do shopping, dine at restaurants, pay utility bills, transfer funds, withdraw and deposit cash through ATM anywhere, anytime.
6. Travelers ' cheques
Askari Bank offers its "Rupee Traveler Cheques" eliminating all financial risks while traveling. So avoid risk of carrying cash through Askari Bank 's Rupee Traveler Cheques.
7. Value plus Deposits
These are the unique deposit accounts in which profit rates are relatively high and insurance is also available to the borrower up to the extent of the deposit kept in the account.
2.5.2 Islamic Banking Services
Islamic Banking was launched under the brand 'Askari Islamic Banking ' by opening 6 dedicated Islamic banking branched in major cities of the country.
1. Islamic Corporate Banking
These are the banking facilities which are specifically offered to corporate customers of big firms.
2. Islamic Investment Banking
These are the banking facilities which are offered to the investors like investment funds.
3. Islamic Trade Finance
These are the banking services which are offered to the import and export companies like LC, Pre-shipment or Post-shipment facilities.
4. Islamic General Banking
These are the general banking facilities like account opening, Pay order or demand draft issuance etc, which are offered to all customers.
5. Islamic Consumer Banking
These are the consumer banking services which are offered to small customers like personal finance, mortgage finance, car leasing etc.
2.5.3 Agriculture Finance
Askari Bank 's Agriculture Credit Schemes ware launched in 2004 under the umbrella of Agriculture Credit Division continue to be an attractive Products for meeting ON Farm and OFF Farm financial requirements of the farmers.
l. Kissan Ever Green Finance
Askari Bank has launched this program with the sole motive to provide dignity, prosperity and freedom to the tiller of the land. The program is designed to help small, medium and large farmers in meeting their short-term input requirements against one time sanction and automatically renewable up to 3 years subject to its stipulated utilization/periodical adjustment. The credit line is sanctioned in the light of available cash flows and input requirements i.e. Seeds, Fertilizer & Pesticides etc.
2. Kissan Farm Mechanization Finance
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
3. Kissan Aabpashi Finance
Agriculture farming is impossible without adequate water. Askari Bank has started a program for farmers, to finance installation of Tube-Wells (electric, diesel and solar energy units) water management equipments and water channel development etc., which will help farmers to make optimum use of limited water resources.
4. Kissan Livestock Development Finance
Askari Bank has launched a program enabling the farmer to purchase Milk Animals, Goats, Sheep, Poultry and Fisheries without incurring extra expenditure because of availability at his farm. This program has the added advantage that besides fulfilling his own family 's consumption needs he will be able to market the surplus and earn additional income. This will further improve their cash flows to repay their other Loans / Revolving Credit on due date.
5. Kissan Farm Mechanization
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
6. Kissan Farm Transport finance
Askari Bank has launched an Askari Kissan Farm Transport Finance. A grave handicap that afflicts the farmers is their inability, due to lack of proper facilities, to take their produce to the market through efficient means of transportation. One can safely conclude that if provided with appropriate and speedy transport, the farmer can benefit by enhancing his selling ability and thus increase his income / cash flow, it is pertinent to mention that a number of Banks, Leasing Companies and Private Agencies have geared their marketing efforts to concentrate on and have mainly captured the urban markets.
2.5.4 Corporate & Investment Banking
Corporate Banking is managed by a central corporate banking division based at head office Rawalpindi and supported by dedicated marketing and back office unites in Karachi, Lahore and Rawalpindi.
The investment banking activity mainly covers debt/capital markets, advisory services and trading. The division also offers advisory and loan syndication services.
3. Organizational structure
3.1 Main offices (Head office and Branches)
The head office of the Askari bank Ltd is situated at AWT Plaza, The mall, Rawalpindi and the total branches are 177. The branch network is given in Annexure-III. During the year, Islamic Banking was launched under the Askari Islamic Banking, by opening 6 dedicated Islamic Banking branches in major cities of the country. Further expansion is planned with improved capabilities for offering products conferring to the shariah principles.
Hierarchy of complete organization is attached in annexure-I. and Branch level hierarchy is at annexure-II.
3.2 Review of the Various Departments of the Organization
The bank has following department:
1. DEPOSITS • Account Opening department • ATM Department • Cash Department
2. ADVANCES • Credit Department • Credit Card Department • Foreign Trade Department
4. Remittance Department • Remittance Department • Clearing Department
5. Others • Accounts Department
DEPOSITS
3.2.1 Account Opening Department
Askari Bank Ltd accepts/collects deposit from their accountholders. The deposits are the life blood of any bank. Deposits are of great importance to banks. Deposits are the blood of banks because banks lend these deposits to other needy people or invest these funds in different projects and earn income. This is distributed among the depositors and the banks themselves. The bank earns the difference amount between the lending rate and the deposit rate.
Individual bank deposits provide the least expensive cost of new money for the bank to loan out. The large amounts of people and deposits help the banks make lots of profit since the banks charge at prime rate (set indirectly by the country 's bank) and the banks pay a low nominal interest on the deposits. Money is needed to add new infrastructure (road, bridges, sewers, factories, etc) and capital equipment (machinery, assembly robots, etc) in order to grow the economy. The banks are reluctant to borrow from other banks or other sources (such as rich persons) since the interest rate charges is much higher than the banks would pay individual deposits.
For obtaining a deposit and account in the bank must be there where the deposit is placed. For this an account opening form is provided to prospective Customer. At the same time introduction of that Customer is an integral condition so that provided information by that Customer may also be got Authenticated. Borrowing funds from different sources has become an essential feature of today 's business enterprises. But in the case of a bank borrowing funds from outside parties is all the more vital because the entire banking system is based on it. Now its importance is higher, as the SBP has imposed the equity limit for lending purpose. This year the banks must reach the equity of Rs.6.00Billion which will be increase gradually. It means the bank can finance up to the limit of their own equity as prescribed by the bank. The borrowed capital of a bank is much greater than its own capital. Banks borrowing is mostly in the form of deposits. These deposits are lent out to different parties. Such deposit creation is done through opening an account in the Bank.
3.2.1.1 Types of Accounts
In Askari Bank Limited, there are the following types of accounts: • Current account. • Saving Account. • Basic Banking Account • Value Plus account • Askari Special Deposit Account.(ASDA) • Term Deposit.
3.2.1.1.1 Current Account
In current account there is no profit on it. It is for only transaction purposes. They are paid on demand. When a banker accepts a demand deposit, he incurs the obligation of the paying all cheques drawn against him to the extended of the balance in the account. As there is no profit paid on this account it is also called chequing account because cheques can be drawn on it. Current account is mostly opened for business.
3.2.1.1.2 Saving Account
The purpose of this account is to induce the habit of saving individuals in the neighborhood. The minimum deposit for opening the account is Rs.5000/- Though individuals open such accounts for saving purpose, persons belonging to Armed forces and different military institutions are free to use this account on current basis.
3.2.1.1.3 Askari Special Deposit Account
ASDA account is an interest bearing current account profit is paid. It is a unique product. The payment of return is on daily basis, where as the rate of return with respect to the amount of minimum deposit clear. It is also chequing account because cheques can be drawn on it. It is necessary for this account that the client must maintain a minimum balance of Rs. 50,000 at the end of the month. That 's why it is similar to current account. It is mostly opened by Business but individuals too open this account.
3.2.1.1.4 Term Deposits
A term deposit is a deposit that is made for a certain periods of time at the end of the specific period. The customer is allowed to with draw the principle amount. AKBLs Term deposits are of two types as cleared in the deposit scheme. One of them is "Askari" Advantage one month. The rate of return on this account is set by head office. The term deposit account varies one month to 1 year for all following accounts. • The amount of profit is given to depositors in three ways: • By cash • By sending a bank Draft to depositors Home address or Officers or whichever is specified as mailing Address. • The amount is credited in any one of the checking Accounts of the depositor.
3.2.1.2 Account Opening Procedure
The depositor can open the account with the Bank in the following ways: • Individually • Jointly • Sole proprietorship • Partnership • Corporation
3.2.1.3 Individual 's Account
When a single man or woman opens an account in his/her own name and has the right to operate it is called individual Account.
Documentation
For literate person copy of National Identity Card is required as a primary requirement. For illiterate person and Veiled Women, along with the copy of National Identity Card requirement he or she must come in person for opening the account.
Operation
A person can open account with the Bank in Pak-rupee or in selected foreign currencies in nominated Branches of the Askari Bank Ltd. First of all he has to fill the account opening Form provided by the Bank. If the account holder is illiterate then he provides two photographs to the Bank and thumbprint is used instead of signature. In order to stop the payment from the account it is necessary for him to give the instruction to the Manager in the black and white. He may get the statement of account from the Bank according to his own will.
3. 2.1.4 Joint Account
When two or more persons, either partners, or trustees, open an in their name is called Joint Account. Husband and wife or two persons of same sex can open joint account.
Documentation
For joint account copy of National Identity Card of all the persons is obtained other things remaining same as in individuals account.
3.2.1.5 Proprietorship Account
When an owner of a firm operating singly, opens an account in his firm name, this account is called a proprietorship Account the proprietor himself liable for all his acts.
Documentation
For this kind of account, an application for opening the account on the firm letter -pad (having the firm name) is required along with the NIC of proprietor.
3.2.1.6 Partnership Account
The account is opened in the firm name and all partner designate one two persons to act on behalf of the partner ship firm all acts on behalf of firm. The partners in the partnership firm are liable for the acts of the firm jointly and severely. Every partner has in a firm has an implied authority bind his co. partners by drawing and enclosed cheques.
Documentation • Copy of N.I.C card of all partners • Application to open the account on the firm letter pad. • Partner ship deed in case registered partnership firm. • Letter showing the implied Authority of one or more partners to act on behalf of the firm. • In case of non -registered partnership firm, understanding on behalf of the firm to remain liable for all acts of the firm. • Name, address of all partners is written on the pad.
