CHAPTER – 1 EVOLUTION OF BANKING 1.1 INTRODUCTION The word bank is derived from Latin word “Bancs” or “Banque”, which means a bench. The explanation of this origin is attributed to the fact that the Jews in Lombardy transected the business of money exchange on benches in the market place. When the business failed, the people destroy the bench. Incidentally the word bankrupt is said to have been evolved from this practice. The opponents of this opinion argue that if it was so, then how is it that the Italian money changers were never called Banchierei in the middle ages Other authorities hold the opinion that Bank is derived from German word back which mean joint stock fund. Later on, when the German occupied major part of Italy, the Back was italicized into Bank. 1
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CHAPTER – 1
EVOLUTION OF BANKING
1.1 INTRODUCTION
The word bank is derived from Latin word “Bancs” or
“Banque”, which means a bench. The explanation of this origin is
attributed to the fact that the Jews in Lombardy transected the
business of money exchange on benches in the market place. When
the business failed, the people destroy the bench.
Incidentally the word bankrupt is said to have been evolved from this
practice.
The opponents of this opinion argue that if it was so, then how
is it that the Italian money changers were never called Banchierei in
the middle ages
Other authorities hold the opinion that Bank is derived from
German word back which mean joint stock fund. Later on, when the
German occupied major part of Italy, the Back was italicized into
Bank.
1.2 DEVELOPMENT OF MODERN BANKING
Despite the classical origin, banking in its modern form and
structure started in Britain when many of the Lambordary merchants
came to England in the fourteen century and settled in the part of the
London now called Lombard street.
They were so resourceful that even the kings had to depend on
them for loans despite the fact that the church was firmly against
usury. They dealt with not only keeping the money in safe custody
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but also changed money for the travelers or merchants engaged in
foreign trade.
The business of changing money was so lucrative that King
Edward III established the office of Royal Exchanger for changing
foreign money at a profit for the benefit of the crown.
The discovery of America brought riches to England and gave
a tremendous boost to foreign trade. The merchants now began to
hold part of their riches in cash. These transactions, however,
received a big setback in 1640, when King Charles I seized 130,000
Pounds and bullion left for safe custody with the city merchants at
the Royal Mint.
This shook the confidence of the merchants in the Royal
Exchanger and Royal Mint. Consequently this business was taken
over by the gold smiths, who, up to that time, were dealing only in
gold and silver. Since these gold smiths required strong safes for the
purpose of their own business, they introduce necessary facilities of
safe keeping of the valuables and the cash of their customers. These
goldsmiths issued receipts or note to their depositors in respect of the
cash or articles left with them. These were called gold smith notes,
and carried an undertaking to return the money and articles to
depositors or bearers on demand. There were a considerable number
of such notes on circulation among various classes of merchants and
thus they can be aptly called Bank Notes in their earliest form.
Over a period of time, these goldsmiths discovered that large
sums of money were left in their custody for long periods. Therefore,
they started the use of this cash to advance loans to other persons for
a fixed period of time and at considerably at a higher rate of interest.
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Moreover they further encourage cash deposits by their customers by
offering them a part of their profit earned on the money. Thus began
the issue and deposit banking of modern times. Some of the
enterprise goldsmiths issued checkbooks for the attraction of their
customers; and thus another important step in the evolution of
banking was taken.
In 1672, however, English banking faced a great crisis when
Charles II borrowed huge sum of money from the goldsmith bankers
formed themselves into a Corporation in 1695, known as the Bank of
England. This bank lent 1,200,000 pounds at 8% interest to William
III, who in return, allowed a number of privileges to the bank,
specially the right to issue Notes payable to bearer on demand unto
the amount of this loan. This was known as fiduciary issue, not
covered by gold. This new bank became a very serious competitor to
the comparatively smaller private banks run by the London
goldsmiths.
By the year 1700, the Bank of England was not only issuing
Notes but also conducting accounts for customers. Being a joint
stock bank by charter, its directors were conducting the business like
that of limited companies. The Bank of England was the only joint
stock company which was given the monopoly of issuing the Bank
Notes.
In 1708 the privilege to issue Notes in England was
withdrawn from joint stock banks and confined to the private banks
with not more then 6 partners.
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Up to 1813 or there about in England, the main profit of banks
was derived from the circulation of notes and for many years after
that, deposits were treated as very minor matters
1.3 GROWTHS AND HISTORY OF UBL
Commercial banks play a role of vital importance in the
economic growth of a country. Banks mobilize idle savings of public
and provide finance to various sectors of economy. In spite of vital
importance, there was shortage of branches of commercial banks in
the areas of sub-continents, which now constitute Pakistan. When
Pakistan got independence, there were only 487 branches of
commercial banks, which were further reduced to 195 as at 30/09/47
due to shifting of a number of branches to India or U.K. The Reserve
Bank of India, which was made responsible to exercise control over
banking sector in both the dominions, did not perform its duties
properly in Pakistan. The State Bank of Pakistan was established on
01/07/1948. After the establishment of State Bank of Pakistan,
banking expansion got momentum but real progress was not
achieved until 1959, when a dynamic banker Mr. Agha Hassan
Abedi conceived the idea of opening a bank different from others.
His dream was translated into reality on November 07/1959 when
first branch of UBL was opened at McLeod Road Karachi (now
known as I.I. Chundrigar Road).
This achievement was secured after passing through many
problems and after completion of a lot of legal formalities. UBL was
established on 24-07-59 as a public limited company with registered
office at I.I. Chandrigar road Karachi. The authorized capital was
RS. 20,000,000 issued, subscribed and paid up capital was. RS.
10,000,000 divided into 1,000,000 shares of RS. 10each.
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I. LOCATION
WITH an integrated network of over 1000 branches in
Pakistan as well as 15 overseas branches, UBL gives you direct
access to a comprehensive range of better banking facilities to help
you monitor your business locally as well as internationally.
II. TREASURY
The UBL Treasury & Capital Markets (TCM) has developed a
reputation as a proven market leader in converting innovative ideas
into profitable ventures for the bank and for its customers. Today the
UBL TCM is a frontrunner in providing:
The narrowest bid/ask spreads and the fastest quotes
Dynamic risk-reducing hedging strategies for its customers
The best relationships with institutional, corporate and retail
clients Year 2007 was a highly lucrative year for the bank with net
profits in excess of PKR 4 billion. Treasury and Capital Markets
contributed to over 65% of UBL’s total returns. This was due to
Government Bond Trading, Equity Trading, Structured
Products/Financial Engineering, Corporate Debt trading, and double-
Count of revenues.
Under the new management, the TCM expedited the launch of
Pakistan’s first derivative money market product-the FRA (forward
rate agreement) with Quetta Textile Mills Ltd. in August 2007, and
has further closed several similar transactions thereafter.
UBL TCM is a market maker in both the domestic money
market as well as the foreign exchange market. Being one of 11
primary dealers (PD), UBL has one of the largest balance sheets
amongst banks in Pakistan, and hence our Foreign Exchange
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Exposure Limit (FEEL), as imposed by the State Bank of Pakistan, is
the highest in the industry.
UBL was the first local bank to establish a Corporate
Treasury team in the Treasury dealing room. The Global Corporate
Treasury Business is globally responsible for sales of all structured
and derivative products for UBL. The bank’s trade volumes and
revenues have grown significantly since the introduction of the
corporate treasury business.
Equities are responsible for managing the bank’s trading and
badla portfolio, and to eventually develop a global equity trading
activity for UBL. Structured Products is responsible for developing
and packaging plain vanilla derivatives as well as more exotic
customer specific products, and pipeline products.
The Strategic Planning and Balance Sheet Management
responsibilities include:
Liquidity Management for the domestic balance sheet - This
unit is the focal point for all branch-related liquidity issues and will
also be responsible for day-to-day management of liquidity for UBL.
Overseas Branches Treasury and Capital Markets - we plan to
integrate the treasury activities for all overseas branches, to
develop synergies amongst our various treasuries. As our core
business in these markets continues to develop, we expect
significant opportunities to arise in the trading, funding and
gapping areas.
Research - providing market research for internal and external
clients in order to support the sales and trading effort.
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1.4 THE FIRST BOARD OF GOVERNORS OF UBL CONSISTED OF THE FOLLOWING MEMBERS
Table – 1.1
1 Mr. Ismail Ibrahim Chandrighar Chairman
2 Mr. Muhammad Shafiq Saigol Managing Director
3 Mr. Muhammad Rafiq Saigol Director
4 Mr. M.Bashir saigol Director
5 Mr. A. Razaq Dada Director
6 Mr. Mian M.Yahya Director
7 Mr. M. Saeed Saigol Director
8 Mr. Agha Hassan Abidi Director and General ManagerSource: Rahman ullah, Internship Report on UBL, (2007-2009).
Presently UBL is managed by a board of directors including
one president, 4 directors from UBL, 1 from Pakistan Banking
Council and one from ministry of finance.