3.2.1.7 Limited Company Account
This account is for limited companies whether private or public. In order to facilitate their transaction with outside parties, bank provides many facilities.
Documentation • Memorandum of Association. • Articles of the Association • Resolution of the Board of Director. • Certificate of Incorporation. • Certificate of commencement of business • N-I-C
3.2.1.8 Account Closing
Account is closed on the written request of the customer Askari Bank Limited free of cost. But the account holder has to surrender the cheque book if some leaves are yet to be used to the bank as a necessary requirements for closing the account.
3.2.1.9 Procedure • The customer for individuals account write an application to the manager of the bank an a simple paper about the closing of his account with the bank (In case of proprietor ship partnership and limited company account the application should be written an firm or company letter -head) • The individual or in case of other type of firm and company surrender the cheque book to the bank. • The cheque book is then torn from one side and is attached with the application. • In case of Ltd. Company account resolution of the board of directors is also obtained to attach it with the application. • The account opening form of the account holder is taken from the account-opening file, and the application, cheque book, and resolution of board of directors in case of limited company account are attached with the form. • Lastly, it is written in "Red Ink on the form that account closed" and "Date of account closing."
3.2.2 ATM- Cards Department
This department deals in issuing ATM-Card, term deposits and Askari Bachat Certificate. Mr. Khurram Faiz deals this department.
3.2.2.1 ATM Card
ATM - Cards are only issue to Account Holder
Issuing Procedure • The person, first open the account within the blank. • Then he fills the ATM application form in which name of account holder, Fathers name account number and N.I.C number are mentioned. • A copy of N.I.C card is also attached with the application form. • After completing this process, the application package is sent to head office • Askari Bank Limited head office takes a period of 3-4 days for preparing and processing of ATM - cards. First, list of card holder is issued and then after 15 days cards are send to Askari Bank Limited issuing branch. The card and list are not sent simultaneously in order to avoid any mishandling. • Askari Bank Limited takes Rs. 350/- for 1st time issuance as charges for a $card • Biannually takes Rs 250/-.
3.2.3 Cash Department
Cash department deals in deposit and withdrawal of cash and cheques. Three Officers are operating the cash department at Askari Bank Bank Limited, Multan.
CASH DEPOSIT PROCEDURE
A customer comes to deposit cash in his account. The procedure followed in the cash department in this case as follows:
• The customer fills the pay-in slip. There are two types of pay-in slips. The red slip is filled if he is a saving account holder black slip is filled if he is current account holder. The cashier receives the pay-in slip and cash. • He counts the cash and makes the detail of the notes at the bank of the pay-in slip. • Then he compares the detail with amount written on the pay-in slip. • Signs the pay-in slip. • Puts the stamp of the "Cash Received" on the pay-in slip of writes the serial number from the receiving cashbook. • The first portion i.e. the Receipt is taken and given to the customer. While the latter portion handed over to the person for the entry in order to update the data.
3.2.3.1 Cash Payment Procedure
When a customer comes to withdraw a certain amount from his account, he brings a cheque along with him. In this case the following steps are taken. • The cashier receiving the cheque and check it whether it is postdated or predated. Cheque can be cashed within six months. A repeated cheque cannot be cashed. • He takes two signatures at the back of the cheque from the bearer. • He gives the cheque for "posting" at the computer. The computer checks out whether there is balance in the account or not. Other instructions are also received e.g. blocked, frozen, etc. The posting is done the account is debited and the cheque is stamped "posted" with the serial number and date. • The person hands it to the head of bills and remittances department OG 2 for cancellation if the amount is up to Rs. 50,000 and OG 2 cancel it. • Manager Operations, cancels if the Cheque is Greater than Rs. 50,000. if it is greater than Rs. 1,000,000 than Vice president cancels it. The signature of the drawer is verified for the signature specimen cards. • After cancellation, OG 2 hands over it to the cashier and then slightly interrogates the bearer about amount of payee. • The cashier counts the cash and makes the detail at the back of the cheque. The cash is paid to the person and the cheque is stamped "Cash Paid" immediately. • The entry is made in the Paying Cashbook and the Serial Number is written on the cheque.
3.2.4 Credit Department
Lending or financing is one of the basic functions of banks of all categories, through which they gain major part of their profit-;. A bank accepts deposits of money and repays cash to its depositors on demand. But this is not to say that; bank gives this service for nothing. Bank borrows money at a lesser rate of interest and lends to the borrower at higher rate of interest. And the difference between these two is the profit of the bank.
CREDIT MANAGEMENT CYCLE:
Credit Management is composed of six steps: 1. Proposal 2. Processing 3. Decision 4. Documentation 5. Disbursement 6. Review
PROPOSAL:
The first step in the Credit Management is receiving a credit request, which is a lending proposal for the bank each borrower has a purpose for borrowing. Some borrow to fulfill their working capital needs, others wants to finance any project. The customer presents his idea to the banker and wants the information on bank 's facilities. Then after collecting information if the customer deems it beneficial he makes a loan request.
This bank customer relationship should be mutually beneficial.
PROCESSING OF LOAN PROPOSAL:
Managing a safe, healthy and profitable credit portfolio depends on the quality of judgment exercised by the officer and the depth of their risk associated with the nature of the borrowers business. The banker is supposed to make a judicious judgment, which should be based on a critical study of advance proposals. It is very much necessary that the banker should have a complete confidence in the integrity and ability of the customer to use the money to his advantage and repay it within a reasonable period. Information must be collected and confirmed by investigation and negotiation during processing of the proposal.
In respect of fresh (ending proposal, the CLP is the end result of a series of internal and external investigation exercises following the identification of a potential customer, beginning with the first call on the customer.
EVALUATION:
To assess the risk and estimate the potential of a particular business, a series of investigative exercise is undertaken. This evaluation stage include knowing the purpose of borrowing, knowing business prospects of a customer, visiting the business place, analysis of financial statement, visiting the collateral securities etc.
PURPOSE OF BORROWING:
The borrower must disclose factual purpose for seeking financial accommodation from bank without such, the proposal should not be given due consideration.
1. The possible purpose may be as follows: 2. Export Financing / Packing Credit. 3. Import Trade Financing. 4. Working Capital need for Trade and industry. 5. Fixed Investment for Industry (Project Financing). 6. Purchase of Industrial or Commercial Vehicles. 7. Construction of Residential, Industrial and Agricultural 8. Buildings. 9. Finance for movement of Goods / Crops within the country. 10. Purchase of Agricultural Machinery. 11. Development of Agricultural Land.
Different Advance Facilities are offered according purpose of borrowing. Some facilities may be used for specific purposes because of their very nature and therefore, risk involved in extending them can be accurately identified; for example; an LC Facility can be used only for imports and depending on the items being imported, risk can be assessed reasonably and accurately. But other facilities however may be used for a variety of purposes and it may not be possible to assess the risk as accurately. It is, therefore, important that in all cases facilities are extended only after understanding precisely the use to which they will be put, and monitoring systems devised to ensure that their use is confined to disclose purposes only. Because without these safeguards, risk involved in extending them would not remain the same as envisaged at the time of extending he facility.
KNOWING THE BUSINESS PROSPECTS OF THE BORROWER:
Aside from fluctuating market conditions caused by temporary imbalances in demand and supply, which result in unusual growth or slump in sales, there is a gradual impact of the natural life cycle of industries and their products. Product life cycles are characterized by an initial period of rapid sales growth followed by the period of decline in growth rate signifying weakening of demand, either slowly or rapidly, forced by any one or all of the following: 1. Market saturation due to increased competition. 2. Innovation or the development of better / cost effective substitute. 3. Technological changes, which render older models obsolete. 4. Changes in import / export tariff which affect pricing structure.
Thus while preparing CLP, the concerned officer must look at these trends to identity both short term as well as long term prospects of the business of the borrower in the market place and the economy as a whole. He must also satisfy himself about capacity of the borrower to survive these shocks as and when they surface before recommending establishment of a lending relationship.
FINANCIAL STATEMENTS ANALYSIS;
The purpose of analysis of Financial Statement (FS) is to examine past and current financial data so that a company 's performance and financial position can be evaluated and future risk and potentials can be estimated. The analysis can yield valuable information about trends and relationship, the quality of company earnings and its financial strengths and weaknesses.
Financial Statements among other things include balance sheet and income statement. Balance sheet represents assets and liabilities of the business at a given data. Besides showing the ability of the business to service the loans on the strength of its financial structure. It also helps in evolving secured basis for extending financial support. Apart form showing the profitability of a business, income statements disclose how the business has been conducted and determines factors behind a rise or decline in the net worth.
VALUATION OF COLLATERAL SECURITIES:
Valuation of collateral securities is an area which is fraught with dangers because there can be errors of judgment or deliberate over estimation for ulterior purposes. As far as cash and other liquid securities are concerned, there is not difficulty in disposing them of because their merits are self-evident. However, in respect of real estate, there are some important aspects, which need special examination.
An additional problem with collateral securities are that there is many security types whose valuation remains subjective because of the fact that there are no verifiable market prices quoted for them.
When any asset of the customer is taken into charge with the bank, the concerned officer visits the security and examines the suitability of the security for the facility required by the borrower. Banker must also check whether there are any existing charges on the asset because is that case the institution which has registered the charge first will have prior claim on the proceeds on the event of borrower 's liquidation.
After that a surveyor examines those fixed assets and estimates their value. It should be remembered that not every surveyor is competent to value every type of asset. So reliable experts competent to assess particular type of asset must carry out valuation.
NEGOTIATION:
While processing a loan proposal, a banker has to do a detailed negotiation with the customer, to have first hand knowledge about certain things and then confirm them. The negotiation phase is very important for creating a safe credit portfolio. The information collected in this phase may include the type of advance, the mode of creating charge over securities, the source of repayment and period for which the facility is needed.
Credit department deals in the following categories.