The names and designations of present top management include;
Table – 1.2 1 Mr. Shaikh Nahayan Mubarak Al Nahayan Chairman
2 Mr. Mohammed Anwar Pervez OBE Deputy Chairman3 Mr. Atif R. Bokhari President & CEO4 Mr. Omar Ziad Jaafar Al Askari Director
5 Mr. Zameer Mohammed Choudrey Director
6 Mr. Ahmad Waqar Director
7 Mr. Abdul Rauf Malik Director
8 Dr. Ashfaque Hasan Khan Director
Source: www.ubl.com.pk
Since inception, UBL provides personalized, efficient and
courteous services to its customers and has achieved dynamic
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progress in a short span of time. UBL has achieved the distinction of
earning profit in very first year of its operation. UBL also introduced
many remunerative schemes for its depositors and introduced
computer services for the first time in the banking history of
Pakistan. UBL gives advance finances to small, medium and large
industries, commercial establishments, agriculturists, construction
companies and other needy persons. UBL offers computerized
services to intending Hajis free of cost. UBL collects Electricity, Gas
and Telephone bills from public and issues TV licenses on behalf of
Pakistan Television Corporation. It also offers evening banking and
lockers facilities at its selected branches. Over 100 branches deal in
foreign exchange where facilities to importers, exporters, travelers
and other persons are being given.
UBL arranges prompt payment of inward remittances.
Similarly for issues of outward remittances minimum time is taken.
Other auxiliary services such as unicorn, inland traveler’s checks,
school banking and collection of checks and other documentary bills
drawn on its station drawees are offered.
“The names and tenure of various presidents of UBL after
nationalization are given here under.”1
Table – 1.3 S.No. Name of President From To
1 Mr. Mushtaq Ahmad Khan Yousafi 01/01/74 31/12/76
2 Mr. Kh. Zai Ud Din 01/01/77 31/12/79
3 Mr. Sami 01/01/80 01/02/82
4 Mr. M. Sadiq Dar (Acting president) 04/02/82 31/12/82
5 Mr. Tajammal Husain 01/01/83 15/07/88
6 Mr. Amjad Ali 16/07/88 04/02/89
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7 Mr. Maqbool A Soomro 7/02/89 18/07/89
8 Mr. Salim Malik 19/07/89 01/08/90
9 Mr. Maqbool A Soomro 01/08/90 15/05/93
10 Mr. Aziz ullah Mamon 15/05/93 4/08/96
11 Mr. Shafi Arshad 4/08/96 14/07/97
12 Mr. Zubayr A Soomro 14/07/97 15/01/00
13 Mr. Amar Zafar Khan 15/01/00
1.5 NUMBER OF BRANCHES
UBL has a large network of branches, which extends to the
remotest areas of the country. In December 1983, there were 1417
branches whereas in 1974 it had only 1238 branches and in
December 1999 there were 1623 branches and in December 2007
there were 1821 branches. Presently there are 1056 domestic
branches and 15 overseas branches.
I. OVERSEAS BRANCHES
UBL, with an integrated network of over 1000 branches
globally, with 15 overseas locations, gives their customers
direct access to a comprehensive range of better banking
facilities to help them monitor their business internationally.
18,756,274 14,370,367 11,242,807Surplus on revaluation of assets 2,911,996 2,993,664 5 ,038,954Total owner’s equity 21,668,270 17,364,031 16,281,761Total liabilities and owner’s equity 347,048951 272,612,663 216,621,247
Source: UBL Annual Report 2007, 2008, 2009
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UNITED BANK LIMITEDRECASTED INCOME STATEMENT
FOR THE YEAR ENDED DEC, 31,2009(Rupees in 000)
2009 2008 2007Markup/return/interest earned 20,158,860 9,233,881 8,944,260Markup/return/interest expensed 6,045,848 1,732,760 1,888,349Net markup/interest income 14,112,912 7,501,121 7,055,911Provision against loans and advances-net 1,277,002 435,414 444,871Provision (reversal) for diminution in value of investment-net
112,666 (100,381) 104,285
Bed debts written off-directly 38,140 3,841 12,897 1,427,808 338,874 562,053
Net markup/return/interest income after provision
12,685,104 7,162,247 6,493,858
Net markup/interest incomeFee, commission and brokerage income 2,543,739 1,654,475 1,442,642Dividend income/ gain on sale of investments 583,982 1,102,510 2,057,314Income from dealing in foreign currencies 675,109 668,085 436,656Other income 1,210,202 1,072,750 607,500Total non-markup/return/interest income 5,013,032 4,497,826 4,544,112EBIT 17,698,138 11,660,073 11,037,970Non markup /interest Expense Administrative expenses 7,874,013 6,794,311 6,153,913Other provision /write offs/(reversals) 335,409 (34,422) 551,840Other charges 7,066 10,456 5,501Total non markup/interest expenses 8,216,488 6,770,345 6,711,254Extraordinary items ---- --- ---Profit before Taxation 4,889,728 4,326,716 4,889,728Taxes 498,748 283,083 193,050Net Profit 4,606,645 4,043,633 3,614,750
Source: UBL Annual Report 2007, 2008, 2009
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6.1 RATIO ANALYSISRatio analysis is a powerful tool of financial analysis. A ratio
is defined as “the quotient of two mathematical expression” and as
“the relationship between two or more things”. In financial ratio
analysis a ratio is used as benchmark for evaluation the financial
position and performance of a firm.
STANDARD OF COMPARISONThe ratio analysis involves comparison for a useful
interpretation of financial statements. A single ratio is itself does not
indicate favorable or unfavorable condition. It should be compared
with some standard. Standard of comparison may consist of:
Past RatiosRatio calculated from the past financial statements of the
same firm.
Competitors RatiosRatios of some selected firms, especially the most progressive
and successful competitors at the same point in time.
Industry RatiosRatios of the industry to which the firm belongs.
Projected RatiosRatios developed using he projected, or Performa, financial
statements of the same firm.
Table No. 6.1 Financial Ratio’s at a glance 2007, 2008, and 2009
Years 2007 2008 2009
Gross profit margin 78.8% 81.23% 70%
Net Profit Margin 40.41% 43.79% 22.85%
Return on Assets 1.67% 1.47% 1.33%
Return on Equity 22.20% 23.29% 21.26%
Current ratio 0.48 1.17 1.05
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Cash ratio 0.14 0.18 0.14
Debt to Equity Ratio 12.30 12.97 15.02
Total Debt to total Assets 0.92 0.83 0.94
Current Asset Turn Over Ratio 3.76 1.53 1.35
Taxation to Total Income 5.34 7.00 10.83
Assets Turnover Ratio 0.023 0.023 0.013
Fixed Asset Turnover Ratio 0.96 1.02 1.03
Interest Coverage Ratio 1.64 1.72 2.15
Interest Expense to Deposit 3.63 2.94 2.84
6.2 RATIO ANALYSIS DETAILED
I. Profitability RatiosThe objective of any firm is to increase the wealth of
shareholders. So profitability ratio is calculated in order to determine
how much increase or decrease has occurred in the wealth of
shareholders of a business.
II. Gross Profit MarginThis ratio tells us the profit of the firm related to sales after
deducting the cost of producing the goods or ini other words an
indication of the total margin available to cover operating expense
and yield a profit.
Formula: {Gross Profit / Net Sales} x 100
Gross Profit Margin (2007) = {7,055,911 / 8,944,260} x 100
Gross Profit Margin (2008) = {7,501,121 / 9,233,881} x 100
Gross Profit Margin (2009) = {14,112,912 / 20,158,860} x 100
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Year 2007 2008 2009
Gross Profit Margin 78.8% 81.23% 70%
Graph 6.1 Gross Profit Margin
Years
The Gross Profit of the bank in 2007 was 78.8%, which
increased to 81.23% and then decreased to 70%. The gross
profit decreased in 2009 because of increase in cost of goods
sold.
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III. Net Profit MarginThe net profit margin is a measure through which the fir’s
profitability is measured. It tells about the firm’s net income per
dollar of sales.
Formula: {Net Income / Net Sales} x 100
Net Profit margin (2007) = {3,614,750 / 8,944,260} x 100
Net Profit margin (2008} = {4,043,633 / 9,233,881} x 100
Net Profit margin (2009} = {4,606,645 / 20,158,860} x 100
Year 2007 2008 2009
Net Profit Margin 40.41% 43.79% 22.85%
Graph 6.2 Net Profit Margin
Years
The net profit ratio shows that net profit increased from 2007
to 2008.But decreased in 2009, which is partially because of
increase in expenses and cost of goods sold.