3.2.4.1 Consumer Banking Services
3.2.4.1.1 Personal Finance
One can avail unlimited opportunities through Askari Bank 's Personal Finance. With unmatched financing features in terms of loan amount, payback period and most affordable monthly installments, Askari Bank 's Personal Finance makes sure that every one gets the most out of loan. No matter what need is, Askari Bank has more ways to serve than ever before.
3.2.4.1.2 Auto Finance
Askari Bank offers the most convenient and affordable vehicle financing scheme to help in owning every one 's own favorite brand new car.
3.2.4.1.3 Business Finance
The customers always want to put in that extra money into business, which makes it grow and grow.
3.2.4.1.4 Debit card
Askari Debit Card means freedom, comfort, convenience and security, so that you can have retail transactions with complete peace of mind. Askari Debit Card is your new shopping companion which enhances your quality of life by letting anybody do shopping, dine at restaurants, pay utility bills, transfer funds, withdraw and deposit cash through ATM anywhere, anytime.
3.2.4.1.5 Mortgage Finance
Ever since the inception of life, shelter has been rated among the primary needs of mankind. Owning a home for oneself still remains an exclusive dream for many. Askari Bank has made the realization of dream to have a house very own possible. Whether anybody plans to build a house, tailor made to his requirements or buy a constructed house, Askari mortgage finance enables everybody to pursue its goal without any problems.
3.2.4.1.6 Travelers Cheques
Askari Bank offers its "Rupee Traveler Cheques" eliminating all financial risks while traveling. So avoid risk of carrying cash through Askari Bank 's Rupee Traveler Cheques.
3.2.4.2 Agriculture Finance
3.2.4.2.1 Kissan Ever Green Financing
Askari Bank has launched this program with the sole motive to provide dignity, prosperity and freedom to the tiller of the land. The program is designed to help small, medium and large farmers in meeting their short-term input requirements against one time sanction and automatically renewable up to 3 years subject to its stipulated utilization/periodical adjustment. The credit line is sanctioned in the light of available cash flows and input requirements i.e. Seeds, Fertilizer & Pesticides etc.
3.2.4.2.2 Kissan Aab-Pashee Financing
Agriculture farming is impossible without adequate water. Askari Bank has started a program for farmers, to finance installation of Tube-Wells (electric, diesel and solar energy units) water management equipments and water channel development etc., which will help farmers to make optimum use of limited water resources.
3.2.4.2.3 Kissan Tractor Finance
Askari Bank has launched a Askari Kissan Tractor Finance for the assistance of the farmers and provides finance for the Tractors.
3.2.4.2.4 Kissan Farm Mechanization Finance
Askari Bank has launched an Askari Kissan Farm Mechanization Finance for the assistance of the small farmers and provides finance for farm equipment, trailer, thresher, drills & rotavators etc.
3.2.4.2.4 Kissan Farm Transport Finance
Askari Bank has launched an Askari Kissan Farm Transport Finance. A grave handicap that afflicts the farmers is their inability, due to lack of proper facilities, to take their produce to the market through efficient means of transportation. One can safely conclude that if provided with appropriate and speedy transport, the farmer can benefit by enhancing his selling ability and thus increase his income / cash flow, it is pertinent to mention that a number of Banks, Leasing Companies and Private Agencies have geared their marketing efforts to concentrate on and have mainly captured the urban markets.
3.2.4.2.4.1 Kissan Live Stock Development Finance
Askari Bank has launched a program enabling the farmer to purchase Milk Animals, Goats, Sheep, Poultry and Fisheries without incurring extra expenditure because of availability at his farm.. This program has the added advantage that besides fulfilling his own family 's consumption needs he will be able to market the surplus and earn additional income. This will further improve their cash flows to repay their other Loans / Revolving Credit on due date.
3.2.4.3 Fund Based Loan
3.2.4.3.1 Running Finance (R/F)
It is popularly known as overdraft (OD) facility or cash credit created in current account adjustment made from time to tome uptil on expiry of loan. This is revolving type of facility. Customer can borrow to a specific limit at any time he needs the funds. This facility is extended against different securities like Govt. Securities, National Saving and Regular Saving Certificates, Hypothecated Goods in trade, etc. Periodical statement of hypothecation of goods must be obtained by bank officer and physical checking on fortnightly or monthly or quarterly basis must be exercised.
3.2.4.3.2 Cash Finance (C/F)
It is a sort of loan in which the client is given cash in lump sum and total amount is credited in borrower 's current account, adjustment is linked with the delivery of goods kept under bank 's pledge. Generally cash finance is allowed for locally produced raw material, normally Cotton. Adjustment ir connected with the value of goods released for delivery which actually determines the D/P i.e. drawing power of borrower e.g. if pledged material with bank is cotton and the value of cotton in the market increases, then borrower with either get released the excess value cotton stock or will enhance its financing due to increased D/P (Drawing Power). The bank changes the markup at the rate advised by the State Bank of Pakistan.
3.2.4.3.3 Term Finance (T/F)
Term finance is offered to client for investment in any project or business. It is issued for fixed time period. The amount of finance is credited to borrower 's personal account by debiting the Term Finance Account. The amount of finance is credited to borrower 's personal account by debiting the Term Finance Account. The amount of Finance is disbursed in lump sum. The repayment of Term Finance is usually in installments and with other documents a letter of installments is taken from the borrower at the time of disbursement. By that letter, the borrower binds him to pay the installments at regular intervals. Monthly repayment amount is calculated by dividing the principal amount by time period plus mark-up.
3.2.4.4 Non-Fund Based Facilities
3.2.4.4.1 Letter Of Credit
Letter of Credit issued by the bank can broadly be classified as under: - • Sight letter of credit. • Usance letter of credit.
The sight L/Cs calls for the draft to be drawn 'at sight '. Documents negotiated and received against sight are held as security till their retirement. Drafts drawn under usance are for a tenure specified in the L/C and are payable by the customer on due date. Credit line proposal must clearly state the type of letter of credit the branch is intended to issue.
3.2.5 Credit Card Department
I was told that the bank is authorized to issue the credit card of two companies, which are under bank of America. • Master Card • Visa Card
But due unavailability of visa card machine in Multan, AKBL Multan branch deals n only
3.2.5.1 Master Card
There are following types of master card. • Silver card • Local silver card • Gold card
These are different due to their credit amount limit. For example for silver card, cardholder can take the maximum amount ranging between Rs. 25,000 to Rs, 200,000. While the local silver cardholder can use this card up to Rs. 25,000 to 500,000 for gold cardholder this limit has been extended to Rs. 300,000.
3.2.5.2 Issuing Charges
When the card is given to cardholder, there are certain fee charges to by the bank, which is different for different cards. • Local cardholder is charged Rs. 1200 but if the cardholder is Army officer there is special discount for him. And he is special charged Rs. 750. • Silver cardholder is charged Rs. 2500. • Gold cardholder is charged Rs. 3500.
3.2.5.4 Issuing Procedure
Credit card is issued to three types of parties. • Professional (Govt & private officers) • Business man • Landlord.
3.2.5.4 Professionals
For professionals, bank requires authorized letter from the concerned organization in which he works. This letter shows all particulars about the person, on the basis of these particulars; bank open on account and some feasible amount is required.
3.2.5.5 Business Men
In the case of businessman bank need • Balance sheet of businessman. • Type of business. • Turnover of 5 years.
And then when it is sured that the business has the ability to cover the expenses of credit card and to pay it at any time, the bank issues the credit card.
3.2.5.6 Land Lord
In the case, the person is totally new, and the bank doesn 't know anything about him. For this bank need an account having the amount over and above the credit card limit of that credit card. Usually, there is more chance of default in this case; so, the bank avoids issuing credit card to that person.
3.2.5.7 Payment Procedure
The cardholder should have to pay all the amounts what he has consumed. But in order to facilitate the cardholder, 5% is the minimum limit that the bank requires and that should be paid monthly. If you paid only 5% then 2% interests will be charged on remaining amount and it is added into the next month payments.
If that 5% is not paid then Rs. 100 are the additional charges charged to the next month payment a part form the 2% interest.
3.2.6 Foreign Trade Department
Foreign trade department deals in: • Foreign currency account • Exports • Imports
3.2.6.1 Foreign Currency Account
Mainly this account deals in individual, personal and companies account
Criteria for Opening Foreign Currency Account
There are not hard and fast rules for becoming the Foreign Currency Account holder. Bank wants only introduction of the Client and very little about the background. I.D card is also not necessary, if someone has; well and good, otherwise no restriction will be there for him.
Features of Foreign Currency Accounts • There will be legal protection for the account holders. • According to foreign exchange rules and regulation every citizen of Pakistan, either within the Pakistan or outside the Pakistan, can open the foreign currency account. • Resident firms and Resident Companies including investment Banks can open Foreign Currency Accounts. • All foreign nationals and foreign Companies in Pakistan or abroad can open Foreign Currency Accounts. • Opening of Foreign Currency Accounts in the joint names of residents/non-residents is permissible. Foreign Currency can be deposited by: • Remittance received from abroad • Foreign Currency Notes • There will be no restriction and questioning to him about the currency, which he wants to deposit that from where he got that money. • No Zakat will be deducted on these accounts; no Income Tax deduction, no Wealth Tax deduction will be there. • These incentives reinforce and motivated the people to invest in foreign currency accounts rather to keep the foreign currency idle. • Foreign currency accounts can easily be transferred from one person to another, one place to another, with in the AKBL Branches or in other Bank. • The account holder can transfer the funds freely, in any currency to any part of the world.
Facilities
This account provides following facilities: • Traveling quota • Out ward remittances • In ward remittances receiving • To make remittances procedure flexible
3.2.6.2 Export
Usually the exporter does not rely on the credit of a banker in the country of importer, and insist on a confirmation from a banker carrying on business in his own country. Thus this department of a bank helps the exporters to settle down their financial affairs. For exporting it is necessary for exporter to get export license from the chief controller of import and export after registration.
Documents are required for the registration such as N. I. C. Card, income tax certificate, bank certificate which shows that the exporter is his account holder and have a good dealing with them. In response to the letter of credit exporter submit the following documents to the negotiating bank.
• Bill of exchange • Invoice • Bill of lading or Airway bill/railway receipt/truck receipt • Insurance documents • Packing list • Any other documents, if so required.
The negotiating bank will send the same documents to the issuing bank. In accordance with the terms and condition laid down in letter of credit.
3.2.6.3 Foreign Bill Purchased (FBP)
Following requirements must be fulfilled before the purchase of Foreign Export Bills. Exporter should be account holder of the bank. Bank issues the Form-E. Form-E should be filled correctly and then bank authenticates the E-Form. Exporter goes to the custom authorities for custom clearance. Shipping Company issues Bill of Lading or Airway Bill. Exporter should bring other documents like certificates of Origin, commercial invoice, packing list etc. Bank scrutinizes the documents.
After fulfilling these requirements, bank purchases the export bill and makes payment for the value of goods in Pak Rupee to the Exporter.
Lodgment
Lodgment means making the payment to exporter by bank against the purchase of bill. Before the lodgment, bank records the export bill in the FBP register where name of exporter, importer, the name of bank which open the LC, Tenor of bills maturity. Two types of rates are used in evaluating the amount:
OD Buying rate/At sight rate It is the rate of export bill, payment of which is to be received within 12 days from the date of lodgment.
Usance rate It is the rate payment of which is to be made at a future date, normally within 30, 60, 90, 120, 150, or 180 days.
Realization
Realization means receiving the payment from the foreign bank for the export of goods. AKBL receive the credit advice from the treasury office situated in Karachi that the payment of the FBP Number this receive. If the payment FBP is less than the amount it was lodged than remaining amount will receive from the exporter.
Foreign Documents Bill for Collection (FDBC)
In FBP bank purchases the export bills from the exporter and makes payment to the exporter before the maturity of that bill, while in FDBC banks collect the export bill on the behalf of exporter on the date of maturity. In FDBC bank acts as a intermediary party. Bank gets little amount of commission for the collection of FDBC. Like FBP exporter deposit all the important documents of export bill to the bank, bank lodged this FDBC, it means bank record this export bill in the FDBC register where name of exporter, name of importer, bank which open the LC, Tenor, maturity date is written.
Advance Payment of Bills
This is another function which the export department of AKBL Multan branch performs. In advance payment bank pay the amount of export bill to the exporter before the shipment of goods. For this purchase of bill bank gets more charges as compare to FBP. Mainly export deals in: • Negotiation of documents • Sending the documents for collection • Pre-shipment financing • Post-shipment financing • Remittance against agent commission • Forward covered booking • Handling the documents for negotiation according to the UCP 500 (uniform custom and practices) • Handling the documents for collection according to URR (uniform rules for collection) • Submission of monthly returns to SBP regarding the export on form A-2/0-2
3.2.6.4 Import • Opening the letter of credit • Scrutinize the documents receive from flowing bank under letter of credit. Account to UCP 500 and extending the credit facility to the importer informs FIM (finance against imported merchandise) FATR (finance against trust receipt). • Arrange forward cover booking regarding import payments • Also arrange forward cover booking for letter of credit open other then AKBL • Submission of monthly returns to SBP regarding the import on form I
The international trade transaction, in which one country buys goods from other country, is called import. Import and Export Act of 1950 govern 's the import trade in Pakistan. Previously, the regulating body of imports was controller of Import and Export. But this function has been shifted to Trade Development Authority. Foreign Exchange Departments of all banks are restricted to work under the rules and regulations of government.
Import License and Registration
The individuals and firms who are interested to import goods from the foreign countries are required to obtain import license. Import licenses are a type of artificial restraint on the import trade of a country. To acquire import license, the importer has to submit applications to the licensing authority. The importers can only get their merchandize cleared from the custom authorities if they have the import license duly issued in their names. The import licenses issued by the Import Trade Controller are required to be registered with the State Bank of Pakistan.
Contract of sale
After getting the license, the importer then negotiates with the exporter. When they reach to an agreement on all terms of sale, they sign a contract. Thus contract includes all information of terms and condition of sale.
Letter of credit
Foreign trade payment problems are mainly solved by a letter of credit. A letter of credit is issued by the importer 's bank. If the guarantees payment to the exporter up to specified amount of money provided the terms and conditions laid down the L/C are fulfilled. A letter of credit is a commitment on the part of buyer 's bank to pay or accept draft drawn upon it, provided drafts do not exceed a specified amount.
A letter of credit thus is a (I) written undertaking by an importer 's bank to exporter 's bank. (II) That it will pay or accept draft drawn upon it up to a stated amount with a specified time. (Ill) The payment will only be made to the exporter if he compliers with the terms of credit.
Parties to a letter of credit
There are four parties involved in letter of credit. • Account party: The buyer or the importer on whose account and request the letter of credit is opened is known as account party or opener. • Issuing bank: The bank which issues or opens a letter of credit at the request of importer is called issuing bank. • Exporter or seller: The seller or the party in whose favor L/C is drawn is the exporter. He is also called beneficiary. • Negotiating bank: The paying bank in the exporter 's country, on which the draft is drawn, is called negotiating bank or paying bank.
Opening of letter of credit
The main steps involved in the opening of the letter of creditor as follows:
Application for letter of credit
The importer will request with own bank or any other bank, which deals in foreign trade transactions to issue a letter of credit in favor of the exporter. He will prepare an application on the prescribed form available from the bank. The information, which are supplied in the application are based on the contract of sale and include only the important feature of contract, such as value of merchandise, port of shipment, documents to be presented, port of unloading, brief description of goods, import license etc.
Scrutiny of application
Before issuing a letter of credit, the bank will scrutinize whether the importer is of good financial standing, possesses the import license issued by import control. Authorities, the amount available covers the letter of credit applied for, market demand of goods, collateral offered to cover the credit etc.
Cash margin
The bank asks the importer to deposit cash or securities with the bank. The bank depending upon the credit worthiness of the importer decides the proper margin of cash or securities to be deposited.
Issue of the letter of credit
The importer bank after being fully satisfied will issue a letter of credit in favor of the exporter. The L/C may be sent directly to the exporter or the advising bank in the exporter 's county. In such a case, the advising bank will inform the exporter about opening a letter of credit.
Shipment of goods
When the exporter receives L/C, he examines it to ensure that it conforms to the terms of contract of sales. He then shifts the goods and presents all required documents along with the bill to negotiating bank.
Role of negotiating bank
The negotiating bank after receiving all the documents and the bill from the exporter will scrutinize them whether these conform with the terms of letter of credit. If the documents of title accompanying the bill are in order, these will be sent to the importers bank for payment.
Liability of the issuing bank
On receipt of documents and the bill, the issuing bank will examine them. If the documents on the face appear to be in order, the payment would be released by the bank. In case any defect is found in the documents and the draft is honored by the issuing bank the importer can claim damages on the issuing bank. The issuing bank is only accountable for the completeness of documents, not to see whether goods conform to the contract of sale.
Payment by importer to the bank
First the importer pays all his obligations to the bank then the bank releases the documents. In case of sight draft, the importer 's bank pays the amount on the same day charging the importing customer 's account. In case of a time draft, the importer discharges his obligations to the accepting bank on or before the maturity date of acceptance. The accepting bank will then release all the shipping documents to the importer.
Payment to the exporter
The exporter can obtain payment from the negotiating bank by discounting the draft (L/C) immediately after shipping the goods and obtaining shipping documents.
Submission of Monthly Returns
It includes reporting of Form-M and Form-E to SBP.
Reporting of Form-E
Every Exporter is required to submit a declaration to custom authorities for goods exported. This declaration is submitted on prescribed Form-E in quadruplicate, which is certified by authorized dealer. Four copies of Form-E are maintained. Form-E is reported to SBP at the end of the month, in which the amount is realized. There is a prescribed Performa used for the reporting of Form-E. It includes the reporting period, currency, Serial No. of Form-E, amount, Code No. of country and commodity.
Reporting of Form-M
Every foreign bank deducts some charges from the value of goods. It is for miscellaneous purposes like foreign bank charges or foreign agent commission. Form-M is used to declare this outflow of foreign currency. At the end of the month of realization of the amount, Form-M is reported. It includes the list of Serial No, amount and purposes of every Form-M.
3.2.7 Remittance Department
The need of remittance is commonly felt is commercial life particularly and in everyday life generally. The main function of the remittance department is to transmit money from one place to another. By providing this service to the customer, Bank earns a lot of income. Also customer is able to meet its day to day financial requirements.
3.2.7.1 Demand Draft
It is an instrument payable on demand for which value has been received, issued by the branch of the Bank drawn i.e. payable at some other place (branch) of the same Bank. If two Banks are involved then the DD is sent to other Bank but in other case it is handed over to the applicant.
Issuance Procedure • A demand draft application is given to the customer; he fills in relevant information and signs it. • The officer checks the information form. • The Bank charges such as commission, excise duty is charged as per effective schedule of charges. If he fills the tax exemption form, tax is not charged. • In case of cash deposit, the cashier counts the amount and signs the DD application and enters it in the register. • Then the officer of remittance department signs it and operation manager counter signs it. • The entry is made in the DD issuing register, DD is given to the customer. • Vouchers are prepared and posted. • DD advises are printed and mailed to the respective branch.
Payment Procedure • The Bank receives DD. • The DD credit advice is received through mail. The numbers are checked and signatures are verified. • An entry is made on the DD payable register and the vouchers are made. • DD credit is attached with the vouchers and given for posting to the computer. • When DD is received the test numbers are checked and the payment is made. • Vouchers are given for posting and the entry that was made in the register is closed i.e. DD payable is Nil.