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IV. Return on AssetsIt is the ratio that explains that how efficiently the assets are
being utilized. The high return on assets means efficient utilization of
the assets.
Formula: {Net Income / Total Assets} x 100
Return on Assets (2007) = {3,614,750 / 216,621,247} x 100
Return on Assets (2008) = {4,043,633 / 272,612,663} x 100
Return on Assets (2009) = {4,606,645 / 347,048,951} x 100
P11 2007 2008 2009
Return on Assets 1.67% 1.47% 1.33%
Graph 6.3 Returns on Assets
YearsThe return on assets decreases gradually as can be seen from
the above table. It shows that the assets are not utilized efficiently.
This should be controlled in order to improve the bank financial
position and attract more deposits.
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V. Return on EquityThis ratio tells us the earning power on shareholders’ book
value investment and is frequently used in comparing two or more
firms in an industry. A high return on equity often reflects the firms’
acceptance of strong investment opportunities and effective expense
management.
Formula: {Net Income / Equity} x 100
Return on Equity (2007) = {3,614,750 / 16,281,761} x 100
Return on Equity (2008) = {4,043,633 / 17,364,031} x 100
Return on Equity (2009) = {4,606,645 / 21,668,270} x 100
Year 2007 2008 2009
Return on Equity 22.20% 23.29% 21.26%
Graph 6.4: Return on Equity
YearsThe return on equity has increased from 2007 to 2008 by
1.09%. But has decreased from 2008 to 2009 by -2.03% which
shows rise in liabilities, inefficient management. This situation
should be improved so as to bring something to equity holders.
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VI. Liquidity RatiosLiquidity ratios show that how efficient management is to
meet its current liabilities from it current assets.
i. Current RatioCurrent ratio indicates the extent to which the claims of the
short term creditors are covered by assets that are expected to be
converted into cash a period roughly corresponding to the maturity
of the liabilities.
Formula: Current Assets / Current Liabilities
Current Ratio (2007) = {96,125,178 / 200,339,486}
Current Ratio (2008) = {263,448,765 / 225,248,632}
Current Ratio (2009) = {340,326,622 / 325,380,681}
Years 2007 2008 2009
Current Ratio 0.48 1.17 1.05
Graph 6.5: Current Ratio
YearsThe current ratio shows increase from 2007 to 2008, which is
encouraging. But decreased in 2009. This is because of increase in
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liabilities. But still it shows that current assets are more than current
liabilities, which is sufficient to meet current liabilities.
ii. Cash RatioThis is a relationship between cash in hand and current
liabilities. It indicates the extent to which cash covers the claims of
short-term creditors in hand.
Formula: {Cash / Current Liabilities}
Cash Ratio (2007) = {28640895 / 200,339,486}
Cash Ratio (2008) = {41543769 / 225,248,632}
Cash Ratio (2009) = {46791886 / 325,380,681}
Year 2007 2008 2009
Cash Ratio 0.14 0.18 0.14
Graph 6.6: Cash Ratio
Years
From the cash ratio we see that this ratio has increased from
2007 to 2008. But decreased in 2009 by –0.04, which came to the
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2007 position which is not too big decrease. Overall cash position is
satisfactory.
VII. Leverage RatiosLeverage means using borrowed money to earn a return
greater than the cost of borrowing, increasing net income and the
return on common stockholders’ equity.
i. Debt to Equity Ratio
This is a ratio that shows the share of owners and outsiders in
the business. It explains the extent to which the bank is financed by
the owners and debtors.
Formula: {Total Debt / Owner’s Equity}Debt to Equity Ratio (2007) = {200,339,486 / 16,281,761}Debt to Equity Ratio (2008) = {225,248,632 / 17,364,031}Debt to Equity Ratio (2009 = {325,380,681 / 21,668,270}
Year 2007 2008 2009
Debt to Equity Ratio 12.30 12.97 15.02
Graph 6.7: Debt to Equity Ratio
Years
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The debt to equity ratio has increased continuously from 2007
and onward. But increase in 2009 is more than increase in 2008. This
shows that business has financed by debtors more than the owners.
And this ratio has risen in 2009. But anyhow the trend is improving.
ii. Total Debt to Total Assets RatioThis ratio highlights the relative importance of debt financing
to the firm by showing the percentage of the firm’s assets that is
supported by debt financing. The greater this ratio the greater will be
the protection for creditor.