3.2.7.2 Pay Order
It is an instrument issued for payment in same city. Pay order issued from one branch can only be payable from the same branch. It is normally referred to as Banker 's cheque. It is also called confirmed cheque, because Bank issues this on it own guarantee.
Issuance Procedure • The standard form is given to the customer. He fills in the details and signs it. • The concerned officer checks the form. • Bank charges (or commission) as per the schedule of charges and the withholding tax of 0.3% are applied. • The cash amount of the pay order is received. • A cash memo is signed, stamped and handed over to the applicant as a receipt. • Then the pay order receipt is filled accordingly. • Counter foil is also filled. • An entry is made in the pay order issue register. • Then the authorized officer signs it after checking the pay order. • The order is then handed over to the applicant after obtaining his signature on the PO Form. • A voucher is also made and posted at the computer. Payment Procedure • On presentation of the pay order receipt, two authorized officers of the branch sign the receipt. • PO entry is made in the PO issue register. • Then the amount is credited to the account of the customer or pain in cash. • PO is posted at the computer.
3.2.7.3 Outward Bills for Collection
The bills, which are received by the Bank and sent to other cities (branches) for the local clearing in that city, are called Outward Bills for Collection.
Procedure: • The cheques that are of other cities are separated. • They are entered in the OBC Register and OBC numbers are given to them. • The OBC forwarding schedules are prepared for different branches. • The respective cheques are attached with the schedule. • The office copy is filled and original schedule is mailed. • On clearing, the respective Banks send back the OBCs along with the IBCA (Inter Branch Credit Advice). • The OBC numbers are checked from the OBC register, after those entries are made. • Commission charges are deducted from the account.
3.2.7.4 Inward Bills for Collection
The bills, which are received by the Bank from other branches out of the city for local clearing, are called Inward Bills for Collection.
Procedure • The OBC of other branches will be the IBC of this branch. So an OBC forwarding schedule is received by mail. • The cheques are entered in the IBC register. The IBC numbers are allotted to them. • The cheques are lodged for clearing. • After realization, an IBCA is prepared and mailed to the branch from where the cheque was received. • At the end of the day, two vouchers are prepared and posted.
3.2.8 Clearing Department
Cheques of different banks/branches in the same city are deposited with bank for clearing called local clearing. There is no legal obligation on a bank to collect cheques drawn upon other banks for a customer. However almost every modern bank performs this function of the collection of cheques and bills on behalf of the customer to facilitate them and provide them quality services.
Advantages of Clearing • Since clearing does not involve any cash etc and the entire transaction take place through book entries, the number of transactions can be unlimited. • No cash is needed as such the risks of robbery, embezzlements and pilferage is totally eliminated. • As major payments are made through clearing, the banks can manage cash payment at the counters with a minimum amount of cash in vaults. • A lot of time, cost and labor are saved. • Since it provides an extra service to the customers of banks without any service charger or costs, more and more people are inclined and attracted towards banking.
3.2.8.1 NIFT/Clearing House
NIFT
These days clearing operations are performed by NIFT (National Institutional Facilitation Technologies). This NIFT takes cheques from banks and performs clearing house operations with State Bank of Pakistan as an agent. Now the clearing procedure has become a lot more easier just because of NIFT.
Clearing House
It is a place where representatives of all scheduled banks sit together and interchange their claims against each other with the help of controlling staff of State Bank of Pakistan and where there is no branch of State Bank of Pakistan the designated branch of National Bank of Pakistan acts on behalf of State Bank of Pakistan.
Working of clearing house
All the banks which are the members of clearing house maintain their accounts with State Bank of Pakistan by debit and credit to which the clearing settlements are made. If on a particular day, a bank delivers cheques and other negotiable instruments worth more than the total amount of Cheque received by it that banks accounts with State Bank of Pakistan will be credited with the differential amount. If on the other hand the total amount of cheques and other negotiable instruments draw on a certain bank by other bank is more than the total amount receivable by it from other banks, then this bank 's account will be debited on that day.
The cheque delivered to the representatives of other banks for clearing are called outward clearing, whereas cheques received from the representatives of other banks for payment are called inward clearing.
Procedure of Settlement
Presume that AKBL got the cheques which are drawn on HBL, NBP and MCB for amounts Rs. 50,000/-, Rs. 15,000/- respectively, its total being amounts Rs.95,000/-, it means that this amount is to be credited to AKBL A/C with S.B.P. on the other hand the cheques drawn on AKBL are from HBL, NBP and MCB of Rs. 15,000/-, Rs.75,000/- and Rs.30,000/- respectively, its total being Rs. 1,20,000/-, it means that this amount is to be debited from AKBL account. The difference between Rs.95,000/- credit and debit Rs. 1,20,000/- debit is Rs.25,000/- debit which means the house is against AKBL for Rs.25,000/-.
The brief detail is following. • AKBL has t receive Rs.50, 000/- from HBL and to pay Rs.15, 000/- to HBL so difference is Rs.35, 000/- credit. • AKBL has to receive Rs.30, 000/- from NBP and to pay Rs.75, 000/- to NBP so difference is Rs.45, 000/- debit. • AKBL has to receive from MCB Rs. 15, 000/- and to pay Rs.30, 000/- to MCB so difference is Rs.15, 000/- debit. GRAND TOTAL: 35,000-45,000-15,000 - -25,000 I.e. Rs. 25,000 debit
Hence AKBL A/C with State Bank of Pakistan will be debited with Rs.25, 000/- and the contra will be other banks accounts respectively. This called as "Debit and Credit Rule".
3.2.8.2 Outward Clearing at the Branch
The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing: • The name of the branch appears on its face where it is drawn on • It should not be stale or post dated or without date • Amount in words and figures does not differ • Signature of the drawer appears on the face of instrument • Instruments is not mutilated • There should be no material alteration if so, it should be properly authenticated • If order instrument, suitably endorsed and last endorsee 's account being credited • Endorsement is in accordance with the crossings if any • The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil • The title of account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque).
If an instrument is in order then out bank 's special crossing stamp is affixed across the face of the instrument. Clearing stamps is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on paying-in-slip and half on counterfoil). The instrument is suitably discharged, where a bearer cheque does not required any discharge and also an instrument in favor of a bank need not be discharged. The instrument along with paying-in-slip is retained while the counterfoil is given to the customer duly signed. Then the following steps are to be taken:- • The particulars of the instruments and the pay-in-slip or credit vouchers are entered in the Outward Clearing Register. • Serial number is given to each voucher • The register is balanced, the credit voucher are separated from the instrument and are released to respective departments against instrument and are released to respective departments against acknowledgement in the register • The schedules are arranged bank-wise • The schedules are prepared in triplicate, two copies of which are attached with the relevant instrument and the third is kept as office copy • The house page is prepared from schedules in triplicate • The schedules and house pages are signed by the officer incharge with branch stamp • The grand total of the house page is taken and agreed with that of the outward clearing register • The instruments along with duplicate and house page are sent to the Main Office
3.2.8.3 Inward Clearing of the Branch • The particulars of the instruments are compared with the list • The instruments are detached and sort out department wise • The entry is made in the Inward Clearing Register (serial number, instrument number, account number, amount of the instrument is written). • The instruments are sent to the respective departments against acknowledgement in the Inward Clearing Register. • The instruments are scrutinized in each respect before honoring the same
3.2.3 Accounts Department
Account department is the backbone of a bank. It plays a vital role in performing different functions of a bank. The account department of AKBL is computerized. Accounting books of different departments are maintained under this department and with the help of these, accountant prepare the monthly, quarterly, semiannually and yearly financial statement and other statements of the whole bank. The entire transaction-taking places are recorded daily in the books of accounts and in computerized ledgers. For every transaction there is voucher prepared and through these vouchers contra entries are passed under different head. Good working of accounts department mainly depend on the voucher system. Accounts department is responsible for proper handling and maintenance of vouchers of different department.
Any abnormality if occurs, is immediately dealt with. All the vouchers and instruction are checked individually are checked individually against the computer printouts. After checking they are signed by Mr. Naeem Shehzad and the internal auditor Mr. Shafiq.
3.2.3.1 Other Activities • Preparation of daily bank positions statement • Payment of salaries • Preparation of the statements • Depreciation calculation • Lockers Issuance
The above figure is the structure of finance department of Askari Bank Ltd. The Vice President of finance or Chief Financial Officer (CFO), generally reports directly to the president or Chief Executive Officer (CEO). In Askari Bank Ltd. Financial operations over seen by the CFO will be split into two branches such as: • Controller • Treasurer
Controller
The controller 's responsibilities are primarily accounting in nature. Cost accounting as well as budgets and forecasts, concerns internal consumption. External financial reporting is provided to the Internal Revenue Service (IRS), to the securities and exchange commission (SEC) and to stockholders.
Treasurer
The treasurer 's responsibilities fall into the decision areas most commonly associated with financial management: • Investment (Capital Budgeting, Pension Management) • Financing (Commercial Banking and Investment Banking relationships, Investor relations, Dividend disbursement). • Asset Management (Cash Management and Credit Management).
4.2 Finance and Accounting Operations
Askari bank deals in finance and accounting operations. They check the daily voucher and posting. They note all the banks charges and expanses. The main focus on bank financial statement, they prepare the financial statement annually and semi annually of the bank. All accounting and financing activities are checked in this department. • Preparation of daily bank positions statement • Payment of salaries • Preparation of the statements • Depreciation calculation • Expanses, Income, Liabilities • Generation and Allocation of funds
Manager Accounts • Finalize the Accounts on monthly basis.. • Preparation of special reports as per instruction by Branch Manager. • Supervise all the working of other staff members. • Verify the party 's payment & all other expenses payments
Deputy Manager Accounts • Posting in the Accounting System. • Supporting to Manager Accounts to finalize the Accounts on monthly basis. • Supporting to make the monthly budget of the company. • Preparation of Debtors and Creditors reconciliation reports and aging schedules. Preparation of Special reports for decision making of Management.
Accounts Officer • Prepare fund flow statement on daily basis. • Supporting to prepare weekly budget. • Posting of Funds Received from parties.
Tax Officer • Handle all sales tax and income tax matters. • Preparation of Refund case & Processing in department. • E-Filing of both (Sales tax & Parties tax payment) • E-Filing of both (Sales tax & Parties tax payment)
4.4 The Role of Financial Manager
Financial manager stands between the firm 's operations and financial markets. Financial manager must have considered the interest rates on the load and concluded that it was not too high. Achievement of goals and objective based on financial manager how he can get them and what activities he applies. Financial manager also involve in financing decision. Financial use the policies and strategies how to generate a fun and where have to invest. Financial manager is responsible for all kind of operations of the bank. Our financial manager uses the decision making and ratio analysis to earn a profit and decrease the expanses of the AKBL.
Financial manager is responsible for maintaining the record of accounts, cash management and credit management. He monitor all kind of cash management activities in which area more cash should be invested and for whom people should grant the loan, he control the other activities of credit management.
The role of CFO in this bank is very important. He control and monitor the all the banks department and also check the performance of the bank and make necessary decisions. He is responsible to control the bank efficiency and checks all the staff of the bank and also check the performance of financial manager.
In banks, accounts manager plays the role of financial manager, they prepare the periodical budgets of the branch. They analyze the cash in flows and outflows of the branch. They also make the expense sheet of the branch and arrange funds in order to cater those expenses. The accounts manager has a key role in the branch banking setups. They prepare the branch monthly profit and loss account statement as well. In Askari bank the account managers are the key persons and have a lot of experience of branch banking as well.
4.4 Use of Electronic Data in Decision Making
Now this is the age of information technology. So the banking system is also become computerized. For this purpose Askari bank used software which name is: • Uni-Bank Software • Its working is so simple and it is user interfering software. • It is very important for decision making and it is helpful in the following ways: 1. Used for entering the daily Deposits, Advances, Markup, A/R and Revenue. 2. Used for preparing the daily Reports. 3. Used for calculate the Profitability of the Bank. • So on the bases of these reports Manager decide the future planning for the Askari bank.
Askari bank Ltd is handling its all customers whether borrowers and depositors with the help of this software in an efficient manner. The bank gets the statement of every kind with the help of this software for the analysis purpose with in seconds and makes effective planning with the help of this software.
The banks handles customers any kind of queries with in seconds with the help of this software. This software is very user friendly. Askari bank 's customer service is very good and this software plays a key role in that.
4.5 Source of Funds
Major sources of funds are as follows. • Share capital • The reserve funds • Deposits • Balance of profit and loss accounts • Rediscounting of bills with State Bank of Pakistan
SOURCES OF FUNDS
|Rupees in '000 | |
|2006 |2007 |2008 |2009 |2010 | |
|1,255,848 |1,507,018 |2,004,333 |3,006,499 |4,058,774 |Share Capital |
|4,317,301 |5,862,074 |5,814,754 |6,948,336 |7,667,141 |Reserves |
|83.318.795 |118,794,690 |131,839,283 |143,036,707 |167,676,572 |Deposits & Other Accounts |
|13,781,555 |10,562,338 |14,964,087 |17,553,525 |15,190,148 |Due to Financial Institutions |
Note: Reserves means banks reserves whether kept in SBP or in other banks. Due to financial Institution means the funds which are given to other financial institution in terms of loans.
Askari Bank Ltd has increased its sources of funds by increasing its share capital. In year 2007, it was three billion and now in 2008 it is over four billion, which clearly indicate the investor 's confidence over the policies of the bank. The other major reason is to increase the equity is the SBP focus and regulations in this regard.
4.6 Generation of Funds
Funds are generated from interest, markup and consumers; these are the important source of funds. AKBL generate fund from interest over loan and markup over load and consumers are the most important source of generation of funds. AKBL provide a facility of loan to its consumers and generate funds. AKBL generate funds from mark up.
The main sources of generation of funds for AKBL include the ❖ followings: Interest on loans (interest income) ❖ Banks Investment in projects or in Stock market. ❖ Fee, commission, and brokerage income ❖ Dividend income ❖ Gain on sales of securities ❖ Income from dealing in foreign currencies.
|Values |Parameters |
|( Rupees in '000 ) | |
|2010 |2009 |2008 |2007 |2006 | |
|18393313 |15143241 |12596921 |8780698 |4487206 |Interest Earning |
|1257584 |1072868 |1013660 |838561 |649988 |Commission and Fee |
|173621 |137079 |109326 |51143 |26318 |Dividend Income |
|873512 |655761 |584344 |356218 |180992 |Exchange Income |
|35677755 |39431005 |28625915 |25708194 |17239156 |Banks Investments in projects i.e |
| | | | | |Electric Power projects, and |
| | | | | |infrastructure building different Govt |
| | | | | |Projects etc |
4.7 Allocation of Funds
The Askari Bank Ltd. uses its funds profitability in the following ❖ categories: Short-term loans repayable at short notice ❖ Investment (government and other stock exchange securities) ❖ Loans and advances to trade commerce and industries ❖ Purchase and Discounting of bills ❖ Financing import and export trade ❖ Interest and non-interest expenses
|Values |Parameters |
|( Rupees in '000 ) | |
|2010 |2009 |2008 |2007 |2006 | |
|35677755 |39431005 |28625915 |25708194 |17239156 |Investments |
|128818242 |100780162 |99179372 |85976895 |69938041 |Advances |
|10650719 |8685624 |6977313 |4278374 |1117206 |Interest Expenses |
|2707000 |4565496 |2139254 |1552566 |1633528 |Non-Interest Expenses |
The Askari Bank Ltd used its most of its sources of funds in the investment in different projects, in stock exchange and in advances, which increases the revenue and ultimately profits. The above table clearly shows that the advances of the company increased from last year 100.7 billion to 128.818 billion in the current year. The investments are decreased from the last year because of the bad performance of the stock market. Overall bank 's policies are good and helping the bank in earning profits.
5.1.3 Ratio Analysis
|VALUES |PARAMETERS |
|2010 |2009 |2008 |2007 |2006 | |
|0.7869 |0.7554 |0.8046 |0.8228 |0.8391 |Earning to Asset |
|0.0214 |0.0195 |0.0168 |0.0169 |0.0214 |Return on Earning Assets |
|0.0197 |0.0165 |0.0121 |0.0104 |0.0117 |Equity Capital to Total Assets |
|0.7683 |0.7046 |0.7523 |0.7237 |0.8382 |Loan to Deposit |
|1.0027 |1.0318 |1.0446 |1.0412 |1.0371 |Current Ratio |
|0.0433 |0.2648 |0.4797 |0.6683 |2.5445 |Interest Coverage Ratio |
|2.10 |17.70 |17.86 |23.03 |42.86 |Net Profit Margin |
|0.0376 |0.0354 |0.0338 |0.0310 |0.0314 |Net Interest Margin |
|0.0892 |0.0831 |0.0759 |0.0605 |0.0419 |Average Yield on Asset |
|0.58 |0.57 |0.55 |0.49 |0.25 |Interest Expense to Interest Income |
|3.06 |23.0 |22.6 |27.7 |34.8 |Return on average shareholder 's fund |
|2.51 |15.2 |26.6 |32.5 |63.3 |Profit before tax ratio |
|12.3 |10.9 |11.0 |8.5 |9.9 |Capital adequacy ratio |
|-- |15.0 |10.0 |15.0 |20.0 |Rate of cash dividend |
|15.32 |11.2 |9.3 |9.6 |6.1 |Price earning ratio |
|-- |1.5 |1.0 |1.2 |2.1 |Dividend yield ratio |
|0.95 |8.92 |7.48 |13.42 |15.31 |Earning per share |
|-- |16.8 |8.9 |11.2 |13.1 |Dividend payout ratio |
Earning to Assets.
Earning assets are the assets which are very important and vital for the bank in increasing its profits. Ratio tells that on what percentage earning assets contribute the total assets. The bank earning to assets ration increased gradually from the year 2006 and in year 2008 it declined a little bit about 0.04, which was due to bank 's higher provision for loan losses, as per directions of the SBP but in year 2009 it was again on upper side 0.7869 higher about 0.03 from last year.
Return on Earning Assets.
Earning to assets ration indicates the how efficiently a company is utilizing its assets and how much it is earning form them.
Return on earning assets ratio in 2006 is 0.0024; in 2007 it is 0.0195 which is little increase in as compare to previous year. In 2008 are 0.0168 decreases as compare to previous year and in 2009 it be 0.0169 and it is highest in last year 2010 which is 0.0214.
Equity to Total Assets
Equity capital to assets is a common measure used to analyze capital adequacy of a bank, while bank has decreased its capital adequacy ratio in the year. But bank 's total assets has increased but increase in the equity is so small because of less profit in the year and this less profit is due to more provisions.
Equity capital to total assets in 2006 is 0.0117; in 2007 it is 0.0104 which is decreased as compare to previous year. In 2008 is 0.0121 again increased from previous year and in 2009 it is 0.0165 and in last year 2010 which is 0.0197, and an inclining trend can clearly be observed from last four year. This is because of SBP guidelines to banks and clearly saying to increase their capital and linking the financing with the capital instead of deposits. The SBP wants to do that because if increasing bad loans percentage from past few years. With these steps banks will more conscious in lending because their own equity is at stake.
Loan to Deposits
While there is a concept that bank 's loans are its assets while its deposits are liabilities. But if a bank has low deposits then obviously it will give low loans because bank gives its loans by the deposits and earn on the loans then pay mark up on the deposits to the customers.