Formula: {Total Debt / Total Assets}
Total Debt to Total Assets Ratio (2007 = {200,339,486 / 216,621,247}
Total Debt to Total Assets Ratio (2008 = {225,248,632 / 272,612,663}
Total Debt to Total Assets Ratio (2009) = {325,380,681 / 347,048,951}
Year 2007 2008 2009
Debt to Total Assets 0.92 0.83 0.94
Graph 6.8: Debt to Total Assets Ratio
Years
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The above ratio shows a satisfactory picture of the bank.
Although the ratio decreased in 2008 but it then increased in 2009.
This means that the bank is becoming safer for the investors. Which
will further lead to the increase in the per value share of the bank.
6.3 ACTIVITY RATIOS
Activity ratios also known as Efficiency or turnover ratios,
measure how effectively the firm is using its assets.
I. Current Asset Turnover Ratio
It shows the relationship between revenue and current assets,
a measure of the revenue productivity and utilization of current
assets.
Formula: {Net Revenue / Current Asset} x 100
Current Asset Turnover Ratio (2007) = {3,614,750 /
96,125,178} x 100
Current Asset Turnover Ratio (2008) = {4,043,633 /
263,448,765} x 100
Current Asset Turnover Ratio (2009) = {4,606,645 /
340,326,622} x 100
60
Year 2007 2008 2009
Current Asset Turnover Ratio 3.76 1.53 1.35
Graph 6.9: Current Asset Turnover Ratio
YearsThe current asset turnover ratio is decreasing from 2007 to
2009. This tells us that the current assets are not utilized efficiently
because of management ineffectiveness.
II. Taxation to Total Income
This ratio shows the percentage of tax that is applied to total
net income.
Formula: {Tax / Total Income} x 100
Taxation to Total Income ratio (2007) = {193,050 / 3,614,750} x 100
Taxation to Total Income ratio (2008) = {283,083 / 4,043,633} x 100
Taxation to Total Income ratio (2009) = {498,748 / 4,606,645} x 100
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Year 2007 2008 2009
Taxation to Total Income Ratio 5.34 7.00 10.83
Graph 6.10: Taxation to Total Income Ratio
Years
This ratio shows continuous increase. Because the profit of
the bank is also increasing.
III. Assets Turnover RatioThe asset turnover ratio is the ratio that explains the
relationship between the Net sales and the total Assets. That how
much efficiently the assets are being turnover into sales.
Formula: {Net Revenue / total Assets}
Assets Turnover Ratio (2007) = {3,614,750 / 216,621,247}
Assets Turnover Ratio (2008) = {3,614,750 / 216,621,247}
Assets Turnover Ratio (2009) = {4,606,645 / 347,048,951}
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Year 2007 2008 2009
Assets Turnover Ratio 0.023 0.023 0.013
Graph 6.11: Assets Turnover Ratio
Years
The ratio indicates that the asset turnover remained the same
in both 2007 and 2008. But decreased in the year 2009. This means
that the bank does not efficiently utilize the assets in the year 2009.
IV. Fixed Assets Turnover RatioThis ratio explains the relationship between the fixed assets
and Net Revenues. That how efficiently the fixed Assets contribute
to the Net Revenues.
Formula: {Net Revenue / Total Fixed Assets}
Fixed Assets Turnover Ratio (2007) = {3,614,750 / 3754236}
Fixed Assets Turnover Ratio (2008) = {4043633 / 3969006}
Fixed Assets Turnover Ratio (2009) = {4,606,645 / 4449324}
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Year 2007 2008 2009
Fixed Assets Turnover Ratio 0.96 1.02 1.03
Graph 6.12: Fixed Assets Turnover Ratio
Years
The contribution of fixed asset to generating Revenue is
shown in the above graph. In the year 2007 the ratio is low. But
increased in the years 2008 and 2009, which is encouraging. Also
this ratio tells us that these fixed assets are utilized efficiently.
6.4 COVERAGE RATIOS
Coverage ratios are designed to relate the financial charges of
a firm to its ability to service, or cover, them. In other words this
ratio help us to determine that how much of the interest expenses are
covered out of the revenue generated.
I. Interest Coverage Ratio
This ratio serves as one measure o the firm’s ability to meet
its interest payments and thus avoids bankruptcy. In general the
64
higher the ratio, the greater the likelihood that the company could
cover its interest payments without difficulty.