Loan to deposits ratio in 2006 is 0.838; in 2007 it is 0.724 which is little decrease as compare to previous year. Loan to deposits ratio in 2008 is 0.752 a little increase from previous year and in 2009 it is 0.705 and loan to deposits ratio is increased in last year 2010 which is 0.7683. Both deposits and advances increased but not in line with one another. In the year 2008, 2009 the advances were almost equal with increase of one billion but in year 2010 it increased about 28 billion because of increased equity.
Current Ratio
The ratio is mainly used to give an idea of the bank ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the bank is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the bank is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.
Current ratio in 2006 is 1.037; in 2007 h is 1.04 which is little increase as compare to previous year. Current ratio in 2008 is 1.0446 a little increase from previous year and in 2009 it is 1.0318 a little decrease from previous year and current ratio is last year 2010 which is 1.007, a sharp decline from past year, because of increase in liabilities.
Interest Coverage Ratio
A ratio used to determine how easily a bank can pay interest on deposits and other accounts. The ratio is calculated by dividing a bank 's earnings before interest and taxes (EBIT) of one period by the bank 's interest expenses of the same period: The lower the ratio, the more the bank is burdened by debt expense. When a bank 's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the bank is not generating sufficient revenues to satisfy interest expenses.
Interest coverage ratio in 2006 is 2.5445; in 2007 it is 0.6683 which is a sharp decline as compare to previous year. Interest coverage ratio in 2008 is 0.4797 decreases from previous year and in 2009 it is 0.2648 and interest coverage ratio is lowest in last year 2010 which is 0.0433. This ratio of the bank is not good because of increase in deposit rate and decrease in earning. The bank should decrease its higher cost deposit and should focus on low cost deposit. Therefore the ban in now focusing on low cost deposits and launching its campaigns for low cost deposit rightly.
Net Profit Margin
A ratio of profitability calculated as interest income divided by revenues, or net profits divided by interest income. It measures how much out of every rupee of interest income a bank actually keeps in earnings. Profit margin is very useful when comparing bank in similar industries. A higher profit margin indicates a more profitable bank that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage.
Net profit margin in 2006 is 42.86; in 2007 it is 23.03 which is sharp decrease as compare to previous year. Net profit margin in 2008 is 17.86 is also decreased from previous year and in 2009 it is 17.70 almost equal from previous year and net profit margin is lowest in last year 2010 which is 2.10. The profit in 2004 was very high because of low deposit cost and high lending cost. And after that the situation changed vise versa. In the last year the profit was very low, it is only because of provisioning of loan losses as instructed by SBP. But in the coming years the situation will be changed as per management.
Net Interest Margin
Net Interest Margin (NIM) is a measurement of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits). It is considered similar to the gross margin of non-financial companies.
Net interest margin in 2006 is 0.0314; in 2007 it is 0.0310 which is little decrease as compare to previous year. Net interest margin in 2008 is 0.0338 a little increase from previous years and in 2009 it is 0.0354 and Net interest margin in last year 2010 which is 0.0376. Net interest margin is almost equal in all years. It means that the spread remained steady in all years.
Average Yield on Assets
Annual or other periodic rate of return on investments because banks act as custodians of deposits for many years until money must be paid out the depositors, They invest it to achieve a yield adequate to meet these obligations. Yield is also important to the depositors that include a specific investment element.
Average yield on assets in 2006 is 0.0419; in 2007 it is 0.0605 which is increased as compare to previous year. Average yield on assets in 2008 is 0.076 a little increase from previous year and in 2009 it is 0.0831 and average yield on assets is highest in last year 2010 which is 0.0892. The above quoted figures clearly shows that the bank 's perform good in this area an yield increased steadily in all past years.
Interest Expense to Interest Income
Interest expense to interest income ratio in 2006 is 0.25; in 2007 it is 0.49 which is little increase as compare to previous year. This ratio in 2008 is 0.55 a little increase from previous year and in 2009 it is 0.57 and ratio is highest in last year 2010 which is 0.58 which clearly shows that the bank interest income was very good as compared to interest expenses in past years and bank is performing well.
Return on average shareholder 's fund
Return on shareholder 's fund was 34.8 in year 2006 which decreased in year 2007, was 27.7 and in year 2008 it was 22.6, in 2009 it was 23.0 and in the last year 2010 it is only 3.06. This ratio declined in almost all years and remained steady almost in the years 2008, 2009 and shows a sharp decline and was only 3.06 in 2010. This was because of sharp declined banking profits and increasing loan losses. The bank must focus on the recovery of bad debts and also on the current portfolio in order to boost and attract shareholder 's confidence.
Profit before Taxes
Profit before taxes ratio was in year 2006 63.3, in 2007 32.5, in 2008 26.6, in 2009 15.2 and at last in 2010 it was only 2.51. This also shows a declining trend and the reason is same because of sharp declined banking profits and increasing loan losses. At this time the banking industry is passing through a reviving stage. The bank should focus on quality loaning and review as well as revise its current strategies.
Capital Adequacy Ratio
Capital adequacy ration tell us that how much the bank 's own capital is involved in lending besides deposits. The SBP is focusing on this ratio very forcefully. This is only because of current increasing bad loaning. The State Bank wants to increase banks own stake in the loaning so that they become more focused and vigilant in lending. The Askari Bank CAR in year 2006 was 9.9, in 2007 8.5, in 2008 11.0 in year 2009 10.9 and in the last year 2010 it was 12.3 which clearly shows the increasing bank 's own stake in loaning.
Rate of Cash Dividend
Rate of Cash Dividend in year 2006 20.0, in 2007 15.0, in 2008 10.0, in year 2009 15.0 and in the last year 2010 it was nil. This was because of declining bank profits from the past years.
Price Earning Ratio
Price to earning ratio shows that how much a share is earning on its current market value. The P/E ratio in year 2006 6.1, in 2007 9.6, in 2008 9.3, in 2009 11.2 and in year 2010 it was 15.32. The P/E ratio increased from last years and shows a healthy trend.
5.1.4 Horizontal and Vertical Analysis
An analysis of percentage financial statements where all balance sheet or income statement figures for abase year equal 100% and subsequent financial statement items are expressed as percentages of their values in the base year. A percentage analysis of financial statements where all balance sheet items are divided by total assets and all income statement items is divided by net sales or revenues.
Comparing analytical data for a current period with similar computations for prior years affords some basis for judging whether the condition of the business is improving or worsening. This comparison of data over time is called as horizontal analysis, to express the idea of reviewing data for a number of consecutive periods. It is distinguished from vertical analysis which refers to the review of the financial information of only one accounting period.
5.1.4.3 Interpretation of Horizontal and Vertical
Analysis Horizontal Analysis of Balance Sheet
|2006 |2007 |2008 |2009 |2010 | |
| | |DATA IN %AGE | | |
| ASSETS |
|100% |134% |170% |152% |183% |Cash and balance with treasury banks |
| | | | | |Balance with other banks |
| | | | | |Lending to financial and other institutions |
| | | | | |Investment |
| | | | | |Advances |
| | | | | |Other assets |
| | | | | |Operating fixed assets |
| | | | | |Deferred tax assets |
|100% |114% |151% |72% |82% | |
|100% |438% |361% |621% |193% | |
|100% |149% |166% |229% |207% | |
|100% |123% |142% |144% |184% | |
|100% |175% |244% |355% |0% | |
|100% |123% |147% |198% |0% | |
|0% |0% |0% |0% |0% | |
|100% |135% |158% |170% |192% |TOTAL ASSETS |
| |
| |Liabilities and owner 's equity |
|100% |107% |150% |214% |211% |Bills Payable Borrowings |
| | | | | |Deposits and other accounts Sub-Ordinate Loans |
| | | | | |Liability against assets subject to finance lease Other Liabilities|
| | | | | |Deferred Liabilities |
|100% |77% |109% |127% |110% | |
|100% |143% |158% |172% |201% | |
|100% |300% |300% |300% |300% | |
|100% |10% |0% |0% |0% | |
|100% |177% |208% |251% |371% | |
|100% |108% |140% |89% |2% | |
|100% |135% |153% |168% |191% | |
| |Owner 's Equity |
|100% |120% |160% |239% |323% |Share Capital Reserves |
| | | | | |Un-appropriated Profits |
|100% |136% |135% |161% |178% | |
|0% |0% |0% |0% |0% | |
|100% |132% |173% |217% |216% | |
|100% |275% |324% |38% |211% |Surplus on revaluation of assets |
| | | | | | |
|100% |135% |158% |170% |192% |Total Liabilities and owner 's Equity |
Interpretation of Horizontal Analysis
The horizontal analysis of the balance sheet clearly shows that the cash balance increased gradually from year 2006 to year 2007 and now it is 183% as compared to year 2006. The lending to financial institution has reached upto 193% as compared to year 2006 but it was at the peak in year 2009 at 621% and it was also higher in year 2006, 2007. It was because of current market crisis and declining liquidity position of the bank. Investment has reached to 207% but it has decreased from year 2009, just because of current market scenario. The advances of the bank has reached to 184% as compared to year 2006 and are at all time high in the last 5 years just because of increased deposits. The banks deposits are also increased upto 201% from year 2006. Same is the case with the bank 's share capital, reserves and surplus on revaluation of assets, all have been increased just because of the pressure and policies of state bank of Pakistan about increasing bank 's own capital. The horizontal analysis of the bank shows slightly lower bank 's position but it is just because of the current market crisis.
Vertical Analysis of Balance Sheet
|2006 |2007 |2008 |2009 |2010 | |
| | |DATA IN %AGE | | |
| ASSETS |
|8% |8% |9% |7% |8% |Cash and balance with treasury banks |
| | | | | |Balance with other banks |
| | | | | |Lending to financial and other institutions |
| | | | | |Investment |
| | | | | |Advances |
| | | | | |Other assets |
| | | | | |Operating fixed assets |
| | | | | |Deffered tax assets |
|5% |4% |4% |2% |2% | |
|2% |7% |5% |8% |3% | |
|16% |18% |17% |22% |17% | |
|65% |59% |60% |55% |62% | |
|1% |2% |2% |3% |4% | |
|2% |2% |2% |3% |4% | |
|0% |0% |0% |0% |0% | |
|100% |100% |100% |100% |100% |TOTAL ASSETS |
| |
| |Liabilities and owner 's equity |
|1% |1% |1% |1% |1% |Bills Payable |
| | | | | |Borrowings |
| | | | | |Deposits and other accounts |
| | | | | |Sub-Ordinated Loans |
| | | | | |Liability against against assets subject to finance lease |
| | | | | |Other Liabilities |
| | | | | |Deffered Liabilities |
|13% |7% |9% |10% |7% | |
|78% |82% |79% |79% |81% | |
|1% |2% |2% |2% |1% | |
|0% |0% |0% |0% |0% | |
|1% |2% |2% |2% |2% | |
|0% |0% |0% | |0% | |
|96% |95% |94% |94% |93% | |
| |Owner 's Equity |
|1% |1% |1% |2% |2% |Share Capital |
| | | | | |Reserves |
| | | | | |Un-appropriated Profits |
|2% |3% |3% |3% |4% | |
|0% |0% |1% |1% |0% | |
| | | | | | |
| | | | | |Surplus on revaluation of assets |
| | | | | | |
|100% |100% |100% |100% |100% |Total Liabilities and owner 's Equity |
Interpretation of Vertical Analysis
The vertical analysis of the bank shows that the asset side is mostly captured by the advances with 62% and investments 17%. These two items always captures major portion of assets side. Advances of the bank have increased from previous years but other items slightly decreased just because of bank 's changing scenario and policy.
On the other side deposits contributes major portion of liability side with 81% and also increased from previous year. But other things slightly decrease due to the current scenario.
Interpretation of Horizontal Analysis
An analysis of percentage financial statement where all balance sheet or income statement figures for a base year equal 100 (percent) and subsequent financial statement items are expressed as percentages of their values in the base year. So the above situation shows that the trend of progress is positive. But the Administrative expanse increase during the 2009 due to new customer services, introducing new products and car financing. Administrative expanses are increasing by year to year we need to control over it. Profit before taxation fluctuate between different years and gradually increase and in the last year 2010 it is little bit decrease. Total assets of the bank are also increasing from year to year which is useful for our bank. Liabilities of the bank are also increasing from year to year we need to control over it; we need to more focus on it.
Interpretation of Vertical Analysis
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items divided by net sales of revenues. In the balance sheet the ratio of the advances and the deposits are high which is good. Deposits are increase in 2008 due to high interest rates. Administrative expanses are fluctuating during the different years it is maximum in the year of 2010. Profit before taxation is also increasing in first four years and it is decrease in the last year 2010. The bank needs to control over the expanses and improve the performance of the bank.
5.2 Organizational Analysis With Reference to the Industry
|NAME OF BANKS |TOTAL ASSETS |TOTAL LIABILITIES |PROFIT AFTER TAX |SHARE CAPITAL |
|Standard Chartered |264617178 |221860038 |677132 |38715850 |
|Bank Al-Falah |348690764 |331U6025 |6177727 |7995000 |
|National Bank |817,758,326 |102,459,218 |15,458,590 |8,969,751 |
|Askari Bank |206191138 |12971363 |386225 |4058774 |
| | | | | |
The company’s financial year-end is DEC. Its year of listing was 2010.
When the comparison is made of the performance of Askari bank with peer banks, bank 's total assets are less as compared to standard chartered bank, Bank al-falah, and Nation Bank and it is only because of lesser number of branches as compared to peer banks and ultimately same is the case with the total liabilities, Askari bank 's liabilities are also less as compared to peer banks. If the comparison is made between the profit after taxes, Askari Bank 's profit after taxes is also less just because of small operations but the return on assets ratio of Askari bank is very high as compared to peer banks because as the amount of total assets involved in the business are low and ultimately the bank is utilizing its assets efficiently. Share capital of Askari bank is more as compared to Standard chartered Bank because of its deep roots in the common people of Pakistan and the trust of the people on bank 's policies.
Generally Askari Bank is at very good positions as compared to its peer banks like Standard Chartered Bank and Bank al-falah and utilizing its all assets very efficiently and effectively.
5.3 Future Prospects of the Organization
Going in 2008, the reduction in the interest rate environment will overall have a negative impact on the financial sector 's profitability in the short term. To meet these challenges NBP will focus on building our loan portfolio, both on corporate and retail side. On the retail side focus will be on additional fee business while maintaining stringent controls over cost. Longer term the bank will be focusing on those sectors in the country, which have traditionally received less attention from the financial sector, i.e. agriculture, small and medium enterprises and of the entire range of retail products. AKBL key strength remains its customer base of over 9 million and is confident that bank is in positioned to capitalize on the opportunities. The outlook for the rest of the year 2007 remains challenging and is dependent on the success of the Government 's economic policies and n improvement in the investment climate. The bank 's commitment and endeavor to excel in rendering contemporary banking services along with acceleration of business mobilization will, Inshallah, further enhance the portfolio of its business, and the profitability, in the ensuing half-year. The Future vision of the management of the Askari Bank Abdali Road is starting the Mobile ATM services in the Multan. This service is already provided in the Karachi Lahore and Islamabad.
6. Short-falls/Weaknesses of the Organization
• AKBL has lesser number of branches only 177 as compared to many other bank branches and only has its presence in urban areas. • Bank is not introducing new products and new schemes in order to increase low cost deposit which is desperate need of the bank in current scenario. Bank should boost the product development and increase the range of facilities offered for customers. AKBL has many competitors, which are continuously increasing its products and marketing aggressively. It may cause its customers to shift to competitors. • Bank is weak in its credit management. Bank should lend to very sound parties and increase its payment rate. Ratio of bad loans is very high. • The human resource department is not performing the function of selection and recruitment and as well as performance evaluation very effectively. Selection process is not on merit due to which competent persons cannot be selected and due to influence of internal/external persons in the performance evaluation and annual performance system creating panic and frustration among employees which was cbserved during internship period. • Most of the financing schemes of AKBL are limited just for Army employees like army personal finance, army house building finance on special discounted rates and army house hold articles finance which is the biggest weakness of bank. • Sometimes due to increase in investment by deposits there create a shortage of funds to advance for working capital and short terms loans. • Financing procedure of the bank should be very simple one, but in AKBL it is very complicated and large procedure because of which small enterprises hesitate to get loans.
7. Conclusions
I conclude from my internship that the Askari bank is a growing organization It provides all the possible services which the customer wanted The behavior of the employee 's are very good with the customer and their dealing are very good , Due to this internship I learn many things Such as: • Dealing with customers. • Working Discipline. • Punctuality of time. • Commitment with task. • Financial Statement analysis. • Business communication.
In operation department I learned about account opening procedures and formalities and analysis of depositors worth and capacity. In cash department I have learned how to handle customer 's cash cheques and their payment procedures. I also learned about the bank closing cash procedures. In accounts department I have learned about the branch budget preparations, the making of expense sheets and checking and scrutiny of daily vouchers. In credits department, I have learned about the initiation of credit proposal and its pre disbursement security matters handling and post disbursement maintenance of stocks and insurance and in foreign trade department I have learned bout LC opening and post shipment finance handling as well.
After this internship I learn many more about the banking organization which I not know before my internship.
During the internship I compare my theoretical knowledge to my practical knowledge and clear the many concepts. Due to Internship I feel that I can face the people with confidence. So the net result is that it improves my confidence and my theoretical concepts.
8. Recommendation
No doubt Askari Bank is one of the leading banks of the country and upholds its name but still I have a few suggestions in my mind which I think it is my duty to mention. First of all, in order to make a good working environment of the bank, some recommendations are given. • The bank has to increase its number of branches and should open their new branch in rural areas because almost 70% population of the country lives in rural areas and they desperately need banking services at their door steps. • Because of increasing competition, the bank should focus on developing new unique products in order to attract low cost deposit because it is the need of the hour of the bank because of increasing pressure of the state bank and as well as to decrease the cost of deposit. • The bank should focus on credit recovery and should develop strategy in order to recover its bad loans. The bank should frequently held meeting with the defaulters in order to asses their repayment capacity and should offer them incentives in order obtain speedy recovery. The bank 's bad loans ratio is very alarming. • The bank should introduce ordinary customers on lesser rates as it is offering to army officials. The bank should devise a strategy in order to attract the other customers as well. • The bank should develop a fool proof and error free performance evaluation system and selection and recruitment policy in order to increase employee 's loyalty and confidence because the human capital of any company is vital to organization success. • The bank should not increase investment in long term projects because it creates liquidity crunch which a lot of Pakistani banks faced in the current season. The bank should invest its major funds in short term or working capital loans which are readily realizable. • The bank should make some strategy in order to attract small borrowers and make their credit approval and disbursement procedure a lot easier and user friendly. The bank should develop a booklet providing guidelines about loaning products and their procedures and requirement for the convenience of borrowers.
9. References 1. www.askaribank.dom.pk/products/cbd 2. www.askaribankjcom.pk/products/rbg 3. www.askaribank.com.pk/products/agriculture 4. www.askaribank.com.pk/products/pf 5. www.askaribank.com.pk/careers 6. www.askarilpank.com.pk/intranet/hrpolicies 7. www.sbp.ofg/prs 8. www.google.com.pk/askaribank 9. www.nift.com.pk/operations
References: 1. www.askaribank.dom.pk/products/cbd 2. www.askaribankjcom.pk/products/rbg 3. www.askaribank.com.pk/products/agriculture 4. www.askaribank.com.pk/products/pf 5. www.askaribank.com.pk/careers 6. www.askarilpank.com.pk/intranet/hrpolicies 7. www.sbp.ofg/prs 8. www.google.com.pk/askaribank 9. www.nift.com.pk/operations
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