Formula: {Earning Before Interest and Taxes/Interest Expenses}
Interest Coverage Ratio (2007) = {11,037,970 / 6711254}
Interest Coverage Ratio (2008) = {11660073 / 6770345}
Interest Coverage Ratio (2009) = {17698138 / 8216488}
Years 2007 2008 2009
Interest Coverage Ratio 1.64 1.72 2.15
Graph 6.13: Interest Coverage Ratio
Years
The increase in the Ratio indicates that the bank has enough
profit to pay its interest expenses.
II. Interest Expense to Deposit
The ratio reflects the rate at which the bank has honored the
depositors.
Formula: {Interest Expense / Deposit} x 100
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Interest Expense to Deposit (2007) = {6711254 / 185071502} x 100
Interest Expense to Deposit (2008) = {6770345 / 230256627} x 100
Interest Expense to Deposit (2009) = {8216488 / 289226299} x 100
Year 2007 2008 2009
Interest Expense to Deposit 3.63 2.94 2.84
Graph 6.14: Interest Expense to Deposit Ratio
Years
The interest rats offered to the public are getting decreased.
This is not beneficial for the bank. But as the policy of the
government, the bank has to keep the interest rates as lower as
possible in order to encourage the investment.
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CHAPTER – 7
FINDINGS AND RECOMMENDATIONS
Recommendations are based on the previous sections of a
report and are suggestions that the analyst feels are required to be
implemented in order to improve further the standing and position of
the firm in the financial world. These are thus based on the findings
and shortcomings noted in an organization while working with it and
then writing on it. Opinions of various capable individuals are sought
who through their real life experiences and deep insight are better
able to judge whether the course of action adopted by the
organization is going to prove fruitful or does it require further
improvement in the form of changes in its strategies.
Following are the findings and recommendations for various
Departments that were felt are required while consulting the staff
members of UBL.
7.1 DEPOSITS DEPARTMENT
The comparative analyses reveal that UBL has the lowest
share of Deposits out of the total in the market. Since deposits are the
lifeblood of a bank, it should attract more customers and expand its
deposit base in the following manner
I. Simplification of ProceduresThe procedure of opening an account should be simplified.
The account opening form should be self-explanatory and include
translations in Urdu for those customers who are not well read, since
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the fact cannot be ignored that many people do not have a good
understanding of English.
II. No Duplication of ActivitiesOnce the account opening form is filled there should be no
reason to submit a written application for opening an account, since
it not only is a wasteful and time consuming exercise on the part of
the customer but also makes filing lengthy.
III. Incentives for DepositorsThose who deposit large amounts of money or are old
customers of the bank should be given free credit lines up to a certain
limit. Besides, financial advice should be provided to customers in
case there is a change in the market trend before they seek for it.
IV. Integrated Marketing ApproachAll the officers in Deposits Department should be involved in
marketing and not just opening accounts and maintaining their
records. This can be done through improving their personnel
relations’ skills and applying the Uni-Service concept of visiting the
potential customers at their offices and homes.
V. Performance AppraisalUBL should follow the performance evaluation policy strictly
and award those who bring in deposits and help it increase its market
share. Unfortunately, this has been stated in the bank’s policy but is
not being implemented.
7.2 REMITTANCES DEPARTMENT
The Remittances Department at the Branch is divided into
Inland Remittances and Foreign Remittances.
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Both these are dealt by separate officers and involve using
specific stationary and procedures. The following recommendations
are made for this very important Department of the bank
I. Organizing the DepartmentThe Department is spread over the entire bank with no
specific person or desk for the purpose. Usually drafts and
telegraphic transfers are made in the cash counter that results in
hassle for the other customers. A senior officer detached from the
other officers performing inland remittance transactions handles the
foreign remittances. It would be better for them to sit together so that
they can benefit from his experience and know how.
II. Centralized Money gram ServicesThe customers receiving funds from abroad have to wait quite
long in order to get their money as the branch sends the application
form through fax to the City Branch from where it is confirmed
whether the amount has been credited to the Branch or not. This
confirmation takes long at times and there is always a fear of the
bank losing its goodwill in case of lengthy delays. The service
should thus be decentralized and the Hub Branch having the
authority of directly confirming the amount.
7.3 CASH DEPARTMENT
The following recommendations are made for the Cash
Department.
I. Expansion of the Cash CounterThe Cash Department at the Branch needs special attention in
the sense that the cash counter is small and becomes crowded when
there are more than five to six customers to attend. Customers
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purchase drafts and other instruments from the very same counter
where utility bills are collected and cash is deposited and withdrawn.
Hence, if a new counter cannot be built due to certain limitations the
utility bills should be collected through a window so that the regular
customers do not face any problems.
II. Extended timings for Cash In order for the bank to progress and compete with the others
in the market, it should extend the time for accepting and
withdrawing cash. The customers face great hardship especially
when they come from far off places and find that the cash counter is
closed for the daily transactions.
7.4 BILLS AND CLEARING DEPARTMENT
The following suggestions are made for this Department
keeping in view the problems noted in it.
I. Career DevelopmentIt has been noted that the officers taking bills for clearing do
not involve themselves much with the other operations of the bank
and thus remain on the very same post and seat throughout their
banking career. This is against the modern day policies of
organizations giving their employees conducive, rewarding and
equal opportunities of prospering and growing with it. Thus, the
Human Resource Department at the Head Office should prepare a
plan that shows the future growth potential of the employees based
on their job performance and evaluation and make it known to all.
II. Job RotationThere should be job rotation of employees especially in this
department as it was felt that the employees here know quite less as
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compared to the others. This will enhance their capabilities and help
them break the monotony making them find their work more
interesting.
7.5 ADVANCES DEPARTMENT
There were certain drawbacks in the application and
processing for the loan requests that were observed at the branch.
The findings and the recommendations are as under
I. Proper DocumentationIf valid documents are not obtained before sanctioning the
loan limit, it becomes irrecoverable in case of default by the
borrower. It has been noted that at times the related officers oblige
the customer by letting him submit the documents later and
approving the limit by getting the Disbursement Authorization
Certificate from the Credit Committee. It proves to be very time and
resource consuming afterwards tracing the borrower to bring in the
documents. Therefore, correct and complete documents should be
attained before the amount is sanctioned and no leniency shown in
any case.
II. Computerized RecordAll the sanctioned cases should have record on the computer
as it is easy to access and does not involve the hassles of maintaining
and retrieving large and old files. For this purpose, training programs
should be organized for the Relationship Managers to enable them to
have a basic computer know how. Through this, they would also be
able to assess the financial position of the prospective borrower in
minutes by using related financial software.
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III. Verification of SecurityPhysical verification of the security tendered is a must rather
than to merely rely on the documents. It had been noted that where
the property to be hypothecated/ mortgaged lay in remote areas such
as the regular physical visits are avoided by the officers. This and the
above factors result in an increase in the non-performing loans of the
bank and as result UBL had more debts turned bad as compared to
the other banks. For this purpose, regular physical verification must
be conducted of securities pledged and hypothecated.
7.6 OTHER FINDINGS AND RECOMMENDATIONS
The following recommendations are for the bank as a whole
I. Development of Managerial LeadershipGood managerial skills make positive contribution towards
higher effective results. UBL should focus on the effective utilization
of its human resource by applying the modern style of management.
This can only be possible if political interferences are discouraged
especially when hiring and placing personnel and the recruitment
policies are changed to give preference to BBA students.
II. Tests for PromotionsA sizeable portion of the officers at UBL is promoted without
conducting any tests and interviews. This results in undeserving
people sitting on the managerial posts and steering the organization
away from its goals and objectives in the long run.
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III. Training for Credit ManagementSpecial trainings on credit management should be imparted to
the staff dealing in financing activities of the bank. This is very
important in light of current loan default scenario in the economy.
IV. Delegation of PowersDelegating powers to the Department in-charges up to the
greater possible extent will most certainly reduce the workload on
the managers and they would be able to perform well by taking quick
remedial actions where necessary. Besides, the spare time will be
spent dealing with matters of more important nature.
V. Research and Development DepartmentA Research and Development Department in UBL will help it
to adopt new procedures and modern techniques that will help the
bank to compete with the others. An R&DD should be maintained at
all the Hub Branches that would define the target market for the bank
in that particular area and through its findings suggest measures to
improve the performance of branches there.
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BIBLIOGRAPHY
Block Stanley B & Hirt Geoffrey A. (1998) Fundamentals of
Financial Management.
Earl, K Bowen. (1999). Basic Statistics for Business and
Economics. International Edition, (Pvt.) Ltd.
Edwin B Fillip (1998) Principles of Personnel Management,